GROUND LEASE - RIDGE VIEW COMMONS II

shall be payable only from Borrower's share of Surplus Cash. The asset management fee payable to the Investor Limited Partner shall be included in Annual Operating Expenses only during the fifteen (15) year period commencing upon the Project placed -in-service date. Following such 15 -year period, for the purpose of calculating Surplus Cash, only the partnership management fee shall be includable in Annual Operating Expenses. 1.3.4 EXCLUSIONS FROM ANNUAL OPERATING EXPENSES. For the purpose of calculating Surplus Cash, except to the extent expressly permitted pursuant to Section 1.3.3 above, Annual Operating Expenses shall exclude the following: incentive management fees, developer fees and interest on any deferred developer fees; contributions to Project reserves (except as permitted pursuant to Section 1.3.3); debt service payments on any loan which is not an Approved Senior Loan, including without limitation, unsecured loans (except for unsecured obligations to repay operating deficit loans and other obligations described in Section 1.3.5 below), sponsor loans, and loans secured by deeds of trust that are subordinate to the Deed of Trust; depreciation, amortization, depletion and other non-cash expenses; expenses paid for with disbursements from any reserve account; capital expenditures unless approved in advance by City; distributions to partners; any amount paid to any general partner of Borrower or any entity controlling or under common control with the entities that control any general partner of Borrower. Notwithstanding the foregoing limitation regarding payments to Borrower and related parties, the following fees shall be included in Annual Operating Expenses, subject to applicable limitations set forth in Section 1.3.3 above, even if paid to Borrower, an affiliate of Borrower, or a partner of Borrower: fees paid to a property management agent, resident services agent, or social services agent pursuant to a property management agreement or services agreement approved by City; partnership management fees, asset management fees, and subject to Section 1.3.5, repayment of cash advances by Borrower or its partners to cover Project operating expense deficits or emergency cash needs of the Project. Payments to Borrower, its partners or affiliates in excess of the applicable limitations set forth in Section 1.3.3 or for purposes that are excluded from Annual Operating Expenses pursuant to the terms of this Note, shall not be counted toward Annual Operating Expenses for the purpose of calculating Surplus Cash but may be paid from Borrower's share of Surplus Cash. 1.3.5 ADJUSTMENT TO OPERATING EXPENSES. Notwithstanding anything to the contrary set forth herein, for the purpose of calculating Surplus Cash, Annual Operating Expenses shall include: (a) the repayment of operating deficit loans provided by Borrower's limited partner(s) provided however, interest payable on such loans may be included in Annual Operating Expenses only in an amount equivalent to the lesser of (i) interest accrued at the actual interest rate charged for the loan, and (ii) interest accrued at the then -current Applicable Federal Rate, (b) the amount of any tax credit adjuster that is required to be paid solely from Project cash flow, and (c) subject to the terms and conditions set forth in Borrower's partnership agreement, the amount, if any, paid to the Investor Limited Partner to pay federal income taxes on net taxable income allocated by Borrower to the Investor Limited Partner. 1.4 COST SAVINGS. Within ten (10) business days after the Investor Limited Partner pays its capital contribution following the issuance of the IRS Form 8609 for the Project, Borrower shall pay to the City as a reduction of the outstanding principal balance of this Note, a one-time payment in the amount of Fifty Percent (50%) of Excess Proceeds. "Excess Proceeds" shall mean the sum of all sources of funding received by Borrower to finance the leasing of the Property and the acquisition and rehabilitation of the Project, including without limitation, construction and permanent loans, equity contributions, and grants and loans from private or public agency sources, less the sum D-1 4859-3312-3005v5