Document:

EX-10.3

 EXECUTION VERSION 

THIRD AMENDED AND RESTATED 

LEASE AGREEMENT 
 (CREZ
ASSETS) 
 between 

SHARYLAND DISTRIBUTION & TRANSMISSION SERVICES, L.L.C. 

and 
 SHARYLAND
UTILITIES, L.P. 
 December 4, 2015 

  
 CREZ
ASSETS LEASE AGREEMENT 

 TABLE OF CONTENTS 

 

							
	 ARTICLE I LEASE
	  	 	1	  
			
	 1.1
	 	 Lease of CREZ Assets
	  	 	1	  
	 1.2
	 	 Exclusive Rights
	  	 	3	  
	 1.3
	 	 Absolute Net Lease
	  	 	3	  
	 1.4
	 	 Waiver by Lessee
	  	 	3	  
	 1.5
	 	 Quiet Enjoyment
	  	 	3	  
		
	 ARTICLE II TERM OF LEASE
	  	 	4	  
			
	 2.1
	 	 Term
	  	 	4	  
	 2.2
	 	 Approvals upon Expiration or Termination
	  	 	4	  
	 2.3
	 	 Purchase Option upon Expiration or Termination
	  	 	5	  
		
	 ARTICLE III RENT
	  	 	5	  
			
	 3.1
	 	 Rent
	  	 	5	  
	 3.2
	 	 Rent Supplements
	  	 	9	  
	 3.3
	 	 Confirmation of Percentage Rent
	  	 	11	  
	 3.4
	 	 Additional Rent
	  	 	12	  
	 3.5
	 	 No Set Off
	  	 	12	  
	 3.6
	 	 Late Payment Penalty
	  	 	13	  
	 3.7
	 	 Credit Support
	  	 	13	  
	 3.8
	 	 Other Revenue
	  	 	13	  
	 3.9
	 	 Survival
	  	 	13	  
		
	 ARTICLE IV LESSEE’S REPRESENTATIONS, WARRANTIES AND COVENANTS
	  	 	13	  
			
	 4.1
	 	 Maintenance, Operation and Repair of the CREZ Assets
	  	 	13	  
	 4.2
	 	 Licenses and Permits
	  	 	14	  
	 4.3
	 	 Property Taxes and Other Assessments and Fees
	  	 	14	  
	 4.4
	 	 Requirements of Governmental Agencies and Regulatory Authorities
	  	 	15	  
	 4.5
	 	 Liens
	  	 	15	  
	 4.6
	 	 Hazardous Materials
	  	 	15	  
	 4.7
	 	 Indebtedness
	  	 	16	  
	 4.8
	 	 Records
	  	 	16	  
	 4.9
	 	 Surrender
	  	 	17	  
	 4.10
	 	 Cooperation; Transition Services
	  	 	17	  
	 4.11
	 	 Lessee’s Authority
	  	 	17	  
	 4.12
	 	 Litigation
	  	 	18	  
	 4.13
	 	 Financing
	  	 	18	  
		
	 ARTICLE V LESSOR’S REPRESENTATIONS, WARRANTIES AND COVENANTS
	  	 	20	  
			
	 5.1
	 	 Lessor’s Authority
	  	 	20	  
	 5.2
	 	 Liens and Tenants
	  	 	20	  
	 5.3
	 	 Condition of Assets
	  	 	20	  
	 5.4
	 	 Requirements of Governmental Agencies
	  	 	20	  
	 5.5
	 	 Hazardous Materials
	  	 	21	  
	 5.6
	 	 Litigation
	  	 	21	  
	 5.7
	 	 Records
	  	 	21	  
	 5.8
	 	 Limitation
	  	 	21	  

  

					
		  	i	  	CREZ ASSETS LEASE AGREEMENT

							
	 ARTICLE VI LOSS AND DAMAGE; INSURANCE
	  	 	21	  
			
	 6.1
	 	 Loss and Damage to the CREZ Assets
	  	 	21	  
	 6.2
	 	 Insurance
	  	 	22	  
		
	 ARTICLE VII REPORTING
	  	 	23	  
			
	 7.1
	 	 Financing Arrangements
	  	 	23	  
	 7.2
	 	 Public Company and Regulatory Information and Cooperation
	  	 	25	  
	 7.3
	 	 Mutual Obligations
	  	 	25	  
		
	 ARTICLE VIII ASSIGNMENT
	  	 	26	  
		
	 ARTICLE IX DEFAULT
	  	 	26	  
			
	 9.1
	 	 Lessee Default
	  	 	26	  
	 9.2
	 	 Lessor Default
	  	 	27	  
	 9.3
	 	 Right to Cure
	  	 	28	  
	 9.4
	 	 Remedies
	  	 	28	  
		
	 ARTICLE X CAPITAL EXPENDITURES
	  	 	29	  
			
	 10.1
	 	 Capital Expenditures Generally
	  	 	29	  
	 10.2
	 	 Capital Expenditures Funded by Lessor
	  	 	29	  
	 10.3
	 	 Capital Expenditures Funded by Lessee
	  	 	30	  
	 10.4
	 	 Footprint Project Construction Activities
	  	 	30	  
	 10.5
	 	 Ownership of Footprint Projects
	  	 	30	  
	 10.6
	 	 Asset Acquisitions
	  	 	31	  
	 10.7
	 	 Reimbursements
	  	 	31	  
		
	 ARTICLE XI REGULATORY COOPERATION
	  	 	31	  
			
	 11.1
	 	 Jurisdiction
	  	 	31	  
	 11.2
	 	 Cooperation
	  	 	32	  
		
	 ARTICLE XII INDEMNITY
	  	 	32	  
			
	 12.1
	 	 General Indemnity
	  	 	32	  
	 12.2
	 	 Environmental Indemnity
	  	 	33	  
	 12.3
	 	 Survival
	  	 	33	  
		
	 ARTICLE XIII MISCELLANEOUS
	  	 	33	  
			
	 13.1
	 	 Limitation of Damages
	  	 	33	  
	 13.2
	 	 Condemnation
	  	 	33	  
	 13.3
	 	 Confidentiality
	  	 	34	  
	 13.4
	 	 Successors and Assigns
	  	 	34	  
	 13.5
	 	 Rent Obligations Not Excused by Force Majeure, Etc.
	  	 	34	  
	 13.6
	 	 Further Assurances; Policies and Procedures
	  	 	34	  
	 13.7
	 	 Arbitration
	  	 	35	  
	 13.8
	 	 Notices
	  	 	36	  
	 13.9
	 	 Entire Agreement; Amendments
	  	 	37	  
	 13.10
	 	 Legal Matters
	  	 	37	  
	 13.11
	 	 Partial Invalidity
	  	 	37	  

  

					
		  	ii	  	CREZ ASSETS LEASE AGREEMENT

							
	 13.12
	 	 Recording
	  	 	37	  
	 13.13
	 	 Intention of Parties; True Lease
	  	 	38	  
	 13.14
	 	 Rules of Construction
	  	 	38	  

 APPENDICES 
  

			
	Appendix A —	 	Definitions
	
	EXHIBITS:
		
	Exhibit A —	 	Assets
	Exhibit B —	 	Insurance
	Exhibit C —	 	Subordinated Debt Terms
		
	SCHEDULES:	 	
		
	Schedule 3.2(b)	 	Form Rent Supplement

  

					
		  	iii	  	CREZ ASSETS LEASE AGREEMENT

 THIRD AMENDED AND RESTATED 

LEASE AGREEMENT 

(CREZ ASSETS) 
 This THIRD
AMENDED AND RESTATED LEASE AGREEMENT (CREZ ASSETS) (this “Agreement”) is entered into effective as of December 4, 2015 (the “Effective Date”), between Sharyland Distribution & Transmission Services,
L.L.C. (together with its permitted transferees, successors and assigns, “Lessor”), and Sharyland Utilities, L.P. (together with its permitted transferees, successors and assigns, “Lessee”), and in connection
herewith, Lessor and Lessee agree, covenant and contract as set forth in this Agreement. Lessor and Lessee are sometimes referred to in this Agreement as a “Party” or collectively as the “Parties”. 

Certain capitalized terms used in this Agreement have the meaning assigned to them in Appendix A attached hereto. 

WITNESSETH: 
 WHEREAS,
Sharyland Projects, L.L.C. (“Sharyland Projects”) and Lessee entered into that certain Second Amended and Restated Lease Agreement effective as of December 1, 2014 (as amended, restated, supplemented or otherwise modified from
time to time, the “Second Amended and Restated Lease”), pursuant to which Lessee leased the CREZ Lease Assets from Sharyland Projects; 

WHEREAS, effective as of December 3, 2015, Sharyland Projects merged with and into Lessor, with Lessor surviving and succeeding to
Sharyland Projects’ rights and obligations under the Second Amended and Restated Lease; and 
 WHEREAS, the Parties wish to amend and
restate the Second Amended and Restated Lease to reflect that Lessor is a party and to make certain other changes as set forth herein. 

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt of which is hereby acknowledged,
the Parties hereto hereby amend and restate the terms of the Second Amended and Restated Lease as follows: 
 ARTICLE I 

LEASE 
 1.1
Lease of CREZ Assets. 
 (a) Upon the terms and conditions set forth in this Agreement, Lessor
hereby grants to Lessee the exclusive right to use and operate the CREZ Lease Assets. Subject to necessary regulatory approvals and the final paragraph of Section 1.1(b), this Agreement is intended by Lessor and Lessee to be a master lease of
the CREZ Lease Assets, as they existed as of June 20, 2011 (the “Original Lease Date”), as they have been altered by the completion of the construction of the CREZ Project and as it has been or may continue to be altered or
expanded thereafter by Footprint Projects in which Lessor has an interest or by other additions of assets to this Agreement as Footprint Projects pursuant to Rent Supplements.  

  

					
		  	1	  	CREZ ASSETS LEASE AGREEMENT

 (b) The CREZ Assets shall consist of (x) the original assets leased by Sharyland Projects to
Lessee as of the Original Lease Date, (y) assets that constitute Footprint Projects, other than any such Footprint Projects funded by Lessee pursuant to Section 10.3 (except as otherwise provided in Section 10.3), and (z) any
components of the CREZ Assets that are repaired or replaced pursuant to Section 6.1. The CREZ Assets shall consist of the Transmission Lines, the Collection Stations and each of the following components which are owned by Lessor as of the date
hereof (or that are described within clause (y) or clause (z) above) and that are located within the area depicted on Exhibit A: 

(i) towers and poles affixed to the land, and all necessary and proper foundations, footings, crossarms and other appliances
and fixtures for use in connection with said towers, poles and lines; 
 (ii) overhead, underground and underwater electrical
distribution, transmission and communications lines, together with related ductwork and insulators; 
 (iii) electric
substation and switching facilities, including all associated transformers, circuit breakers, resistors, capacitors, buses, interconnection and switching facilities, control and protection equipment which monitors the CREZ Assets, and the building
housing the foregoing items; 
 (iv) electric meters required to operate the CREZ Assets; 

(v) real estate assets, including real property, interests in real property or real property rights (as defined in
Section 856(c)(5)(B) of the Code and the regulations promulgated thereunder, and not otherwise included in Sections 1.1(b)(i)-1.1(b)(iv) above) owned or leased by Lessor and underlying the CREZ Assets, including, without limitation, easements,
licenses, rights of way and other real property interests located within the area depicted on Exhibit A or such other area as may be depicted in a Rent Supplement; or 

(vi) all other systems or property owned or leased by Lessor, as identified in the uniform system of accounts for major
electric utilities, 18 C.F.R. Part 101, as adopted and amended from time to time by FERC (the “FERC Uniform System of Accounts”) (not otherwise included in Sections 1.1(b)(i)-1.1(b)(v) above). 

The CREZ Assets exclude, for the avoidance of doubt, the Transmission Operation Center and the transmission and distribution related assets included in the
Backup Operations Center located in Amarillo, Texas, which are currently owned by Lessor and leased to Lessee pursuant to the McAllen Lease. Notwithstanding anything to the contrary in this Agreement, the Parties do not intend or agree to enter into
a lease with respect to any Footprint Project or other alteration, expansion or addition to the CREZ Assets (and the Lessee shall not be authorized to use or operate such Footprint Project, alteration, expansion or addition to the CREZ Assets)
unless and until such time as the Parties first execute a Rent Supplement for the underlying Footprint Project and such Footprint Project is placed in service, and such Rent 

  

					
		  	2	  	CREZ ASSETS LEASE AGREEMENT

 
Supplement together with this Agreement shall be treated as a new lease with respect to such Footprint Project. The Parties further agree and acknowledge that a Rent Supplement will be executed
with respect to each Footprint Project before such Footprint Project is placed in service, and references in this Agreement to “CREZ Assets” rely on the assumption that this is the case. 

(c) Notwithstanding anything to the contrary in this Section 1.1, for so long as Lessor is in compliance with its obligation to fund
Capital Expenditures pursuant to Article X, Lessor may notify Lessee of its intention to transfer certain assets that would otherwise constitute CREZ Assets under this Agreement (the “Transferred Assets”) to a TRS. Upon any such
notification, the TRS and Lessee shall negotiate in good faith a lease agreement with respect to such Transferred Assets, on terms and conditions that are comparable to those contained herein, and, upon the execution of such lease, the Transferred
Assets shall no longer constitute CREZ Assets hereunder. 
 1.2 Exclusive Rights. Throughout the Term of this Agreement, Lessee shall
have the exclusive right (a) to operate and use the CREZ Lease Assets for the transmission of electricity in accordance with applicable rules and regulations of all regulatory agencies having regulatory jurisdiction over the CREZ Assets,
including without limitation, the PUCT as well as applicable rules and regulations of ERCOT, TRE, NERC and other Regulatory Authorities, and (b) to utilize the CREZ Lease Assets for other opportunities and uses (provided that such other
uses do not interfere with the current or future transmission and delivery of electricity, Good Utility Practice or Applicable Laws and do not adversely affect the reliability and safety of the CREZ Assets or the ERCOT electric grid). Throughout the
Term of this Agreement, Lessor shall have access to the CREZ Assets at all reasonable times for purposes of inspection and for the purposes of improving, expanding or modernizing the CREZ Assets in accordance with Article X. Except in the case of
emergency, prior to Lessor’s access of the CREZ Assets, Lessor will provide written notification to Lessee’s operations personnel. 

1.3 Absolute Net Lease. This Agreement is intended by the Parties to be an absolute net lease (and, except as otherwise specified
herein, the expenses and costs associated with the lease, license, servicing, insuring, maintenance, repair and operation of the CREZ Assets and the performance of Lessee’s obligations under this Agreement shall be for the account of the
Lessee, unless expressly stated that such expenses or costs are for the account of Lessor or some other Person). Other than as expressly provided herein, (a) Lessee’s obligation to make all payments of Rent as and when the same shall
become due and payable in accordance with the terms of this Agreement shall be absolute, irrevocable and unconditional and shall not be affected by any circumstance or subject to any abatement or diminution by set-off, deduction, counterclaim,
recoupment, agreement, defense, suspension, deferment, interruption or otherwise, and (b) until such time as all Rent required to be paid has been paid, Lessee shall have no right to terminate this Agreement or to be released, relieved or
discharged from its obligation to make, and shall not suspend or discontinue, any payment of Rent for any reason whatsoever. 
 1.4
Waiver by Lessee. Lessee hereby waives, to the extent permitted by Applicable Law, any and all rights which it may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to modify, terminate, cancel, quit or
surrender this Agreement except in accordance with the express terms hereof. 
 1.5 Quiet Enjoyment. Lessee shall be entitled to the
peaceful and quiet enjoyment of the CREZ Lease Assets, subject to the terms of this Agreement, so long as Lessee is not in default of this Agreement beyond applicable notice and cure periods. 

  

					
		  	3	  	CREZ ASSETS LEASE AGREEMENT

 ARTICLE II 

TERM OF LEASE 
 2.1
Term. Subject to the provisions of Section 2.2 of this Agreement, or as otherwise stated herein, this Agreement became effective on the Original Lease Date and shall continue through December 31, 2020 unless otherwise terminated in a
manner consistent herewith (the “Initial Term”). Thereafter, this Agreement may be renewed for subsequent terms (each, a “Renewal Term” and, collectively with the Initial Term, the “Term”) by mutual
agreement of the Parties; provided, however, that the Rent for any Renewal Term shall be targeted to provide the Lessor with a Comparable Rate of Return on the then-current Rate Base of the CREZ Assets. 

2.2 Approvals upon Expiration or Termination. 

(a) Notwithstanding any provisions to the contrary herein, Lessee shall not surrender, resign, transfer, assign or otherwise cease to be the
operator of the CREZ Assets at any time, including upon the termination of this Agreement or at the expiration of the Term, without first acquiring any necessary regulatory approvals from the PUCT or other Regulatory Authorities regarding such
surrender, resignation, transfer, assignment or cessation of such operatorship; provided that, in the event of expiration or termination, the Parties shall use commercially reasonable efforts to obtain all necessary regulatory approvals of
the transfer of such operatorship as soon as reasonably practicable. 
 (b) During any period of time after the expiration of the
Term or termination of this Agreement but prior to Lessee’s acquisition or receipt of any necessary regulatory approvals with respect to Lessee’s surrender, resignation, transfer, assignment or other cessation of its operation of the CREZ
Assets (such period of time being herein referred to as the “Extended Period of Operatorship”), Lessee shall continue to operate the CREZ Assets and shall continue to pay all Extended Period Rent and perform all of Lessee’s
other obligations under this Agreement; provided, however, that if regulatory approval is not obtained within twelve (12) months of initiation of the approval process and such delay is (a) due to Lessor’s failure to
reasonably pursue such approval, then the amounts payable as Rent will be eighty percent (80%) of such amount, or (b) due to Lessee’s failure to reasonably pursue such approval, then the amounts payable as Rent will be one hundred
five percent (105%) of such amount. 
 (c) Upon the expiration of the Term or termination of this Agreement, Lessee shall use
commercially reasonable efforts to obtain all necessary regulatory approvals as soon as reasonably practicable from the PUCT or other Regulatory Authorities to transfer or assign the CCNs for the CREZ Assets to Lessor or a third party designated by
Lessor and acceptable to the PUCT or other Regulatory Authorities. 
 (d) The obligations of Lessee and Lessor contained in this
Section 2.2 shall survive the expiration of the Term or termination of this Agreement. 

  

					
		  	4	  	CREZ ASSETS LEASE AGREEMENT

 2.3 Purchase Option upon Expiration or Termination. Upon the later of (a) the
expiration of the Term or termination of this Agreement or (b) the expiration of the Extended Period of Operatorship (if any), Lessor shall have the option to purchase from Lessee any equipment or other property, tangible or intangible
(including regulatory assets), owned by Lessee and principally used in connection with and necessary for the operation of the CREZ Assets (including any Nonseverable Footprint Projects owned by Lessee, if any), subject to any required regulatory
approvals. The purchase price for such property or equipment shall be the greater of (i) the net book value thereof plus 10% and (ii) the fair market value thereof as determined by mutual agreement of Lessor and Lessee. If the Parties fail
to agree on the amount of the purchase price, the purchase price shall be submitted to arbitration in accordance with Section 13.7, pursuant to which the Arbitration Panel shall be empowered to determine the amount of the purchase price, based
on submissions by each of Lessee and Lessor. 
 ARTICLE III 

RENT 
 3.1 Rent.
Lessee will pay to Lessor in lawful money of the United States of America which shall be legal tender for the payment of public and private debts, at Lessor’s address set forth in Section 13.8 hereof or at such other place or to such other
Person, as Lessor from time to time may designate in a written notice to Lessee, all Rent contemplated hereby during the Term on the basis hereinafter set forth. If there is a dispute as to the amount of Rent to be paid by Lessee, either Party may
submit the dispute to arbitration pursuant to Section 13.7. However, Lessee shall be required to pay, as and when Rent is due and payable hereunder, the Undisputed Rent until such time as the dispute is resolved by agreement between the Parties
or by arbitration pursuant to Section 13.7. 
 (a) Base Rent: Lessee will pay Lessor an amount of base rent equal to the amount
set forth on the then-effective Rent Supplement, which shall be payable monthly in arrears 45 days after the conclusion of the month. The amount of base rent owed pursuant to this Section 3.1(a) may be supplemented by the Parties from time to
time in accordance with Section 3.2. The amount of base rent payable pursuant to this Section 3.1(a), as supplemented from time to time pursuant to Section 3.2, is referred to as “Base Rent.” 

(b) Percentage Rent: In addition to the Base Rent set forth above, Lessee covenants and agrees to pay to Lessor, as percentage rent, an
annual amount equal to the percent of Gross Revenues during the applicable Lease Year in excess of the Annual Percentage Rent Breakpoint for such Lease Year, all as set forth on the then-effective Rent Supplement. The percentage amounts used for the
calculation of percentage rent owed pursuant to this Section 3.1(b) (the “Percentage Rent Percentages”) may be supplemented by the Parties from time to time in accordance with Section 3.2 to account for additions to the
CREZ Assets. The percentage rent payable pursuant to this Section 3.1(b), as supplemented from time to time pursuant to Section 3.2, is referred to as “Percentage Rent.” 

  

					
		  	5	  	CREZ ASSETS LEASE AGREEMENT

 (c) Percentage Rent Breakpoints: With respect to the Annual Percentage Rent
Breakpoint for each Lease Year: (1) the “First Lease Quarter Percentage Rent Breakpoint” shall be 25% of the Annual Percentage Rent Breakpoint for such Lease Year; (2) the “Second Lease Quarter Percentage Rent
Breakpoint” shall be 50% of the Annual Percentage Rent Breakpoint for such Lease Year; and (3) the “Third Lease Quarter Percentage Rent Breakpoint” shall be 75% of the Annual Percentage Rent Breakpoint for such Lease
Year. 
 (d) Gross Revenues: 

(i) As used in this Agreement, subject to Section 3.1(d)(ii), the “Gross Revenues” of the CREZ Assets shall mean
and include all fees, charges and other revenues, computed without duplication, generated by or otherwise (x) received by or payable to Lessee in connection with or which are the result of the operation of the CREZ Assets (and any assets
related to the CREZ Assets owned by Lessee), as set forth in the FERC Uniform System of Accounts or such other accounts as may be applicable from time to time in which Lessee records its revenues from operation of the CREZ Assets; (y) received
by or payable to Lessee from other opportunities and uses of the CREZ Assets pursuant to Section 1.2(b) hereof; or (z) arising from insurance proceeds for business income lost from an insured event related to the CREZ Assets;
provided that “Gross Revenues” shall not include (1) any payment received by Lessee as CIAC; (2) any items which are of a pure pass-through nature where such items are charged to and collected from customers of
Lessee but which carry regulatory responsibility to remit such collections without offset or deduction to a third party, including, but not limited to, items such as: (A) sales taxes or other charges collected by Lessee on behalf of a taxing
authority; (B) fees, charges and other revenues collected by Lessee that can be specifically traced to any regulatory approved costs incurred by Lessee that have been ordered or permitted by the PUCT to be recovered through Lessee’s rates
such as system benefit funds; (C) fees, charges and other revenues collected by Lessee that can be specifically traced to any deferred costs funded by Lessee that have been ordered or permitted by the PUCT to be recovered through a tariff
rider; and (D) such other items that Lessor and Lessee agree to in good faith are consistent with the foregoing and should be included prospectively in the list set forth in this clause (2) and in the event the Lessor and Lessee cannot
agree on what items should be included on such list, then either Lessor or Lessee may submit such matter to arbitration pursuant to Section 13.7, pursuant to which the Arbitration Panel shall be empowered to determine which such items shall be
included on such list, based on submissions by each of the Lessee and the Lessor; and (3) Revenues Attributable to Lessee CapEx. The term “Unadjusted Gross Revenues” means the amount of Gross Revenue, calculated in accordance
with this Section 3.1(d)(i), without giving effect to the offset set forth in clause (3), above, related to Revenues Attributable to Lessee CapEx. 

(ii) Except as set forth below, all ERCOT Transmission Revenues will be allocated to the CREZ Assets covered by this Agreement based upon the
following formula: Multiply (x) total ERCOT Transmission Revenues received by Lessee by (y) a fraction, the numerator of which is the Transmission Net Plant in Service for the CREZ Assets covered by this Agreement and the denominator of
which is the total Transmission Net Plant in Service for all regulated electric transmission systems owned by Lessor or an affiliate thereof and operated by Lessee or a subsidiary thereof within ERCOT (the “TCOS Allocation”). As of
the Effective Date, all regulated electric transmission systems operated by Lessee or a subsidiary thereof within 

  

					
		  	6	  	CREZ ASSETS LEASE AGREEMENT

 
ERCOT are owned by Lessor or a subsidiary or parent entity thereof. As long as that is the case, Transmission Net Plant in Service and Transmission Gross Plant in service shall be derived
exclusively from the financial statements of Lessor and agreed to by Lessee. If Lessee or any subsidiary thereof operates any electric transmission systems within ERCOT that are not leased from Lessor or an affiliate thereof, then the Parties will
negotiate in good faith an equitable and appropriate mechanism for allocating ERCOT Transmission Revenues based on the Transmission Net Plant in Service of the respective electric transmission systems and in the event the Parties cannot agree on an
equitable and appropriate mechanism, then either Party may submit such matter to arbitration pursuant to Section 13.7, pursuant to which the Arbitration Panel shall be empowered to determine such equitable and appropriate TCOS Allocation
mechanism, based on submissions by each of the Lessee and the Lessor. The most recent TCOS Allocation agreed to by Lessor and Lessee will govern the allocation described in this Section 3.1(d)(ii), which TCOS Allocation may be set forth in a
Rent Supplement, but will not be required to be included in a Rent Supplement to be effective. Either Party may request a revision to such TCOS Allocation, based on the most recent available monthly balance sheet, no more frequently than once every
sixty (60) days or in connection with any Rent Supplement or Rent Validation executed and delivered by the Parties. If the Parties are unable to agree to an allocation, such matter will be submitted to arbitration pursuant to Section 13.7.
“Gross Revenues,” for purposes hereof, will include the amount of such ERCOT Transmission Revenues allocated to the CREZ Assets pursuant to this Section 3.1(d)(ii), plus any other amounts that constitute Gross Revenues pursuant
hereto, minus (without duplication) Revenues Attributable to Lessee CapEx. As of the date hereof, the Parties do not expect that any Lessee revenue, other than ERCOT Transmission Revenues, will be allocated to the CREZ Assets and constitute Gross
Revenues hereunder. 
 (iii) The Parties contemplate that there may be Capital Expenditures for assets that are placed in service and that
are related and fairly allocable to the CREZ Assets and are classified as Lessee CapEx. Unless the Parties agree otherwise based on appropriate factors at the time of the negotiation, Capital Expenditures that qualify as Lessee CapEx will qualify as
Lessee CapEx on the date that the assets developed with such Capital Expenditures are placed in service. In such a case, Revenues Attributable to Lessee CapEx shall be determined and such portion shall be subtracted from Unadjusted Gross Revenues in
order to calculate Gross Revenues. For these purposes, Revenues Attributable to Lessee CapEx shall be targeted to equal that portion of the Unadjusted Gross Revenues collected by Lessee which equals the amount needed to provide Lessee with the
equivalent of a Comparable Rate of Return on any such Lessee CapEx (except that, in determining such Comparable Rate of Return, the Parties will not consider Lessee’s creditworthiness and there will be no Agreed-to-Discount). It is understood
and agreed that such determinations of the Revenues Attributable to Lessee CapEx are intended to provide an accurate and reasonably administrable means of ensuring that the Lessee (and not the Lessor) will receive a Comparable Rate of Return
attributable to the capital invested by Lessee in the Lessee CapEx. The Revenues Attributable to Lessee CapEx shall be determined solely to provide a Comparable Rate of Return on such Lessee CapEx and shall not be determined with reference to, or
with any intention to true up, the effect of any difference between the initially anticipated and the actual return of or on prior Lessee CapEx. The Parties understand that there may be Capital Expenditures that relate to both the CREZ Assets and to
other transmission and/or distribution systems owned or operated by Lessee or an affiliate thereof, and, in such circumstance, the Parties will 

  

					
		  	7	  	CREZ ASSETS LEASE AGREEMENT

 
negotiate in good faith to determine the portion of such Capital Expenditures that constitute Lessee CapEx hereunder. In the event the Parties cannot determine such portion, then either Party may
submit such matter to arbitration pursuant to Section 13.7, pursuant to which the Arbitration Panel shall be empowered to determine such portion of Capital Expenditures that constitute Lessee CapEx hereunder, based on submissions by each of the
Lessee and the Lessor. Lessee agrees to provide Lessor with sufficient information regarding Lessee CapEx so that Lessor can monitor amounts actually spent on Lessee CapEx. If Lessee expects there will be any Lessee CapEx, Lessee may request, no
more frequently than annually, that the Parties determine the Revenues Attributable to Lessee CapEx which relate to such Lessee CapEx for each subsequent Lease Year. Lessee will use reasonable efforts to make such request coincide with a Rent
Supplement pursuant to Section 3.2(a). Each supplement and related determination of Revenues Attributable to Lessee CapEx for any Lease Year which is specified in this Section 3.1(d)(iii) shall be memorialized in the manner specified in
Section 3.2(b). 
 (e) Payment of Percentage Rent: Percentage Rent shall be paid by Lessee to Lessor not later than the date forty-five
(45) days after the end of each Lease Quarter as herein provided. Lessee shall record Gross Revenues in order to provide an audit trail for the Gross Revenues. Lessee shall deliver a written statement to Lessor, accompanied by a CFO
Certificate, within forty-five (45) days after the end of each Lease Quarter, stating (1) the Gross Revenues for that Lease Quarter, (2) the cumulative total through the end of that Lease Quarter of Gross Revenues for such Lease Year,
(3) the Percentage Rent Breakpoint (the First Lease Quarter Percentage Rent Breakpoint, the Second Lease Quarter Percentage Rent Breakpoint, the Third Lease Quarter Percentage Rent Breakpoint or the Annual Percentage Rent Breakpoint for such
Lease Year, as applicable), utilized by Lessee and applicable to Lessee’s calculation of Percentage Rent through the end of that Lease Quarter, and (4) the cumulative total of any Percentage Rent then due and the cumulative total of any
Percentage Rent previously paid with respect to any prior Lease Quarter(s) within such Lease Year. If such CFO Certificate indicates that any Percentage Rent is due for such Lease Quarter (or such Lease Year, as applicable), based upon the
cumulative total of Gross Revenues through the end of such Lease Quarter and the applicable Percentage Rent Breakpoint reflected in such statement, then Lessee shall pay and deliver any Percentage Rent then due with the statement and CFO Certificate
for such Lease Quarter (or such Lease Year, as applicable). With respect to the final Percentage Rent calculation for any Lease Year, Lessee shall receive a credit for any Percentage Rent previously paid with respect to such Lease Year. If the
Percentage Rent payments previously made by Lessee to Lessor for the first three Lease Quarters of a Lease Year, on a cumulative basis, exceed the annual amount of Percentage Rent payable by Lessee to Lessor for such Lease Year, then Lessee shall
receive a credit for such excess amount against the next Percentage Rent payment(s) becoming due and payable by Lessee to Lessor under this Agreement. The applicable Percentage Rent Breakpoint shall also be adjusted pro rata for any partial Lease
Quarters or partial Lease Years at the beginning and/or end of the Term. All statements deliverable by Lessee to Lessor under this Agreement shall be delivered to the place where rent is then payable, or to such other place or places as Lessor may
from time to time direct by written notice to Lessee. 

  

					
		  	8	  	CREZ ASSETS LEASE AGREEMENT

 3.2 Rent Supplements. 

(a) The Parties have executed a Rent Supplement with respect to the Rent in effect as of the Effective Date. This Section 3.2(a)
will not require any amendment to Rent unless the Parties expect Incremental CapEx and the Parties have not previously entered into a Rent Supplement with respect to such Incremental CapEx. If the Parties expect Incremental CapEx (“Expected
Incremental CapEx”), then they will negotiate in good faith to supplement Rent and other matters in accordance with this Section 3.2. In connection therewith, the Parties will negotiate the pre-tax rate of return that Lessor should
earn on such Incremental CapEx, which will be based generally on an agreed-to-discount from the rate of return that public utility companies generally earn in the State of Texas at the time of such Rent Supplement negotiation, adjusted in the manner
agreed to by the Parties (if justified) to take into account the creditworthiness of Lessee at the time of such Rent Supplement negotiation (the “Agreed-to-Discount”). Such discount
will be based on the comparable discount agreed to in connection with the negotiation of rent pursuant to the McAllen Lease and other leases between Lessee and Lessor (or an affiliate thereof), as modified to take into account appropriate factors at
the time of such Rent Supplement negotiation. Such pre-tax rate of return, as determined in accordance with this paragraph, is referred to as a “Comparable Rate of Return.” The following will apply to the determination of the
matters set forth on the Rent Supplement: 
 (i) The Parties will supplement Base Rent and Percentage Rent in a manner
intended to provide a Comparable Rate of Return for Lessor on the Expected Incremental CapEx. Such Comparable Rate of Return will be achieved by a split between Base Rent and Percentage Rent in the proportions requested by Lessor and agreed to by
Lessee. 
 (ii) Unless the Parties agree otherwise based on appropriate factors at the time of the negotiation, Capital
Expenditures will qualify as Incremental CapEx on the date the assets subject to such Capital Expenditures are placed in service (notwithstanding that Capital Expenditures that are included in CapEx Budgets pursuant to Article X are for such
purposes measured based on the date the related Capital Expenditures are incurred). 
 (iii) Notwithstanding anything herein
to the contrary, such supplement shall be determined solely to provide a Comparable Rate of Return on such Expected Incremental CapEx and shall not be determined with reference to, or with any intention to true up, the effect of any difference
between the initially anticipated and the actual return of or on, or the Base Rent or Percentage Rent payable with respect to, the CREZ Assets as in place prior to the additions resulting from such Expected Incremental CapEx. 

(b) The Parties will memorialize the results of all Incremental CapEx supplements and Lessee CapEx supplement negotiations by executing and
delivering a Rent Supplement, which will set forth the amount of contemplated Incremental CapEx, new Base Rent, a new Percentage Rent Schedule, new Revenues Attributable to Lessee CapEx, Lessee CapEx, new TCOS Allocation (if applicable), the
effective date on which such changes will occur and the term of such Rent Supplement (if applicable). In no event will any new Base Rent or new Percentage Rent be payable, or any Revenues Attributable to Lessee CapEx be

  

					
		  	9	  	CREZ ASSETS LEASE AGREEMENT

 
taken into account as a reduction to Unadjusted Gross Revenues, before the assets funded by the related Incremental CapEx or Lessee CapEx are placed in service. The Rent Supplement may also
include the projected in-service date of the Incremental CapEx or Lessee CapEx to which the Rent Supplement applies. Upon execution and delivery of any such Rent Supplement, this Agreement will be deemed amended thereby. If necessary, Exhibit
A will be supplemented to reflect the new assets to be funded by the Incremental CapEx. The Rent Supplement shall have the term set forth therein, not to extend past the then-current Term of this Agreement. At the end of the term of each Rent
Supplement, the Parties shall negotiate a new Rent Supplement for the Lessee CapEx and Incremental CapEx covered by such prior Rent Supplement using the Comparable Rate of Return methodology set forth in Sections 3.1(d)(iii) and 3.2(a).
Notwithstanding the foregoing, the Percentage Rent Percentages and Annual Percentage Rent Breakpoints reflected on such new Rent Supplement with respect to the Rate Base covered by such prior Rent Supplement shall be as set forth on the Percentage
Rent Schedule of such prior Rent Supplement. 
 (c) This Section 3.2(c) sets forth the process by which the Parties may request and
effect Rent Validations. 
 (i) If following the execution and delivery of a Rent Supplement there is a difference in
(I) the amount of actual Incremental CapEx compared to the amount contemplated by the then-effective Rent Supplement, (II) the amount of actual Lessee CapEx compared to the amount contemplated by the then-effective Rent Supplement, or (III) the
placed-in-service date of such Incremental CapEx or Lessee CapEx compared to what was contemplated at the time of the then-effective Rent Supplement then, at any time within two years of the date the Parties agree to a Rent Supplement, either Party
may request a Rent Validation. If there has been such a difference, the Parties will supplement Incremental CapEx, Base Rent, Percentage Rent Percentages, Annual Percentage Rent Breakpoints, Revenues Attributable to Lessee CapEx and/or Lessee CapEx,
as applicable, to what they would have been, at the time of the Rent Supplement, to reflect (1) the amount of actual Incremental CapEx and Lessee CapEx and/or (2) the actual dates such Incremental CapEx and/or Lessee CapEx was placed in
service, but keeping fixed all other relevant assumptions and inputs, including the Comparable Rate of Return. For the avoidance of doubt, in no circumstance will a Rent Validation occur to account for any difference between the initially
anticipated and the actual return of or on the Incremental CapEx and/or Lessee CapEx, and no such difference will be taken into account as part of such Rent Validation. The Parties also will negotiate in good faith to determine (A) whether one
Party should make a lump sum payment to the other Party as a result of excess or deficient Rent that Lessee paid, prior to the date of the effective date of the Rent Validation, in connection with the Rent Supplement, and, (B) if applicable,
the amount of any such lump sum payment. The Parties will memorialize the result of any Rent Validation negotiation by executing and delivering a revised Rent Supplement, which will set forth revised expected Incremental CapEx, Lessee CapEx, Base
Rent, Percentage Rent Percentages, Annual Percentage Rent Breakpoints and/or Revenues Attributable to Lessee CapEx, as applicable, the effective date on which such changes will occur and, if applicable, the amount of the lump sum payment that one
Party must make to the other Party (which payment must be made within 30 days of the execution and delivery of such revised Rent Supplement). 

  

					
		  	10	  	CREZ ASSETS LEASE AGREEMENT

 
Any lump sum payments received by Lessor under this Section 3.2(c) shall be treated as Rent by the Parties. Upon execution and delivery of any such Rent Validation, this Agreement will be
deemed amended thereby. 
 (ii) For the avoidance of doubt, notwithstanding expiration of the Initial Term on
December 31, 2020, upon request of either Party made at any time before March 1, 2021, the Parties will conduct a Rent Validation pursuant to this Section 3.2(c) in order to determine (I) whether one Party should make a lump sum
payment to the other Party as a result of excess or deficient Rent Lessee paid, prior to the date of the effective date of such Rent Validation, in connection with the Rent Supplement, given any negotiated supplement, and, (II) if applicable, the
amount of any such lump sum payment. The provisions of this Section 3.2(c) will apply to any such lump sum payment. 

(iii) The Parties will reasonably cooperate to minimize the number of Rent Validations, and prospective Rent Supplements and
Rent Validations may be combined into one revised, amended and restated Rent Supplement. 
 (d) In connection with the foregoing provisions
of this Section 3.2, Lessor and Lessee shall use good faith efforts to agree to a Rent Supplement, renewal of a Rent Supplement or Rent Validation, as applicable, within 60 days of a request therefor by either Party. If, by the end of such 60
day period, Lessee and Lessor cannot in good faith agree to the terms of a Rent Supplement, renewal of a Rent Supplement or Rent Validation, such dispute shall be submitted to arbitration in accordance with Section 13.7, pursuant to which the
Arbitration Panel shall be empowered to determine the terms of such Rent Supplement, renewal of a Rent Supplement or Rent Validation (including any lump sum payment amount), based on submissions by each of the Lessee and the Lessor. 

3.3 Confirmation of Percentage Rent. 

(a) In the event that Lessee determines that the Percentage Rent paid with respect to any Lease Year exceeded the amount of Percentage Rent
actually due for such Lease Year (such overage being the “Excess Percentage Rent”), Lessee shall promptly notify Lessor of such fact and shall deliver a new CFO Certificate (the “Revised Certificate”) setting forth
the corrected calculations of the Percentage Rent due for such Lease Year and identifying the amount of the Excess Percentage Rent. Upon Lessor’s reasonable verification of the information set forth in the Revised Certificate, Lessor shall
refund to Lessee the Excess Percentage Rent. Notwithstanding anything to the contrary contained herein, in no event shall Lessor have any obligation under this Section 3.3(a) to refund any Excess Percentage Rent if Lessor has not received the
Revised Certificate by March 31 of the year following the Lease Year for which the Excess Percentage Rent was paid. 
 (b) Lessee shall
utilize, or cause to be utilized, an accounting system for the CREZ Assets in accordance with the FERC Uniform System of Accounts, that will accurately record all data necessary to compute Percentage Rent, and Lessee shall retain and shall allow
Lessor and its representatives to have reasonable access to, for at least five (5) years after the expiration of each Lease Year, reasonably adequate records conforming to such accounting system showing all data necessary to conduct
Lessor’s Audit and to compute Percentage Rent for the applicable Lease Years and to otherwise file or defend tax returns and reports to any Regulatory Authority. 

  

					
		  	11	  	CREZ ASSETS LEASE AGREEMENT

 (c) Lessor shall have the right from time to time to cause its accountants or representatives to
conduct an inspection, examination and/or audit (a “Lessor’s Audit”) of all of Lessee’s records, including supporting data, sales and excise tax returns and the records described in Section 3.3(b), reasonably required
to complete such Lessor’s Audit and to verify Percentage Rent, subject to any prohibitions or limitations on disclosure of any such data under applicable laws, regulations and governmental requirements. If any Lessor’s Audit discloses a
deficiency in the payment of Percentage Rent, and either Lessee agrees with the result of Lessor’s Audit or the matter is otherwise determined or compromised, Lessee shall forthwith pay to Lessor the amount of the deficiency, as finally agreed
or determined, together with interest at the Overdue Rate from the date when said payment should have been made to the date of payment thereof. In addition to the amounts described above in this Section 3.3(c), if any Lessor’s Audit
discloses a deficiency in the payment of Percentage Rent which, as finally agreed or determined, exceeds 3% of the amount paid, Lessee shall pay the costs of Lessor’s Audit. In no event shall Lessor undertake a Lessor’s Audit after
March 31 of the second year following the Lease Year for which such audit is requested. 
 (d) Any proprietary information obtained by
Lessor pursuant to the provisions of this Section 3.3 shall be treated as confidential, except that such information may be used, subject to appropriate confidentiality safeguards, in any litigation or arbitration between the Parties and except
further that Lessor may disclose such information to lenders and investors, including prospective lenders or investors and to any other persons to whom disclosure is necessary or appropriate to comply with Applicable Laws, regulations and
governmental requirements and to comply with any reporting requirements applicable to Lessor or Lessee under any applicable securities laws or regulations or any listing requirements of any applicable securities exchange. 

(e) Any dispute as to the existence or amount of any deficiency in the payment of Percentage Rent as disclosed by Lessor’s Audit shall,
if not otherwise settled by the Parties, be submitted to arbitration pursuant to the provisions of Section 13.7. 
 3.4
Additional Rent. In addition to Base Rent and Percentage Rent, Lessee also will pay and discharge as and when due and payable all other amounts, liabilities, obligations and impositions that Lessee assumes or agrees to pay under this
Agreement, including without limitation, the expenses and costs described in Section 1.3 and any reimbursement for such amounts and other damages to Lessor in the event that Lessor pays such expenses or costs or performs such obligations on
behalf of Lessee (collectively, “Additional Rent”). 
 3.5 No Set Off. Rent shall be paid to Lessor
without set off, deduction or counterclaim; provided, however, that Lessee shall have the right to assert any claim or counterclaim in a separate action brought by Lessee under this Agreement or to assert any mandatory counterclaim in
any action brought by Lessor under this Agreement. 

  

					
		  	12	  	CREZ ASSETS LEASE AGREEMENT

 3.6 Late Payment Penalty. Except as otherwise provided in
Section 9.1(b), if Lessee fails to make any payment of Rent to Lessor within five (5) days after it is due, interest shall accrue on the overdue amount, from the date overdue until the date paid, at the Overdue Rate. 

3.7 Credit Support. If Lessor has reasonable grounds for insecurity regarding the performance of Lessee’s
obligations hereunder, Lessor may require Lessee to provide credit support in the amount, form and for the term reasonably acceptable to Lessor, including but not limited to, a letter of credit, a prepayment, or a guaranty. 

3.8 Other Revenue. If Lessee receives or expects to receive any fees, charges or Other Revenue and other than de minimis
amounts not to exceed $100,000 in any calendar year, then, unless Lessee reasonably believes that such Other Revenue will not operate to reduce Lessee’s tariff within the State of Texas, Lessee and Lessor will negotiate in good faith to amend
this Agreement or a similar lease to characterize the portion of such Other Revenue which Lessor reasonably expects will operate to reduce Lessee’s tariff within the State of Texas as Unadjusted Gross Revenue hereunder or under such other
similar lease. In the event the Lessee and Lessor cannot agree on the terms of such amendment of this Agreement or of a similar lease, then either the Lessee or the Lessor may submit such matters to arbitration pursuant to Section 13.7,
pursuant to which the Arbitration Panel shall be empowered to characterize the portion of such Other Revenue which Lessor reasonably expects will operate to reduce Lessee’s tariff within the State of Texas as Unadjusted Gross Revenue hereunder
or under such other similar lease, based on submissions by each of the Lessee and the Lessor. 
 3.9 Survival. The
obligations of Lessee and Lessor contained in this Article III with respect to the calculation, validation and payment, including late payment, of Rent applicable to periods prior to the end of the Term shall survive the expiration or earlier
termination of this Agreement. 
 ARTICLE IV 

LESSEE’S REPRESENTATIONS, WARRANTIES AND COVENANTS 

Lessee hereby represents, warrants and covenants to Lessor that: 

4.1 Maintenance, Operation and Repair of the CREZ Assets. 

(a) Lessee, at its own cost and expense, shall maintain (including both scheduled and unscheduled maintenance), operate, repair and make all
modifications (other than the construction of Footprint Projects, which shall be subject to Article X) to the CREZ Assets and any components thereof (whether owned by Lessor or Lessee), including directing all operations of and supplying all
personnel necessary for the operation of the CREZ Assets, in each case, as reasonable and prudent and consistent with Good Utility Practice and as required by Applicable Law. Lessee shall carry out all obligations under this Agreement as reasonable
and prudent and consistent with Good Utility Practice and in accordance with manufacturers’ warranty requirements (during any applicable warranty period) and the Lessee’s established operating procedures and maintenance, rebuild and repair
programs so as to keep the CREZ 

  

					
		  	13	  	CREZ ASSETS LEASE AGREEMENT

 
Assets in good working order, ordinary wear and tear excepted, and in such condition as shall comply in all material respects with all Applicable Laws. Lessee will operate the CREZ Assets in a
reliable and safe manner in compliance with all applicable requirements and regulations of Regulatory Authorities. Lessee will not operate the CREZ Assets or any component thereof in any manner excluded from coverage by any insurance in effect as
required by the terms hereof. 
 (b) If inspections of the CREZ Assets by Lessor show that the CREZ Assets do not meet industry standards or
Good Utility Practice for maintenance and repair and/or fail to meet the requirements of any Applicable Law, Lessee shall promptly, but in any event within thirty (30) days after such initial notification, (i) develop a plan for
Lessor’s review by which the CREZ Assets can be modified or replaced to comply with the standards, and (ii) complete any and all such modifications and/or replacements consistent with all applicable reliability and safety standards
established by regulations, orders or requirements of Regulatory Authorities. 
 4.2 Licenses and Permits. Lessee shall
obtain and maintain any and all licenses, permits and other governmental and third-party consents and approvals required by Applicable Law in order to carry out its obligations under this Agreement. 

4.3 Property Taxes and Other Assessments and Fees. Lessee shall bear (or collect from customers, as applicable) and
timely pay all ad valorem or property taxes, sales and use taxes, or other assessments, governmental charges or fees that shall or may during the Term be imposed on, or arise in connection with, the ownership, lease, repair, maintenance and/or
operation of, the CREZ Assets (including all Footprint Projects as described and provided for in Section 10.1 of this Agreement) (excluding any Lessor Taxes, “Lessee Taxes”); provided that Lessee shall not be obligated
to pay any income, franchise or similar taxes imposed upon Lessor any consolidated, combined unitary or similar group that includes Lessor or any direct or indirect owner of an equity interest in Lessor, or any transfer, recordation, sales, use or
similar taxes which arise in connection with Lessor’s acquisition of Footprint Projects or the construction of Footprint Projects funded by Lessor (“Lessor Taxes”). The Parties understand that Lessee collects certain Lessee
Taxes from end customers and remits such payments to the appropriate Regulatory Authority, and that nothing in this Section 4.3 is intended to impose liability on Lessee (instead of such customer) for the related tax liability beyond that
imposed by Applicable Law with respect to such collection obligations. Upon the written request by Lessor, Lessee shall provide Lessor with evidence of the payment of any such Lessee Taxes, the failure of which to be paid would cause the imposition
of a Lien upon the CREZ Assets or any component thereof or interest therein. Lessee shall assume full responsibility for preparing and furnishing to Lessor for execution all filings with any Regulatory Authority of or in the state and/or locality in
which the CREZ Assets are located in respect of any and all Lessee Taxes; except that, where required or permitted by Applicable Law, Lessee shall make such filings on behalf of Lessor in the name of Lessor or in Lessee’s own name. In each case
in which Lessee furnishes a tax return or any other form to be executed by Lessor for filing with or delivery to any taxing authority, Lessee shall certify to Lessor that such document is in the proper form, is required to be filed under Applicable
Law and does not impose any tax or other liability on Lessor or any of its affiliates which is not indemnified by Lessee. Lessee shall be permitted to contest, in its own name when permitted by law but otherwise on behalf of Lessor, in good faith
and upon consultation with Lessor, any taxes it is obligated to pay hereunder. 

  

					
		  	14	  	CREZ ASSETS LEASE AGREEMENT

 4.4 Requirements of Governmental Agencies and Regulatory Authorities.
Lessee, at its expense, shall comply with all Applicable Laws, including without limitation all requirements of the Regulatory Authorities. Lessee shall have the right, in its reasonable discretion and at its cost and expense, to contest by
appropriate legal proceedings, the validity or applicability to the CREZ Assets of any Applicable Law made or issued by any federal, state, county, local or other Regulatory Authority. Any such contest or proceeding shall be controlled and directed
by Lessee. Lessee shall provide Lessor with written notice of the commencement of any such legal proceedings that relate to or are a Lessor Material Matter. Thereafter, if requested by Lessor, Lessee will update Lessor, at reasonable intervals, of
the progress of any such proceedings that relate to or are a Lessor Material Matter. 
 4.5 Liens. Lessee shall keep
the CREZ Assets free and clear of all Liens other than Permitted Liens; provided, however, that if Lessee wishes to contest any such Lien (other than a Permitted Lien), Lessee shall, promptly, and in any event within thirty
(30) days after it receives notice of the filing of such Lien, remove or bond over such Lien from the CREZ Assets pursuant to Applicable Law. If Lessee fails to promptly remove or bond over any such Lien, Lessor may, after providing notice to
Lessee, take reasonable action to satisfy, defend, settle or otherwise remove the Lien at Lessee’s expense. 
 4.6 Hazardous
Materials. 
 (a) Lessee shall operate and maintain the CREZ Assets and conduct all of its other activities in respect thereof in
compliance in all material respects with any Environmental Laws and other Applicable Laws relating to air, water, land and the generation, storage, use, handling, transportation, treatment or disposal of Hazardous Materials. Lessee shall promptly
notify Lessor of any such violation that is a Lessor Material Matter. To the extent Lessee becomes aware of any environmental, health, safety or security matter that requires a corrective action, Lessee shall (in consultation with Lessor in the case
of any Lessor Material Matter) undertake and complete such corrective action. Lessee shall have the obligation to report any such violations to the appropriate Regulatory Authorities in accordance with Applicable Law and, if practicable, shall give
notice thereof to Lessor prior to making such report with respect to any Lessor Material Matter. 
 (b) Without limiting the generality of
the foregoing, Lessee shall not (i) place or locate any underground tanks on the property underlying the CREZ Assets, (ii) generate, manufacture, transport, produce, use, treat, store, release, dispose of or otherwise deposit Hazardous
Materials in or on the CREZ Assets, the property underlying the CREZ Assets or any portion thereof other than as permitted by Environmental Laws that govern the same or are applicable thereto, (iii) permit any other substances, materials or
conditions in, on or emanating from the CREZ Assets, the property underlying the CREZ Assets or any portion thereof which may support a claim or cause of action under any Applicable Law or (iv) undertake any action that would reasonably be
expected to cause an unauthorized release of Hazardous Materials at the property underlying the CREZ Assets. 
 (c) Lessee shall
periodically, at intervals determined in its reasonable discretion in accordance with Good Utility Practice or as required by Applicable Law, at Lessee’s sole expense, conduct inspections of all components of the CREZ Assets to ensure
compliance with Applicable Laws and with this Section 4.6, and shall promptly notify Lessor of the results of any such inspections. Lessor may, at Lessor’s expense, conduct its own testing at times determined in its reasonable discretion,
and after reasonable consultation with Lessee, to ensure Lessee’s compliance with Applicable Laws and with this Section 4.6, provided, however, that Lessor agrees to indemnify Lessee from and against any and all Claims
suffered or incurred by Lessee and arising from Lessor’s testing in accordance with Section 12.2. 

  

					
		  	15	  	CREZ ASSETS LEASE AGREEMENT

 4.7 Indebtedness. Lessee shall not incur Indebtedness other than:
(i) Indebtedness in an aggregate principal amount of up to the greater of (A) $5,000,000 and (B) an amount equal to one percent (1%) of the sum of, without duplication, (x) the total amount of the Consolidated Net Plant of
Lessee, plus (y) the total amount of the Consolidated Net Plant of any guarantor(s) of Lessee’s obligations under any Lease to which Lessee is a party as a lessee, plus (z) the total amount of Leased Consolidated Net Plant of Lessee,
in each case on a senior secured basis, (ii) Indebtedness in an aggregate principal amount of up to the greater of (A) $10,000,000 and (B) an amount equal to one-and-a-half percent (1.5%) of the sum of, without duplication,
(x) the total amount of the Consolidated Net Plant of Lessee, plus (y) the total amount of the Consolidated Net Plant of any guarantor(s) of Lessee’s obligations under any Lease to which Lessee is a party as a lessee, plus
(z) the total amount of Leased Consolidated Net Plant of Lessee, in each case on an unsecured subordinated basis on terms substantially similar to the terms set forth on Exhibit C and (iii) loans, in an aggregate principal amount
not to exceed $10,000,000 at any time outstanding, made by InfraREIT Partners, LP or a subsidiary thereof to Lessee from time to time for the purpose of financing capital expenditures. For purposes of clauses (i) and (ii) of the preceding
sentence, any Consolidated Qualified Lessees of Lessee will be treated as Lessee. In addition to the foregoing, any of Lessee’s subsidiaries may incur Indebtedness in an aggregate principal amount of up to the product of (x) Lessee’s
aggregate Consolidated Net Plant multiplied by (y) the lesser of (A) the sum of Lessee’s then-current PUCT-regulated debt-to-equity ratio (expressed as a percentage) and five percent (5%) or (B) sixty-five percent (65%);
provided, however, that such Indebtedness must be Non-Recourse Debt to Lessee. For purposes of this Section 4.7, Lessee’s Consolidated Net Plant will be derived from its most recently prepared consolidated balance sheet,
prepared in accordance with GAAP but adjusted to reverse the effects of failed sale-leaseback accounting in a manner reasonably determined by Lessee in good faith. Without limiting the amount of Indebtedness permitted by the foregoing, Lessee may
also incur Indebtedness (x) in the form of a pledge of equity interests in a subsidiary of Lessee as security for Non-Recourse Debt of such subsidiary and (y) in amounts otherwise permitted under the Debt Agreements. 

4.8 Records. In addition to the records referred to in Section 3.3, Lessee shall maintain proper books of record and
account in conformity with GAAP and all applicable Regulatory Authorities having legal or regulatory jurisdiction over Lessee. Additionally, Lessee shall maintain or cause to be maintained all logs, drawings, manuals, specifications and data and
inspection, modification and maintenance records and other materials required to be maintained in respect of the CREZ Assets by Applicable Laws or by Good Utility Practice. Lessee shall allow Lessor and its representatives to have reasonable access
to, for at least five (5) years after the expiration of each Lease Year, the records referred to in this Section 4.8. 

  

					
		  	16	  	CREZ ASSETS LEASE AGREEMENT

 4.9 Surrender. Upon expiration or earlier termination of this Agreement in
accordance with its terms (but subject to Section 2.2 and the requirements of all Applicable Laws), and in a manner calculated to avoid any disruption of electrical service, Lessee shall vacate and surrender possession of all components of the
CREZ Assets (other than in respect of Footprint Projects funded by Lessee as described in Section 10.5(a)) to Lessor, or to such other Person as Lessor may direct. At the time of such surrender, the CREZ Assets shall be free and clear of Liens
and other rights of third parties (other than Permitted Liens), and shall be in the same condition as the date the construction of such CREZ Assets was completed, ordinary wear and tear and subsequent Footprint Projects excepted. Lessee shall
deliver or cause to be delivered to Lessor, or to such other Person as Lessor may direct, copies of all title documents, logs, drawings, manuals, specifications and data and inspection, modification and maintenance records, billing records, reports
and other documents in respect of the CREZ Assets which are necessary to determine the condition of the CREZ Assets or for the continued maintenance, repair or general operation of the CREZ Assets and are in Lessee’s possession or control at
such time. In connection with the surrender of the CREZ Assets, Lessor shall pay to Lessee the aggregate purchase price for any Footprint Projects, equipment or other property purchased by Lessor in accordance with Section 2.3 or
Section 10.5(b). 
 4.10 Cooperation; Transition Services. 

(a) During the period after notice of termination and prior to the termination of the Agreement, with reasonable notice, Lessee will cooperate
in all reasonable respects with the efforts of Lessor to sell or lease the CREZ Assets (or any component thereof) or any interest therein, including, without limitation, permitting prospective purchasers or lessees to fully inspect the CREZ Assets
and any logs, drawings, manuals, specifications, data and maintenance records relating thereto; provided that such cooperation shall not unreasonably interfere with the normal operation of the CREZ Assets or cause Lessee to incur any
additional expenses other than as specifically provided herein. All information obtained in connection with such inspection shall be subject to confidentiality requirements at least as restrictive as those contained in Section 13.3. 

(b) Upon expiration or termination of this Agreement, Lessee shall continue to lease and operate the CREZ Assets pursuant to the terms of
Section 2.2, if required thereunder. During such period Lessee shall perform all duties and retain all obligations under this Agreement in all respects, as if the Agreement had not expired or been terminated, and will pay Extended Period Rent
as and when due. 
 4.11 Lessee’s Authority. Lessee has all requisite power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. Lessee has taken all action necessary to execute and deliver this Agreement and to perform its obligations hereunder, and no other action or proceeding on the part of Lessee is necessary to
authorize this Agreement. This Agreement constitutes the legally valid and binding obligation of Lessee, enforceable against Lessee in accordance with its terms, except as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar Applicable Laws affecting the enforcement of creditors’ rights generally and equitable principles. 

  

					
		  	17	  	CREZ ASSETS LEASE AGREEMENT

 4.12 Litigation. If Lessee becomes aware of any actions, claims or other
legal or administrative proceedings that are pending, threatened or anticipated with respect to, or which could materially and adversely affect, the CREZ Assets, Lessee shall promptly deliver notice thereof to Lessor. 

4.13 Financing. Lessee acknowledges that Lessor has advised Lessee that Lessor has obtained financing secured by, among
other things, the CREZ Assets and this Agreement. In connection with such financing, Lessor made certain representations, warranties and covenants set forth in that certain (i) Amended and Restated Note Purchase Agreement entered into by Lessor
and dated as of September 14, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the “2009 Note Purchase Agreement”), a copy of which has been provided to and reviewed by Lessee, (ii) Amended
and Restated Note Purchase Agreement entered into by Lessor and dated as of July 13, 2010 (as amended, restated, supplemented or otherwise modified from time to time, the “2010 Note Purchase Agreement”), a copy of which has
been provided to and reviewed by Lessee and (iii) Note Purchase Agreement entered into by Lessor dated as of December 3, 2015 (as amended, restated, supplemented or otherwise modified from time to time, the “2015 Note Purchase
Agreement” and, together with the 2009 Note Purchase Agreement and the 2010 Note Purchase Agreement, the “Note Purchase Agreements”), a copy of which has been provided to and reviewed by Lessee, (iv) Third Amended and
Restated Credit Agreement entered into by Lessor and dated as of December 10, 2014 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2014 Credit Agreement”), a copy of which
has been provided to and reviewed by Lessee and (v) Amended and Restated Credit Agreement entered into by Lessor and dated as of December 3, 2015 (as amended, restated, amended and restated, supplemented or otherwise modified from time to
time, the “2015 Credit Agreement” and, together with the 2014 Credit Agreement, the “Credit Agreements”), a copy of which has been provided to and reviewed by Lessee. The Credit Agreements and the Note Purchase
Agreements are referred to herein as the “Debt Agreements”. 
 Lessee hereby covenants and agrees with Lessor that, during
the term of the 2009 Note Purchase Agreement, Lessee will comply with the covenants set forth in Sections 9.08 (Material Project Documents) (to the extent that Lessee is a party to any Material Project Documents, as defined in the 2009
Note Purchase Agreement), 10.04 (Terrorism Sanctions Regulations), 10.10 (Sale of Assets, Etc.), 10.11 (Sale or Discount of Receivables), 10.12 (Amendments to Organizational Documents), 10.16 (Project Documents)
and 10.17 (Regulation) of the 2009 Note Purchase Agreement. 
 Lessee hereby covenants and agrees with Lessor that, during the term
of the 2010 Note Purchase Agreement, Lessee will comply with the covenants set forth in Sections 9.8 (Material Project Documents) (to the extent that Lessee is a party to any Material Project Documents, as defined in the 2010 Note Purchase
Agreement), 10.4 (Terrorism Sanctions Regulations), 10.10 (Sale of Assets, Etc.), 10.11 (Sale or Discount of Receivables), 10.12 (Amendments to Organizational Documents), 10.16 (Project Documents) and 10.17
(Regulation) of the 2010 Note Purchase Agreement. 
 Lessee hereby covenants and agrees with Lessor that, during the term of the 2015
Note Purchase Agreement, Lessee will comply with the covenants set forth in Sections 9.8 (Material 

  

					
		  	18	  	CREZ ASSETS LEASE AGREEMENT

 
Project Documents) (to the extent that Lessee is a party to any Material Project Documents, as defined in the 2015 Note Purchase Agreement), 10.4 (Terrorism Sanctions Regulations),
10.6 (Sale of Assets, Etc.), 10.9 (Regulation), 10.10 (Amendments to Organizational Documents) and 10.11 (Project Documents) of the 2015 Note Purchase Agreement. 

Lessee hereby agrees with Lessor that, to the extent not otherwise covered by the terms of this Agreement, (i) Lessee hereby makes the
same representations and warranties to Lessor as Lessor makes to the Lender (as defined in the 2014 Credit Agreement) in Sections 6.3 (Disclosure), 6.5 (Financial Condition; Financial Instruments), 6.6 (Compliance with Laws, Other
Instruments, Etc.), 6.7 (Governmental Authorizations, Etc.), 6.8 (Litigation; Observance of Agreements, Statutes and Orders), 6.9 (Taxes), 6.10 (Title to Property; Leases), 6.11 (Insurance), 6.12 (Licenses,
Permits, Etc.; Material Project Documentation), 6.16 (Foreign Assets and Control Regulations, Etc.), 6.17 (Status under Certain Statutes), 6.18 (Environmental Matters), 6.19 (Force Majeure Events; Employees) and 6.20
(Collateral) of the 2014 Credit Agreement (or equivalent provisions), to the extent that such representations and warranties relate to (x) Lessee, whether in its capacity as Lessee or otherwise, including, without limitation,
Lessee’s status or operations as a public utility, or (y) Lessee’s ownership of the CREZ Assets on or before the date hereof, and (ii) Lessee hereby covenants and agrees with Lessor that, during the term of the 2014 Credit
Agreement, Lessee will comply with the covenants set forth in Sections 7.10 (Material Project Documents) (to the extent that Lessee is a party to any Material Project Documents, as defined in the 2014 Credit Agreement), 8.4 (Terrorism
Sanctions Regulations), 8.10 (Sale of Assets, Etc.), 8.11 (Sale or Discount of Receivables), 8.12 (Amendments to Organizational Documents), 8.16 (Material Projects Documents) and 8.17 (Regulation) of the 2014
Credit Agreement (or equivalent provisions). 
 Lessee hereby covenants and agrees with Lessor that, during the term of the 2015 Credit
Agreement, Lessee will comply with the covenants set forth in Sections 6.10 (Material Project Documents) (to the extent that Lessee is a party to any Material Project Documents, as defined in the 2015 Credit Agreement), 7.4 (Terrorism
Sanctions Regulations), 7.10 (Sale of Assets, Etc.), 7.11 (Sale or Discount of Receivables), 7.12 (Amendments to Organizational Documents), 7.16 (Project Documents) and 7.17 (Regulation) of the 2015 Credit
Agreement. 
 Lessee may not lease, or agree or otherwise commit to lease, any transmission or distribution facilities other than pursuant
to a Lease. Further, Lessee shall not permit Persons other than Hunt Family Members to acquire any interest in the Lessee, directly or indirectly, in a manner that would result in a Change of Control of Lessee. 

The Parties agree to amend, alter or supplement this Section 4.13 from time to time to give effect to the obligations under Lessor’s
then-current credit arrangements, including the credit arrangements of any successor to Lessor’s interest in this Agreement. Provided that the obligations or restrictions on Lessee are not materially increased from those provided for by
Lessor’s then-current credit arrangements, such an amendment to this Agreement shall become automatically effective upon the delivery by Lessor to Lessee of a revised version of Section 4.13 and copies of the pertinent portions of the
applicable credit arrangements referenced therein. 

  

					
		  	19	  	CREZ ASSETS LEASE AGREEMENT

 ARTICLE V 

LESSOR’S REPRESENTATIONS, WARRANTIES AND COVENANTS 

Lessor hereby represents, warrants and covenants as follows: 

5.1 Lessor’s Authority. Lessor has all requisite power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. Lessor has taken all action necessary to execute and deliver this Agreement and to perform its obligations hereunder, and no other action or proceeding on the part of Lessor is necessary to authorize this
Agreement. This Agreement constitutes the legally valid and binding obligation of Lessor, enforceable against Lessor in accordance with its terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Applicable Laws affecting the enforcement of creditors’ rights generally and equitable principles. 

5.2 Liens and Tenants. Lessor represents that Lessor has good and valid title to the CREZ Assets, there are no unrecorded
liens, encumbrances, leases, mortgages, deeds of trust (except as disclosed to Lessee in writing or as arise by operation of law), or other exceptions (collectively, “Liens”) arising as a result of any acts, or omissions to act, of
Lessor by, through or under Lessor to Lessor’s right, title or interest in the CREZ Assets other than any such of the foregoing that does not materially impair the Lessee’s use of the CREZ Assets, and, to Lessor’s knowledge, there
exist no rights or interests of any third party relating to the CREZ Assets that are not contemplated herein. Except for Permitted Liens or as may be disclosed in the applicable real property records in the State of Texas, or as disclosed by Lessor
in writing to Lessee, Lessor represents that there are no Liens encumbering all or any portion of the CREZ Assets. Lessor shall fully cooperate and assist Lessee, at no out-of-pocket expense to Lessor, in efforts to obtain a subordination and
non-disturbance agreement from each party that holds a Lien that might reasonably be expected to interfere in any material respect with Lessee’s rights under this Agreement. Notwithstanding the foregoing, Lessor and its affiliates shall have
the right to incur Permitted Liens encumbering the CREZ Assets or any component thereof solely for the benefit of Lessor in connection with any existing or future financing or refinancing pursuant to which the CREZ Assets (or any component thereof)
is pledged as collateral and Lessee agrees to enter into such acknowledgments and agreements in respect thereof with the lenders, or a trustee or agent for the lenders as the Lessor may reasonably request. 

5.3 Condition of Assets. Lessor has not taken any action or failed to take any action that would cause the CREZ Assets
not to be in good operating condition and repair, ordinary wear and tear excepted, or adequate for the uses to which it is being put. 

5.4 Requirements of Governmental Agencies. Lessor shall assist and fully cooperate with Lessee, in complying with or
obtaining any material land use permits and approvals, building permits, environmental impact reviews or any other approvals reasonably required for the maintenance or operation of the CREZ Assets, including execution of applications for such
approvals, and including participating in any appeals or regulatory proceedings respecting the CREZ Assets at Lessee’s cost and expense, if requested by Lessee. 

  

					
		  	20	  	CREZ ASSETS LEASE AGREEMENT

 5.5 Hazardous Materials. Lessor shall conduct its activities in respect of
the CREZ Assets in compliance in all material respects with applicable Environmental Laws. 
 5.6 Litigation. If Lessor
becomes aware of any actions, claims or other legal or administrative proceedings that are pending, threatened or anticipated with respect to, or which could materially and adversely affect, the CREZ Assets, Lessor shall promptly deliver notice
thereof to Lessee. 
 5.7 Records. Lessor shall maintain proper books of record and accounts in conformity with GAAP
and all applicable Regulatory Authorities and each other governmental agency or authority having legal or regulatory jurisdiction over Lessor. 

5.8 Limitation. EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN THIS ARTICLE V, LESSOR (A) MAKES NO AND EXPRESSLY
DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO (I) TITLE TO THE CREZ ASSETS OR ANY PORTION THEREOF, (II) ANY ESTIMATES OF THE VALUE OF THE CREZ ASSETS OR FUTURE REVENUES THAT MIGHT BE GENERATED BY THE CREZ ASSETS, (III) THE
MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE CREZ ASSETS, (IV) INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHT OR (V) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED
TO LESSEE OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO, AND (B) FURTHER
DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY PORTION OF THE CREZ ASSETS, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE
PARTIES HERETO THAT THE CREZ ASSETS ARE BEING LEASED “AS IS, WHERE IS,” WITH ALL FAULTS AND DEFECTS, AND THAT LESSEE HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS LESSEE DEEMS APPROPRIATE. 

ARTICLE VI 
 LOSS AND
DAMAGE; INSURANCE 
 6.1 Loss and Damage to the CREZ Assets. 

(a) In the event of any damage or loss to any component of the CREZ Assets, Lessee shall promptly repair or replace such component to the
standards required by Section 4.1 (regardless of whether such repair or replacement constitutes a Repair or a Footprint Project). Notwithstanding anything to the contrary contained in this Agreement, any such repaired or replaced component will
immediately become part of the CREZ Assets owned by Lessor and the cost of any repair or replacement shall be borne as described in Sections 6.1(b)-(d) below. 

  

					
		  	21	  	CREZ ASSETS LEASE AGREEMENT

 (b) If such repair or replacement constitutes a Repair, the cost of repairing or replacing such
damage or loss, whether actually covered in whole or in part by insurance, shall be the responsibility of Lessee. In such circumstance, unless otherwise agreed by the Parties, (i) if the damage or loss is covered by insurance, Lessee shall be
responsible for payment of any deductible, and (ii) any damage or loss not covered by insurance (exclusive of any deductible) shall be the responsibility of Lessee. If the sum of such deductible and insurance proceeds exceeds the cost of such
Repair, then Lessee will retain such excess. 
 (c) If such repair or replacement constitutes a Footprint Project, then, as long as the
related costs have been included in a CapEx Budget, the cost of repairing or replacing such damage or loss, whether actually covered in whole or in part by insurance, shall be the responsibility of Lessor. In such circumstance, unless otherwise
agreed by the Parties, (i) if the damage or loss is covered by insurance, Lessor shall be responsible for payment of any deductible, and (ii) any damage or loss not covered by insurance (exclusive of any deductible) shall be the
responsibility of Lessor. If the sum of such deductible and insurance proceeds exceeds the cost of such Footprint Project, then such excess will first reduce Lessor’s obligation to fund the deductible hereunder, and any excess thereafter will
be retained by Lessor. If such repair or replacement constitutes a Footprint Project that is not included in a CapEx Budget, the provisions of Article X shall apply. 

(d) Lessee shall be solely responsible for all costs of repairing or replacing any damaged property and equipment that is not part of the CREZ
Assets and owned by Lessee, whether covered by Lessee’s insurance under Section 6.2 or otherwise. Nothing in this provision shall preclude Lessee from seeking recovery of such costs in a rate proceeding at the PUCT. 

(e) If Lessor funds Lessee’s Personal Property pursuant to Section 10.1(b) of this Agreement, then all such funded Personal Property
will be treated as a Footprint Project, and not a Repair, for purposes of this Section 6.1. 
 6.2 Insurance.
Lessee will maintain, with financially sound and reputable insurers, insurance with respect to its business and properties and the CREZ Assets against such casualties and contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar
business and similarly situated, but in no event less than the insurance set forth in this Section 6.2 and Exhibit B. 
 (a)
Lessee shall procure at its own expense and maintain in full force and effect at all times throughout the term of this insurance policies with insurance companies rated A-, 8 or higher by A.M. Best or acceptable to Lessor if not so rated, and
authorized to do business in the State of Texas. 
 (b) Lessor may at any time amend the requirements and approved insurance companies
described in this Section 6.2 or Exhibit B due to (i) new information not previously known by Lessor prior to the date of this Agreement or (ii) changed circumstances after the date of this Agreement, which in the
reasonable judgment of Lessor either renders a required coverage to be materially inadequate or materially reduces the financial ability of the approved insurance companies to pay claims. 

  

					
		  	22	  	CREZ ASSETS LEASE AGREEMENT

 (c) On the first Business Day of each year, and promptly at such other times as Lessor may
reasonably request, Lessee shall furnish Lessor with approved certification of all required insurance. Such certification shall be executed by each insurer or by an authorized representative of each insurer where it is not practical for such insurer
to execute the certificate itself. Such certification shall identify underwriters, the type of insurance, the insurance limits, and the policy term, and shall specifically list the special provisions enumerated for such insurance required by this
Section 6.2 and Exhibit B. Upon request, Lessee will promptly furnish Lessor with copies of all insurance certificates, binders, and cover notes or other evidence of such insurance relating to the CREZ Assets. 

(d) Concurrently with the furnishing of the certification referred to in Section 6.2(c) and on an annual basis thereafter, Lessee shall
furnish Lessor with a certificate, signed by an officer of Lessee, stating that all premiums then due have been paid and that the insurance then carried or to be renewed is in accordance with the terms of this Section 6.2. and Exhibit B.

 (e) In the event Lessee fails to take out or maintain the full insurance coverage required by this Section 6.2 and Exhibit B,
Lessor, upon thirty (30) days’ prior notice (unless the aforementioned insurance would lapse within such period, in which event notice should be given as soon as reasonably possible) to Lessee of any such failure, may (but shall not be
obligated to) take out the required policies of insurance and pay the premiums on the same. All amounts so advanced thereof by Lessor shall become an additional obligation of Lessee to Lessor, and Lessee shall forthwith pay such amounts to Lessor.

 (f) No provision of this Section 6.2 or Exhibit B or any other provision of this Agreement, shall impose on Lessor any duty
or obligation to verify the existence or adequacy of the insurance coverage maintained by Lessee (nor shall any action taken, or not taken, by Lessor to verify the existence or adequacy of the insurance coverage maintained by Lessee affect the
obligations of Lessee pursuant to this Section 6.2), nor shall Lessor be responsible for any representations or warranties made by or on behalf of Lessee to any insurance company or underwriter. 

ARTICLE VII 
 REPORTING

 7.1 Financing Arrangements. 

(a) Lessee understands that Lessor, or an affiliate thereof, has raised equity and/or debt that may be secured by the CREZ Assets and this
Agreement and that Lessor or its affiliates have reporting obligations in connection with such arrangements, including obligations to provide financial statements prepared in accordance with GAAP, to prepare an annual strategic plan and to update
such annual strategic plan in the event of certain material deviations therefrom. Lessee understands that Lessor relies on Lessee in order to comply with such obligations. From time to time, Lessor or an affiliate thereof may enter into additional
arrangements that impose similar obligations. 

  

					
		  	23	  	CREZ ASSETS LEASE AGREEMENT

 (b) Accordingly, Lessee agrees to provide Lessor in a timely manner: 

(i) audited year-end financial statements and quarterly unaudited financial statements for the first three quarters of each
year; and 
 (ii) such acknowledgements, certificates, permits, licenses, instruments, documents and other information as
Lessor may reasonably request from time to time in connection with, or to enable Lessor and its affiliates to comply with any such debt or equity financing arrangements or with Applicable Law. 

The Parties will negotiate in good faith the time frames during which Lessee will provide such information, with the intention that Lessee provide such
information in a manner that is not unduly burdensome but that also allows Lessor sufficient time to comply with its reporting obligations. 

(c) Lessee agrees that the unaudited interim financial statements provided pursuant to this Section 7.1 will be SAS 100 reviewed, and
Lessee agrees to use commercially reasonable efforts to cause its auditors to consent to the inclusion of their opinion regarding Lessee’s financial statements in filings with the SEC made by Lessor or an affiliate of Lessor (collectively, the
“SEC Reporting Requirements”). Lessor may also request that Lessee provide evidence of a SAS 100 review from Lessee’s auditors with respect to any unaudited interim financial statements included in any such filing. In addition
to including Lessee’s financial statements in the SEC filings of Lessor or an affiliate thereof, Lessor shall have the right to share any such financial statements with any party entitled to review such financial statements pursuant to the
terms of any Debt Agreement. 
 (d) Lessee represents, warrants and covenants that (i) the financial statements provided pursuant to
this Section 7.1 will fairly present in all material respects the financial condition, results of operations and cash flows of Lessee as of, and for, the periods presented, and (ii) Lessee will endeavor to cause such financial statements
to comply with any Applicable Laws, rules or regulations that Lessee and Lessor conclude in good faith are applicable to such financial statements by virtue of their inclusion in the securities law filings of Lessor or an affiliate of Lessor. 

(e) Lessee agrees that, in connection with any underwritten offering of the securities of Lessor or any affiliate thereof, Lessee will use
commercially reasonable efforts to cause its auditors, at Lessor’s cost, to provide a comfort letter (or its equivalent) to such underwriters, if requested by Lessor. 

(f) Lessee will also cooperate with Lessor to enable Lessor to satisfy its obligations in respect of annual strategic plans, including
providing Lessor with requested information in advance of the due date of such annual strategic plan and keeping Lessor apprised of deviations in capital expenditures, construction activity or revenues of Lessee from amounts that were originally
provided by Lessee in preparing such annual strategic plan. 
 (g) Lessee shall, at the earliest practicable time, advise Lessor if Lessee
will be unable to meet the reporting requirements set forth herein in a timely manner and to reasonably cooperate with Lessor to remedy the effects of such non-compliance. 

  

					
		  	24	  	CREZ ASSETS LEASE AGREEMENT

 7.2 Public Company and Regulatory Information and Cooperation. 

(a) Lessee agrees to cooperate with Lessor when Lessor or an affiliate provides estimates to analysts and or investors regarding Lessor’s
expectations of its future operating results (including capital expenditures) and to cooperate with Lessor with respect to analysts and investors to the extent such expectations change in any material respect. 

(b) Lessee and Lessor agree to reasonably cooperate to ensure that, to the extent they require information from the other Party in order
(i) to prepare their financial statements, (ii) to obtain audits of those financial statements and, if required, of their internal control over financial reporting, (iii) to respond to comments of the SEC on such financial statements
or statements related to internal control over financial reporting or disclosure controls and procedures, or (iv) to ensure the efficacy of their internal controls or disclosure controls and procedures, they will reasonably cooperate in order
to ensure that each Party is able to meet its obligations in respect thereof. 
 (c) Lessee agrees to promptly notify Lessor of or provide
to Lessor, as applicable, (i) any material communication, written or otherwise, submitted to Lessee by its auditors, including, but not limited to an audit response letter, accountant’s management letter or other written report submitted
to Lessee by its accountants or any Regulatory Authority in connection with an annual or interim audit of Lessee’s books, (ii) any material correspondence with, reports of or reports to any Regulatory Authority with respect to the CREZ
Assets and (iii) any notices of violations of Applicable Law with respect to the CREZ Assets, in each case taking into account Lessor’s and any of its affiliates’ reporting obligations with the SEC. 

(d) Lessor agrees to inform Lessee of the time periods in which each of the items identified in this Section 7.2 will be required by
providing written notice thereof to Lessee. Lessee shall, at the earliest practicable time, advise Lessor if Lessee will be unable to meet the reporting requirements set forth herein in a timely manner and reasonably cooperate with Lessor to remedy
the effects of such non-compliance. 
 (e) If Lessor identifies additional matters with respect to which Lessee input, assistance or
information is required in order for Lessor and its affiliates to comply with any applicable securities laws, the rules or regulations of any exchange on which the securities of such affiliate are traded or any similar laws, rules or regulations,
the Parties agree to cooperate and negotiate in good faith in order to determine the manner in which Lessee can provide such input, assistance or information in a manner that positions Lessor and its affiliates to comply in a timely manner with such
laws, rules or regulations, as efficiently as is feasible so as to minimize the burden that the provision of such input, assistance or information imposes on Lessee. 

7.3 Mutual Obligations. Each Party shall as promptly as reasonably practicable furnish or cause to be furnished to the
other Party, upon request from such Party, such 

  

					
		  	25	  	CREZ ASSETS LEASE AGREEMENT

 
information as may be required to enable such Party to file any reports required to be filed with any governmental or Regulatory Authority due to such Party’s ownership interest in or
operation and control of the CREZ Assets, as applicable. 
 ARTICLE VIII 

ASSIGNMENT 
 This Agreement
shall not be assignable by either Party, nor shall the CREZ Assets or any part thereof be subleased by Lessee (except in a manner consistent with Section 1.2(b)), except with the prior written consent of the other Party and the prior approval
of any Regulatory Authority whose approval is required for the effectiveness of such assignment or sublease. For purposes of this Article VIII, an “assignment” by Lessee shall mean and include, in addition to any direct transfer by Lessee
to a third party of all or any part of Lessee’s rights, estate or interests under this Agreement, any direct or indirect, voluntary or involuntary transfer of or encumbrance on all or any part of Lessee’s rights, estate or interests under
this Agreement (i) by operation of law and/or (ii) by direct or collateral transfer of all or any part of the legal or beneficial ownership interest in Lessee by merger, consolidation or otherwise, provided that, in the case of
clause (ii), any such transaction or transactions will only constitute an assignment hereunder to the extent they result (whether in one or a series of transactions) in a Change of Control. Notwithstanding the foregoing, Lessor shall have the right,
without Lessee’s consent but subject to obtaining regulatory approval as described in the foregoing sentence, (a) to assign, pledge or grant a security interest in any or all of its interest in the Agreement to a lender or lenders, or a
trustee acting on behalf of such lenders, in connection with a financing or refinancing in which such interest is pledged as collateral, and Lessee agrees to enter into such acknowledgments and agreements in respect thereof as the Lessor may
reasonably request and (b) to assign its interest in this Agreement to a successor owner of the CREZ Assets. 
 ARTICLE IX 

DEFAULT 
 9.1
Lessee Default. 
 (a) Subject to Section 9.3, Lessee shall be in default in the event of any of the following: 

(i) Except as provided in Section 9.1(b), Lessee’s failure to make any payment of Rent when due; 

(ii) Lessee (A) is generally not paying, or admits in writing its inability to pay, its debts as they become due,
(B) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (C) makes an assignment for the benefit of its creditors, (D) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (E) is adjudicated as insolvent or to be liquidated, or (F) takes any action for the purpose of any of the foregoing; 

  

					
		  	26	  	CREZ ASSETS LEASE AGREEMENT

 (iii) A court or a Regulatory Authority of competent jurisdiction enters an order
appointing, without consent by Lessee, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for
relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of Lessee or any such petition shall
be filed against Lessee and such petition shall not be dismissed within 90 days; 
 (iv) Any representation or warranty made
by Lessee herein shall prove to have been inaccurate in any material respect at the time made (unless any representation or warranty is already qualified by materiality or a similar qualification in which case such representation or warranty shall
be accurate in all respects); 
 (v) A final judgment or judgments for the payment of money aggregating in excess of
$1,000,000 are rendered against Lessee and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or 

(vi) Lessee shall have breached or failed to comply in any material respect with any other covenant or agreement contained
herein (unless any covenant or agreement is already qualified by materiality or a similar qualification, in which case such covenant or agreement shall have been complied with in all respects). 

(b) Notwithstanding Section 9.1(a)(i), Lessee’s failure to pay Rent when due shall not constitute an Event of Default if
(i) such failure is due to unforeseeable circumstances arising. from a physical event beyond the control of the Lessee, including the incurrence of costs and expenditures as a result of such an event that are materially in excess of budgeted
costs and expenditures or an unforeseen material decline in electricity usage as a result of such event and (ii) such failure is cured within ninety (90) days after the date such Rent was due through Lessee’s payment of the entire
amount of such unpaid Rent, plus interest thereon at a rate equal to six percent (6%) per annum or the maximum rate allowed by Applicable Law, whichever is lesser, from the date such Rent was originally due until the date of payment. 

9.2 Lessor Default. Subject to Section 9.3, Lessor shall be in default in the event any representation or warranty
made by Lessor herein shall prove to have been inaccurate in any material respect at the time made, or in the event Lessor breaches or fails to comply in any material respect with any covenant or agreement contained herein (unless any
representation, warranty, covenant or agreement is already qualified by materiality or a similar qualification, in which case (a) such representation or warranty shall be accurate in all respects and (b) such covenant or agreement shall
have been complied with in all respects). 

  

					
		  	27	  	CREZ ASSETS LEASE AGREEMENT

 9.3 Right to Cure. If a Party (the “Defaulting Party”)
defaults pursuant to an Event of Default, such Defaulting Party shall not be in default of the terms of this Agreement if (other than in the event of a default described in Sections 9.1(a)(i), 9.1(a)(ii) and/or 9.1(a)(iii) above, none of which will
be subject to a notice and cure period as provided below), (a) in the case of a Monetary Default (other than a Rent payment default pursuant to Section 9.1(a)(i), which shall not be subject to a notice and cure period except as set forth
in Section 9.1(b)), the Defaulting Party pays the past due amount within thirty (30) days of receiving a Notice of Default from the other Party (the “Non-Defaulting Party”), and (b) in the case of a Non-Monetary
Default, the Event of Default is cured within forty-five (45) days of receiving the Notice of Default; provided that, if the nature of the Non-Monetary Default requires, in the exercise of commercially reasonable diligence, more than
forty-five (45) days to cure then the Defaulting Party shall not be in default as long as it commences performance of the cure within forty-five (45) days and thereafter completes such cure with commercially reasonable diligence within
ninety (90) days of receiving such Notice of Default. 
 9.4 Remedies. 

(a) Should an Event of Default remain uncured by the Defaulting Party, the Non- Defaulting Party shall have and shall be entitled to exercise
the remedies provided in this Section 9.4 and any and all other remedies available to it at law or in equity, all of which remedies shall be cumulative; provided that the exercise of any remedies hereunder shall be subject to PUCT and
other required regulatory approvals to the extent applicable and the provisions of Section 2.2. 
 (b) In no way limiting the
provisions of Section 9.4(a), in the case of an Event of Default of Lessee, Lessor shall have the right to (i) terminate the Agreement upon notice to Lessee, and recover from Lessee all damages to which Lessor is entitled under Applicable
Laws, (ii) terminate Lessee’s right to use and operate the CREZ Assets (other than leasehold improvements pursuant to Section 10.3) while keeping this Agreement in effect, and recover from Lessee all damages to which Lessor is
entitled under Applicable Laws, and (iii) take reasonable action to cure Lessee’s default at Lessee’s expense; provided that, in the event of a violation of Applicable Laws by Lessee, an emergency or government or regulatory
action in respect of which Lessor, in its reasonable discretion, determines immediate action is necessary, Lessor shall have the right to step in and take such action on behalf of Lessee at Lessee’s cost and expense immediately upon giving
notice to Lessee, notwithstanding any applicable cure period. 
 (c) Any amounts recovered by Lessor from Lessee in the event of a default
shall, to the maximum extent permissible under Applicable Laws, be deemed to be in respect of past or future Rent owing under this Agreement. 

  

					
		  	28	  	CREZ ASSETS LEASE AGREEMENT

 ARTICLE X 

CAPITAL EXPENDITURES 

10.1 Capital Expenditures Generally. 

(a) Lessee has provided to Lessor in the CapEx Budget the approximate amounts of Capital Expenditures that Lessee expects will be needed for
purposes of funding Footprint Projects in each Lease Year through 2018. On or before October 15 of each calendar year, Lessee shall review and revise the CapEx Budget on a rolling three-year basis (which shall include, if applicable, any year
in such three-year period following the end of the then-current Term and assume the renewal of this Agreement pursuant to Section 2.1), taking into account any changed circumstances that (i) make it no longer feasible to incur one or more
of the costs reflected on the prevailing CapEx Budget, (ii) make it necessary to amend the nature or amounts reflected for a particular Footprint Project or (iii) dictate that additional Footprint Projects be added (such budget, as so
updated and revised, is referred to herein as the “CapEx Budget”). Lessee agrees to revise the CapEx Budget to include any Footprint Projects (x) required by Regulatory Authorities or (y) reasonably necessary to satisfy
Lessee’s obligation as a regulated utility to serve its customers or to maintain the safety or reliability of the CREZ Assets. Capital Expenditures included in a CapEx Budget will be included based on the date such Capital Expenditures are to
be incurred (notwithstanding that Incremental CapEx and Lessee CapEx are otherwise measured under this Agreement based on when the assets developed with such Capital Expenditures are placed in service, and not when they are incurred). 

(b) If requested by Lessor, Lessee will also provide an estimate of any Capital Expenditures that Lessee expects for purposes of funding
Personal Property related to the CREZ Assets. If Lessor and Lessee agree, Lessor will fund such Capital Expenditures pursuant to this Agreement, through a loan or through a separate lease. Amounts Lessor provides pursuant to this Agreement to fund
any such Personal Property will be treated in a manner similar to any amounts Lessor provides to fund Footprint Projects for purposes of Section 3.2 and elsewhere herein. Lessee will cause any such Personal Property to be titled in
Lessor’s name and will reasonably cooperate with Lessor in order to enable any secured lender of Lessor or any secured lender of an affiliate of Lessor to perfect its security interest in any such Personal Property. In the alternative, Lessor
may elect to fund such Capital Expenditures through a TRS or to loan (or cause such TRS to loan) Lessee the cash to acquire any such Personal Property in a transaction in which Lessor or a TRS may retain a security interest in such Personal
Property. In such case the Parties shall negotiate in good faith the terms under which Lessor or such TRS shall fund any such Personal Property, including the terms of any lease between Lessee and the TRS or other financing arrangements provided by
the Lessor or the TRS. 
 10.2 Capital Expenditures Funded by Lessor. Lessor agrees to fund
any Footprint Projects contained in the CapEx Budget (as revised from time to time). Lessor’s obligation to fund Footprint Projects pursuant to this Section 10.2 shall include any costs associated with such Footprint Projects that Lessee
is not allowed to recover through its PUCT-approved rates. Any Footprint Projects funded by Lessor under this Section 10.2 shall be deemed to be part of the CREZ Assets upon completion. 

  

					
		  	29	  	CREZ ASSETS LEASE AGREEMENT

 10.3 Capital Expenditures Funded by Lessee.
Except as set forth in this Section 10.3, Lessee may not fund any Footprint Projects. In the event Lessor fails to fund any Footprint Projects, Lessee may at its sole discretion fund the needed capital expenditures (and Lessee shall be entitled
to applicable damages, if any, as a result of funding any such Footprint Projects); provided that, in such circumstance, Lessee may fund Severable Footprint Projects without restriction under this Section 10.3 but may only fund
Nonseverable Footprint Projects which are required in order to comply with Applicable Law or which are required by any Regulatory Authority. Subject to Section 10.5, any Footprint Projects funded by Lessee under this Section 10.3 shall not
be considered part of the CREZ Assets for purposes of this Agreement; provided however, that any part of the CREZ Assets that is built with CIAC funds shall be considered a leasehold improvement that is part of the CREZ Assets and
reverts to the Lessor upon termination of this Agreement without further payment from Lessor to Lessee under Section 2.3. 
 10.4
Footprint Project Construction Activities. Lessee will either use its personnel, or either Lessee or Lessor will contract with third parties, to construct Footprint Projects. Lessee shall be responsible for the oversight of such
construction activities, regardless of whether the Footprint Project is funded by Lessor or Lessee. Lessee’s construction activities and oversight shall be intended to ensure that such construction is performed in a manner consistent with Good
Utility Practice and Applicable Law and does not adversely affect the reliability and safety of the CREZ Assets or the ERCOT electric grid. In connection therewith, Lessor will reimburse Lessee for all Project Management Costs that Lessee incurs in
connection with constructing such Footprint Project, provided that any costs and expenses of Lessee under this Section 10.4 must be included in any CapEx Budget submitted by Lessee under Section 10.1 or approved by Lessor to qualify
for reimbursement by Lessor hereunder. 
 10.5 Ownership of Footprint Projects. 

(a) Each Footprint Project shall be owned by the Party that funded the Capital Expenditures used to construct such Footprint Project;
provided however, that any part of the CREZ Assets that is built with CIAC funds shall be considered a leasehold improvement that is part of the CREZ Assets and shall revert to the Lessor upon termination of this Agreement without
further payment from Lessor to Lessee under Section 2.3. 
 (b) Upon the expiration or termination of this Agreement, Lessor shall have
the right (but not the obligation) to purchase, subject to required regulatory approvals, any Nonseverable Footprint Projects or Severable Footprint Projects owned by Lessee at the greater of (i) net book value plus ten percent (10%) and
(ii) the fair market value thereof as determined by mutual agreement of Lessor and Lessee. If the Parties fail to agree on the amount of the purchase price, the purchase price shall be submitted to arbitration in accordance with
Section 13.7, pursuant to which the Arbitration Panel shall be empowered to determine the amount of the purchase price, based on submissions by each of the Lessee and the Lessor. Lessee shall be entitled to remove any Severable Footprint
Projects owned by Lessee upon the expiration or termination of this Agreement in the event such Severable Footprint Projects are not purchased by Lessor, subject to any required regulatory approvals. 

  

					
		  	30	  	CREZ ASSETS LEASE AGREEMENT

 10.6 Asset Acquisitions. Lessee and Lessor will cooperate in good faith to
ensure that all CREZ Assets are acquired in Lessor’s name or are acquired by Lessee and subsequently transferred to Lessor. In connection therewith, Lessee agrees (a) to transfer to Lessor all previously acquired CREZ Assets, (b) that
any future-acquired CREZ Assets will be deemed automatically transferred to Lessor, (c) to take reasonable actions as are necessary and appropriate to document the transfer of any such CREZ Assets to Lessor and, if applicable, to memorialize
the security interest in such CREZ Assets required to be granted pursuant to the terms of the Debt Agreements, including through the delivery and recordation of mortgages, deeds of trust or UCC financing statements, and (d) to take reasonable
steps to record the transfer and such security interest in the records of the applicable county or other applicable locale in which the CREZ Assets are located. 

10.7 Reimbursements. From time to time, Lessee may enter into interconnect or similar agreements that obligate the
counterparty to such agreements to reimburse Lessee for Capital Expenditures in certain circumstances. Such reimbursement obligation may, in some circumstances, be accompanied by additional security such as a parent guaranty or a letter of credit.
If and to the extent that (a) Lessor funds Capital Expenditures that are used for the construction or development pursuant to any of these interconnect agreements, and (b) Lessee becomes entitled to assert any reimbursement or other rights
pursuant to any such interconnect agreements, then, unless Lessor agrees otherwise, Lessee will enforce such reimbursement or other rights and will in turn promptly reimburse Lessor for the amount of related Capital Expenditures that Lessor has
funded pursuant hereto. Lessee further agrees to reimburse Lessor for other Capital Expenditures that Lessor has funded pursuant to this Agreement to the extent required by the Policies and Procedures. 

ARTICLE XI 
 REGULATORY
COOPERATION 
 11.1 Jurisdiction. The Parties recognize that (i) the CREZ Assets and the operation thereof are
subject to the jurisdiction of the PUCT and to certain reliability and safety requirements of ERCOT, NERC and TRE, and (ii) Lessee holds CCNs for operation of the CREZ Assets. The Parties agree that, as the lessee hereunder, as operator of the
CREZ Assets and as the holder of the CCNs, Lessee shall be responsible for compliance with all regulatory requirements related to the CREZ Assets, including but not limited to, taking all actions reasonably necessary or advisable to comply with such
requirements; preparing and filing all necessary notices, reports, applications, and other materials with the PUCT, ERCOT, SPP, TRE and NERC; and initiating, prosecuting, defending or participating in any administrative or judicial proceeding
reasonably necessary or advisable to operate the CREZ Assets in an economical and efficient manner. Lessee shall consult with Lessor prior to initiating any rate proceeding with the PUCT to change the rates Lessee can lawfully charge,
provided that, with or without Lessor consent, Lessee shall be authorized to initiate any such rate proceeding. Upon Lessor’s request, Lessee shall file a rate proceeding before the PUCT; provided that, Lessor shall be responsible
for reimbursing Lessee for all costs associated with prosecution of such proceeding requested by Lessor to the extent that such costs are not recoverable in Lessee’s PUCT-approved rates. 

  

					
		  	31	  	CREZ ASSETS LEASE AGREEMENT

 11.2 Cooperation. The Parties agree that during the term of this Agreement
they will cooperate to assure compliance with all Applicable Laws or other lawful requests of any Regulatory Authorities that relate to the CREZ Assets and Lessee’s obligations as the holder of the CCNs and will provide such information to such
Regulatory Authorities as the other Party or such Regulatory Authorities may reasonably request in connection therewith. Lessor further agrees to use its best efforts to cooperate and promptly respond to any lawful requests from Lessee relating to
Lessee’s efforts to comply with all regulatory requirements or to participate in any necessary or advisable legal proceedings, whether judicial or administrative. Each Party shall bear its own costs in complying with this paragraph. 

ARTICLE XII 
 INDEMNITY

 12.1 General Indemnity. EACH PARTY (THE “INDEMNIFYING PARTY”) SHALL DEFEND, INDEMNIFY
AND HOLD HARMLESS THE OTHER PARTY AND THE OTHER PARTY’S RELATED PERSONS (EACH, AN “INDEMNIFIED PARTY”) FROM AND AGAINST ANY AND ALL CLAIMS, LITIGATION, ACTIONS, PROCEEDINGS, INVESTIGATIONS, JUDGMENTS, LOSSES,
DAMAGES, LIABILITIES, OBLIGATIONS, COSTS AND EXPENSES, INCLUDING ATTORNEYS’, INVESTIGATORS’ AND CONSULTING FEES, COURT COSTS AND LITIGATION EXPENSES (COLLECTIVELY, “CLAIMS”) SUFFERED OR INCURRED BY SUCH INDEMNIFIED PARTY,
EVEN IF SUCH LIABILITIES ARE CAUSED SOLELY OR IN PART BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTY, (A) ARISING FROM THE ACTS OR OMISSIONS TO ACT OF THE INDEMNIFYING PARTY (B) ARISING IN THE CASE OF THE LESSEE AS THE
INDEMNIFYING PARTY, FROM THE OPERATION OF THE CREZ ASSETS, (C) FOR PHYSICAL DAMAGE TO THE CREZ ASSETS, TO THE EXTENT CAUSED BY THE INDEMNIFYING PARTY OR ANY RELATED PERSON THEREOF, (D) FOR PHYSICAL INJURIES OR DEATH (INCLUDING BY REASON OF
USE, REPAIR, OPERATING OR MAINTAINING THE CREZ ASSETS) TO OR OF THE INDEMNIFIED PARTY OR THE PUBLIC, TO THE EXTENT CAUSED BY THE INDEMNIFYING PARTY OR ANY RELATED PERSON THEREOF, (E) ANY BREACH OF ANY COVENANT OR ANY FAILURE TO BE TRUE OF ANY
REPRESENTATION OR WARRANTY, MADE BY THE INDEMNIFYING PARTY UNDER THIS AGREEMENT OR (F) ARISING FROM THE NEGLIGENCE, RECKLESSNESS OR INTENTIONAL MISCONDUCT OF THE INDEMNIFYING PARTY OR ANY RELATED PERSON THEREOF; PROVIDED, HOWEVER,
THAT IN NO EVENT SHALL THE INDEMNIFYING PARTY BE RESPONSIBLE FOR DEFENDING, INDEMNIFYING OR HOLDING HARMLESS ANY INDEMNIFIED PARTY TO THE EXTENT OF ANY CLAIM CAUSED BY, ARISING FROM OR CONTRIBUTED TO BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SUCH INDEMNIFIED PARTY. AS USED HEREIN, THE TERM “RELATED PERSON” SHALL MEAN ANY AFFILIATES, CONTRACTORS, LESSEES, AND SUBLESSEES, AND EACH OF THEIR RESPECTIVE, PRINCIPALS, OFFICERS, EMPLOYEES, SERVANTS, AGENTS,
REPRESENTATIVES, SUBCONTRACTORS, LICENSEES, INVITEES, GUESTS, SUCCESSORS AND/OR ASSIGNS OF A PARTY; PROVIDED THAT IN NO EVENT SHALL A PARTY BE DEEMED A RELATED PERSON WITH RESPECT TO THE OTHER PARTY. 

  

					
		  	32	  	CREZ ASSETS LEASE AGREEMENT

 12.2 Environmental Indemnity. 

(a) To the fullest extent permitted by law, Lessee shall defend, indemnify and hold harmless Lessor and Lessor’s Related Persons from
Claims (including, without limitation, any costs and expenses of clean up or other investigation or corrective action) suffered or incurred by such Persons resulting from any of the following occurring from and after the date on which Lessee assumed
development or operational control over the relevant property: (i) the presence or release of Hazardous Materials in, under or about the CREZ Assets which are or were brought or permitted to be brought onto the CREZ Assets by the Lessee or
Lessee’s Related Persons, (ii) creation of any hazardous or potentially hazardous environmental conditions or exacerbation of a pre-existing environmental condition, (iii) the violation or alleged violation of any Environmental Law by
Lessee or Lessee’s Related Persons or (iv) any other failure to comply with Section 4.6 by Lessee or Lessee’s Related Persons. 

(b) To the fullest extent permitted by law, Lessor shall defend, indemnify and hold harmless Lessee and Lessee’s Related Persons from
Claims (including, without limitation, any costs and expenses of clean up or other investigation or corrective action) suffered or incurred by such Persons resulting from (i) the presence or release of Hazardous Materials in, under or about the
CREZ Assets which are or were brought or permitted to be brought onto the CREZ Assets by Lessor or Lessor’s Related Persons during construction of the CREZ Assets or any improvement or addition to the CREZ Assets, (ii) the violation or
alleged violation of any Applicable Law by Lessor or Lessor’s Related Persons, or (iii) testing conducted under Section 4.6 by Lessor or Lessor’s Related Persons. 

12.3 Survival. The indemnification obligations under this Article XII shall survive the expiration or earlier termination
of this Agreement. 
 ARTICLE XIII 

MISCELLANEOUS 
 13.1
Limitation of Damages. EXCEPT FOR DAMAGES PAID TO THIRD PARTIES TO WHICH AN INDEMNITY OR CONTRIBUTION UNDER SECTION(S) 12.1 AND/OR 12.2 APPLIES, NEITHER PARTY SHALL BE LIABLE FOR ANY LOST OR PROSPECTIVE PROFITS, AND IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR ANY OTHER SPECIAL, PUNITIVE, EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR INDIRECT LOSSES OR DAMAGES (IN TORT, CONTRACT OR OTHERWISE) UNDER OR IN RESPECT OF THIS AGREEMENT OR FOR ANY FAILURE OF PERFORMANCE RELATED HERETO,
HOWSOEVER CAUSED. FOR THE AVOIDANCE OF DOUBT, NOTHING IN THIS SECTION 13.1 SHALL IN ANY MANNER LIMIT OR OTHERWISE RESTRICT (I) THE OBLIGATION OF LESSEE TO PAY RENT IN ACCORDANCE WITH ARTICLE III OR (II) A PARTY FROM COLLECTING ANY AMOUNT
VALIDLY OWING UNDER AND CALCULATED IN ACCORDANCE WITH SECTIONS 6.1, 6.2, 9.4, 10.7, 13.2 AND 13.7. 
 13.2
Condemnation. In the case of a condemnation or taking, this Agreement shall continue in effect; provided that this Agreement shall terminate if 75% or more of the CREZ Assets is subject to the condemnation or taking. Lessor
shall be entitled to all sums 

  

					
		  	33	  	CREZ ASSETS LEASE AGREEMENT

 
received by reason of any such taking or condemnation, except for that portion of such award, if any, which is expressly awarded for the Lessee’s leasehold interest under this Agreement or
which is awarded for any property owned by Lessee (including any Footprint Projects funded by Lessee). Lessor shall have the right, in its sole discretion, to challenge any condemnation or taking of the CREZ Assets by proper proceedings, and Lessee
shall not institute any such challenge without the prior written consent of Lessor. 
 13.3 Confidentiality. To the
full extent allowed by Applicable Law, each Party (the “Receiving Party”) shall maintain, for the benefit of the other Party (the “Disclosing Party”), in the strictest confidence all information pertaining to the
financial terms of or payments under this Agreement, the Disclosing Party’s methods of operation, methods of the CREZ Assets, and the like, whether disclosed by the Disclosing Party or discovered by the Receiving Party, unless such information
either (i) is in the public domain by reason of prior publication through no act or omission of the Receiving Party or its employees or agents, (ii) was already known to the Receiving Party at the time of disclosure and which the Receiving
Party is free to use or disclose without breach of any obligation to any Person or (iii) is required to be disclosed by the PUCT or other Regulatory Authorities, or must be disclosed in accordance with applicable securities laws or tax laws or
the rules of any applicable securities exchange on which the securities of the Receiving Party (or an affiliate thereof) are traded. To the full extent permitted by law, neither Party shall use such information for its own benefit, publish or
otherwise disclose it to others, or permit its use by others for their benefit or to the detriment of the other Party. Notwithstanding the foregoing, the Receiving Party may disclose such information to any auditor or to the Receiving Party’s
equity investors, lenders, attorneys, accountants and other personal advisors; any prospective purchaser of the CREZ Assets or the direct or indirect owner thereof; or pursuant to lawful process, subpoena or court order; provided that the
Receiving Party, in making such disclosure, advises the Party receiving the information of the confidentiality of the information and obtains the agreement of said Party not to disclose the information. 

13.4 Successors and Assigns. The Agreement shall inure to the benefit of and be binding upon Lessor and Lessee and, to
the extent provided in any assignment or other transfer under Article VIII hereof, any permitted assignee, and their respective heirs, transferees, successors and assigns, and all persons claiming under them. References to Lessee in this Agreement
shall be deemed to include assignees that hold a direct ownership interest in this Agreement and actually are exercising rights under this Agreement to the extent consistent with such interest. 

13.5 Rent Obligations Not Excused by Force Majeure, Etc. Subject to Section 9.1(b), Lessee shall not be
excused from its obligation to pay Rent during any Force Majeure Event or a condemnation or casualty of all or any part of the CREZ Assets. 

13.6 Further Assurances; Policies and Procedures. 

(a) Each Party will, from time to time, execute, cause to be acknowledged and deliver such documents or instruments, and provide such
certificates, as the other Party may reasonably request to carry out and fulfill the transactions, and permit the exercise and performance of the rights and obligations, as are contemplated hereunder. Each Party will

  

					
		  	34	  	CREZ ASSETS LEASE AGREEMENT

 
cooperate with the other Party to effectuate fully the purposes and intent of this Agreement. In no way limiting the foregoing, the Parties shall cooperate to obtain any necessary regulatory
approvals, including, without limitation, providing timely responses to discovery requests, participating in regulatory proceedings to the extent necessary and generally providing assistance as required. 

(b) From time to time, the Parties shall agree to policies and procedures regarding matters arising under this Agreement including, without
limitation, the treatment of Capital Expenditures for canceled Footprint Projects, each Party’s reporting obligations and such additional matters as the Parties may identify (the “Policies and Procedures”). The Parties agree to
cooperate and negotiate in good faith the Policies and Procedures, and any amendment or revision thereto that may be reasonably requested by either Party, and to memorialize the same in a writing executed by a representative of each Party. In the
event the Parties cannot agree on the terms of such Policies and Procedures, then either the Lessee or the Lessor may submit such matters to arbitration pursuant to Section 13.7, pursuant to which the Arbitration Panel shall be empowered to
determine Policies and Procedures that take into account InfraREIT’s reporting obligations as a public company and Lessee’s obligations as a regulated utility. 

13.7 Arbitration. Except for a dispute regarding the payment of Undisputed Rent, any dispute under this Agreement shall,
if not resolved by the Parties within ninety (90) days after notice of such dispute is served by one Party to the other (or, if different, the period provided for resolution by the Parties in the provision of this Agreement under which such
dispute is brought), be submitted to an “Arbitration Panel” comprised of three (3) members. No more than one (1) panel member may be with the same firm, and no panel member may have an economic interest in the outcome of
the arbitration. In addition to the foregoing, the failure by the Lessee and the Lessor to reach an agreement or make a mutual determination or characterization required by Sections 2.2(b); 2.3; 3.1 (the first paragraph thereof); 3.1(d)(i);
3.1(d)(ii); 3.1(d)(iii); 3.2(a); 3.2(d); 3.3(e); 3.8; 10.5(b) or 13.6(b), in each case after 60 days of negotiating in good faith, shall be deemed to be a “dispute” for purposes of this Section 13.7, to be resolved in accordance with
this Section. 
 (a) The Arbitration Panel shall be selected as follows: Within five (5) Business Days after the expiration of the
period referenced above, Lessee shall select its panel member meeting the criteria of the above paragraph (the “Lessee Panel Member”) and Lessor shall select its panel member meeting the criteria of the above paragraph (the
“Lessor Panel Member”). If a Party fails to timely select its respective panel member, the other Party may notify such Party in writing of such failure, and if such Party fails to select its respective panel member within three
(3) Business Days from such notice, then the other Party may select such panel member on such Party’s behalf. Within five (5) Business Days after the selection of the Lessor Panel Member and the Lessee Panel Member, the Lessee Panel
Member and the Lessor Panel Member shall jointly select a third panel member meeting the criteria of the above paragraph (the “Third Panel Member”). If the Lessor Panel Member and the Lessee Panel Member fail to timely select the
Third Panel Member and such failure continues for more than three (3) Business Days after written notice of such failure is delivered to the Lessor Panel Member and Lessee Panel Member by either Lessor or Lessee, either Lessor or Lessee may
request the managing officer of the American Arbitration Association to appoint the Third Panel Member. 

  

					
		  	35	  	CREZ ASSETS LEASE AGREEMENT

 (b) Within ten (10) Business Days after the selection of the Arbitration Panel, each Party
shall submit to the Arbitration Panel a written statement identifying its summary of the issues and claims, including, if applicable, its calculation of Rent. Any Party may also request an evidentiary hearing on the merits in addition to the
submission of written statements. The Arbitration Panel shall make its decision within twenty (20) days after the later of (i) the submission of such written statements of particulars, and (ii) the conclusion of any evidentiary
hearing on the merits, and shall take into consideration the relative risks and rewards undertaken and capital invested by each Party and shall use the Comparable Rate of Return concept described in Section 3.2(a) in determining any Rent
disputes. The Arbitration Panel shall reach its decision by majority vote and shall communicate its decision by written notice to the Parties. 

(c) The decision by the Arbitration Panel shall be final, binding and conclusive and shall be non-appealable and enforceable in any court
having jurisdiction. All hearings and proceedings held by the Arbitration Panel shall take place in Dallas, Texas. 
 (d) The resolution
procedure described herein shall be governed by the Commercial Rules of the American Arbitration Association and subject to the Texas General Arbitration Act to the extent such act is applicable hereto. 

(e) In the case of an arbitration proceeding involving a determination of Rent and Percentage Rent, until Rent and Percentage Rent have been
finally determined, Lessee shall pay Rent and Percentage Rent based upon prevailing rates therefor, and an appropriate refund shall be made to or additional Rent shall be paid by Lessee within ten (10) days after a final determination is made.

 (f) The Parties shall bear equally the fees, costs and expenses of the Arbitration Panel in conducting the arbitration. 

13.8 Notices. All notices or other communications required or permitted by this Agreement, including payments to Lessor,
shall be in writing and shall be served personally or by reputable express courier service or by facsimile transmission addressed to the relevant parties at the address stated below or at any other address notified by that Party to the other as its
address for service. Any notice so given personally shall be deemed to have been served on delivery, any notice so given by express courier service shall be deemed to have been served the next Business Day after the same shall have been delivered to
the relevant courier, and any notice so given by facsimile transmission shall be deemed to have been served on dispatch. As proof of such service it shall be sufficient to produce a receipt showing personal service, the receipt of a reputable
courier company showing the correct address of the addressee or an activity report of the sender’s facsimile machine showing the correct facsimile number of the Parties on whom notice is served and the correct number of pages transmitted. All
communications, other than routine correspondence in the ordinary course of business, between the Parties pursuant to this Agreement shall be sent by the same method of communication by the Party sending the communication. The Parties’
addresses for service are: 
 If to Lessor: 

Sharyland Distribution & Transmission Services, L.L.C. 

1807 Ross Avenue, 4th Floor 

Dallas, Texas 75201 
 Attention:
Chief Executive Officer and General Counsel 
 If to Lessee: 

Sharyland Utilities, L.P. 
 1807
Ross Avenue, 4th Floor 
 Dallas, Texas 75201 

Attention: Hunter Hunt 
 With a
copy to: 
 General Counsel 

Fax: (214) 855-6965 

  

					
		  	36	  	CREZ ASSETS LEASE AGREEMENT

 Any Party may change its address for purposes of this paragraph by giving written notice of such change to the
other parties in the manner provided in this Section 13.8. 
 13.9 Entire Agreement; Amendments. This Agreement
and the Policies and Procedures constitute the entire agreement between Lessor and Lessee respecting the subject matter hereof, and supersede any and all oral or written agreements. Any agreement, understanding or representation respecting the CREZ
Assets, or any other matter referenced herein not expressly set forth in this Agreement, in the Policies and Procedures or in a subsequent writing signed by both Parties is null and void. For avoidance of doubt, the Second Amended and Restated Lease
is hereby replaced in its entirety by this Agreement. This Agreement shall not be modified or amended except in a writing signed by both Parties. No purported modifications or amendments, including without limitation any oral agreement (even if
supported by new consideration), course of conduct or absence of a response to a unilateral communication, shall be binding on either Party. 

13.10 Legal Matters. This Agreement shall be governed by and interpreted in accordance with the laws of the State of
Texas, without regard to its conflicts of law principles. The Parties agree that any rule of construction to the effect that ambiguities are to be resolved in favor of either Party shall not be employed in the interpretation of this Agreement and is
hereby waived. 
 13.11 Partial Invalidity. Should any provision of this Agreement be held, in a final and unappealable
decision by a court of competent jurisdiction, to be either invalid, void or unenforceable, the remaining provisions hereof shall remain in full force and effect, unimpaired by the holding. 

13.12 Recording. Lessee shall not record this Agreement without the prior written consent of the Lessor. Lessee may
record at its expense a memorandum of this Agreement in form and substance reasonably approved by Lessor. 

  

					
		  	37	  	CREZ ASSETS LEASE AGREEMENT

 13.13 Intention of Parties; True Lease. 

(a) The Parties hereby declare that their relationship in and to the CREZ Lease Assets is and will be that of lessor and lessee, expressly
subject to the terms, conditions, limitations and requirements set forth in this Agreement. Nothing contained in this Agreement will be deemed to constitute the Parties as partners or joint venturers or as principal and agent. The Parties intend for
this Agreement to constitute a true lease with respect to the CREZ Lease Assets for US Federal, state and local income tax purposes, and each Party shall treat the Agreement as a true lease with respect to the CREZ Lease Assets for federal income
tax reporting purposes. 
 (b) The Parties acknowledge that Lessor is indirectly owned, in part, by InfraREIT, which qualifies as a real
estate investment trust (“REIT”) under the Code, and the Parties agree to negotiate in good faith any modification or amendment to this Agreement requested by Lessor to facilitate such qualification; provided that Lessee
shall not be obligated to agree to any such modification or amendment if such modification or amendment would materially adversely affect Lessee or would be in conflict with Applicable Law or any regulations or orders of any Regulatory Authority.
Notwithstanding anything to the contrary in this Agreement (including Section 13.3), Lessor may disclose to InfraREIT, and InfraREIT may disclose to any taxing authority, any information that Lessor or InfraREIT believes is relevant to
supporting or maintaining InfraREIT’s qualification as a REIT. 
 13.14 Rules of Construction. As used herein, the
singular shall be deemed to include the plural, and the plural shall be deemed to include the singular, and all pronouns shall include the masculine, feminine and neuter, whenever the context and facts require such construction. The headings,
captions, titles and subtitles herein are inserted for convenience of reference only and shall not affect the interpretation of this Agreement. Except as otherwise indicated herein, all section, appendix, exhibit and schedule references in this
Agreement shall be deemed to refer to the sections, appendices, exhibits and schedules of and to this Agreement, and the terms “herein,” “hereof,” “hereto,” “hereunder” and words of similar import refer to
this Agreement as a whole rather than to the particular provision in which such term is used. Whenever the words “including,” “include” or “includes” are used in this Agreement, they shall be interpreted in a
non-exclusive manner as though the words “but [is] not limited to” immediately followed the same. The language in all parts of this Agreement shall in all cases be construed simply according to the fair meaning thereof and not strictly
against the party that drafted such language. Except as otherwise provided herein, references in this Agreement to any agreement, instrument or other document are to such agreement, instrument or other document as amended, modified or supplemented
from time to time. 
 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 

  

					
		  	38	  	CREZ ASSETS LEASE AGREEMENT

 IN WITNESS WHEREOF, Lessor and Lessee, acting through their duly authorized representatives, have
executed this Agreement with the intent that it be effective as of the Effective Date, and certify that they have read, understand and agree to the terms and conditions of this Agreement. 

 

					
	LESSOR:
	
	SHARYLAND DISTRIBUTION & TRANSMISSION SERVICES, L.L.C.
		
	By:	 	 /s/ Brant Meleski

		 	Name:	 	Brant Meleski
		 	Title:	 	SVP and Chief Financial Officer
	
	LESSEE:
	
	SHARYLAND UTILITIES, L.P.
		
	By:	 	 /s/ Greg Wilks

		 	Name:	 	Greg Wilks
		 	Title:	 	Chief Financial Officer

 Signature Page to CREZ Assets Lease Agreement 

 APPENDIX A 

DEFINITIONS 
 “2009 Note
Purchase Agreement” has the meaning set forth in Section 4.13. 
 “2010 Note Purchase Agreement” has the meaning set
forth in Section 4.13. 
 “2014 Credit Agreement” has the meaning set forth in Section 4.13. 

“2015 Credit Agreement” has the meaning set forth in Section 4.13. 

“2015 Note Purchase Agreement” has the meaning set forth in Section 4.13. 

“Additional Rent” has the meaning set forth in Section 3.4. 

“AFUDC” means allowance for funds used during construction. 

“Agreed-to-Discount” has the meaning set forth in Section 3.2(a). 

“Agreement” has the meaning set forth in the Preamble. 

“Annual Percentage Rent Breakpoint” means the dollar value of annual Gross Revenues that must be exceeded in a particular Lease Year
before Percentage Rent is owed, as set forth on the then-effective Rent Supplement. 
 “Applicable Laws” means all laws,
ordinances, statutes, orders and regulations of any federal, state, or local government, regulatory or administrative authority, any agency or commission thereof, or any court or tribunal, including without limitation all requirements of the
Regulatory Authorities, including Environmental Laws. 
 “Arbitration Panel” has the meaning set forth in Section 13.7. 

“assignment” has the meaning set forth in Article VIII. 

“Base Rent” has the meaning set forth in Section 3.1(a). 

“Business Day” means a day other than a Saturday, Sunday or other day on which federal agencies are authorized or required by law to
close. 
 “CapEx Budget” has the meaning set forth in Section 10.1(a). 

“Capital Expenditures” means expenditures that are or are expected to be capitalized under GAAP. 

“CCN” means a Certificate of Convenience and Necessity or amendment thereto issued by the PUCT. 

  

					
		 	Appendix A-1	 	CREZ ASSETS LEASE AGREEMENT

 “CFO Certificate” means a document signed by the Chief Financial Officer of Lessee and
certifying to the accuracy and completeness of the statement of Gross Revenues. 
 “Change of Control” means Hunt Family Members
cease to possess, directly or indirectly, the power to direct or cause the direction of the management or policies of Lessee, whether through the ability to exercise voting power, by contract or otherwise. 

“CIAC” means any contributions in aid of construction from current or prospective customers, plus any additional payments as a tax
gross up for such contributions, with respect to which Lessee does not receive or anticipate receiving an increase in its regulatory rate base. 

“Claims” has the meaning set forth in Section 12.1. 

“Code” means the Internal Revenue Code of 1986, as amended. 

“Collection Station” means the four collection stations currently known as Tule Canyon Station, Windmill Station, Ogallala Station
and Alibates Station. 
 “Comparable Rate of Return” has the meaning set forth in Section 3.2(a). 

“Consolidated Net Plant” means, with respect to any Person, as of the date of determination, the net plant set forth on the face of
the consolidated balance sheet of such Person or absent such amount on the consolidated balance sheet, the total plant of such Person on a consolidated basis minus accumulated depreciation as set forth in the footnotes of the consolidated financial
statements, in each case, for the fiscal quarter ended on the date of the last financial statements delivered pursuant to Section 7.1 of the 2014 Credit Agreement. 

“Consolidated Qualified Lessee” means any Qualified Lessee that is consolidated into the financial statements of another Qualified
Lessee. 
 “Covered Revenue” means any fees, charges or other revenues (a) that are characterized as Unadjusted Gross
Revenues (or Gross Revenues) for purposes hereof or for purposes of any other similar lease (x) between Lessee and Lessor or an affiliate thereof or (y) between Lessee and any of its wholly-owned subsidiaries, (b) that are
specifically excluded from the definition of “Gross Revenue” hereunder or under any similar lease, or (c) that are generated from the Rate Base of regulated assets owned or operated by a party other than Lessor or a subsidiary
thereof. 
 “Credit Agreements” has the meaning set forth in Section 4.13. 

“CREZ Assets” means the integrated electrical transmission facilities connected to the ERCOT electric grid owned by Lessor
and located within the area depicted on Exhibit A and the systems and other property necessary to operate such transmission facilities, together with the exclusive right to occupy and use all of Lessor’s interest (whether by fee
ownership, easement, lease, sublease, franchise or license) (other than to the extent expressly reserved to Lessor herein) in the premises upon which such facilities are situated (together with (i) any facilities that were added to the CREZ
Project through the completion of the construction of the 

  

					
		 	Appendix A-2	 	CREZ ASSETS LEASE AGREEMENT

 
CREZ Project and (ii) any components of the CREZ Assets that are repaired or replaced pursuant to Section 6.1) and assets that constitute Footprint Projects identified from time to time
pursuant to Rent Supplements (other than any such Footprint Projects funded by Lessee pursuant to Section 10.3), as modified by Section 1.1(b). 

“CREZ Lease Assets” means the CREZ Assets, excluding any Footprint Project included in the definition of “CREZ Assets,”
unless (i) such Footprint Project has been placed in service and (ii) a Rent Supplement has been executed with respect to such Footprint Project. 

“CREZ Project” means the construction project to build the Transmission Lines and Collection Station. 

“Debt Agreements” has the meaning set forth in Section 4.13. 

“Defaulting Party” has the meaning set forth in Section 9.3. 

“Disclosing Party” has the meaning set forth in Section 13.3. 

“Effective Date” has the meaning set forth in the Preamble. 

“Entity” means any Person, other than any natural person. 

“Environmental Law” means any and all Legal Requirements regulating, relating to or imposing liability or standards of conduct
concerning protection of natural resources or the environment, or environmental impacts on human health as now or may at any time hereafter be in effect. 

“ERCOT” means the Electric Reliability Council of Texas, or its successors. 

“ERCOT Transmission Lease” means the Lease Agreement (ERCOT Transmission Assets) between Lessor and Lessee effective as of
December 1, 2014, as the same may be amended from time to time. 
 “ERCOT Transmission Revenues” means Lessee’s
Unadjusted Gross Revenues from regulated electric transmission systems operated by Lessee within ERCOT pursuant to the PUCT’s transmission cost of service mechanism, including any such Unadjusted Gross Revenues that Lessee collects from retail
electric providers through its transmission cost recovery factor included in its distribution rates. 
 “Event of Default” means
an event described in Section 9.1(a) or Section 9.2. 
 “Excess Percentage Rent” has the meaning set forth in
Section 3.3(a). 
 “Expected Incremental CapEx” has the meaning set forth in Section 3.2(a). 

“Extended Period of Operatorship” has the meaning set forth in Section 2.2(b). 

  

					
		 	Appendix A-3	 	CREZ ASSETS LEASE AGREEMENT

 “Extended Period Rent” means Rent that applies during any Extended Period of
Operatorship beyond the Term, which will be negotiated using the Comparable Rate of Return methodology set forth in Article III. 

“FERC” means the Federal Energy Regulatory Commission, or its successors. 

“FERC Uniform System of Accounts” has the meaning set forth in Section 1.1(b)(viii). 

“First Lease Quarter Percentage Rent Breakpoint” has the meaning set forth in Section 3.1(c). 

“Footprint Projects” means T&D Projects that are (i) (A) transmission assets that are added to an existing
transmission substation that comprises a part of the CREZ Assets or hang from transmission towers that comprise a part of the CREZ Assets or (B) Reclassified Projects and (ii) funded by expenditures that are or are expected to be
capitalized under GAAP and that are within the items described in Section 1.1(b)(i)-(v) (specifically excluding Section 1.1(b)(vi)). 

“Force Majeure Event” means, except to the extent resulting from the action or inaction of Lessee or within the control of Lessee,
fire, earthquake, hurricane, flood, or other casualty or accident; strikes or labor disputes; war, civil strife or other violence; any law, order, proclamation, regulation, ordinance, action, demand or requirement of any government agency or
utility; or any other act or condition beyond the reasonable control of Lessee. 
 “GAAP” means generally accepted accounting
principles in effect in the United States of America. 
 “Good Utility Practice” shall be as defined from time to time by PUCT
and, as of the date hereof, means any of the practices, methods, and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods, and acts that, in the
exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety, and
expedition. Good utility practice is not intended to be limited to the optimum practice, method, or act, to the exclusion of all others, but rather is intended to include acceptable practices, methods, and acts generally accepted in the region. 

“Gross Revenues” has the meaning set forth in Section 3.1(d)(i). 

“Hazardous Materials” means (A) any substance which is listed, defined, designated or classified under any Applicable Law as a
(i) hazardous material, substance, constituent or waste, (ii) toxic material, substance, constituent or waste, (iii) radioactive material, substance, constituent or waste, (iv) dangerous material, substance, constituent or waste,
(v) pollutant, (vi) contaminant, or (vii) special waste; (B) any material, substance, constituent or waste regulated under any Applicable Laws; or (C) petroleum, petroleum products, radioactive matters, polychlorinated
biphenyl, pesticides, asbestos or asbestos-containing materials. 

  

					
		 	Appendix A-4	 	CREZ ASSETS LEASE AGREEMENT

 “Hunt Family Members” means (i) Ray L. Hunt; (ii) the spouse of Ray L. Hunt
and each of his children and siblings; (iii) the spouse and lineal descendants of any Person identified in the foregoing clause (ii); (iv) any trust or account primarily for the benefit of any Person or Persons identified in the foregoing
clauses (i), (ii) or (iii); (v) any corporation, partnership or other Entity in which any of the Persons identified in the foregoing clauses (i), (ii), (iii) or (iv) are the beneficial owners of substantially all of the shares of
capital stock, membership interests, partnership interests or other equity interests and options or warrants to acquire, or securities convertible into, capital stock, membership interests, partnership interests or other equity securities of an
Entity; and (vi) the personal representative or guardian of any of the Persons identified in the foregoing clauses (i), (ii) and (iii) upon such Person’s death for purposes of the administration of such Person’s estate or
upon such Person’s disability or incompetency for purposes of the protection and management of the assets of such Person. 

“Incremental CapEx” means Lessor-funded Capital Expenditures related to CREZ Assets that are placed in service, as and when such
CREZ Assets are placed in service, as adjusted (y) for any applicable AFUDC and/or depreciation, and (z) to reflect the effect of the deferred tax liability or deferred tax asset, as applicable. 

“Indebtedness” with respect to any Person means, at any time, without duplication (a) its liabilities for borrowed money and
its redemption obligations in respect of mandatorily redeemable preferred stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but
including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c)(i) all liabilities appearing on its balance sheet prepared in accordance with GAAP in respect of
capital leases; and (ii) all liabilities which would appear on its balance sheet prepared in accordance with GAAP in respect of Synthetic Leases assuming such Synthetic Leases were accounted for as capital leases; provided,
however, that for purposes of this definition (including with respect to clauses (i) and (ii) hereof), (x) this Agreement and any similar lease between Lessor (or any subsidiary) and Lessee and (y) any lease between Lessee
and any of its wholly-owned subsidiaries shall not be treated as a capital lease; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become
liable for such liabilities); (e) all of its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing
obligations for borrowed money), provided, however, that for purposes of this definition, any surety bonds or indemnification agreements entered into by Lessee (with respect to which Lessee or a subsidiary has a reimbursement or
backstop obligation) in connection with condemnation proceedings shall be excluded; (f) the aggregate Swap Termination Value of all Swap Contracts of such Person; and (g) any guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) of this definition. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. 
 “Indemnified
Party” has the meaning set forth in Section 12.1. 

  

					
		 	Appendix A-5	 	CREZ ASSETS LEASE AGREEMENT

 “Indemnifying Party” has the meaning set forth in Section 12.1. 

“InfraREIT” means InfraREIT, Inc., a Maryland corporation. 

“Initial Term” has the meaning set forth in Section 2.1. 

“Lease” or “Leases” means (i) this Agreement, the McAllen Lease, the Stanton/Brady/Celeste Lease, the ERCOT
Transmission Lease and the Stanton Transmission Loop Lease and any other leases of transmission and distribution and related assets to a Qualified Lessee under which Lessor or any subsidiary of Lessor is a party as a lessor, and (ii) any lease
of transmission and distribution and related assets pursuant to which Lessee is the lessee and a subsidiary of Lessee or another Person controlled by one or more Hunt Family Members is the lessor; provided that no such lease will qualify as a
“Lease” hereunder if each of the three following criteria apply: (x) Lessee is the lessee, (y) cash rental payments have become due and payable pursuant thereto and (z) none of Lessor, a subsidiary of Lessor or a subsidiary
of Lessee is the lessor. 
 “Lease Quarter” means each calendar quarter during each Lease Year. 

“Lease Year” means each calendar year during the Term of this Agreement. 

“Leased Consolidated Net Plant” means that portion of the Consolidated Net Plant of the lessor of a Lease between such lessor and a
Qualified Lessee that is the subject of such Lease. 
 “Legal Requirements” means, as to any Person, the certificate of
incorporation and by-laws, limited liability company agreement, partnership agreement or other organizational or governing documents of such Person, any law (including common law), statute, code, treaty, rule, regulation, ordinance including any
government rule or determination of an arbitrator a court or other government authority, or any requirement under a Permit, in each case applicable to or binding upon such Person or any of its properties or to which such Person or any of its
property is subject. 
 “Lessee” has the meaning set forth in the Preamble. 

“Lessee CapEx” means Capital Expenditures that are related and fairly allocable to the CREZ Assets and are funded by Lessee. 

“Lessee Panel Member” has the meaning set forth in Section 13.7(a). 

“Lessee Taxes” has the meaning set forth in Section 4.3. 

“Lessor” has the meaning set forth in the Preamble. 

“Lessor’s Audit” has the meaning set forth in Section 3.3(c). 

“Lessor Material Matter” means (i) a proceeding of any Regulatory Authority or (ii) an environmental, health, safety or
security matter that requires a corrective action and, in the case 

  

					
		 	Appendix A-6	 	CREZ ASSETS LEASE AGREEMENT

 
of both (i) and (ii), either could (a) give rise to a Claim with respect for which Lessor would be responsible pursuant to Article XII hereof, (b) reasonably be expected to have a
material adverse effect on the operation of the CREZ Assets or (c) reasonably be expected to result in the imposition of a liability on Lessor (other than liabilities for which Lessor is indemnified pursuant hereto, unless the amount of such
liability could reasonably be expected to exceed $2,000,000). 
 “Lessor Panel Member” has the meaning set forth in
Section 13.7(a). 
 “Lessor Taxes” has the meaning set forth in Section 4.3. 

“Liens” has the meaning set forth in Section 5.2. 

“McAllen Lease” means the Third Amended and Restated Master System Lease Agreement (McAllen System) between Lessor and Lessee
effective as of December 1, 2014, as the same may be amended from time to time. 
 “Monetary Default” means an Event of
Default arising from the failure to pay when due any amounts payable under this Agreement. 
 “NERC” means North American Electric
Reliability Corporation, or its successors. 
 “Non-Defaulting Party” has the meaning set forth in Section 9.3. 

“Non-Monetary Default” means an Event of Default other than a Monetary Default. 

“Non-Recourse Debt” means Indebtedness of a subsidiary of Lessee that, if secured, is secured solely by a pledge of collateral owned
by such subsidiary and the equity interests in such subsidiary, and for which no Person other than such subsidiary is personally liable. 

“Nonseverable Footprint Projects” means those Footprint Projects that cannot be readily removed from the CREZ Assets without causing
diminution in value to the CREZ Assets. 
 “Note Purchase Agreements” has the meaning set forth in Section 4.13. 

“Notice of Default” means written notice of an Event of Default. 

“Original Lease Date” has the meaning set forth in Section 1.1(a). 

“Other Revenue” means revenue generated from activities as a regulated utility within the State of Texas other than Covered Revenue.

 “Overdue Rate” means a rate equal to ten percent (10%) per annum or the maximum rate allowed by Applicable Law, whichever
is lesser. 
 “Party” or “Parties” has the meaning set forth in the Preamble. 

“Percentage Rent” has the meaning set forth in Section 3.1(b). 

  

					
		 	Appendix A-7	 	CREZ ASSETS LEASE AGREEMENT

 “Percentage Rent Breakpoint” means individually any of the Annual Percentage Rent
Breakpoint, the First Lease Quarter Percentage Rent Breakpoint, the Second Lease Quarter Percentage Rent Breakpoint or the Third Lease Quarter Percentage Rent Breakpoint (collectively referred to as the “Percentage Rent Breakpoints”). 

“Percentage Rent Percentages” has the meaning set forth in Section 3.1(b). 

“Percentage Rent Schedule” means the schedule attached to the then-current Rent Supplement setting forth the Percentage Rent
Percentages and Annual Percentage Rent Breakpoints for the CREZ Assets through the end of the Term. 
 “Permitted Liens” means

  

	 	(i)	The Liens granted by the Lessor to any lender or trustee for any lender which finances the Lessor’s interest in the CREZ Assets; 

 

	 	(ii)	Liens imposed by any governmental authority for any tax, assessment or other charge relating to CREZ Assets to the extent not yet past due or being contested in good faith and by appropriate proceedings;

  

	 	(iii)	mechanics’, warehousemen’s, carriers’, workers’, repairers’, landlords’, and other similar liens arising or incurred in the ordinary course of business and (i) which do not in the
aggregate materially detract from the value of property or assets subject to such Liens or materially impair the continued use thereof in the operation of the CREZ Assets or (ii) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to such Liens and for which cash reserves consistent with GAAP have been established on the books of Lessee or Lessor, or other
Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, trade contracts, leases, government contracts, performance and return-of-money bonds and other similar obligations incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed
money); 

  

	 	(iv)	Liens arising out of judgments or awards so long as an appeal or proceeding for review is being prosecuted in good faith and for the payment of which adequate cash reserves consistent with GAAP have been established on
the books of Lessee or Lessor, bonds or other security acceptable to the Lessor in its reasonable discretion have been provided or are fully covered by insurance; 

 

	 	(v)	zoning, entitlement, restriction, and other land use and environmental regulations by governmental authorities and encroachments, easements, rights of way, covenants, restrictions or agreements which do not materially
interfere with the continued use of any asset as currently used in the conduct of the business of the Lessee; 

  

					
		 	Appendix A-8	 	CREZ ASSETS LEASE AGREEMENT

	 	(vi)	any encumbrances set forth in any franchise or governing ordinance under which any portion of the business of the Lessee is conducted and which could not, individually or in the aggregate, reasonably be expected to have
a material adverse effect on the operation of the CREZ Assets; and 

  

	 	(vii)	all rights of condemnation, eminent domain, or other similar right of any Person. 

“Person” means any natural person, general partnership, limited partnership, proprietorship, corporation, limited liability company,
limited liability partnership, business trust, estate, governmental entity, cooperative, association or other foreign or domestic enterprise, or other entity whether acting in an individual, fiduciary or other capacity. 

“Personal Property” means all assets, or rights therein, related to or used in connection with the CREZ Assets, other than assets of
the type and nature described in Section 1.1(b)(i)-(v). 
 “Policies and Procedures” has the meaning set forth in
Section 13.6(b). 
 “Project Management Costs” means all actual out-of-pocket costs incurred by Lessee pursuant to this
Agreement or a separate construction management agreement in connection with the construction activities, including (i) all direct wages and salaries (including benefits, payroll burden and overtime) which the Lessee pays to personnel employed
or retained to conduct such construction activities and a fair allocation of the direct wages and salaries (including benefits, payroll burden and overtime) of Lessee’s other personnel conducting such construction activities; (ii) the fair
market value of materials or equipment provided directly by Lessee or its affiliates (including the standard corporate day rate for any vehicles and equipment that are so utilized); (iii) a fair allocation of the lease payments of any leased
vehicles and equipment that are so utilized; (iv) all other third-party costs incurred by Lessee in the performance of such construction activities; and (v) all sales, use, transfer or similar taxes (excluding those taxes based upon
Lessee’s net income, gross receipts, net worth or similar taxes) incurred or paid by Lessee in conducting such construction activities or providing materials, if any (provided that, in managing its affairs, Lessee will attempt to
minimize, to the extent practicable, all such taxes incurred on behalf of Lessor and, in this regard, Lessor agrees to cooperate and provide Lessee any assistance necessary including providing appropriate evidence of any exemptions from tax). 

“PUCT” means the Public Utility Commission of Texas or its successors. 

“Qualified Lessee” means Lessee and/or any other utility that is (x) approved or authorized by the applicable public utility
commission or similar regulatory authority to operate and/or lease the transmission and/or distribution assets of Lessor or any subsidiary and (y) a party to a then-effective lease agreement with Lessor or a subsidiary thereof pursuant to which
such utility leases and operates such entity’s transmission and/or distribution assets. 
 “Rate Base” means, with respect to
any transmission and distribution assets, gross electric plant in service under GAAP, which is the aggregate amount of capital expenditures used to construct such assets plus AFUDC, less accumulated depreciation, and adjusted for accumulated
deferred income taxes. 

  

					
		 	Appendix A-9	 	CREZ ASSETS LEASE AGREEMENT

 “Receiving Party” has the meaning set forth in Section 13.3. 

“Reclassified Projects” means any T&D Project that does not otherwise meet the definition of Footprint Project but Lessee and
Lessor jointly agree, in their sole discretion, to classify such T&D Project as a Footprint Project based upon such factors that the Parties deem relevant, including (a) the expected Rate Base of the T&D Project, it being understood
that the Parties generally expect that only T&D Projects with an expected Rate Base of less than $25 million could constitute a Reclassified Project; (b) whether the T&D Project is physically connected to the CREZ Assets; and
(c) whether the T&D Project is necessary to serve distribution customers situated in the service territories of the CREZ Assets. 

“Regulatory Authority” means the government of any nation, or of any political subdivision thereof or of any state, county or local
jurisdiction therein or any regulatory body, commission, department, division, organ, instrumentality, court or agency of any thereof, including PUCT, ERCOT, TRE, NERC, or any other governmental agency with jurisdiction over Lessee, Lessor or the
CREZ Assets and any other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. 

“REIT” has the meaning set forth in Section 13.13(b). 

“Related Person” has the meaning set forth in Section 12.1. 

“Renewal Term” has the meaning set forth in Section 2.1. 

“Rent” means the sum of Base Rent, Percentage Rent, Additional Rent and Extended Period Rent. 

“Rent Supplement” means a supplement to this Agreement in the form of Schedule 3.2(b) agreed to in accordance with Section 3.2.

 “Rent Validation” means the process of validating any Rent Supplement pursuant to Section 3.2(c). 

“Repairs” means all replacements, repairs or remedial activity undertaken directly on a
then-existing portion of the CREZ Assets that are not Footprint Projects and that are expensed and not capitalized under GAAP. 

“Revenues Attributable to Lessee CapEx” means the portion of Unadjusted Gross Revenue from the CREZ Assets that is attributable to
Lessee CapEx as determined under Section 3.1(d)(iii). 
 “Revised Certificate” has the meaning set forth in
Section 3.3(a). 
 “SEC” means the United States Securities and Exchange Commission. 

“SEC Reporting Requirements” has the meaning set forth in Section 7.1(c). 

“Second Amended and Restated Lease” has the meaning set forth in the Recitals. 

  

					
		 	Appendix A-10	 	CREZ ASSETS LEASE AGREEMENT

 “Second Lease Quarter Percentage Rent Breakpoint” has the meaning set forth in
Section 3.1(c). 
 “Severable Footprint Projects” means any Footprint Projects that can be readily removed from the CREZ
Assets without causing diminution in value to the CREZ Assets. 
 “Sharyland Projects” has the meaning set forth in the Recitals.

 “SPP” means the Southwest Power Pool and its successors. 

“Stanton/Brady/Celeste Lease” means the Third Amended and Restated Lease Agreement (Stanton/Brady/Celeste Assets) between Lessor and
Lessee effective in 2015, as the same may be amended from time to time. 
 “Stanton Transmission Loop Lease” means the Third
Amended and Restated Lease Agreement (Stanton Transmission Loop Assets) between Lessor (as the successor in interest to SDTS FERC, L.L.C.) and Lessee (as the successor in interest to SU FERC, L.L.C.), effective as of December 1, 2014, as the
same may be amended from time to time. 
 “Swap Contract” means (a) any and all interest rate swap transactions, basis swap
transactions, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward foreign
exchange transactions, cap transactions, floor transactions, currency options, spot contracts or any other similar transactions of any of the foregoing (including, without limitation, any options to enter into any of the foregoing), and (b) any
and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc. or any
International Foreign Exchange Master Agreement. 
 “Swap Termination Value” means, in respect of one or more Swap Contracts,
after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance
therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based
upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts. 

“Synthetic Lease” means, at any time, any lease (including a lease that may be terminated by the lessee at any time) of any property
by a Person (a) that is accounted for as an operating lease under GAAP and (b) in respect of which the lessee retains or obtains ownership of the property so leased for U.S. federal income tax purposes, other than any lease under which
such Person is the lessor. 
 “TCOS Allocation” has the meaning set forth in Section 3.1(d)(ii). 

“T&D Project” means a business, project or assets relating primarily to the transmission and/or distribution of electricity.

  

					
		 	Appendix A-11	 	CREZ ASSETS LEASE AGREEMENT

 “Term” has the meaning set forth in Section 2.1. 

“Third Lease Quarter Percentage Rent Breakpoint” has the meaning set forth in Section 3.1(c). 

“Third Panel Member” has the meaning set forth in Section 13.7(a). 

“Transferred Assets” has the meaning set forth in Section 1.1(c). 

“Transmission Gross Plant” means electric transmission plant as determined in accordance with the FERC Uniform System of Accounts.

 “Transmission Lines” means the five transmission line segments consisting of the Ogallala (formerly Nazareth) to Tule Canyon
(formerly Silverton) Transmission Line (“LS01”), the Windmill (formerly) Hereford) to Ogallala (formerly Nazareth) Transmission Line (“LS02”), the Windmill (formerly Hereford) to Alibates (formerly White Deer)
Transmission Line (“LS03”), the Tule Canyon (formerly Silverton) to Cottonwood Transmission Line (“LS04”), the Tule Canyon (formerly Silverton) to Alibates (formerly White Deer) Transmission Line
(“LS05”). 
 “Transmission Net Plant in Service” means Transmission Gross Plant in service less accumulated
depreciation as determined in accordance with the FERC Uniform System of Accounts. 
 “TRE” means the Texas Reliability Entity, or
its successor entity. 
 “TRS” means an Entity that (x) is wholly-owned by Lessor and/or Lessee and (y) is a taxable
REIT subsidiary within the meaning of Section 856(l) of the Code. 
 “Unadjusted Gross Revenues” has the meaning set forth in
Section 3.1(d)(i). 
 “Undisputed Rent” means the undisputed amount of Rent the Parties agree is due and payable. 

  

					
		 	Appendix A-12	 	CREZ ASSETS LEASE AGREEMENT

 EXHIBIT A 
  

 

  

					
		 	Exhibit A-1	 	CREZ ASSETS LEASE AGREEMENT

 EXHIBIT B 

INSURANCE REQUIREMENTS 
 Subject to
Section 6.2(b) of this Agreement, during the term of the Note Purchase Agreements, the Credit Agreements or until otherwise agreed by Lessee and Lessor, Lessee shall comply with the insurance requirements set forth in this Exhibit B.
Capitalized terms used herein but not otherwise defined in this Agreement have the meanings assigned to such terms in the Note Purchase Agreements or the Credit Agreements, as applicable. 

 

	A.	Coverages. 

  

			
	Property Insurance (Operational):
		
	Cover:	  	All assets comprising the CREZ Assets against “all risks” of physical loss or damage (including but not limited to machinery breakdown, earthquake, flood, windstorm and terrorism)
		
	Principal Exclusions:	  	War and civil war
		
		  	Nuclear risks
		
		  	Theft and mysterious disappearance revealed in the course of inventory undertaking
		
		  	The cost of making good wear and tear, gradual deterioration, etc., but not the consequential damage
		
		  	Consequential loss not otherwise excluded
		
		  	Fraud and misrepresentation
		
	Sum Insured:	  	Full replacement cost subject to the following sublimits.
		
	Sublimits:	  	Earthquake – full replacement cost
		
		  	Flood – full replacement cost
		
		  	Windstorm – full replacement cost
		
	Deductible:	  	$250,000 per loss or occurrence, except $250,000 earthquake and flood and $250,000 windstorm
		
	Insured:	  	Lessee
		  	Lessor

  

					
		 	Exhibit B-1	 	CREZ ASSETS LEASE AGREEMENT

			
		
	Additional Insured:	  	 The Prudential Insurance Company of America, as Purchaser

Prudential Retirement Insurance and Annuity Company, as Purchaser

Royal Bank of Canada, as Lender

		  	The Bank of New York Mellon Trust Company, N. A., as Collateral Agent
		  	The Secured Parties to the Note Purchase Agreements
		  	The Secured Parties to the Credit Agreements
		
	Mortgagee:	  	Bank of New York Mellon Trust Company, N.A. as Collateral Agent for the benefit of the Secured Parties
		
	Loss Payee:	  	The Bank of New York Mellon Trust Company, N.A. as Collateral Agent, as first loss payee
		
	Conditions:	  	30 days’ notice of cancellation or non-renewal except 10 days for non-payment of premium
		
		  	Acceptable loss payable clause
		
		  	Non-vitiation wording in favor of the Collateral Agent and the Secured Parties
		
		  	Waiver of subrogation in favor of the additional insureds
	
	General Liability Insurance:
		
	Cover:	  	Lessee against any liability arising out of claims for personal injury and property damage.
		
	Sum Insured:	  	$1,000,000 per occurrence up to a minimum of $2,000,000 aggregate limit (except that the fire damage legal liability coverage may be limited to $100,000 per fire and the medical expense coverage may be limited to $5,000 for any one
injured person)
		
	Insured:	  	Lessee
		  	Lessor
		
	Additional Insured:	  	The Prudential Insurance Company of America, as Purchaser
		  	Prudential Retirement Insurance and Annuity Company, as Purchaser
		  	The Bank of New York Mellon Trust Company, N. A., as Collateral Agent
		  	Royal Bank of Canada, as Lender
		  	The Secured Parties
		
	Conditions:	  	Occurrence policy wording or Aegis claims-first-made policy form Worldwide territory

  

					
		 	Exhibit B-2	 	CREZ ASSETS LEASE AGREEMENT

 
			
	Automobile Liability Insurance:
		
	Cover:	  	Lessee for liability arising out of claims for personal injury (including bodily injury and death) and property damage covering all owned (if any), leased, non-owned and hired vehicles of Lessee, including loading and
unloading.
		
	Sum Insured:	  	$1,000,000 each accident.
		
	Deductible:	  	$1,000 each accident
		
	Insured:	  	Lessee
		  	Lessor
		
	Additional Insured:	  	The Prudential Insurance Company of America, as Purchaser
		  	Prudential Retirement Insurance and Annuity Company, as Purchaser
		  	The Bank of New York Mellon Trust Company, N. A., as Collateral Agent
		  	Royal Bank of Canada, as Lender
		  	The Secured Parties
	
	Workers’ Compensation and Employer’s Liability Insurance:
		
	Cover:	  	Lessee will maintain workers’ compensation insurance as required by applicable state laws and employer’s liability insurance insuring Lessee for liability arising out of injury to or death of employees.
		
	Sum Insured:	  	$1,000,000 each accident.
		
	Insured:	  	Lessee
		  	Lessor
	
	Excess or Umbrella Insurance:
		
	Cover:	  	Insurance covering claims in excess of the underlying insurance described in the foregoing.
		
	Sum Insured:	  	$25,000,000 each occurrence and in the aggregate
		
	Deductible:	  	$1,000,000 any one occurrence or amount of underlying insurance.
		
	Insured:	  	Lessee
		  	Lessor

  

					
		 	Exhibit B-3	 	CREZ ASSETS LEASE AGREEMENT

			
		
	Additional Insured:	  	The Prudential Insurance Company of America, as Purchaser
		  	Prudential Retirement Insurance and Annuity Company, as Purchaser
		  	The Bank of New York Mellon Trust Company, N. A., as Collateral Agent
		  	Royal Bank of Canada, as Lender
		  	The Secured Parties
		
	Conditions:	  	Following form

  

	B.	Company Conditions and Requirements. 

 1. Loss Notification. Lessee shall
promptly notify Lessor of any single loss or event likely to give rise to a claim against an insurer for an amount in excess of $1,000,000 covered by any insurance policies required by this Exhibit B. 

2. Payment of Loss Proceeds. The Collateral Agent, on behalf of the Secured Parties, shall be named as the first loss payee in
applicable insurance policies (pursuant to a standard lender’s loss payable endorsement equivalent to a CP 1218). 
 3. Compliance
With Policy Requirements. Lessee shall not violate or permit to be violated any of the conditions, provisions or requirements of any insurance policy required by this Exhibit B, and Lessee shall perform, satisfy and comply with, or cause
to be performed, satisfied and complied with, all conditions, provisions and requirements of all insurance policies. 
 4. Waiver of
Subrogation. Lessee hereby waives any and every claim for recovery from the Secured Parties for any and all loss or damage covered by any of the insurance policies to be maintained under this Agreement to the extent that such loss or damage is
recovered under any such policy. If the foregoing waiver will preclude the assignment of any such claim to the extent of such recovery, by subrogation (or otherwise), to an insurance company (or other Person), Lessee shall give written notice of the
terms of such waiver to each insurance company which has issued, or which may issue in the future, any such policy of insurance (if such notice is required by the insurance policy) and shall cause each such insurance policy to be properly endorsed
by Lessee to, or to otherwise contain one or more provisions that prevent the invalidation of the insurance coverage provided thereby by reason of such waiver. 

5. Notices. Lessee will advise Lessor in writing promptly of (i) any material changes in the coverage or limits provided under any
policy required by Section 6.2 of this Agreement and this Exhibit B and (ii) any default in the payment of any premium and of any other act or omission on the part of Lessee which may invalidate or render unenforceable, in whole or
in part, any insurance being maintained by Lessee pursuant to this Exhibit B. 
  

	C.	Insurance Policy Conditions and Requirements. 

 1. Permitted Insurers.
Lessee shall obtain the insurance required by this Exhibit B from responsible insurance companies authorized to do business in Texas (if required by law or regulation) with an A.M. Best Insurance Reports rating of A-, 8 or better. 

2. Control of Loss. If commercially feasible all policies of insurance required to be maintained pursuant to this Exhibit B,
wherein more than one insurer provides the coverage on any single policy, shall have a clause (or a separate agreement among the insurers) wherein all insurers have agreed that the lead insurer shall have full settlement authority on behalf of the
other insurers. 

  

					
		 	Exhibit B-4	 	CREZ ASSETS LEASE AGREEMENT

 3. Loss Survey. All policies of insurance required to be maintained pursuant to this
Exhibit B, wherein more than one insurer provides the coverage on any single policy, shall have a clause (or a separate agreement among the insurers) wherein all insurers have agreed upon the employment of a single firm to survey and
investigate all losses on behalf of the insurers. 
 4. Policy Cancellation and Change. All policies of insurance required to be
maintained pursuant to this Exhibit B shall be endorsed so that if at any time they are canceled, or their coverage is reduced (by any party including the insured) so as to affect the interests of the Collateral Agent, the Holders and any
other Secured Party, such cancellation or reduction shall not be effective as to the Secured Parties for thirty (30) days, except for non-payment of premium which shall be for ten (10) days, after receipt by the Collateral Agent and the
Secured Parties of written notice from such insurer of such cancellation or reduction. 
 5. Miscellaneous Policy Provisions. All
insurance policies providing operational property damage, (i) shall name the Collateral Agent, on behalf of the Secured Parties, as the first loss payee, (ii) shall include a Lender’s loss payable clause in favor of the Collateral
Agent, on behalf of the Secured Parties. 
 6. Separation of Interests. All policies (other than in respect to workers compensation
insurance) shall insure the interests of the Secured Parties regardless of any breach or violation by Lessee or any other party of warranties, declarations or conditions contained in such policies, any action or inaction of Lessee or others, or any
foreclosure relating to the CREZ Assets. 
 7. Waiver of Subrogation. All policies of insurance required by this Exhibit B
shall provide for waivers of subrogation in favor of the Secured Parties and their respective officers and employees. 
 8. Liability
Insurance Endorsements. All policies of liability insurance required to be maintained by Lessee shall be endorsed as follows: 
  

	 	(i)	To name the Secured Parties as additional insureds; 

  

	 	(ii)	To provide a severability of interests and cross liability clause; and 

  

	 	(iii)	That the insurance shall be primary and not excess to or contributing with any insurance or self-insurance maintained by Lessee. 

  

	D.	Acceptable Policy Terms and Conditions. 

 All policies of insurance required to be maintained
pursuant to this Exhibit B shall contain terms and conditions reasonably acceptable to Lessor. 

  

					
		 	Exhibit B-5	 	CREZ ASSETS LEASE AGREEMENT

 EXHIBIT C 

SUBORDINATED DEBT TERMS 

Reference is made to that certain Second Amended and Restated Collateral Agency Agreement dated as of December 10, 2014 (as amended,
restated, supplemented or otherwise modified, the “Collateral Agency Agreement”), entered into by and among The Bank of New York Mellon Trust Company, N.A., as collateral agent (together with its successors and assigns, the
“Collateral Agent”), Sharyland Distribution & Transmission Services, L.L.C., a Texas limited liability company (the “Company”), and the holders of the Permitted Secured Indebtedness (as defined therein)
from time to time party thereto. 
 Section 1. Definitions and Rules of Interpretation. Capitalized terms used herein without definition shall
have the meanings assigned to such terms in the Collateral Agency Agreement. The rules of interpretation set forth in Schedule A of the Collateral Agency Agreement shall apply to this Exhibit C as if fully set forth herein. In addition, the
following terms shall have the following meanings: 
  

	1.1	“Entitled Party” shall mean the Company unless the Collateral Agent or the Company has given notice to the Subordinated Lender that the Collateral Agent has, on behalf of the Secured Parties and
pursuant to the Collateral Agency Agreement or related documents, properly exercised its remedies to foreclose on the Company’s interest in any System Lease and receive payments pursuant to any System Lease directly from Sharyland, in which
case the Entitled Party shall mean the Collateral Agent, acting for the benefit of the Secured Parties. 

  

	1.2	“Governmental Authority” shall mean 

  

	 	(a)	the government of: 

  

	 	(i)	The United States of America or any State or other political subdivision thereof, or 

  

	 	(ii)	any other jurisdictions in which the Company conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company, or 

 

	 	(b)	any entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of, or pertaining to, any such government, or 

 

	 	(c)	the Electric Reliability Council of Texas or any successor thereto (“ERCOT”), or 

  

	 	(d)	the Texas Regional Entity. 

  

	1.3	“Insolvency Event” means the occurrence of any of the following: 

  

	 	(a)	 Sharyland (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by
answer or otherwise to the 

  

					
		 	Exhibit C-1	 	CREZ ASSETS LEASE AGREEMENT

	 	
filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes a corporate action for the purpose of any of the foregoing; or 

 

	 	(b)	a court or Governmental Authority of competent jurisdiction enters an order appointing, without consent by Sharyland, a custodian, receiver, trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law
of any jurisdiction, or ordering the dissolution, winding-up or liquidation of Sharyland or any such petition shall be filed against Sharyland and such petition shall not be dismissed within 60 days. 

 

	1.4	“Reorganization Securities” shall mean any debt or equity securities issued on account of all or any portion of the Subordinated Indebtedness in connection with an Insolvency Event that are in each case
subordinated in liquidation to the Obligations (or any debt or equity securities issued on account of any Obligations) to at least the same extent that the Subordinated Indebtedness are subordinated to the Obligations hereunder. 

 

	1.5	“Sharyland” shall mean Sharyland Utilities, L.P. 

  

	1.6	“Subordinated Indebtedness” shall mean, with respect to Sharyland, Indebtedness (as defined under the applicable Financing Agreement or such other similar term) that is incurred in accordance with the
terms of such Financing Agreement and is required to be subordinated to the applicable Obligations. 

  

	1.7	“Subordinated Lenders” shall mean each and every Person to whom any of the Subordinated Indebtedness are owed. 

  

	1.8	“Subordinated Loan Documents” shall mean all documentation evidencing the Subordinated Indebtedness. 

  

	1.9	“System Leases” shall mean any and all leases of transmission and distribution and related assets pursuant to which Sharyland is the lessee and the Company or any Subsidiary of the Company is a party as
a lessor, and supplements thereto, each as amended, restated, supplemented or otherwise modified from time to time, or any new lease entered into in replacement thereof. 

 

	1.10	“System Lease Obligations” shall mean any and all Rent or other similar term (as such term is defined in the System Leases) then due and payable under the System Leases. 

 

	1.11	“Texas Regional Entity” shall mean the division of ERCOT authorized to develop, monitor, assess and enforce compliance with NERC Reliability Standards within geographic boundaries of ERCOT and any
successor thereto. 

  

					
		 	Exhibit C-2	 	CREZ ASSETS LEASE AGREEMENT

 Section 2. Subordination of Subordinated Indebtedness. Until the indefeasible payment in full in cash
of all the Obligations and the termination of any commitments to lend under any Permitted Secured Indebtedness, the Subordinated Lenders and Sharyland hereby agree that (i) all Subordinated Indebtedness is and shall be subordinated in right of
liquidation in relation to all System Lease Obligations to the extent and in the manner hereinafter set forth, (ii) upon the occurrence and during the continuance of any default or event of default under any System Lease (or if after giving
effect to a proposed distribution in respect of any part of the Subordinated Indebtedness, a default or event of default under any System Lease will exist), no payments or other distributions whatsoever in respect of any part of the Subordinated
Indebtedness shall be made, (iii) upon the occurrence and during the continuance of an Insolvency Event, no payments or other distributions whatsoever in respect of any part of the Subordinated Indebtedness shall be made nor shall any property
or assets of Sharyland be applied to the purchase or other acquisition or retirement of any part of the Subordinated Indebtedness, and (iv) upon the occurrence and during the continuance of an Insolvency Event, the Subordinated Lenders shall
not accept any payment by or on behalf of Sharyland on account of the principal of, premium or interest on, or any other amount in respect of, the Subordinated Indebtedness other than the payment of indemnity obligations and reasonable out of pocket
costs and expenses (including reasonable attorney’s fees) in each case as and when due and payable in accordance with the terms of the Subordinated Loan Documents. 

Section 3. Liquidation, Dissolution, Bankruptcy. Until the indefeasible payment in full in cash of all the Obligations and the termination of any
commitments to lend under any Permitted Secured Indebtedness, and without limitation to the rights of the Secured Parties under the terms of the Financing Agreements or the rights of Company under the System Leases: 

 

	3.1	upon the occurrence and during the continuance of any Insolvency Event: 

  

	 	3.1.1	the System Lease Obligations then due and payable shall first be irrevocably and indefeasibly paid in full to the Entitled Party before any of the Subordinated Lenders shall be entitled to receive any payment (other
than Reorganization Securities) on account of the Subordinated Indebtedness whether in cash, securities or other assets (other than Reorganization Securities); 

  

	 	3.1.2	any payment or distribution of assets of Sharyland of any kind or character in respect of the Subordinated Indebtedness to which any of the Subordinated Lenders would be entitled if the Subordinated Indebtedness were
not subordinated pursuant to the terms hereof shall be made by the trustee, liquidator or agent or other Person making such payment or distribution, directly to the Entitled Party until the System Lease Obligations then due and payable are paid in
full and each of the Subordinated Lenders and, unless the Company is the Entitled Party, Sharyland irrevocably authorizes and empowers the Entitled Party to receive and collect on its behalf any and all such payments or distributions; and

  

	 	3.1.3	the Subordinated Lenders agree not to, directly or indirectly, initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity or priority of the System Lease
Obligations then due and payable. 

  

					
		 	Exhibit C-3	 	CREZ ASSETS LEASE AGREEMENT

 Section 4. Incorrect Payments. If, for any reason whatsoever and whether pursuant to an Insolvency
Event or otherwise, Sharyland shall make or any of the Subordinated Lenders shall receive any payment or distribution of any kind or character, whether in cash, securities or other property (other than Reorganization Securities), on account or in
respect of the Subordinated Indebtedness in contravention of any of the terms set forth herein, such Subordinated Lender shall hold any such payment or distribution in trust for the benefit of the Secured Parties, promptly notify the Entitled Party
of the receipt of such payment or distribution and promptly pay over or deliver such distribution or payment to the Entitled Party or to any other Person nominated by the Entitled Party, to hold for the account of the Secured Parties. 

Section 5. Non-Impairment. To the fullest extent permitted by applicable Law, no change of law or circumstances shall release or diminish any of
the Subordinated Lender’s obligations, liabilities, agreements or duties hereunder, or affect the provisions set forth herein in any way. 

Section 6. Benefit of Subordination Provisions. These subordination provisions are intended solely to define the relative rights of the Secured
Parties, the Collateral Agent, the Company, the Subordinated Lenders, and their respective successors and permitted assigns. 
 Section 7.
Termination and Reinstatement. Notwithstanding anything to the contrary contained herein, the Subordinated Indebtedness shall no longer be subordinated in right of liquidation pursuant to the terms contained herein otherwise at such time as
the Secured Parties no longer have a lien on or security interest in the System Lease Obligations. If any payment to any of the Entitled Party, the Company, the Collateral Agent or the Secured Parties by Sharyland or any other Person in respect of
any of the System Lease Obligations is held to constitute a preference or a voidable transfer under applicable Law, or if for any other reason any such party is required to refund such payment to Sharyland or to such Person or to pay the amount
thereof to any other Person, each Subordinated Lender agrees and acknowledges that the provisions set forth herein shall continue to be effective or shall be reinstated, as the case may be, to the extent of any such payment or payments. 

Section 8. Restrictions on Transfers. None of the Subordinated Lenders may transfer (by sale, novation or otherwise) any of its rights or
obligations under the Subordinated Indebtedness unless the transferee of such interest first agrees in writing to be bound by the terms of this Exhibit C applicable to the transferor of such interest and executes an instrument to that effect. 

Section 9. Exercise of Powers. 
  

	9.1	After the occurrence and during the continuance of an Insolvency Event, the Entitled Party shall be entitled to exercise its rights and powers under these subordination provisions in such a manner and at such times as
the Entitled Party in its absolute discretion may determine. 

  

	9.2	The Subordinated Lenders alone shall be responsible for their contracts, engagements, acts, omissions, defaults and losses and for liabilities incurred by them. 

  

					
		 	Exhibit C-4	 	CREZ ASSETS LEASE AGREEMENT

 SCHEDULE 3.2(b) 

FORM OF RENT SUPPLEMENT 
 Rent
Supplement 
 Pursuant to Section 3.2(b) of Lease 

[Date of Supplement] 
 Incremental CapEx: 

Lessee CapEx: 
 Base Rent: 

Percentage Rent Percentages: 
 Annual Percentage Rent
Breakpoints: 
 Revenues Attributable to Lessee CapEx: 
 ERCOT
Transmission Rate Allocation: 
 Term of Rent Supplement: 
  

			
	Executed this day      of             , 20
	
	SHARYLAND UTILITIES, L.P.
		
	By:	 	  

	Name:	 	
	Title:	 	
	
	SHARYLAND DISTRIBUTION & TRANSMISSION SERVICES, L.L.C.
		
	By:	 	  

	Name:	 	
	Title:	 	

 CREZ ASSETS LEASE AGREEMENTExhibit

PURCHASE AND SALE AGREEMENT  
 
FOR THE LENOX VILLAGE PORTFOLIO 
 
NASHVILLE, TENNESSEE

TABLE OF CONTENTS
  Page
Preliminary Statement
		
	1.
	Purchase and Sale; Purchase Price; Definitions    2

		
	2.
	Investigation; Title Commitment; Survey    4

		
	3.
	Closing    7

		
	4.
	Representation and Warranties of Seller    9

		
	5.
	Representation and Warranties of Purchaser    16

		
	6.
	Brokerage    17

		
	7.
	Operations    17

		
	8.
	Closing Adjustments; Transfer of Tenant Deposits    19

		
	9.
	Closing Documents    22

		
	10.
	Notices    24

		
	11.
	Damages to Property; Taking    26

		
	12.
	Remedies    27

		
	13.
	Escrow    28

		
	14.
	Survival    31

		
	15.
	Miscellaneous    31

		
	16.
	Schedule of Exhibits    39

PURCHASE AND SALE AGREEMENT 
FOR THE LENOX VILLAGE PORTFOLIO
This PURCHASE AND SALE AGREEMENT FOR THE LENOX PORTFOLIO (this “Agreement”) is entered into as of August 11, 2015 (the “Effective Date”) by and between LENOX VILLAGE PROPERTIES, LLC, a Tennessee limited liability company, LENOX VILLAGE LIFESTYLE CENTER, LLC, a Tennessee limited liability company, and LENOX VILLAGE LIFESTYLE CENTER III, LLC, a Tennessee limited liability company (collectively referred to herein as the “Seller”), and PREFERRED APARTMENT COMMUNITIES OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“Purchaser”).

Preliminary Statement
A.Seller is the owner of those certain tracts or parcels of land located in Nashville, Davidson County, Tennessee, described on Exhibit A attached hereto, which includes approximately 13.37 plus or minus total acres (the “Land”), together with all buildings, structures, improvements and other facilities thereon including all fixtures, equipment and personal property (collectively referred to as the “Improvements”), consisting of (i) a 273-unit residential apartment complex together with approximately 34,961 square feet of commercial retail and office space more commonly known as “Lenox Village Town Center”; (ii) 18 residential condominium units, together with the undivided interest in the common elements appertaining to those units and 9 commercial condominium units which comprise 12,631 square feet of  retail and office space comprising part of Building I as set forth in the Supplemental Declaration of Charter, Covenants and Restrictions for the Residential Neighborhood of Lenox Village, a Traditional Neighborhood Development more commonly known as the “Regent Building”; and (iii) a 183-unit residential apartment complex more commonly known as “LV III”; the Land, as well as the Improvements and other Property (as defined below) and including Lenox Village Town Center, Regent Building, and LV III, may be collectively referred to herein as the “Property”).  
B.    Seller wishes to sell and Purchaser wishes to purchase the Property subject to the terms and conditions of this Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1.Purchase and Sale; Purchase Price; Definitions.
1.01.    Seller agrees to sell and Purchaser agrees to buy the following property (collectively, the “Property”) upon the terms and conditions hereinafter set forth:
(a)    Seller’s interest in the Property and all rights, title and interest of Seller, if any, in any land lying in the bed of any street, road, avenue or alley, open or closed, in front of or adjoining the same, to the centerline thereof, and all easements, covenants and other rights appurtenant to, and all the estate and rights of Seller in and to the same, including, 

2

without limitation, the undivided interest in the common elements appertaining to the condominium units located in the Regent Building (the “Real Property”);
(b)    all rights, title and interest of Seller in and to the proceeds of, or any award made for, a taking of all or any part of the Real Property by any governmental authority pursuant to the exercise of its power of eminent domain;
(c)    all tangible personal property owned by Seller and used in connection with the operation of the Real Property, including, without limitation, all machinery, appliances, supplies, computer software, any internet website and associated URL or domain names maintained by Seller and/or any affiliate of Seller exclusively with respect to the Property, marketing and advertising materials, furniture, furnishings, decorations, decorative plants and office, landscaping, gardening, maintenance, communications, security and other equipment, including without limitation, the property listed in Exhibit 1.01(c) (the “Personal Property”);
(d)    all right, title and interest of Seller in and to the Leases (as hereinafter defined) and all leases entered into by Seller after the date hereof pursuant to Section 7.02 below, together with all rents (including pet rents) for any period subsequent to the Closing Date and all unapplied security deposits, pet deposits and similar deposits for leases in effect at Closing (collectively, “Tenant Deposits”), made by tenants (collectively, the “Tenants” and, individually, a “Tenant”) thereunder;
(e)    all right, title and interest of Seller in and to the agreements described on Exhibit 1.01(e) (the “Service Contracts”);
(f)    all right, title and interest of Seller in and to all assignable licenses, authorizations, approvals and permits issued by any governmental or quasi-governmental authorities, and any assignable other intangible property (including the name "Lenox Village Town Center", “Regent Building”, and “LV III”) relating to the operation, ownership, use, occupancy or maintenance of the Property (the “Permits”); and
(g)    all right, title and interest of Seller in and to all assignable warranties or guaranties presently in effect from contractors, suppliers or manufacturers of personal property installed in or used in connection with the Property or any work performed or improvements included as a part of the Property (the "Warranties").
1.02.    The purchase price (the “Purchase Price”) for the Property shall be Eighty One Million Two Hundred Thousand and No/100ths Dollars ($81,200,000.00), and shall be paid by Purchaser as follows:
(a)    Two (2) business days after the execution of this Agreement by the parties, Purchaser shall deliver to Chicago Title Insurance Company c/o Yale Riley, 6840 Carothers Parkway, Suite 200, Franklin, Tennessee 37067 (“Escrow Agent”) the sum of Five Hundred Thousand and No/100ths Dollars ($500,000.00).  An additional Five Hundred Thousand and No/100ths Dollars ($500,000.00) (both deposits together with all interest 

3

actually earned thereon during the term of this Agreement, collectively referred to as the “Deposit”) shall be delivered to Escrow Agent one (1) business day after the expiration of the Due Diligence Period (as defined below), and the Deposit shall thereafter be nonrefundable, except as otherwise provided herein.  If Purchaser fails to deliver the additional Five Hundred Thousand and No/100ths Dollars ($500,000.00) to the Escrow Agent one (1) business day after the expiration of the Due Diligence Period, then Purchaser shall be deemed to have terminated this Agreement prior to the expiration of the Due Diligence Period, and the initial Five Hundred Thousand and No/100ths Dollars ($500,000.00) shall be promptly returned to Purchaser. During the term of this Agreement, Escrow Agent shall hold the Deposit in an interest bearing account. At the Closing, the Deposit shall be applied as partial payment of the Purchase Price.
(b)    The balance of the Purchase Price by wire transfer at Closing to the Escrow Agent to be paid as directed by Seller upon the Closing. 
2.    Investigation; Title Commitment; Survey.
2.01.    The period beginning on the Effective Date and ending at 5:00 p.m. Central Standard Daylight Time on the date that is thirty-five (35) days after the Effective Date shall be referred to as the “Due Diligence Period”. During the term of this Agreement, Purchaser shall be entitled to make an inspection of the Property and the Property Materials (as hereinafter defined). Purchaser may, in its sole discretion, terminate this Agreement at any time on or prior to the expiration of the Due Diligence Period by sending written notice of termination to Seller.  If Purchaser fails to deliver an additional Five Hundred Thousand and No/100ths Dollars ($500,000.00) to the Escrow Agent one (1) business day after the expiration of the Due Diligence Period, then Purchaser shall be deemed to have sent written notice of termination to Seller prior to the expiration of the Due Diligence Period.  If Purchaser fails to notify Seller of its decision to terminate on or before the expiration of the Due Diligence Period and makes an additional deposit of Five Hundred Thousand and No/100ths Dollars ($500,000.00) to the Escrow Agent one (1) business day after the expiration of the Due Diligence Period, then Purchaser shall be deemed to have notified Seller that Purchaser has decided to proceed with the Closing of this transaction.  If Purchaser terminates this Agreement or is deemed to have terminated on or prior to end of the Due Diligence Period, the entire Deposit (as defined above) shall be returned to Purchaser. Upon any such termination, the parties shall have no further obligations or liability hereunder, except for such obligations which expressly survive the termination of this Agreement.  
During the term of this Agreement, Seller shall provide Purchaser, its agents and representatives with reasonable access to the Property, and Purchaser shall have the right to examine the Property Materials.  During the term of this Agreement, upon reasonable advance notice to Seller, Purchaser, its agents and representatives shall be entitled to enter upon the Property during regular business hours (subject to the rights of tenants in possession) to perform such inspections and tests of the Property as Purchaser deems reasonably necessary to evaluate the Property, including, without limitation, a Phase I environmental assessment (the “Phase I Assessment”); provided, however, that no inspections or tests will involve the 

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taking of samples or other physically invasive procedures without the prior written consent of Seller. Before entering upon the Property, Purchaser must furnish to Seller evidence of general liability insurance coverage of not less than One Million and No/100ths Dollars ($1,000,000) per occurrence and Two Million and No/100ths Dollars ($2,000,000) in the aggregate, which will name Seller as an additional insured.  Seller will have the right to be present at any or all inspections or tests.  Seller agrees to reasonably cooperate with Purchaser to enable Purchaser to have access to all occupied and unoccupied units; provided, however, that neither Purchaser nor its agents or representatives will contact any tenants without the prior consent of Seller.  

Notwithstanding anything to the contrary contained in this Agreement, except as explicitly provided otherwise herein, Purchaser agrees that all risk, damage, fees or expenses associated with such inspections shall remain with Purchaser.  Purchaser agrees to repair any damage to the Property caused by any testing or inspection and to indemnify and hold Seller harmless from and against any and all risks, damages, losses, claims, fees or expenses, including reasonable attorneys’ fees, or liability for personal injury or property damage caused by entry upon the Property by Purchaser’s agents, representatives or employees in connection with Purchaser’s inspections or tests pursuant to this Section 2.01 or any other entry by Purchaser on the Property, regardless of whether this Agreement is terminated; provided however, Purchaser shall not be responsible for any risks, damages, losses, claims, fees or expenses to the extent they arise from: the negligence or gross negligence of Seller or its agents and representatives; or preexisting defects or issues with regard to the Property which are merely discovered or “uncovered” by the Purchaser. Purchaser shall promptly upon receiving notice of any lien placed on the Property by reason of Purchaser’s or its contractor’s, agent’s, representative’s or employee’s tests or inspections, cause the lien to be discharged or bonded at Purchaser’s sole expense, and such lien shall be deemed a Permitted Exception (as defined herein).  Anything contained herein to the contrary notwithstanding, the foregoing indemnity shall survive the Closing or the termination of this Agreement. 
2.02.    Within three (3) days after the Effective Date, Seller shall deliver to Purchaser the items listed on Exhibit 2.02 attached hereto and made a part hereof, to the extent the same are in Seller’s (or its property manager’s) possession or control. Collectively, the items listed on Exhibit 2.02 shall be referred to herein as the “Property Materials.” 
2.03.    (a)    Within seven (7) days after the Effective Date, Seller shall deliver to Purchaser title commitments for each of Lenox Village Town Center, Regent Building, and LV III (collectively, the “Title Commitment”), to be provided at Seller’s expense, for an ALTA (form 2006) extended owner’s title insurance policy, issued by Chicago Title Insurance Company through their agent Ortale, Kelley, Herbert & Crawford (the “Title Insurance Company”), together with copies of all documents (“Exception Documents”) referred to in the Title Commitment.
(b)        Within two (2) business days of the Effective Date, Seller will deliver to Purchaser one copy of the most recent existing ALTA survey (if any) of the Real Property (the “Existing Survey”) in Seller’s possession and control.  Purchaser shall obtain 

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an updated or new ALTA/ACSM Land Title Survey of the Real Property (the “Updated Survey”) prepared by a surveyor licensed in the State of Tennessee and containing such Table A items that Purchaser or Purchaser’s lender, if any, may require.  Purchaser will pay the cost of the Updated Survey. Purchaser will pay any additional survey costs incurred in incorporating any additional survey requirements to satisfy Purchaser’s lender, if any.
(c)        On or before the expiration of the Due Diligence Period, Purchaser shall provide Seller with written notice (“Purchaser’s Exception Notice”) setting forth a list of the matters reflected in the Updated Survey and Title Commitment that are not acceptable to Purchaser (herein referred to as “Unpermitted Exceptions”; and all matters not so objected to are herein referred to as “Permitted Exceptions”).  Notwithstanding the foregoing, to the extent the Leases are accurately reflected on the Rent Roll (as hereinafter defined), Purchaser shall not object to any exception for the rights of tenants (as tenants only) under the Leases or any leases entered into pursuant to Section 7.02 below, and the same shall be deemed “Permitted Exceptions”.  If Purchaser does not provide Seller with Purchaser’s Exception Notice within said period, then Purchaser will be deemed to have approved the title as shown in the Title Commitment, the title exceptions, and all matters shown on the Updated Survey, and moreover, any title exceptions listed or shown on said documents shall be deemed Permitted Exceptions (except for monetary liens or encumbrances which shall be released or discharged by Seller at or prior to the Closing).  Notwithstanding any language to the contrary in this Agreement, Seller shall prior to, or at, the Closing satisfy, release and discharge all monetary liens or encumbrances encumbering any portion of the Property, including, but not limited to, all mortgages, deeds of trust, security deeds, assignments of leases, assignments of rents, fixture filings, UCC-1s, judgment liens, and mechanic liens (the “Removable Liens”). 
2.04.    Seller shall notify Purchaser in writing ("Seller’s Exception Response") within three (3) business days after receiving Purchaser’s Exception Notice if it believes that the Purchaser’s Exception Notice makes reference to any title defect or other matter that Seller elects not to cure.  Seller’s Exception Response, if any is given, shall specify those objected to items that Seller shall cure, the manner of such cure, and those items which it shall not cure. Upon receipt of Seller’s Exception Response from Seller, Purchaser shall have the option either to (i) terminate this Agreement by notice to Seller given within three (3) business days of receipt of Seller’s Exception Response and be returned the Deposit, or (ii) accept the defects, exceptions or other matters referenced in such Seller’s Exception Response and proceed to Closing hereunder with no reduction of the Purchase Price. Seller's failure to serve a Seller’s Exception Response within the three (3) business day period set forth above with respect to any matter referenced in Purchaser’s Exception Notice shall constitute Seller's election not to cure such matter, subject to Seller’s mandatory obligation to cure the Removable Liens. Seller shall have until the Closing Date (as hereinafter defined) within which to correct all defects, exceptions or other matters that it is required, or elects, to cure. As to title defects arising after the effective date of the issuance of the Title Commitment and survey defects arising after the date of the Updated Survey, Buyer shall be entitled to object thereto within five (5) days after becoming aware of such defect, but no later than the Closing Date, and Seller shall have a reasonable time, not to exceed five (5) 

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days, to elect the options set forth above upon the same conditions set forth above, and the Closing Date shall be extended to the extent necessary, not to exceed ten (10) days, to provide said additional time period. If Seller provides Purchaser with a Seller’s Exception Response, all matters and defects which Seller agrees to cure shall constitute a covenant by Seller to cure such matters and defects. 
2.05.    In the event Purchaser shall expressly waive in writing its objections to any Unpermitted Exceptions, the term “Permitted Exceptions” as used herein in connection with the status of title to be conveyed to Purchaser shall mean and include all exceptions designated by Purchaser as Permitted Exceptions pursuant to Section 2.03(c) hereof, as well as any Unpermitted Exceptions as to which Purchaser has so waived its objections.  
2.06.    During the Due Diligence Period, Purchaser may designate any or all of the Service Contracts that it desires to be terminated at Closing (the “Rejected Contracts”), and Seller shall send cancellation notices with respect to the Rejected Contracts not later than Closing so long as the Rejected Contracts are terminable by their terms upon thirty (30) days or less notice and without the payment of any termination charge or penalty; failing which, Buyer shall be obligated to assume such Rejected Contracts at Closing. Seller shall be solely responsible for the payment of any and all wages, salaries, vacation and/or sick leave compensation, pension or profit sharing benefits and other benefits or compensation inuring to the benefit of any and all employees of Seller, any affiliate or agent, employed at the Property through the Closing Date, and all such employees shall, at Seller’s cost and expense, be terminated or otherwise employed by Seller effective as of the Closing Date.  At any time after the date hereof, Purchaser may offer employment, effective immediately after Closing, to any of the employees of the Property, except for those employees listed on Exhibit 2.06.   Notwithstanding any language to the contrary in this Agreement, Seller shall terminate, at Seller’s sole cost and expense, any management contract or agreement with regard to the Property, at (or prior to) the Closing.  In addition to the foregoing, Seller shall pay any and all termination fees and penalties, if any, associated with the termination of any management contract or agreement.
3.    Closing.
3.01.    The closing of the purchase transactions contemplated by this Agreement (the “Closing”), shall occur on or before the date(the “Closing Date”) that is thirty (30) days after the expiration of the Due Diligence Period, unless otherwise agreed to in writing by the parties.  The Closing shall be held at the offices of the Escrow Agent or at such other location as the parties may agree.  Neither party shall be required to be physically present at the Closing as long as all documents, funds, and other items required to be delivered by such party are timely delivered to the Escrow Agent.
It is a condition to Purchaser’s obligations to proceed to Closing that, as of the Closing Date:   (a) all of Seller’s representations and warranties hereunder are true and correct as if made on and as of the Closing Date; (b) Seller has performed all of its covenants hereunder, including, but not limited to those matters and defects that Seller has obligated itself to cure pursuant to Section 2.03; (c) the Property is delivered to Purchaser at Closing free and clear 

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of any occupants or rights to possession other than pursuant to the Leases (as defined in Section 4.01(g)), the Permitted Exceptions and any leases entered into pursuant to Section 7.02 below; (d) Seller has delivered all documents and made all other deliveries required in this Agreement; (e) the Title Insurance Company has irrevocably committed (subject to payment therefor) to issue an ALTA Extended Coverage Owner's Policy of Title Insurance for each of Lenox Village Town Center, Regent Building, and LV III (collectively, the "Title Policy") with liability in an aggregate amount equal to the Purchase Price, as allocated among Lenox Village Town Center, Regent Building, and LV III in amounts determined by Purchaser; (f) Seller shall not be in material breach of any of its obligations, covenants or representations under this Agreement; (g) Purchaser shall receive and be entitled at Closing to the benefit of all Permits required for occupancy and operation of the Property; (h) Seller shall deliver, at its cost, pretreatment certificates and an inspection report, dated no earlier than fifteen (15) days prior to Closing, showing no damage or infestation by termites or other wood destroying insects, in each case issued by a licensed extermination company; (i) the Property shall be a minimum of ninety percent (90%) physically occupied by Tenants under Leases; (j) the Improvements shall be at Closing in substantially the same condition as on the Effective Date except for normal wear and tear and such damage from casualty or condemnation that is waived or accepted under Article 11 hereof; and (k) there shall exist no actions, suits, arbitrations, claims, attachments or proceedings against the Property filed by third parties, and there shall exist no actions, suits, arbitrations, claims, attachments or proceedings, assignments for the benefit of creditors, insolvency, bankruptcy or reorganization pending against Seller by third parties (or filed by Seller) that would seek to enjoin the consummation of this Agreement or that would materially and adversely affect the Seller’s ability to perform its obligations under this Agreement. If any condition to Purchaser’s obligations hereunder is not fulfilled, then Purchaser shall have no obligation to proceed to Closing, but may do so at its option. Except where Purchaser is in material default of this Agreement, the failure of one of more of the conditions precedent in this Section 3.01 shall allow the Purchaser to terminate this Agreement and receive a return of its Deposit. Thus, if a condition precedent is not fulfilled and Purchaser elects not to proceed to Closing, Purchaser may notify Seller in writing that it elects to terminate this Agreement. Upon such termination, the Escrow Agent shall return the Deposit to Purchaser without limiting Purchaser’s rights in respect of any default by Seller pursuant to Section 12.02 hereof. Purchaser acknowledges that if any of the representations and warranties made by Seller hereunder as of the date hereof are not true and complete in all material respects as if made on and as of the Closing Date, and Purchaser has specific and actual knowledge of such, Purchaser’s sole remedy shall be either to waive the condition described in clause (a) above with respect to such representation and warranty (in which event such representation and warranty shall be deemed amended to reflect the actual state of facts of which Seller has actual knowledge) or terminate this Agreement and receive a return of the Deposit.
3.02    Seller shall use commercially reasonable efforts to deliver to Purchaser a duly executed Tenant Estoppel Certificate (as hereinafter defined) from all Tenants (the “Retail/Office Tenants”) under commercial retail and office leases at Lenox Village Town Center and the Regent Building (the “Retail/Office Leases”), and guarantor estoppel certificates (the “Guarantor Estoppel Certificates”) from the guarantors of the Retail/Office 

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Leases, if any, in substantially the form attached hereto and made a part hereof as Exhibit 3.02 or otherwise in a form sufficient for the applicable Retail/Office Tenant to fulfill its obligation to deliver a tenant estoppel certificate under its Retail/Office Lease (the “Tenant Estoppel Certificate”), and dated not more than thirty (30) days prior to the Closing Date. Receipt of Tenant Estoppel Certificates from all Retail/Office Tenants shall be a condition to Purchaser's obligation to close the transactions contemplated hereby. In the event that Purchaser’s lender, if any, requires subordination, non-disturbance and attornment agreements (“SNDAs”) from any Retail/Office Tenant, Seller agrees to cooperate with Purchaser in requesting SNDAs from any such Retail/Office Tenant in the form required by Purchaser’s lender. If Seller is unsuccessful in obtaining Tenant Estoppel Certificates from all Retail/Office Tenants as set forth above, or if the Tenant Estoppel Certificates from such Retail/Office Tenants contains or discloses information which is materially different (and less favorable to the landlord) as to the status or terms of such Retail/Office Leases from the applicable information set forth in the Rent Roll, then, in any such event, Purchaser’s sole option shall be to either (a) waive the delivery of the Tenant Estoppel Certificates from any such Retail/Office Tenant and proceed with the Closing, without any abatement or other adjustment in the Purchase Price, or (b) terminate this Agreement, in which event the Deposit shall be refunded by Escrow Agent to Purchaser without any further consent required from Seller and neither party shall have any further rights, obligations or liabilities hereunder except for those provisions that survive the termination of this Agreement. Such election shall be made on or before the Closing Date, and if Purchaser fails to make such an election by such time, Purchaser shall be deemed to have elected to terminate this Agreement as provided in clause (b) of this Section 3.02.

3.03    It is a condition to Seller’s obligations to proceed to Closing that, as of the Closing Date (a) all of Purchaser’s representations and warranties hereunder are true and correct as if made on and as of the Closing Date, (b) Purchaser has performed all of its covenants hereunder, (c) Purchaser has delivered all documents and made all other deliveries required in this Agreement, and (d) all other conditions to Seller’s obligations to proceed to Closing which are set forth in this Agreement are satisfied.  If any condition to Seller’s obligations hereunder is not fulfilled, Seller shall have no obligation to proceed to Closing, but may do so at its option. If a condition precedent is not fulfilled and Seller elects not to proceed to Closing, Seller may terminate this Agreement without limiting Seller’s rights or remedies in respect of any default by Purchaser pursuant to Section 12.01 hereof.
4.    Representations and Warranties of Seller.
4.01.    Seller represents, warrants and covenants to Purchaser and its successors and assigns that:
(b)    Seller is a Tennessee limited liability company duly organized and validly existing under the laws of the State of Tennessee, and is authorized to own its property and conduct its business in each jurisdiction where it is required to be so authorized.

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(c)    Seller has the legal right, power and authority to enter into this Agreement and the documents contemplated hereby and perform all of its obligations hereunder and thereunder, and the execution and delivery of this Agreement and the documents contemplated hereby by Seller and the performance by Seller of its obligations hereunder and thereunder (i) have been duly authorized by all requisite action and (ii) shall not conflict with, or result in a breach or violation of or default under, or be modified, restricted or precluded by (iii) any of the terms, conditions and provisions of the governing documents of Seller, (iv) any order, judgment, writ, injunction or decree of any court or governmental instrumentality which has been served or otherwise given to Seller, (v) any agreement or instrument to which Seller is a party or by which Seller is bound, or to which Seller or any portion of Seller’s property is subject, or (vi) any law, rule or regulation.
(d)    Seller has not (i) made a general assignment for the benefit of its creditors, (ii) instituted any proceeding to be adjudicated bankrupt or insolvent or consented to the institution of bankruptcy or insolvency proceedings against it, (iii) filed a petition, answer or consent seeking reorganization or relief under any applicable Federal or state bankruptcy law or consented to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator or other similar official of it or of any part of its property, (iv) admitted in writing its inability to pay its debts generally as they become due, or (v) taken any action in furtherance of any of the foregoing.
(e)    Seller is the fee simple and condominium owner of the Real Property, and owns marketable tile to the Real Property and Improvements, subject to the matters disclosed by the Title Commitment.  No person (including, without limitation, any tenant) has any option to purchase or first refusal rights with respect to the Real Property or any part thereof. 
(f)    Seller is the owner of good title to the Personal Property, free from all security interests, liens and encumbrances.
(g)    Except as may be provided under any management agreement affecting the Property, Seller has not entered into any brokerage, finder or other agency agreement providing for the payment of fees to third parties for obtaining tenants. All Leases have been prepared and executed in the form of lease attached as Exhibit 4.01(f) (the “Form Lease”) with only non-material changes thereto.  All Leases have, and all leases entered into by Seller after the date hereof will be within “fair market rates” and conform to, and be in compliance with all applicable Legal Requirements (as defined below). Seller has made, or will during the Due Diligence Period make, available to Purchaser at the Property true and complete copies of all Leases and all lease files pertaining thereto.
(h)    Attached hereto as Exhibit 4.01(g)(1) is a rent roll (the "Rent Roll") in respect of all leases that have been signed and delivered and are in effect as of the date stated thereon in respect of the Real Property (the "Leases").  The Rent Roll sets forth the date of each Lease, its termination date, the deposits and the monthly rent currently payable thereunder, and is true, correct and complete in all material respects as of the date stated thereon.  No tenant has been given free rent which has not accrued prior to the date hereof, 

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any remaining concession in the payment of rent or any abatement in the payment of rent, except as set forth on the separate concession report attached to the Rent Roll. To the Seller’s knowledge the Rent Roll is accurate and complete in all material respects.  
(i)    There is no litigation, arbitration, or administrative proceeding pending nor, to the knowledge of Seller, threatened with respect to Seller and affecting the Property, the Property or this Agreement, except as set forth in Exhibit 4.01(h). 
(j)        Except as set forth in Exhibit 4.01(i), to Seller’s knowledge, there are no agreements with or in favor of any municipal, county, state and Federal governments, agencies, authorities, courts and officers having jurisdiction of the Property (“Governmental Authorities”) and no conditions have been imposed by any Governmental Authority (other than compliance with laws of general application) in connection with the development of the Real Property and its compliance with all laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all Governmental Authorities applicable to the Property (the “Legal Requirements”). To Seller’s knowledge, the Improvements comply with all Legal Requirements governing or regulating the use, construction and operation thereof and comply with or any term or provision of any insurance policy covering or applicable to the Property and all Permitted Encumbrances.  Seller has not received any notice of or otherwise has no knowledge of any violation of any Legal Requirement or any term or provision of any insurance policy covering or applicable to the Property.
(k)    Seller has provided Purchaser with true, accurate and complete copies of all environmental reports related to the Property commissioned by Seller or otherwise in Seller’s possession or control as part of the Property Materials. Except as may be disclosed in said environmental reports provided by Seller to Purchaser, Seller has no knowledge of any Hazardous Material being generated or stored on or otherwise being located in, on, under or about the Property, except for materials which are typically and customarily used for the operation or maintenance of Properties similar to the Property and which are used and disposed of in accordance with all applicable laws. To Seller's knowledge there are no wells (whether in use or shut down) or underground storage tanks on the Real Property nor, is there lead in the drinking water in the Improvements in amounts exceeding current Legal Requirements or guidelines of Governmental Authorities.  Seller has no knowledge of any violation of Environmental Laws related to the Property or the presence or release of Hazardous Materials on or from the Property. The term "Environmental Laws" means all federal, state and local laws, ordinances, rules, regulations, standards, orders, zoning conditions and other governmental requirements which relate to the environment, health and safety and regulate Hazardous Materials, are in effect as of the date hereof and which are applicable to the Property.  "Hazardous Materials" means any hazardous, toxic or dangerous waste, substance or material, pollutant or contaminant, as defined for purposes of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (452 U.S.C. Section 9601 et seq.), as amended, or the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), as amended, or any other Environmental Laws, or any substance which is toxic, explosive, corrosive, flammable, infectious, radioactive, 

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carcinogenic, mutagenic, or otherwise hazardous, or any substance which contains gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenyls (PCBs), or radon gas, urea formaldehyde, asbestos or lead.  
(l)        To Seller’s knowledge, there is no condemnation or eminent domain proceeding affecting the Property now pending or threatened. To Seller’s knowledge, there is no special or benefit assessment levied or authorized for levy on the Property on account of any public improvement in the vicinity and to Seller’s knowledge no such public improvement has been commenced or authorized by any Governmental Authority that could result in any special or benefit assessment on the Property.
(m)    The financial statements attached hereto as Exhibit 4.01(l) show in material respects all items of income and expense (operating and capital) incurred in connection with Seller's ownership, operation, and management of the Property for the periods indicated.  Upon written request by Purchaser during the term of this Agreement, Seller shall provide Purchaser with Seller’s monthly operating statements prepared in the ordinary course of business, each of which shall be true, correct and complete in all material respects. 
(n)     The copies of the Service Contracts furnished by Seller to Purchaser as part of the Property Materials are true, correct and complete and, to Seller’s knowledge, there exist no defaults by Seller under any of such Service Contracts.  Other than the Service Contracts furnished by Seller to Purchaser as part of the Property Materials, there are no other written service contracts with regard to the Property which are not terminable at-will and without penalty.  To the knowledge of the Seller, the Seller is not in material breach of any Service Contract. 
(o)     Seller is not a "foreign person" as that term is defined in the I.R.C., Section 1445(F)(3), nor is the sale of the Property subject to any withholding requirements imposed by the Internal Revenue Code, including, but not limited to, Section 1445 thereof.
(p)     Seller shall terminate, at Seller’s sole cost and expense, any management contract with regard to the Property at (or prior to) the Closing.  In addition to the foregoing, Seller shall pay any and all termination fees and penalties, if any, associated with the termination of any management contract.
(q)     To Seller’s knowledge, the mortgage/deed of trust and other such liens reflected on the Title Commitment are the only lien or security interest securing the payment of borrowed or purchase money encumbering the Property or any part thereof.  No event of default has occurred with regard to such documents and no event which, with the giving of notice of the lapse of time, or both, would constitute such event of default now exists.  
(r)     To the Seller’s knowledge, the Property is and will be at Closing, operational and in good condition and repair.

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4.02.    The representations and warranties of Seller contained in Section 4.01 shall survive the Closing for a period of twelve (12) months from the date thereof (the “Survival Date”), unless written notice containing a description of such breach shall have been given to Seller prior to the Survival Date (in which case the relevant representations, warranties and indemnities shall survive only as to the pending claim(s) until its final resolution). Notwithstanding anything to the contrary contained in this Agreement, Seller’s total liability to Purchaser on account of all claims for breaches of any representation or warranty of Seller under Section 4.01 shall be limited to Five Hundred Thousand and No/100 Dollars ($500,000.00).        
4.03.    When used in this Agreement, the term “to Seller’s knowledge” means and is limited to the actual (and not imputed, implied or constructive) current knowledge of David C. McGowan, Jr. and the onsite Property manager; provided, however, neither David C. McGowan, Jr. nor any other officer or employee of Seller shall have any personal liability to Purchaser whatsoever under the term of or in respect of this Agreement.

4.04.  During the period from and after the expiration of the Due Diligence Period and prior to Closing, as and to the extent that Purchaser receives (or Seller receives and delivers to Purchaser) any written Disclosures, as defined in Section 4.05 below, with respect to matters addressed in Section 4.01 which specifically and clearly contains information or facts that are inconsistent with or different from the representations and warranties made in Section 4.01 above and/or the certification made in the updated Rent Roll, and the Closing occurs, then the representations and warranties in Section 4.01 and/or the certification made in the updated Rent Roll will be deemed to be modified and/or superseded by such other written documentation (and, in such event, Seller will no longer have any liability hereunder with respect to the portion of the representation and warranty and/or certification superseded herein, as applicable). Notwithstanding any language to the contrary in this Section 4.04, if prior to Closing David C. McGowan, Jr. has actual knowledge that a representation and warranty made in Section 4.01 or a Seller certification is materially incorrect, and Seller does not promptly (prior to Closing) inform Purchaser of such incorrectness in wiring, then the first sentence of this Section 4.04 shall not be given any legal effect. 

4.05. AS-IS CONDITION.      ACKNOWLEDGING THE PRIOR USE OF THE PROPERTY AND PURCHASER'S OPPORTUNITY TO INSPECT THE PROPERTY, EXCEPT AS EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT, PURCHASER AGREES TO TAKE THE PROPERTY "AS IS", “WHERE IS”, WITH ALL FAULTS AND CONDITIONS THEREON. ANY INFORMATION, REPORTS, STATEMENTS, DOCUMENTS OR RECORDS ("DISCLOSURES") PROVIDED OR MADE TO PURCHASER OR ITS CONSTITUENTS BY SELLER, ITS AGENTS OR EMPLOYEES CONCERNING THE CONDITION (INCLUDING, BUT NOT LIMITED TO, THE ENVIRONMENTAL CONDITION) OF THE PROPERTY ARE NOT TO BE 

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CONSIDERED REPRESENTATIONS OR WARRANTIES, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT OR EXCEPT FOR WARRANTIES OF TITLE IN THE DEEDS AND THE BILL OF SALE.  EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, PURCHASER MUST NOT RELY ON SUCH DISCLOSURES, BUT RATHER, PURCHASER MUST RELY ONLY ON ITS OWN INSPECTION OF THE PROPERTY. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT OR EXCEPT FOR WARRANTIES OF TITLE IN THE DEEDS AND THE BILL OF SALE, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES AS TO ANY MATTERS  CONCERNING THE PROPERTY, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OR REPRESENTATION AS TO (I) THE QUALITY, NATURE, ADEQUACY, AND PHYSICAL CONDITION OF THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, THE STRUCTURAL ELEMENTS, FOUNDATION, ROOF, APPURTENANCES, ACCESS, LANDSCAPING, PARKING FACILITIES, AND ELECTRICAL, MECHANICAL, HVAC, PLUMBING, SEWAGE, AND UTILITY SYSTEMS, FACILITIES AND APPLIANCES, (II) THE QUALITY, NATURE, ADEQUACY, AND PHYSICAL CONDITION OF SOILS, GEOLOGY, AND ANY GROUNDWATER, (III) THE EXISTENCE, QUALITY, NATURE, ADEQUACY, AND PHYSICAL CONDITION OF UTILITIES SERVING THE PROPERTY, (IV) THE DEVELOPMENT POTENTIAL, INCOME POTENTIAL, OR INCOME OR OPERATING EXPENSES OF THE PROPERTY, (V) THE PROPERTY'S VALUE, USE, HABITABILITY, OR MERCHANTABILITY, (VI) THE FITNESS, SUITABILITY, OR ADEQUACY OF THE PROPERTY FOR ANY PARTICULAR USE OR PURPOSE, (VII)  THE ZONING OR OTHER LEGAL STATUS OF THE PROPERTY OR ANY OTHER PUBLIC OR PRIVATE RESTRICTIONS ON THE USE OF THE PROPERTY, (VIII) THE COMPLIANCE OF THE PROPERTY OR ITS OPERATION WITH ALL APPLICABLE CODES, LAWS, RULES, REGULATIONS, STATUTES, ORDINANCES, COVENANTS, JUDGMENTS, ORDERS, DIRECTIVES, DECISIONS, GUIDELINES, CONDITIONS, AND RESTRICTIONS OF ANY GOVERNMENTAL OR QUASI-GOVERNMENTAL ENTITY OR OF ANY OTHER PERSON OR ENTITY INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL PERSON OR ENTITY, INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LAWS, AND ENVIRONMENTAL MATTERS OF ANY KIND OR NATURE WHATSOEVER RELATING TO THE PROPERTY (IX) THE PRESENCE OF HAZARDOUS OR TOXIC MATERIALS ON, UNDER, OR ABOUT THE PROPERTY OR THE ADJOINING OR NEIGHBORING PROPERTY (INCLUDING WITHOUT LIMITATION THE PRESENCE OR SUSPECTED PRESENCE OF ANY FORM OF MILDEW OR MOLD, INCLUDING THOSE PRODUCING MYCOTOXINS, SPECIFICALLY INCLUDING, BUT NOT LIMITED TO, ASPERGILLUS, PENICILLIUM, AND STACHYBOTRYS (COLLECTIVELY, “MOLD”), (X) ANY LEASES, SERVICE CONTRACTS, GUARANTEES OR WARRANTIES OR OTHER AGREEMENTS AFFECTING THE PROPERTY, (XI) THE ECONOMICS OF THE OPERATION OF THE PROPERTY, (XII) THE FREEDOM OF THE PROPERTY FROM LATENT OR APPARENT VICES OR DEFECTS, (XIII) PEACEABLE POSSESSION OF THE PROPERTY, 

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(XIV) COMPLIANCE WITH ADA, AND (XV) ANY OTHER MATTER OR MATTERS OF ANY NATURE OR KIND WHATSOEVER RELATING TO THE PROPERTY.  PURCHASER ACKNOWLEDGES THAT THE PURCHASE PRICE REFLECTS AND TAKES INTO ACCOUNT THAT THE PROPERTY IS BEING SOLD “AS IS”.

THE PROVISIONS OF THIS SECTION 4.05 WILL SURVIVE THE CLOSING OR ANY TERMINATION OF THIS AGREEMENT.

4.06. NO ADDITIONAL REPRESENTATIONS. PURCHASER ACKNOWLEDGES AND AGREES THAT EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT OR EXCEPT FOR WARRANTIES OF TITLE IN THE DEEDS AND THE BILL OF SALE, SELLER HAS NOT MADE, DOES NOT  MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY, (B) THE INCOME TO BE DERIVED FROM THE PROPERTY, (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH PURCHASER MAY CONDUCT THEREON, (D) THE HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY, OR (E) ANY WASTES, AS DEFINED BY THE U.S. ENVIRONMENTAL PROTECTION AGENCY REGULATIONS AT 40 C.F.R., OR ANY HAZARDOUS SUBSTANCE, AS DEFINED BY THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF 1980 ("CERCLA"), AS AMENDED, AND REGULATIONS PROMULGATED THEREUNDER. PURCHASER, ITS SUCCESSORS AND ASSIGNS, HEREBY WAIVE, RELEASE AND AGREE NOT TO MAKE ANY CLAIM OR BRING ANY COST RECOVERY ACTION OR CLAIM FOR CONTRIBUTION OR OTHER ACTION OR CLAIM AGAINST SELLER OR ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS, OR ASSIGNS (COLLECTIVELY, "SELLER AND ITS AFFILIATES") BASED ON (A) ANY FEDERAL, STATE, OR LOCAL ENVIRONMENTAL OR HEALTH AND SAFETY LAW OR REGULATION, INCLUDING CERCLA OR ANY STATE EQUIVALENT, OR ANY SIMILAR LAW NOW EXISTING OR HEREAFTER ENACTED, (B) ANY DISCHARGE, DISPOSAL, RELEASE, OR ESCAPE OF ANY CHEMICAL, OR ANY MATERIAL WHATSOEVER, ON, AT, TO, OR FROM THE PROPERTY; OR (C) ANY ENVIRONMENTAL CONDITIONS WHATSOEVER ON, UNDER, OR IN THE VICINITY OF THE PROPERTY.

THE PROVISIONS OF THIS SECTION 4.06 WILL SURVIVE THE CLOSING OR ANY TERMINATION OF THIS AGREEMENT.

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5.    Representations and Warranties of Purchaser.
5.01.    Purchaser hereby represents and warrants to Seller and its successors and assigns as of the date hereof that:
(a)    Purchaser is a Delaware limited partnership duly organized and validly existing under the laws of the State of Delaware, and is authorized to own its property and conduct its business in each jurisdiction where it is required to be so authorized.
(b)    Purchaser has the legal right, power and authority to enter into this Agreement and perform all its obligations hereunder, and the execution and delivery of this Agreement by Purchaser and the performance by Purchaser of its obligations hereunder (i) have been duly authorized by all requisite action (except as otherwise provided for below), and (ii) shall not conflict with, or result in a breach or violation of, or be modified, restricted or precluded by (iii) any of the terms, conditions and provisions of the organizational documents of Purchaser, (iv) any order, judgment, writ, injunction or decree of any court or governmental instrumentality which has been served or otherwise received by Purchaser, (v) any agreement or instrument to which Purchaser is a party or by which it is bound, or to which it or any portion of its property is subject, or (vi) any law, rule or regulation.
5.02.    The representations and warranties of Purchaser contained in Section 5.01 shall survive the Closing until the Survival Date, unless written notice containing a description of such breach shall have been given to Purchaser prior to the Survival Date (in which case the relevant representations, warranties and indemnities shall survive only as to the pending claim(s) until its final resolution)
5.03.   PURCHASER’S DUE DILIGENCE.  PURCHASER WARRANTS TO SELLER THAT PURCHASER HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY OR DESIRABLE TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO. EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, UPON CLOSING, PURCHASER WILL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER’S INVESTIGATIONS, AND PURCHASER, UPON CLOSING (EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT), WILL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND SELLER’S OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) FROM AND AGAINST ANY AND ALL CLAIMS, 

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DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS’ FEES) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER (AND SELLER’S OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING THE PROPERTY.  

THE PROVISIONS OF THIS SECTION 5.03 WILL SURVIVE THE CLOSING OR ANY TERMINATION OF THIS AGREEMENT.

6.    Brokerage.  
6.01.    Broker and Commission.  All negotiations relative to this Agreement and the purchase and sale of the Property as contemplated by and provide for in this Agreement have been conducted by and between Seller and Purchaser without the intervention of any person or other party as agent or broker, except for Vincent Lefler of Jones Lang LaSalle  (“Seller’s Broker”). Any fees or real estate commissions due and owing to Seller’s Broker shall be the sole responsibility of Seller, and Seller will pay such fees or commissions, if any, owed to Seller’s Broker pursuant to the terms of a separate agreement with Seller’s Broker. Seller and Purchaser shall and do each hereby indemnify, defend and hold harmless the other from and against the claims, demands, actions and judgments (including reasonable attorney’s fees) of any and all brokers, agents and other persons or entities, other than Seller’s Broker, alleging a commission, fee or other payment to be owing by reason of their respective dealings, negotiations or communications in connection with this Agreement or the purchase and sale of the Property.  
6.02.     The terms and provisions of this Article 6 shall survive the Closing or any termination of this Agreement.
7.    Operations.
7.01.    Between the date hereof and the Closing, Seller agrees hereby that it shall operate the Property in the same manner as immediately prior to the date hereof (including all maintenance, landscaping, management, marketing and leasing activities) in the usual, regular and ordinary course of business, and exercising prudent property management practices, and the Property shall remain in the same condition as on the date hereof, except, however, for wear and tear, casualty and condemnation that is waived or accepted under Article 11 hereof. Until the Closing Date, Seller shall maintain insurance on the Property as currently insured. 
7.02.    Between the date hereof and the Closing, Seller shall enter into new leases and renewals of existing leases for space within the Property at fair market rates for 

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the area of the Property in the usual, regular, and ordinary course of Seller’s operations with respect to the Property, and with no concessions other than as set forth on Exhibit 7.02 attached hereto and made a part hereof. In addition, all new leases and lease renewals shall be for a term not less than nine (9) months or more than thirteen (13) months.  Seller shall not enter into leases that are not in accordance with the foregoing, nor shall Seller amend any Lease, waive any default in any material obligation under any Lease, cancel any Lease or accept the surrender of any Lease (except for default in the payment of rent or in performance of another material obligation), in each case, without Purchaser’s prior written consent.  
7.03.    All apartment units located on the Property which have been vacated more than five (5) business days prior to Closing shall be in “rent-ready” (as defined below) condition; provided, however, that if all such vacant apartment units are not in a rent-ready condition at Closing, Buyer shall receive a credit against the Purchase Price of $500.00 for each such unit vacant and not rent-ready; provided further, however, that if any of such vacant apartment units that are not in a rent-ready condition require replacement of carpet, then the $500.00 rent-ready credit shall increase to $1,000.00 for each such unit vacant and not rent-ready. A “rent-ready” unit shall mean a unit that is freshly painted, carpeting that is cleaned or replaced, as necessary, and working appliances and fixtures.
7.04.    Between the date hereof and Closing, Seller shall not incur any obligation (including, without limitation, pursuant to any Service Contract) which will create a liability accruing to Purchaser or the Property after the Closing, except for obligations incurred to satisfy maintenance requirements in the ordinary course of business that are terminable without cause or payment on thirty (30) days notice and which do not create a cumulative liability to Purchaser in excess of Three Thousand and No/100ths Dollars ($3,000.00) or which have been approved in writing by Purchaser.
7.05.    Seller shall not advertise the Property for sale, entertain any offer for the sale of the Property or enter into any contract of sale of the Property or any mortgage affecting the Property or grant any liens or other rights affecting title to the Property.
7.06.    Seller shall not cause or permit the Property to be pledged, offered for sale, sold, hypothecated or encumbered, or otherwise transferred or disposed of nor shall Seller initiate any change on the Real Property with respect to zoning or any other governmental rules or regulations.
7.07    Seller shall make all payments of principal and interest required by its lenders to be made prior to Closing and perform all of the terms and provisions of the loan documents on the part of the mortgagor to be performed.

7.08    Seller shall keep the Property insured against loss or damage (including rental loss) by fire and all risks covered by an extended coverage endorsement on a replacement cost basis.

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7.09    Seller shall perform the landlord's obligations to the tenants of the Property and reasonably enforce the obligations of the tenants under their Leases in accordance with the terms of those Leases.

7.10    Seller shall maintain the Property and make any necessary repairs or replacements to the Property required to keep the Property in good condition and repair, ordinary wear and tear excepted. Seller will not make any material alterations to the Property or remove any of the fixtures without the prior written consent of Purchaser which consent shall not be unreasonably withheld, denied or delayed.

7.11    Seller shall pay all costs incurred or arising from the operation and maintenance of the Property prior to Closing.

7.12    Except as provided otherwise in this Agreement, Seller shall operate the Property in the ordinary course of business as Seller has previously and customarily operated the Property.  Seller shall not modify any of the Service Contracts or enter into new service contracts without first obtaining the written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed.

8.    Closing Adjustments; Transfer of Tenant Deposits.
8.01.    The following items in respect of the Property shall be apportioned at Closing in an equitable manner as of 11:59 p.m. Central Standard Time on the day prior to the Closing Date (the “Adjustment Date”) so that the income and expense items with respect to the period up to and including the Adjustment Date will be for Seller’s account and the income and expense items with respect to the period after the Adjustment Date will be for Purchaser’s account:
(a)    Rents as and when collected.  If at the time of the Adjustment Date there are fixed rents and other periodic charges, including without limitation any pet rents or other recurring rents and fees (collectively, “Rent”) owed by tenants that have not been collected by Seller and are applicable to any period of time prior to the Adjustment Date, Seller shall deliver to Purchaser a schedule of such uncollected Rents (to the extent then ascertainable), and Purchaser agrees that such Rents, if and when collected, shall be paid by Purchaser to Seller, subject to the following sentence. Rents collected after the Adjustment Date from a tenant who had been in arrears on the Adjustment Date shall be deemed first to be payment of amounts from such tenant in respect of periods subsequent to the Adjustment Date, then to be payments of amounts, if any, due from such tenant in respect of the month in which the Adjustment Date falls, and any balance shall be deemed to be payment of amounts, if any, due from such tenant for months prior to the month in which the Adjustment Date falls. Purchaser shall use commercially reasonable efforts to collect Rent arrearages due Seller from tenants, except Purchaser shall not be required to begin litigation or evict any tenant. Purchaser and Seller agree to promptly deliver to the other the portion of any Rents collected by such party to which the other is entitled pursuant to this Section. At the Closing, Purchaser shall receive a credit against the Purchase Price in the amount of all 

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prepaid rents and refundable Tenant Deposits (as opposed to processing, application, or other nonrefundable fees) made under the leases (to the extent transferred to Purchaser at Closing). Purchaser shall receive a credit at Closing for any unpaid brokerage commissions or leasing expenses relating to the Leases and the leases entered into by Seller after the date hereof.
(b)    Real and personal property shall be prorated using a calendar tax year beginning January 1 and ending December 31. All real and personal property taxes and other taxes imposed on the owner of the Property, as owner, and not paid by others.  If the Closing shall occur before the taxes are fixed for the current tax year, the apportionment of such taxes shall be tentatively made on the basis of the best available information on the current assessment and tax rate and shall be finally adjusted (and any necessary payments shall be made) at such time as the tax bill shall be issued.  If after the Closing there shall be a retroactive increase in the assessment of the Property and a corresponding increase in the real or personal property taxes imposed on the owner of the Property: (i) if such increase (other than an increase arising solely from the sale of the Property to Purchaser) shall relate to the tax year in which the Closing occurred, then such increase shall be prorated by Seller and Purchaser on a per diem basis based on their respective periods of ownership during the period such increase is effective, (ii) if such increase shall relate to any tax year subsequent to the tax year which the Closing occurred, such increase shall be the obligation of Purchaser, and (iii) if such increase shall relate to any tax year prior to the tax year in which the Closing occurred, such increase shall be the obligation of Seller. 
(c)    Utility charges, payable by the owner of the Property, including water and sewer charges, except that where practicable, utility readings shall be taken on the day prior to the Closing, and Seller shall bear the charges for utility services based on such reading and Purchaser shall bear charges for all such utility services thereafter.
(d)    Income from and charges under the Service Contracts not terminated at Closing and any transferable permits and licenses necessary for the operation of the Property. Purchaser shall receive a credit at Closing for the unamortized portion of any advance payment, bonus, credit, fee or other consideration incurred or paid by any contractor in connection with any Service Contract surviving the Closing, determined on a straight line basis over the term of the Service Contract.
8.02.    In addition to the foregoing specific apportionments, Seller shall receive all other income accrued to and including the Adjustment Date and shall pay all other expenses accrued or incurred in the operation of the Property on or prior to the Adjustment Date and Purchaser shall receive all other income accruing after the Adjustment Date and shall pay all other expenses incurred or accrued in the operation of the Property after the Adjustment Date.  If Seller has not paid all tenants' allowances at Closing, Seller shall pay over all of those amounts to the tenants or deposit them with Purchaser.  Any item of income or expense which should be apportioned and which is not or cannot be apportioned at Closing shall be duly apportioned as soon as determined.
8.03.      Purchaser shall pay (a) all transfer taxes on the transfer of the Property and Purchaser’s taking title to the Property, (b) all recording costs and taxes incurred in 

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connection therewith, (c) the cost of any endorsements to the Title Policy required by Purchaser and (d) the cost for the Updated Survey.  Seller shall pay (a) the premium for the Title Policy, including, without limitation, the cost of the Title Commitment and any title search or cancellation fee associated therewith, (b) the cost of preparation of the Special Warranty Deed, and (c) the cost of a release of any liens upon the Property. Purchaser and Seller will share equally the reasonable closing fees charged by the Escrow Agent.  Seller shall pay its own attorneys’ fees, and Purchaser shall pay its own attorneys’ fees.  All other costs and expenses of the transaction contemplated hereby shall be borne by the party incurring the same.  The costs described in this Section 8.03 shall be referred to in this Agreement as the “Closing Costs.”  The provisions of this Section 8.03 shall survive the termination of this Agreement to the extent such Closing Costs are incurred.
8.04.    In the event of any reduction in the assessed valuation of the Real Property for any fiscal year, the net amount of any tax savings, after deduction of expenses and tax service fees shall (a) with respect to fiscal years (for real estate taxes) ending prior to the fiscal year in which the Closing Date shall occur, be payable to Seller, (b) with respect to the fiscal year (for real estate taxes) in which the Closing Date shall occur, be adjusted between Seller and Purchaser as of the Closing Date so that the amount of such savings with respect to the period up to (and including) the Adjustment Date shall be payable to Seller and the remaining amount shall be payable to Purchaser and (c) with respect to all fiscal years after the fiscal year in which the Closing Date shall occur, be payable to Purchaser. Notwithstanding the foregoing, Purchaser shall not adjust or settle any such protest or proceeding with respect to such fiscal years ending prior to the tax year in which the Closing Date shall occur without Seller’s prior written consent, which consent shall not be unreasonably withheld or delayed. Any such protest or proceeding which relates in whole or in part to any period after the Closing Date shall be prosecuted by Purchaser. Any such protest or proceeding which relates in whole or in part to periods prior to the Closing Date may be prosecuted by Seller provided any settlement of the same shall be subject to the consent of Purchaser, which consent shall not be unreasonably withheld. Purchaser and Seller shall in good faith jointly prosecute such protest or proceeding which relates in whole or in part to the tax year which includes the Closing Date.
8.05.    At the Closing, the above-referenced items shall be prorated and adjusted as indicated. If final prorations cannot be made at Closing for any item being prorated under this Agreement, including taxes, then Purchaser and Seller agree to allocate such items on a fair and equitable basis at Closing, with final adjustment to be made as soon as reasonably possible after the Closing, but no later than (i) with respect to real estate taxes, 30 days after receipt of the final tax bill for the applicable period, and (ii) in all other cases, December 31, 2015, to the effect that the accrual of income and expense items with respect to the period up to and including the Adjustment Date will be for Seller’s account and the income and expense items with respect to the period after the Adjustment Date will be for Purchaser’s account. Payments in connection with the final adjustment shall be due within thirty (30) days of written notice. If any refund of real property taxes is made after the Closing Date for a period prior to the Closing Date, the same shall be applied first to the cost incurred in obtaining same; the balance, if any, shall be paid to Seller (for the period prior to the Closing 

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Date) and to Purchaser (for the period commencing with the Closing Date). Seller shall pay over to Purchaser any amounts received by it following the Closing in respect of the Property to which Purchaser is entitled not more than thirty (30) days from the date received.
8.06.    All Tenant Deposits held by Seller pursuant to the terms of the Leases and the leases entered into by Seller after the date hereof shall, together with accrued interest thereon, if any, be transferred to Purchaser on the Closing Date, or Purchaser shall receive a credit in such amount against the Purchase Price, and thereafter Purchaser shall indemnify Seller from and against any and all claims, by tenants, their successors and assigns for such Tenant Deposits and interest thereon, but only to the extent so transferred to Purchaser.
8.07.    The provisions of this Article 8 shall survive the Closing.
9.    Closing Documents.
9.01.    Seller shall deliver, or cause to be delivered, to Purchaser on the Closing Date:
(a)    special warranty deeds for the Property comprised of Lenox Village Town Center, Regent Building, and LV III in the form of Exhibit 9.01(a) (collectively, the “Deed”), duly executed by Seller and otherwise in form suitable for recording conveying unto Purchaser Seller’s right, title and interest in the Real Property;
(b)    a bill of sale in the form of Exhibit 9.01(b) (the “Bill of Sale”) duly executed by Seller, transferring to Purchaser the Personal Property listed on Exhibit 1.01(c) and all of Seller’s interest in all other items of Personal Property all of which shall be conveyed free and clear of all liens;
(c)    an assignment and assumption of leases in the form of Exhibit 9.01(c) duly executed by Seller, assigning to Purchaser all of Seller’s interest in the Leases and the leases entered into by Seller after the date hereof in accordance with Section 7.02 (the “Assignment and Assumption of Leases”);
(d)    an assignment and assumption of contracts in the form of Exhibit 9.01(d) duly executed by Seller, assigning to Purchaser all of Seller’s interest in the Service Contracts (except for any Rejected Contracts) and all assignable licenses, intangibles and warranties relating to the Property (the “Assignment and Assumption of Contracts”); 
(e)    a letter in the form of Exhibit 9.01(e), signed by Seller, advising the Tenants of the transfer of ownership to Purchaser;
(f)    a non‐foreign status certification duly executed by Seller, certifying that Seller is not a “foreign person”, pursuant to Section 1445 (as may be amended) of the Internal Revenue Code of 1986, as amended (“Code”);

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(g)    an American Land Title Association extended coverage statement/affidavit regarding title, mechanics liens and such other customary matters along with any other documents as may be reasonably requested by the Title Insurance Company;
(h)    a schedule, certified by Seller, of rent arrearages as of the Closing Date, together with an updated certified Rent Roll including a certified schedule of other amounts (in each case separately itemized) due from tenants;
(i)    certified resolutions, incumbency certificates and other evidence reasonably satisfactory to Purchaser’s counsel as to the authority of Seller to consummate the transactions contemplated by this Agreement;
(j)    an assignment of the Tenant Deposits (together with any accrued interest thereon) as contemplated by Section 8.06
(k)    an agreement, duly executed by Seller, substantially in the form of Exhibit 9.01(k), stating that the representations and warranties of Seller made herein are true and correct in all material respects at Closing with the same effect as though such representations and warranties had been made at and as of Closing with such changes as are expressly contemplated hereby and agreeing that all claims, liabilities and causes of action arising from such representations and warranties shall survive the Closing for the periods provided herein for such representations and warranties; 
(l)     all keys for the Property in the possession of Seller;
(m)      a closing statement (the “Closing Statement”) signed by Seller, setting forth the prorations and adjustments to be made pursuant to Article 8 above; 
(n)    an affidavit or other statement acceptable to Escrow Agent providing the information necessary for the Escrow Agent to file the Form 1099 required by the provisions of Section 6045(e) of the Code;
(o)    to the extent in Seller's possession or control (i) the necessary permits issued by the appropriate Governmental Authorities, (ii) originals of all documents pertaining to tenants of the Property, including, but not by way of limitation, all applications, correspondence and credit reports relating to each such tenant, (iii) executed originals of all leases relating to all or any part of the Property, including but not limited to tenant leases, (iv) executed originals of all Service Contracts to be assigned to Purchaser at Closing, and (v) copies of all licenses, warranties and permits, to be assigned to Purchaser at Closing (delivery of the items referred to in this clause (o) may be effectuated by delivery of such items to the Property); and any necessary local governmental transfer tax forms or returns.

(p)     Any documents and instruments appropriate for Seller to effect any cure of any defect which it has agreed to under Section 2.04, above.

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(q)     Documentation proving the any management agreement with regard to the Property has been terminated at or prior to Closing.
(r)     “Form” letter to service providers in a form reasonably satisfactory to Seller and Purchaser giving notice of the sale of the Property; and
(s)    any other documents required by the Escrow Agent and/or Title Insurance Company to close the transaction.

9.02.    Purchaser shall deliver, or cause to be delivered to Seller on the Closing Date:
(a)    the balance of the Purchase Price due pursuant to Section 1.02(a) & (b), in immediately available funds by Federal Reserve Bank wire transfer to such account(s) and bank(s) as Seller shall designate in writing;
(b)    the Assignment and Assumption of Leases duly executed by Purchaser;
(c)    the Assignment and Assumption of Contracts duly executed by Purchaser;
(d)    the Closing Statement signed by Purchaser; 
(e)    any necessary local governmental transfer tax forms or returns; and
(f)    any other documents required by the Escrow Agent and/or Title Insurance Company to close the transaction.

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10.    Notices.   All notices required or permitted to be given pursuant to the terms hereof shall be in writing and shall be delivered either by (a) certified mail, return receipt requested, in which case notice shall be deemed received three (3) business days after deposit, postage prepaid in the U.S. mail, (b) a reputable messenger service or a nationally recognized overnight courier, in which case notice shall be deemed received one (1) business day after deposit with such messenger or courier, (c) PDF via electronic transmission, (d) facsimile or other telecopy transmission (followed with “hard copy” sent by a nationally recognized overnight courier or mail as aforesaid), in which case notice shall be deemed received when the facsimile or other telecopy transmission is received or (e) personal delivery with receipt acknowledged in writing, in which case notice shall be deemed received upon delivery.  Notices shall be deemed given or sent upon deposit in the U.S. mail in the case of clause (a) above, or upon deposit with a reputable messenger or courier in the case of clause (b) above. Notices shall be deemed given or sent upon transmission of PDF via electronic transmission in the case of clause (c) above. Notices shall be deemed given or sent upon receipt of electronic confirmation in the case of clause (d) above, or upon receipt in the case of clause (e).  All such notices shall be addressed as follows: 
	
		
	If to Escrow Agent:
	Chicago Title Insurance Company
Attn.:Yale Riley
6840 Carothers Parkway, Suite 200
Franklin, Tennessee 37067
Telefax No.:  (615) 224-7445
Telephone No.:  (615) 224-7400 ext. 7444
E-mail: yale.riley@ctt.com 

	

If to Seller:
	

c/o Regent Homes
Attn.: David C. McGowan, Jr.

	 
	6901 Lenox Village Drive, Suite 107
Nashville, Tennessee 37211
Telefax No.: (615)  332-3366 
Telephone No.:  (615) 333-9000
E-mail: david@regenthomes-tn.com

	With a copy to:
	

Ortale, Kelley, Herbert & Crawford 
330 Commerce Street, Suite 110
Nashville, Tennessee  37201
Attn:  Richard Sebastian, Esq.
Telefax No.:  (615) 726-1494
Telephone No.:  (615) 780-7475
E-mail: rsebastian@ortalekelley.com

25

	
		
	If to Purchaser:
	

Preferred Apartment Communities Operating Partnership, L.P.
c/o Preferred Apartment Communities, Inc.
3284 Northside Parkway
Suite 150
   Atlanta, Georgia 30327
   Attention: Jeffrey R. Sprain
Telephone No.: (770) 818-4108
E-mail:  jsprain@pacapts.com

	 
	 

	With a copy to:

With a copy to:                      
	

Preferred Apartment Communities Operating Partnership, L.P.
c/o Preferred Apartment Communities, Inc.
3284 Northside Parkway
Suite 150
   Atlanta, Georgia 30327
Telephone No.: (770) 818-4124
E-mail:  jsherman@pacapts.com

Capital Law & Advisory Partners, LLC
1000 Parkwood Circle
Suite 810
Atlanta, Georgia 30339
Attention:  Stephen F. White 
Telephone No.: (404) 212-2232
E-mail:  swhite@caplawpartners.com 

	 
	 

The foregoing addresses may be changed by written notice to the other party as provided herein. Counsel for any party may give notices to the other party with the same effect as if given by the party.  A copy of any notice that is sent to the Escrow Agent by either party shall also be sent by such party to the other party.  
11.    Damage to Property; Taking.
11.01.    If, prior to the Closing, the Property or any part thereof is damaged by casualty or is taken or is the subject of a notice of taking by eminent domain then Seller shall promptly notify Purchaser and, in the case of a casualty, the parties shall cooperate to assess and evaluate the damage or taking.  
11.02.    If, prior to the Closing, the Property or any part thereof is damaged by casualty for which the parties agree or in the professional judgment of a licensed non-biased engineer in the City of Nashville, Tennessee, promptly selected by Seller (“Engineer”) (i) the cost of repair does not exceed, in the aggregate, Two Hundred Fifty Thousand and No/100ths Dollars ($250,000.00), and (ii) the time necessary to restore the Property back to 

26

its prior condition is less than ninety (90) days from the date of the casualty, the Closing shall proceed without regard to such damage and Seller shall assign to Purchaser all insurance proceeds, and claims of Seller thereto, attributable to the Property arising from the casualty, together with the proceeds of any rent loss insurance allocable to periods after the Closing Date, and Purchaser shall receive a credit against the Purchase Price equal to the positive difference, if any, of (a) the expected cost of such repair as determined above less (b) the amount of insurance proceeds expected to be realized as a result of such casualty, taking into account deductibles, coinsurance requirements and damage from such casualty the cost of repairing of which is not covered by existing insurance, all as reasonably determined by Purchaser, subject to the reasonable approval of Seller.
11.03.    If the Property or any part thereof (i) is damaged by casualty for which the parties agree or in the professional judgment of the Engineer (a) the cost of repair is in excess of Two Hundred Fifty Thousand and No/100ths Dollars ($250,000.00) or (b) the time necessary to restore the Property back to its prior condition is ninety (90) days or longer from the date of the casualty, or (ii) is taken or is the subject of a notice of taking by eminent domain, then Purchaser may elect to terminate this Agreement and receive a refund of the Deposit.  If Purchaser does not terminate this Agreement pursuant to the preceding sentence, the Closing shall proceed without regard to such damage, taking or notice of taking, as the case may be, and Seller shall assign to Purchaser all insurance proceeds, and claims of Seller thereto, attributable to the Property arising from the casualty, together with the proceeds of any rent loss insurance allocable to periods after the Closing Date, and Purchaser shall receive a credit against the Purchase Price equal to the deductible amount and/or coinsurance amount under the applicable insurance policy, or pay over and assign to Purchaser all awards recovered or recoverable on account of such taking, as the case may be.  If Purchaser does not terminate this Agreement pursuant to this Article 11, then Seller shall not compromise, settle, or adjust any claims to such proceeds, or awards, without Purchaser’s prior written consent.  If Purchaser terminates this Agreement pursuant to this Article 11, then upon such termination, the Escrow Agent shall return the Deposit to Purchaser, and the parties shall have no further rights or obligations hereunder except as otherwise expressly provided herein.

12.    Remedies
12.01    If all of the conditions to Purchaser’s obligation to consummate the transactions contemplated by this Agreement have been satisfied or waived in writing by Purchaser, and if Purchaser should fail to consummate the transactions contemplated by this Agreement for any reason other than Seller’s default pursuant to Section 12.02  herein, failure of a condition to Purchaser’s obligation to close, or the exercise by Purchaser of an express right of termination granted herein, then Seller shall give Purchaser written notice of such failure and Purchaser shall then have five (5) business days after receipt of Seller’s notice of such default in which to consummate the transactions contemplated by this Agreement. If Purchaser does not cure such default within said five (5) business days, then Seller shall be entitled, as Seller’s sole and exclusive remedy, to terminate this Agreement and retain the Deposit as liquidated damages.  The parties have agreed that Seller's actual damages, in the event of a default by Purchaser as described above, would be extremely difficult or 

27

impracticable to determine.  THEREFORE, THE PARTIES ACKNOWLEDGE THAT THE AMOUNT OF THE DEPOSIT HAS BEEN AGREED UPON AS THE PARTIES' BEST, AND THEY BELIEVE REASONABLE, ESTIMATE OF SELLER'S DAMAGES AND AS SELLER'S SOLE AND EXCLUSIVE REMEDY AGAINST PURCHASER, AT LAW OR IN EQUITY, IN THE EVENT OF A DEFAULT UNDER THIS AGREEMENT ON THE PART OF PURCHASER AS STATED ABOVE.

12.02    If all of the conditions to Seller’s obligation to consummate the transactions contemplated by this Agreement have been satisfied or waived in writing by Seller, and if Seller should fail to consummate the transactions contemplated by this Agreement for any reason other than Purchaser’s default pursuant to Section 12.01  herein, failure of a condition to Seller’s obligation to close, or the exercise by Seller of an express right of termination granted herein, then Purchaser shall give Seller written notice of such failure and Seller shall then have five (5) business days after receipt of Purchaser’s notice of such default in which to consummate the transactions contemplated by this Agreement. If Seller does not cure such default within said five (5) business days, then Purchaser may, at its option, either (a) terminate this Agreement, in which event the Deposit shall be returned to Purchaser by the Escrow Agent and Seller shall reimburse Purchaser for (i) Purchaser’s actual and verifiable out-of-pocket third party costs and expenses paid to unrelated and unaffiliated third party consultants in connection with the performance of examinations, inspections and/or investigations pursuant to this Agreement, and Purchaser’s attorneys in connection with negotiation of this Agreement and matters related thereto, in an aggregate amount not to exceed $150,000.00, and (B) Purchaser’s actual and verifiable application or commitment fee, rate lock or other non-refundable fee paid to any prospective lender in an amount not to exceed $1,150,000.00; or (b) pursue an action for specific performance limited to cause Seller to convey the Property to Purchaser (in exchange for payment of the Purchase Price); provided, that, Purchaser must initiate such claim for specific performance no later than sixty (60) days after Purchaser’s written notice of breach. 

12.03    The provisions of this Article 12 shall not limit or restrict Purchaser or Seller from seeking to enforce or otherwise seeking damages relating to any provisions of this Agreement which expressly survive the termination of this Agreement, Purchaser’s indemnity of Seller pursuant to Section 2.01 above, or the mutual indemnities set forth in Article 6 above.

13.    Escrow.
13.01.    The Deposit shall be held in escrow by Escrow Agent in an interest bearing account until disbursed as herein provided.  Any interest accrued on the Deposit shall be paid to whichever party is entitled to the Deposit in accordance with the provisions of this Agreement. The interest earned on the Deposit shall at Purchaser’s election either be credited against the Purchase Price or paid to Purchaser at Closing.  The Deposit shall be held and disbursed by Escrow Agent in the following manner:
(a)    to Seller at the Closing upon consummation of the Closing; or

28

(b)    to Seller upon receipt by Escrow Agent of written demand therefor stating that Purchaser has failed to consummate the transactions contemplated by this Agreement in accordance with the provisions of Section 12.01 herein; provided, however, that Escrow Agent shall not honor such demand until at least ten (10) days after it has sent a copy of such demand to Purchaser, nor thereafter, if Escrow Agent shall have received written notice of objection from Purchaser in accordance with the provisions of Section 13.02; or
(c)    to Purchaser upon receipt of written demand therefor, stating that either (i) this Agreement has been terminated pursuant to a provision hereof and certifying the basis for such termination and that Purchaser is entitled to the Deposit pursuant to the provisions of this Agreement, or (ii) Seller has failed to consummate the transactions contemplated by this Agreement in accordance with the provisions of Section 12.02 herein or that Purchaser is otherwise entitled to the Deposit under the provisions of this Agreement; provided, however, that after the expiration of the Due Diligence Period, Escrow Agent shall not honor such demand until at least ten (10) days after it has sent a copy of such demand to Seller, nor thereafter if Escrow Agent shall have received written notice of objection from Seller in accordance with the provisions of Section 13.02.  If Purchaser elects to terminate this Agreement prior to the expiration of the Due Diligence Period, then Escrow Agent shall pay the entire Deposit to Purchaser as soon as practicable following receipt of the demand therefor from Purchaser, and this Agreement shall thereupon terminate.  Notwithstanding anything to the contrary contained herein, no notice from Escrow Agent to Seller shall be required as a condition precedent for or in connection with the release of the entire Deposit to Purchaser by Escrow Agent on or prior to the expiration of the Due Diligence Period and Escrow Agent shall release such funds to Purchaser even if Seller objects thereto but Escrow Agent shall nonetheless promptly notify Seller upon any such release.
13.02.    Except as provided in the last two sentences of Section 13.01(c), upon receipt of written demand for the Deposit by Purchaser or Seller pursuant to clause (b) or (c) of Section 13.01, Escrow Agent shall, within two business days, send a copy thereof to the other party.  The other party shall have the right to object to the delivery of the Deposit by sending written notice of such objection to Escrow Agent within the greater of five (5) days or three (3) business days after Escrow Agent delivers a copy of the written demand to the objecting party but not thereafter.  Such notice shall set forth the basis for objecting to the delivery of the Deposit. Upon receipt of such notice, Escrow Agent shall promptly send a copy thereof to the party who made the written demand.
13.03.    Except as provided in the last two sentences of Section 13.01(c), in the event of any dispute between the parties regarding the Deposit, Escrow Agent shall disregard all instructions received and at its option either (i) hold the Deposit until the dispute is mutually resolved and Escrow Agent is advised of said resolution in writing by both Seller and Purchaser, or Escrow Agent is otherwise instructed by a final non-appealable judgment of a court of competent jurisdiction, or (ii) deposit the Deposit into a court of competent jurisdiction (whereupon Escrow Agent shall be released and relieved of any and all liability and obligations hereunder from and after the date of such deposit).

29

13.04.    Except as provided in the last two sentences of Section 13.01(c), in the event Escrow Agent shall be uncertain as to its duties or rights hereunder or shall receive conflicting instructions, claims or demands from the parties hereto, or instructions which conflict with any of the provisions of this Agreement, Escrow Agent shall be entitled (but not obligated) to refrain from taking any action other than to keep safely the Deposit until Escrow Agent shall be instructed otherwise in writing signed by both Seller and Purchaser, or by final judgment of a court of competent jurisdiction.
13.05.    Escrow Agent may rely upon, and shall be protected in acting or refraining from acting upon, any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties, provided that any modification of this Article 13 shall be signed by Escrow Agent, Purchaser and Seller.
13.06.    Seller and Purchaser shall jointly and severally hold Escrow Agent harmless against any loss, damage, liability or expense incurred by Escrow Agent not caused by its willful misconduct or gross negligence, arising out of or in connection with its entering into this Agreement and the carrying out of its duties hereunder, including the reasonable costs and expenses of defending itself against any claim of liability or participating in any legal proceeding.  Escrow Agent may consult with counsel of its choice, and shall have full and complete authorization and protection for any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel; provided, that the prevailing party in any dispute hereunder shall be entitled to recover such costs from the other party.
13.07.    Escrow Agent may resign at will and be discharged from its duties or obligations hereunder by giving notice in writing of such resignation specifying a date when such resignation shall take effect; provided, however, that (i) prior to such resignation a substitute escrow agent is approved in writing by Seller and Purchaser, which approval shall not be unreasonably withheld or delayed, or (ii) Escrow Agent shall deposit the Deposit with a court of competent jurisdiction.  After such resignation, Escrow Agent shall have no further duties or liability hereunder.
13.08.    Purchaser and Seller, together, shall have the right to terminate the appointment of Escrow Agent hereunder by giving to it notice of such termination, specifying the date upon which such termination shall take effect and designating a replacement escrow agent, who shall sign a counterpart of this Agreement.  Upon demand of such successor escrow agent, the Deposit shall be turned over and delivered to such successor escrow agent, who shall thereupon be bound by all of the provisions hereof.
13.09.    Seller and Purchaser shall be jointly and severally responsible for the reimbursement to Escrow Agent of all out-of-pocket expenses, disbursements and advances (including reasonable attorneys’ fees) incurred or made by Escrow Agent in connection with the carrying out of its duties hereunder, except to the extent caused by or attributed to the breach, default, gross negligence or willful misconduct of Escrow Agent; provided, that the prevailing party in any dispute hereunder shall be entitled to recover such costs from the other party.

30

13.10.    Escrow Agent’s agreements and obligations hereunder shall terminate and Escrow Agent shall be discharged from further duties and obligations hereunder upon final payment of the Deposit in accordance with the terms of this Agreement.
14.    Survival.
14.01    The representations, warranties, covenants, agreements and indemnities contained in this Agreement shall not survive the Closing except to the extent expressly provided herein.

15.    Miscellaneous.
15.01.    No waiver by any party of any breach hereunder shall be deemed a waiver of any other or subsequent breach.
15.02.    This Agreement may not be altered, amended, changed, waived, terminated or modified in any respect or particular unless the same shall be in writing and signed by or on behalf of the parties hereto.  
15.03.    This Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, executors, administrators, successors and assigns. Purchaser shall not assign its interest in this Agreement without Seller's prior written consent except to an assignee which is an affiliate of Purchaser or which is managed or advised by an affiliate of Purchaser or by persons who are officers of an affiliate of Purchaser.  Such assignees shall include, but not be limited to, a corporation, limited liability company, partnership or trust for which an affiliate of Purchaser or a person who is an officer of an affiliate acts as a general partner, a trustee, an asset manager or an investment advisor and a corporation whose shares are owned by any such corporation, partnership or trust. No assignment shall relieve the assignor of any obligations hereunder. 
15.04.    All understandings and agreements heretofore had between the parties hereto are merged into this Agreement and the Exhibits hereto, which fully and completely express the parties’ agreement with respect to all matters pertaining to the Property.
15.05.    This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee without reference to the choice of law doctrine of such State.
15.06.    Each of the Exhibits attached hereto is hereby incorporated herein and made a part of this Agreement for all purposes.
15.07.    This Agreement is for the sole and exclusive benefit of the parties hereto and their respective permitted successors and assigns, and, except as specifically provided in Article 13, no third party is intended to or shall have any rights hereunder.

31

15.08.    (a)    The headings and captions herein are inserted for convenient reference only and the same shall not limit or construe the paragraphs or sections to which they apply or otherwise affect the interpretation hereof.
(a)    Unless the context otherwise requires, the terms “hereby”, “hereof”, “herein”, “hereunder” and any similar terms shall refer to this Agreement, and the term “hereafter” shall mean after, and the term “heretofore” shall mean before the date of this Agreement.
(b)    Unless the context otherwise requires, words of the masculine, feminine or neuter gender shall mean and include the correlative words of other genders, and words importing the singular number shall mean and include the plural number and vice versa.
(c)    Words importing persons shall include firms, associations, partnerships (including limited partnerships), trusts, corporations and other legal entities, including public bodies, as well as natural persons.
(d)    An “affiliate” of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person; provided that if a person holds or owns, directly or indirectly, a beneficial interest of 50% or more in such specified person or is an officer, director, general partner, trustee or a family member of such specified person, such person shall be deemed to be an affiliate of such specified person. For the purposes of the foregoing definition, a family member shall include a spouse, a child (natural or adopted), a spouse of any such child, a grandchild, a sister, a brother, a parent, a lineal descendant of any of the foregoing or a trust for the benefit of any of the foregoing. For purposes of this definition, the term “controlling,” “controlled by, “ or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise.
(e)    The terms “include”, “including” and similar terms shall be construed as if followed by the phrase “without limitation”.
15.09.    The parties agree that no beneficiary, trustee, officer, director, shareholder, partner, principal, parent, affiliate or agent of any of the parties hereto shall be held to any personal liability for any obligation of, or claim against such party, and the parties agree to look only to the assets of the other parties for sums payable by, or the performance of any obligation of, such parties, except to the extent permitted by law in connection with any claim based upon the intentional or willful fraud or intentional or willful misconduct, or the intentional or willful misapplication of funds or any other misapplication which constitutes direct conversion of such funds by such party or any affiliates of such party.

32

15.10.    For purposes of this Agreement “business day” shall mean any day on which commercial banks in Tennessee and New York are generally open for business, other than a Saturday, Sunday, or national holiday.
15.11.    This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same agreement.
15.12.    If any act required by the Agreement is required hereunder to be taken on a Saturday, Sunday or legal holiday in the State of Tennessee, then the time period for taking or performing such action shall be extended until the next day that is not a Saturday, Sunday or legal holiday in the State of Tennessee.  
15.13.    If any clause or provision of this Agreement is determined to be illegal, invalid or unenforceable under any present or future law by final judgment of a court of competent jurisdiction, the remainder of this Agreement will not be affected thereby.  It is the intention of the parties that if any such provision is held to be illegal, invalid or unenforceable, there will be added in lieu thereof a provision that is similar in terms to such provision as is possible to be legal, valid and enforceable.
15.14.    TO THE EXTENT PERMITTED BY APPLICABLE LAW, SELLER AND PURCHASER HEREBY KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED ON THIS AGREEMENT OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTION OF ANY PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR SELLER AND PURCHASER ENTERING INTO THE SUBJECT TRANSACTION.

15.15.  Seller and Purchaser hereby covenant and agree that, at all times between the Effective Date and the Closing Date, unless consented to in writing by the other party, no press or other public disclosure concerning this transaction shall be made, and each party agrees to use its good faith, commercially reasonable efforts to prevent disclosure of this transaction and information obtained in connection herewith, other than (a) only to the extent necessary, to consultants, contractors, agents, accountants, attorneys, employees, tenants, potential tenants, governmental agencies and affiliates of the parties who are involved in the ordinary course of business with this transaction and prospective investors and lenders, all of which shall be instructed to comply with the nondisclosure provisions hereof; (b) in response to lawful process or subpoena or other valid or enforceable order of a court of competent jurisdiction; and (c) in any filings with governmental authorities required by reason of the transactions provided for herein, including, without limitation, the United States Securities and Exchange Commission or as  required by any rule or regulation of the New York Stock Exchange. Purchaser hereby covenants and agrees that, at all times after the date 

33

of execution hereof and after Closing, unless consented to in writing by Seller, Purchaser shall keep in strict confidence, and shall not disclose, the contents of, or Purchaser’s analysis of the contents of, any documentation made available to Purchaser by Seller or any of Seller’s agents in connection with this transaction, and the content of any appraisal, engineering, environmental or other third party report prepared on behalf of Purchaser, subject to the qualifications set forth in subsections (a), (b) and (c) in the preceding sentence.  Nothing herein shall apply to any information that is in the public domain other than as a result of a breach of this section. The provisions of this Section 15.15 shall survive the execution and delivery of the closing documents and shall not be merged therein.

15.16.    If for any reason Purchaser does not consummate the Closing (except for a Seller default as described in Section 12.01 herein), Purchaser shall provide copies to Seller, at Seller’s request, of any and all studies, reports, surveys, and other information, data and/or documents relating to the Property or any part thereof prepared by or at the request of Purchaser, its employees and agents.

15.17.  Notwithstanding anything to the contrary set forth in this Agreement, any and all files at the Property that relate to tenants who have vacated their units at the Property and with whom there exists a dispute or a set of facts that could lead to a dispute between Seller and such tenant regarding the payment of sums due and owing to Seller (collectively, “Former Tenant Lease Files”), together with any and all rights, causes of action and/or claims relating thereto will not be transferred or assigned to Purchaser at Closing but will remain the property of Seller. Any and all such Former Tenant Lease Files may be removed from the Property by Seller on or before the Closing Date.  
    
15.18.    This Agreement shall be construed in accordance with the laws of the State of Tennessee. The parties hereby agree that any claims, causes of action, suits, or disputes with respect to this Agreement shall be brought in any state court sitting in Davidson County, Tennessee or the United States District Court for the Middle District of Tennessee.
15.19    Seller hereby acknowledges and agrees that Purchaser has informed Seller that Purchaser will be required to terminate this Agreement prior to the end of the Due Diligence Period unless the Committee of the Board of Purchaser approves the terms of this Agreement prior to the expiration of said Due Diligence Period.

15.20     Neither party shall not make any public announcement or disclosure of any information related to this Agreement to third parties before the Closing, without the prior written specific consent of the other party; provided, however, that (a) either may make disclosure of this Agreement to third parties and their own employees who have reasonable need to know such information; and (b) either party may make disclosures as required by law, rule, or regulation, including, but not limited to, any imposed by the United States Securities and Exchange Commission Notwithstanding the foregoing, Purchaser shall have the right after the expiration of the Due Diligence Period, following advance written notice to Seller, to release a press notice containing only such information as Purchaser is required 

34

to include in its filing of Form 8-K with the United States Securities and Exchange Commission reporting the entry of a “Material Definitive Agreement.”  .
 
15.21    Either party may consummate the sale of the Property as part of a so-called like-kind exchange (the “Exchange”) pursuant to §1031 of the Internal Revenue Code of 1986, as amended, provided that: all costs, fees, and expenses attendant to the Exchange shall be the sole responsibility of the relevant exchanging party; the consummation or accomplishment of the Exchange shall not be a condition precedent or condition subsequent to the relevant exchanging party’s  obligations and covenants under this Agreement; and Purchaser shall not be required to acquire or hold title to any real property other than the Property for purposes of consummating the Exchange.  Each party agrees to reasonably cooperate with the exchanging party, and take such actions as may be reasonably requested by the exchanging party, to effect the Exchange.

15.22    Seller hereby agrees to reasonably cooperate (at no third party cost to Seller) with Purchaser during the term of this Agreement and subsequent to Closing in the preparation by Purchaser and its advisors, at Purchaser’s sole cost and expense, of audited financial statements of the Property for the most recent completed fiscal year of Seller and the current fiscal year-to-date that comply with Form 8-K filing requirements and Rule 3-14 of Regulation S-X, both as promulgated by the United States Securities and Exchange Commission, including current and historical operating statements and information regarding the Property. The provisions of this Section 15.22 hereof shall survive the Closing until such time as all filing requirements of Purchaser regarding Purchaser’s acquisition of the Property have been satisfied.   

    

                             [SIGNATURES COMMENCE ON FOLLOWING PAGE]

35

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first above written.
SELLER:                LENOX VILLAGE PROPERTIES, LLC, a                                 Tennessee limited liability company                                
By:/s/ David C  McGowan_____________
            
Name: _ David C  McGowan___________
            
Title: _Chief Manager_________________
    
LENOX VILLAGE LIFESTYLE CENTER, LLC, a             Tennessee limited liability company
By:/s/ David C  McGowan_____________
            
Name: _ David C  McGowan___________
            
Title: _Chief Manager_________________
    
LENOX VILLAGE LIFESTYLE CENTER III,                 LLC, a Tennessee limited liability company
By:/s/ David C  McGowan_____________
            
Name: _ David C  McGowan___________
            
Title: _Chief Manager_________________
    

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

36

		
	PURCHASER:
	PREFERRED APARTMENT COMMUNITIES OPERATING PARTNERSHIP, L.P., a Delaware limited partnership

By:    Preferred Apartment Advisors, LLC,     a Delaware limited liability company,     its Agent

By: __/s/ Jeffrey R/ Sprain_____________
Jeffrey R. Sprain
General Counsel and Secretary                                

37

ACKNOWLEDGED AND AGREED TO BY ESCROW AGENT FOR THE PURPOSES OF ARTICLE 13 HEREOF:
CHICAGO TITLE INSURANCE COMPANY
By:    /s/ Yale Riley    ____________________________    
Name: Yale Riley
Title: AVP        

38

Schedule of Exhibits
	
			
	Exhibit A
	-
	Description of Land

	Exhibit 1.01(c)
	-
	Personal Property

	Exhibit 1.01(e)
	-
	Service Contracts

	Exhibit 2.02
Exhibit 2.06
	-
	Property Materials
Restricted Employees

	Exhibit 3.02
Exhibit 4.01(f)
	-
	Tenant Estoppel Certificate
Form Lease 

	Exhibit 4.01(g)(1)
	-
	Rent Roll

	Exhibit 4.01(h)
	-
	Litigation

	Exhibit 4.01(i)
	-
	Agreements with Governmental Authorities

	Exhibit 4.01(l)
	-
	Financial Statements

	Exhibit 7.02
Exhibit 9.01(a)
	-
	Rent Concessions
Form of Special Warranty Deed(s)

	Exhibit 9.01(b)
	-
	Form of Bill of Sale

	Exhibit 9.01(c)
	-
	Form of Assignment and Assumption of Leases

	Exhibit 9.01(d)
	-
	Form of Assignment and Assumption of Contracts

	Exhibit 9.01(e)
	-
	Form of Notice to Tenant

	Exhibit 9.01(k)
	-
	Seller’s Certification

39

Exhibit A 

Property Description 

[On File with Company]

40

Exhibit 1.01(c)
Personal Property
[On File with the Company]

41

Exhibit 1.01(e)

Service Contracts

[On File with the Company]

42

Exhibit 2.02 

Property Materials

Preferred Residential Management, LLC
DUE DILIGENCE
Information Requirements

The Preferred Residential Management, LLC due diligence process involves multiple teams of professionals that may visit the property at different times.  Each group has specific areas of focus that may require access to different reports.  To help facilitate this process, we have developed the comprehensive checklist below.

Items due before Management Company Walkthrough and Lease Audit:

		
	________
	Current Rent Roll (in excel preferably)

________    Electronic Site Plan of property

		
	________
	List of last 20 Leases (Please Include:  Unit / Unit Type / Market Rent, Concessions, Net Rent and other pertinent information)

		
	________
	List of last 20 Move Ins (Please Include:  Unit / Unit Type / Market Rent, Concessions, Net Rent and other pertinent information)

  
The following documents should be run as of the close of business on the day prior to our property visit:  

________    Current Rent Roll 

		
	________
	Current Detail Unit Status Report (status of Vacant/On-Notice units)

		
	________
	Current Lease Expiration Summary

		
	________
	Weekly Projected Occupancy Report (8 weeks)

		
	________
	Copy of Current Lease and Addenda (blank copies)

		
	________
	Current Security Deposit Report

		
	________
	Current Concessions Report

		
	________
	Competitive Market Survey

43

		
	________
	Current Delinquency Report

		
	________
	Listing of any Down Units

		
	________
	Listing of Non-revenue units (model, employee, C.O.)

		
	________
	Listing of Amount of employee concessions

		
	________
	List of any charges and fees (application, redecoration, late, water, sewer, trash, etc)

		
	________
	Summary of Service Requests by month for the last twelve months

________    Leasing Brochure with Floor Plans

The following documents should be available for review at the property during our visit:  

________    Original resident and commercial office and retail leases

________    Credit verification reports and criminal background checks (if required)

________    Original resident correspondence files

________    Resident applications

________    Maintenance Requests and work order logs

The following documents should be available for review within 3 days of the commencement of the due diligence period:

Property Information:

		
	________
	Licenses and Permits (including but not limited to - pool permits, storm water permits, elevator permits, business licenses, etc...)

________    Occupancy Certificates

________    Most recent Survey

________    Existing Owner’s Title Insurance Policy

________    Building plans and specifications

44

		
	________
	Any previous environmental reports

		
	________
	Fire Life Safety Inspection Reports (sprinkler, hydrant, backflow, hydrant, elevator & alarm)

                    Sub Metering Read reports

________    Compensation package information and time on property for existing staff

________    Incident Reports (Last 2 years)

________    Termite Bond Letter

________    Warranties still in effect

		
	________
	Personal Property Inventory

		
	________
	Vendor List

		
	________
	Account numbers, Addresses, and Phone Numbers for Utility accounts 

		
	________
	Copies of Utility Bills (12 months)

		
	________
	Utility Log – if available (24 months history)

		
	________
	Service Agreements/Contracts  (Landscape, Refuse, Pest Control, Postage, Credit Check, Communication System, Security, Advertising, Answering Service, Uniforms, Pool, etc.)

		
	________
	List of related entities performing services at the property, indicating the type of service and amounts paid

		
	________
	Leasing Summary by month for last twelve months

		
	________
	Resident profile information (Demographics)

		
	________
	Pictures from Broker’s Package and Website (900 x 500)

		
	________
	Copies of commercial office and retail leases 

Financial Reports:

45

		
	________
	Income Statements for the three previous years in trailing twelve-month format, including capital expenditures

		
	________
	YTD Income Statement with actuals in trailing twelve-month format, including capital expenditures

		
	________
	Copy of the Balance Sheets (as of the end of the calendar year for the last 2 years and current year-to-date)

		
	________
	Current year operating budget

________    Copy of Cash Receipts Journal (Last 3 Months)

		
	________
	Copy of the Bank Statements (last 6 Months)

		
	________
	Copy of Bank Reconciliations (last 6 Months)

		
	________
	Existing Loan Docs, Loan Balance and Amortization Schedule (if assumable loan)

		
	________
	Three prior years tax bills for real estate and personal property.  Present year statements provided if/when available

		
	________
	Copy of General Ledger (as of the end of the last calendar year and current year-to-date)

		
	________
	Copy of the Aged Accounts Payable Schedule (as of the end of the last calendar year and the end of the last calendar month)

		
	________
	Copy of the Delinquency Report and/or Aged Receivable Report (as of the last calendar year and end of the last calendar month)

________    Ancillary Income (Laundry, Cable, Phone, Vending, Internet, Alarms, etc)

Insurance Documents:

		
	________
	Disclosure of all pending insurance claims

		
	________
	Disclosure of all pending litigation against the current owner

		
	________
	Insurance loss runs for the past five years

46

Exhibit 2.06 

Restricted Employees

None

47

Exhibit 3.02 

Tenant Estoppel Certificate 

            TENANT ESTOPPEL CERTIFICATE
The undersigned hereby certifies to _____________________ (“Purchaser”) and ____________________________ (“Lender”), and their respective successors and assigns, as follows:
1.    The undersigned is the tenant under that certain [insert title of lease document] [(the “Lease”)], dated as of _________ __, ____, by and between _________________________ (“Landlord”) and _________________________ (“Tenant”) [, as amended by that certain [insert title of lease amendment document], dated as of _________ __, ____,  by and between _________________________ and _________________________ (collectively, the “Lease”)], pursuant to which Tenant leases certain premises known as Suite ____, consisting of _______ rentable square feet (the “Premises”), at that real property and improvements located at _________________________________________ (the “Property”).
2.    Except as set forth above, the Lease has not been modified, changed, altered, supplemented or amended in any respect, nor have any provisions thereof been waived.
3.    The Lease is valid and in full force and effect on the date hereof. The Lease represents the entire agreement between Landlord and Tenant with respect to the Premises and the land on which the Premises are situated.
4.    Tenant is not entitled to, and has made no agreement with Landlord or its agents or employees concerning, free rent, partial rent, rebate of rent payments, credit or offset or reduction in rent, or any other type of rental concession including, without limitation, lease support payments, lease buy-outs, or assumption of any leasing or occupancy agreements of Tenant. 
5.    The initial term of the Lease began on __________ __, _____ and expires on ________ __, 20__.  The Rent Commencement Date was __________ __, ____.  Tenant has accepted possession of the Premises and is open for business.  Tenant has not sublet all or a portion of the Premises to any sublessee and has not assigned, transferred or encumbered any of its rights or interests under the Lease.
6.    Tenant has no outstanding options or rights to renew or extend the term of the Lease, except as follows: ________________ (if none, please state “none”). Tenant has no outstanding expansion options, other options, rights of first refusal or rights of first offer to purchase the Property or any part thereof, or rights of first offer to lease with respect to all or any part of the Property.   

48

7.    The [Base Annual Rent] payable under the Lease is $____________ ($_________ monthly).  Such [Base Annual Rent] payable under the Lease shall be adjusted during the initial term of the Lease as follows: (a) from ___________, 20__ to and including ______________, 20__, the Base Annual Rent shall be $_______ ($_______ monthly); (b) from ___________, 20___ to and including ____________, 20___ the Base Annual Rent shall be $________ ($________ monthly); [and from __________, 20__ to and including __________, 20___ the Base Annual Rent shall be $_________ ($__________ monthly)]. Such rent has been paid through and including the month of ____________, 2015. Additional rent under the Lease in the amount of $__________ has been paid through and including the month of __________, 2015.   No such rent (excluding security deposits) has been paid more than one (1) month in advance of its due date.
8.    Tenant's security deposit, if any, is $_________________ (if none, please state “none”).
9.    No event has occurred and no condition exists that constitutes, or that with the giving of notice or the lapse of time or both, would constitute, a default by Tenant or, to the best knowledge of Tenant, Landlord under the Lease. Tenant has no existing defenses or offsets against the enforcement of the Lease by Landlord.
10.    (a)    All required contributions by Landlord to Tenant on account of Tenant's improvements have been received by Tenant and all of Tenant's tenant improvements have been completed in accordance with the terms of the Lease.
(b)    Landlord has satisfied all its obligations to Tenant arising out of or incurred in connection with the construction of the tenant improvements on the Premises and no off-set exists with respect to any rents or other sums payable or to become payable by the Tenant under the Lease.
11.    All licenses necessary for using and operating the Premises as a [insert permitted use] are held by Tenant and are in full force and effect.
12.    No voluntary actions or, to Tenant’s best knowledge, involuntary actions are pending against Tenant under the bankruptcy laws of the United States or any state thereof.
13.    This Certificate is delivered to induce Purchaser to acquire the Property and Lender to provide financing to Purchaser in its acquisition of the Property, with the understanding that Purchaser and Lender shall rely upon the truth of the matters set forth in this Certificate.

[SIGNATURE PAGE FOLLOWS]
 
The undersigned is duly authorized to execute this Certificate on behalf of Tenant.

49

Dated: ____________, 2015
TENANT:    
____________________, a ________________
By:______________________
      Name:
Title:
[DELETE THE FOLLOWING SECTION IF THE LEASE IS NOT GUARANTEED]
[_________________________, a _________________________] (“Guarantor”) certifies to and for the benefit of Purchaser, Lender and their respective successors and assigns as follows:
With respect to that certain [Guaranty], dated as of ________ __, ____,  by Guarantor to and for the benefit of Landlord (the “Guaranty”): (a) Guarantor is the guarantor of the Lease pursuant to the Guaranty; (b) the Guaranty has not been modified, changed, altered, supplemented or amended in any respect, nor have any provisions thereof been waived; (c) the Guaranty is valid and in full force and effect on the date hereof; and (d) no voluntary actions or, to Guarantor’s best knowledge, involuntary actions are pending against Guarantor under the bankruptcy laws of the United States or any state thereof.  This Certificate is delivered to induce Purchaser to acquire the Property and Lender to approve Purchaser’s acquisition of the Property and assumption of the mortgage loan encumbering the Property, with the understanding that Purchaser and Lender shall rely upon the truth of the matters set forth in this Certificate.  The undersigned is duly authorized to execute this Certificate.  
Dated: ____________, 2015

[USE FOLLOWING SIGNATURE BLOCK FOR ENTITY                 GUARANTOR]

GUARANTOR:    
____________________, 
a ________________
                        
By:______________________
Name:
Title:

50

[USE FOLLOWING SIGNATURE BLOCK FOR PERSONAL                 GUARANTOR]

GUARANTOR:    
______________________
Name:

51

Exhibit 4.01(f) 

Form Lease

[On File with the Company]

52

Exhibit 4.01(g)(1) 

Rent Roll

[On File with the Company]

53

Exhibit 4.01(h) 

Litigation

None

54

Exhibit 4.01(i) 

Agreements with Governmental Authorities

None

55

Exhibit 4.01(l) 

Financial Statements

[On File with the Company]

56

Exhibit 7.02 

Rent Concessions

[On File with the Company]

57

Exhibit 9.01(a)

SPECIAL WARRANTY DEED

RECORD & RETURN TO:

	
		
	SPECIAL WARRANTY DEED

	STATE OF TENNESSEE, COUNTY OF __________________

THE ACTUAL CONSIDERATION OR VALUE, WHICHEVER IS GREATER FOR THIS TRANSFER IS $_________________

________________________________________
Affiant

SUBSCRIBED AND SWORN TO BEFORE ME THIS DAY OF _________, 20___.

________________________________________
NOTARY PUBLIC                                                                      SEAL
My commission expires::

	 
	 

	
	
	THIS INSTRUMENT WAS PREPARED BY:
«Attorney»
ORTALE, KELLEY, HERBERT & CRAWFORD
330 Commerce Street, Suite 110
Nashville, TN 37201
File No.#

	
			
	NAME/ADDRESS OF NEW OWNER:
	SEND TAX BILLS TO:
	MAP – PARCEL #

                        
FOR AND IN CONSIDERATION of Ten ($10.00) Dollars, cash in hand paid by the hereinafter named Grantees, and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, __________, hereinafter called "GRANTOR," has bargained and sold, and by these presents does transfer and convey unto_____________, hereinafter called "GRANTEE,” a certain tract or parcel of land in _____________ County, State of Tennessee, described as follows:

*Insert Legal
 
*Insert Derivation Clause of prior deed 

58

[DEED FROM THE OWNER OF THE REGENT BUILDING TO BE REVISED AS NECESSARY TO CONVEY THE CONDOMINIUM UNITS AS WELL AS THE OWNER’S FEE SIMPLE INTEREST IN THE OFFICE AND RETAIL PORTIONS OF THE REGENT BUILDING]

The conveyance of the above-described parcel of land is subject to the following:

		
	1.
	20____ ___________ County taxes which have been prorated by the parties and assumed by the Grantees; and

		
	2.
	Subject to any and all applicable zoning regulations, building restrictions, setback lines, if any, and recorded easements and rights of way for public utilities applicable to this property; and

		
	3.
	HERE INSERT ANY “PERMITTED EXCEPTIONS” [per Section 2.02, above].

This property is also known as improved property located at _________________________,

TO HAVE AND TO HOLD the said tract or parcel of land, with the appurtenances, estate, title and interest thereto belonging to the said GRANTEE, its successors and assigns, forever, and GRANTOR does covenant with the said GRANTEE that it is lawfully seized and possessed of said land in fee simple, has a good right to convey it, and the same is unencumbered, unless otherwise herein set out; and GRANTOR does further covenant and bind itself, its successors, assigns and representatives, to warrant and forever defend the title to the said land to the said GRANTEE, its successors and assigns, against the lawful claims of all persons claiming by or through Grantor, but not further or otherwise.  Wherever used, the singular number shall include the plural, the plural the singular, and the use of any gender shall be applicable to all genders.
WITNESS our hands this ____ day of _________, 20____.

 
____________________________________                            «Seller»

BY:_________________________________
Its: _________________________________

STATE OF _____________  )                      
COUNTY OF ____________  )

59

Before me, _____________________________, a Notary Public in and for the County and State aforesaid, personally appeared______________________________, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence) and who, upon oath, acknowledged him/herself to be the    ___________________ of the within named bargainor, a corporation, and that he/she as such __________________, being authorized so to do, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation as such
________________________.

WITNESS my hand and seal at office in ____________________, this ______ day of ____________________, 20____.

My commission expires:                                                                ______________________________
_____________________                Notary Public
(SEAL)

	
		
	 
	 

60

Exhibit 9.01(c)
BILL OF SALE
KNOW BY THESE PRESENTS THAT LENOX VILLAGE PROPERTIES, LLC, a Tennessee limited liability company, LENOX VILLAGE LIFESTYLE CENTER, LLC, a Tennessee limited liability company, and LENOX VILLAGE LIFESTYLE CENTER III, LLC, a Tennessee limited liability company (collectively referred to herein as the “Seller”), for and in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration to it paid by ___________________, a _______________, having an office at 3284 Northside Parkway, Suite 150, Atlanta, Georgia 30327 (“Purchaser”), receipt of which is hereby acknowledged by Seller, has granted, sold, transferred, set over and delivered, and by these presents does grant, sell, transfer and deliver unto Purchaser, its successors and assigns, the property described on Schedule B attached hereto and made a part hereof and all of Sellers’ right title and interest in and to all other fixtures, equipment and articles of personal property (excluding  personal property owned by tenants, vendors and lessees under service contracts or furniture leasing companies) located at or used in connection with the operation of the Property described in Schedule A attached hereto and made a part hereof, (the “Personal Property”).
TO HAVE AND TO HOLD the Personal Property unto Purchaser and its assigns forever.
AND Sellers hereby warrants to and with Purchaser that it owns the Personal Property subject to no encumbrances, security interests or liens of any kind.
AND Sellers, does hereby bind itself, its successors and assigns, to warrant and forever defend, the Personal Property unto Purchaser, its successors and assigns, against every person lawfully claiming or to claim the same, or any part thereof, but without warranty as to fitness or merchantability.

[SIGNATURES COMMENCE ON FOLLOWING PAGE]

61

	
	
	SELLER:
LENOX VILLAGE PROPERTIES, LLC, a Tennessee limited liability company
By:____________________________
 
Name: _________________________
Title: __________________________
LENOX VILLAGE LIFESTYLE CENTER, LLC, a Tennessee limited liability company
By:____________________________ 
Name: _________________________ Title:__________________________
LENOX VILLAGE LIFESTYLE CENTER III, LLC, a Tennessee limited liability company
By:____________________________ 
Name: _________________________ Title:__________________________

IN WITNESS WHEREOF, Seller has executed this instrument as of the ____ day of _______________, 2015.

62

Exhibit 9.01(c)
SCHEDULE A TO BILL OF SALE
[Real Property Description]

63

Exhibit 9.01(c)
SCHEDULE B TO BILL OF SALE
[Personal Property]

64

Exhibit 9.01(d)
ASSIGNMENT AND ASSUMPTION OF LEASES
IN CONSIDERATION of Ten Dollars ($10.00) and other good and valuable consideration, to it in hand paid, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, LENOX VILLAGE PROPERTIES, LLC, a Tennessee limited liability company, LENOX VILLAGE LIFESTYLE CENTER, LLC, a Tennessee limited liability company, and LENOX VILLAGE LIFESTYLE CENTER III, LLC, a Tennessee limited liability company (collectively referred to as herein as “Assignor”), hereby sells, assigns, and transfers to  ______________________________, a _________________ (“Assignee”), having an address of  3284 Northside Parkway, Suite 150, Atlanta, Georgia 30327, all of Assignor’s right, title and interest in and to those certain leases described in Schedule B attached hereto and incorporated herein by reference (including, without limitation, the Tenant Deposits listed therein, together with interest, if any, thereon which has accrued for the account of the tenant, less any administrative fees incurred prior to the execution of this agreement) relating to the property (the “Property”) described in Schedule A attached hereto and incorporated herein by reference.
Assignee hereby accepts, assumes, and agrees to all of the covenants, agreements, promises, terms, conditions and provisions contained in each of the leases hereby assigned to be observed, kept, performed or complied with by Assignor, but only to the extent arising on or after the date hereof.  Assignee hereby agrees to hold Assignor harmless from any claim, demand, or cause of action which may be asserted against Assignor by any person arising from a breach, violation, or failure to perform any provision of any of the leases hereby assigned which is alleged to have occurred on or subsequent to the date of this Assignment. Assignor hereby agrees to hold Assignee harmless from any claim, demand, or cause of action which may be asserted against Assignee by any person arising from a breach, violation, or failure to perform any provision of any of the leases hereby assigned arising out of or relating to Assignor’s failure to perform any of its obligations under the leases accruing on or prior to the date of this Assignment.
This Assignment and Assumption may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same agreement.
This Assignment and Assumption is being delivered in connection with the Purchase and Sale Agreement dated as of ________ ____, 2015, between Assignor and Assignee, as the successor-in-interest to Preferred Apartment Communities Operating Partnership, L.P. 
.
       [SIGNATURES COMMENCE ON FOLLOWING PAGE]

65

WITNESS the due execution hereof this ____ day of _________________ 2015.
	
	
	ASSIGNOR: 
 

LENOX VILLAGE PROPERTIES, LLC, a Tennessee limited liability company

By: ______________________________
Name:____________________________
Title: _____________________________

LENOX VILLAGE LIFESTYLE CENTER, LLC, a Tennessee limited liability company

By: ______________________________
Name:____________________________
Title: _____________________________

LENOX VILLAGE LIFESTYLE CENTER III, LLC, a Tennessee limited liability company

By: ______________________________
Name:____________________________
Title: _____________________________

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

ASSIGNEE:

66

 

 

67

SCHEDULE A TO ASSIGNMENT AND ASSUMPTION OF LEASES
[Real Property Description] 

68

SCHEDULE B TO ASSIGNMENT AND ASSUMPTION OF LEASES
[Leases]

69

Exhibit 9.01(e)
ASSIGNMENT AND ASSUMPTION OF CONTRACTS
IN CONSIDERATION of Ten Dollars ($10.00) and other good and valuable consideration, to it in hand paid, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, LENOX VILLAGE PROPERTIES, LLC, a Tennessee limited liability company, LENOX VILLAGE LIFESTYLE CENTER, LLC, a Tennessee limited liability company, and LENOX VILLAGE LIFESTYLE CENTER III, LLC, a Tennessee limited liability company (collectively referred to as herein as “Assignor”), hereby sells, assigns, and transfers to  _________________________, a ________________ (“Assignee”), having an address of 3284 Northside Parkway, Suite 150, Atlanta, Georgia 30327, all of Assignor’s right, title and interest in and to: (a) those contracts which are listed in Schedule B attached hereto and incorporated herein by reference (collectively, the “Contracts”), all of which relate to the property described in Schedule A attached hereto and incorporated herein by reference (the “Property”); (b) all assignable licenses, authorizations, approvals and permits issued by any governmental or quasi-governmental authorities, and any other assignable intangible property relating to the operation, ownership, use, occupancy or maintenance of the Property (collectively, the “Permits and Intangibles”); and (c) all assignable warranties or guaranties presently in effect from contractors, suppliers or manufacturers of personal property installed in or used in connection with the Property or any work performed or improvements included as a part of the Property (collectively, the “Warranties”).  (The Contracts, Permits and Intangibles, and Warranties are collectively referred to herein as the “Assigned Property”.)
Assignee hereby accepts, assumes, and agrees to all of the covenants, agreements, promises, terms, conditions and provisions contained in each of the Contracts hereby assigned to be observed, kept, performed or complied with by Assignor.  Assignee hereby agrees to hold Assignor harmless from any claim, demand, or cause of action which may be asserted against Assignors by any person arising from or relating to the Assigned Property which is alleged to have accrued on or subsequent to the date of this Assignment and Assumption of Contracts (this “Assignment and Assumption”). Assignor hereby agrees to hold Assignee harmless from any claim, demand, or cause of action which may be asserted against Assignee by any person arising from a breach, violation, or failure to perform any provision of any of the Contracts hereby assigned arising out of or relating to Assignor’s failure to perform any of its obligations under the Contracts accruing on or prior to the date of this Assignment and Assumption. 
This Assignment and Assumption may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same agreement.
This Assignment and Assumption is being delivered in connection with the Purchase and Sale Agreement dated as of ________ _____, 2015, between Assignor and Assignee, as the successor-in-interest to Preferred Apartment Communities Operating Partnership, L.P.

70

WITNESS the due execution hereof this ____ day of _________________ 2015.
	
	
	ASSIGNOR: 
 

LENOX VILLAGE PROPERTIES, LLC, a Tennessee limited liability company

By: ______________________________
Name:____________________________
Title: _____________________________

LENOX VILLAGE LIFESTYLE CENTER, LLC, a Tennessee limited liability company

By: ______________________________
Name:____________________________
Title: _____________________________

LENOX VILLAGE LIFESTYLE CENTER III, LLC, a Tennessee limited liability company

By: ______________________________
Name:____________________________
Title: _____________________________

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

ASSIGNEE:

71

 

 

72

SCHEDULE A TO ASSIGNMENT AND ASSUMPTION OF CONTRACTS 
 
[Real Property Description]

73

SCHEDULE B TO ASSIGNMENT AND ASSUMPTION OF CONTRACTS 
 
[List of Contracts]

74

Exhibit 9.01(f)
NOTICE TO RESIDENTS
_______________, 2015
Lenox Village Town Center 
_______________________ 
_______________________
Dear Tenant:
Notice is hereby given to the tenants of Lenox Village Town Center [Regent’s Building] [LV III] (the “Property”) that the current owner of the Property has sold the Property to ______________________, a ___________________ (“Purchaser”) effective ______________, 2015.  Purchaser has assumed all of the obligations of landlord under your lease, including any obligations with respect to your security deposit, if any, which has been transferred to Purchaser. 
Sincerely,

__________________
By: ________________________
Name: ______________________
Its: _________________________

75

Exhibit 9.01(k)

SELLER'S CERTIFICATION

The undersigned, LENOX VILLAGE PROPERTIES, LLC, a Tennessee limited liability company, LENOX VILLAGE LIFESTYLE CENTER, LLC, a Tennessee limited liability company, and LENOX VILLAGE LIFESTYLE CENTER III, LLC, a Tennessee limited liability company (collectively referred herein as "Seller"), do hereby certify to and agree with ______________________, a _______________ ("Purchaser") that:
1.    The representations and warranties of Seller made in that certain Purchase and Sale Agreement dated as of ________ _____, 2015, between Assignor and Assignee, as the successor-in-interest to Preferred Apartment Communities Operating Partnership, L.P (the "Agreement"), made between Seller, as seller, and Purchaser, as purchaser, relating to real property known as Lenox Village Town Center, Regent Building, and LV III, Nashville, Tennessee, are true and correct in all material respects as of the date hereof with the same effect as if said representations and warranties had been made as of the date hereof.
2.    All claims, liabilities and causes of action arising from such representations and warranties shall survive the Closing and any investigation by Purchaser or its representatives for the period set forth in the Agreement.
This Certification is executed and delivered by Seller with the intent to induce Purchaser to purchase the Property pursuant to the Agreement and recognizing that Purchaser intends to rely, and is relying, on this undertaking as additional consideration.
This Certification executed as of this ___ day of _____________ 2015.
SELLER:     

LENOX VILLAGE PROPERTIES, LLC, a Tennessee limited liability company

By: ______________________________
Name:____________________________
Title: _____________________________

LENOX VILLAGE LIFESTYLE CENTER, LLC, a Tennessee limited liability company

By: ______________________________
Name:____________________________

76

Title: _____________________________

LENOX VILLAGE LIFESTYLE CENTER III, LLC, a Tennessee limited liability company

By: ______________________________
Name:____________________________
Title: _____________________________

77

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