Document:

EXHIBIT 10.22

                              REVOLVING CREDIT NOTE

$50,000,000                                                    December 12, 2000

         FOR VALUE RECEIVED,  the undersigned,  CORNERSTONE REALTY INCOME TRUST,
INC., a corporation  organized  under the laws of Virginia  ("Cornerstone")  and
CRIT-NC,  LLC, a limited  liability company organized under the laws of Virginia
("CRIT-NC" and together with  Cornerstone,  the "Borrowers")  hereby jointly and
severally promise to pay to the order of FIRST UNION NATIONAL BANK (the "Bank"),
at the times,  at the place and in the manner  provided in the Credit  Agreement
hereinafter  referred  to,  the  principal  sum of up to Fifty  Million  Dollars
($50,000,000),  or, if less, the aggregate  unpaid principal amount of all Loans
disbursed  by the Bank under the Credit  Agreement  referred to below,  together
with  interest at the rates as in effect from time to time with  respect to each
portion of the principal  amount  hereof,  determined and payable as provided in
Article IV of the Credit Agreement.

         This Note is the Note  referred to in, and is entitled to the  benefits
of, that  certain  Credit  Agreement  dated as of December 12, 2000 (the "Credit
Agreement"),  by and among the  Borrowers,  each  Additional  Borrower  that may
become  party  thereto,  the lenders  (including  the Bank) party  thereto  (the
"Lenders")  and  First  Union  National  Bank,  as  Administrative   Agent  (the
"Administrative  Agent").  The Credit  Agreement  contains,  among other things,
provisions  for the  time,  place  and  manner  of  payment  of this  Note,  the
determination  of the interest rate borne by and fees payable in respect of this
Note,  acceleration  of the payment of this Note upon the  happening  of certain
stated  events  and  the   mandatory   repayment  of  this  Note  under  certain
circumstances.

         The Borrowers agree to pay on demand all costs of collection, including
reasonable  attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.

         Presentment  for  payment,  notice of  dishonor,  protest and notice of
protest are hereby waived.

         THIS  NOTE IS MADE AND  DELIVERED  IN THE STATE OF NORTH  CAROLINA  AND
SHALL BE CONSTRUED IN  ACCORDANCE  WITH AND GOVERNED BY THE LAWS OF THE STATE OF
NORTH CAROLINA.

         The Debt  evidenced  by this Note is senior in right of  payment to all
Subordinated Debt referred to in the Credit Agreement.

<PAGE>

         IN WITNESS  WHEREOF,  the  Borrower has caused this Note to be executed
under  seal by a duly  authorized  officer  as of the day and year  first  above
written.

                                  CORNERSTONE REALTY INCOME TRUST, INC.

[CORPORATE SEAL]

                                  By:       /s/ Stanley J. Olander, Jr.
                                            ------------------------------------
                                  Name:     Stanley J. Olander, Jr.
                                            ------------------------------------
                                  Title:    Executive Vice President
                                            ------------------------------------

[CORPORATE SEAL]                  CRIT-NC, LLC

                                  By:     CORNERSTONE REALTY INCOME TRUST, INC.,
                                          its sole Member/Manager

                                          By: /s/ Stanley J. Olander, Jr.
                                              ----------------------------------
                                          Name:  Stanley J. Olander, Jr.
                                                 -------------------------------
                                          Title: Executive Vice President
                                                 -------------------------------

                                       2EXHIBIT 10.23

                                CREDIT AGREEMENT

         CREDIT AGREEMENT  ("Agreement"),  dated as of the 12th day of December,
2000 by and among CORNERSTONE REALTY INCOME TRUST, INC., a Virginia  corporation
("Cornerstone"),  CRIT-NC,  LLC,  a Virginia  limited  liability  company  and a
Subsidiary of Cornerstone ("CRIT-NC"),  each Additional Borrower that may become
party  to  this  Agreement   pursuant  to  the  terms  hereof  (the  "Additional
Borrowers", and collectively with Cornerstone and CRIT-NC, the "Borrowers"), the
Lenders  who are or may become a party to this  Agreement  (the  "Lenders")  and
FIRST  UNION  NATIONAL  BANK,  as  Administrative  Agent  for the  Lenders  (the
"Administrative Agent").

                              STATEMENT OF PURPOSE

         The  Borrowers  have  requested and the Lenders have agreed to extend a
credit facility to the Borrowers on the terms and conditions of this Agreement.

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

                                    ARTICLE I

                                   DEFINITIONS

         SECTION  1.1  Definitions.  The  following  terms  when  used  in  this
Agreement shall have the meanings assigned to them below:

         "Additional  Borrower" means each Subsidiary which hereafter  becomes a
Borrower pursuant to Section 8.17.

         "Adjusted  EBITDA"  means,  with  respect  to the  Borrowers  and their
Subsidiaries for any period, the following  calculated  without  duplication for
such period on a Consolidated basis in accordance with GAAP: (a) EBITDA for such
period less (b) the Unit Capital Expense Charge for such period.

         "Adjusted NOI" means, with respect the Borrowers and their Subsidiaries
for any  period,  the  amount  equal to (a) the sum of all  revenues  and income
received by the  Borrowers and their  Subsidiaries  with respect to the relevant
Property or Properties less (b) the sum of all reasonable and customary expenses
incurred  by the  Borrowers  and their  Subsidiaries  in the  operation  of such
Property  or  Properties,   including,  without  limitation,  utility  expenses,
property taxes,  insurance  premiums,  management fees and Capital  Expenditures
(but excluding depreciation, amortization and income taxes).

         "Adjusted  Unencumbered  Asset Cash Flow"  means,  with  respect to the
Borrowers  and their  Wholly-Owned  Subsidiaries  for any period,  the following
calculated without duplication for such

<PAGE>

period on a  Consolidated  basis in accordance  with GAAP: (a) the aggregate Net
Operating Income derived from all  Unencumbered  Assets for such period less (b)
the Unit Capital Expense Charge for such period.

         "Adjusted   Unencumbered  Asset  Value"  means,  with  respect  to  the
Borrowers and their  Wholly-Owned  Subsidiaries for any period,  the quotient of
the following  calculated without  duplication for such period on a Consolidated
basis in  accordance  with GAAP:  (a) (i) the  aggregate  Net  Operating  Income
derived from all Unencumbered  Assets, as determined on the date of computation,
for such  period  less (ii) the Unit  Capital  Expense  Charge  for such  period
divided  by (b) nine and  one-half  percent  (9.5%);  provided  that (i) for the
purposes  hereof,  Net  Operating  Income  as used in this  definition  shall be
calculated  on a pro forma  basis  (based  upon  Cornerstone's  best good  faith
estimate  as to  the  applicable  fiscal  quarter  and  in  form  and  substance
satisfactory to the Administrative Agent) to include as of the first day of such
period  all  Unencumbered  Assets  acquired  during  such  period,  (ii) for the
purposes of Section 9.5 hereof,  Net Operating Income as used in this definition
shall be calculated  for the applicable  fiscal quarter on an Annualized  basis;
and (iii) for purposes of determining  compliance with Section 9.5 hereof,  this
computation shall be done on a Property-by-Property  basis, and if the Borrowers
own, at the time of computation,  eight (8) or fewer  Unencumbered  Assets which
comply with the requirements of Section 9.7 hereof, then the portion, if any, of
any such  Unencumbered  Assets' Adjusted  Unencumbered  Asset Value in excess of
$25,000,000  will be excluded  for the purpose of  determining  compliance  with
Section 9.5 hereof.

         "Administrative   Agent"   means  First   Union  in  its   capacity  as
Administrative Agent hereunder,  and any successor thereto appointed pursuant to
Section 12.9.

         "Administrative  Agent's Office" means the office of the Administrative
Agent  specified in or determined in accordance  with the  provisions of Section
13.1.

         "Affiliate"  means, with respect to any Person, any other Person (other
than  a  Subsidiary)   which   directly  or  indirectly   through  one  or  more
intermediaries,  controls, or is controlled by, or is under common control with,
such first Person or any of its  Subsidiaries.  The term "control" means (a) the
power to vote  five  percent  (5%) or more of the  securities  or  other  equity
interests of a Person  having  ordinary  voting  power,  or (b) the  possession,
directly or  indirectly,  of any other power to direct or cause the direction of
the management  and policies of a Person,  whether  through  ownership of voting
securities, by contract or otherwise.

         "Aggregate  Commitment"  means the  aggregate  amount  of the  Lenders'
Commitments hereunder,  as such amount may be reduced or modified at any time or
from time to time  pursuant  to the  terms  hereof.  On the  Closing  Date,  the
Aggregate Commitment shall be Fifty Million Dollars ($50,000,000).

         "Agreement"  means  this  Credit  Agreement,   as  amended,   restated,
supplemented or otherwise modified from time to time.

                                       2
<PAGE>

         "Annualized"  means, with respect any financial term calculated for the
Borrowers  and  their  Subsidiaries  for  the  applicable  fiscal  quarter,  the
calculation of such financial term for such fiscal quarter times four (4).

         "Applicable  Law" means all  applicable  provisions  of  constitutions,
statutes,  laws,  rules,  treaties,  regulations and orders of all  Governmental
Authorities and all orders and decrees of all courts and arbitrators.

         "Applicable  Margin" shall have the meaning assigned thereto in Section
4.1(c).

         "Application"  means  an  application,  in the  form  specified  by the
Issuing  Lender  from time to time,  requesting  the  Issuing  Lender to issue a
Letter of Credit.

         "Assignment and Acceptance"  shall have the meaning assigned thereto in
Section 13.10.

         "Available  Commitment"  means, as to any Lender at any time, an amount
equal to (a) such  Lender's  Commitment  less (b) such  Lender's  Extensions  of
Credit.

         "Base Rate" means, at any time, the higher of (a) the Prime Rate or (b)
the  Federal  Funds Rate plus 1/2 of 1%; each change in the Base Rate shall take
effect simultaneously with the corresponding change or changes in the Prime Rate
or the Federal Funds Rate.

         "Base Rate Loan" means any Loan  bearing  interest at a rate based upon
the Base Rate as provided in Section 4.1(a).

         "Borrowers" means the collective reference to Cornerstone,  CRIT-NC and
any Additional Borrowers in their capacity as borrowers hereunder.

         "Business  Day" means (a) for all  purposes  other than as set forth in
clause (b)  below,  any day other than a  Saturday,  Sunday or legal  holiday on
which banks in Charlotte,  North  Carolina and New York,  New York, are open for
the conduct of their commercial  banking  business,  and (b) with respect to all
notices and  determinations  in connection  with,  and payments of principal and
interest on, any LIBOR Rate Loan,  any day that is a Business  Day  described in
clause  (a) and that is also a day for  trading by and  between  banks in Dollar
deposits in the London interbank market.

         "Capital  Asset"  means,  with  respect  to  the  Borrowers  and  their
Subsidiaries,  any asset that should, in accordance with GAAP, be classified and
accounted  for  as a  capital  asset  on a  Consolidated  balance  sheet  of the
Borrowers and their Subsidiaries.

         "Capital  Expenditures"  means, with respect to the Borrowers and their
Subsidiaries for any period, the aggregate cost of all expenditures required for
the leasing of space within the Properties  owned and  previously  leased by the
Borrowers and their Subsidiaries,  including, without limitation, upfit expenses
and  leasing   commissions,   together  with  expenses  for  the  renovation  or
improvement of existing  Properties that are classified as capital  expenditures
in accordance with GAAP.

                                       3
<PAGE>

         "Capital  Lease"  means,  with  respect  to  the  Borrowers  and  their
Subsidiaries, any lease of any property that should, in accordance with GAAP, be
classified and accounted for as a capital lease on a Consolidated  balance sheet
of the Borrowers and their Subsidiaries.

         "Change in Control" shall have the meaning  assigned thereto in Section
11.1(i).

         "Closing  Date" means the date of this Agreement or such later Business
Day upon which each  condition  described  in  Article V shall be  satisfied  or
waived in all respects in a manner  acceptable to the  Administrative  Agent, in
its sole discretion.

         "Code"  means  the  Internal  Revenue  Code of 1986,  and the rules and
regulations thereunder, each as amended or supplemented from time to time.

         "Commitment"  means, as to any Lender, the obligation of such Lender to
make  Loans to and issue or  participate  in  Letters  of Credit  issued for the
account of the Borrowers  hereunder in an aggregate principal amount at any time
outstanding  not to exceed the amount set forth  opposite  such Lender's name on
Schedule  1.1(a)  hereto,  as the same may be reduced or modified at any time or
from time to time pursuant to the terms hereof.

         "Commitment  Percentage" means, as to any Lender at any time, the ratio
of (a) the  amount  of the  Commitment  of  such  Lender  to (b)  the  Aggregate
Commitment of all of the Lenders.

         "Consolidated"  means, when used with reference to financial statements
or financial  statement  items of the  Borrowers  and their  Subsidiaries,  such
statements  or  items on a  consolidated  basis in  accordance  with  applicable
principles of consolidation under GAAP.

         "Contingent  Obligation" means, with respect to the Borrowers and their
Subsidiaries,  without duplication, any obligation,  contingent or otherwise, of
any such  Person  pursuant  to which such  Person  has  directly  or  indirectly
guaranteed  any  Debt or other  obligation  of any  other  Person  and,  without
limiting the generality of the foregoing,  any  obligation,  direct or indirect,
contingent or  otherwise,  of any such Person (a) to purchase or pay (or advance
or supply  funds for the  purchase or payment of) such Debt or other  obligation
(whether  arising by virtue of  partnership  arrangements,  by agreement to keep
well, to purchase assets, goods,  securities or services, to take-or-pay,  or to
maintain financial statement condition or otherwise) or (b) entered into for the
purpose  of  assuring  in any other  manner  the  obligee  of such Debt or other
obligation  of the payment  thereof or to protect such  obligee  against loss in
respect  thereof  (in  whole or in  part);  provided,  that the term  Contingent
Obligation  shall not  include  endorsements  for  collection  or deposit in the
ordinary course of business.

         "Cornerstone"  shall have the meaning  assigned thereto in the preamble
to this Agreement.

         "Credit  Facility"  means the  collective  reference  to the  Revolving
Credit Facility and the L/C Facility.

         "CRIT-NC"  shall have the meaning  assigned  thereto in the preamble to
this Agreement.

                                       4
<PAGE>

         "Debt" means,  with respect to the Borrowers and their  Subsidiaries at
any  date  and  without  duplication,  the sum of the  following  calculated  in
accordance  with GAAP: (a) all  liabilities,  obligations and  indebtedness  for
borrowed  money  including  but not limited to  obligations  evidenced by bonds,
debentures,  notes or other  similar  instruments  of any such  Person,  (b) all
obligations  to pay the deferred  purchase  price of property or services of any
such Person,  (c) all  obligations  of any such Person as lessee  under  Capital
Leases,  (d) all Debt of any other Person  secured by a Lien on any asset of any
such  Person,  (e)  all  Contingent  Obligations  of any  such  Person,  (f) all
obligations,  contingent or otherwise,  of any such Person  relative to the face
amount  of  letters  of  credit,  whether  or  not  drawn,  including,   without
limitation,  any Reimbursement  Obligation,  and banker's acceptances issued for
the account of any such Person, (g) all obligations  incurred by any such Person
pursuant to Hedging  Agreements and (h) the  Borrowers' and their  Subsidiaries'
Proportionate  Share of the Debt (as  defined in the  foregoing  clauses) of all
Ventures.

         "Default" means any of the events  specified in Section 11.1 which with
the  passage  of time,  the  giving  of notice  or any  other  condition,  would
constitute an Event of Default.

         "Dividends" means, with respect to the Borrowers and their Subsidiaries
for any period,  all  dividends  or  distributions  paid by any such Person with
respect to its capital stock.

         "Dollars" or "$" means, unless otherwise  qualified,  dollars in lawful
currency of the United States.

         "EBITDA"  means,  with respect to the Borrowers and their  Subsidiaries
for any period, the following, calculated without duplication for such period on
a  Consolidated  basis in accordance  with GAAP:  (a) Net Income for such period
plus (b) to the  extent  deducted  in  determining  Net  Income,  (i) income and
franchise taxes for such period,  (ii) Interest  Expense for such period,  (iii)
depreciation, amortization and other non-operating, non-cash charges (consisting
of amortization of goodwill,  transaction expenses, covenants not to compete and
other intangible assets) and (iv) extraordinary or other non-recurring losses or
expenses less (c) (i) extraordinary or other  non-recurring  gains or income and
(ii) equity in earnings of Affiliates  of the  Borrowers and their  Subsidiaries
(plus  equity in  losses of such  Persons),  plus (d) the  Borrowers'  and their
Subsidiaries'  Proportionate  Share  of  EBITDA  (as  defined  in the  foregoing
clauses) of all Ventures.

         "Eligible  Assignee"  means,  with  respect  to any  assignment  of the
rights,  interest and obligations of a Lender hereunder, a Person that is at the
time of such  assignment (a) a commercial  bank organized  under the laws of the
United  States or any state  thereof,  having  combined  capital  and surplus in
excess  of  $500,000,000,  (b) a finance  company,  insurance  company  or other
financial institution which in the ordinary course of business extends credit of
the  type   extended   hereunder   and  that  has  total  assets  in  excess  of
$1,000,000,000,  (c) already a Lender hereunder (whether as an original party to
this Agreement or as the assignee of another Lender), (d) the successor (whether
by transfer of assets,  merger or otherwise) to all or substantially  all of the
commercial  lending  business of the assigning  Lender,  or (e) any other Person
that has been  approved in writing as an Eligible  Assignee by the Borrowers and
the  Administrative  Agent (except that such approval shall not be required upon
the  occurrence  and during  the  continuance  of any Event of Default  Sections
11.1(a), (b), (j) or (k)).

                                       5
<PAGE>

         "Employee  Benefit  Plan" means any  employee  benefit  plan within the
meaning of Section 3(3) of ERISA which (a) is  maintained  for  employees of any
Borrower any ERISA Affiliate or (b) has at any time within the preceding six (6)
years been maintained for the employees of any Borrower or any current or former
ERISA Affiliate.

         "Environmental  Laws" means any and all federal,  state and local laws,
statutes,   ordinances,   rules,  regulations,   permits,  licenses,  approvals,
interpretations  and orders of courts or Governmental  Authorities,  relating to
the protection of human health or the  environment,  including,  but not limited
to, requirements pertaining to the manufacture,  processing,  distribution, use,
treatment, storage, disposal,  transportation,  handling, reporting,  licensing,
permitting, investigation or remediation of Hazardous Materials.

         "Equity  Issuance"  means any  issuance  by any  Borrower or any of its
Subsidiaries  of (a)  shares  of its  capital  stock or other  equity  interests
(including, without limitation,  participation units), (b) shares of its capital
stock or other equity interests  (including,  without limitation,  participation
units)  pursuant to the  exercise of options or  warrants,  or (c) shares of its
capital  stock  or  other  equity  interests  (including,   without  limitation,
participation  units)  pursuant  to the  conversion  of any debt  securities  to
equity.

         "ERISA" means the Employee  Retirement Income Security Act of 1974, and
the rules and regulations  thereunder,  each as amended or modified from time to
time.

         "ERISA  Affiliate"  means any Person who together  with any Borrower is
treated as a single employer  within the meaning of Section 414(b),  (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.

         "Eurodollar  Reserve  Percentage"  means,  for any day, the  percentage
(expressed as a decimal and rounded  upwards,  if necessary,  to the next higher
1/100th  of 1%) which is in effect  for such day as  prescribed  by the  Federal
Reserve Board (or any successor) for determining the maximum reserve requirement
(including without limitation any basic,  supplemental or emergency reserves) in
respect of Eurocurrency liabilities or any similar category of liabilities for a
member bank of the Federal Reserve System in New York City.

         "Event of Default"  means any of the events  specified in Section 11.1,
provided  that any  requirement  for passage of time,  giving of notice,  or any
other condition, has been satisfied.

         "Extensions of Credit"  means,  as to any Lender at any time, an amount
equal to the sum of (a) the aggregate principal amount of all Loans made by such
Lender then outstanding and (b) the aggregate  principal amount of such Lender's
Commitment Percentage of the L/C Obligations then outstanding.

         "FDIC"  means  the  Federal  Deposit  Insurance  Corporation,   or  any
successor thereto.

         "Federal  Funds Rate" means,  the rate per annum (rounded  upwards,  if
necessary,  to the next higher 1/100th of 1%)  representing  the daily effective
federal  funds  rate as quoted by the  Administrative  Agent  and  confirmed  in
Federal Reserve Board Statistical Release H.15 (519) or any

                                       6
<PAGE>

successor or substitute  publication  selected by the Administrative  Agent. If,
for any reason, such rate is not available, then "Federal Funds Rate" shall mean
a daily rate which is determined, in the opinion of the Administrative Agent, to
be the rate at which  federal  funds are being  offered for sale in the national
federal  funds  market at 9:00 a.m.  (Charlotte  time).  Rates for  weekends  or
holidays shall be the same as the rate for the most immediate preceding Business
Day.

         "First  Union"  means First Union  National  Bank,  a national  banking
association, and its successors.

         "Fiscal  Year"  means  the  fiscal  year  of the  Borrowers  and  their
Subsidiaries ending on December 31.

         "Fixed  Charges"  means,  with  respect  to  the  Borrowers  and  their
Subsidiaries for any period, the sum of the following for such period calculated
on a Consolidated  basis in accordance  with GAAP: (a) Interest  Expense paid or
payable  during  such  period,  (b) income and  franchise  taxes paid or payable
during such period, (c) the scheduled principal payments during such period with
respect to any Debt  including the Borrowers'  and  Subsidiaries'  Proportionate
Share of Debt of all Ventures  (regardless  of whether such amounts are actually
paid),  and (d) the total  amount of  Dividends  paid or accrued with respect to
preferred  stock (to the extent such Dividends are permitted by this  Agreement)
during such period, and (e) the Borrowers' and their Subsidiaries' Proportionate
Share of the total  amount of any  distributions  which  are  paid,  payable  or
accrued  with  respect  to  all  Ventures  and  which  has  a  preference   over
distributions  paid, payable or accruing in favor of the applicable  Borrower or
Subsidiary.

         "Funds from Operations"  means, with respect to the Borrowers and their
Subsidiaries  for any period,  all Funds from  Operations  (as defined as of the
date of such determination by the Board of Governors of the National Association
of Real Estate Investment Trusts).

         "GAAP" means generally accepted accounting principles, as recognized by
the  American  Institute  of  Certified  Public  Accountants  and the  Financial
Accounting Standards Board,  consistently applied and maintained on a consistent
basis for the Borrowers and their  Subsidiaries  throughout the period indicated
and  consistent  with the prior  financial  practice of the  Borrowers and their
Subsidiaries.

         "Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of,  registrations and filings with, and reports to, all
Governmental Authorities.

         "Governmental Authority" means any nation, province, state or political
subdivision  thereof,  and any  government or any Person  exercising  executive,
legislative,   regulatory  or  administrative  functions  of  or  pertaining  to
government,  and any  corporation or other entity owned or  controlled,  through
stock or capital ownership or otherwise, by any of the foregoing.

         "Hazardous  Materials"  means any substances or materials (a) which are
or  become  defined  as  hazardous  wastes,  hazardous  substances,  pollutants,
contaminants,  chemical  substances  or mixtures or toxic  substances  under any
Environmental  Law,  (b)  which  are  toxic,  explosive,  corrosive,  flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to

                                       7
<PAGE>

human health or the environment and are or become  regulated by any Governmental
Authority,  (c) the presence of which require investigation or remediation under
any Environmental Law or common law, (d) the discharge or emission or release of
which  requires  a  permit  or  license  under  any  Environmental  Law or other
Governmental Approval, (e) which are deemed to constitute a nuisance, a trespass
or pose a health or safety  hazard to persons  or  neighboring  properties,  (f)
which are materials  consisting of  underground  or  aboveground  storage tanks,
whether  empty,  filled or  partially  filled with any  substance,  or (g) which
contain,  without  limitation,   asbestos,   polychlorinated   biphenyls,   urea
formaldehyde  foam  insulation,   petroleum   hydrocarbons,   petroleum  derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.

         "Hedging  Agreement"  means any  agreement  with respect to an interest
rate swap,  collar,  cap, floor or a forward rate  agreement or other  agreement
regarding the hedging of interest rate risk exposure executed in connection with
hedging the interest rate exposure of any Borrower under this Agreement, and any
confirming letter executed pursuant to such hedging  agreement,  all as amended,
restated, supplemented or otherwise modified.

         "Interest  Expense"  means,  with  respect to the  Borrowers  and their
Subsidiaries  for any period,  the gross interest  expense  (including,  without
limitation,  capitalized  and  accrued  interest  expense and  interest  expense
attributable  to Capital  Leases  and all net  obligations  pursuant  to Hedging
Agreements  and  interest  expense  attributable  to the  Borrowers'  and  their
Subsidiaries'  Proportionate Share of Debt of all Ventures) of the Borrowers and
their  Subsidiaries,  determined  for such  period  on a  Consolidated  basis in
accordance with GAAP.

         "Interest  Period" shall have the meaning  assigned  thereto in Section
4.1(b).

         "Issuing  Lender"  means First  Union,  in its capacity as issue of any
Letter of Credit, or any successor thereto.

         "Joinder  Agreement"  means  each  Joinder  Agreement  executed  by  an
Additional  Borrower  pursuant  to Section  8.17,  substantially  in the form of
Exhibit I attached hereto, as amended,  supplemented or otherwise  modified from
time to time.

         "L/C  Commitment"  means Seven  Million Five Hundred  Thousand  Dollars
($7,500,000).

         "L/C Facility" means the letter of credit facility established pursuant
to Article III hereof.

         "L/C Obligations"  means at any time, an amount equal to the sum of (a)
the aggregate  undrawn and unexpired amount of the then  outstanding  Letters of
Credit and (b) the  aggregate  amount of drawings  under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.

         "L/C  Participants"  means the collective  reference to all the Lenders
other than the Issuing Lender.

                                       8
<PAGE>

         "Lender"  means each Person  executing  this  Agreement as a Lender set
forth on the  signature  pages hereto and each Person that  hereafter  becomes a
party to this Agreement as a Lender pursuant to Section 13.10.

         "Lending Office" means, with respect to any Lender,  the office of such
Lender maintaining such Lender's Commitment Percentage of the Loans.

         "Letters of Credit" shall have the meaning  assigned thereto in Section
3.1(a).

         "Leverage Ratio" means the ratio determined pursuant to Section 9.1.

         "LIBOR"  means the rate for  deposits in Dollars for a period  equal to
the  Interest  Period  selected  which  appears  on the  Telerate  Page  3750 at
approximately  11:00  a.m.  London  time,  two (2)  Business  Days  prior to the
commencement of the applicable Interest Period. If, for any reason, such rate is
not  available,  then  "LIBOR"  shall  mean  the rate per  annum  at  which,  as
determined by the Administrative  Agent, Dollars in the amount of $5,000,000 are
being offered to leading banks at approximately  11:00 a.m. London time, two (2)
Business Days prior to the  commencement  of the applicable  Interest Period for
settlement  in  immediately  available  funds by  leading  banks  in the  London
interbank market for a period equal to the Interest Period selected.

         "LIBOR Rate" means a rate per annum (rounded upwards, if necessary,  to
the next higher 1/100th of 1%) determined by the  Administrative  Agent pursuant
to the following formula:

         LIBOR Rate =                      LIBOR
                            ----------------------------------
                            1.00-Eurodollar Reserve Percentage

         "LIBOR Rate Loan" means any Loan bearing  interest at a rate based upon
the LIBOR Rate as provided in Section 4.1(a).

         "Lien" means,  with respect to any asset, any mortgage,  lien,  pledge,
charge,  security  interest or encumbrance of any kind in respect of such asset.
For the  purposes of this  Agreement,  any asset which a Person has  acquired or
holds subject to the interest of a vendor or lessor under any  conditional  sale
agreement,  Capital Lease or other title  retention  agreement  relating to such
asset shall be deemed to be subject to a Lien.

         "Loan"  means any  revolving  loan  made to any  Borrower  pursuant  to
Section 2.1, and all such Loans collectively as the context requires.

         "Loan Documents" means,  collectively,  this Agreement,  the Notes, any
Hedging Agreement  executed by any Lender,  and each other document,  instrument
and agreement executed and delivered by any Borrower,  any Subsidiary thereof or
their  counsel  in  connection  with  this  Agreement,  all as  may be  amended,
restated, supplemented or otherwise modified.

         "Material Adverse Effect" means, with respect to any Borrower or any of
its  Subsidiaries,  a  material  adverse  effect  on the  properties,  business,
prospects,  operations or condition (financial or otherwise) of any such Person,
the ability of any such Person to perform its obligations under the

                                       9
<PAGE>

Loan Documents or Material  Contracts,  in each case to which it is a party,  or
the ability of the Administrative  Agent or any Lender to enforce its respective
rights and remedies under the Loan Documents.

         "Material  Contract" means (a) any single contract or other  agreement,
written or oral, of any Borrower or any of its Subsidiaries  involving  monetary
liability  of or to any such  Person in an amount  in excess of  $1,000,000  per
annum,  or (b) any other single  contract or agreement,  written or oral, of any
Borrower  or any of its  Subsidiaries  the  failure to comply  with which  could
reasonably be expected to have a Material Adverse Effect.

         "Maturity Date" means December 12, 2002.

         "Moody's" means Moody's Investors Service, Inc., and its successors and
assigns.

         "Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which any Borrower or any ERISA  Affiliate is making,  or
is accruing an obligation to make, contributions within the preceding six years.

         "Multifamily  Properties"  means  (i)  any  apartment  Project  of  any
Borrower  or any  Subsidiary  thereof  comprised  of no  less  than  fifty  (50)
individual  units which Project can be operated as a single  residential  rental
facility without necessity for sharing amenities (i.e., leasing offices,  tennis
courts,  swimming pools and the like) with any other residential rental facility
and (ii) any apartment  Project of any Borrower or any Subsidiary  thereof which
Project can be operated as a single  residential  rental facility as a result of
the sharing of amenities (i.e., leasing offices,  tennis courts,  swimming pools
and the like) with any other adjoining  apartment Project of any Borrower or any
Subsidiary thereof.

         "Net Equity Proceeds" means,  with respect to any Equity Issuance,  the
gross cash proceeds received by any Borrower or any Subsidiary  thereof less all
legal,   underwriting  and  other  reasonable  fees  and  expenses  incurred  in
connection therewith.

         "Net  Income"   means,   with  respect  to  the   Borrowers  and  their
Subsidiaries for any period, the net income (or loss) for such period determined
on a Consolidated  basis in accordance  with GAAP;  provided that there shall be
excluded  from net  income  (or  loss):  (a) the  income (or loss) of any Person
(other than a  Subsidiary  of such Person) in which such Person has an ownership
interest  unless  received  by such  Person in a cash  distribution  and (b) the
income  (or  loss)  of any such  Person  accrued  prior to the date it  became a
Subsidiary or is merged into or consolidated with such first Person.

         "Net Operating  Income" means,  with respect to the Borrowers and their
Wholly-Owned Subsidiaries for any period, the following calculated in accordance
with  GAAP:  (a) the gross  revenues  of the  Borrowers  and their  Wholly-Owned
Subsidiaries  derived from  Multifamily  Properties less (b) operating  expenses
(including,  without  limitation,  property taxes and insurance expenses) of the
Borrowers  and  their  Wholly-Owned  Subsidiaries  attributable  to  Multifamily
Properties  less (c)  management  fees of the Borrowers  and their  Wholly-Owned
Subsidiaries attributable to Multifamily Properties.

                                       10
<PAGE>

         "Notes" means the separate Revolving Credit Notes made by the Borrowers
payable  to the order of each  Lender,  substantially  in the form of  Exhibit A
hereto,  evidencing  the  Revolving  Credit  Facility,  and any  amendments  and
modifications   thereto,  any  substitutes   therefor,   and  any  replacements,
restatements,  renewals or extension thereof,  in whole or in part; "Note" means
any of such Notes.

         "Notice of Account Designation" shall have the meaning assigned thereto
in Section 2.2(b).

         "Notice  of  Borrowing"  shall  have the  meaning  assigned  thereto in
Section 2.2(a).

         "Notice of  Conversion/Continuation"  shall have the  meaning  assigned
thereto in Section 4.2.

         "Notice of  Prepayment"  shall  have the  meaning  assigned  thereto in
Section 2.3(c).

         "Obligations"  means,  in  each  case,  whether  now  in  existence  or
hereafter  arising:  (a) the  principal of and interest on  (including  interest
accruing after the filing of any bankruptcy or similar  petition) the Loans, (b)
the L/C Obligations, (c) all payment and other obligations owing by any Borrower
to any Lender or the  Administrative  Agent under any Hedging Agreement executed
pursuant to Section  10.1(b) to which a Lender is a party and (d) all other fees
and commissions  (including  attorneys'  fees),  charges,  indebtedness,  loans,
liabilities,  financial accommodations,  obligations, covenants and duties owing
by any  Borrower  to the  Lenders or the  Administrative  Agent,  of every kind,
nature and description,  direct or indirect,  absolute or contingent,  due or to
become due, contractual or tortious, liquidated or unliquidated,  and whether or
not evidenced by any note,  and whether or not for the payment of money under or
in respect of this Agreement, any Note or any of the other Loan Documents.

         "Officer's  Compliance  Certificate"  shall have the  meaning  assigned
thereto in Section 7.2.

         "Other  Taxes"  shall  have the  meaning  assigned  thereto  in Section
4.11(b).

         "PBGC" means the Pension Benefit Guaranty  Corporation or any successor
agency.

         "Pension  Plan"  means  any  Employee   Benefit  Plan,   other  than  a
Multiemployer  Plan,  which is subject to the provisions of Title IV of ERISA or
Section  412 of the  Code and  which  (a) is  maintained  for  employees  of any
Borrower or any ERISA Affiliates or (b) has at any time within the preceding six
years been  maintained for the employees of any Borrower or any of their current
or former ERISA Affiliates.

         "Person" means an individual,  limited liability company,  corporation,
partnership,  association,  trust,  business trust,  joint venture,  joint stock
company,  pool,  syndicate,  sole proprietorship,  unincorporated  organization,
Governmental Authority or any other form of entity or group thereof.

                                       11
<PAGE>

         "Prime  Rate"  means,  at any  time,  the rate of  interest  per  annum
publicly  announced  from time to time by First  Union as its prime  rate.  Each
change in the Prime Rate shall be effective as of the opening of business on the
day such change in the Prime Rate occurs.  The parties hereto  acknowledge  that
the rate announced publicly by First Union as its Prime Rate is an index or base
rate and shall  not  necessarily  be its  lowest  or best  rate  charged  to its
customers or other banks.

         "Pro Forma Debt  Service"  shall mean an amount  equal to the pro forma
principal and interest  payments on the Total Unsecured Debt as calculated based
on a twenty (20) year  amortization  schedule and an interest  rate equal to the
greater  of: (i) the then  prevailing  interest  rate on the  Treasury  Note (as
determined  by  Administrative  Agent)  plus 2.00% per annum;  or (ii) seven and
one-half percent (7.50%) per annum.

         "Projects" or "Properties"  means all real property,  together with all
improvements  thereon,  owned by the  Borrowers  or any of  their  Subsidiaries;
"Project" or "Property" means any of such Projects or Properties.

         "Proportionate  Share" means with respect to the allocation of any item
to a Borrower or a  Subsidiary  from a Venture,  the amount of such item for the
period in  question  so  allocated  to such  Borrower  or  Subsidiary  under the
governing  documents of such  Venture,  or if such  documents  are silent or are
overridden by Applicable Law then the amount so allocated pursuant to Applicable
Law.

         "Register" shall have the meaning assigned thereto in Section 13.10(d).

         "Reimbursement  Obligation"  means the  obligation  of the Borrowers to
reimburse  the Issuing  Lender  pursuant to Section 3.5 for amounts  drawn under
Letters of Credit.

         "Required Lenders" means, at any date, any combination of holders of at
least  sixty-six  and  two-thirds  percent  (66-2/3%)  of the  aggregate  unpaid
principal amount of the Notes, or if no amounts are outstanding under the Notes,
any  combination  of Lenders  whose  Commitment  Percentages  aggregate at least
sixty-six and two-thirds percent (66-2/3%).

         "Revolving   Credit  Facility"  means  the  revolving  credit  facility
extended pursuant to Article II hereof.

         "Shareholder's  Equity" means,  with respect to the Borrowers and their
Subsidiaries,  at any date, the shareholders'  equity (including  capital stock,
additional  paid-in  capital and retained  earnings,  after  deducting  treasury
stock) of such Persons on such date determined in accordance with GAAP.

         "Solvent"  means,  as to any  Borrower or any  Subsidiary  thereof on a
particular date, that any such Person (a) has capital sufficient to carry on its
business and transactions and all business and transactions in which it is about
to engage and is able to pay its debts as they mature,  (b) owns property having
a value, both at fair valuation and at present fair saleable value, greater than
the amount required to pay its probable liabilities  (including  contingencies),
and (c) does not  believe  that it will incur  debts or  liabilities  beyond its
ability to pay such debts or liabilities as they mature.

                                       12
<PAGE>

         "Standard & Poor's" means  Standard & Poor's  Ratings Group, a Division
of McGraw-Hill Corporation, and its successors and assigns.

         "Subordinated Debt" means the collective  reference to Debt on Schedule
6.1(r) hereof designated as Subordinated Debt and any other Debt of any Borrower
or any Subsidiary  subordinated  in right and time of payment to the Obligations
on terms satisfactory to the Required Lenders.

         "Subsidiary"  means as to any Person,  any corporation,  partnership or
other entity of which more than fifty percent (50%) of the  outstanding  capital
stock or other  ownership  interests  having  ordinary  voting  power to elect a
majority  of the  board of  directors  or other  managers  of such  corporation,
partnership or other entity is at the time, directly or indirectly,  owned by or
the management is otherwise  controlled by such Person (irrespective of whether,
at the time,  capital  stock of any other  class or classes of such  corporation
shall  have or  might  have  voting  power by  reason  of the  happening  of any
contingency).   Unless  otherwise   qualified   references  to  "Subsidiary"  or
"Subsidiaries" herein shall refer to those of the Borrowers.

         "Taxes" shall have the meaning assigned thereto in Section 4.11(a).

         "Termination  Date"  means the  earliest  of the dates  referred  to in
Section 2.6.

         "Termination  Event"  means:  (a) a  "Reportable  Event"  described  in
Section  4043 of  ERISA,  or (b) the  withdrawal  of any  Borrower  or any ERISA
Affiliate  from a Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (c) the termination of a
Pension  Plan,  the filing of a notice of intent to  terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate, or the appointment of
a trustee with respect to, any Pension Plan by the PBGC,  or (e) any other event
or condition which would  constitute  grounds under Section 4042(a) of ERISA for
the termination  of, or the appointment of a trustee to administer,  any Pension
Plan,  or (f) the partial or complete  withdrawal  of any  Borrower or any ERISA
Affiliate from a Multiemployer Plan, or (g) the imposition of a Lien pursuant to
Section 412 of the Code or Section 302 of ERISA,  or (h) any event or  condition
which results in the  reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA,  or (i) any event or condition  which results in
the  termination  of a  Multiemployer  Plan under  Section 4041A of ERISA or the
institution  by PBGC of  proceedings  to  terminate a  Multiemployer  Plan under
Section 4042 of ERISA.

         "Total  Construction  in Progress  Value"  means,  with  respect to the
Borrowers and their  Subsidiaries on any date of  determination,  the aggregate,
good  faith  estimated  cost of  construction  (including,  without  limitation,
acquisition costs for the applicable  Properties) for Properties during the time
period  from the date  which site work has been  initiated  to the date which is
three (3) months after a  certificate  of occupancy  has been issued.  The Total
Construction  in Progress Value shall include for purposes  hereof the foregoing
items with respect to apartment  projects  owned by Ventures  multiplied  by the
same percentage  used in determining  the applicable  Borrower's or Subsidiary's
Proportionate Share of EBITDA of such Venture but shall not include

                                       13
<PAGE>

rehabilitation/redevelopment  costs  associated with existing  Properties  which
have an average  occupancy  rate during the  applicable  period of greater  than
sixty percent (60%).

         "Total  Funded Debt" means,  with  respect to the  Borrowers  and their
Subsidiaries  at any  date and  without  duplication,  the sum of the  following
calculated  in  accordance  with  GAAP:  (a) all  liabilities,  obligations  and
indebtedness  for  borrowed  money  including,  but not limited to,  obligations
evidenced by bonds,  debentures,  notes or other similar instruments of any such
Person,  (b) all  obligations to pay the deferred  purchase price of property or
services of any such  Person,  except  trade  payables  arising in the  ordinary
course of business  not more than ninety  (90) days past due,  accrued  expenses
arising in the ordinary course of business, security deposits and rents received
in  advance,  (c) all  obligations  of any such Person as lessee  under  Capital
Leases,  (d) all Debt of any other Person  secured by a Lien on any asset of any
such  Person,  (e)  all  Contingent  Obligations  of any  such  Person,  (f) all
obligations,  contingent or otherwise,  of any such Person  relative to the face
amount of  letters  of credit,  whether  or not drawn and  banker's  acceptances
issued for the  account of any such  Person,  and (g) the  Borrowers'  and their
Subsidiaries' Proportionate Share of the foregoing items of all Ventures.

         "Total  Implied  Capitalization  Value"  means,  with  respect  to  the
Borrowers and their Subsidiaries for any fiscal quarter,  an amount equal to (a)
the EBITDA of the Borrowers and their  Subsidiaries for such period  (calculated
on an  Annualized  basis) less the Unit Capital  Expense  Charge for such fiscal
quarter divided by (b) nine and one-half percent (9.50%) plus (c) as of the last
day  of  the  fiscal  quarter,   cash  proceeds  held  by  Borrowers  and  their
Subsidiaries  resulting from the sale of any  Properties;  provided that for the
purposes  hereof,  EBITDA shall be  calculated  on a pro forma basis (based upon
Cornerstone's  best good faith estimate as to the applicable  fiscal quarter and
in form and substance  satisfactory to the Administrative  Agent) to include, as
of the first day of such period, all Properties  acquired during such period and
to exclude,  as of the first day of such period, all Properties sold during such
period.

         "Total  Secured  Debt" means the  aggregate  principal  amount of Total
Funded Debt  secured by a Lien on any assets of any  Borrower or any  Subsidiary
thereof or any  Venture,  and as to which the only  recourse  which the  lenders
thereof have for the payment of principal and interest is to the specific assets
upon which the Liens have been placed.

         "Total  Unsecured Debt" means the aggregate  principal  amount of Total
Funded  Debt  not  secured  by a Lien  on any  assets  of  any  Borrower  or any
Subsidiary thereof.

         "Treasury Note" means the most recently  auctioned  10-year note issued
by the United States Department of the Treasury.

         "Uniform  Customs" the Uniform  Customs and  Practice  for  Documentary
Credits (1994 Revision), International Chamber of Commerce Publication No. 500.

         "UCC"  means the Uniform  Commercial  Code as in effect in the State of
North Carolina.

         "Unencumbered  Assets"  means,  with respect to the Borrowers and their
Wholly-Owned Subsidiaries, all Multifamily Properties which (i) are wholly owned
by any Borrower or any of its

                                       14
<PAGE>

Wholly-Owned  Subsidiaries,  (ii) are not secured or otherwise encumbered by any
Lien, and (iii) are at least eighty percent (80%) occupied  (provided  that, for
the purpose of this clause (iii),  (A)  Properties  shall be required to be only
sixty percent (60%) occupied if such  Properties  have been acquired  within the
six (6) month  period  prior to the  applicable  date of  determination  and (B)
Properties  shall be required to be only seventy  percent (70%) occupied if such
Properties  have been  acquired  within  the six (6) month to twelve  (12) month
period prior to the applicable date of determination).

         "Unencumbered Asset Coverage Ratio" means the ratio determined pursuant
to Section 9.5.

         "Unit" means each  individual  rental  residential  apartment  within a
Multifamily Property.

         "Unit Capital Expense Charge" means,  with respect to the Borrowers and
their Subsidiaries for any period, an annual recurring capital expense charge of
$225 per Unit based on the  average  number of Units held in each such  Person's
portfolio during such period.  With respect to any calculation for a period less
than one (1) year, such expense charge of $225 per Unit shall be calculated on a
pro rata basis based upon the applicable time period.

         "United States" means the United States of America.

         "Venture"  means any entity in which any  Borrower or  Subsidiary  of a
Borrower  owns a beneficial  interest  and such entity is  accounted  for in the
financial  statements  of such  Borrower  or  Subsidiary  on an equity  basis of
accounting and whose financial results would not be consolidated under GAAP with
the  financial  results  of  any  Borrower  or  Subsidiary  of  Borrower  on the
consolidated financial statements of any Borrower or Subsidiary of Borrower.

         "Wholly-Owned" means, with respect to a Subsidiary, a Subsidiary all of
the shares of capital stock or other ownership  interests of which are, directly
or  indirectly,  owned or controlled  by any Borrower  and/or one or more of its
Wholly-Owned Subsidiaries.

         SECTION 1.2 General.  Unless otherwise  specified,  a reference in this
Agreement  to  a  particular  section,  subsection,  Schedule  or  Exhibit  is a
reference to that section,  subsection,  Schedule or Exhibit of this  Agreement.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the  masculine,  feminine or neuter  gender  shall  include the  masculine,  the
feminine and the neuter. Any reference herein to "Charlotte time" shall refer to
the applicable time of day in Charlotte, North Carolina.

         SECTION 1.3 Other Definitions and Provisions.

         (a) Use of Capitalized  Terms.  Unless otherwise  defined therein,  all
capitalized terms defined in this Agreement shall have the defined meanings when
used  in  this  Agreement,  the  Notes  and  the  other  Loan  Documents  or any
certificate,  report  or  other  document  made or  delivered  pursuant  to this
Agreement.

                                       15
<PAGE>

         (b)  Miscellaneous.  The words  "hereof",  "herein" and "hereunder" and
words  of  similar  import  when  used in this  Agreement  shall  refer  to this
Agreement as a whole and not to any particular provision of this Agreement.

                                   ARTICLE II

                            REVOLVING CREDIT FACILITY

         SECTION 2.1 Revolving Credit Loans. Subject to the terms and conditions
of this Agreement,  each Lender  severally agrees to make Loans to the Borrowers
on a joint and several basis from time to time from the Closing Date through the
Termination  Date as  requested  by  Cornerstone  on behalf of the  Borrowers in
accordance  with the terms of  Section  2.2;  provided,  that (a) the  aggregate
principal  amount of all  outstanding  Loans (after  giving effect to any amount
requested)  shall not exceed the Aggregate  Commitment  less the L/C Obligations
and (b) the  principal  amount  of  outstanding  Loans  from any  Lender  to the
Borrowers  shall  not at any  time  exceed  such  Lender's  Commitment  less the
aggregate  principal  amount of such Lender's  Commitment  Percentage of the L/C
Obligations.  Each Loan by a Lender shall be in a principal amount equal to such
Lender's  Commitment  Percentage  of the  aggregate  principal  amount  of Loans
requested on such  occasion.  Subject to the terms and  conditions  hereof,  the
Borrowers may borrow,  repay and reborrow Loans  hereunder until the Termination
Date.

         SECTION 2.2 Procedure for Advances of Loans.

         (a) Requests for  Borrowing.  Cornerstone,  on behalf of the Borrowers,
shall give the Administrative Agent irrevocable prior written notice in the form
attached hereto as Exhibit B (a "Notice of Borrowing") not later than 11:00 a.m.
(Charlotte  time) (i) at least one (1)  Business  Day before each Base Rate Loan
and (ii) at least three (3)  Business  Days before each LIBOR Rate Loan,  of its
intention to borrow, specifying (A) the date of such borrowing, which shall be a
Business Day, (B) the amount of such borrowing,  which shall be (x) with respect
to Base Rate Loans in an aggregate  principal  amount of  $2,000,000  or a whole
multiple of $100,000 in excess  thereof and (y) with respect to LIBOR Rate Loans
in an aggregate  principal  amount of $2,000,000 or a whole multiple of $100,000
in excess thereof, (C) whether the Loans are to be LIBOR Rate Loans or Base Rate
Loans,  and (D) in the case of a LIBOR Rate Loan,  the  duration of the Interest
Period applicable  thereto.  Notices received after 11:00 a.m.  (Charlotte time)
shall be deemed  received on the next  Business  Day. The  Administrative  Agent
shall  notify the Lenders of each Notice of  Borrowing  not later than 5:00 p.m.
(Charlotte  time) on the Business Day the  Administrative  Agent  receives  such
Notice of Borrowing.

         (b) Disbursement of Loans. Not later than 2:00 p.m. (Charlotte time) on
the  proposed   borrowing   date,   each  Lender  will  make  available  to  the
Administrative  Agent,  for the account of the  Borrowers,  at the office of the
Administrative Agent in funds immediately available to the Administrative Agent,
such Lender's  Commitment  Percentage of the Loans to be made on such  borrowing
date. The Borrowers hereby  irrevocably  authorize the  Administrative  Agent to
disburse the proceeds of each borrowing  requested  pursuant to this Section 2.2
in  immediately  available  funds by  crediting  or wiring such  proceeds to the
deposit account of the Borrowers identified in the

                                       16
<PAGE>

most recent Notice of Account Designation substantially in the form of Exhibit G
hereto (a "Notice of Account  Designation")  delivered  by the  Borrowers to the
Administrative  Agent or may be otherwise  agreed upon by the  Borrowers and the
Administrative  Agent  from time to time.  Subject to Section  4.7  hereof,  the
Administrative  Agent  shall not be  obligated  to  disburse  the portion of the
proceeds of any Loan  requested  pursuant to this Section 2.2 to the extent that
any Lender has not made  available to the  Administrative  Agent its  Commitment
Percentage of such Loan.

         SECTION 2.3 Repayment of Loans.

         (a)  Repayment  on  Termination  Date.  The  Borrowers  shall repay the
outstanding principal amount of all Loans in full, together with all accrued but
unpaid interest thereon, on the Termination Date.

         (b) Mandatory Repayment of Excess Loans. If at any time the outstanding
principal  amount of all Loans  exceeds the  Aggregate  Commitment  less the L/C
Obligations,  the  Borrowers  shall  repay  immediately  upon  notice  from  the
Administrative  Agent, by payment to the Administrative Agent for the account of
the Lenders,  the Loans in an amount equal to such excess.  Each such  repayment
shall be accompanied  by any amount  required to be paid pursuant to Section 4.9
hereof.

         (c) Optional Repayments. The Borrowers may at any time and from time to
time  repay the Loans,  in whole or in part,  upon at least  three (3)  Business
Days' irrevocable notice to the Administrative  Agent with respect to LIBOR Rate
Loans and one (1)  Business  Day  irrevocable  notice with  respect to Base Rate
Loans,  in the form  attached  hereto as Exhibit C (a  "Notice  of  Prepayment")
specifying  the date and amount of  repayment  and whether the  repayment  is of
LIBOR Rate  Loans,  Base Rate  Loans,  or a  combination  thereof,  and, if of a
combination  thereof, the amount allocable to each. Upon receipt of such notice,
the  Administrative  Agent shall promptly notify each Lender. If any such notice
is given,  the amount  specified  in such notice shall be due and payable on the
date set  forth in such  notice.  Partial  repayments  shall be in an  aggregate
amount of  $1,000,000  or a whole  multiple of $100,000 in excess  thereof  with
respect to Base Rate Loans and  $1,000,000  or a whole  multiple  of $100,000 in
excess thereof with respect to LIBOR Rate Loans.  Each such  repayment  shall be
accompanied by any amount required to be paid pursuant to Section 4.9 hereof.

         (d) Limitation on Repayment of LIBOR Rate Loans.  The Borrowers may not
repay any LIBOR Rate Loan on any day other than on the last day of the  Interest
Period  applicable  thereto  unless such  repayment is accompanied by any amount
required to be paid pursuant to Section 4.9 hereof.

                                       17
<PAGE>

         SECTION  2.4  Revolving  Credit  Notes.  Each  Lender's  Loans  and the
obligation  of the  Borrowers  to repay such Loans shall be  evidenced by a Note
executed by the Borrowers  payable to the order of such Lender  representing the
Borrowers' obligation to pay such Lender's Commitment or, if less, the aggregate
unpaid  principal  amount of all Loans made and to be made by such Lender to the
Borrowers hereunder, plus interest and all other fees, charges and other amounts
due  thereon.  Each Note shall bear  interest  on the  unpaid  principal  amount
thereof at the applicable interest rate per annum specified in Section 4.1.

         SECTION 2.5 Permanent Reduction of the Aggregate Commitment.

         (a) The  Borrowers  shall  have the  right at any time and from time to
time,  upon at  least  five  (5)  Business  Days  prior  written  notice  to the
Administrative  Agent,  to permanently  reduce,  in whole at any time or in part
from time to time,  without premium or penalty,  the Aggregate  Commitment in an
aggregate  principal  amount not less than  $1,000,000 or any whole  multiple of
$1,000,000 in excess thereof.

         (b) Each  permanent  reduction  permitted or required  pursuant to this
Section 2.5 shall be accompanied by a payment of principal  sufficient to reduce
the  aggregate  outstanding  Extensions  of Credit  of the  Lenders  after  such
reduction to the  Aggregate  Commitment  as so reduced.  The  Commitment of each
Lender shall be reduced by the amount of the applicable  reduction on a pro rata
basis in accordance with the Lenders'  respective  Commitment  Percentages.  Any
reduction of the Aggregate Commitment to zero shall be accompanied by payment of
all outstanding  Obligations (and furnishing of cash collateral  satisfactory to
the  Administrative  Agent for all L/C  Obligations)  and, if such  reduction is
permanent,  termination  of the  Commitments  and the  Credit  Facility.  If the
reduction of the Aggregate  Commitment  requires the repayment of any LIBOR Rate
Loan,  such  reduction  may be made  only on the last  day of the  then  current
Interest Period  applicable  thereto unless such repayment is accompanied by any
amount required to be paid pursuant to Section 4.9 hereof.  Such cash collateral
shall be applied in accordance with Section 11.2(b).

         SECTION 2.6  Termination of the Credit  Facility.  The Credit  Facility
shall  terminate  on the  earliest  of (a) the  Maturity  Date,  (b) the date of
termination  by the Borrowers  pursuant to Section  2.5(a),  and (c) the date of
termination  by the  Administrative  Agent on behalf of the Lenders  pursuant to
Section 11.2(a).  Notwithstanding  anything to the contrary set forth above, the
Borrowers  may  request  a one (1) year  extension  of the  Termination  Date by
delivering  and written  request to the  Administrative  Agent (on behalf of the
Lenders)  not less than one  hundred  twenty  (120) days  prior to the  existing
Termination   Date,   which   request   shall  be  promptly   forwarded  by  the
Administrative  Agent to each of the  Lenders.  No  Lender  shall  be under  any
obligation or commitment to extend the Termination Date, and failure on the part
of any Lender to respond to any such  request  shall be deemed to be a denial of
such  request.  The terms  and  conditions  of any such  request  to extend  the
Termination Date shall be agreed upon by the mutual consent of the Lenders,  the
Administrative Agent and the Borrowers at the time of any such request.

                                       18
<PAGE>

         SECTION 2.7 Use of Proceeds.  The  Borrowers  shall use the proceeds of
the Loans for working capital and general corporate purposes,  including: (a) to
finance  the  acquisition  of  apartment  properties  and  (b)  to  finance  the
rehabilitation of apartment properties.

                                   ARTICLE III

                            LETTER OF CREDIT FACILITY

         SECTION 3.1 L/C Commitment. Subject to the terms and conditions hereof,
the Issuing Lender, in reliance on the agreements of the other Lenders set forth
in  Section  3.4(a),  agrees to issue  standby  letters of credit  ("Letters  of
Credit")  for the account of the  Borrowers on any Business Day from the Closing
Date  through  but not  including  the  Termination  Date in such form as may be
approved  from time to time by the Issuing  Lender;  provided,  that the Issuing
Lender shall have no  obligation  to issue any Letter of Credit if, after giving
effect to such issuance, (a) the L/C Obligations would exceed the L/C Commitment
or (b) the  Available  Commitment  of any Lender  would be less than zero.  Each
Letter of Credit  shall (i) be  denominated  in Dollars  in a minimum  amount of
$100,000,  (ii) be a standby  letter of credit issued to support  obligations of
any Borrower or any Subsidiary thereof, contingent or otherwise, incurred in the
ordinary course of business,  (iii) expire on a date satisfactory to the Issuing
Lender,  which  date  shall be no later  than the  Termination  Date and (iv) be
subject to the Uniform  Customs and, to the extent not  inconsistent  therewith,
the laws of the State of North  Carolina.  The Issuing  Lender  shall not at any
time be obligated to issue any Letter of Credit hereunder if such issuance would
conflict with, or cause the Issuing Lender or any L/C  Participant to exceed any
limits  imposed  by,  any  Applicable  Law.  References  herein to  "issue"  and
derivations  thereof  with  respect  to Letters  of Credit  shall  also  include
extensions  or  modifications  of any  existing  Letters of  Credit,  unless the
context otherwise requires.

         SECTION 3.2 Procedure  for Issuance of Letters of Credit.  Cornerstone,
on  behalf of the  Borrowers,  may from time to time  request  that the  Issuing
Lender  issue a Letter of  Credit by  delivering  to the  Issuing  Lender at the
Administrative  Agent's  Office  an  Application  therefor,   completed  to  the
satisfaction of the Issuing Lender, and such other  certificates,  documents and
other papers and information as the Issuing Lender may request.  Upon receipt of
any  Application,  the Issuing  Lender shall  process such  Application  and the
certificates,  documents  and other  papers and  information  delivered to it in
connection  therewith in  accordance  with its customary  procedures  and shall,
subject to Section 3.1 and Article V hereof, promptly issue the Letter of Credit
requested thereby (but in no event shall the Issuing Lender be required to issue
any Letter of Credit  earlier than three (3) Business  Days after its receipt of
the Application  therefor and all such other  certificates,  documents and other
papers and information  relating thereto) by issuing the original of such Letter
of  Credit  to the  beneficiary  thereof  or as  otherwise  may be agreed by the
Issuing  Lender and the  Borrowers.  The  Issuing  Lender  shall  furnish to the
Borrowers  a copy of such  Letter of Credit and furnish to each Lender a copy of
such  Letter of Credit and the  amount of each  Lender's  participation  in such
Letter of Credit, all promptly following the issuance of such Letter of Credit.

                                       19
<PAGE>

         SECTION 3.3 Commissions and Other Charges.

         (a)  The  Borrowers  shall  pay to the  Administrative  Agent,  for the
account of the  Issuing  Lender and the L/C  Participants,  an annual  letter of
credit  commission  with  respect to each Letter of Credit in an amount equal to
the product of (i) the  Applicable  Margin with  respect to LIBOR Rate Loans and
(ii) the face amount of such Letter of Credit.  Such commission shall be payable
quarterly  in arrears on the last  Business  Day of each  fiscal  quarter of the
Borrowers and on the Termination Date.

         (b) In addition to the foregoing  commission,  the Borrowers  shall pay
the  Issuing  Lender an  issuance  fee of $150 with  respect  to each  Letter of
Credit.

         (c) The  Administrative  Agent shall,  promptly  following  its receipt
thereof,  distribute  to  the  Issuing  Lender  and  the  L/C  Participants  all
commissions  received  by the  Administrative  Agent in  accordance  with  their
respective Commitment Percentages.

         SECTION 3.4 L/C Participations.

         (a) The Issuing Lender irrevocably agrees to grant and hereby grants to
each L/C  Participant,  and,  to induce the Issuing  Lender to issue  Letters of
Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby  accepts  and  purchases  from the Issuing  Lender,  on the terms and
conditions  hereinafter  stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's  Commitment  Percentage in
the Issuing  Lender's  obligations and rights under each Letter of Credit issued
hereunder  and the amount of each draft paid by the Issuing  Lender  thereunder.
Each L/C Participant  unconditionally  and  irrevocably  agrees with the Issuing
Lender that, if a draft is paid under any Letter of Credit for which the Issuing
Lender is not  reimbursed in full by the Borrowers in accordance  with the terms
of this  Agreement,  such L/C  Participant  shall pay to the Issuing Lender upon
demand at the Issuing  Lender's  address for notices  specified herein an amount
equal to such L/C  Participant's  Commitment  Percentage  of the  amount of such
draft, or any part thereof, which is not so reimbursed.

         (b) Upon  becoming  aware of any amount  required to be paid by any L/C
Participant to the Issuing  Lender  pursuant to Section 3.4(a) in respect of any
unreimbursed  portion of any payment made by the Issuing Lender under any Letter
of Credit,  the Issuing  Lender shall notify each L/C  Participant of the amount
and due date of such required payment and such L/C Participant  shall pay to the
Issuing  Lender the amount  specified on the  applicable  due date.  If any such
amount is paid to the Issuing  Lender after the date such  payment is due,  such
L/C Participant  shall pay to the Issuing Lender on demand,  in addition to such
amount,  the product of (i) such amount,  times (ii) the daily  average  Federal
Funds Rate as determined by the Administrative  Agent during the period from and
including  the date such  payment  is due to the date on which  such  payment is
immediately  available  to the  Issuing  Lender,  times  (iii)  a  fraction  the
numerator of which is the number of days that elapse  during such period and the
denominator of which is 360. A certificate of the Issuing Lender with respect to
any amounts  owing under this Section 3.4 shall be  conclusive in the absence of
manifest  error.   With  respect  to  payment  to  the  Issuing  Lender  of  the
unreimbursed  amounts  described in this Section 3.4(b), if the L/C Participants
receive notice that any such payment is due

                                       20
<PAGE>

(A) prior to 1:00 p.m.  (Charlotte time) on any Business Day, such payment shall
be due that  Business  Day,  and (B)  after  1:00 p.m.  (Charlotte  time) on any
Business Day, such payment shall be due on the following Business Day.

         (c)  Whenever,  at any time after the Issuing  Lender has made  payment
under  any  Letter of  Credit  and has  received  from any L/C  Participant  its
Commitment  Percentage of such payment in accordance  with this Section 3.4, the
Issuing Lender  receives any payment  related to such Letter of Credit  (whether
directly from the Borrowers or otherwise), or any payment of interest on account
thereof, the Issuing Lender will distribute to such L/C Participant its pro rata
share thereof; provided, that in the event that any such payment received by the
Issuing Lender shall be required to be returned by the Issuing Lender,  such L/C
Participant  shall return to the Issuing Lender the portion  thereof  previously
distributed by the Issuing Lender to it.

         SECTION 3.5  Reimbursement  Obligation of the  Borrower.  The Borrowers
agree to reimburse the Issuing  Lender on each date on which the Issuing  Lender
notifies  Cornerstone,  on behalf of the Borrowers,  of the date and amount of a
draft  paid  under any Letter of Credit for the amount of (a) such draft so paid
and (b) any taxes,  fees,  charges or other  costs or  expenses  incurred by the
Issuing Lender in connection with such payment.  Each such payment shall be made
to the Issuing  Lender at its address  for  notices  specified  herein in lawful
money of the United States and in immediately available funds. Interest shall be
payable on any and all  amounts  remaining  unpaid by the  Borrowers  under this
Article  III from the date  such  amounts  become  payable  (whether  at  stated
maturity,  by acceleration or otherwise) until payment in full at the rate which
would be payable on any outstanding Base Rate Loans which were then overdue.  If
the  Borrowers  fail  to  timely  reimburse  the  Issuing  Lender  on  the  date
Cornerstone, on behalf of the Borrowers, receives the notice referred to in this
Section 3.5,  Cornerstone,  on behalf of the Borrowers,  shall be deemed to have
timely  given a  Notice  of  Borrowing  hereunder  to the  Administrative  Agent
requesting the Lenders to make a Base Rate Loan to the Borrowers on such date in
an amount equal to the amount of such drawing and,  subject to the  satisfaction
or waiver of the conditions  precedent specified in Article V, the Lenders shall
make Base Rate Loans in such  amount,  the proceeds of which shall be applied to
reimburse the Issuing Lender for the amount of the related drawing and costs and
expenses.

         SECTION 3.6 Obligations Absolute. The Borrowers' obligations under this
Article III (including without limitation the Reimbursement Obligation) shall be
absolute and  unconditional  under any and all circumstances and irrespective of
any set-off,  counterclaim or defense to payment which the Borrowers may have or
have had against the Issuing  Lender or any  beneficiary  of a Letter of Credit.
The Borrowers  also agree with the Issuing  Lender that the Issuing Lender shall
not be  responsible  for,  and the  Borrowers'  Reimbursement  Obligation  under
Section  3.5 shall not be  affected  by,  among other  things,  the  validity or
genuineness  of  documents  or of any  endorsements  thereon,  even  though such
documents  shall in fact  prove to be  invalid,  fraudulent  or  forged,  or any
dispute  between or among the  Borrowers  and any  beneficiary  of any Letter of
Credit or any other party to which such Letter of Credit may be  transferred  or
any claims whatsoever of the Borrowers against any beneficiary of such Letter of
Credit or any such  transferee.  The Issuing  Lender shall not be liable for any
error, omission, interruption or delay in transmission,  dispatch or delivery of
any message or advice,  however  transmitted,  in connection  with any Letter of
Credit, except for errors or omissions caused by the

                                       21
<PAGE>

Issuing  Lender's gross  negligence or willful  misconduct.  The Borrowers agree
that any action taken or omitted by the Issuing  Lender  under or in  connection
with any Letter of Credit or the  related  drafts or  documents,  if done in the
absence of gross  negligence or willful  misconduct  and in accordance  with the
standards  of care  specified  in the  Uniform  Customs  and,  to the extent not
inconsistent therewith,  the UCC shall be binding on the Borrowers and shall not
result  in  any  liability  of  the  Issuing  Lender  to  the   Borrowers.   The
responsibility  of the Issuing  Lender to the Borrowers in  connection  with any
draft presented for payment under any Letter of Credit shall, in addition to any
payment  obligation  expressly provided for in such Letter of Credit, be limited
to determining  that the documents  (including each draft)  delivered under such
Letter of Credit in connection with such presentment are in conformity with such
Letter of Credit.

         SECTION 3.7 Effect of Application.  To the extent that any provision of
any  Application  related  to any  Letter  of Credit  is  inconsistent  with the
provisions of this Article III, the provisions of this Article III shall apply.

                                   ARTICLE IV

                             GENERAL LOAN PROVISIONS

         SECTION 4.1 Interest.

         (a) Interest  Rate Options.  Subject to the  provisions of this Section
4.1, at the election of Cornerstone,  on behalf of the Borrowers,  the aggregate
principal balance of the Notes or any portion thereof shall bear interest at the
Base Rate or the LIBOR Rate plus,  in each case,  the  Applicable  Margin as set
forth below.  Cornerstone,  on behalf of the Borrowers shall select the interest
rate index noted  above  (i.e.,  the Base Rate or the LIBOR  Rate) and  Interest
Period,  if any,  applicable  to any Loan at the time a Notice of  Borrowing  is
given pursuant to Section 2.2 or at the time a Notice of Conversion/Continuation
is given pursuant to Section 4.2. Each Loan or portion thereof bearing  interest
based on the Base Rate shall be a "Base Rate Loan", each Loan or portion thereof
bearing  interest based on the LIBOR Rate shall be a "LIBOR Rate Loan". Any Loan
or any portion thereof as to which Cornerstone,  on behalf of the Borrowers, has
not duly  specified an interest  rate as provided  herein shall be deemed a Base
Rate Loan.

         (b)  Interest  Periods.  In  connection  with  each  LIBOR  Rate  Loan,
Cornerstone, on behalf of the Borrowers, by giving notice at the times described
in Section 4.1(a),  shall elect an interest period (each, an "Interest  Period")
to be applicable to such Loan,  which  Interest  Period shall be a period of one
(1), two (2), three (3), or six (6) months with respect to each LIBOR Rate Loan;
provided that:

                  (i) the Interest  Period shall commence on the date of advance
         of or conversion to any LIBOR Rate Loan and, in the case of immediately
         successive  Interest  Periods,  each  successive  Interest Period shall
         commence  on the  date on  which  the next  preceding  Interest  Period
         expires;

                                       22
<PAGE>

                  (ii) if any Interest  Period would  otherwise  expire on a day
         that is not a Business Day,  such  Interest  Period shall expire on the
         next  succeeding  Business Day;  provided,  that if any Interest Period
         with respect to a LIBOR Rate Loan would otherwise  expire on a day that
         is not a Business  Day but is a day of the month after which no further
         Business Day occurs in such month, such Interest Period shall expire on
         the next preceding Business Day;

                  (iii) any  Interest  Period with  respect to a LIBOR Rate Loan
         that begins on the last  Business Day of a calendar  month (or on a day
         for which there is no  numerically  corresponding  day in the  calendar
         month  at the  end of  such  Interest  Period)  shall  end on the  last
         Business Day of the relevant calendar month at the end of such Interest
         Period;

                  (iv) no Interest  Period shall extend  beyond the  Termination
         Date; and

                  (v)  there  shall be no more than  five (5)  Interest  Periods
         outstanding at any time.

         (c) Applicable  Margin.  The Applicable  Margin provided for in Section
4.1(a)  with  respect to the Loans (the  "Applicable  Margin")  shall (i) on the
Closing  Date  equal  the  percentages  set forth in the  certificate  delivered
pursuant to Section  5.2(d)(iv) and (ii) for each fiscal  quarter  thereafter be
determined by reference to the  Unencumbered  Asset Coverage Ratio as of the end
of the fiscal  quarter  immediately  preceding  the  delivery of the  applicable
Officer's Compliance Certificate as follows:

<TABLE>
<CAPTION>
                                                                     Applicable Margin Per Annum
   Unencumbered Asset Coverage Ratio                          Base Rate +                    LIBOR Rate +
   ---------------------------------                          -------------------------------------------
<S>                                                                  <C>                       <C>
  Equal to or greater than 6.67 to 1.00                              0.000%                    0.90%

  Equal to or greater  than 3.33 to 1.00                             0.000%                    1.20%
  but less than 6.67 to 1.00

  Less than 3.33 to 1.00                                             0.000%                    1.60%
</TABLE>

         Adjustments,  if any, in the  Applicable  Margin as  determined  herein
         shall be made by the Administrative  Agent on the tenth (10th) Business
         Day after receipt by the  Administrative  Agent of quarterly  financial
         statements   for  the   Borrowers  and  their   Subsidiaries   and  the
         accompanying   Officer's  Compliance   Certificate  setting  forth  the
         Unencumbered   Asset   Coverage   Ratio  of  the  Borrowers  and  their
         Subsidiaries  as of the most  recent  fiscal  quarter  end.  Subject to
         Section  4.1(d),  in the  event  the  Borrowers  fail to  deliver  such
         financial  statements  and  certificate  within  the time  required  by
         Section  7.2  hereof,  the  Applicable  Margin  shall  be  the  highest
         Applicable  Margin set forth above until the delivery of such financial
         statements and certificate.

                                       23
<PAGE>

         (d) Default Rate.  Upon the occurrence and during the continuance of an
Event of Default,  (i) the Borrowers  shall no longer have the option to request
LIBOR Rate Loans, (ii) all outstanding LIBOR Rate Loans shall bear interest at a
rate per annum two percent (2%) in excess of the rate then  applicable  to LIBOR
Rate Loans until the end of the applicable  Interest  Period and thereafter at a
rate equal to two  percent  (2%) in excess of the rate then  applicable  to Base
Rate Loans,  and (iii) all outstanding  Base Rate Loans shall bear interest at a
rate per annum equal to two percent  (2%) in excess of the rate then  applicable
to Base Rate  Loans.  Interest  shall  continue to accrue on the Notes after the
filing  by or  against  any  Borrower  of any  petition  seeking  any  relief in
bankruptcy or under any act or law  pertaining  to insolvency or debtor  relief,
whether state, federal or foreign.

         (e) Interest Payment and  Computation.  Interest on each Base Rate Loan
shall be payable in arrears  with  respect to each  calendar  month on the first
Business  Day of the  following  calendar  month  commencing  January  1,  2001;
interest  on each  LIBOR  Rate  Loan  shall be  payable  on the last day of each
Interest  Period  applicable  thereto,  and if such Interest Period extends over
three  (3)  months,  at the end of each  three (3) month  interval  during  such
Interest Period.  All interest rates,  fees and commissions  provided  hereunder
shall be computed  on the basis of a 360-day  year and  assessed  for the actual
number of days elapsed.

         (f) Maximum  Rate.  In no  contingency  or event  whatsoever  shall the
aggregate  of all amounts  deemed  interest  hereunder or under any of the Notes
charged or collected  pursuant to the terms of this Agreement or pursuant to any
of the Notes exceed the highest rate permissible  under any Applicable Law which
a  court  of  competent  jurisdiction  shall,  in a  final  determination,  deem
applicable  hereto.  In the event that such a court  determines that the Lenders
have charged or received interest  hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the maximum
rate  permitted by Applicable  Law and the Lenders  shall at the  Administrative
Agent's option promptly refund to the Borrowers any interest received by Lenders
in excess of the maximum lawful rate or shall apply such excess to the principal
balance of the  Obligations.  It is the intent hereof that the Borrowers not pay
or contract to pay,  and that  neither the  Administrative  Agent nor any Lender
receive or contract to receive, directly or indirectly in any manner whatsoever,
interest in excess of that which may be paid by the Borrowers  under  Applicable
Law.

         SECTION 4.2 Notice and Manner of Conversion or  Continuation  of Loans.
Provided  that no Event of Default  has  occurred  and is then  continuing,  the
Borrowers shall have the option to (a) convert at any time all or any portion of
its outstanding Base Rate Loans in a principal amount equal to $2,000,000 or any
whole  multiple of $100,000 in excess  thereof into one or more LIBOR Rate Loans
or (b) upon the expiration of any Interest  Period,  (i) convert all or any part
of its outstanding LIBOR Rate Loans in a principal amount equal to $2,000,000 or
a whole  multiple  of $100,000  in excess  thereof  into Base Rate Loans or (ii)
continue  such  LIBOR Rate Loans as LIBOR Rate  Loans.  Whenever  the  Borrowers
desire to convert or continue Loans as provided above,  the Borrowers shall give
the  Administrative  Agent irrevocable prior written notice in the form attached
as Exhibit D (a "Notice of  Conversion/Continuation")  not later than 11:00 a.m.
(Charlotte  time)  three (3)  Business  Days  before the day on which a proposed
conversion or  continuation  of such Loan is to be effective  specifying (A) the
Loans to be

                                       24
<PAGE>

converted or continued,  and, in the case of any LIBOR Rate Loan to be converted
or continued,  the last day of the Interest Period  therefor,  (B) the effective
date of such conversion or continuation (which shall be a Business Day), (C) the
principal  amount  of such  Loans  to be  converted  or  continued,  and (D) the
Interest Period to be applicable to such converted or continued LIBOR Rate Loan.
The  Administrative  Agent shall  promptly  notify the Lenders of such Notice of
Conversion/Continuation.

         SECTION 4.3 Fees.

         (a) Facility Fee. On the Closing Date,  the Borrowers  shall pay to the
Administrative Agent, for the account of the Lenders, a non-refundable fee equal
to 0.300% of the Aggregate Commitment. Such facility fee shall be distributed by
the Administrative Agent to the Lenders pro rata in accordance with the Lenders'
respective Commitment Percentages.

         (b) Commitment Fee. Commencing on the Closing Date, the Borrowers shall
pay  to  the   Administrative   Agent,  for  the  account  of  the  Lenders,   a
non-refundable commitment fee at a rate per annum equal to 0.250% on the average
daily unused  portion of the Aggregate  Commitment.  The commitment fee shall be
payable in arrears on the last Business Day of each calendar  quarter during the
term of this  Agreement  commencing  December 31, 2000,  and on the  Termination
Date.  Such commitment fee shall be distributed by the  Administrative  Agent to
the Lenders  pro rata in  accordance  with the  Lenders'  respective  Commitment
Percentages.

         (c)  Administrative  Agent's and Other Fees. In order to compensate the
Administrative  Agent  for  structuring  and  syndicating  the Loans and for its
obligations  hereunder,  the Borrowers agree to pay to the Administrative Agent,
for its  account,  the  fees set  forth in the  separate  fee  letter  agreement
executed by Cornerstone and the Administrative Agent. In addition, the Borrowers
agree to pay to the  Administrative  Agent,  for its  account or for the ratable
benefit of the  Lenders (as  applicable),  any other  fees,  including,  without
limitation,  any upfront fees,  which the  Borrowers  have agreed to pay to such
Persons.

         SECTION 4.4 Manner of Payment. Each payment by the Borrowers on account
of the principal of or interest on the Loans or of any fee,  commission or other
amounts  (including the Reimbursement  Obligation)  payable to the Lenders under
this  Agreement  or any Note shall be made not later  than 1:00 p.m.  (Charlotte
time)  on  the  date   specified  for  payment  under  this   Agreement  to  the
Administrative Agent at the Administrative Agent's Office for the account of the
Lenders  (other  than as set forth  below)  pro rata in  accordance  with  their
respective  Commitment  Percentages,  in Dollars, in immediately available funds
and shall be made without any set-off, counterclaim or deduction whatsoever. Any
payment  received after such time but before 2:00 p.m.  (Charlotte time) on such
day shall be deemed a payment on such date for the purposes of Section 11.1, but
for all other purposes shall be deemed to have been made on the next  succeeding
Business Day. Any payment  received  after 2:00 p.m.  (Charlotte  time) shall be
deemed to have been made on the next  succeeding  Business Day for all purposes.
Upon  receipt  by  the   Administrative   Agent  of  each  such   payment,   the
Administrative  Agent shall  distribute in a timely manner to each Lender at its
address  for  notices  set forth  herein its pro rata  share of such  payment in
accordance with such Lender's Commitment Percentage and shall wire advice of the
amount of such credit to each Lender.  Each payment to the Administrative  Agent
of the Issuing

                                       25
<PAGE>

Lender's fees or L/C Participant's commissions shall be made in like manner, but
for the account of the Issuing Lender or the L/C  Participants,  as the case may
be. Each payment to the Administrative  Agent of Administrative  Agent's fees or
expenses  shall be made for the  account  of the  Administrative  Agent  and any
amount payable to any Lender under  Sections 4.8, 4.9, 4.10,  4.11 or 13.2 shall
be paid to the Administrative Agent for the account of the applicable Lender.

         SECTION 4.5 Crediting of Payments and  Proceeds.  In the event that the
Borrowers shall fail to pay any of the Obligations  when due and the Obligations
have been  accelerated  pursuant to Section 11.2,  all payments  received by the
Lenders upon the Notes and the other  Obligations  and all net proceeds from the
enforcement of the  Obligations  shall be applied first to all expenses then due
and payable by the Borrowers hereunder,  then to all indemnity  obligations then
due and payable by the Borrowers  hereunder,  then to all of the  Administrative
Agent's  and  the  Issuing  Lender's  fees  then  due and  payable,  then to all
commitment and other fees and commissions then due and payable,  then to accrued
and unpaid interest on the Notes and the  Reimbursement  Obligation (pro rata in
accordance with all such amounts due), then to the principal amount of the Notes
and Reimbursement Obligations,  then to the cash collateral account described in
Section  11.2(b) hereof to the extent of any L/C Obligations  then  outstanding,
and then to any termination  payments due in respect of a Hedging Agreement with
any Lender executed pursuant to Section 10.1(b), in that order.

         SECTION 4.6 Adjustments.  If any Lender (a "Benefited Lender") shall at
any time  receive any  payment of all or part of its  Extensions  of Credit,  or
interest  thereon,  or if any Lender shall at any time receive any collateral in
respect to its Extensions of Credit (whether  voluntarily or  involuntarily,  by
set-off  or  otherwise)  in a greater  proportion  than any such  payment to and
collateral  received  by any other  Lender,  if any,  in  respect  of such other
Lender's Extensions of Credit, or interest thereon,  such Benefited Lender shall
purchase  for cash from the  other  Lenders  such  portion  of each  such  other
Lender's  Extensions  of Credit,  or shall  provide such other  Lenders with the
benefits of any such collateral,  or the proceeds thereof, as shall be necessary
to cause such  Benefited  Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders;  provided,  that if all
or any portion of such excess  payment or benefits is thereafter  recovered from
such Benefited Lender, such purchase shall be rescinded,  and the purchase price
and benefits returned to the extent of such recovery,  but without interest. The
Borrowers  agree that each Lender so  purchasing  a portion of another  Lender's
Extensions  of Credit may  exercise  all rights of payment  (including,  without
limitation,  rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.

         SECTION 4.7 Nature of  Obligations of Lenders  Regarding  Extensions of
Credit;  Assumption by the Administrative  Agent. The obligations of the Lenders
under this  Agreement to make the Loans and issue or  participate  in Letters of
Credit  are  several  and are  not  joint  or  joint  and  several.  Unless  the
Administrative  Agent  shall  have  received  notice  from a  Lender  prior to a
proposed  borrowing  date  that  such  Lender  will  not make  available  to the
Administrative  Agent such Lender's ratable portion of the amount to be borrowed
on such date  (which  notice  shall not release  such Lender of its  obligations
hereunder),  the Administrative  Agent may assume that such Lender has made such
portion available to the Administrative  Agent on the proposed borrowing date in
accordance  with Section  2.2(b) and the  Administrative  Agent may, in reliance
upon such

                                       26
<PAGE>

assumption, make available to the Borrowers on such date a corresponding amount.
If such amount is made  available  to the  Administrative  Agent on a date after
such borrowing date, such Lender shall pay to the Administrative Agent on demand
an amount,  until paid,  equal to the product of (a) the amount of such Lender's
Commitment  Percentage of such  borrowing,  times (b) the daily average  Federal
Funds Rate during such period as determined by the  Administrative  Agent, times
(c) a fraction the numerator of which is the number of days that elapse from and
including  such  borrowing  date to the date on which such  Lender's  Commitment
Percentage  of such  borrowing  shall have become  immediately  available to the
Administrative  Agent and the  denominator of which is 360. A certificate of the
Administrative  Agent with  respect to any amounts  owing under this Section 4.7
shall  be  conclusive,  absent  manifest  error.  If  such  Lender's  Commitment
Percentage of such borrowing is not made available to the  Administrative  Agent
by such Lender  within  three (3)  Business  Days of such  borrowing  date,  the
Administrative  Agent shall be entitled to recover such amount made available by
the Administrative  Agent with interest thereon at the rate per annum applicable
to Base Rate Loans hereunder, on demand, from the Borrowers.  The failure of any
Lender to make its Commitment Percentage of any Loan available shall not relieve
it or any  other  Lender  of its  obligation,  if any,  hereunder  to  make  its
Commitment  Percentage of such Loan  available on such  borrowing  date,  but no
Lender  shall be  responsible  for the  failure of any other  Lender to make its
Commitment Percentage of such Loan available on the borrowing date.

         SECTION 4.8 Changed Circumstances.

         (a) Circumstances Affecting LIBOR Rate Availability. If with respect to
any Interest Period the Administrative  Agent or any Lender (after  consultation
with  Administrative  Agent) shall  determine  that, by reason of  circumstances
affecting the foreign  exchange and  interbank  markets  generally,  deposits in
eurodollars  in the  applicable  amounts are not being quoted via Telerate  Page
3750 or offered to the  Administrative  Agent or such  Lender for such  Interest
Period, then the Administrative Agent shall forthwith give notice thereof to the
Borrowers.  Thereafter,  until the Administrative Agent notifies Cornerstone, on
behalf of the Borrowers, that such circumstances no longer exist, the obligation
of the  Lenders  to make  LIBOR  Rate  Loans and the right of the  Borrowers  to
convert  any  Loan to or  continue  any  Loan  as a LIBOR  Rate  Loan  shall  be
suspended, and the Borrowers shall repay in full (or cause to be repaid in full)
the then  outstanding  principal  amount of each such LIBOR Rate Loans  together
with accrued  interest  thereon,  on the last day of the then  current  Interest
Period  applicable  to such  LIBOR  Rate Loan or  convert  the then  outstanding
principal amount of each such LIBOR Rate Loan to a Base Rate Loan as of the last
day of such Interest Period.

         (b) Laws Affecting LIBOR Rate Availability.  If, after the date hereof,
the  introduction  of, or any change in, any Applicable Law or any change in the
interpretation or administration thereof by any Governmental Authority,  central
bank or comparable  agency  charged with the  interpretation  or  administration
thereof,  or  compliance  by any  Lender  (or any of  their  respective  Lending
Offices) with any request or directive  (whether or not having the force of law)
of any such Governmental  Authority,  central bank or comparable  agency,  shall
make  it  unlawful  or  impossible  for  any of the  Lenders  (or  any of  their
respective  Lending  Offices)  to honor  its  obligations  hereunder  to make or
maintain any LIBOR Rate Loan,  such Lender shall promptly give notice thereof to
the Administrative Agent and the Administrative Agent shall promptly give notice
to Cornerstone,  on behalf of the Borrowers, and the other Lenders.  Thereafter,
until the

                                       27
<PAGE>

Administrative Agent notifies Cornerstone, on behalf of the Borrowers, that such
circumstances  no longer exist, (i) the obligations of the Lenders to make LIBOR
Rate Loans and the right of the  Borrowers  to convert any Loan or continue  any
Loan as a LIBOR Rate Loan shall be suspended  and  thereafter  the Borrowers may
select  only Base Rate Loans  hereunder,  and (ii) if any of the Lenders may not
lawfully  continue to maintain a LIBOR Rate Loan to the end of the then  current
Interest Period  applicable  thereto as a LIBOR Rate Loan, the applicable  LIBOR
Rate Loan shall  immediately  be converted to a Base Rate Loan for the remainder
of such Interest Period.

         (c) Increased Costs. If, after the date hereof, the introduction of, or
any change in, any Applicable Law, or in the  interpretation  or  administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration  thereof,  or compliance by any of the
Lenders  (or any of  their  respective  Lending  Offices)  with any  request  or
directive  (whether  or not  having  the  force  of law)  of  such  Governmental
Authority, central bank or comparable agency:

                  (i)  shall  subject  any  of the  Lenders  (or  any  of  their
         respective  Lending  Offices)  to any tax,  duty or other  charge  with
         respect to any Note,  Letter of Credit or  Application  or shall change
         the basis of  taxation  of  payments  to any of the  Lenders (or any of
         their  respective  Lending  Offices) of the principal of or interest on
         any Note,  Letter of Credit or  Application  or any other  amounts  due
         under this Agreement in respect thereof (except for changes in the rate
         of tax on the  overall net income of any of the Lenders or any of their
         respective  Lending Offices  imposed by the  jurisdiction in which such
         Lender is organized or is or should be qualified to do business or such
         Lending Office is located); or

                  (ii)  shall  impose,  modify or deem  applicable  any  reserve
         (including,  without limitation,  any imposed by the Board of Governors
         of the Federal Reserve System),  special deposit,  insurance or capital
         or similar  requirement  against  assets of,  deposits  with or for the
         account  of, or credit  extended by any of the Lenders (or any of their
         respective  Lending  Offices) or shall impose on any of the Lenders (or
         any of their  respective  Lending  Offices) or the foreign exchange and
         interbank markets any other condition affecting any Note;

         and the result of any of the  foregoing is to increase the costs to any
of the Lenders of maintaining any LIBOR Rate Loan or issuing or participating in
Letters  of  Credit  to  reduce  the  yield or  amount  of any sum  received  or
receivable  by any of the  Lenders  under this  Agreement  or under the Notes in
respect  of a LIBOR  Rate Loan or Letter  of  Credit or  Application,  then such
Lender shall promptly notify the  Administrative  Agent, and the  Administrative
Agent shall promptly  notify  Cornerstone,  on behalf of the Borrowers,  of such
fact and demand  compensation  therefor and, within fifteen (15) days after such
notice by the Administrative  Agent, the Borrowers shall pay to such Lender such
additional  amount or amounts as will compensate such Lender or Lenders for such
increased  cost or reduction.  The  Administrative  Agent will  promptly  notify
Cornerstone,  on behalf of the Borrowers, of any event of which it has knowledge
which will entitle such Lender to compensation  pursuant to this Section 4.8(c);
provided,  that the Administrative  Agent shall incur no liability whatsoever to
the Lenders or the  Borrowers in the event it fails to do so. The amount of such
compensation  shall  be  determined,   in  the  applicable  Lender's  reasonable
discretion,  based upon the  assumption  that such Lender funded its  Commitment
Percentage  of the  LIBOR  Rate  Loans in the  London  interbank  and  using any
reasonable  attribution or averaging methods which such Lender deems appropriate
and

                                       28
<PAGE>

practical.  A certificate of such Lender setting forth the basis for determining
such amount or amounts necessary to compensate such Lender shall be forwarded to
Cornerstone,  on behalf of the Borrowers,  through the Administrative  Agent and
shall be conclusively presumed to be correct save for manifest error.

         SECTION 4.9 Indemnity.  Each Borrower  hereby  indemnifies  each of the
Lenders  against any loss or expense which may arise or be  attributable to each
Lender's obtaining, liquidating or employing deposits or other funds acquired to
effect,  fund or maintain  any Loan (a) as a  consequence  of any failure by any
Borrower to make any payment when due of any amount due  hereunder in connection
with a LIBOR Rate Loan,  (b) due to any  failure of any  Borrower to borrow on a
date   specified   therefor   in  a   Notice   of   Borrowing   or   Notice   of
Continuation/Conversion  or (c) due to any payment,  prepayment or conversion of
any LIBOR  Rate Loan on a date other  than the last day of the  Interest  Period
therefor.  The  amount  of such  loss or  expense  shall be  determined,  in the
applicable Lender's reasonable  discretion,  based upon the assumption that such
Lender  funded its  Commitment  Percentage of the LIBOR Rate Loans in the London
interbank and using any reasonable  attribution or averaging  methods which such
Lender deems  appropriate  and  practical.  A certificate of such Lender setting
forth the basis for determining  such amount or amounts  necessary to compensate
such Lender  shall be  forwarded  to  Cornerstone,  on behalf of the  Borrowers,
through  the  Administrative  Agent and  shall be  conclusively  presumed  to be
correct save for manifest error.

         SECTION 4.10 Capital  Requirements.  If either (a) the introduction of,
or any  change  in,  or in the  interpretation  of,  any  Applicable  Law or (b)
compliance  with any  guideline or request  from any central bank or  comparable
agency or other Governmental Authority (whether or not having the force of law),
has or would have the effect of  reducing  the rate of return on the capital of,
or has affected or would affect the amount of capital  required to be maintained
by, any Lender or any corporation  controlling  such Lender as a consequence of,
or with reference to the Commitments and other  commitments of this type,  below
the rate which the Lender or such other  corporation could have achieved but for
such  introduction,  change or  compliance,  then within fifteen (15) days after
written demand by any such Lender,  the Borrowers  shall pay to such Lender from
time to time as  specified  by such  Lender  additional  amounts  sufficient  to
compensate such Lender or other corporation for such reduction. A certificate as
to such amounts  submitted to Cornerstone,  on behalf of the Borrowers,  and the
Administrative Agent by such Lender, shall, in the absence of manifest error, be
presumed to be correct and binding for all purposes.

         SECTION 4.11 Taxes.

         (a)  Payments  Free and Clear.  Any and all  payments by the  Borrowers
hereunder  or under the Notes or the  Letters  of Credit  shall be made free and
clear of and without deduction for any and all present or future taxes,  levies,
imposts,  deductions,  charges or withholding,  and all liabilities with respect
thereto excluding,  (i) in the case of each Lender and the Administrative Agent,
income and franchise taxes imposed by the  jurisdiction  under the laws of which
such Lender or the Administrative  Agent (as the case may be) is organized or is
or should be qualified to do business or any political  subdivision  thereof and
(ii) in the case of each  Lender,  income  and  franchise  taxes  imposed by the
jurisdiction of such Lender's Lending Office or any political

                                       29
<PAGE>

subdivision thereof (all such non-excluded taxes, levies,  imposts,  deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
If any Borrower  shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any Note or Letter of Credit to any Lender
or the  Administrative  Agent,  (A) the sum payable shall be increased as may be
necessary  so that after making all required  deductions  (including  deductions
applicable  to  additional  sums payable under this Section 4.11) such Lender or
the  Administrative  Agent (as the case may be)  receives an amount equal to the
amount such party would have received had no such deductions been made, (B) such
Borrower shall make such deductions, (C) such Borrower shall pay the full amount
deducted to the relevant taxing  authority or other authority in accordance with
applicable law, and (D) such Borrower shall deliver to the Administrative  Agent
evidence of such payment to the relevant taxing  authority or other authority in
the manner provided in Section 4.11(d).

         (b) Stamp and Other Taxes.  In addition,  the  Borrowers  shall pay any
present or future stamp,  registration,  recordation or documentary taxes or any
other similar fees or charges or excise or property taxes,  levies of the United
States or any state or political  subdivision  thereof or any applicable foreign
jurisdiction  which arise from any payment made hereunder or from the execution,
delivery or registration  of, or otherwise with respect to, this Agreement,  the
Loans, the Letters of Credit, the other Loan Documents, or the perfection of any
rights or  security  interest  in respect  thereto  (hereinafter  referred to as
"Other Taxes").

         (c)  Indemnity.  Each  Borrower  shall  indemnify  each  Lender and the
Administrative  Agent for the full amount of Taxes and Other  Taxes  (including,
without  limitation,  any Taxes and Other Taxes imposed by any  jurisdiction  on
amounts   payable   under  this  Section  4.11)  paid  by  such  Lender  or  the
Administrative  Agent  (as  the  case  may  be)  and  any  liability  (including
penalties,  interest and expenses)  arising  therefrom or with respect  thereto,
whether or not such Taxes or Other  Taxes were  correctly  or legally  asserted.
Such  indemnification  shall be made within  thirty (30) days from the date such
Lender or the  Administrative  Agent (as the case may be) makes  written  demand
therefor.

         (d) Evidence of Payment.  Within thirty (30) days after the date of any
payment  of  Taxes  or  Other  Taxes,   the  Borrowers   shall  furnish  to  the
Administrative  Agent, at its address  referred to in Section 13.1, the original
or a certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to the Administrative Agent.

         (e) Delivery of Tax Forms.  Each Lender  organized  under the laws of a
jurisdiction  other than the United States or any state thereof shall deliver to
Cornerstone,  on  behalf  of the  Borrowers,  with a copy to the  Administrative
Agent,  on the Closing  Date or  concurrently  with the delivery of the relevant
Assignment and Acceptance, as applicable, (i) two United States Internal Revenue
Service Forms 4224 or Forms 1001, as applicable  (or successor  forms)  properly
completed and certifying in each case that such Lender is entitled to a complete
exemption  from  withholding or deduction for or on account of any United States
federal income taxes,  and (ii) an Internal  Revenue  Service Form W-8 or W-9 or
successor  applicable  form, as the case may be, to establish an exemption  from
United States  backup  withholding  taxes.  Each such Lender  further  agrees to
deliver  to  Cornerstone,  on  behalf  of the  Borrowers,  with  a  copy  to the
Administrative  Agent,  a Form  1001 or 4224 and Form W-8 or W-9,  or  successor
applicable  forms or manner of  certification,  as the case may be, on or before
the date that any such form expires or becomes obsolete or after the

                                       30
<PAGE>

occurrence  of any event  requiring a change in the most recent form  previously
delivered by it to  Cornerstone,  on behalf of the Borrowers,  certifying in the
case of a Form 1001 or 4224 that such  Lender is  entitled  to receive  payments
under this  Agreement  without  deduction or  withholding  of any United  States
federal  income  taxes  (unless  in any such  case an event  (including  without
limitation any change in treaty,  law or  regulation)  has occurred prior to the
date on which any such delivery  would  otherwise be required which renders such
forms  inapplicable or the exemption to which such forms relate  unavailable and
such  Lender  notifies  Cornerstone,   on  behalf  of  the  Borrowers,  and  the
Administrative  Agent  that  it is not  entitled  to  receive  payments  without
deduction or withholding of United States federal income taxes) and, in the case
of a Form W-8 or W-9,  establishing  an  exemption  from  United  States  backup
withholding tax.

         (f) Survival.  Without prejudice to the survival of any other agreement
of the Borrowers  hereunder,  the  agreements  and  obligations of the Borrowers
contained  in  this  Section  4.11  shall  survive  the  payment  in full of the
Obligations and the termination of the Commitments.

                                    ARTICLE V

                  CLOSING; CONDITIONS OF CLOSING AND BORROWING

         SECTION 5.1  Closing.  The  closing  shall take place at the offices of
Kennedy  Covington Lobdell & Hickman,  L.L.P.,  effective as of the date of this
Agreement.

         SECTION 5.2 Conditions to Closing and Initial Extensions of Credit. The
obligation  of the Lenders to close this  Agreement and to make the initial Loan
or issue the initial Letter of Credit is subject to the  satisfaction of each of
the following conditions:

         (a) Executed Loan Documents.  The following Loan Documents, in form and
substance satisfactory to Administrative Agent and each Lender:

                  (i) this Agreement;

                  (ii) the Notes; and

                  (iii) each other document and certificate reasonably requested
         by the Administrative Agent;

shall have been duly  authorized,  executed and delivered to the  Administrative
Agent by the parties  thereto,  shall be in full force and effect and no default
shall  exist  thereunder,  and  the  Borrowers  shall  have  delivered  original
counterparts thereof to the Administrative Agent.

         (b)      Closing Certificates; etc.

                  (i) Officer's  Certificate  of  Cornerstone  on behalf of each
         Borrower.  The  Administrative  Agent shall have received a certificate
         from  the  chief  executive  officer  or  chief  financial  officer  of
         Cornerstone, on behalf of the Borrowers, in form and substance

                                       31
<PAGE>

         satisfactory  to the  Administrative  Agent,  to the  effect  that  all
         representations  and  warranties  of the  Borrowers  contained  in this
         Agreement and the other Loan Documents are true,  correct and complete;
         that  the  Borrowers  are  not in  violation  of  any of the  covenants
         contained in this Agreement and the other Loan Documents;  that,  after
         giving effect to the  transactions  contemplated by this Agreement,  no
         Default or Event of Default has  occurred and is  continuing;  and that
         the Borrowers have satisfied each of the closing conditions.

                  (ii)   Certificate   of  Secretary  of  each   Borrower.   The
         Administrative Agent shall have received a certificate of the secretary
         or  assistant  secretary  of each  Borrower  certifying  that  attached
         thereto is a true and complete copy of the articles of incorporation of
         such Borrower and all amendments thereto, certified as of a recent date
         by  the  appropriate  Governmental  Authority  in its  jurisdiction  of
         incorporation; that attached thereto is a true and complete copy of the
         bylaws of such Borrower as in effect on the date of such certification;
         that attached  thereto is a true and complete copy of resolutions  duly
         adopted by the Board of  Directors  of such  Borrower  authorizing  the
         borrowings  contemplated  hereunder  and the  execution,  delivery  and
         performance  of this Agreement and the other Loan Documents to which it
         is a party;  and as to the incumbency and  genuineness of the signature
         of each officer of such Borrower  executing  Loan Documents to which it
         is a party.

                  (iii) Certificates of Good Standing.  The Administrative Agent
         shall have received  long-form  certificates as of a recent date of the
         good standing of each Borrower  under the laws of its  jurisdiction  of
         organization  and  each  other  jurisdiction  where  each  Borrower  is
         qualified to do business.

                  (iv) Opinions of Counsel.  The Administrative Agent shall have
         received  favorable  opinions of counsel to the Borrowers  addressed to
         the Administrative Agent and the Lenders with respect to the Borrowers,
         the Loan Documents and such other matters as the Lenders shall request.

                  (v) Tax Forms.  The  Administrative  Agent shall have received
         copies of the United States Internal  Revenue Service forms required by
         Section 4.11(e) hereof.

         (c) Consents; Defaults.

                  (i)  Governmental  and Third Party  Approvals.  All  necessary
         approvals,  authorizations  and  consents,  if any be required,  of any
         Person  and  of  all   Governmental   Authorities   and  courts  having
         jurisdiction  with  respect to the  transactions  contemplated  by this
         Agreement and the other Loan Documents shall have been obtained.

                  (ii) No Injunction, Etc. No action, proceeding, investigation,
         regulation or  legislation  shall have been  instituted,  threatened or
         proposed  before any  Governmental  Authority to enjoin,  restrain,  or
         prohibit,  or to obtain substantial  damages in respect of, or which is
         related to or arises out of this  Agreement or the other Loan Documents
         or the consummation of the transactions contemplated hereby or thereby,
         or which,  in the  Administrative  Agent's  discretion,  would  make it
         inadvisable  to  consummate  the  transactions   contemplated  by  this
         Agreement and such other Loan Documents.

                                       32
<PAGE>

                  (iii) No Event of  Default.  No  Default  or Event of  Default
         shall have occurred and be continuing.

         (d) Financial Matters.

                  (i) Financial Statements.  The Administrative Agent shall have
         received the most recent audited  Consolidated  financial statements of
         the  Borrowers  and  their  Subsidiaries,  all in  form  and  substance
         satisfactory to the Administrative Agent.

                  (ii) Financial Condition Certificate.  Cornerstone,  on behalf
         of the Borrowers,  shall have delivered to the  Administrative  Agent a
         certificate,  in form and substance  satisfactory to the Administrative
         Agent,  and  certified  as accurate by the chief  executive  officer or
         chief financial officer of Cornerstone, that (A) each Borrower and each
         of its Subsidiaries are each Solvent,  (B) each Borrower's payables are
         current and not past due, (C) attached  thereto is a pro forma  balance
         sheet of the  Borrowers and their  Subsidiaries  setting forth on a pro
         forma  basis  the  financial  condition  of  the  Borrowers  and  their
         Subsidiaries on a Consolidated basis as of that date,  reflecting a pro
         forma  basis  the  effect  of  the  transactions  contemplated  herein,
         including all fees and expenses in connection therewith, and evidencing
         compliance  on a pro  forma  basis  with  the  covenants  contained  in
         Articles IX and X hereof and (D)  attached  thereto  are the  financial
         projections   previously   delivered   to  the   Administrative   Agent
         representing  the good  faith  opinions  of the  Borrowers  and  senior
         management thereof as to the projected results contained therein.

                  (iii) Payment at Closing;  Fee Letters.  There shall have been
         paid by the Borrowers to the  Administrative  Agent and the Lenders the
         fees set forth or  referenced  in Section 4.3 and any other accrued and
         unpaid  fees  or   commissions   due  hereunder   (including,   without
         limitation,  legal fees and  expenses),  and to any other  Person  such
         amount  as may be due  thereto  in  connection  with  the  transactions
         contemplated  hereby,  including  all taxes,  fees and other charges in
         connection  with  the  execution,   delivery,   recording,  filing  and
         registration of any of the Loan  Documents.  The  Administrative  Agent
         shall have  received  duly  authorized  and executed  copies of the fee
         letter agreement referred to in Section 4.3(c).

                  (iv) Applicable Margin Certificate.  Cornerstone, on behalf of
         the  Borrowers,  shall have  delivered  to the  Administrative  Agent a
         certificate  executed by the chief  financial  officer or  treasurer of
         Cornerstone  setting forth the  calculation  of the  Applicable  Margin
         pursuant to Section 4.1(c).

         (e) [Intentionally Omitted.]

         (f) Miscellaneous.

         (i) Notice of Borrowing. The Administrative Agent shall have received a
Notice of Borrowing from Cornerstone,  on behalf of the Borrowers, in accordance
with

                                       33
<PAGE>

         Section  2.2(a),  and a Notice of Account  Designation  specifying  the
         account or accounts  to which the  proceeds of any loans made after the
         Closing Date are to be disbursed.

                  (ii) Proceedings and Documents. All opinions, certificates and
         other   instruments   and  all   proceedings  in  connection  with  the
         transactions  contemplated  by this Agreement  shall be satisfactory in
         form and  substance to the  Lenders.  The Lenders  shall have  received
         copies of all other  instruments  and other  evidence as the Lender may
         reasonably request, in form and substance  satisfactory to the Lenders,
         with respect to the transactions contemplated by this Agreement and the
         taking of all actions in connection therewith.

                  (iii) Due Diligence and Other  Documents.  Each Borrower shall
         have  delivered  to the  Administrative  Agent  such  other  documents,
         certificates  and  opinions  as  the  Administrative  Agent  reasonably
         requests,   including,  without  limitation,  copies  of  any  document
         evidencing or governing any Subordinated Debt, certified by a secretary
         or  assistant  secretary  of such  Borrower as a true and correct  copy
         thereof.

         SECTION  5.3  Conditions  to All  Loans  and  Letters  of  Credit.  The
obligation  of the  Lenders  to make any Loan or issue  any  Letter of Credit is
subject  to  the  satisfaction  of the  following  conditions  precedent  on the
relevant borrowing or issue date, as applicable:

         (a) Continuation of Representations and Warranties. The representations
and  warranties  contained  in Article VI shall be true and correct on and as of
such  borrowing  or  issuance  date with the same effect as if made on and as of
such  date,  except to the extent the  failure  of any  schedule  to be true and
correct on and as of such borrowing or issuance date would not have or would not
be reasonably expected to have a Material Adverse Effect.

         (b) No  Existing  Default.  No Default  or Event of Default  shall have
occurred and be continuing  hereunder (i) on the borrowing  date with respect to
such Loan or after giving effect to the Loans to be made on such date or (ii) on
the issue date with respect to such Letter of Credit or after  giving  affect to
such Letters of Credit on such date.

         (c)  Officer's  Compliance  Certificate;   Additional  Documents.   The
Administrative  Agent  shall have  received  the  current  Officer's  Compliance
Certificate and each  additional  document,  instrument,  legal opinion or other
item of information reasonably requested by it.

                                   ARTICLE VI

                 REPRESENTATIONS AND WARRANTIES OF THE BORROWERS

         SECTION   6.1   Representations   and   Warranties.   To   induce   the
Administrative  Agent to enter into this  Agreement  and the Lenders to make the
Loans and to issue or participate in the Letters of Credit, the Borrowers hereby
represent and warrant to the Administrative Agent and Lenders that:

                                       34
<PAGE>

         (a)  Organization;   Power;  Qualification.   Each  Borrower  and  each
Subsidiary  thereof is duly  organized,  validly  existing and in good  standing
under the laws of the jurisdiction of its  incorporation  or formation,  has the
power and  authority to own its  properties  and to carry on its business as now
being  and  hereafter  proposed  to be  conducted  and  is  duly  qualified  and
authorized  to do business in each  jurisdiction  in which the  character of its
properties  or the  nature  of its  business  requires  such  qualification  and
authorization except to the extent the failure to be so qualified and authorized
to do  business  would not have or would not be  reasonably  expected  to have a
Material  Adverse  Effect.  The  jurisdictions  in which each  Borrower and each
Subsidiary  thereof is organized  and  qualified to do business are described on
Schedule 6.1(a).

         (b) Ownership.  Each  Subsidiary of each Borrower is listed on Schedule
6.1(b). The  capitalization of the Borrowers and their Subsidiaries  consists of
the number of shares,  authorized,  issued and outstanding,  of such classes and
series, with or without par value, described on Schedule 6.1(b). All outstanding
shares  have been duly  authorized  and  validly  issued  and are fully paid and
nonassessable.  The  shareholders  of the  Subsidiaries of the Borrowers and the
number of shares owned by each are  described on Schedule  6.1(b).  There are no
outstanding  stock  purchase  warrants,   subscriptions,   options,  securities,
instruments  or  other  rights  of any  type or  nature  whatsoever,  which  are
convertible  into,  exchangeable  for or  otherwise  provide  for or permit  the
issuance of capital stock of any Borrower or any Subsidiary  thereof,  except as
described on Schedule 6.1(b).

         (c)  Authorization  of Agreement,  Loan Documents and  Borrowing.  Each
Borrower and each Subsidiary  thereof has the right, power and authority and has
taken all  necessary  corporate  and other  action to authorize  the  execution,
delivery and  performance of this Agreement and each of the other Loan Documents
to which it is a party in accordance with their respective terms. This Agreement
and each of the other Loan  Documents  have been duly  executed and delivered by
the duly authorized officers of each Borrower and each of its Subsidiaries party
thereto,  and each such  document  constitutes  the  legal,  valid  and  binding
obligation of each Borrower or its  Subsidiary  party  thereto,  enforceable  in
accordance  with  its  terms,  except  as such  enforcement  may be  limited  by
bankruptcy, insolvency,  reorganization,  moratorium or similar state or federal
debtor relief laws from time to time in effect which affect the  enforcement  of
creditors' rights in general and the availability of equitable remedies.

         (d)  Compliance of Agreement,  Loan  Documents and Borrowing with Laws,
Etc.  The  execution,  delivery  and  performance  by the  Borrowers  and  their
Subsidiaries  of the Loan  Documents  to which each such  Person is a party,  in
accordance  with  their  respective  terms,  the  borrowings  hereunder  and the
transactions  contemplated  hereby do not and will not,  by the passage of time,
the giving of notice or  otherwise,  (i)  require any  Governmental  Approval or
violate any Applicable Law relating to any Borrower or any of its  Subsidiaries,
(ii)  conflict  with,  result in a breach of or  constitute a default  under the
articles  of  incorporation,  bylaws or other  organizational  documents  of any
Borrower or any of its Subsidiaries,  (iii) conflict with, result in a breach of
or constitute a default under any  indenture,  agreement or other  instrument to
which any Borrower or any of its  Subsidiaries is a party or by which any of its
properties may be bound or any  Governmental  Approval  relating to such Person,
except where such  conflict  with,  breach of or default under would not have or
would not be  reasonably  expected to have a Material  Adverse  Effect,  or (iv)
result in or require the creation or imposition of any Lien upon or with respect
to any

                                       35
<PAGE>

property  now  owned  or  hereafter  acquired  by  any  Borrower  or  any of its
Subsidiaries other than Liens arising under the Loan Documents.

         (e) Compliance with Law; Governmental Approvals. Each Borrower and each
Subsidiary thereof (i) has all Governmental Approvals required by any Applicable
Law for it to conduct its  business,  each of which is in full force and effect,
is final and not  subject  to review on  appeal  and is not the  subject  of any
pending  or,  to the best of its  knowledge,  threatened  attack  by  direct  or
collateral proceeding, and (ii) is in compliance with each Governmental Approval
applicable to it and in compliance with all other Applicable Laws relating to it
or any of its  respective  properties,  except  where the  failure to be in such
compliance would not have or would not be reasonably expected to have a Material
Adverse Effect.

         (f) Tax Returns and Payments.  Each Borrower and Subsidiary thereof has
duly filed or caused to be filed all federal, state, local and other tax returns
required by Applicable Law to be filed, and has paid, or made adequate provision
for the payment of, all federal,  state, local and other taxes,  assessments and
governmental  charges or levies upon it and its  property,  income,  profits and
assets which are due and payable.  No  Governmental  Authority  has asserted any
Lien or other claim against any Borrower or any Subsidiary  thereof with respect
to unpaid taxes which has not been discharged or resolved. The charges, accruals
and  reserves  on the  books of each  Borrower  and any of its  Subsidiaries  in
respect  of  federal,  state,  local and other  taxes for all  Fiscal  Years and
portions  thereof  since  the  organization  of  such  Borrower  and  any of its
Subsidiaries  are in the judgment of such Borrower  adequate,  and such Borrower
does not anticipate any additional taxes or assessments for any of such years.

         (g) Intellectual  Property  Matters.  Each Borrower and each Subsidiary
thereof owns or possesses  rights to use all franchises,  licenses,  copyrights,
copyright applications, patents, patent rights or licenses, patent applications,
trademarks,  trademark rights,  trade names,  trade name rights,  copyrights and
rights with respect to the foregoing which are required to conduct its business,
except  where the failure own or possess such rights would not have or would not
be reasonably  expected to have a Material Adverse Effect. No event has occurred
which  permits,  or after  notice  or lapse of time or both  would  permit,  the
revocation or termination of any such rights, and no Borrower nor any Subsidiary
thereof is liable to any  Person  for  infringement  under  Applicable  Law with
respect to any such rights as a result of its business operations.

         (h)  Environmental  Matters.  Except  as would not have or would not be
reasonably  expected  to have a  Material  Adverse  Effect,  to the  best of the
knowledge of the Borrowers and their Subsidiaries,

                  (i) The properties of the Borrowers and their  Subsidiaries do
         not contain, and have not previously contained, any Hazardous Materials
         in amounts or  concentrations  which (A)  constitute  or  constituted a
         violation  of, or (B) could give rise to  liability  under,  applicable
         Environmental Laws;

                  (ii)  Such   properties  and  all   operations   conducted  in
         connection  therewith are in  compliance,  and have been in compliance,
         with all applicable  Environmental  Laws, and there is no contamination
         at, under or about such properties or such operations which could

                                       36
<PAGE>

         interfere with the continued operation of such properties or impair the
         fair saleable value thereof;

                  (iii) No Borrower nor any Subsidiary  thereof has received any
         notice of violation,  alleged violation,  non-compliance,  liability or
         potential liability regarding  environmental matters or compliance with
         Environmental  Laws  with  regard  to any of  their  properties  or the
         operations conducted in connection therewith,  nor does any Borrower or
         any  Subsidiary  thereof  have  knowledge or reason to believe that any
         such notice will be received or is being threatened;

                  (iv) Hazardous Materials have not been transported or disposed
         of from the  properties of any Borrower or any of its  Subsidiaries  in
         violation of, or in a manner or to a location  which could give rise to
         liability under,  Environmental  Laws, nor have any Hazardous Materials
         been generated,  treated,  stored or disposed of at, on or under any of
         such properties in violation of, or in a manner that could give rise to
         liability under, any applicable Environmental Laws;

                  (v) No judicial  proceedings or governmental or administrative
         action is pending or threatened  under any  Environmental  Law to which
         any Borrower or any  Subsidiary  thereof is or will be named as a party
         with respect to such  properties or operations  conducted in connection
         therewith,  nor are there any consent decrees or other decrees, consent
         orders,  administrative orders or other orders, or other administrative
         or judicial  requirements  outstanding under any Environmental Law with
         respect to such properties or such operations; and

                  (vi)  There has been no  release  or the  threat of release of
         Hazardous  Materials at or from such properties,  in violation of or in
         amounts  or in a  manner  that  could  give  rise  to  liability  under
         Environmental Laws.

         (i) ERISA. Except as would not have or would not be reasonably expected
to have a Material Adverse Effect,

                  (i)  No  Borrower  nor  any  ERISA   Affiliate   maintains  or
         contributes to, or has any obligation under, any Employee Benefit Plans
         other than those identified on Schedule 6.1(i);

                  (ii) Each  Borrower and each ERISA  Affiliate is in compliance
         with  all  applicable  provisions  of  ERISA  and the  regulations  and
         published  interpretations  thereunder  with  respect  to all  Employee
         Benefit Plans except for any required amendments for which the remedial
         amendment  period as defined in Section  401(b) of the Code has not yet
         expired.  Each  Employee  Benefit Plan that is intended to be qualified
         under  Section  401(a) of the Code has been  determined by the Internal
         Revenue Service to be so qualified, and each trust related to such plan
         has been  determined to be exempt under Section  501(a) of the Code. No
         liability  has been  incurred by any  Borrower  or any ERISA  Affiliate
         which remains  unsatisfied  for any taxes or penalties  with respect to
         any Employee Benefit Plan or any Multiemployer Plan;

                                       37
<PAGE>

                  (iii)  No  Pension  Plan  has  been  terminated,  nor  has any
         accumulated  funding deficiency (as defined in Section 412 of the Code)
         been incurred  (without  regard to any waiver granted under Section 412
         of the Code),  nor has any  funding  waiver from the  Internal  Revenue
         Service been  received or requested  with respect to any Pension  Plan,
         nor has  any  Borrower  or any  ERISA  Affiliate  failed  to  make  any
         contributions  or to pay any  amounts  due and  owing  as  required  by
         Section  412 of the  Code,  Section  302 of ERISA  or the  terms of any
         Pension Plan prior to the due dates of such contributions under Section
         412 of the Code or Section  302 of ERISA,  nor has there been any event
         requiring  any  disclosure  under Section  4041(c)(3)(C)  or 4063(a) of
         ERISA with respect to any Pension Plan;

                  (iv) No Borrower nor any ERISA Affiliate has: (A) engaged in a
         nonexempt prohibited  transaction described in Section 406 of the ERISA
         or Section 4975 of the Code,  (B)  incurred  any  liability to the PBGC
         which remains  outstanding other than the payment of premiums and there
         are no premium payments which are due and unpaid,  (C) failed to make a
         required contribution or payment to a Multiemployer Plan, or (D) failed
         to make a required  installment or other required payment under Section
         412 of the Code;

                  (v)  No  Termination  Event  has  occurred  or  is  reasonably
         expected to occur; and

                  (vi) No proceeding,  claim,  lawsuit and/or  investigation  is
         existing or, to the best  knowledge of any Borrower  after due inquiry,
         threatened  concerning  or involving any (A) employee  welfare  benefit
         plan (as  defined in Section  3(1) of ERISA)  currently  maintained  or
         contributed to by any Borrower or any ERISA Affiliate, (B) Pension Plan
         or (C) Multiemployer Plan.

         (j) Margin  Stock.  No Borrower nor any  Subsidiary  thereof is engaged
principally or as one of its activities in the business of extending  credit for
the purpose of  "purchasing" or "carrying" any "margin stock" (as each such term
is  defined  or used in  Regulations  G and U of the Board of  Governors  of the
Federal Reserve System).  No part of the proceeds of any of the Loans or Letters
of  Credit  will be used for  purchasing  or  carrying  margin  stock or for any
purpose which violates,  or which would be inconsistent  with, the provisions of
Regulation G, T, U or X of such Board of Governors.

         (k) Government Regulation. No Borrower nor any Subsidiary thereof is an
"investment  company" or a company  "controlled" by an "investment  company" (as
each such term is  defined or used in the  Investment  Company  Act of 1940,  as
amended) and no Borrower nor any  Subsidiary  thereof is, or after giving effect
to any  Extension  of Credit  will be,  subject to  regulation  under the Public
Utility  Holding  Company Act of 1935 or the  Interstate  Commerce  Act, each as
amended,  or any other  Applicable  Law which  limits  its  ability  to incur or
consummate the transactions contemplated hereby.

         (l) Material  Contracts.  Each  Material  Contract is, and after giving
effect  to  the  consummation  of the  transactions  contemplated  by  the  Loan
Documents  will be,  in full  force  and  effect  in  accordance  with the terms
thereof.

                                       38
<PAGE>

         (m) Employee Relations. Each Borrower and each Subsidiary thereof has a
stable work force in place and is not,  except as set forth on Schedule  6.1(m),
party to any  collective  bargaining  agreement  nor has any  labor  union  been
recognized  as the  representative  of its  employees.  The  Borrowers and their
Subsidiaries  do not know of any pending,  threatened or  contemplated  strikes,
work  stoppage or other  collective  labor  disputes  involving its employees or
those of its Subsidiaries.

         (n) Burdensome Provisions.  No Borrower nor any Subsidiary thereof is a
party to any indenture,  agreement, lease or other instrument, or subject to any
corporate or partnership  restriction,  Governmental  Approval or Applicable Law
which  could be  reasonably  expected  to have a Material  Adverse  Effect.  The
Borrowers  and  their  Subsidiaries  do not  presently  anticipate  that  future
expenditures  needed to meet the  provisions of any statutes,  orders,  rules or
regulations  of a  Governmental  Authority  will be so  burdensome  as to have a
Material Adverse Effect.

         (o) Financial  Statements.  The (i) Consolidated  balance sheets of the
Borrowers  and  their  Subsidiaries  as of  December  31,  1999 and the  related
statements  of income and retained  earnings and cash flows for the Fiscal Years
then ended and (ii)  unaudited  Consolidated  balance sheet of the Borrowers and
their  Subsidiaries  as of  September  30,  2000 and related  unaudited  interim
statements of revenue and retained earnings, copies of which have been furnished
to the Administrative Agent and each Lender, are complete and correct and fairly
present the assets,  liabilities  and  financial  position of the  Borrowers and
their  Subsidiaries  as at such  dates,  and the results of the  operations  and
changes of financial  position for the periods  then ended.  All such  financial
statements,  including  the  related  schedules  and  notes  thereto,  have been
prepared in accordance with GAAP. The Borrowers and their  Subsidiaries  have no
Debt,  obligation or other unusual forward or long-term  commitment which is not
fairly reflected in the foregoing financial statements or in the notes thereto.

         (p) No Material Adverse Change. Since December 31, 1999, there has been
no material adverse change in the properties,  business, operations,  prospects,
or condition  (financial or  otherwise) of the Borrowers and their  Subsidiaries
and no event has occurred or condition  arisen that could reasonably be expected
to have a Material Adverse Effect.

         (q)  Solvency.  As of the Closing Date and after giving  effect to each
Extension of Credit made hereunder,  each Borrower and each  Subsidiary  thereof
will be Solvent.

         (r) Debt and Contingent Obligations.  Schedule 6.1(r) is a complete and
correct  listing of all Debt and  Contingent  Obligations  of the  Borrowers and
their  Subsidiaries  in excess of $500,000 as of the Closing Date. The Borrowers
and their  Subsidiaries  have  performed and are in  compliance  with all of the
terms of such Debt and Contingent Obligations and all instruments and agreements
relating  thereto,  and no default or event of  default,  or event or  condition
which with  notice or lapse of time or both would  constitute  such a default or
event of default on the part of any Borrower or any of its  Subsidiaries  exists
with respect to any such Debt or Contingent Obligation.

         (s) Litigation.  Except as set forth on Schedule  6.1(s),  there are no
actions,  suits or  proceedings  pending nor, to the  knowledge of any Borrower,
threatened  against or in any other way relating  adversely to or affecting  any
Borrower or any Subsidiary thereof or any of their respective

                                       39
<PAGE>

properties in any court or before any arbitrator of any kind or before or by any
Governmental  Authority which could have or could be reasonably expected to have
a Material Adverse Effect.

         (t) Absence of Defaults.  No event has occurred or is continuing  which
constitutes  a Default or an Event of Default,  or which  constitutes,  or which
with the passage of time or giving of notice or both would constitute, a default
or event of default by any Borrower or any Subsidiary thereof under any Material
Contract or judgment,  decree or order to which any  Borrower or any  Subsidiary
thereof is a party or by which any Borrower or any Subsidiary  thereof or any of
their respective  properties may be bound or which would require any Borrower or
any  Subsidiary  thereof to make any payment  thereunder  prior to the scheduled
maturity date therefor.

         (u) Status of Cornerstone as REIT. Cornerstone is and has been for each
of  Cornerstone's  tax years from and including  1993 a "real estate  investment
trust"  within the meaning of Section  856 of the Code and is being  operated in
accordance with the rules for  qualification as a "real estate investment trust"
under Sections 856 through 860 of the Code.

         (v) Other  Property  Matters.  With respect to each  Property  owned or
operated by each Borrower and each Subsidiary thereof:

                  (i) Titles to  Properties.  Each Borrower and each  Subsidiary
         thereof  has  such  title  to  each  such  Property  owned  by it as is
         necessary  or  desirable  to the conduct of its  business and valid and
         legal title to all of its personal property and assets,  including, but
         not limited to, those  reflected on the balance sheets of the Borrowers
         and their  Subsidiaries  delivered  pursuant to Section 6.1(o),  except
         those  which  have  been   disposed  of  by  the   Borrowers  or  their
         Subsidiaries  subsequent to such date which  dispositions  have been in
         the  ordinary  course of business or as otherwise  expressly  permitted
         hereunder.

                  (ii) Liens.  None of the properties and assets of any Borrower
         or any  Subsidiary  thereof  is  subject  to  any  Lien,  except  Liens
         permitted  pursuant to Section 10.5. No financing  statement  under the
         Uniform  Commercial  Code of any state which names any  Borrower or any
         Subsidiary  thereof or any of their respective trade names or divisions
         as  debtor  and which has not been  terminated,  has been  filed in any
         state or other  jurisdiction and no Borrower nor any Subsidiary thereof
         has signed  any such  financing  statement  or any  security  agreement
         authorizing  any secured party  thereunder  to file any such  financing
         statement,  except to perfect  those Liens  permitted  by Section  10.5
         hereof.

                  (iii)  Title  Insurance.  (A) On the date of  purchase of each
         such Property,  either (1) a title  insurance  policy was issued to the
         applicable  Borrower or one of its  Subsidiaries  in an amount not less
         than the purchase  price paid by such Borrower or such  Subsidiary,  or
         (2) the applicable  Borrower or one of its  Subsidiaries had obtained a
         commitment from a title insurance company to issue such title insurance
         policy  following  such purchase date, had complied as of such purchase
         date with each other condition  precedent to the issuance of such title
         policy and had paid the premium in respect of such policy,  and in each
         case neither the applicable  Borrower nor any of its  Subsidiaries  has
         taken any action that would cause such title insurance policy not to be
         valid  and in  full  force  and  effect  or (B)  with  respect  to such
         Property, there exists an attorney's opinion of title

                                       40
<PAGE>

         favorable to the applicable Borrower or one of its Subsidiaries,  given
         by an attorney licensed to practice law in the jurisdiction  where such
         Property is located.

                  (iv) Taxes,  etc.  Current.  All material taxes,  governmental
         assessments, insurance premiums, and water, sewer and municipal charges
         which previously  became due and owing in respect of such real property
         have been paid, or an escrow of funds in an amount  sufficient to cover
         such payments has been established.

                  (v)  Hazard  Insurance.  Such  Property  is  covered by hazard
         insurance (and, if applicable, federal flood insurance) in an amount at
         least  equal to the greater of (i) one  hundred  percent  (100%) of the
         replacement  cost of the  improvements  on such  Property,  and (ii) an
         amount  sufficient to avoid the application of any  coinsurance  clause
         contained in the related  insurance  policy;  such  insurance  requires
         prior notice to the applicable Borrower of termination or cancellation,
         and no such notice has been received.

                  (vi) Mechanics'  Liens. Such Property is free and clear of any
         material  mechanics'  and  materialmen's  liens or liens in the  nature
         thereof, except to the extent such liens would not have or would not be
         reasonably  expected to have a Material  Adverse Effect,  and no rights
         are  outstanding  that  under  law could  give rise to any such  liens,
         except those which are insured against by the title insurance  policies
         referred to in Section  6.1(v)(iii) above, or for work conducted by the
         applicable Borrower or any of its Subsidiaries for which payment is not
         yet due (or is being contested in good faith).

                  (vii)  Improvements.  None of the  improvements  in respect of
         such Property lies outside of the boundaries  and building  restriction
         lines of such  Property  in such a manner as to  materially  affect the
         value of such  improvements,  no improvements  on adjoining  properties
         materially  encroach upon such Property,  and no improvement located on
         or  forming  part of such  Property  is in  material  violation  of any
         applicable zoning laws or ordinances.

                  (viii) Inspections and Physical  Condition.  As of the Closing
         Date, such Property and any improvement or fixtures thereon are free of
         structural defects or damage materially  affecting their value, and all
         building systems  necessary for normal use of such Property are in good
         working order subject to ordinary wear and tear.

                  (ix)   Licenses  and   Permits.   The   Borrowers   and  their
         Subsidiaries  are  in  possession  of  all  material   certificates  of
         occupancy or other similar licenses,  permits and other  authorizations
         necessary and required by Applicable  Law for the use of such Property;
         and all such  certificates  of  occupancy  or other  similar  licenses,
         permits and authorizations are valid and in full force and effect.

                  (x) Condemnation Proceedings. As of the Closing Date, there is
         no material  proceeding  pending or threatened for the total or partial
         condemnation  of such  Property,  or for  the  relocation  of  roadways
         providing access to such Property.

                                       41
<PAGE>

                  (xi) Purchase  Options.  There are no  outstanding  options or
         rights of first refusal materially affecting such Property.

                  (xii) Separate  Lots.  Such Property is a separate tax parcel,
         assessed for real estate tax purposes separately from property owned by
         any other Person,  with such  exceptions as would not have or would not
         be reasonably expected to have a Material Adverse Effect.

                  (xiii)  Ground  Leases.  Where the interest of any Borrower or
         any  Subsidiary  thereof in such Property  exists under a ground lease,
         such ground  lease is in full force and effect and no material  default
         has  occurred  under  such  ground  lease,  nor is there  any  existing
         condition  which,  but for the  passage of time or the giving of notice
         (other than rent, or other payments due but not yet delinquent),  would
         result in a material default under the terms of such ground lease.

         (w) Accuracy and Completeness of Information.  All written information,
reports and other  papers and data  produced by or on behalf of any  Borrower or
any  Subsidiary  thereof and furnished to the Lenders were, at the time the same
were so furnished,  complete and correct in all respects to the extent necessary
to give the recipient a true and accurate  knowledge of the subject  matter.  No
document furnished or written statement made to the Administrative  Agent or the
Lenders  by any  Borrower  or any  Subsidiary  thereof  in  connection  with the
negotiation,  preparation  or  execution  of this  Agreement  or any of the Loan
Documents  contains or will contain any untrue  statement of a fact  material to
the  creditworthiness of any Borrower or any Subsidiary thereof or omits or will
omit to state a fact necessary in order to make the statements contained therein
not misleading.  No Borrower is aware of any facts which it has not disclosed in
writing to the Administrative Agent having a Material Adverse Effect, or insofar
as any Borrower can now foresee, could reasonably be expected to have a Material
Adverse Effect.

         SECTION 6.2  Survival  of  Representations  and  Warranties,  Etc.  All
representations   and   warranties   set  forth  in  this  Article  VI  and  all
representations and warranties contained in any certificate,  or any of the Loan
Documents (including but not limited to any such representation or warranty made
in or in connection with any amendment thereto) shall constitute representations
and warranties made under this  Agreement.  All  representations  and warranties
made  under this  Agreement  shall be made or deemed to be made at and as of the
Closing  Date,  shall  survive the  Closing  Date and shall not be waived by the
execution and delivery of this Agreement, any investigation made by or on behalf
of the Lenders or any borrowing hereunder.

                                       42
<PAGE>

                                   ARTICLE VII

                        FINANCIAL INFORMATION AND NOTICES

         Until all the Obligations have been finally and  indefeasibly  paid and
satisfied  in full  and the  Commitments  terminated,  unless  consent  has been
obtained in the manner set forth in Section  13.11 hereof,  the  Borrowers  will
furnish or cause to be furnished to the Administrative  Agent and to the Lenders
at their  respective  addresses as set forth on Schedule  1.1(a),  or such other
office as may be designated by the Administrative Agent and Lenders from time to
time:

         SECTION 7.1 Financial Statements and Projections.

         (a) Quarterly  Reports.  As soon as practicable and in any event within
sixty  (60) days after the end of each  fiscal  quarter,  (A) a schedule  of the
Properties summarizing total revenues,  expenses, Net Operating Income as to the
Properties,  Adjusted NOI as to the  Properties,  and occupancy  rates as of the
last day of the  applicable  fiscal  quarter and (B) a listing of all Properties
under development showing  construction  status, the total capital obligation of
the Borrowers and their  Subsidiaries  and funds expended to date as compared to
budget and  showing  the Total  Construction  in  Progress  Value  with  respect
thereto.

         (b) Annual Financial Reports.

                  (i) Annual Financial Statements. As soon as practicable and in
         any event  within one  hundred  and twenty  (120) days after the end of
         each  Fiscal  Year,  an  audited  Consolidated  balance  sheet  of  the
         Borrowers  and their  Subsidiaries  as of the close of such Fiscal Year
         and audited  Consolidated  statements of income,  retained earnings and
         cash flows for the Fiscal Year then ended, including the notes thereto,
         all  in  reasonable  detail  setting  forth  in  comparative  form  the
         corresponding  figures for the preceding Fiscal Year and prepared by an
         independent   certified  public   accounting  firm  acceptable  to  the
         Administrative  Agent in  accordance  with  GAAP  and,  if  applicable,
         containing  disclosure  of the  effect  on the  financial  position  or
         results of operation  of any change in the  application  of  accounting
         principles and practices  during the year, and  accompanied by a report
         thereon by such certified public accountants that is not qualified with
         respect to scope limitations  imposed by any Borrower or any Subsidiary
         thereof  or with  respect  to  accounting  principles  followed  by any
         Borrower or any Subsidiary thereof not in accordance with GAAP.

                  (ii) Annual Operating Information.  As soon as practicable and
         in any event  within one hundred and twenty (120) days after the end of
         each  Fiscal  Year,  (A)  a  detailed   schedule  for  the  Properties,
         including,  without  limitation,  project names and locations,  leasing
         status,  Net Operating Income as to the Properties,  Adjusted NOI as to
         the  Properties,  the source of cash  necessary to cover any  operating
         deficit,  the amount of and the beneficiary of any cash  distributions,
         and the amount  invested in or received from the properties and (B) the
         annual report of the Borrowers and their Subsidiaries.

                                       43
<PAGE>

         (c) Annual  Financial  Projections.  As soon as practicable  and in any
event  within one hundred  twenty  (120) days after the end of each Fiscal Year,
the following information: the annual operating capital budget, projected income
statement,  projected  statement of cash flows and projected balance sheet and a
report containing  management's  discussion and analysis of such projections for
the Borrower and their Subsidiaries for the next Fiscal Year.

         (d) Securities Filings.  Promptly upon any other transmission  thereof,
copies of each periodic  report  (including the special reports on Form 8-K, the
annual  reports  on Form 10-K and the  quarterly  reports on Form  10-Q),  proxy
statement or prospectus relating to any Borrower, any of its Subsidiaries or any
of their  respective  securities  as shall be  delivered  to  shareholders,  any
securities exchange or the Commission.

         SECTION 7.2 Officer's  Compliance  Certificate.  As soon as practicable
and in any  event  within  forty-five  (45) days  after  the end of each  fiscal
quarter,  within one hundred and twenty  (120) days after the end of each Fiscal
Year  and at such  other  times as the  Administrative  Agent  shall  reasonably
request,  a  certificate  of the chief  financial  officer or the  treasurer  of
Cornerstone,  on  behalf of the  Borrowers,  in the form of  Exhibit E  attached
hereto (an "Officer's Compliance Certificate").

         SECTION 7.3 Other Reports.

         (a) Promptly  upon  receipt  thereof,  copies of all  reports,  if any,
submitted to any Borrower or its Board of  Directors by its  independent  public
accountants  in connection  with their  auditing  function,  including,  without
limitation, any management report and any management responses thereto; and

         (b) Such other information  regarding the operations,  business affairs
and  financial  condition  of any  Borrower  or any of its  Subsidiaries  as the
Administrative Agent or any Lender may reasonably request.

         SECTION 7.4 Notice of Litigation and Other  Matters.  Prompt (but in no
event  later  than ten  (10)  days  after an  officer  of any  Borrower  obtains
knowledge thereof) telephonic and written notice of:

         (a) the commencement of all proceedings and investigations by or before
any  Governmental  Authority  and all  actions and  proceedings  in any court or
before any  arbitrator  against or  involving  any  Borrower  or any  Subsidiary
thereof or any of their respective properties, assets or businesses;

         (b)  any  notice  of any  violation  received  by any  Borrower  or any
Subsidiary   thereof  from  any  Governmental   Authority   including,   without
limitation, any notice of violation of Environmental Laws which in any such case
could reasonably be expected to have a Material Adverse Effect;

         (c) any labor  controversy that has resulted in, or threatens to result
in, a strike  or other  work  action  against  any  Borrower  or any  Subsidiary
thereof;

                                       44
<PAGE>

         (d) any attachment,  judgment,  lien,  levy or order exceeding  $50,000
individually  or  $100,000  in the  aggregate  that may be  assessed  against or
threatened against any Borrower or any Subsidiary thereof;

         (e) any Default or Event of Default,  or any event which constitutes or
which with the  passage of time or giving of notice or both would  constitute  a
default or event of default under any Material Contract to which any Borrower or
any  Subsidiary  thereof is a party or by which any  Borrower or any  Subsidiary
thereof or any of their respective properties may be bound;

         (f) (i) any unfavorable  determination letter from the Internal Revenue
Service  regarding the  qualification  of an Employee Benefit Plan under Section
401(a) of the Code (along with a copy thereof), (ii) all notices received by any
Borrower or any ERISA  Affiliate of the PBGC's  intent to terminate  any Pension
Plan or to have a trustee  appointed to administer  any Pension Plan,  (iii) all
notices  received by any Borrower or any ERISA  Affiliate  from a  Multiemployer
Plan  sponsor  concerning  the  imposition  or  amount of  withdrawal  liability
pursuant to Section 4202 of ERISA and (iv) any Borrower  obtaining  knowledge or
reason to know that any Borrower or any ERISA  Affiliate has filed or intends to
file a  notice  of  intent  to  terminate  any  Pension  Plan  under a  distress
termination within the meaning of Section 4041(c) of ERISA; and

         (g) any  event  which  makes  any of the  representations  set forth in
Section 6.1 inaccurate in any respect.

         SECTION 7.5 Accuracy of Information. All written information,  reports,
statements  and other papers and data  furnished by or on behalf of any Borrower
to the  Administrative  Agent or any Lender  (other  than  financial  forecasts)
whether  pursuant to this Article VII or any other  provision of this Agreement,
or any of the Loan  Documents,  shall be, at the time the same is so  furnished,
complete  and correct in all material  respects to the extent  necessary to give
the Administrative Agent or any Lender complete,  true and accurate knowledge of
the subject matter based on the Borrowers' knowledge thereof.

                                  ARTICLE VIII

                              AFFIRMATIVE COVENANTS

         Until all of the Obligations  have been finally and  indefeasibly  paid
and satisfied in full and the  Commitments  terminated,  unless consent has been
obtained in the manner  provided for in Section 13.11,  the Borrowers  will, and
will cause each of their Subsidiaries to:

         SECTION 8.1  Preservation of Corporate  Existence and Related  Matters.
Except as  permitted  by  Section  10.7,  preserve  and  maintain  its  separate
corporate  existence  and  all  rights,  franchises,   licenses  and  privileges
necessary to the conduct of its business,  and qualify and remain qualified as a
foreign  corporation  and  authorized  to do business in each  jurisdiction  and
maintain the  qualification  of  Cornerstone  and each of its  Subsidiaries,  as
applicable,  as "real estate investment trust" under Sections 856 through 860 of
the Code.

                                       45
<PAGE>

         SECTION  8.2   Maintenance  of  Property.   Protect  and  preserve  all
properties  useful  in and  material  to  its  business,  including  copyrights,
patents,  trade  names  and  trademarks;  maintain  in good  working  order  and
condition  all  buildings,  equipment  and  other  tangible  real  and  personal
property;  and  from  time  to time  make or  cause  to be  made  all  renewals,
replacements  and  additions to such  property  necessary for the conduct of its
business,  so that  the  business  carried  on in  connection  therewith  may be
properly and advantageously conducted at all times.

         SECTION 8.3 Insurance.  Maintain  insurance with financially  sound and
reputable  insurance  companies  against  such risks and in such  amounts as are
customarily  maintained  by  similar  businesses  and  as  may  be  required  by
Applicable Law, and on the Closing Date and from time to time thereafter deliver
to the  Administrative  Agent upon its request a detailed  list of the insurance
then in effect,  stating the names of the insurance  companies,  the amounts and
rates of the insurance,  the dates of the expiration  thereof and the properties
and risks covered thereby.

         SECTION 8.4 Accounting Methods and Financial Records. Maintain a system
of accounting,  and keep such books,  records and accounts  (which shall be true
and complete in all material respects) as may be required or as may be necessary
to permit the preparation of financial statements in accordance with GAAP and in
compliance  with  the   regulations  of  any   Governmental   Authority   having
jurisdiction over it or any of its properties.

         SECTION 8.5 Payment and Performance of Obligations. Pay and perform all
Obligations  under  this  Agreement  and the other  Loan  Documents,  and pay or
perform (a) all taxes,  assessments and other  governmental  charges that may be
levied  or  assessed  upon  it or  any  of  its  property,  and  (b)  all  other
indebtedness,  obligations  and  liabilities in accordance  with customary trade
practices;  provided, that such Borrower or such Subsidiary may contest any item
described in Section  8.5(a) and (b) in good faith so long as adequate  reserves
are maintained with respect thereto in accordance with GAAP.

         SECTION 8.6 Compliance  With Laws and Approvals.  Observe and remain in
compliance  with all  Applicable  Laws and maintain in full force and effect all
Governmental Approvals, in each case applicable to the conduct of its business.

         SECTION 8.7 Environmental Laws. In addition to and without limiting the
generality  of Section 8.6, (a) comply with,  and ensure such  compliance by all
tenants and  subtenants,  if any, with, all  applicable  Environmental  Laws and
obtain and comply with and maintain,  and ensure that all tenants and subtenants
obtain  and  comply  with  and  maintain,  any  and  all  licenses,   approvals,
notifications,  registrations  or permits  required by applicable  Environmental
Laws,  (b)  conduct and  complete  all  investigations,  studies,  sampling  and
testing,   and  all  remedial,   removal  and  other  actions   required   under
Environmental Laws, and promptly comply with all lawful orders and directives of
any  Governmental  Authority  regarding  Environmental  Laws,  and  (c)  defend,
indemnify and hold harmless the Administrative  Agent and the Lenders, and their
respective parents,  Subsidiaries,  Affiliates,  employees, agents, officers and
directors, from and against any claims, demands,  penalties, fines, liabilities,
settlements,  damages,  costs and  expenses of whatever  kind or nature known or
unknown, contingent or otherwise,  arising out of, or in any way relating to the
violation  of,  noncompliance  with or liability  under any  Environmental  Laws
applicable to the operations of such Borrower or such Subsidiary, or any

                                       46
<PAGE>

orders,  requirements or demands of Governmental  Authorities  related  thereto,
including,  without  limitation,  reasonable  attorney's and consultant's  fees,
investigation  and laboratory fees,  response costs,  court costs and litigation
expenses,  except to the extent that any of the foregoing  directly  result from
the gross negligence or willful misconduct of the party seeking  indemnification
therefor.

         SECTION 8.8 Compliance with ERISA. In addition to and without  limiting
the  generality  of Section 8.6, (a) comply with all  applicable  provisions  of
ERISA and the regulations and published interpretations  thereunder with respect
to all Employee  Benefit  Plans,  (b) not take any action or fail to take action
the result of which could be a liability to the PBGC or to a Multiemployer Plan,
(c) not participate in any prohibited transaction that could result in any civil
penalty  under ERISA or tax under the Code,  (d) operate each  Employee  Benefit
Plan in such a manner that will not incur any tax liability  under Section 4980B
of the Code or any liability to any qualified  beneficiary as defined in Section
4980B  of the  Code  and  (e)  furnish  to the  Administrative  Agent  upon  the
Administrative  Agent's request such additional  information  about any Employee
Benefit Plan as may be reasonably requested by the Administrative Agent.

         SECTION 8.9  Compliance  With  Agreements.  Comply in all respects with
each  term,  condition  and  provision  of  all  leases,  agreements  and  other
instruments  entered  into in the  conduct of its  business  including,  without
limitation,  any  Material  Contract;  provided,  that  such  Borrower  or  such
Subsidiary  may contest any such lease,  agreement or other  instrument  in good
faith through applicable proceedings so long as adequate reserves are maintained
in accordance with GAAP.

         SECTION  8.10  Conduct  of  Business.  Engage  only  in  businesses  in
substantially  the same fields as the  businesses  conducted on the Closing Date
(specifically the ownership and operation of Multifamily Properties).

         SECTION 8.11 Visits and Inspections.

         (a)  Upon  reasonable  prior  notice,  permit  representatives  of  the
Administrative  Agent or any Lender, from time to time, to visit and inspect its
properties;

         (b)  Upon  reasonable  prior  notice,  permit  representatives  of  the
Administrative Agent (on behalf of the Lenders),  from time to time, to inspect,
audit and make extracts from its books,  records and files,  including,  but not
limited to, management letters prepared by independent accountants; and

         (c)  Upon  reasonable  prior  notice,  permit  representatives  of  the
Administrative  Agent (on behalf of the Lenders),  from time to time, to discuss
with  its  principal  officers,   and,  together  with  representatives  of  the
Borrowers,  its  independent  accountants,  its business,  assets,  liabilities,
financial condition, results of operations and business prospects.

         SECTION 8.12 [Intentionally Omitted.]

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<PAGE>

         SECTION 8.13 Surveys.  Obtain for each Project acquired by any Borrower
or any Subsidiary  thereof after the Closing Date a current survey prepared by a
certified land surveyor  showing the location of actual  improvements  as of the
date of acquisition of the Project,  containing only those matters acceptable to
the  Administrative  Agent and containing a certification that the Project to be
financed with the Loans is not located in a flood hazard area.

         SECTION 8.14 Title Insurance.  Obtain for all Projects  acquired by any
Borrower or any Subsidiary  thereof after the Closing Date paid title  insurance
policies in accordance with the applicable title insurance  commitment  approved
by the Administrative Agent in connection with the requisition of the Loans.

         SECTION 8.15 Equity  Issuance.  Promptly  report to the  Administrative
Agent all Net Equity Proceeds  received from any Equity Issuance by any Borrower
or any of its Subsidiaries and verify to the satisfaction of the  Administrative
Agent the amount of such Net Equity Proceeds.

         SECTION 8.16 Upstream of Dividends.  Cause all Dividends payable by any
Subsidiary  of any Borrower to be  transferred  to such  Borrower as promptly as
possible.

         SECTION 8.17 Additional Borrowers. Except as otherwise permitted by the
Administrative  Agent,  upon the creation of any Subsidiary of any Borrower that
is  permitted  by this  Agreement,  other than those  Subsidiaries  set forth on
Schedule 8.17 hereto,  cause to be executed and delivered to the  Administrative
Agent (a) a Joinder  Agreement  duly executed by such  Subsidiary and each other
document  and  agreement  referred to therein  such that such  Subsidiary  shall
become a  borrower  hereunder  and be bound by all of the terms  and  conditions
hereof,  (b)  replacement  Notes duly executed by such Subsidiary and each other
Borrower then party hereto, (c) such closing documents and certificates required
of each of the Borrowers pursuant to Section 5.2(b) and (d) such other documents
reasonably  requested by the  Administrative  Agent consistent with the terms of
this  Agreement in order that such  Subsidiary  shall become bound by all of the
terms,   covenants  and  agreements  contained  in  the  Loan  Documents.   Upon
satisfaction  of the conditions set forth in this Section 8.17,  each Subsidiary
shall become a Borrower  hereunder  and the other Loan  Documents on a joint and
several basis to the same extent as if such  Subsidiary  had been a party hereto
and thereto on the Closing Date.

         SECTION 8.18 Securities Exchange Listing.  Take all action necessary to
ensure that Cornerstone maintains a listing (including,  without limitation, all
authorizations  required in order to be listed) on the New York Stock  Exchange,
the American  Stock  Exchange,  the National  Market  System of the Nasdaq Stock
Market or any other  national  securities  exchange  that has listing  standards
determined  by the  Administrative  Agent  to be  substantially  similar  to the
listing standards applicable to the aforementioned exchanges.

                                       48
<PAGE>

         SECTION 8.19  Further  Assurances.  Make,  execute and deliver all such
additional and further acts, things, deeds and instruments as the Administrative
Agent or any Lender  may  reasonably  require to  document  and  consummate  the
transactions  contemplated  hereby  and to vest  completely  in and  insure  the
Administrative  Agent  and  the  Lenders  their  respective  rights  under  this
Agreement, the Notes and the other Loan Documents.

                                   ARTICLE IX

                               FINANCIAL COVENANTS

         Until all of the Obligations  have been finally and  indefeasibly  paid
and satisfied in full and the  Commitments  terminated,  unless consent has been
obtained in the manner set forth in Section  13.11  hereof,  the  Borrowers  and
their  Subsidiaries (or, as applicable,  their  Wholly-Owned  Subsidiaries) on a
Consolidated basis will not:

         SECTION 9.1 Leverage  Ratio.  As of any fiscal quarter end,  permit the
ratio  of  (a)  Total  Funded  Debt  as  of  such  date  to  (b)  Total  Implied
Capitalization Value for such fiscal quarter to exceed 0.60 to 1.0.

         SECTION 9.2 Fixed Charge  Coverage Ratio. As of any fiscal quarter end,
permit the ratio of (a) Adjusted  EBITDA for the period of four (4)  consecutive
fiscal  quarters ending on such fiscal quarter end to (b) Fixed Charges for such
period of four (4) consecutive fiscal quarters, to be less than 1.70 to 1.00.

         SECTION 9.3 Minimum Shareholder's Equity. As of any fiscal quarter end,
permit Shareholder's Equity to be less than the sum of (a) $460,000,000 plus (b)
seventy-five  percent (75%) of the Net Equity  Proceeds from any equity offering
after the Closing Date.

         SECTION   9.4   Ratios  of  Total   Secured   Debt  to  Total   Implied
Capitalization  Value.  As of any fiscal  quarter  end,  permit the ratio of (a)
Total Secured Debt as of such date to (b) Total Implied Capitalization Value for
such fiscal quarter to exceed 0.55 to 1.0; provided that any secured debt by the
Borrower and  Guarantors  is recourse  only to the specific  assets  provided as
collateral.

         SECTION  9.5  Ratio  of  Adjusted  Unencumbered  Asset  Value  to Total
Unsecured  Debt.  As of any  fiscal  quarter  end,  permit  the ratio of (a) the
Adjusted Unencumbered Asset Value for such fiscal quarter to (b) Total Unsecured
Debt as of such date to be less than 2.50 to 1.0.

         SECTION 9.6  Adjusted  Unencumbered  Asset Cash Flow  Ratio.  As of any
fiscal  quarter  end, or as of the date of any Loan made  hereunder,  permit the
ratio of (a) the Adjusted Unencumbered Asset Cash Flow as of such fiscal quarter
end to (b) Proforma Debt Service for such period to be less than 2.00 to 1.0.

                                       49
<PAGE>

         SECTION 9.7 Unencumbered  Assets.  At any time own fewer than eight (8)
Unencumbered  Assets which (i) each are at least eighty  percent (80%)  occupied
and  (ii)  each  have  an  Adjusted   Unencumbered  Asset  Value  of  less  than
$25,000,000.

         SECTION  9.8 Ratio of Total  Construction  in  Progress  Value to Total
Implied  Capitalization Value. As of any fiscal quarter end, permit the ratio of
(a) Total  Construction  in Progress  Value as of such date to (b) Total Implied
Capitalization Value for such fiscal quarter to exceed 0.10 to 1.0.

         SECTION  9.9 Ratio of  Dividends  to Funds from  Operations.  As of any
fiscal quarter end,  permit the ratio of (a) Dividends paid during the period of
four (4) consecutive  fiscal quarters as of such fiscal quarter end to (b) Funds
from  Operations  for such  period of four (4)  consecutive  fiscal  quarters to
exceed 0.95 to 1.0.

                                    ARTICLE X

                               NEGATIVE COVENANTS

         Until all of the Obligations  have been finally and  indefeasibly  paid
and satisfied in full and the  Commitments  terminated,  unless consent has been
obtained in the manner set forth in Section 13.11 hereof, the Borrowers have not
and will not, and will not permit any of their Subsidiaries to:

         SECTION 10.1 Limitations on Debt.  Create,  incur,  assume or suffer to
exist any Debt except:

         (a) the Obligations;

         (b)  Debt  incurred  in  connection  with a  Hedging  Agreement  with a
counterparty  and upon  terms  and  conditions  reasonably  satisfactory  to the
Administrative Agent;

         (c) Debt existing on the Closing Date and not otherwise permitted under
this  Section  10.1,  as set  forth  on  Schedule  6.1(r)  and the  renewal  and
refinancing (but not the increase) thereof;

         (d) Debt  consisting  of  Contingent  Obligations  permitted by Section
10.2;

         (e) Debt  incurred in  connection  with trade  payables  arising in the
ordinary course of business;

         (f) Debt incurred in connection  with the  $7,500,000  cash  management
facility between Cornerstone and First Union; and

         (g) Debt not otherwise  permitted by this Section  10.1;  provided that
(i) no Default or Event of Default shall then have occurred and be continuing or
occasioned thereby, (ii) such debt shall not otherwise be prohibited pursuant to
the  provisions  of  Sections  10.2 and  10.3,  (iii)  for all such  Debt with a
scheduled maturity date on or after the Maturity Date, all such Debt will bear

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<PAGE>

interest  at a fixed rate and not at a variable  rate,  and (iv) such Debt shall
not be incurred  pursuant to a revolving  credit facility or any other revolving
line of credit;

provided,  that none of the Debt  permitted  to be incurred by this Section 10.1
shall  restrict,  limit or otherwise  encumber (by  covenant or  otherwise)  the
ability of any  Subsidiary  of any Borrower to make any payment to such Borrower
or any of its Subsidiaries (in the form of Dividends,  intercompany  advances or
otherwise) for the purpose of enabling such Borrower to pay the Obligations.

         SECTION 10.2  Unsecured  Debt  Restriction.  With the exception of this
Credit  Facility and a preexisting  Seven Million Five Hundred  Thousand  Dollar
($7,500,000.00)  cash  management  line with First Union National Bank,  create,
incur, assume or suffer to exist any Unsecured Debt.

         SECTION 10.3 Secured Debt Restrictions. Create, incur, assume or suffer
to exist any Debt which is secured by a Lien on  collateral,  except  Debt where
the lender's sole recourse as to the payment of principal and interest is to the
collateral upon which the Lien is granted and which has a maturity date at least
one (1) year after the Maturity Date, except as set forth on Schedule 10.3.

         SECTION 10.4  Limitations  on Contingent  Obligations.  Create,  incur,
assume  or  suffer  to  exist  any  Contingent   Obligations  except  Contingent
Obligations  in  favor  of the  Administrative  Agent  for  the  benefit  of the
Administrative Agent and the Lenders.

         SECTION 10.5 Limitations on Liens.  Create,  incur, assume or suffer to
exist, any Lien on or with respect to any of its assets or properties (including
without limitation shares of capital stock or other ownership  interests),  real
or personal, whether now owned or hereafter acquired, except:

         (a) Liens for  taxes,  assessments  and other  governmental  charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or
Environmental  Laws)  not yet due or as to which  the  period  of grace  (not to
exceed thirty (30) days),  if any,  related thereto has not expired or which are
being  contested  in good  faith  and by  appropriate  proceedings  if  adequate
reserves are maintained to the extent required by GAAP;

         (b) the  claims  of  materialmen,  mechanics,  carriers,  warehousemen,
processors or landlords for labor,  materials,  supplies or rentals  incurred in
the ordinary course of business,  (i) which are not overdue for a period of more
than  thirty  (30) days or (ii) which are being  contested  in good faith and by
appropriate proceedings;

         (c) Liens consisting of deposits or pledges made in the ordinary course
of business in  connection  with,  or to secure  payment of,  obligations  under
workers' compensation, unemployment insurance or similar legislation;

         (d)  Liens   constituting   encumbrances   in  the   nature  of  zoning
restrictions,  easements and rights or restrictions of record on the use of real
property, which in the aggregate are not substantial

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<PAGE>

in amount and which do not, in any case, detract from the value of such property
or impair the use thereof in the ordinary conduct of business;

         (e)  Liens  of  the  Administrative   Agent  for  the  benefit  of  the
Administrative Agent and the Lenders;

         (f) Liens arising under mortgages securing Debt permitted under Section
10.1 of this Agreement; and

         (g) Liens not otherwise permitted by this Section 10.5 and in existence
on the Closing Date and described on Schedule 10.5.

         SECTION  10.6   Limitations  on  Loans,   Advances,   Investments   and
Acquisitions.  Purchase,  own,  invest  in or  otherwise  acquire,  directly  or
indirectly,  any capital  stock,  interests in any  partnership or joint venture
(including,   without   limitation,   the  creation  or  capitalization  of  any
Subsidiary), evidence of Debt or other obligation or security, substantially all
or a  portion  of the  business  or  assets  of any  other  Person  or any other
investment  or interest  whatsoever  in any other  Person,  or make or permit to
exist,  directly or  indirectly,  any loans,  advances or  extensions  of credit
(which  shall  not  be  deemed  to  include  delinquent  rental  payments  being
diligently  pursued by the Borrowers in the ordinary  course of business) to, or
any investment in cash or by delivery of property in, any Person, or enter into,
directly or  indirectly,  any  commitment  or option in respect of the foregoing
except:

         (a)  investments in  Subsidiaries  existing on the Closing Date and the
other existing loans, advances and investments described on Schedule 10.6;

         (b)  investments  in  (i)  marketable  direct   obligations  issued  or
unconditionally guaranteed by the United States of America or any agency thereof
maturing within 120 days from the date of acquisition  thereof,  (ii) commercial
paper  maturing  no more than 120 days  from the date of  creation  thereof  and
currently having the highest rating  obtainable from either Standard & Poor's or
Moody's,  (iii)  certificates of deposit maturing no more than 120 days from the
date of creation thereof issued by commercial banks  incorporated under the laws
of the United  States of America,  each  having  combined  capital,  surplus and
undivided  profits of not less than  $500,000,000  and having a rating of "A" or
better by a nationally  recognized rating agency;  provided,  that the aggregate
amount  invested in such  certificates  of deposit  shall not at any time exceed
$5,000,000 for any one such  certificate of deposit and  $10,000,000 for any one
such bank, or (iv) time deposits  maturing no more than 30 days from the date of
creation  thereof  with  commercial  banks or savings  banks or savings and loan
associations  each having membership either in the FDIC or the deposits of which
are insured by the FDIC and in amounts  not  exceeding  the  maximum  amounts of
insurance thereunder;

         (c)  investments  by any  Borrower  or any  Subsidiary  in the  form of
acquisitions of all or  substantially  all of the business or a line of business
(whether by the acquisition of capital stock, assets or any combination thereof)
of any other Person if such acquisition has been previously  approved in writing
by the Required Lenders;

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<PAGE>

         (d)  investments by any Borrower or any Subsidiary in joint ventures or
partnerships in an aggregate amount not to exceed five percent (5%) of the Total
Implied Capitalization Value on any date of determination; and

         (e) investments by any Borrower or any Subsidiary in Properties  (other
than Multifamily  Properties as permitted  hereunder) and in an aggregate amount
(including, without limitation, the aggregate amount of any investments incurred
under  Section  10.6(d)  and (f)) not to exceed ten  percent  (10%) of the Total
Implied Capitalization Value on any date of determination.

Notwithstanding  the foregoing,  to the extent  Cornerstone  has received equity
proceeds  which it  reasonably  determines  it cannot  immediately  reinvest  in
Multifamily Properties, Cornerstone may make temporary investments not otherwise
permitted by this Section 10.6 upon the approval of the Administrative Agent and
all of the  Lenders.  The  approval  of  such  investment,  the  amount  of such
investment and the permitted time period related  thereto shall be determined in
discretion of the Administrative Agent and all of the Lenders.

         SECTION 10.7 Limitations on Mergers and Liquidation. Merge, consolidate
or enter  into any  similar  combination  with any other  Person  or  liquidate,
wind-up or dissolve itself (or suffer any liquidation or dissolution) except:

         (a) any Borrower may merge with any other Borrower;

         (b) any Borrower may merge into the Person such  Borrower was formed to
acquire in connection with an acquisition permitted by Section 10.6(c); and

         (c) any Borrower may wind-up into any other Borrower.

         SECTION 10.8 Limitations on Dividends and Distributions. Declare or pay
any  Dividends  upon any of its  capital  stock;  purchase,  redeem,  retire  or
otherwise acquire,  directly or indirectly,  any shares of its capital stock, or
make any distribution of cash, property or assets among the holders of shares of
its capital stock, or make any change in its capital structure; provided that:

         (a) any Borrower or any  Subsidiary  may pay Dividends in shares of its
own capital stock  (provided  that no Default or Event of Default under Sections
11.1(a),  (b),  (j) or (k)  shall  then  have  occurred  and  be  continuing  or
occasioned thereby);

         (b) any Borrower which is a real estate  investment  trust may pay such
Dividends as are  necessary  to maintain its status as a real estate  investment
trust (provided that no Default or Event of Default under Sections 11.1(a), (b),
(j) or (k) shall then have occurred and be continuing or occasioned thereby);

         (c) any  Borrower  which  is a real  estate  investment  trust  may pay
Dividends in addition to those  Dividends  permitted  by Section  10.8(b) to the
extent not  prohibited by Section 9.9 hereof  (provided that no Default or Event
of Default under Sections 11.1(a),  (b), (j) or (k) shall then have occurred and
be continuing or occasioned thereby); and

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<PAGE>

         (d) any Subsidiary may pay cash Dividends to any Borrower.

         SECTION 10.9  Limitations  on Exchange  and Issuance of Capital  Stock.
Issue,  sell or otherwise  dispose of any class or series of capital stock that,
by its terms or by the terms of any  security  into which it is  convertible  or
exchangeable, is, or upon the happening of an event or passage of time would be,
(a)  convertible  or  exchangeable  into Debt or (b)  required to be redeemed or
repurchased, including at the option of the holder, in whole or in part, or has,
or upon the happening of an event or passage of time would have, a redemption or
similar payment due.

         SECTION  10.10  Transactions  with  Affiliates.  Except as set forth on
Schedule  10.10,  directly  or  indirectly:  (a) make any loan or advance to, or
purchase or assume any note or other obligation to or from, any of its officers,
directors,  shareholders  or other  Affiliates,  or to or from any member of the
immediate  family  of any of its  officers,  directors,  shareholders  or  other
Affiliates, or subcontract any operations to any of its Affiliates (except loans
or advances to any of its officers, directors or other employees approved by the
Board of Directors in the ordinary course of business), or (b) enter into, or be
a party to, any transaction  with any of its Affiliates,  except pursuant to the
reasonable  requirements of its business and upon fair and reasonable terms that
are fully  disclosed to and approved in writing by the Required  Lenders and are
no less  favorable  to it than it would  obtain  in a  comparable  arm's  length
transaction with a Person not its Affiliate.

         SECTION 10.11 Certain Accounting  Changes.  Change its Fiscal Year end,
or make any change in its accounting treatment and reporting practices except as
required by GAAP.

         SECTION 10.12  Amendments;  Payments and  Prepayments  of  Subordinated
Debt.  Amend or modify (or permit the  modification  or amendment of) any of the
terms or provisions  of any  Subordinated  Debt, or cancel or forgive,  make any
voluntary or optional  payment or prepayment  on, or redeem or acquire for value
(including without limitation by way of depositing with any trustee with respect
thereto money or  securities  before due for the purpose of paying when due) any
Subordinated Debt, except where any such amendment,  modification,  cancellation
or payment would not cause a Default or Event of Default.

         SECTION  10.13  Status as REIT.  (a) Revoke its  election to be a "real
estate investment trust" within the meaning of Section 856 of the Code, (b) take
or fail to take any action that will cause such  election to be terminated or to
cease to be valid at any time,  (c) incur  liability  for any  excise  tax under
Section 4981 of the Code or (d) incur  liability for any prohibited  transaction
under Section 857(b)(6) of the Code.

         SECTION 10.14 Property Acquisition Policy.

         (a)  Acquire  any  Property  unless the  representations  contained  in
Section 6.1(v)  hereof,  if given as of the date of such  acquisition,  would be
true and correct with respect to such Property.

         (b) Purchase any new  Property  unless for each such  Property it shall
first:

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<PAGE>

                  (i) conduct such  investigations and examinations with respect
         to such  Property as are  customarily  made by the  Borrowers as of the
         date hereof; and

                  (ii) conduct a Phase I  environmental  review (a "Phase I") of
         such  Property  and the  surrounding  area and perform and  document in
         writing all further investigation  necessary or appropriate in light of
         the findings of such Phase I and determine that no Hazardous  Materials
         exist in such area  that has the  potential  to result in any  material
         adverse effect on the condition  (financial or otherwise),  operations,
         assets, businesses,  properties or prospects of any Borrower;  provided
         that if a Phase I cannot feasibly be conducted due to time  constraints
         dictated by the terms of the proposed  Property,  the  Borrowers  shall
         perform  computer  database  searches  to  confirm  the  absence of any
         Environmental Condition, and shall perform as much of the investigation
         and analysis  which would be part of a Phase I as is possible  prior to
         the closing of the transaction related to the Property, and will obtain
         a full  Phase I within  sixty  (60)  days  after  the  purchase  of the
         Property  has  been  effected.  Each  Phase  I will  be  available  for
         inspection by the Administrative  Agent or any Lender. At no time shall
         the aggregate book value of all Properties  with respect to which there
         existed at the time of purchase a Hazardous  Material on such  Property
         as described above exceed five percent (5%) of the aggregate book value
         of all the Properties owned by the Borrowers and their Subsidiaries.

         SECTION  10.15  Restrictive  Agreements.  Enter  into  any  Debt  which
contains any negative  pledge on assets or any covenants more  restrictive  than
the provisions of Articles VIII, IX and X hereof, or which restricts,  limits or
otherwise  encumbers its ability to incur Liens on or with respect to any of its
assets or properties other than the assets or properties securing such Debt.

                                   ARTICLE XI

                              DEFAULT AND REMEDIES

         SECTION 11.1 Events of Default.  Each of the following shall constitute
an Event of Default,  whatever the reason for such event and whether it shall be
voluntary or  involuntary  or be effected by operation of law or pursuant to any
judgment  or  order  of any  court  or any  order,  rule  or  regulation  of any
Governmental Authority or otherwise:

         (a)  Default  in  Payment  of  Principal  of  Loans  and  Reimbursement
Obligation.  Any Borrower shall default in any payment of principal of any Loan,
Note or Reimbursement Obligation when and as due (whether at maturity, by reason
of acceleration or otherwise).

         (b) Other Payment  Default.  Any Borrower  shall default in the payment
when and as due (whether at maturity, by reason of acceleration or otherwise) of
interest on any Loan,  Note or  Reimbursement  Obligation  or the payment of any
other  Obligation,  and such  default  shall  continue  unremedied  for five (5)
Business Days.

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<PAGE>

         (c) Misrepresentation. Any representation or warranty made or deemed to
be made by any Borrower or any Subsidiary thereof under this Agreement, any Loan
Document or any  amendment  hereto or  thereto,  shall at any time prove to have
been incorrect or misleading in any material respect when made or deemed made.

         (d) Default in  Performance  of Certain  Covenants.  Any Borrower shall
default in the performance or observance of any covenant or agreement  contained
in Section 7.4(e) or Articles IX or X of this Agreement.

         (e) Default in  Performance  of Other  Covenants  and  Conditions.  Any
Borrower  or  any  Subsidiary  thereof  shall  default  in  the  performance  or
observance  of any term,  covenant,  condition  or  agreement  contained in this
Agreement  (other than as  specifically  provided for  otherwise in this Section
11.1) or any other Loan Document and such default shall continue for a period of
thirty (30) days after written notice thereof has been given to Cornerstone,  on
behalf of the Borrowers, by the Administrative Agent.

         (f) Hedging  Agreement.  Any  termination  payment  shall be due by any
Borrower under any Hedging Agreement and such amount is not paid within ten (10)
Business Days of the due date thereof.

         (g) Debt  Cross-Default.  Any Borrower or any Subsidiary  thereof shall
(i)  default in the  payment of any Debt  (other  than the Notes) the  aggregate
outstanding amount of which Debt is in excess of $1,000,000 beyond the period of
grace if any,  provided in the instrument or agreement under which such Debt was
created, or (ii) default in the observance or performance of any other agreement
or  condition  relating  to any  Debt  (other  than  the  Notes)  the  aggregate
outstanding  amount of which Debt is in excess of $1,000,000 or contained in any
instrument or agreement  evidencing,  securing or relating  thereto or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause,  or to permit the holder or holders of such Debt (or a
trustee or agent on behalf of such holder or holders) to cause,  with the giving
of notice if required,  any such Debt to become due prior to its stated maturity
(any applicable grace period having expired).

         (h) Other Cross-Defaults.  Any Borrower or any Subsidiary thereof shall
default in the payment when due, or in the  performance  or  observance,  of any
obligation or condition of any Material  Contract  unless,  but only as long as,
the  existence of any such default is being  contested by such  Borrower or such
Subsidiary in good faith by  appropriate  proceedings  and adequate  reserves in
respect  thereof  have been  established  on the books of such  Borrower or such
Subsidiary to the extent required by GAAP.

         (i) Change in Control.  (i) Any person or group of persons  (within the
meaning of Section  13(d) of the  Securities  Exchange Act of 1934,  as amended)
shall obtain  ownership or control in one or more series of transactions of more
than ten percent  (10%) of the common  stock or ten percent  (10%) of the voting
power of Cornerstone entitled to vote in the election of members of the board of
directors of  Cornerstone or (ii) Glade M. Knight,  S.J.  Olander or Debra Jones
ceases to continue to hold his or her current office or continue with management
responsibilities substantially similar to those existing on the Closing Date and
a replacement for such Person reasonably

                                       56
<PAGE>

satisfactory to the Administrative  Agent and possessing  substantially  similar
qualifications  and  reputation to the Person being  replaced is not employed by
the  Borrowers  within  three (3) months  after such Person  ceases to hold such
office or continue to have such management  responsibilities  (any such event, a
"Change in Control").

         (j) Voluntary  Bankruptcy  Proceeding.  Any Borrower or any  Subsidiary
thereof shall (i) commence a voluntary  case under the federal  bankruptcy  laws
(as now or hereafter in effect),  (ii) file a petition seeking to take advantage
of any other  laws,  domestic or foreign,  relating to  bankruptcy,  insolvency,
reorganization, winding up or composition for adjustment of debts, (iii) consent
to or fail to contest  in a timely and  appropriate  manner any  petition  filed
against it in an involuntary case under such bankruptcy laws or other laws, (iv)
apply for or consent to, or fail to contest in a timely and appropriate  manner,
the  appointment  of, or the taking of  possession  by, a  receiver,  custodian,
trustee,  or  liquidator  of itself or of a  substantial  part of its  property,
domestic or foreign, (v) admit in writing its inability to pay its debts as they
become due,  (vi) make a general  assignment  for the benefit of  creditors,  or
(vii) take any  corporate  action  for the  purpose  of  authorizing  any of the
foregoing.

         (k) Involuntary Bankruptcy Proceeding. A case or other proceeding shall
be  commenced  against any  Borrower or any  Subsidiary  thereof in any court of
competent  jurisdiction seeking (i) relief under the federal bankruptcy laws (as
now or  hereafter  in  effect) or under any other  laws,  domestic  or  foreign,
relating to bankruptcy, insolvency,  reorganization, winding up or adjustment of
debts, or (ii) the appointment of a trustee, receiver, custodian,  liquidator or
the  like  for  any  Borrower  or  any  Subsidiary  thereof  or  for  all or any
substantial part of their respective assets,  domestic or foreign, and such case
or proceeding shall continue  undismissed or unstayed for a period of sixty (60)
consecutive  days,  or an order  granting  the relief  requested in such case or
proceeding  (including,  but not  limited  to, an order for  relief  under  such
federal bankruptcy laws) shall be entered.

         (l) Failure of  Agreements.  Any provision of this  Agreement or of any
other Loan  Document  shall for any reason  cease to be valid and binding on any
Borrower or any  Subsidiary  party  thereto or any such Person shall so state in
writing, or this Agreement or any other Loan Document shall for any reason cease
to create a valid and perfected first priority Lien on, or security interest in,
any of the collateral  purported to be covered thereby,  in each case other than
in accordance with the express terms hereof or thereof.

         (m) Termination  Event. The occurrence of any of the following  events:
(i) any Borrower or any ERISA  Affiliate  fails to make full payment when due of
all amounts  which,  under the  provisions of any Pension Plan or Section 412 of
the  Code,  any  Borrower  or  any  ERISA   Affiliate  is  required  to  pay  as
contributions  thereto,  (ii) an  accumulated  funding  deficiency  in excess of
$100,000  occurs or exists,  whether or not waived,  with respect to any Pension
Plan,  (iii) a Termination  Event or (iv) any Borrower or any ERISA Affiliate as
employers  under one or more  Multiemployer  Plan  makes a  complete  or partial
withdrawal  from  any such  Multiemployer  Plan  and the  plan  sponsor  of such
Multiemployer  Plans notifies such  withdrawing  employer that such employer has
incurred  a  withdrawal  liability  requiring  payments  in an amount  exceeding
$100,000.

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<PAGE>

         (n) Judgment. A judgment or order for the payment of money which causes
the aggregate amount of all such judgments to exceed $100,000 in any Fiscal Year
shall be entered against any Borrower or any Subsidiary thereof by any court and
such judgment or order shall continue  undischarged  or unstayed for a period of
thirty (30) days.

         SECTION 11.2 Remedies. Upon the occurrence of an Event of Default, with
the consent of the Required Lenders,  the Administrative  Agent may, or upon the
request of the Required Lenders,  the  Administrative  Agent shall, by notice to
Cornerstone, on behalf of the Borrowers:

         (a) Acceleration;  Termination of Facilities.  Declare the principal of
and interest on the Loans,  the Notes and the  Reimbursement  Obligation  at the
time  outstanding,  and  all  other  amounts  owed  to  the  Lenders  and to the
Administrative  Agent under this  Agreement  or any of the other Loan  Documents
(including,  without  limitation,  all  L/C  Obligations,  whether  or  not  the
beneficiaries  of the  outstanding  Letters of Credit shall have  presented  the
documents required  thereunder) and all other  Obligations,  to be forthwith due
and payable, whereupon the same shall immediately become due and payable without
presentment,  demand,  protest  or other  notice of any  kind,  all of which are
expressly waived,  anything in this Agreement or the other Loan Documents to the
contrary notwithstanding, and terminate the Credit Facility and any right of any
Borrower to request borrowings or Letters of Credit thereunder;  provided,  that
upon the occurrence of an Event of Default  specified in Section 11.1(j) or (k),
the Credit Facility shall be automatically  terminated and all Obligations shall
automatically become due and payable.

         (b)  Letters of Credit.  With  respect  to all  Letters of Credit  with
respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to the preceding paragraph,  require the Borrowers at such
time to deposit in a cash collateral account opened by the Administrative  Agent
an amount  equal to the  aggregate  then  undrawn and  unexpired  amount of such
Letters of Credit. Amounts held in such cash collateral account shall be applied
by the Administrative Agent to the payment of drafts drawn under such Letters of
Credit,  and the unused  portion  thereof after all such Letters of Credit shall
have  expired or been fully  drawn upon,  if any,  shall be applied to repay the
other  Obligations.  After all such Letters of Credit shall have expired or been
fully drawn upon, the Reimbursement Obligation shall have been satisfied and all
other  Obligations  shall have been paid in full,  the balance,  if any, in such
cash collateral account shall be returned to the Borrowers.

         (c) Rights of Collection.  Exercise on behalf of the Lenders all of its
other rights and remedies  under this  Agreement,  the other Loan  Documents and
Applicable Law, in order to satisfy all of the Borrowers' Obligations.

         SECTION  11.3 Rights and  Remedies  Cumulative;  Non-Waiver;  etc.  The
enumeration  of the  rights and  remedies  of the  Administrative  Agent and the
Lenders set forth in this  Agreement  is not intended to be  exhaustive  and the
exercise  by the  Administrative  Agent and the  Lenders  of any right or remedy
shall not preclude  the  exercise of any other rights or remedies,  all of which
shall be cumulative, and shall be in addition to any other right or remedy given
hereunder or under the Loan Documents or that may now or hereafter  exist in law
or in equity or by suit or otherwise.  No delay or failure to take action on the
part of the

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<PAGE>

Administrative  Agent or any Lender in exercising any right,  power or privilege
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such right, power or privilege preclude other or further exercise thereof or
the exercise of any other right,  power or privilege or shall be construed to be
a waiver of any Event of Default. No course of dealing between any Borrower, the
Administrative  Agent and the Lenders or their  respective  agents or  employees
shall be  effective  to  change,  modify  or  discharge  any  provision  of this
Agreement or any of the other Loan  Documents  or to  constitute a waiver of any
Event of Default.

                                   ARTICLE XII

                            THE ADMINISTRATIVE AGENT

         SECTION  12.1  Appointment.  Each  of the  Lenders  hereby  irrevocably
designates and appoints First Union as Administrative Agent of such Lender under
this  Agreement and the other Loan  Documents  and each such Lender  irrevocably
authorizes  First Union as  Administrative  Agent for such Lender,  to take such
action on its behalf under the  provisions of this  Agreement and the other Loan
Documents  and to exercise  such powers and perform such duties as are expressly
delegated to the  Administrative  Agent by the terms of this  Agreement and such
other  Loan  Documents,  together  with  such  other  powers  as are  reasonably
incidental thereto.  The Administrative  Agent shall administer the Loans in the
same manner that the  Administrative  Agent  administers  loans made for its own
account.  Notwithstanding  any  provision  to the  contrary  elsewhere  in  this
Agreement or such other Loan Documents,  the Administrative Agent shall not have
any duties or  responsibilities,  except  those  expressly  set forth herein and
therein,  or  any  fiduciary  relationship  with  any  Lender,  and  no  implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this  Agreement  or the other Loan  Documents  or  otherwise  exist
against the Administrative Agent.

         SECTION 12.2 Delegation of Duties. The Administrative Agent may execute
any of its  respective  duties under this Agreement and the other Loan Documents
by or through  agents or  attorneys-in-fact  and shall be  entitled to advice of
counsel  concerning all matters  pertaining to such duties.  The  Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by the Administrative Agent with reasonable care.

         SECTION 12.3 Exculpatory  Provisions.  Neither the Administrative Agent
nor  any of  its  officers,  directors,  employees,  agents,  attorneys-in-fact,
Subsidiaries or Affiliates  shall be (a) liable for any action lawfully taken or
omitted  to be  taken by it or such  Person  under or in  connection  with  this
Agreement or the other Loan Documents  (except for actions  occasioned solely by
its or such  Person's  own  gross  negligence  or  willful  misconduct),  or (b)
responsible  in any manner to any of the Lenders for any  recitals,  statements,
representations  or warranties made by any Borrower or any Subsidiary thereof or
any officer  thereof  contained in this Agreement or the other Loan Documents or
in any certificate,  report, statement or other document referred to or provided
for in, or received by the  Administrative  Agent under or in  connection  with,
this  Agreement  or the  other  Loan  Documents  or  for  the  value,  validity,
effectiveness,  genuineness,  enforceability or sufficiency of this Agreement or
the other Loan  Documents or for any failure of any  Borrower or any  Subsidiary
thereof to perform its obligations hereunder or thereunder. The

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Administrative  Agent  shall  not be  under  any  obligation  to any  Lender  to
ascertain  or to  inquire  as to the  observance  or  performance  of any of the
agreements  contained in, or conditions  of, this  Agreement,  or to inspect the
properties,  books or records of any Borrower or any Subsidiary  thereof (except
as the  Administrative  Agent (on behalf of the  Lenders) may be directed by the
Required Lenders to take those actions permitted under Section 8.11(b) or (c)).

         SECTION 12.4 Reliance by the  Administrative  Agent. The Administrative
Agent shall be entitled to rely, and shall be fully  protected in relying,  upon
any note, writing, resolution, notice, consent, certificate,  affidavit, letter,
cablegram,  telegram,  telecopy, telex or teletype message,  statement, order or
other document or  conversation  believed by it to be genuine and correct and to
have been signed,  sent or made by the proper  Person or Persons and upon advice
and statements of legal counsel (including,  without limitation,  counsel to the
Borrowers),   independent   accountants  and  other  experts   selected  by  the
Administrative  Agent. The Administrative  Agent may deem and treat the payee of
any Note as the owner thereof for all purposes  unless such Note shall have been
transferred in accordance with Section 13.10 hereof.  The  Administrative  Agent
shall be fully  justified  in failing or refusing to take any action  under this
Agreement and the other Loan Documents unless it shall first receive such advice
or concurrence of the Required Lenders (or, when expressly required hereby or by
the relevant other Loan Document, all the Lenders) as it deems appropriate or it
shall first be indemnified to its  satisfaction  by the Lenders  against any and
all  liability  and  expense  which may be incurred by it by reason of taking or
continuing  to take any such  action  except  for its own  gross  negligence  or
willful  misconduct.  The  Administrative  Agent  shall  in all  cases  be fully
protected in acting, or in refraining from acting,  under this Agreement and the
Notes in accordance  with a request of the Required  Lenders (or, when expressly
required  hereby,  all the  Lenders),  and such  request and any action taken or
failure to act  pursuant  thereto  shall be binding upon all the Lenders and all
future holders of the Notes.

         SECTION 12.5 Notice of Default.  The Administrative  Agent shall not be
deemed to have  knowledge or notice of the occurrence of any Default or Event of
Default  hereunder  unless it has  received  notice  from a Lender or a Borrower
referring  to this  Agreement,  describing  such Default or Event of Default and
stating  that such  notice  is a  "notice  of  default".  In the event  that the
Administrative  Agent  receives  such a notice,  it shall  promptly  give notice
thereof to the  Lenders.  The  Administrative  Agent shall take such action with
respect to such Default or Event of Default as shall be  reasonably  directed by
the Required Lenders;  provided that unless and until the  Administrative  Agent
shall have received such directions, the Administrative Agent may (but shall not
be  obligated  to) take such action,  or refrain  from taking such action,  with
respect to such  Default or Event of Default as it shall deem  advisable  in the
best interests of the Lenders.

         SECTION  12.6  Non-Reliance  on  the  Administrative  Agent  and  Other
Lenders.  Each Lender  expressly  acknowledges  that neither the  Administrative
Agent  nor  any  of  its  respective  officers,  directors,  employees,  agents,
attorneys-in-fact,  Subsidiaries or Affiliates has made any  representations  or
warranties to it and that no act by the Administrative  Agent hereinafter taken,
including any review of the affairs of any Borrower or any  Subsidiary  thereof,
shall  be  deemed  to  constitute   any   representation   or  warranty  by  the
Administrative Agent to any Lender. Each Lender represents to the Administrative
Agent that it has, independently and

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without reliance upon the Administrative Agent or any other Lender, and based on
such  documents  and  information  as it has  deemed  appropriate,  made its own
appraisal  of  and  investigation  into  the  business,  operations,   property,
financial and other  condition and  creditworthiness  of the Borrowers and their
Subsidiaries  and  made  its own  decision  to  make  its  Loans  and  issue  or
participate in Letter of Credit  hereunder and enter into this  Agreement.  Each
Lender also represents that it will, independently and without reliance upon the
Administrative  Agent or any  other  Lender,  and  based on such  documents  and
information as it shall deem  appropriate at the time,  continue to make its own
credit  analysis,  appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents,  and to make such  investigation as
it deems  necessary to inform itself as to the business,  operations,  property,
financial and other  condition and  creditworthiness  of the Borrowers and their
Subsidiaries. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by the  Administrative  Agent hereunder or by the
other  Loan  Documents,  the  Administrative  Agent  shall  not have any duty or
responsibility  to  provide  any  Lender  with any  credit or other  information
concerning the business, operations,  property, financial and other condition or
creditworthiness  of any Borrower or any Subsidiary  thereof which may come into
the possession of the  Administrative  Agent or any of its respective  officers,
directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates.

         SECTION  12.7  Indemnification.  The  Lenders  agree to  indemnify  the
Administrative  Agent in its capacity as such and (to the extent not  reimbursed
by the Borrowers and without limiting the obligation of the Borrowers to do so),
ratably  according to the respective  amounts of their  Commitment  Percentages,
from  and  against  any  and  all  liabilities,  obligations,  losses,  damages,
penalties,  actions,  judgments,  suits, costs, expenses or disbursements of any
kind whatsoever which may at any time  (including,  without  limitation,  at any
time  following  the payment of the Notes or any  Reimbursement  Obligation)  be
imposed on, incurred by or asserted against the Administrative  Agent in any way
relating to or arising out of this Agreement or the other Loan Documents, or any
documents  contemplated by or referred to herein or therein or the  transactions
contemplated   hereby  or  thereby  or  any  action  taken  or  omitted  by  the
Administrative Agent under or in connection with any of the foregoing;  provided
that  no  Lender  shall  be  liable  for  the  payment  of any  portion  of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses  or  disbursements  resulting  solely  from the  Administrative
Agent's bad faith,  gross  negligence or willful  misconduct.  The agreements in
this  Section  12.7 shall  survive the payment of the Notes,  any  Reimbursement
Obligation and all other amounts  payable  hereunder and the termination of this
Agreement.

         SECTION 12.8 The Administrative Agent in Its Individual  Capacity.  The
Administrative  Agent and its  respective  Subsidiaries  and Affiliates may make
loans to, accept deposits from and generally engage in any kind of business with
the  Borrowers  as though the  Administrative  Agent were not an  Administrative
Agent  hereunder.  With  respect to any Loans made or renewed by it and any Note
issued  to it  and  with  respect  to  any  Letter  of  Credit  issued  by it or
participated in by it, the  Administrative  Agent shall have the same rights and
powers under this  Agreement and the other Loan  Documents as any Lender and may
exercise the same as though it were not an  Administrative  Agent, and the terms
"Lender" and "Lenders" shall include the Administrative  Agent in its individual
capacity.

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         SECTION  12.9  Resignation  of  the  Administrative  Agent;   Successor
Administrative  Agent.  Subject to the appointment and acceptance of a successor
as provided below, (i) the Administrative Agent may resign at any time by giving
notice thereof to the Lenders and Cornerstone,  on behalf of the Borrowers,  and
(ii) in the event of a judicial  determination  of gross  negligence  or willful
misconduct  with  respect  to the manner in which the  Administrative  Agent has
carried out its duties  hereunder,  the  Administrative  Agent may be removed as
Administrative   Agent  under  the  Loan   Documents  at  any  time  after  such
determination  by the Required  Lenders upon at least thirty (30) Business Days'
prior notice. Upon any such resignation or removal,  the Required Lenders,  with
the consent of the  Borrowers  (such  consent not to be  unreasonably  withheld)
unless there then exists a Default or Event of Default,  shall have the right to
appoint a successor  Administrative  Agent,  which  successor shall have minimum
capital and surplus of at least  $500,000,000.  If no  successor  Administrative
Agent  shall  have been so  appointed  by the  Required  Lenders  and shall have
accepted  such  appointment  within  thirty  (30) days after the  Administrative
Agent's  giving of notice of  resignation  or the removal of the  Administrative
Agent by the Required Lenders,  then the Administrative  Agent may, on behalf of
the Lenders,  appoint a successor  Administrative  Agent,  which successor shall
have minimum capital and surplus of at least  $500,000,000.  Upon the acceptance
of  any   appointment  as   Administrative   Agent   hereunder  by  a  successor
Administrative  Agent,  such  successor  Administrative  Agent  shall  thereupon
succeed to and become vested with all rights,  powers,  privileges and duties of
the retiring  Administrative Agent, and the retiring  Administrative Agent shall
be  discharged  from its duties and  obligations  hereunder.  After any retiring
Administrative  Agent's  resignation  hereunder  as  Administrative  Agent,  the
provisions  of this  Section  12.9 shall  continue  in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Administrative Agent.

                                  ARTICLE XIII

                                  MISCELLANEOUS

         SECTION 13.1 Notices.

         (a)  Method of  Communication.  Except as  otherwise  provided  in this
Agreement,  all notices and communications  hereunder shall be in writing, or by
telephone  subsequently  confirmed in writing.  Any notice shall be effective if
delivered by hand delivery or sent via telecopy,  recognized  overnight  courier
service or certified mail, return receipt requested, and shall be presumed to be
received by a party  hereto (i) on the date of delivery if  delivered by hand or
sent by telecopy,  (ii) on the next Business Day if sent by recognized overnight
courier  service and (iii) on the third  Business Day following the date sent by
certified  mail,   return  receipt   requested.   A  telephonic  notice  to  the
Administrative Agent as understood by the Administrative Agent will be deemed to
be the  controlling  and  proper  notice in the event of a  discrepancy  with or
failure to receive a confirming written notice.

         (b) Addresses for Notices.  Notices to any party shall be sent to it at
the following addresses,  or any other address as to which all the other parties
are notified in writing.

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         If to any Borrower:               Cornerstone Realty Income Trust, Inc.
                                           306 East Main Street
                                           Richmond, Virginia 23219
                                           Attention:  S.J. Olander
                                           Telephone No.: (804) 643-1761
                                           Telecopy No.:  (804) 782-9302

         With copies to:                   McGuire Woods Battle & Boothe, LLP
                                           One James Center
                                           901 East Cary Street
                                           Richmond, Virginia 23219-4030
                                           Attention:  Martin Richards
                                           Telephone No.: (804) 775-1029
                                           Telecopy No.:  (804) 775-1061

         If to First Union                 First Union National Bank
           as Administrative Agent:        One First Union Center, DC-6
                                           301 South College Street
                                           Charlotte, North Carolina 28288-0166
                                           Attention:  Donna Hemenway
                                           Telephone No.: (704) 383-8763
                                           Telecopy No.: (704) 383-7989

         With copies to:                   First Union National Bank
                                           Real Estate Capital Markets Group
                                           One First Union Center, DC-6
                                           301 S. College Street
                                           Charlotte, NC  28288-0735
                                           Attention:  John A. Schissel
                                           Telephone No.: (704) 383-1967
                                           Telecopy No.:  (704) 383-6205

         If to any Lender:                 To the Address set forth on
                                             Schedule 1.1(a) hereto

         (c)  Administrative  Agent's Office.  The  Administrative  Agent hereby
designates its office located at the address set forth above,  or any subsequent
office which shall have been specified for such purpose by written notice to the
Borrowers and the Lenders,  as the  Administrative  Agent's  Office  referred to
herein,  to  which  payments  due  are to be made  and at  which  Loans  will be
disbursed and Letters of Credit issued.

         SECTION  13.2  Expenses;  Indemnity.  The  Borrowers  will  (a) pay all
out-of-pocket  expenses of the Administrative  Agent in connection with: (i) the
preparation,  execution  and  delivery  of this  Agreement  and each  other Loan
Document,  whenever the same shall be executed and delivered,  including without
limitation  all  out-of-pocket   syndication  and  due  diligence  expenses  and
reasonable fees and disbursements of counsel for the Administrative  Agent, (ii)
the preparation,  execution and delivery of any waiver,  amendment or consent by
the Administrative

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Agent or the Lenders  relating  to this  Agreement  or any other Loan  Document,
including  without  limitation  reasonable fees and disbursements of counsel for
the  Administrative  Agent, and (iii) the exercise and enforcement of any rights
and  remedies  of the  Administrative  Agent and the  Lenders  under the  Credit
Facility,   including  consulting  with  appraisers,   accountants,   engineers,
attorneys and other Persons  concerning the nature,  scope or value of any right
or remedy of the Administrative Agent or any Lender hereunder or under any other
Loan Document or any factual  matters in connection  therewith,  which  expenses
shall include, without limitation, the reasonable fees and disbursements of such
Persons,  (b) pay all out-of-pocket  expenses each Lender in connection with the
enforcement  of any  rights and  remedies  of the  Administrative  Agent and the
Lenders  under  the  Credit  Facility,  including  consulting  with  appraisers,
accountants, engineers, attorneys and other Persons concerning the nature, scope
or value of any  right  or  remedy  of the  Administrative  Agent or any  Lender
hereunder or under any other Loan Document or any factual  matters in connection
therewith, which expenses shall include, without limitation, the reasonable fees
and disbursements of such Persons,  and (c) defend,  indemnify and hold harmless
the  Administrative  Agent  and  the  Lenders,  and  their  respective  parents,
Subsidiaries,  Affiliates,  employees,  agents, officers and directors, from and
against any losses, penalties, fines, liabilities,  settlements,  damages, costs
and  expenses,  suffered  by any such  Person  in  connection  with  any  claim,
investigation, litigation or other proceeding (whether or not the Administrative
Agent or any Lender is a party thereto) and the prosecution and defense thereof,
arising  out of or in any way  connected  with the  Agreement,  any  other  Loan
Document or the Loans,  including without limitation  reasonable  attorney's and
consultant's  fees,  except to the  extent  that any of the  foregoing  directly
result from the gross  negligence  or willful  misconduct  of the party  seeking
indemnification therefor.

         SECTION  13.3  Set-off.  In  addition  to any rights  now or  hereafter
granted  under  Applicable  Law and not by way of limitation of any such rights,
upon and after the occurrence of any Event of Default and during the continuance
thereof,  the Lenders and any assignee or  participant of a Lender in accordance
with Section  13.10 are hereby  authorized  by the Borrowers at any time or from
time to time,  without  notice to any Borrower or to any other Person,  any such
notice being hereby expressly waived, to set off and to appropriate and to apply
any and all deposits  (general or special,  time or demand,  including,  but not
limited to, indebtedness  evidenced by certificates of deposit,  whether matured
or  unmatured)  and any  other  indebtedness  at any  time  held or owing by the
Lenders, or any such assignee or participant to or for the credit or the account
of the  Borrowers  against  and on account of the  Obligations  irrespective  of
whether or not (a) the Lenders  shall have made any demand under this  Agreement
or any of the other Loan  Documents or (b) the  Administrative  Agent shall have
declared  any or all of the  Obligations  to be due and payable as  permitted by
Section 11.2 and although such Obligations shall be contingent or unmatured.

         SECTION 13.4  Governing  Law. This  Agreement,  the Notes and the other
Loan Documents,  unless otherwise expressly set forth therein, shall be governed
by,  construed  and enforced in  accordance  with the laws of the State of North
Carolina,  without  reference  to the  conflicts  or  choice  of law  principles
thereof.

         SECTION 13.5 Consent to Jurisdiction.  Each Borrower hereby irrevocably
consents to the personal jurisdiction of the state and federal courts located in
Mecklenburg

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County, North Carolina,  in any action, claim or other proceeding arising out of
any  dispute in  connection  with this  Agreement,  the Notes and the other Loan
Documents, any rights or obligations hereunder or thereunder, or the performance
of such rights and obligations. Each Borrower hereby irrevocably consents to the
service of a summons and  complaint  and other  process in any action,  claim or
proceeding brought by the Administrative  Agent or any Lender in connection with
this Agreement, the Notes or the other Loan Documents, any rights or obligations
hereunder or thereunder,  or the performance of such rights and obligations,  on
behalf of itself or its  property,  in the manner  specified  in  Section  13.1.
Nothing in this Section 13.5 shall affect the right of the Administrative  Agent
or any Lender to serve legal process in any other manner permitted by Applicable
Law or affect the right of the  Administrative  Agent or any Lender to bring any
action or proceeding against any Borrower or its properties in the courts of any
other jurisdictions.

         SECTION 13.6 Binding Arbitration; Waiver of Jury Trial.

         (a) Binding Arbitration.  Upon demand of any party, whether made before
or  after  institution  of  any  judicial  proceeding,  any  dispute,  claim  or
controversy arising out of, connected with or relating to the Notes or any other
Loan Documents ("Disputes"),  between or among parties to the Notes or any other
Loan  Document  shall be resolved  by binding  arbitration  as provided  herein.
Institution of a judicial proceeding by a party does not waive the right of that
party to demand arbitration hereunder. Disputes may include, without limitation,
tort claims, counterclaims, claims brought as class actions, claims arising from
Loan Documents  executed in the future,  or claims  concerning any aspect of the
past, present or future relationships  arising out of or connected with the Loan
Documents.  Arbitration  shall be conducted under and governed by the Commercial
Financial Disputes  Arbitration Rules (the "Arbitration  Rules") of the American
Arbitration  Association and Title 9 of the U.S. Code. All arbitration  hearings
shall be conducted in Charlotte,  North Carolina.  The expedited  procedures set
forth in Rule 51, et seq. of the Arbitration Rules shall be applicable to claims
of less than  $1,000,000.  All applicable  statutes of limitation shall apply to
any  Dispute.  A  judgment  upon the award may be  entered  in any court  having
jurisdiction.  The  panel  from  which all  arbitrators  are  selected  shall be
comprised of licensed  attorneys.  The single arbitrator  selected for expedited
procedure   shall  be  a  retired  judge  from  the  highest  court  of  general
jurisdiction,  state  or  federal,  of the  state  where  the  hearing  will  be
conducted.  Notwithstanding the foregoing, this paragraph shall not apply to any
Hedging Agreement that is a Loan Document.

         (b) Jury Trial.  TO THE EXTENT  PERMITTED  BY LAW,  THE  ADMINISTRATIVE
AGENT,  EACH LENDER AND EACH BORROWER HEREBY  IRREVOCABLY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL WITH  RESPECT TO ANY  ACTION,  CLAIM OR OTHER  PROCEEDING
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS  AGREEMENT,  THE NOTES OR THE
OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER,  OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.

         (c)  Preservation of Certain  Remedies.  Notwithstanding  the preceding
binding arbitration provisions,  the parties hereto and the other Loan Documents
preserve,  without diminution,  certain remedies that such Persons may employ or
exercise  freely,  either alone, in conjunction  with or during a Dispute.  Each
such Person shall have and hereby reserves the right to

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<PAGE>

proceed  in any court of proper  jurisdiction  or by self  help to  exercise  or
prosecute the following  remedies:  (i) all rights to foreclose against any real
or personal  property or other security by exercising a power of sale granted in
the Loan Documents or under applicable law or by judicial  foreclosure and sale,
(ii) all rights of self help  including  peaceful  occupation  of  property  and
collection  of rents,  set off,  and  peaceful  possession  of  property,  (iii)
obtaining   provisional  or  ancillary  remedies  including  injunctive  relief,
sequestration, garnishment, attachment, appointment of receiver and in filing an
involuntary  bankruptcy  proceeding,  and (iv) when  applicable,  a judgment  by
confession of judgment.  Preservation of these remedies does not limit the power
of an arbitrator to grant similar remedies that may be requested by a party in a
Dispute.

         SECTION 13.7 Reversal of Payments.  To the extent any Borrower  makes a
payment or payments to the  Administrative  Agent for the ratable benefit of the
Lenders or the  Administrative  Agent  receives  any  payment or proceeds of the
collateral  which  payments  or proceeds  or any part  thereof are  subsequently
invalidated,  declared  to be  fraudulent  or  preferential,  set  aside  and/or
required  to be repaid to a  trustee,  receiver  or any  other  party  under any
bankruptcy  law, state or federal law, common law or equitable  cause,  then, to
the extent of such payment or proceeds  repaid,  the Obligations or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if such  payment or  proceeds  had not been  received  by the  Administrative
Agent.

         SECTION 13.8 Injunctive Relief; Punitive Damages.

         (a) Each Borrower  recognizes  that, in the event any Borrower fails to
perform,  observe or discharge any of its obligations or liabilities  under this
Agreement,  any remedy of law may prove to be inadequate  relief to the Lenders.
Therefore,  each Borrower agrees that the Lenders, at the Lenders' option, shall
be  entitled  to  temporary  and  permanent  injunctive  relief in any such case
without the necessity of proving actual damages.

         (b) The Administrative  Agent, the Lenders and each Borrower (on behalf
of itself and its  Subsidiaries)  hereby  agree that no such Person shall have a
remedy of  punitive  or  exemplary  damages  against  any other  party to a Loan
Document  and each such Person  hereby  waives any right or claim to punitive or
exemplary  damages  that  they  may  now  have or may  arise  in the  future  in
connection  with  any  Dispute,   whether  such  Dispute  is  resolved   through
arbitration or judicially.

         (c) The parties  agree that they shall not have a remedy of punitive or
exemplary  damages  against any other party in any Dispute and hereby  waive any
right or claim to punitive or exemplary damages they have now or which may arise
in the future in connection  with any Dispute whether the Dispute is resolved by
arbitration or judicially.

         SECTION  13.9   Accounting   Matters.   All  financial  and  accounting
calculations,  measurements  and  computations  made for any purpose relating to
this Agreement,  including, without limitation, all computations utilized by any
Borrower or any  Subsidiary  thereof to determine  compliance  with any covenant
contained herein,  shall, except as otherwise  expressly  contemplated hereby or
unless there is an express written direction by the Administrative Agent and the
Required  Lenders to the  contrary  agreed to by  Cornerstone,  on behalf of the
Borrowers,  be  performed  in  accordance  with GAAP as in effect on the Closing
Date. In the event that

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<PAGE>

changes in GAAP shall be mandated by the Financial  Accounting  Standards Board,
or any similar accounting body of comparable  standing,  or shall be recommended
by the Borrowers' certified public accountants,  to the extent that such changes
would modify such accounting terms or the interpretation or computation thereof,
such changes shall be followed in defining such  accounting  terms only from and
after the date the Borrowers  and the Lenders shall have amended this  Agreement
to the extent  necessary to reflect any such changes in the financial  covenants
and other terms and conditions of this Agreement.

         SECTION 13.10 Successors and Assigns; Participations.

         (a) Benefit of  Agreement.  This  Agreement  shall be binding  upon and
inure to the benefit of the Borrowers, the Administrative Agent and the Lenders,
all future holders of the Notes,  and their  respective  successors and assigns,
except that the  Borrowers  shall not assign or transfer  any of their rights or
obligations  under this  Agreement  without  the prior  written  consent of each
Lender.

         (b)  Assignment  by Lenders.  Each Lender may,  with the consent of the
Borrower and the  Administrative  Agent, which consent shall not be unreasonably
withheld,  assign to one or more  Eligible  Assignees  all or a  portion  of its
interests,  rights and  obligations  under this  Agreement  (including,  without
limitation, all or a portion of the Extensions of Credit at the time owing to it
and the Notes held by it); provided that:

                  (i) each such  assignment  shall be of a  constant,  and not a
         varying,   percentage  of  all  the  assigning   Lender's   rights  and
         obligations under this Agreement;

                  (ii) if less than all of the assigning Lender's  Commitment is
         to be assigned,  (A) the  Commitment of the Assigning  Lender after any
         such  assignment   (determined  as  of  the  date  the  Assignment  and
         Acceptance  with  respect  to  such  assignment  is  delivered  to  the
         Administrative  Agent) shall not be less than  $10,000,000  (or a whole
         multiple of  $5,000,000  in excess  thereof) and (B) the  Commitment so
         assigned  shall not be less than  $10,000,000  (or a whole  multiple of
         $5,000,000 in excess thereof);

                  (iii) the parties to each such  assignment  shall  execute and
         deliver to the  Administrative  Agent, for its acceptance and recording
         in the Register,  an Assignment and Acceptance in the form of Exhibit F
         attached  hereto (an "Assignment  and  Acceptance"),  together with any
         Note or Notes subject to such assignment;

                  (iv) such  assignment  shall not,  without  the consent of the
         Borrowers,  require any Borrower to file a registration  statement with
         the Securities and Exchange Commission or apply to or qualify the Loans
         or the Notes under the blue sky laws of any state;

                  (v) the assigning Lender shall pay to the Administrative Agent
         an  assignment  fee of $3,000 upon the  execution by such Lender of the
         Assignment and  Acceptance;  provided that no such fee shall be payable
         upon any  assignment  by a Lender  to an  Affiliate  thereof  permitted
         hereunder;

                                       67
<PAGE>

                  (vi) no Lender may  assign all or a portion of its  interests,
         rights  and  obligations  under  this  Agreement  to more  than one (1)
         Affiliate of such Lender; and

                  (vii) the  Administrative  Agent, in its capacity as a Lender,
         shall not effect any  assignment  of its  Commitment  if,  after giving
         effect  thereto,  the amount of its  Commitment  would be less than the
         amount of the Commitment of any other Lender.

Upon such  execution,  delivery,  acceptance and  recording,  from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five (5) Business  Days after the execution  thereof,  (A) the
assignee  thereunder shall be a party hereto and, to the extent provided in such
Assignment and  Acceptance,  have the rights and  obligations of a Lender hereby
and (B) the Lender  thereunder shall, to the extent provided in such assignment,
be released from its obligations under this Agreement.

         (c) Rights and Duties Upon  Assignment.  By executing and delivering an
Assignment  and  Acceptance,  the assigning  Lender  thereunder and the assignee
thereunder  confirm to and agree with each other and the other parties hereto as
set forth in such Assignment and Acceptance.

         (d) Register.  The  Administrative  Agent shall maintain a copy of each
Assignment and Acceptance  delivered to it and a register for the recordation of
the names and  addresses  of the  Lenders  and the amount of the  Extensions  of
Credit  with  respect to each  Lender  from time to time (the  "Register").  The
entries in the Register shall be conclusive,  in the absence of manifest  error,
and the  Borrowers,  the  Administrative  Agent and the  Lenders  may treat each
person  whose name is recorded in the  Register  as a Lender  hereunder  for all
purposes of this  Agreement.  The Register  shall be available for inspection by
Cornerstone,  on behalf of the Borrowers,  or any Lender at any reasonable  time
and from time to time upon reasonable prior notice.

         (e)  Issuance  of New  Notes.  Upon its  receipt of an  Assignment  and
Acceptance  executed by an assigning  Lender and an Eligible  Assignee  together
with any Note or Notes  subject to such  assignment  and the written  consent to
such  assignment,  the  Administrative  Agent  shall,  if  such  Assignment  and
Acceptance has been completed and is substantially in the form of Exhibit F:

                  (i) accept such Assignment and Acceptance;

                  (ii) record the information contained therein in the Register;

                  (iii)  give   prompt   notice   thereof  to  the  Lenders  and
         Cornerstone, on behalf of the Borrowers; and

                  (iv) promptly deliver a copy of such Assignment and Acceptance
         to Cornerstone, on behalf of the Borrowers.

Within five (5)  Business  Days after  receipt of notice,  the  Borrowers  shall
execute and deliver to the Administrative Agent, in exchange for the surrendered
Note or Notes,  a new Note or Notes to the order of such  Eligible  Assignee  in
amounts equal to the  Commitment  assumed by it pursuant to such  Assignment and
Acceptance and a new Note or Notes to the order of the assigning Lender in

                                       68
<PAGE>

an amount equal to the  Commitment  retained by it  hereunder.  Such new Note or
Notes shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered  Note or Notes,  shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially  the form
of the assigned Notes delivered to the assigning  Lender.  Each surrendered Note
or Notes  shall be  canceled  and  returned  to  Cornerstone,  on  behalf of the
Borrowers.

         (f)  Participations.  Each Lender may, with the consent of the Borrower
and the Administrative Agent, which consent shall not be unreasonably  withheld,
sell  participations  to one or more banks or other entities in all or a portion
of  its  rights  and  obligations  under  this  Agreement  (including,   without
limitation,  all or a portion of its  Extensions of Credit and the Notes held by
it); provided that:

                  (i) each such  participation  shall be in an  amount  not less
         than $10,000,000 (or a whole multiple of $5,000,000 in excess thereof);

                  (ii)  such   Lender's   obligations   under   this   Agreement
         (including, without limitation, its Commitment) shall remain unchanged;

                  (iii) such Lender shall remain solely responsible to the other
         parties hereto for the performance of such obligations;

                  (iv) such Lender  shall remain the holder of the Notes held by
         it for all purposes of this Agreement;

                  (v) the  Borrowers,  the  Administrative  Agent  and the other
         Lenders shall  continue to deal solely and directly with such Lender in
         connection  with  such  Lender's  rights  and  obligations  under  this
         Agreement;

                  (vi) such Lender shall not permit such  participant  the right
         to approve  any  waivers,  amendments  or other  modifications  to this
         Agreement or any other Loan Document other than waivers,  amendments or
         modifications  which would reduce the principal of or the interest rate
         on any Loan,  extend the term or increase the amount of the Commitment,
         reduce the amount of any fees to which such  participant  is  entitled,
         extend any scheduled  payment date for principal of any Loan or, except
         as expressly contemplated hereby or thereby,  release substantially all
         of any collateral securing the Credit Facility; and

                  (vii) any such  disposition  shall not, without the consent of
         the Borrowers,  require any Borrower to file a  registration  statement
         with the  Securities  and Exchange  Commission  to apply to qualify the
         Loans or the Notes under the blue sky law of any state.

         (g)  Disclosure of  Information;  Confidentiality.  The  Administrative
Agent and the Lenders shall hold all non-public  information with respect to the
Borrowers  obtained  pursuant to the Loan  Documents  in  accordance  with their
customary procedures for handling confidential  information.  Any Lender may, in
connection with any assignment,  proposed assignment,  participation or proposed
participation  pursuant  to  this  Section  13.10,  disclose  to  the  assignee,
participant, proposed assignee or proposed participant, any information relating
to the Borrowers

                                       69
<PAGE>

furnished to such Lender by or on behalf of the Borrowers;  provided, that prior
to any such disclosure,  each such assignee,  proposed assignee,  participant or
proposed  participant  shall agree with the Borrowers or such Lender to preserve
the  confidentiality of any confidential  information  relating to the Borrowers
received from such Lender.

         (h) Certain Pledges or  Assignments.  Nothing herein shall prohibit any
Lender  from  pledging or  assigning  any Note to any  Federal  Reserve  Bank in
accordance with Applicable Law.

         SECTION 13.11  Amendments,  Waivers and  Consents.  Except as set forth
below,  any term,  covenant,  agreement or condition of this Agreement or any of
the other  Loan  Documents  may be  amended  or waived by the  Lenders,  and any
consent given by the Lenders, if, but only if, such amendment, waiver or consent
is in writing  signed by the Required  Lenders (or by the  Administrative  Agent
with the consent of the Required  Lenders) and  delivered to the  Administrative
Agent and, in the case of an amendment,  signed by each Borrower; provided that,
no amendment, waiver or consent shall (a) increase the amount or extend the time
of the  obligation  of the  Lenders  to make  Loans or issue or  participate  in
Letters of Credit (including, without limitation, pursuant to Section 2.6 except
as otherwise set forth in such Section 2.6), (b) extend the originally scheduled
time  or  times  of  payment  of the  principal  of any  Loan  or  Reimbursement
Obligation  or the  time  or  times  of  payment  of  interest  on any  Loan  or
Reimbursement Obligation, (c) reduce the rate of interest or fees payable on any
Loan or Reimbursement  Obligation  (except as the rate of interest may fluctuate
pursuant to the provisions of Section 4.1), (d) permit any  subordination of the
principal or interest on any Loan or Reimbursement  Obligation,  (e) release any
material portion of any collateral  securing the Credit  Facility,  (f) amend or
waive the  provisions  of Section  8.17,  (g) amend or waive the  provisions  of
Section 9.1, (h) amend or waive the  provisions of Section  10.7,  (i) amend the
provisions of Section 11.1 or the definition of Default or Event of Default, (j)
amend the  provisions  of the last  sentence  of  Section  10.6 or (k) amend the
provisions of this Section 13.11 or the definition of Required Lenders,  without
the prior written consent of each Lender. In addition,  no amendment,  waiver or
consent to the  provisions  of (a) Article XII shall be made without the written
consent of the  Administrative  Agent and (b)  Article  III  without the written
consent of the Issuing Lender.

         SECTION 13.12 Performance of Duties.  The Borrowers'  obligations under
this  Agreement  and  each of the  Loan  Documents  shall  be  performed  by the
Borrowers at their sole cost and expense.

         SECTION 13.13 All Powers Coupled with Interest.  All powers of attorney
and other  authorizations  granted to the Lenders,  the Administrative Agent and
any Persons designated by the Administrative Agent or any Lender pursuant to any
provisions of this Agreement or any of the other Loan Documents  shall be deemed
coupled  with  an  interest  and  shall  be  irrevocable  so  long as any of the
Obligations  remain unpaid or  unsatisfied  or the Credit  Facility has not been
terminated.

         SECTION 13.14 Survival of Indemnities.  Notwithstanding any termination
of this  Agreement,  the indemnities to which the  Administrative  Agent and the
Lenders are  entitled  under the  provisions  of this Article XIII and any other
provision of this Agreement and the Loan

                                       70
<PAGE>

Documents  shall  continue  in full  force  and  effect  and shall  protect  the
Administrative   Agent  and  the  Lenders  against  events  arising  after  such
termination as well as before.

         SECTION  13.15  Titles and  Captions.  Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.

         SECTION  13.16  Severability  of  Provisions.  Any  provision  of  this
Agreement or any other Loan Document which is prohibited or unenforceable in any
jurisdiction  shall, as to such jurisdiction,  be ineffective only to the extent
of such prohibition or  unenforceability  without  invalidating the remainder of
such  provision or the remaining  provisions  hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.

         SECTION  13.17  Counterparts.  This  Agreement  may be  executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed  shall be deemed to be an  original  and shall be
binding upon all parties,  their successors and assigns,  and all of which taken
together shall constitute one and the same agreement.

         SECTION  13.18  Joint and Several  Liability.  The  Obligations  of the
Borrowers  under  this  Agreement  and the  Notes  shall be joint  and  several.
References  to the  Borrowers  with  respect to the  Obligations  or any portion
thereof shall mean each Borrower on a joint and several basis.

         SECTION 13.19 Cornerstone as Administrative  Agent for Borrowers.  Each
Borrower hereby irrevocably  appoints and authorizes  Cornerstone (i) to provide
the Administrative Agent with all notices with respect to Loans obtained for the
benefit  of any  Borrower  and all other  notices  and  instructions  under this
Agreement and (ii) to take such action on behalf of the Borrowers as Cornerstone
deems  appropriate  on its  behalf to obtain  Loans and to  exercise  such other
powers as are  reasonably  incidental  thereto to carry out the purposes of this
Agreement.

         SECTION 13.20 Term of Agreement.  This Agreement shall remain in effect
from the Closing Date through and including the date upon which all  Obligations
shall have been  indefeasibly  and  irrevocably  paid and  satisfied in full. No
termination  of this  Agreement  shall affect the rights and  obligations of the
parties hereto arising prior to such termination.

                           [Signature pages to follow]

                                       71
<PAGE>

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

                                      BORROWERS:

                                      CORNERSTONE REALTY INCOME TRUST, INC.

                                      By: /s/ Stanley J.Olander, Jr.
                                          --------------------------------------

                                      Name: Stanley J. Olander, Jr.
                                            ------------------------------------

                                      Title: Executive Vice President
                                             -----------------------------------

                                      CRIT-NC, LLC

                                      By: CORNERSTONE REALTY INCOME TRUST, INC.,
                                          its sole Member/Manager

                                      By: /s/ Stanley J.Olander, Jr.
                                          --------------------------------------

                                      Name: Stanley J. Olander, Jr.
                                            ------------------------------------

                                      Title: Executive Vice President
                                             -----------------------------------

<PAGE>

                              ADMINISTRATIVE AGENT:

                              FIRST UNION NATIONAL BANK, as Administrative Agent

                              By: /s/ John S. Schissel
                                  ----------------------------------------------

                              Name: John S. Schissel
                                    --------------------------------------------

                              Title: Director
                                     -------------------------------------------

<PAGE>

                              LENDERS:

                              FIRST UNION NATIONAL BANK, as Lender

                              By: /s/ John S. Schissel
                                  ----------------------------------------------

                              Name: John S. Schissel
                                    --------------------------------------------

                              Title: Director
                                     -------------------------------------------

<PAGE>

                                  EXHIBITS TO
                                CREDIT AGREEMENT
                      (Consisting of Forms for Future Use)

                                   [OMITTED]

                                  SCHEDULES TO
                                CREDIT AGREEMENT

SCHEDULE              CONTENTS

Schedule 1.1(a)       Lenders and Commitments

Schedule 6.1(a)       Jurisdictions of Organization and Qualification

Schedule 6.1(b)       Subsidiaries and Capitalization

Schedule 6.1(i)       ERISA Plans

Schedule 6.1(m)       Labor and Collective Bargaining Agreements

Schedule 6.1(r)       Debt and Contingent Obligations

Schedule 6.1(s)       Litigation

Schedule 8.17         Subsidiaries Not Required to be Additional Borrowers

Schedule 10.3         Exceptions to Secured Debt Restrictions

Schedule 10.5         Existing Liens

Schedule 10.6         Existing Loans, Advances and Investments

Schedule 10.10        Transactions With Affiliates

<PAGE>

                                 SCHEDULE 1.1(A)

                             LENDERS AND COMMITMENTS

LENDER                                           COMMITMENT          PERCENTAGE

First Union National Bank                       $50,000,000           100%
One First Union Center, DC-6
301 South College Street
Charlotte, North Carolina 28288-0166
Attention:        John Schissel
Telephone No.: (704) 383-8763
Telecopy No.:  (704) 383-7989

<PAGE>

                                 SCHEDULE 6.1(A)

                 JURISDICTIONS OF ORGANIZATION AND QUALIFICATION

Cornerstone Realty Income Trust, Inc. ("Cornerstone")

The following table shows the  organization  and  qualification  information for
Cornerstone:

         TYPE OF ENTITY    FORMATION STATE  QUALIFICATION STATES

         corporation       Virginia         Georgia
                                            North Carolina
                                            South Carolina

CRIT-NC, LLC and Other Subsidiaries

The following table shows the  organization  and  qualification  information for
CRIT-NC,  LLC and  the  other  subsidiaries  of  Cornerstone,  both  direct  and
indirect:

<TABLE>
<CAPTION>

                  TABLE 1 (Direct Subsidiaries of Cornerstone)

-------------------------------------------------------------------------------------------------------------
NAME OF                      TYPE OF        FORMATION      QUALIFICATION
DIRECT SUBSIDIARY             ENTITY          STATE           STATE(S)                   OWNERSHIP BY PARENT
-------------------------------------------------------------------------------------------------------------
<S>                       <C>               <C>          <C>                         <C>
CRIT-NC, LLC              LLC               Virginia     North Carolina                   Cornerstone (100%)
-------------------------------------------------------------------------------------------------------------
Cornerstone Acquisition   corporation       Virginia         none                       Cornerstone (99.99%)
 Company
-------------------------------------------------------------------------------------------------------------
CRIT-SC, Inc.             corporation       Virginia     South Carolina                   Cornerstone (100%)
-------------------------------------------------------------------------------------------------------------
CRIT-SC, LLC              LLC               Virginia         none                         Cornerstone (100%)
-------------------------------------------------------------------------------------------------------------
CRIT-VA, Inc.             corporation       Virginia         none                         Cornerstone (100%)
-------------------------------------------------------------------------------------------------------------
CRIT Special, Inc.        corporation       Virginia         none                         Cornerstone (100%)
-------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

          TABLE 2 (Indirect Subsidiaries of Cornerstone)

----------------------------------------------------------------------------------------------------------------------------
NAME OF                              TYPE OF        FORMATION      QUALIFICATION
INDIRECT SUBSIDIARY                   ENTITY          STATE           STATE(S)                          OWNERSHIP BY PARENT
----------------------------------------------------------------------------------------------------------------------------
<S>                               <C>               <C>                <C>           <C>
Apple General, Inc.               corporation       Virginia           Texas         Cornerstone Acquisition Company (100%)
----------------------------------------------------------------------------------------------------------------------------
Apple Limited, Inc.               corporation       Virginia            none         Cornerstone Acquisition Company (100%)
----------------------------------------------------------------------------------------------------------------------------
Apple REIT Limited                LP                Virginia           Texas                       Apple General, Inc. (1%)
                                                                                                  Apple Limited, Inc. (99%)
----------------------------------------------------------------------------------------------------------------------------
Apple REIT II Limited             LP                Virginia           Texas                       Apple General, Inc. (1%)
                                                                                                  Apple Limited, Inc. (99%)
----------------------------------------------------------------------------------------------------------------------------
Apple REIT III Limited            LP                Virginia           Texas                       Apple General, Inc. (1%)
                                                                                                  Apple Limited, Inc. (99%)
----------------------------------------------------------------------------------------------------------------------------
Apple REIT IV Limited             LP                Virginia           Texas                       Apple General, Inc. (1%)
                                                                                                  Apple Limited, Inc. (99%)
----------------------------------------------------------------------------------------------------------------------------
Apple REIT V Partnership          LP                Virginia           Texas                       Apple General, Inc. (1%)
                                                                                                  Apple Limited, Inc. (99%)
----------------------------------------------------------------------------------------------------------------------------
Apple REIT VI Partnership         LP                Virginia           Texas                       Apple General, Inc. (1%)
                                                                                                  Apple Limited, Inc. (99%)
----------------------------------------------------------------------------------------------------------------------------
Apple REIT VII Partnership        LP                Virginia           Texas                       Apple General, Inc. (1%)
                                                                                                  Apple Limited, Inc. (99%)
----------------------------------------------------------------------------------------------------------------------------
CRIT Cornerstone Partnership      LP                Virginia       South Carolina                        CRIT-SC, Inc. (1%)
                                                                                                         CRIT-SC, LLC (99%)
----------------------------------------------------------------------------------------------------------------------------
CRIT-NC II, LLC                   LLC               Delaware     North Carolina                   CRIT Special, Inc. (100%)
----------------------------------------------------------------------------------------------------------------------------
CAC Special General, Inc.         corporation       Virginia           Texas         Cornerstone Acquisition Company (100%)
----------------------------------------------------------------------------------------------------------------------------
CAC Special Limited, Inc.         corporation       Virginia            none         Cornerstone Acquisition Company (100%)
----------------------------------------------------------------------------------------------------------------------------
CAC Limited Partnership           LP                Virginia          Texas *                CAC Special General, Inc. (1%)
                                                                                            CAC Special Limited, Inc. (99%)
----------------------------------------------------------------------------------------------------------------------------

* qualified in Texas under D/B/A of "Virginia CAC Limited Partnership" to  avoid name conflict

</TABLE>

<PAGE>

                                 SCHEDULE 6.1(B)

                         SUBSIDIARIES AND CAPITALIZATION

Cornerstone Realty Income Trust, Inc. ("Cornerstone")

Cornerstone is capitalized as follows:

        CLASS OF SHARES               NUMBER OF SHARES       NUMBER OF SHARES
        AUTHORIZED                       AUTHORIZED       ISSUED AND OUTSTANDING

        Common Shares, no par value      100,000,000           34,893,025 *

        Preferred Shares                  12,300,000                    0

        Series A Convertible              12,700,000           12,650,047
        Preferred Shares

         * On November 1, 2000,  based on  Cornerstone's  most recent  Quarterly
         Report  on Form  10-Q,  as  filed  with  the  Securities  and  Exchange
         Commission on November 14, 2000.

Cornerstone  has reserved the indicated  number of shares for issuance under the
following plans:

                                                              NUMBER OF SHARES
         NAME OF PLAN                                      RESERVED FOR ISSUANCE

         1992 Incentive Plan....................................  2,199,246
         1992 Non-Employee Director Stock Option Plan...........    927,000
         Special Non-Employee Directors Stock Option Plan.......     23,169
         Non-Employee Directors Fees Plan.......................     43,750

CRIT-NC, LLC and Other Subsidiaries

CRIT-NC,  LLC and  the  other  subsidiaries  of  Cornerstone,  both  direct  and
indirect, are capitalized as shown in the following tables:

<PAGE>

<TABLE>
<CAPTION>

              TABLE 1 (Direct Subsidiaries of Cornerstone)
----------------------------------------------------------------------------------------------------------------------------
NAME OF                              CLASS OF INTEREST          NUMBER
DIRECT SUBSIDIARY                        AUTHORIZED           AUTHORIZED                     INTEREST ISSUED AND OUTSTANDING
----------------------------------------------------------------------------------------------------------------------------
<S>                               <C>                         <C>                         <C>
CRIT-NC, LLC                      membership interest            n/a                                    100%  to Cornerstone
----------------------------------------------------------------------------------------------------------------------------
Cornerstone Acquisition           common shares,              2,000,000             1,119,888 shares (99.99%) to Cornerstone
  Company                          no par value                               100 shares (0.01%) to employees of Cornerstone
----------------------------------------------------------------------------------------------------------------------------
CRIT-SC, Inc.                     common shares,                5,000                       100 shares (100%) to Cornerstone
                                   no par value
----------------------------------------------------------------------------------------------------------------------------
CRIT-SC, LLC                      membership interest            n/a                                    100%  to Cornerstone
----------------------------------------------------------------------------------------------------------------------------
CRIT-VA, Inc.                     common shares,                5,000                       100 shares (100%) to Cornerstone
                                   no par value
----------------------------------------------------------------------------------------------------------------------------
CRIT Special, Inc.                common shares,                5,000                       100 shares (100%) to Cornerstone
                                   no par value
----------------------------------------------------------------------------------------------------------------------------

                                      TABLE 2 (Indirect Subsidiaries of Cornerstone)

----------------------------------------------------------------------------------------------------------------------------
NAME OF                              CLASS OF INTEREST          NUMBER
INDIRECT SUBSIDIARY                      AUTHORIZED           AUTHORIZED                     INTEREST ISSUED AND OUTSTANDING
----------------------------------------------------------------------------------------------------------------------------
Apple General, Inc.               common shares,                5,000                       100 shares (100%) to Cornerstone
                                 $1.00 par value                                                         Acquisition Company
----------------------------------------------------------------------------------------------------------------------------
Apple Limited, Inc.               common shares,                5,000                       100 shares (100%) to Cornerstone
                                 $1.00 par value                                                         Acquisition Company
----------------------------------------------------------------------------------------------------------------------------
Apple REIT                        partnership interests,         n/a            1% to Apple General, Inc. as general partner
  Limited Partnership              limited and general                         99% to Apple Limited, Inc. as limited partner
----------------------------------------------------------------------------------------------------------------------------
Apple REIT II                     partnership interests,         n/a            1% to Apple General, Inc. as general partner
  Limited Partnership              limited and general                         99% to Apple Limited, Inc. as limited partner
----------------------------------------------------------------------------------------------------------------------------
Apple REIT III                    partnership interests,         n/a            1% to Apple General, Inc. as general partner
  Limited Partnership              limited and general                         99% to Apple Limited, Inc. as limited partner
----------------------------------------------------------------------------------------------------------------------------
Apple REIT IV                     partnership interests,         n/a            1% to Apple General, Inc. as general partner
  Limited Partnership              limited and general                         99% to Apple Limited, Inc. as limited partner
----------------------------------------------------------------------------------------------------------------------------
Apple REIT V                      partnership interests,         n/a            1% to Apple General, Inc. as general partner
  Limited Partnership              limited and general                         99% to Apple Limited, Inc. as limited partner
----------------------------------------------------------------------------------------------------------------------------
Apple REIT VI                     partnership interests,         n/a            1% to Apple General, Inc. as general partner
  Limited Partnership              limited and general                         99% to Apple Limited, Inc. as limited partner
----------------------------------------------------------------------------------------------------------------------------
Apple REIT VII                    partnership interests,         n/a            1% to Apple General, Inc. as general partner
  Limited Partnership              limited and general                         99% to Apple Limited, Inc. as limited partner
----------------------------------------------------------------------------------------------------------------------------
CRIT Cornerstone                  partnership interests,         n/a            1% to Apple General, Inc. as general partner
  Limited Partnership              limited and general                         99% to Apple Limited, Inc. as limited partner
----------------------------------------------------------------------------------------------------------------------------
CRIT-NC II, LLC                   membership interest            n/a                              100% to CRIT Special, Inc.
----------------------------------------------------------------------------------------------------------------------------
CAC Special General, Inc.         common shares,                5,000                       100 shares (100%) to Cornerstone
                                   no par value                                                          Acquisition Company
----------------------------------------------------------------------------------------------------------------------------
CAC Special Limited, Inc.         common shares,                5,000                       100 shares (100%) to Cornerstone
                                   no par value                                                          Acquisition Company
----------------------------------------------------------------------------------------------------------------------------
CAC Limited Partnership           partnership interests,         n/a                         1% to CAC Special General, Inc.
                                   limited and general                                                    as general partner
                                                                                            99% to CAC Special Limited, Inc.
                                                                                                          as limited partner
----------------------------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

                                 SCHEDULE 6.1(I)

                                   ERISA PLANS

Cornerstone Realty Income Trust, Inc. (the "Cornerstone")

Cornerstone  currently  provides or maintains the following  employee  benefits,
plans and  programs,  which are more  particularly  described  in  Cornerstone's
Associate Handbook (as amended and supplemented from time to time):

1.   Vacation benefits.
2.   Sick leave  benefits ( in  addition  to  absences  attributable  to workers
     compensation injury, disability and the Family and Medical Leave Act).
3.   Personal days benefits.
4.   Paid holidays (currently six per year).
5.   Medical insurance (can be funded pre-tax).
6.   Life insurance.
7.   Dental benefits (can be funded pre-tax).
8.   COBRA continuation benefits.
9.   401(k)  retirement plan (employer matches $0.25 for every $1.00 contributed
     by the  employee  until the  employee  has  contributed  up to 4% of annual
     salary).
10.  Flexible  Spending  Accounts (for medical  expenses and dependent  day-care
     expenses).
11.  Workers compensation insurance.
12.  Permitted absences from work attributable to military reserve  obligations,
     the Family and Medical Leave Act, jury or witness duty, and bereavement.
13.  Permitted absences due to disability.
14.  On-site housing in Cornerstone's properties at reduced rent.
15.  Discretionary bonuses.
16.  Tuition funded by Cornerstone for certain educational courses.

CRIT-NC, LLC

None.

<PAGE>

                                 SCHEDULE 6.1(M)

                   LABOR AND COLLECTIVE BARGAINING AGREEMENTS

None.

<PAGE>

                                 SCHEDULE 6.1(R)

                         DEBT AND CONTINGENT OBLIGATIONS

Cornerstone Realty Income Trust, Inc. ("Cornerstone")

         All  indebtedness  evidenced by a Promissory  Note, dated September 27,
         1999, made payable to the order of The Prudential  Insurance Company of
         America, a New Jersey corporation,  in the original principal amount of
         $50,550,000 and having a maturity date of October 15, 2006.

         Unsecured  Line of Credit from First Union National Bank in a principal
         amount up to $7,500,000.

CRIT-NC, LLC

         All  indebtedness  evidenced by a Promissory  Note, dated September 27,
         1999, made payable to the order of The Prudential  Insurance Company of
         America, a New Jersey corporation,  in the original principal amount of
         $22,950,000 and having a maturity date of October 15, 2006.

Other Subsidiaries of Cornerstone

         Indebtedness  of the  following  subsidiaries  of  Cornerstone,  in the
         current aggregate  principal amount of approximately $30 million,  with
         respect to the apartment properties indicated:

<TABLE>
<CAPTION>

         ------------------------------------------------------------------------------
         NAME OF                   NAME OF             LOCATION OF        MATURITY
         SUBSIDIARY                APARTMENT           APARTMENT          OF DEBT
         ------------------------------------------------------------------------------
         <S>                       <C>                 <C>                <C>
         Apple REIT II             Grayson Square II   Grapevine TX       March 2004
           Limited Partnership
         ------------------------------------------------------------------------------
         Apple REIT III            Silverbrook II      Grand Prairie TX   March 2007
           Limited Partnership
         ------------------------------------------------------------------------------
         Apple REIT IV             Meridian            Austin TX          November 2005
           Limited Partnership
         ------------------------------------------------------------------------------
         Apple REIT V              Paces Point         Lewisville TX      June 2003
           Limited Partnership
         ------------------------------------------------------------------------------
         Apple REIT VI             Devonshire          Dallas TX          June 2006
           Limited Partnership
         ------------------------------------------------------------------------------
         Apple REIT VII            Grayson Square I    Grapevine TX       April 2005
           Limited Partnership
         ------------------------------------------------------------------------------

</TABLE>

<PAGE>

         Indebtedness  arising  from  multiple  10-year  loans  provided  as  of
         December  12,  2000 by  First  Union  National  Bank  to the  following
         subsidiaries of Cornerstone in the amounts indicated:

                                                      AGGREGATE
                  NAME OF SUBSIDIARY                 LOAN AMOUNT

                  CRIT-VA, Inc.                      $  57,500,000
                  CRIT-NC II, LLC                    $  22,250,000
                  CAC Limited Partnership            $  61,250,000
                                                     -------------

                                    TOTAL            $ 141,000,000

<PAGE>

                                 SCHEDULE 6.1(S)

                                   LITIGATION

None.

<PAGE>

                                  SCHEDULE 8.17

              SUBSIDIARIES NOT REQUIRED TO BE ADDITIONAL BORROWERS

Cornerstone Realty Income Trust, Inc.

         DIRECT SUBSIDIARIES (NON-BORROWERS)

         Cornerstone Acquisition Company
         CRIT-SC, Inc.
         CRIT-SC, LLC
         CRIT-VA, Inc.
         CRIT Special, Inc.

         INDIRECT SUBSIDIARIES (NON-BORROWERS)

         Apple General, Inc.
         Apple Limited, Inc.
         Apple REIT Limited Partnership
         Apple REIT II   Limited Partnership
         Apple REIT III  Limited Partnership
         Apple REIT IV  Limited Partnership
         Apple REIT V   Limited Partnership
         Apple REIT VI  Limited Partnership
         Apple REIT VII Limited Partnership
         CRIT Cornerstone Limited Partnership
         CRIT-NC II, LLC
         CAC Special General, Inc.
         CAC Special Limited, Inc.
         CAC Limited Partnership

CRIT-NC, LLC

         No subsidiaries

<PAGE>

                                  SCHEDULE 10.3

                     EXCEPTIONS TO SECURED DEBT RESTRICTIONS

None.

<PAGE>

                                  SCHEDULE 10.5

                                 EXISTING LIENS

Cornerstone Realty Income Trust, Inc.

         All liens  arising  in  connection  with  indebtedness  evidenced  by a
         Promissory Note, dated September 27, 1999, made payable to the order of
         The Prudential  Insurance Company of America, a New Jersey corporation,
         in the original  principal  amount of $50,550,000 and having a maturity
         date of October 15, 2006.

CRIT-NC, LLC

         All liens  arising  in  connection  with  indebtedness  evidenced  by a
         Promissory Note, dated September 27, 1999, made payable to the order of
         The Prudential  Insurance Company of America, a New Jersey corporation,
         in the original  principal  amount of $22,950,000 and having a maturity
         date of October 15, 2006.

Other Subsidiaries of Cornerstone

         Liens  arising  from  indebtedness  of the  following  subsidiaries  of
         Cornerstone, in the current aggregate principal amount of approximately
         $30 million, with respect to the apartment properties indicated:

<TABLE>
<CAPTION>

         ------------------------------------------------------------------------------------------------
         NAME OF                         NAME OF                   LOCATION OF              MATURITY
         SUBSIDIARY                      APARTMENT                 APARTMENT                OF DEBT
         ------------------------------------------------------------------------------------------------
         <S>                             <C>                       <C>                      <C>
         Apple REIT II                   Grayson Square II         Grapevine TX             March 2004
           Limited Partnership
         ------------------------------------------------------------------------------------------------
         Apple REIT III                  Silverbrook II            Grand Prairie TX         March 2007
           Limited Partnership
         ------------------------------------------------------------------------------------------------
         Apple REIT IV                   Meridian                  Austin TX                November 2005
           Limited Partnership
         ------------------------------------------------------------------------------------------------
         Apple REIT V                    Paces Point               Lewisville TX            June 2003
           Limited Partnership
         ------------------------------------------------------------------------------------------------
         Apple REIT VI                   Devonshire                Dallas TX                June 2006
           Limited Partnership
         ------------------------------------------------------------------------------------------------
         Apple REIT VII                  Grayson Square I          Grapevine TX             April 2005
           Limited Partnership
         ------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

         Liens  relating to  indebtedness  arising from  multiple  10-year loans
         provided as of December  12, 2000 by First Union  National  Bank to the
         following subsidiaries of Cornerstone in the amounts indicated:

                                                   AGGREGATE
                  NAME OF SUBSIDIARY              LOAN AMOUNT

                  CRIT-VA, Inc.                  $  57,500,000
                  CRIT-NC II, LLC                $  22,250,000
                  CAC Limited Partnership        $  61,250,000
                                                 -------------

                                    TOTAL        $141,000,000

<PAGE>

                                  SCHEDULE 10.6

                    EXISTING LOANS, ADVANCES AND INVESTMENTS

Cornerstone Realty Income Trust, Inc.

         None.

CRIT-NC, LLC

         None.

<PAGE>

                                 SCHEDULE 10.10

                          TRANSACTIONS WITH AFFILIATES

Cornerstone Realty Income Trust, Inc. ("Cornerstone")

         The  shareholders  of Cornerstone  have approved a "Share Purchase Loan
         Program,"  under  which  officers  and  directors  of  Cornerstone  may
         purchase  its  common  shares  with loans  from  Cornerstone,  with the
         potential  for such loans to be  forgiven  to the extent  that  certain
         performance  targets  are  reached by  Cornerstone.  The details of the
         Share  Purchase  Loan  Program are set forth in Exhibit A to a Schedule
         14A that was filed with the Securities and Exchange Commission on April
         18, 2000 and is available from,  among other sources,  its public EDGAR
         database at the following website: http://www.sec.gov.

CRIT-NC, LLC

         None.

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