Agmt 2006 Allied Housing Program (2)

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deposits into operating reserves in an amount reasonably approved by City or required by the holder of any Approved Senior Loan, but in no event more than three percent (3%) of Annual Operating Expenses (excluding developer fees, asset management fees, and partnership management fees), and only ifthe accumulated operating reserve exceeds twelve months' gross Project rent; cash deposits into reserves for capital replacements in the amount required by the holder of any Approved Senior Loan but not less than $300 per unit per year, and only if the accumulated capital reserve exceeds twelve months of required reserves; and other ordinary and reasonable operating expenses. 1.5. EXCLUSIONS FROM ANNUAL OPERATING EXPENSES. Annual Operating Expenses shall exclude the following: debt service payments on any loan which is not an Approved Senior Loan, including without limitation, unsecured loans or loans secured by deeds of trust which are subordinate to the City Deed of Trust; depreciation, amortization, depletion or other non-cash expenses; capital expenditures; expenses paid for with disbursements from any reserve account; any amount paid to Borrower, or any entity controlled by the persons or entities in control of Borrower. Notwithstanding the foregoing limitation regarding payments to Borrower and related parties, fees paid to a property management agent or resident services agent shall be included in Annual Operating Expenses in accordance with the limitations set forth in Section 1.4.3. above even ifpaid to an affiliate of Borrower. 1.6 SECURITY. As security for repayment of the Note, Borrower shall execute the Deed of Trust in favor of City as beneficiary pursuant to which City shall be provided a lien against the Property and the improvements located thereon. The Deed of Trust shall be dated as of the Effective Date, shall be substantially in the form attached hereto as Exhibit C, and shall be recorded in the official records of Alameda County. The Deed of Trust may be subordinated only to such liens and encumbrances as City shall approve in writing and the Permitted Encumbrances (as defined in the City Deed of Trust). I. 7 PREPAYMENT: ACCELERA nON. 1.7.1 Prepayment. The Note or any portion of the outstanding principal balance due under the Note may be prepaid at any time and from time to time, without penalty or premium. Any prepayment of principal must be accompanied by interest accrued but unpaid to the date of receipt of prepayment. Prepayments shall be applied first to any unpaid late charges and other costs and fees then due, then to accrued but unpaid interest and then to principal. Any such prepayment shall have no effect upon Borrower's obligations under the Regulatory Agreement which shall survive any such prepayment. 1.7.2 Due on Sale or Encumbrance. Unless City agrees otherwise in writing, the entire unpaid principal balance and all interest and other sums accrued under the City Note shall be due and payable upon the Transfer of all or any part of, or interest in, the Property except as otherwise permitted by the Regulatory Agreement. 1.8 NONRECOURSE. Except as expressly provided in this Section 1.8, Borrower shall have no personal liability for payment ofthe principal of, or interest on the Note, and the sole recourse of City with respect to the payment of the principal of, and interest on the Note 818012-3 4