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Borrower incurred in the ordinary course of business;expenses for security services;advertising and marketing costs; payment of deductibles in connection with insurance claims not paid from reserves; tenant services; the amount of uninsured losses actually replaced, repaired or restored and not paid from reserves;cash deposits into an operating expense reserve in such amount reasonably approved by City or required by the holder of an Approved Senior Loan,but only if the accumulated operating reserve does not exceed six(6)months'projected Project operating expenses,reasonable commercial and retail reserves if required by the holder of an Approved Senior Loan, other reserve account deposits required pursuant to Approved Senior Loans, cash deposits into reserves for capital replacements in an amount no more than$600 per residential unit per year or such greater amount as reasonably required by the holder of an Approved Senior Loan or Borrower's investor limited partner or as required by a physical needs assessment prepared by a third-party selected or approved by City and prepared at Borrower's expense;an annual bond issuer fee(if required to be paid by Borrower in connection with the financing of the Project),and other ordinary and reasonable operating expenses. Payments to Borrower, its partners or affiliates in excess of the limitations set forth in this Section shall not be counted toward Annual Operating Expenses for the purpose of calculating Surplus Cash. 1.2.4 Exclusions From Annual Operating Expenses. Annual Operating Expenses shall exclude the following: developer fees and interest on any deferred developer fees (except as permitted pursuant to Section I.2.3);contributions to Project operating reserves(except as permitted pursuant to Section 1.2.3); 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 Deed of Trust (unless the City agrees otherwise in writing); depreciation, amortization,depletion and other non-cash expenses;expenses paid for with disbursements from any reserve account;(except as permitted pursuant to Section 1.2.3); any amount paid to Borrower,any general partner of Borrower, or any entity controlled by the persons or entities in control of Borrower or 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 1.2.3 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; partnership management fees,developer fees,asset management fees, and subject to Section 1.2.5, repayment of cash advances by Borrower or its partners to cover Project operating expense deficits or emergency cash needs of the Project or to cover other expenses permitted pursuant to Section 1.2.3. 1.3 Use of Reserves. Borrower shall fund Project operating expense and replacement reserves in the amounts set forth in Section 1.2.3. Draws from such reserves shall be used only for the purposes for which such reserves were established. Draws from replacement reserves shall be used only for capital improvements to the Project and shall be subject to City approval. 1.4 Term of Agreement. The term of this Agreement shall commence upon the date of execution hereof, and this Agreement will remain in full force and effect through and including the date which is fifty-five(55) years following the date of recordation of the Regulatory Agreement, unless terminated earlier pursuant to the terms of this Agreement.The Developer may also terminate this Agreement without fault by providing notice to the City of such termination prior to Developer's commencement of construction in the event the Developer determines that the Project is infeasible. 2220130.1 Page 4