-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BAATMad7PYxAXntiw27OoDbuwKm0OhMryAtdpHJliiF+QkSaSz2PhcADI87B8TQQ tyhn4YdZJOy750D4l4Q9Cg== 0000923118-98-000047.txt : 19980817 0000923118-98-000047.hdr.sgml : 19980817 ACCESSION NUMBER: 0000923118-98-000047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOME PROPERTIES OF NEW YORK INC CENTRAL INDEX KEY: 0000923118 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 161455126 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13136 FILM NUMBER: 98691112 BUSINESS ADDRESS: STREET 1: 850 CLINTON SQ CITY: ROCHESTER STATE: NY ZIP: 14604 BUSINESS PHONE: 7162464105 MAIL ADDRESS: STREET 1: 850 CLINTON SQUARE CITY: ROCHESTER STATE: NY ZIP: 14604 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-13136 HOME PROPERTIES OF NEW YORK, INC. (Exact name of registrant as specified in its charter) MARYLAND 16-1455126 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 850 CLINTON SQUARE, ROCHESTER, NEW YORK 14604 (Address of principal executive offices) (Zip Code) (716) 546-4900 (Registrant's telephone number, including area code) N/A (Former name, former address and former year, if changed since last report) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: CLASS OF COMMON STOCK OUTSTANDING AT JULY 31, 1998 $.01 par value 15,779,038 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HOME PROPERTIES OF NEW YORK, INC. CONSOLIDATED BALANCE SHEETS JUNE 30, 1998 AND DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1998 1997 (UNAUDITED) (NOTE 1) ASSETS Real estate: Land $ 90,097 $ 62,640 Buildings, improvements and equipment 593,842 462,488 683,939 525,128 Less: accumulated depreciation ( 55,375) ( 46,531) Real estate, net 628,564 478,597 Cash and cash equivalents 88,101 3,809 Cash in escrows 11,958 10,211 Accounts receivable 3,813 3,531 Prepaid expenses 4,239 5,305 Deposits 3,535 605 Investments in and advances to affiliates 30,841 35,585 Deferred financing costs 1,381 1,637 Other assets 9,203 4,543 Total assets $781,635 $543,823 LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage notes payable $257,563 $210,096 Line of credit - 8,750 Accounts payable 5,113 5,082 Accrued interest payable 686 1,077 Accrued expenses and other liabilities 3,595 4,374 Security deposits 7,573 6,165 Total liabilities 274,530 235,544 Minority interest 185,840 156,847 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued - - Common stock, $.01 par value; 50,000,000 shares authorized; 15,580,677 and 9,317,556 shares issued and outstanding at June 30, 1998 and December 31, 1997, respectively 156 93 Excess stock, $.01 par value; 10,000,000 shares authorized; no shares issued - - Additional paid-in capital 348,472 176,021 Distributions in excess of accumulated earnings ( 22,454) ( 19,700) Treasury stock, at cost, 20,000 shares ( 426) ( 426) Officer and director notes for stock purchases ( 4,483) ( 4,556) Total stockholders' equity 321,265 151,432 Total liabilities and stockholders' equity $781,635 $543,823
The accompanying notes are an integral part of these consolidated financial statements. HOME PROPERTIES OF NEW YORK, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1998 1997 Revenues: Rental income $ 54,464 $ 26,107 Property other income 1,346 795 Interest income 2,161 595 Other income 1,114 809 Total revenues 59,085 28,306 Expenses: Operating and maintenance 25,637 13,513 General and administrative 2,544 792 Interest 9,087 4,725 Depreciation and amortization 8,899 4,757 Total expenses 46,167 23,787 Income before minority interest and extraordinary item 12,918 4,519 Minority interest 5,469 1,374 Income before extraordinary item 7,449 3,145 Extraordinary item, prepayment penalties, net of $205 allocated to minority interest (290) - Net income $ 7,159 $ 3,145 Basic earnings per share data: Income before extraordinary item $.67 $.47 Extraordinary item (.03) - Net income $.64 $.47 Diluted earnings per share data: Income before extraordinary item $.66 $.46 Extraordinary item (.03) - Net income $.63 $.46 Weighted average number of shares outstanding: Basic 11,108,109 6,708,489 Diluted 11,297,673 6,826,562
The accompanying notes are an integral part of these consolidated financial statements. HOME PROPERTIES OF NEW YORK, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1998 1997 Revenues: Rental income $ 29,370 $ 13,528 Property other income 844 359 Interest income 1,247 330 Other income 851 247 Total revenues 32,312 14,464 Expenses: Operating and maintenance 13,497 6,583 General and administrative 1,335 413 Interest 4,689 2,371 Depreciation and amortization 4,820 2,419 Total expenses 24,341 11,786 Income before minority interest and extraordinary item 7,971 2,678 Minority interest 3,297 802 Income before extraordinary item 4,674 1,876 Extraordinary item, prepayment penalties, net of $205 allocated to minority interest (290) - Net income $ 4,384 $ 1,876 Basic earnings per share data: Income before extraordinary item $.37 $.27 Extraordinary item (.02) - Net income $.35 $.27 Diluted earnings per share data: Income before extraordinary item $.37 $.26 Extraordinary item (.02) - Net income $.35 $.26 Weighted average number of shares outstanding: Basic 12,497,802 7,034,910 Diluted 12,686,401 7,125,302
The accompanying notes are an integral part of these consolidated financial statements. HOME PROPERTIES OF NEW YORK, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED, IN THOUSANDS)
1998 1997 Cash flows from operating activities: Net income $ 7,159 $ 3,145 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income of HP Management and Conifer Realty ( 20) 115 Income allocated to minority interest 5,469 1,374 Extraordinary item allocated to minority interest ( 205) - Depreciation and amortization 9,228 5,187 Changes in assets and liabilities: Other assets ( 2,557) ( 1,137) Accounts payable and accrued liabilities 269 333 Total adjustments 12,184 5,872 Net cash provided by operating activities 19,343 9,017 Cash flows used in investing activities: Purchase of properties, net of mortgage notes assumed ( 60,875) (18,233) Additions to properties ( 15,636) ( 6,465) Deposits on property ( 2,930) - Advances to affiliates ( 13,251) (14,465) Payments on advances to affiliates 18,016 5,519 Net cash used in investing activities ( 74,676) (33,644) Cash flows from financing activities: Proceeds from sale of common stock 156,054 22,406 Purchase of treasury stock - ( 426) Proceeds from mortgage and other notes payable 28,600 - Payments of mortgage and other notes payable ( 18,209) ( 1,529) Proceeds from line of credit 33,000 36,100 Payments on line of credit ( 41,750) (23,195) Additions to deferred loan costs ( 73) (80) Additions to cash escrows ( 1,747) ( 1,381) Dividends and distributions paid ( 16,250) ( 7,581) Net cash provided by financing activities 139,625 24,314 Net increase (decrease) in cash 84,292 ( 313) Cash and cash equivalents: Beginning of period 3,809 1,523 End of period $ 88,101 $ 1,210 Supplemental disclosure of cash flow information: Cash paid for interest $ 9,149 $ 4,447
The accompanying notes are an integral part of these consolidated financial statements. HOME PROPERTIES OF NEW YORK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. UNAUDITED INTERIM FINANCIAL STATEMENTS The interim consolidated financial statements of Home Properties of New York, Inc. (the "Company") are prepared pursuant to the requirements for reporting on Form 10-Q. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with generally accepted accounting principles are omitted. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the consolidated financial statements for the interim periods have been included. The current period's results of operations are not necessarily indicative of results which ultimately may be achieved for the year. The interim consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K, as filed with the Securities and Exchange Commission on March 24, 1998. 2. ORGANIZATION AND BASIS OF PRESENTATION Organization Home Properties of New York, Inc. (the " Company " ) was formed in November 1993, as a Maryland corporation and is engaged primarily in the ownership, management, acquisition and development of residential apartment communities in the Northeastern, Mid-Atlantic and Midwestern United States. As of June 30, 1998, the Company operated 234 apartment communities with 26,855 apartments. Of this total, the Company owned 72 communities, consisting of 17,775 apartments, managed as general partner 6,232 apartments and fee managed 2,848 apartments for affiliates and third parties. The Company also fee manages 1.7 million square feet of office and retail properties. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of the Company and its 63.4% (69.2% at June 30, 1997) general partnership interest in the Operating Partnership. The remaining 36.6% (30.8% at June 30, 1997) is reflected as Minority Interest in these consolidated financial statements. All significant intercompany balances and transactions have been eliminated in these consolidated financial statements. 3. EARNINGS PER COMMON SHARE The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", which was issued by the Financial Accounting Standards Board in February 1997. SFAS No. 128 requires dual presentation of basic earnings per share (EPS) and diluted EPS on the face of all statements of earnings for periods ending after December 15, 1997. Basic EPS is computed as net income divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation including stock options. The exchange of an Operating Partnership Unit for common stock will have no effect on diluted EPS as unitholders and stockholders effectively share equally in the net income of the Operating Partnership. HOME PROPERTIES OF NEW YORK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONT'D (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 3. EARNINGS PER COMMON SHARE CONT'D Net income is the same for both the basic and diluted calculation. The reconciliation of the basic weighted average shares outstanding and diluted weighted average shares outstanding for the six and three months ended June 30, 1998 and 1997 is as follows:
SIX MONTHS THREE MONTHS 1998 1997 1998 1997 Basic weighted average number of shares outstanding 11,108,109 6,708,489 12,497,802 7,034,910 Effect of dilutive stock options 189,564 118,073 188,599 90,392 Diluted weighted average number of shares outstanding 11,297,673 6,826,562 12,686,401 7,125,302
HOME PROPERTIES OF NEW YORK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 4. PRO FORMA FINANCIAL INFORMATION Pro Forma Combined Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 1998
Home Properties Pro Forma Company HISTORICAL ADJUSTMENT PRO FORMA Revenue: Rental income $54,464 $6,695 $ 61,159 Property other income 1,346 251 1,597 Interest income 2,161 - 2,161 Other income 1,114 - 1,114 Total Revenues 59,085 6,946 66,031 Expenses: Operating and Maintenance 25,637 3,024 28,661 General and administrative 2,544 91 2,635 Interest 9,087 2,068 11,155 Depreciation and amortization 8,899 1,027 9,926 Total Expenses 46,167 6,210 52,377 Income before minority interest and extraordinary item $12,918 $ 736 13,654 Minority Interest 6,122 Income before extraordinary item 7,532 Extraordinary item, net (273) Net income $7,259 Net income per common share - Basic $0.65 - Diluted $0.64 Weighted average number of shares outstanding - Basic 11,108,109 - Diluted 11,297,673
The pro forma information was prepared as if the transactions related to the acquisition of Candlewood Apartments (on January 9, 1998, 310 units for $13,350), Cedar Glen Apartments (on March 2, 1998, 110 units for $2,600), Park Shirlington Apartments and Braddock Lee Apartments (on March 13, 1998, 548 units for $26,401), Apple Hill Apartments (onMarch 27, 1998, 498 units for $23,500), Siegel Portfolio (on April 30, 1998, 1,589 units for $53,700) and Colonies Apartments (on June 24, 1998, 672 units for $23,000) had occurred on January 1, 1998. Adjustments to the pro forma combined statements of operations for the six months ended June 30, 1998, consist principally of providing net property operating activity and recording interest, depreciation and amortization from January 1, 1998 to the acquisition date. HOME PROPERTIES OF NEW YORK, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion is based primarily on the consolidated financial statements of Home Properties of New York, Inc. as of June 30, 1998 and 1997 and for the six-month and three-month periods then ended. This information should be read in conjunction with the accompanying consolidated financial statements and notes thereto. FORWARD-LOOKING STATEMENTS This discussion contains forward-looking statements. Although the Company believes expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that may cause actual results to differ include general economic and local real estate conditions, other conditions that might affect operating expenses, the timely completion of repositioning and current development activities within anticipated budgets, the actual pace of future acquisitions and developments and continued access to capital to fund growth. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity demands are expected to be distributions to stockholders, capital improvements and repairs and maintenance for the communities, acquisition of additional communities, property development and scheduled debt maturities. The Company intends to meet its short-term liquidity requirements through net cash flows provided by operating activities and its unsecured line of credit. The Company considers its ability to generate cash to continue to be adequate to meet all operating requirements and make distributions to its stockholders in accordance with the provisions of the Internal Revenue Code, as amended, to enable the Company to qualify as a REIT. The Company has an unsecured line of credit from Chase Manhattan Bank of $50 million with 100% available at June 30, 1998. Borrowings under the line of credit bear interest at 1.25% over the one-month LIBOR rate. Accordingly, increases in interest rates will increase the Company's interest expense and as a result will effect the Company's results of operations and financial condition. The unsecured line of credit expires on September 4, 1999, with a one year extension at the Company's option. As of July 31, 1998, the Company had established a $25 million standby facility provided by CIBC Oppenheimer (all drawn down) and a $50 million supplemental unsecured revolving credit facility with M&T Bank under terms consistent with its existing revolving credit facility. All credit facilities totaled $125 million with $45.5 million available. The recent debt proceeds were used to finance property acquisitions in excess of $158 million during July, 1998. To the extent that the Company does not satisfy its long-term liquidity requirements through net cash flows provided by operating activities and its unsecured lines of credit, it intends to satisfy such requirements through the issuance of UPREIT units, proceeds from the Dividend Reinvestment Plan ("DRIP"), long term secured or unsecured indebtedness, or the issuance of additional equity securities. As of June 30, 1998, the Company owned twenty-four properties with 4,962 apartment units, which were unencumbered by debt. At December 31, 1997, $59 million remained available under the Company's existing Form S-3 Registration Statement. On May 14, 1998, the Company filed a Form S-3 Registration Statement relating to the issuance of up to $400 million of unsecured debt, preferred stock or other equity securities. During the first six months of 1998, additional shares of common stock were issued under the shelf registrations as follows: $10.5 million during March from participating in a Unit Investment Trust; $35 million in April in a direct placement to a major institutional investor; $27 million in May from participating in a Unit Investment Trust; and $50 million in June from the Company's first public offering since its initial public offering in 1994. The net proceeds from these transactions were used by the Company to fund acquisitions, to repay borrowings outstanding under its line of credit and for general corporate purposes. These stock offerings contributed to the cash balance in excess of $80 million at June 30, 1998. This cash, plus borrowings from the credit facilities described above, were used to finance acquisitions in excess of $158 million during July, 1998. The issuance of UPREIT Units for property acquisitions continues to be a significant source of capital. During 1997, 5,636 apartment units in four separate transactions were acquired for a total cost of $195 million using UPREIT Units valued in excess of $106 million, with the balance paid in cash or assumed debt. During 1998, 2,447 apartment units in three separate transactions were acquired for a total cost of $94 million using UPREIT Units valued in excess of $45 million, with the balance paid in cash or assumed debt. In addition, over $36 million was raised during 1997 through the Company's DRIP, including over $4.5 million from officers and directors financed partially by a Company loan of $2.3 million. An additional $35 million has been raised through the DRIP program during the first six months of 1998. The Company's Board of Directors approved a stock repurchase program under which the Company may repurchase up to one million shares of its outstanding common stock. The Board's action did not establish a target price or a specific timetable for repurchase. During June 1997, the Company repurchased 20,000 shares at a cost of $.426 million. As of June 30, 1998, the weighted average rate of interest on mortgage debt is 7.7% with staggered maturities averaging nearly eight years. All of the debt is fixed rate. This limits the exposure to changes in interest rates, minimizing the effect on results of operations and financial condition. As of July 31, 1998, variable rate debt represents 23% of total debt outstanding. The following table sets forth information regarding the mortgage indebtedness at June 30, 1998.
Principal Interest Balance as of Rate as of Maturity June 30, 1998 COMMUNITIES LOCATION JUNE 30, 1998 DATE (000'S) FIXED RATE Landon Court Philadelphia, PA 7.75% 11/01/98 1,181 Williamstowne Village Buffalo, NY 2.50% 12/31/99 20 Westminster Syracuse, NY 7.22% 09/01/00 3,207 Perinton and Riverton Rochester, NY 6.75% (1) 09/01/00 11,919 Executive House Philadelphia, PA 8.50% 06/01/01 2,539 Harmark Village Square Philadelphia, PA 8.50% 06/01/01 2,857 Karen Court Philadelphia, PA 8.00% 09/01/01 1,299 Patricia Court Philadelphia, PA 8.00% 09/01/01 1,709 Springwood Philadelphia, PA 8.50% 11/01/01 1,496 Valley View Philadelphia, PA 8.50% 11/01/01 3,390 Royal Gardens Piscataway, NJ 7.66% 08/01/02 11,769 Williamstowne Village Buffalo, NY 7.37% (2) 10/27/02 9,798 Brook Hill Rochester, NY 7.75% 11/01/02 4,902 Garden Village Buffalo, NY 7.75% 11/01/02 4,614 1600 Elmwood Rochester, NY 7.75% 11/01/02 5,383 Village Green Syracuse, NY 7.75% 11/01/02 4,806 Chesterfield Philadelphia, PA 8.25% 01/01/03 6,765 Curren Terrace Philadelphia, PA 8.355% 11/01/03 9,654 Fairview Heights Ithaca, NY 7.71% (3) 11/01/03 3,979 Finger Lakes Manor Rochester, NY 7.71% (3) 11/01/03 3,979 Glen Manor Philadelphia, PA 8.125% 05/01/04 3,723 Colonies Chicago, IL 8.875% 05/01/04 12,642 Springcreek/Meadow Rochester, NY 7.63% (4) 08/01/04 3,178 Idylwood Buffalo, NY 8.625% 11/01/05 9,349 Mid Island Estates Bay Shore, NY 7.25% (5) 05/01/06 6,675 Newcastle Rochester, NY 6.00% (6) 07/31/06 6,150 Country Village Baltimore, MD 8.385% 08/01/06 6,695 Raintree Island Buffalo, NY 8.50% 11/01/06 6,448 Woodgate Place Rochester, NY 7.865% 01/01/07 3,454 Strawberry Hill Baltimore, MD 8.255% 05/01/07 2,080 Valley Park South Bethlehem, PA 6.93% 01/01/08 10,124 Hamlet Court Rochester, NY 7.11% 02/01/08 1,803 Candlewood South Bend, ID 7.02% 03/01/08 7,970 Ten Communities Detroit, MI 7.51% 06/01/08 49,653 Conifer Village Syracuse, NY 7.20% 06/01/10 2,765 Morningside/Carriage Hill Baltimore, MD 6.99% 05/01/13 20,575 Harborside Manor Syracuse, NY 8.92% 04/01/14 3,353 Village Green (Fairways) Syracuse, NY 8.23% 10/01/19 4,469 Raintree Island Buffalo, NY 8.50% 05/01/20 1,191 257,563
Interest Balance as of Rate as of Maturity June 30, 1998 COMMUNITIES LOCATION JUNE 30, 1998 DATE (000'S) LINE OF CREDIT Unsecured N/A 30 day LIBOR+1.25% On Demand - $257,563
(1) Fixed through August 4, 1999, then prime +.5% until maturity. (2) Fixed through November 1, 2000, then prime +.5% until maturity. (3) Fixed through April 30, 2000, then prime +.5% until maturity. (4) Fixed through July 31, 2000, then prime +.5% until maturity. (5) Fixed through March 31, 1998; 7.5%. April 1, 1998 through March 31, 2001; then 7.75% until maturity. (6) Fixed through July 31, 1999, then variable. RESULTS OF OPERATIONS COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO THE SAME PERIOD IN 1997 The Company had 27 apartment communities with 6,552 units and one small ancillary convenience shopping area which were owned during both of the six and three month periods being presented (the "Core Properties"). The Company has acquired an additional 45 apartment communities with 11,223 units during 1997 and 1998 (the "Acquired Communities"). The inclusion of these Acquired Communities generally accounted for the significant changes in operating results for six and three months ended June 30, 1998. A summary of the Core Property net operating income is as follows:
SIX MONTHS THREE MONTHS 1998 1997 %CHANGE 1998 1997 % CHANGE Rent $23,013,000 $22,467,000 3.2% $11,546,000 $11,359,000 1.6% Property other income 785,000 670,000 16.8% 409,000 348,000 17.5% Total income 23,798,000 23,137,000 3.6% 11,955,000 11,707,000 2.1% Operating and Maintenance (11,260,000) (11,814,000) 6.2% ( 5,455,000) ( 5,626,000) 3.0% Net operating income $12,538,000 $11,323,000 15.2% $6,500,000 $6,081,000 6.9%
Of the $28,357,000 increase in rental income, $27,811,000 is attributable to the Acquired Communities. The balance of this increase, which is from the Core Properties, was the result of an increase of 2.7% in weighted average rental rates, offset by a decrease in occupancy from 94.0% to 93.7%. Of the $551,000 increase in property other income, $680,000 is attributable to the Acquired Communities, with $115,000 representing a 17% increase for the Core Properties. This increase reflects bringing more laundry "in-house" versus contracting out. The balance, a $244,000 decrease, is from the Company's share of income/loss from various general partnership interests. Interest income increased $1,566,000, primarily attributable to an increase in construction loans and advances made to affiliated tax credit development partnerships. Other income increased by $305,000 due primarily to the acquisition of additional management contracts and a higher pace of development fee activity. Of the $12,124,000 increase in operating and maintenance expenses, $12,678,000 is attributable to the Acquired Communities. The balance for the Core Properties represents a 4.7% decrease over 1997. The major areas of decrease in the Core Properties occurred in utilities and snow removal costs. Our extreme mild 1998 weather, combined with normal gas rates (compared to very high rates in 1997) resulted in a positive variance in utilities of $606,000, or 23.8%, and $53,000, or 12.6% in snow removal costs. General and administrative expense increased in 1998 by $1,752,000, or 221% during a period when the Company more than doubled the number of owned apartment units. General and administrative expenses as a percentage of total revenues increased from 2.8% in 1997 to 4.3% in 1998. The biggest reason for this percentage growth is a result of the Company's incentive compensation plan which rewards exceptional FFO growth per share. The extraordinary growth during the first six months of 1998 resulted in a $322,000 bonus accrual this year compared to a $12,000 bonus accrual in the first six months of 1997. In addition, the Company recorded a $73,000 non-recurring expense related to doing business in the State of Pennsylvania. COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 TO THE SAME PERIOD IN 1997 Of the $15,842,000 increase in rental income, $15,655,000 is attributable to the Acquired Communities. The balance of this increase, which is from the Core Properties, was the result of an increase of 3.0% in weighted average rental rates, offset by a decrease in occupancy from 94.9% to 93.7%. Of the $485,000 increase in property other income, $419,000 is attributable to the Acquired Communities. In addition, the Core Properties increased 18%, or $61,000 reflecting bringing more laundry "in-house" versus contracting out. Other income increased by $604,000, due primarily to the acquisition of additional management contracts and a higher pace of development fee activity. Of the $6,914,000 increase in operating and maintenance expenses, $7,085,000 is attributable to the Acquired Communities. The balance for the Core Properties represents a 3.0% decrease over 1997. The major area of decrease in the Core Properties continues to be in the area of utility costs. FUNDS FROM OPERATIONS Management considers funds from operations to be an appropriate measure of performance of an equity REIT. The National Association of Real Estate Investment Trusts ("NAREIT") revised White Paper definition of funds from operations is income (loss) before gains (losses) from the sale of property and extraordinary items, before minority interest in the Operating Partnership, plus real estate depreciation. Management believes that in order to facilitate a clear understanding of the combined historical operating results of the Company, funds from operations should be considered in conjunction with net income as presented in the consolidated financial statements included elsewhere herein. Funds from operations does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. Funds from operations should not be considered as an alternative to net income as an indication of the Company's performance or to cash flow as a measure of liquidity. The calculation of funds from operations for the previous six quarters are presented below:
June 30 March 31 Dec. 31 Sept. 30 June 30 March 31 1998 1998 1997 1997 1997 1997 Net income $4,384 $2,775 $2,417 $ 828 $1,876 $1,269 Minority interest 3,297 2,172 2,451 423 802 572 Extraordinary item 290 - 1,037 - - - Depreciation from real property 4,770 4,038 3,715 2,654 2,389 2,305 Depreciation from real property from unconsolidated entities 72 196 168 76 76 4 (Gain) Loss from sale of property - - ( 872) 2,155 - - FFO $12,813 $9,181 $8,916 $6,136 $5,143 $4,150 Weighted average common shares/units outstanding: - Basic 21,312.3 17,303.6 15,215.0 10,827.1 10,139.1 9,254.7 - Diluted 21,500.9 17,501.1 15,417.7 10,950.1 10,229.5 9,397.6
All REITs may not be using the strict White Paper definition for new FFO. Accordingly, the above presentation may not be comparable to other similarly titled measures of FFO of other REITs. IMPACT OF THE YEAR-2000 ON SYSTEM PROCESSING The Company has undertaken a formal evaluation of all its date-sensitive computer systems and operations to ensure it will not be adversely impacted by Year-2000 software failures. The Company has addressed this issue with key vendors who have confirmed current compliance. Management's assessment of the Year-2000 issue is that it will not have a material impact on the Company's business operations, liquidity, financial position, or results of operations. INFLATION Substantially all of the leases at the communities are for a term of one year or less, which enables the Company to seek increased rents upon renewal of existing leases or commencement of new leases. These short- term leases minimize the potential adverse effect of inflation on rental income, although residents may leave without penalty at the end of their lease terms and may do so if rents are increased significantly. DECLARATION OF DIVIDEND On August 4, 1998, the Board of Directors approved a dividend of $.45 per share for the period from April 1, 1998 to June 30, 1998. This is the equivalent of an annual distribution of $1.80 per share. The dividend is payable August 25, 1998 to shareholders of record on August 14, 1998. SUBSEQUENT EVENTS Subsequent to June 30, 1998, the Company, in four separate transactions, acquired 4,861 apartment units in 20 communities located throughout the Northeastern quadrant of the United States. The total purchase price of $201.2 million included the assumption of existing debt of approximately $18.9 million, issuance of UPREIT units valued at approximately $14.1 million, plus cash of $168.2 million (including line of credit sources totaling $79.5 million). OTHER INCOME Other income for the six and three months ended June 30, 1998 and 1997 is summarized as follows:
SIX MONTHS THREE MONTHS 1998 1997 1998 1997 Management fees $ 605 $248 $334 $132 Development fees 387 606 216 253 Other 101 70 72 54 Management Companies 21 (115) 229 (192) $1,114 $809 $851 $247
Certain property management, leasing and development activities are performed by Home Properties Management, Inc. and Conifer Realty Corporation (the "Management Companies"). The Operating Partnership owns non-voting common stock in the Management Companies which entitles the Operating Partnership to receive 99% of the economic interest in the Management Companies. The Company's share of income from the Management Companies for the six and three months ended June 30, 1998 and 1997 is summarized as follows:
SIX MONTHS THREE MONTHS 1998 1997 1998 1997 Management fees $1,588 $1,432 $ 795 $ 694 Development fees 2,169 924 1,215 405 Miscellaneous 49 45 23 20 General and administrative (3,342) (2,304) (1,553) (1,198) Interest expense ( 297) ( 132) (167) (73) Other expenses (146) ( 81) (82) (42) Net income $ 21 ($ 116) $231 ($194) Company's share $ 21 ($ 115) $229 ($192)
PART II - OTHER INFORMATION HOME PROPERTIES OF NEW YORK, INC. ITEM 6. EXHIBITS AND REPORTS OR FORM 8-K (a) Exhibits: EXHIBIT DESCRIPTION 4.1 Home Properties of New York, Inc. Amended and Restated Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan 10.1 Credit Agreement dated as of July 6, 1998 among Home Properties of New York, L.P. and Manufacturers and Traders Trust Company. (b) Reports or Form 8-K: -- Form 8-K was filed on May 22, 1998, date of report March 30, 1998 with respect to various item 5 disclosures including: entering into an agreement to acquire one apartment community in Rochester, New York for $10.5 million; the closing of the acquisition of four apartment communities in Baltimore, Maryland in one transaction totaling $50.8 million; and certain approvals at the annual shareholders meeting of proposals contained in the Company's proxy statement. In addition, item 7 disclosures containing financial statements on the two above referenced acquisition transactions were presented. -- Form 8-K was filed on May 22, 1998, date of report May 15, 1998 with respect to an item 5 disclosure concerning entering into agreements to purchase 17 apartment communities for $155 million and disclosure concerning an accepted commitment letter from CIBC, Inc. for a $155 million loan that could be used to finance the above referenced portfolio. -- Form 8-K was filed on June 2, 1998, date of report March 17, 1998, with respect to item 5 and 7 disclosures concerning entering into an agreement to acquire an apartment community for a price of $22.8 million. -- Form 8-K was filed on June 4, 1998, date of report May 27, 1998, with respect to an item 5 disclosure concerning an underwriting agreement with PaineWebber, Inc. to purchase $27.4 million of common shares, before expenses. -- Form 8-K was filed on June 19, 1998, date of report June 15, 1998, with respect to an item 5 disclosure concerning an underwriting agreement with PaineWebber, Inc., BancAmerica Robertson Stephens, CIBC Oppenheimer Corp., Smith Barney, Inc. and Wheat First Union to purchase $47.8 million of common shares, net of underwriting discount but before expenses. -- Form 8-K was filed on July 13, 1998, date of report July 7, 1998 with respect to two item 5 disclosures including: closing on a $50 million supplemental unsecured revolving credit facility; and closing on the previously announced acquisition of 17 apartment communities for $155 million. -- Form 8-K was filed on August 6, 1998, date of report May 28, 1998, with respect to item 5 and 7 disclosures concerning the closing on an apartment community for $24.6 million as well as providing financial statement information. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOME PROPERTIES OF NEW YORK, INC. (Registrant) Date: AUGUST 14, 1998 By: /S/ DAVID P. GARDNER David P. Gardner Vice President Chief Financial Officer and Treasurer Date: AUGUST 14, 1998 By: /S/ NORMAN LEENHOUTS Norman Leenhouts Chairman and Co-Chief Executive Officer EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HOME PROPERTIES OF NEW YORK, INC.'S FINANCIAL STATEMENTS CONTAINED IN ITS JUNE 30, 1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1 88,101 0 3,813 0 0 0 683,939 55,375 781,635 0 257,563 0 0 156 321,109 781,635 0 59,085 0 37,080 0 0 9,087 12,918 0 7,449 0 (290) 0 7,159 .64 .63
EX-4 3 EXHIBIT 4.1 HOME PROPERTIES OF NEW YORK, INC. AMENDED AND RESTATEDDIVIDEND REINVESTMENT, STOCK PURCHASERESIDENT STOCK PURCHASE AND EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE AND ADMINISTRATION. The Home Properties' Dividend Reinvestment, Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan ("Plan") provides the stockholders of Home Properties of New York, Inc. ("Home Properties") an opportunity to automatically invest their cash dividends on shares of Home Properties' common stock, par value $.01 per share ("Common Stock"), in additional shares of Common Stock as well as to make monthly or other voluntary cash investments in shares of Common Stock. The Plan also provides the adult residents of multifamily residential properties owned by Home Properties ("Residents") with the opportunity to make voluntary cash investments in shares of Common Stock through regular monthly amounts added to their rent checks or other voluntary cash investments. Employees of Home Properties and its affiliates ("Employees") also have the opportunity under the Plan to make voluntary cash investments in shares of Common Stock through payroll deductions or other voluntary cash payments. Persons who are not already stockholders of Home Properties and who are not Residents or Employees may also purchase shares of Common Stock under the Plan through voluntary cash payments. A maximum of 1,500,000 shares of Common Stock is available under the Plan for purchase with optional cash payments. The Plan will, initially, be administered by American Stock Transfer & Trust Company, transfer agent for Home Properties. American Stock Transfer & Trust Company or any successor administrator of the Plan is referred to as the "Agent". 2. PURCHASE OF SHARES. (a) Purchases of Common Stock of Home Properties by the Agent for the Plan may be made, at Home Properties' option, either (i) from Home Properties out of its authorized but non-outstanding shares; or (ii) in the open market (on the New York Stock Exchange or any securities exchange where the common stock is then traded, in the over-the-counter market or in negotiated transactions). The "Plan Purchase Price" shall be, with respect to shares of Common Stock purchased from Home Properties, the average of the daily high and low sale prices of the Common Stock on the New York Stock Exchange for the period of five trading days preceding the Purchase Date (as hereinafter described) and, with respect to Common Stock purchased on the open market or in negotiated transactions, the weighted average price for all Common Stock purchased under the Plan with respect to the relevant Purchase Date. Home Properties may not change its designation as to whether shares of Common Stock will be purchased from Home Properties or on the open market more than once in any three month period and only, to the extent required by applicable law, rules or regulations, if Home Properties' needs to raise additional capital has changed, or another valid reason exists for the change. (b) In making purchases for the Participant's account, Agent may commingle the Participant's funds with those of other Participants in the Plan. Home Properties may commingle funds from resident and employee investments with those of other Participants and will transmit promptly (if required by applicable law, rules in regulations by the opening of business on the next business day if funds are received before noon, or by noon of the next business day if the funds are received after noon and otherwise in the ordinary course of business) all such funds to the Agent or to a segregated escrow account for the benefit of Participants at a bank or the gent. The price at which Agent shall be deemed to have acquired shares for the Participant's account shall be the weighted average price of all shares purchased by it as agent for all Participants in the Plan for that Purchase Date, without reduction for any commission, which shall be paid by Home Properties. Shares to be purchased by Agent on the open market will be purchased by Agent as promptly as practicable, consistent with the provisions of any applicable securities laws and market conditions, and in no event will dividends or optional cash payments be invested more than 30 days after receipt by Agent except where necessary to comply with applicable laws and regulations. The exact timing of open market purchases, including determining the number of shares, if any, to be purchased on any day or at any time of that day, the prices paid for such shares, the markets on which such purchases are made and the persons (including brokers and dealers) from or through which such purchases are made shall be determined by Agent or the broker selected by it for that purpose. Agent may purchase Common Stock in advance of a dividend payment date or interim investment date for settlement on or after such date. No interest will be paid on funds held by Agent pending investment. Agent may hold the shares of all Participants on deposit in its name or in the name of its nominee. Agent shall have no responsibility as to the value of the Home Properties' shares of Common Stock acquired for the Participant's account. It is understood that for a number of reasons, including observance of the Rules and Regulations of the Securities and Exchange Commission requiring temporary curtailment or suspension of purchases, it is possible that the whole amount of funds available in the Participant's account for the shares of Home Properties might not be applied to the purchase of such shares on or before the next ensuing Purchase Date. Agent shall not be liable when conditions prevent the purchase of shares or interfere with the timing of such purchases, provided, however, such funds shall be returned to Participants if not used to purchase Common Stock: (a) within 35 days of receipt of optional cash payments; or (b) within 30 days of the dividend date for dividend reinvestments. 3. DIVIDEND REINVESTMENT. As Participant's Agent, Agent will receive on or before each dividend payment date, cash from Home Properties equal to the dividend on the shares of Common Stock of Home Properties held by each stockholder participating in the Plan, as well as those full and fractional shares (computed to four decimal places) acquired under the Plan. Agent will apply such funds towards the purchase of shares of Common Stock for the Participant's account. The Purchase Date with respect to all funds received as cash for dividends from Home Properties shall be the dividend payment date as declared by Home Properties from time to time. The purchase price per share of Common Stock for shares purchased for the Plan with reinvested dividends shall be 97% of the Plan Purchase Price for the applicable Purchase Date, subject to the conditions of paragraph 18(b) below. Cash dividends on shares credited to the Participant's account will be automatically re-invested to purchase additional shares. 4. RESIDENT STOCK PURCHASE PLAN. Resident Participants will have the option of making voluntary cash contributions to Home Properties with their monthly rent check or by check payable to the Agent. As Participant's Agent, Agent will receive on or before the beginning of the five day pricing period of each month, the amount of regular monthly or other voluntary cash investments received directly by Home Properties from Resident Participants. Agent will apply such funds along with the funds that it has received directly from Resident Participants, towards the purchase of shares of Common Stock for the Resident Participant's account. The Purchase Date with respect to all such funds received from Resident Participants will be once per month on or about the tenth day of each month. Optional cash payments made by Resident Participants and received by Home Properties by no later than five business days prior to the applicable Purchase Date and by the Agent prior to the beginning of the five day pricing period for the applicable Purchase Date will be invested on the next applicable Purchase Date. The purchase price per share for shares purchased for the Plan with voluntary cash payments from Residents shall be 97% of the Plan Purchase Price for the applicable Purchase Date, subject to the conditions of paragraph 18(b) below. Subject to the provisions of paragraph 7 below, a Resident Participant's optional cash payments may be no less than $50 and no more than $5,000 in the aggregate in any one month. No interest will be paid on funds held by the Agent or Home Properties prior to investment. Cash investments received by Home Properties or the Agent will be returned to a Resident Participant upon written request received by Home Properties or the Agent (whichever received the investment) at least two (2) business days prior to the applicable Purchase Date. 5. EMPLOYEE STOCK PURCHASE PLAN. Individuals who are employees of Home Properties, Home Properties of New York, L.P., Home Properties Management, Inc. and any other entities under the control of Home Properties are eligible to participate in the employee stock purchase portion of the Plan. Employees will have the option of having their voluntary cash contributions automatically deducted from their paychecks pursuant to a payroll deduction or may make voluntary contributions by check payable to the Agent. As Participant's Agent, Agent will receive on or before the beginning of the five day pricing period of each month the amount of the voluntary cash investments received directly by Home Properties pursuant to payroll deductions authorized by Employee Participants. Agent will apply such funds along with the funds that it has received directly from Employee Participants, toward the purchase of shares of Common Stock for the Employee Participant's account. The Purchase Date with respect to all such funds received from Employee Participants will be once per month on or about the 10th day of each month. Optional cash payments made by Employee Participants by means of payroll deduction no later than five (5) days prior to the applicable Purchase Date or received by the Agent prior to the beginning of the five (5) day pricing period for the applicable Purchase Date will be invested on the next applicable Purchase Date. The purchase price per share for shares purchased for the Plan with voluntary cash payments either in the form of payroll deductions or otherwise from Employees shall be 97% of the Plan Purchase Price for the applicable Purchase Date, subject to the conditions of paragraph 18(b) below. Subject to the provisions of paragraph 7 below, an Employee Participant's optional cash payments may be no less than $50 and no more than $5,000 in the aggregate in any one month. No interest will be paid on funds held by the Agent or Home Properties prior to investment. Cash investments received by Home Properties or the Agent will be returned to an Employee upon written request received by Home Properties or the Agent (whichever received the investment) at least two (2) business days prior to the applicable Purchase Date. 6. STOCK PURCHASE PLAN. As Participant's Agent, Agent will receive monthly or other, as determined by the Participant, voluntary cash investments from all other Participants. Agent will apply such funds towards the purchase of shares of Common Stock for the Participant's account. The Purchase Date with respect to voluntary cash payments shall be once per month on or about the tenth of each month. Optional cash payments received by the Agent prior to the beginning of the five (5) day pricing period of each month will be invested on the applicable Purchase Date. The purchase price per share for shares purchased for the Plan with optional cash payments made by stockholders of record of Home Properties ("Stockholders") and limited partners of record of Home Properties of New York, L.P. ("Operating Partnership"), and all affiliate owned limited partnerships ("Partners") shall be 97% of the Plan Purchase Price for the applicable Purchase Date, subject to the conditions of paragraph 18(b) below. The purchase price per share for shares purchased for the Plan with optional cash payments made by persons who are not Stockholders, Partners, Residents or Employees on the Purchase Date shall be 100% of the Plan Purchase Price for the applicable Purchase Date. Subject to the provisions of paragraph 7 below, any optional cash payments by Participants who are Stockholders, Partners, Residents or Employees may be no less than $50 and no more than $5,000 in the aggregate in any one month. Subject to the provisions of paragraph 7 below, any optional cash payments by persons who are not Stockholders, Partners, Residents or Employees may be no less than $2,000 and no more than $5,000 in the aggregate in any one month. No interest will be paid on funds held by the Agent prior to investment. Voluntary cash investments received by the Agent will be returned to Participant upon written request received by the Agent at least two (2) business days prior to the applicable Purchase Date. 7. PERMITTED PAYMENTS IN EXCESS OF LIMITS. Optional cash payments in excess of $5,000, but not greater than $25,000 may be made with the prior approval of Home Properties. Optional cash purchases greater than $5,000 may receive a discount between 0% and 3% from the Plan Purchase Price. Home Properties reserves the right to review and adjust the discount each month. Optional cash payments in excess of $25,000 may be made by a Participant only upon approval by Home Properties of a written request for permission to make cash investments in excess of the above limit (a "Waiver Purchase Form") from such Participant. No pre- established maximum limit applies to optional cash payments that may be made pursuant to a Waiver Purchase. No minimum or maximum limit shall apply to cash payments made by means of a direction by a Partner to invest all or a portion of the distributions paid to them by the Operating Partnership or its affiliates to purchase Common Stock. Notwithstanding the above, Participants may not acquire more than 8% of the Common Stock outstanding at any time and a maximum of 1,080,000 shares is available under the Plan for purchase with optional cash payments. A Waiver Purchase will be considered on the basis of a variety of factors, which may include: Home Properties' current and projected capital requirements, the alternatives available to Home Properties to meet those requirements, prevailing market prices for the Common Stock and other Home Properties' securities, general economic and market conditions, expected aberrations in the price or trading volume of Home Properties' securities, the number of shares held by the Participant submitting the Waiver Purchase Form, the aggregate amount of optional cash payments for which such Waiver Purchase Forms have been submitted and the administrative constraints associated with granting such Waiver Purchase request. Grants of permission to purchase Common Stock in excess of $25,000 per month will be made in the absolute discretion of Home Properties. Unless it waives its right to do so, Home Properties may establish for each Purchase Date a minimum price (the "Threshold Price") which applies only to the investment of optional cash payments made pursuant to a Waiver Purchase request. The Threshold Price will be a stated dollar amount that the Plan Purchase Price of the Common Stock for the respective Purchase Date must equal or exceed. The Threshold Price will initially be established by Home Properties before the beginning of the five (5) day pricing period prior to the Purchase Date; however, Home Properties reserves the right to change the Threshold Price at any time. The Threshold Price will be determined in Home Properties' sole discretion after a review of current market conditions and other relevant factors. In the event that the Threshold Price is not satisfied for the respective Purchase Date, each Participant's optional cash payments made pursuant to a Waiver Purchase request would be returned, without interest, to such Participant. This return procedure will apply regardless of whether shares are purchased by the Agent in the open market or directly from Home Properties. For any Purchase Date, Home Properties may waive its right to set a Threshold Price for optional cash payments in excess of $25,000. Setting a Threshold Price for a Purchase Date shall not affect the setting of a Threshold Price for any subsequent Purchase Date. 8. ACCOUNTS. As soon as practicable after the purchases of shares have been completed for any Purchase Date, Agent will send to each Participant a statement of account confirming the transaction and itemizing any previous investment and reinvestment activity for the calendar year. Shares of Common Stock credited to a Participant's account may not be pledged or assigned, and any attempted pledge or assignment is void. A Participant who wishes to pledge or assign shares of Common Stock credited to the Participant's account must first withdraw such shares from the account. 9. AUTHORIZATION. Stockholder authorization for dividend reinvestment must be received by Agent at least one (1) day prior to the dividend record date for Home Properties' Common Stock; otherwise, such authorization shall not be effective until the next dividend record date. 10. INCOME TAX. The reinvestment of dividends does not relieve the Participant of any income tax which may be payable on such dividends. In the case of both foreign participants who elect to have their dividends reinvested and whose dividends are subject to United States income tax withholding and other Participants who elect to have their dividends reinvested and who are subject to "backup" withholding under Section 3406(a)(1) of the Internal Revenue Code of 1986, as amended, the Plan Agent shall invest in Shares in an amount equal to the dividends of such Participants less the amount of tax required to be withheld. 11. VOTING. All shares of Common Stock credited to a Participant's account under the Plan may be voted by the Participant. If on the record date for a meeting of Stockholders there are shares credited to the account of a Participant, that Participant will be sent the proxy material for the meeting and a proxy covering all of the Participant's shares, including shares credited to the Participant's account. If the Participant returns an executed proxy, it will be voted with respect to all of Participant's shares (including any fractional shares), or the Participant may vote all of the shares in person at the meeting. 12. CERTIFICATES. Shares of Common Stock purchased under the Plan are registered in the name of a nominee and shown on each Participant's account. However, a Participant may request a certificate for any of the whole shares which have accumulated in such Participant's account by written request. Each certificate issued is registered in the name or names in which the account is maintained, unless otherwise instructed in writing. If the certificate is to be issued in a name other than the name of the Plan account, the Participant or Participants must have his or her signature(s) guaranteed by a commercial bank or a broker. Certificates for fractional shares will not be issued in any case. Dividends will be continued to be paid on the cumulative holdings of both full and fractional shares remaining in the Participant's account and will automatically be reinvested. Participants who wish to do so may deposit certificates for shares of Home Properties' Common Stock registered in their names with the Agent for credit under the Plan. There is no charge for such deposits and by making such deposit the Participant will be relieved of the responsibility for loss, theft or destruction of the certificates. 13. TERMINATION OF PARTICIPATION. A Participant may terminate his account at any time by notifying the Agent in writing. Unless the termination notice is received by Agent at least five (5) days prior to any dividend record date, it cannot be processed until after purchases made from the dividends paid have been completed and credited to Participant's accounts. All dividends with a record date after timely receipt of notice for termination will be sent directly to the Participant. Agent may terminate the account by notice in writing mailed to the Participant. Once termination has been effected, Agent shall, within 30 days of receipt of such notice, issue to the Participant, without charge, certificates for the full shares held in Participant's account or, if he so requests, sell the full shares held under the Plan, deduct brokerage commissions, transfer taxes (if any) and a service charge and deliver the proceeds to Participant. The Participant's interest in any fractional share held in Participant's account at termination will be paid in cash at the then current market value of shares of Common Stock. A Participant will also be entitled to the uninvested portion of any voluntary investment, whether under the Resident Stock Purchase, Employee Stock Purchase or the Stock Purchase portions of the Plan, if notice of termination is received at least two (2) business days prior to the date when Agent becomes obligated to pay for purchased shares. If a Participant disposes of all shares represented by certificates registered in Participant's own name on the books of Home Properties but does not give notice of termination under the Plan, Agent may continue to reinvest the dividends on his or her stock held under the Plan until otherwise directed. 14. STOCK DIVIDENDS. It is understood that any stock dividends or stock splits distributed by Home Properties on shares of Common Stock held by Agent for the Participant will be credited to the Participant's account. In the event Home Properties makes available to its stockholders rights to purchase additional shares of Common Stock or other securities, the Participant will receive appropriate instructions in connection with all such rights directly from Agent in order to permit a Participant to determine what action Participant desires to take. 15. RESPONSIBILITY OF AGENT. Agent shall not be liable hereunder for any act done in good faith, or for any good faith omission to act, including, without limitation, any claims of liability: (1) arising out of failure to terminate any Participant's account upon such Participant's death prior to receipt of notice in writing of such death; and (2) with respect to the prices at which shares are purchased or sold for the Participant's account and the times such purchases or sales are made. 16. AMENDMENT OF PLAN. The Plan may be amended or supplemented by Home Properties at any time or times, but, except when necessary or appropriate to comply with law or the rules or policies of the Securities and Exchange Commission, the Internal Revenue Service or other regulatory authority or with respect to any modifications or amendments which do not materially affect the rights of Participants, such amendment or supplement shall only be effective upon mailing written notice at least 30 days prior to the effective date thereof to each Participant. The amendment or supplement shall be deemed to be accepted by the Participant unless prior to the effective date thereof, Agent receives written notice of the termination of Participant's account. Any such amendment may include an appointment by Agent in its place and stead of a successor Bank or Agent under these terms and conditions, in which event Home Properties is authorized to pay such successor Bank or Agent for the account of the Participant, all dividends and distributions payable on Home Properties shares of Common Stock held by the Participant for application by such successor Bank or Agent as provided in these terms and conditions. 17. TERMINATION OF PLAN. Home Properties reserves the right to suspend or terminate the Plan at any time and from time to time, and in particular, reserves the right to refuse optional cash payments from any person who, in the sole discretion of Home Properties, is attempting to circumvent the interests of the Plan by making excessive optional cash payments through multiple stockholder accounts or by engaging in arbitrage activities. Home Properties may also suspend, terminate or refuse participation in the Plan to any person if, participation or any increase in the number of shares held by such person, would, in the opinion of the Board of Directors of Home Properties jeopardize the status of the company as a real estate investment trust. 18. COMPLIANCE WITH APPLICABLE LAW AND REGULATIONS. (a) Home Properties' obligation to offer, issue or sell its newly issued shares hereunder shall be subject to Home Properties obtaining any necessary approval, authorization and consent from any regulatory authorities having jurisdiction over the issuance and sale of the shares. Home Properties may elect not to offer or sell its shares hereunder to persons residing in any jurisdiction where, in the sole discretion of Home Properties, the burden or expense of compliance with applicable blue sky or securities laws make that offer or sale impracticable or inadvisable. (b) Until Home Properties receives an opinion of counsel based upon a favorable letter ruling by the Internal Revenue Service in response to the request of other real estate investment trusts having plans similar to this Plan, or Home Properties receives a favorable letter ruling with respect to this Plan no discount will be allowed on cash purchases under the Resident Stock Purchase, Employee Stock Purchase and the Stock Purchase portions of the Plan. (c) To the extent required to comply with law or the rules or policies of the Securities and Exchange Commission, if Common Stock is purchased directly from Home Properties by the Agent under the Plan, neither Home Properties nor any "affiliated purchaser" as defined under the Securities Exchange Act of 1934, as amended, shall purchase any Common Stock on any day on which the market price of the Common Stock will be a factor in determining the Plan Purchase Price as provided in paragraph 2(a) of the Plan. 19. APPLICABLE LAW. The terms and conditions of this Plan shall be governed by the laws of the State of New York. 20. EFFECTIVE DATE. The effective date of the Plan as amended and restated was July 20, 1998. All correspondence and questions regarding the Plan and/or any Participant's account should be directed to: Chase Manhattan Bank C/o ChaseMellon Shareholder Services P.O. Box 3338 South Hackensack, New Jersey 07606-1938 Telephone: (888)245-0458 or such other address as to which notice is given to Participants in writing. EX-10 4 EXHIBIT 10.1 CREDIT AGREEMENT Dated as of July 6, 1998 Among HOME PROPERTIES OF NEW YORK, L.P. and MANUFACTURERS AND TRADERS TRUST COMPANY TABLE OF CONTENTS ARTICLE I Definitions SECTION 1.01. Defined Terms 1 SECTION 1.02. Classification of Loans and Borrowings 19 SECTION 1.03. Terms Generally 19 SECTION 1.04. Accounting Terms; GAAP 20 ARTICLE II The Credits SECTION 2.01. Commitments; Extension of Maturity Date 20 SECTION 2.02. Loans and Borrowings 20 SECTION 2.03. Requests for Borrowings 21 SECTION 2.04. Letters of Credit 22 SECTION 2.05. Funding of Borrowings 25 SECTION 2.06. Interest Elections 25 SECTION 2.07. Termination and Reduction of Commitment 27 SECTION 2.08. Repayment of Loans; Evidence of Debt 27 SECTION 2.09. Prepayment of Loans 28 SECTION 2.10. Fees 29 SECTION 2.11. Interest 30 SECTION 2.12. Alternate Rate of Interest 31 SECTION 2.13. Increased Costs 32 SECTION 2.14. Break Funding Payments 33 SECTION 2.15. Taxes 33 SECTION 2.16. Payments Generally 34 SECTION 2.17. Mitigation Obligations; Replacement of Lenders 34 ARTICLE III Representations and Warranties SECTION 3.01. Organization; Powers 35 SECTION 3.02. Authorization, Enforceability 35 SECTION 3.03. Governmental Approvals; No Conflicts 36 SECTION 3.04. Financial Condition; No Material Adverse Change 36 SECTION 3.05. Properties 37 SECTION 3.06. Intellectual Property 38 SECTION 3.07. Litigation and Environmental Matters 38 SECTION 3.08. Compliance with Laws and Agreements 39 SECTION 3.09. Investment and Holding Company Status 39 SECTION 3.10. Taxes 39 SECTION 3.11. ERISA 39 SECTION 3.12. Disclosure 40 SECTION 3.13. Insurance 40 SECTION 3.14. REIT Status 40 SECTION 3.15. Solvency 40 SECTION 3.16. Margin Regulations 41 SECTION 3.17. Representations and Warranties in this Agreement and in the other Loan Documents 41 ARTICLE IV Conditions SECTION 4.01. Effective Date 41 SECTION 4.02. Each Credit Event 43 ARTICLE V Affirmative Covenants SECTION 5.01. Financial Statements and Other Information 44 SECTION 5.02. Notices of Material Events 47 SECTION 5.03. Existence; Conduct of Business 48 SECTION 5.04. Payment of Obligations 48 SECTION 5.05. Maintenance of Properties; Insurance; Management48 SECTION 5.06. Books and Records, Inspection Right 48 SECTION 5.07. Compliance with Laws 48 SECTION 5.08. Use of Proceeds and Letters of Credit 49 SECTION 5.09. Company Status 49 SECTION 5.10. Ownership of Projects and Property 49 SECTION 5.11. Shareholder Communication, Filings, etc 50 SECTION 5.12. Further Assurances 50 ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness and Other Financial Covenants 50 SECTION 6.02. Liens 51 SECTION 6.03. Fundamental Change 52 SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions 52 SECTION 6.05. Hedging Agreements 53 SECTION 6.06. Transactions with Affiliates 53 SECTION 6.07. Restriction on Fundamental Change 53 SECTION 6.08. Margin Regulations, Securities Laws 54 SECTION 6.09. Negative Covenants of the Company and the QRS subsidiary 54 ARTICLE VII Events of Default Events of Default 55 ARTICLE VIII Miscellaneous SECTION 8.01. Notices 58 SECTION 8.02. Waivers; Amendments 58 SECTION 8.03. Expenses; Indemnity; Damage Waiver 59 SECTION 8.04. Successors and Assigns 60 SECTION 8.05. Survival 62 SECTION 8.06. Counterparts; Integration, Effectiveness 62 SECTION 8.07. Severability 62 SECTION 8.08. Right of Setoff 63 SECTION 8.09. Governing Law; Jurisdiction; Consent to Service of Process 63 SECTION 8.10. WAIVER OF JURY TRIAL 64 SECTION 8.11. Headings 64 SECTION 8.12. Confidentiality 64 SECTION 8.13. Interest Rate Limitation 65 SCHEDULES SCHEDULE 2.04 List of Existing Letters of Credit SCHEDULE 3.02 List of Ownership Structure SCHEDULE 3.04 List of Indebtedness SCHEDULE 3.07 List of Disclosed Matters SCHEDULE 3.13 List of Insurance EXHIBITS EXHIBIT A Assignment and Acceptance (See definition of Assignment and Acceptance) EXHIBIT B Form of Company's Guaranty (See definition of Guaranty) EXHIBIT C Form of Borrower's $50,000,000.00 Note (See definition of Note) EXHIBIT D-1 Form of Borrowing Request and Compliance Certificate for Borrowing (See Section 2.03) EXHIBIT D-2 Form of Notice of Issuance and Compliance Certificate for Letters of Credit (See Section 2.04(b)) EXHIBIT E Form of Opinion (See Section 4.01(b)) EXHIBIT F Chase Consent (See Section 4.01(j)) EXHIBIT G Quarterly Compliance Certificate (See Section 5.01(a)(iii)) CREDIT AGREEMENT, dated as of July 6, 1998, among HOME PROPERTIES OF NEW YORK, L.P., as Borrower, a New York limited partnership, and MANUFACTURERS AND TRADERS TRUST COMPANY, as Lender. The Borrower and Lender hereby agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Adjusted EBITDA" means, for any period, EBITDA for such period plus management, development and other income for such period less the Capital Expenditure Reserve Amount for such period. "Adjusted NOI" means, for any period, NOI for such period from Eligible Projects less the Capital Expenditure Reserve Amount for such period. "Adjusted Unencumbered NOI" means, for any period, Adjusted NOI derived from Unencumbered Eligible Projects and which Adjusted NOI is not subject to any Liens. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Adjusted Recourse Secured Indebtedness" means Recourse Secured Indebtedness where for the purposes of clause (b) of the definition of Recourse Secured Indebtedness (i) the Secured Indebtedness to Total Property Value of the Project is greater than 60% or (ii) the ratio of Adjusted NOI to Debt Service of the Project is less than 1.4 to 1.0. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agreement" means this Credit Agreement as modified, amended, extended or replaced from time to time. "Alternate Base Rate" means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "Annual Compliance Certificate" shall have the meaning set forth in Section 5.01(b)(iii). "Applicable Eurodollar Margin" means, for any day, 125 basis points. "Assessment Rate" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Lender to be representative of the cost of such insurance to the Lender. "Assignment and Acceptance" means an assignment and acceptance entered into by Lender and an assignee, in the form of Exhibit A. "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitment. "Bankruptcy Code" shall have the meaning set forth in Section 3.15. "Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Book Value" means the value at which a Property is reported on the financial statements of the Company in accordance with GAAP, less the amount of any Indebtedness or Liens related to such Property. 2 "Borrower" means Home Properties of New York L.P., a New York limited partnership. "Borrowing" means Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Request" means a request by the Borrower for a Revolving Loan in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "CAD" means "cash available for distribution" and shall mean, for any period, FFO less an annual reserve for anticipated recurring, nonrevenue generating capitalized costs, as reported on the financial statements of the Company in accordance with GAAP. "Capital Expenditure Reserve Amount" means, for any period, an amount equal to (i) $350 multiplied by the number of apartment units contained in all Projects multiplied by (ii) a fraction, the numerator of which is equal to the number of days in such period and the denominator of which is equal to 365. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Cash and Cash Equivalents" means unrestricted (i) cash; (ii) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; (iii) domestic and Eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies (fully protected against currency fluctuations), which, at the time of acquisition, are rated A-1 (or better) by S&P or P- 1 (or better) by Moody's, provided that the maturities of such Cash and Cash Equivalents shall not exceed one year; (iv) publicly traded equity securities issued by a REIT that primarily owns multi-family properties; and (iv) other marketable securities acceptable to the Lender. 3 "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 96011 et seq., any amendments thereto, any successor, statutes and any regulations or guidance promulgated thereunder. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Company; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Company by Persons who were neither (i) nominated by the board of directors of the Company nor (ii) appointed by directors so nominated; or (c) the acquisition of direct or indirect Control of the Borrower or the Company by any Person or group. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by Lender (or, for purposes of Section 2.13(b), by any lending office of Lender or by Lender's holding company) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Chase Agreement" means an existing Credit Agreement dated September 4, 1997, by and between Borrower, Lender as a lender and co-agent, and The Chase Manhattan Bank ("Chase") as a lender and administrative agent. "Closing Date" shall mean the date this Agreement is executed by the Borrower and the Lender. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to Lender, the commitment of Lender to make Revolving Loans and to issue Letters of Credit hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced from time to time pursuant to assignments by Lender pursuant to Section 9.04. The initial aggregate amount of the Lender's Commitment is $50,000,000. "Company" means Home Properties of New York, Inc., a Maryland corporation licensed to do business in New York State. "Consolidated Businesses" means the Company, the Borrower, the Management Companies, and their wholly-owned Subsidiaries. 4 "Contingent Obligation" as to any Person means, without duplication, (i) any contingent obligation of such Person required to be shown on such Person's balance sheet in accordance with GAAP, and (ii) any obligation required to be disclosed in the footnotes to such Person's financial statements in accordance with GAAP, guaranteeing partially or in whole any non-recourse Indebtedness, lease, dividend or other obligation, exclusive of contractual indemnities (including, without limitation, any indemnity or price-adjustment provision relating to the purchase or sale of securities or other assets) and guarantees of non- monetary obligations (other than guarantees of completion) which have not yet been called on or quantified, of such Person or of any other Person. The amount of any Contingent Obligation described in clause (ii) shall be deemed to be (a) with respect to a guaranty of interest or interest and principal, or operating income guaranty, the sum of all payments required to be made thereunder (which in the case of an operating income guaranty shall be deemed to be equal to the debt service for the note secured thereby), calculated at the interest rate applicable to such Indebtedness, through (i) in the case of an interest or interest and principal guaranty, the stated date of maturity of the obligation (and commencing on the date interest could first be payable thereunder), or (ii) in the case of an operating income guaranty, the date through which such guaranty will remain in effect, and (b) with respect to all guarantees not covered by the preceding clause (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such guaranty is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as recorded on the balance sheet and on the footnotes to the most recent financial statements of the applicable Person required to be delivered pursuant hereto. Notwithstanding anything contained herein to the contrary (1) guarantees of completion shall not be deemed to be Contingent Obligations unless and until a claim for payment has been made thereunder, at which time any such guaranty of completion shall be deemed to be a Contingent Obligation in an amount equal to any such claim and (2) Low Income Housing Credit Program Guarantees shall not be deemed to be Contingent Obligations. Subject to the preceding sentence, (i) in the case of a joint and several guaranty given by such Person and another Person (but only to the extent such guaranty is recourse, directly or indirectly to the Borrower), the amount of the guaranty shall be deemed to be 100% thereof unless and only to the extent that (X) such other Person has delivered Cash or Cash Equivalents to secure all or any part of such Person's guaranteed obligations or (Y) such other Person holds an Investment Grade Credit Rating from either Moody's or S&P, and (ii) in the case of a guaranty, (whether or not joint and several) of an obligation otherwise constituting Debt of such Person, the amount of such guaranty shall be deemed to be only that amount in excess of the amount of the obligation constituting Indebtedness of such Person. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. 5 "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.07. "Dollars" or "$" refers to lawful money of the United States of America. "Debt Service" means for any period the sum of (i) all interest obligations accrued on all Indebtedness with respect to a Project, (ii) all payments of principal required to be made (other than payments of any principal balance remaining to be paid by the terms of the applicable Indebtedness at the maturity thereof) with respect to any Indebtedness on a Project and (iii) the amortization of loan fees, original issue discount, non-cash interest payments, the interest component of Capital Lease Obligations and hedging costs (but excluding extraordinary interest expense, and net or amortization of deferred costs associated with new financings or refinancings of existing Indebtedness) during such period. "EBITDA" means, for any period, NOI for such period, less allocated corporate marketing, general and administrative expenses for such period. "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02). "Eligible Project" means any Project that (i) is 100% owned by a Consolidated Business, free of all title defects and material structural defects, (ii) has achieved an occupancy rate of not less than 80%, (iii) is managed by the Borrower, either Management Company or other Subsidiary of the Borrower, (iv) is free of all Hazardous Materials as verified by an environmental assessment report in form and substance satisfactory to the Lender. "Eligible Assignee" means (i) Lender or any Affiliate thereof; (ii) a commercial bank having total assets in excess of $5,000,000,000; (iii) the central bank of any country which is a member of the Organization for Economic Cooperation and Development having total assets in excess of $10,000,000,000; or (iv) a finance company or other financial institution reasonably acceptable to the Lender, which is regularly engaged in making, purchasing or investing in loans and having total assets in excess of $1,000,000,000 or is otherwise reasonably acceptable to the Lender. "Encumbered Eligible Project" means any Eligible Project all or any portion of which is encumbered by a Lien. "Environmental Laws" means any and all present and future federal, state or local laws, rules, regulations, statutes or codes and any and all ordinances, orders, decrees, 6 judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary of the Borrower directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the presence, generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "Equity Value" means Total Value less Total Outstanding Indebtedness. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. 7 "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Lender or any other Person who is a recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United states of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.17(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.15(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.15(a). "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Lender from three Federal funds brokers of recognized standing selected by it. "FFO" means "funds from operations" as defined in the National Association of Real Estate Investment Trusts ("NAREIT") White Paper on Funds From Operations as approved by the NAREIT Board of Governors on March 3, 1995. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "Fixed Charges" means, with respect to any fiscal period, the sum of (a) Total Interest Expense and (b) the aggregate of all scheduled principal payments on Indebtedness made or required to be made during such fiscal period for the Consolidated Businesses (but excluding balloon payments of principal due upon the stated maturity of an Indebtedness) and (c) the aggregate of all dividends declared and payable on the Company's, the Borrower's or any of their Subsidiaries' preferred stock or preferred partnership units, as the case may be, provided, however, that the distributions payable on the currently 8 outstanding Class A Limited Partnership Interests of the Borrower shall not be included in this clause (c). "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principals in the United States of America. "General Partner" means the Company and any successor general partner(s) of the Borrower. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purposes of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include (i) endorsements for collection or deposit in the ordinary course of business, (ii) guarantees of completion unless and until a claim for payment has been made thereunder, at which time any such guaranty of completion shall be deemed to be a Guaranty in an amount equal to any such claim and (iii) Low Income Housing Credit Program Guarantees. "Guaranty" means the Guaranty Agreement of even date herewith made by the Company for the benefit of the Lender in the form attached hereto as Exhibit B. "Hazardous Materials" means toxic substances, hazardous waste, hazardous materials or hazardous substances, as such terms are defined in the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 9601 et seq.), the Comprehensive Environmental, Response, Compensation and Liability Act, as amended 9 (42 U.S. C. Sections 9610 and 9657 et seq.) and/or the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et seq.), and the regulations promulgated pursuant to any such laws, any asbestos or asbestos related products and any oils, petroleum-derived compounds or pesticides; provided that "Hazardous Materials" shall not include (a) materials which exist in quantities or in a compounded non- hazardous form in compliance with all applicable Federal, state and local laws, ordinances, rules and regulations such as asphalt contained in road surfacing materials and (b) materials customarily used in the day-to-day operation and maintenance of the Properties which are stored, used and disposed of in accordance with all applicable Federal, state and local laws, ordinances, rules and regulations such as cleaning fluids. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Improvements" means all buildings, fixtures, structures, parking areas, landscaping and all other improvements whether existing now or hereafter constructed, together with all machinery and mechanical, electrical, HVAC and plumbing systems presently located thereon and used in the operation thereof, excluding (a) any such items owned by utility service providers, (b) any such items owned by tenants or other third-parties unaffiliated with the Borrower and (c) any items of personal property. "Indebtedness" of any Person means, without duplication, (a) all obligations (including, without limitation, Contingent Obligations) of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations (including, without limitation, Contingent Obligations) of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations (including, without limitation, Contingent Obligations) of such Person upon which interest charges are customarily paid, (d) all obligations (including, without limitation, Contingent Obligations) of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations (including, without limitation, Contingent Obligations) of such Person, (i) all obligations (including, without limitation, Contingent Obligations) of such Person as an account party in respect of letters of credit and letters of guaranty and 0) all obligations (including, without limitation, Contingent Obligations) of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other Person (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such Person, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. 10 "Indemnified Taxes" means Taxes other than Excluded Taxes. "Interest Election Request " means a request by the Borrower to convert or continue a Revolving Loan in accordance with Section 2.06. "Interest Payment Date" means the first day of each calendar month. "Interest Period" means the period commencing on the date of any Eurodollar Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect, provided that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Loan, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "LC Disbursement" means a payment made by the Lender pursuant to a Letter of Credit. "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. "Lease" means a lease, license, concession agreement or other agreement providing for the use or occupancy of any portion of any Project, including all amendments, supplements, modifications and assignments thereof and all side letters or side agreements relating thereto. "Lender" means Manufacturers and Traders Trust Company and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "Lender Questionnaire" means a Lender Questionnaire in a form supplied by the Lender. "Letter of Credit" means any letter of credit issued pursuant to this Agreement. 11 "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Lender from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of a bank or other financial institution selected by Lender in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loans" means the loans made by the Lender to the Borrower pursuant to this Agreement. "Loan Documents" means this Agreement, the Note, the Guaranty and all other instruments, agreements and written obligations between the Borrower and the Lender pursuant to or in connection with the transactions contemplated by this Agreement. "Low Income Housing Credit Program Guarantees" means the assurance by the Borrower to limited partners of certain Affiliates of the Borrower, of which the Borrower or a Subsidiary of the Borrower is the general partner, that the real properties developed and operated by such Affiliates under the Low Income Housing Tax Credit program established under the Code will be kept in compliance with applicable requirements to avoid loss of, or recapture of, low income housing tax credits. "Management Company" means either, (i) Home Properties Management, Inc., a Maryland corporation, 99% of the issued and outstanding capital stock of which is and shall continue to be owned, beneficially and of record, by the Borrower, and (ii) Conifer Realty Corporation, a Maryland corporation, 99% of the issued and outstanding capital stock of which is and shall continue to be owned, beneficially and of record, by the Borrower. "Margin Stock" means "margin stock" as such term is defined in Regulation U and Regulation G of the Federal Reserve Board as in effect from time to time. 12 "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations or condition (financial or otherwise) of the Borrower and its wholly-owned Subsidiaries, taken as a whole, (b) the ability of the Company, the Borrower or any of their Subsidiaries to perform any of their obligations under this Agreement or under the other Loan Documents or (c) the rights of or benefits available to the Lender under this Agreement or under the other Loan Documents. "Material Indebtedness" means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $7,500,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary of the Borrower in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Maturity Date" means September 4, 1999, as the same may be extended as provided in Section 2.01(b). "Maximum Availability" means the lesser of (a) $50,000,000 and (b) the sum of (i) 60% of the Total Property Value of Unencumbered Eligible Projects plus (ii) 60% of the Total Property Value of Encumbered Eligible Projects minus the amount of any Secured Indebtedness affecting such Projects, provided that such amount in this clause (ii) shall not be less than zero. "Money Market", when used in reference to any Loan or Borrowing, refers to whether such Loan or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Money Market Rate. "Money Market Loan Maturity Date" means, with respect to any Money Market Loan, the maturity date requested by the Borrower in connection therewith (which date shall in no event be later than the earlier of (a) 29 days after the date of such Borrowing thereof and (b) the Maturity Date). "Money Market Rate" means, with respect to any proposed Money Market Loan, the quoted rate per annum offered by the Lender to Borrower no later than 10:00 a.m., Rochester, New York time, two Business Days prior to the requested date of Borrowing (or, in the case of Money Market Loans having a Money Market Maturity Date of six days or less from the relevant date of Borrowing, the quoted rate per annum offered by the Lender to Borrower no later than one hour after the quote is requested by Borrower, which quote shall in no event be requested by Borrower later than 12:00 noon, Rochester, New York time, on the relevant date of Borrowing). "Moody's" means Moody's Investors Service, Inc. 13 "Multiemployer Plan" means a multi-employer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds" means all cash when and as received in connection with the sale or refinancing of any Real Property, less the amount of Secured Indebtedness required to be repaid in connection with the sale or refinancing of such Real Property, real estate transfer taxes payable in connection with the sale of such Real Property and reasonable costs and expenses paid by the Borrower or its Subsidiaries in connection with such sale or refinancing. "Net Offering Proceeds" means all cash received by the Company as a result of the sale of common shares, preferred shares, partnership interests, limited liability company interests, convertible securities or other ownership or equity interests in the Company, less customary costs and discounts of issuance paid by the Company. "NOI" means net operating income derived from Projects determined in accordance with GAAP, adjusted, however, to exclude accrued rent with respect to tenants that are more than 90 days in arrears in the payment of rent, and further adjusted to account for the actual management fee, if any, paid with respect to the Projects "Note" means a promissory note in the form attached hereto as Exhibit C payable to Lender, evidencing certain of the Obligations of the Borrower to Lender and executed by the Borrower, as the same may be amended, supplemented, modified or restated from time to time; "Notes" means, collectively, all of such Notes outstanding at any given time. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04; 14 (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; and (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary of the Borrower; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Permitted Investments" means: (a) Cash and Cash Equivalents; (b) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof, (c) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's; (d) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and (e) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (b) above and entered into with a financial institution satisfying the criteria described in clause (d) above. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership (general, limited or registered limited liability partnership or other partnership of any nature or kind), Governmental Authority or other entity of any nature or kind. 15 "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced from time to time by Lender as its prime rate in effect at its principal office in Buffalo, New York. Each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective, without notice to Borrower. "Project" means any residential housing building, related group of buildings or community owned 100%, directly or indirectly, by any of the Consolidated Businesses. "Property" means any Real Property or personal property, plant, building, facility, structure, equipment, general intangible, receivable, or other asset owned or leased by any Consolidated Business. "QRS Subsidiary" means the Company's wholly-owned Subsidiary that after the date hereof owns limited partnership interests in the Borrower. "Qualified Community Reinvestment Projects" means those Projects that comply with the Community Reinvestment Act or other applicable federal and state laws. "Quarterly Compliance Certificate" shall have the meaning set forth in Section 5.01(a)(iii). "Real Property" means all of the Borrower's present and future right, title and interest (including, without limitation, any leasehold estate) in (i) any plots, pieces or parcels of land, (ii) any Improvements of every nature whatsoever (the rights and interests described in clauses (i) and (ii) above being the "Premises"), (iii) all easements, rights of way, gores of land or any lands occupied by streets, ways, alleys, passages, sewer rights, water courses, water rights and powers, and public places adjoining such land, and any other interests in property constituting appurtenances to the Premises, or which hereafter shall in any way belong, relate or be appurtenant thereto, (iv) all hereditaments, gas, oil, minerals (with the right to extract, sever and remove such gas, oil and minerals), and easements, of every nature whatsoever, located in, on or benefiting the Premises and (v) all other rights and privileges thereunto belonging or appertaining and all extensions, additions, improvements, betterments, renewals, substitutions and replacements to or of any of the rights and interests described in clauses (iii) and (iv) above. "Recourse Secured Indebtedness" means (a) Guarantees of the Company, the Borrower and their Subsidiaries and (b) Secured Indebtedness affecting any Project that is recourse to the Borrower or its Subsidiaries. 16 "Register" has the meaning set forth in Section 9.04. "REIT" means a domestic trust or corporation that qualifies as a real estate investment trust under the provisions of Sections 856, et seq. of the Code. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Restricted Payment" is defined in Section 6.01 hereof. "Revolving Credit Exposure" means the sum of the outstanding principal amount of the Lender's Revolving Loans and its LC Exposure at such time. "Revolving Loan" means a Loan made pursuant to Section 2.03. "S&P" means Standard & Poor's. "Secured Indebtedness" means any Indebtedness secured by a Lien. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Lender is subject (a) with respect to the Base CD Rate, for new negotiable non-personal time deposits in dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proratio, exemptions or offsets that may be available from time to time to Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage, without notice to Borrower. "Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other Person the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. 17 "Three-Month Secondary CD Rate" means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H. 15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Lender from three negotiable certificate of deposit dealers of recognized standing selected by it. "Total Interest Expense" means, for any period, the sum of (i) interest expense of the Consolidated Businesses paid during such period and (ii) interest expense of the Consolidated Businesses accrued and/or capitalized for such period in each case including participating interest expense, the amortization of loan fees, original issue discount, non-cash interest payment, the interest component of Capital Lease Obligations and hedging costs but excluding extraordinary interest expense, and net of amortization of deferred costs associated with new financings or refinancings of existing Indebtedness. "Total Outstanding Indebtedness" means, as of any date, the sum of (i) all Indebtedness of the Consolidated Businesses and (ii) without duplication, all Contingent Obligations of the Consolidated Businesses which are recourse to the Borrower. "Total Outstanding Indebtedness" shall not be deemed to include (a) completion guarantees of construction loans or (b) Low Income Housing Tax Credit Program Guarantees. "Total Property Value" means, as of any date, the sum of (i) with respect to all Eligible Projects which have been owned by the Borrower for not less than four full consecutive calendar quarters, as of the first day of each fiscal quarter for the immediately preceding consecutive four calendar quarters, an amount equal to Adjusted NOI relating to such Eligible Project for such period divided by an annual interest rate equal to 9.5%, and (ii) with respect to all Eligible Projects which have been owned by the Borrower for less than four full consecutive calendar quarters, an amount equal to the cost of acquiring such Eligible Projects less reasonable and customary transaction costs incurred in connection with such acquisition, "Total Value" means, as of any date, the sum of (i) Total Property Value for all Eligible Projects; (ii) an amount equal to 500% of the EBITDA derived from management and development activities of the Consolidated Businesses as of the first day of each fiscal quarter for the immediately preceding consecutive four calendar quarters; (iii) unrestricted Permitted Investments of the Consolidated Businesses; (iv) an amount equal to 50% of Book Value of undeveloped land and Projects on which construction is in progress, up to a maximum of 10% of Total Value before including the amount of Total Value derived from this clause (iv); (v) an amount equal to 75% of all (1)investments in notes secured by mortgages on the Property of any Person (including Affiliates) and (2) obligations of Affiliates and directors, 18 officers and employees of the Company, the Borrower, the Borrower's Subsidiaries, the Borrower's Affiliates and the Management Companies to repay any loans and advances; and (vi) Borrower's pro rata share of investments in Real Property not constituting Eligible Projects, valued at the lower of cost or the value specified in clauses (i) through (vi) above. "Transactions" means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate or the Money Market Rate. "Unencumbered Eligible Project" means any Eligible Project with is not an Encumbered Eligible Project. "Unsecured Interest Expense" means the interest expense paid, accrued or capitalized on all Total Outstanding Indebtedness that is not Secured Indebtedness for the applicable period. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Type (e.g., a "Eurodollar Loan"). Borrowings also may be classified and referred to by Type (e.g., a "Eurodollar Borrowing"). SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof' and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. 19 SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Lender that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Lender notifies the Borrower that the Lender requests an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II The Credits SECTION 2.01. Commitments; Extension of Maturity Date. (a) Subject to the terms and conditions set forth herein, Lender agrees to make Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in the sum of the total Revolving Credit Exposure exceeding the total Maximum Availability. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans. (b) At the option of the Borrower and subject to the terms and conditions set forth herein, the Borrower may request that the Maturity Date be extended by one year to September 4, 2000. If the Borrower desires to so extend the Maturity Date, it shall deliver written notice of such desire (the "Extension Notice") to the Lender not later than the date which is ninety (90) days prior to the Maturity Date, together with (i) a certificate of a Financial Officer of the Borrower certifying that (A) the representations and warranties of the Borrower set forth in this Agreement are true and correct on and as of the date of certification, (B) no Default has occurred and is continuing and (C) no event has occurred since the date of this Agreement which has had, and continues to have, or is reasonably likely to have, a Material Adverse Effect; and (ii) the payment of any fee provided for in Section 2.10(c). Upon receipt of the foregoing, the Maturity Date then in effect shall be extended until September 4, 2000, but the Borrower shall have no further right to extend the Maturity Date. SECTION 2.02. Loans and Borrowings. (a) Subject to Section 2.12, each Borrowing shall be comprised entirely of ABR Loans, Money Market Loans or Eurodollar Loans as the Borrower may request in accordance herewith. The Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of the Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. 20 (b) At the commencement of each Interest Period for any Eurodollar Loan, such Loan shall be in an aggregate amount that is an integral multiple of $100,000 and not less than $1,000,000. At the time that each ABR Loan is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 and not less than $1,000,000; provided that an ABR Loan may be in an aggregate amount that is equal to the entire unused balance of the total Commitment or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.04(e). Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of five Eurodollar Loans outstanding. (c) Notwithstanding anything herein to the contrary, at no time shall the aggregate Revolving Credit Exposure be greater than the Maximum Availability. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. (e) Notwithstanding any other provision of this Agreement, no Loans with interest accruing at the Money Market Rate shall be made unless the Borrower accepts the quoted Money Market Rate offered by the Lender in Lender's sole discretion. SECTION 2.03. Requests for Borrowings. To request a Borrowing, the Borrower shall notify the Lender of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., Rochester, New York time, three Business Days before the date of the proposed Borrowing, (b) in the case of a Money Market Borrowing, not later than 11:00 a.m., Rochester, New York time, two Business Days before the date of the proposed Borrowing (or, in the case of Money Market Loans having a Money Market Maturity Date of six days or less from the relevant date of Borrowing, not later than 11:00 a.m., Rochester, New York time, on the date of the proposed Borrowing), or (c) in the case of an ABR Borrowing, not later than 11:00 a.m., Rochester, New York time, one Business Day before the date of the proposed Borrowing; provided that any such notice of an ABR Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.04(e) may be given not later than 10:00 a.m., Rochester, New York time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Lender of a written Borrowing Request in the form of Exhibit D-1 attached hereto, or such other forms approved by the Lender, and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; 21 mPAGE> (iii)whether such Borrowing is to be an ABR Borrowing, a Eurodollar Borrowing or a Money Market Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; (v) in the case of a Money Market Borrowing, the Money Market Loan Maturity Date to be applicable thereto, which shall be a date contemplated by the definition of the term "Money Market Maturity Date"; and (vi) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be a Eurodollar Borrowing with an Interest Period of one month's duration. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. If no Money Market Maturity Date is specified with respect to any requested Money Market Borrowing, then the Borrower shall be deemed to have selected a Money Market Maturity Date that is seven days after the date of such Borrowing. SECTION 2.04. Letters of Credit. (a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit for its own account, in a form reasonably acceptable to the Lender, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application, reimbursement agreement or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Lender relating to any Letter of Credit, the terms and conditions of this Agreement shall control. In connection with the issuance of a Letter of Credit, Borrower shall execute such letter of credit applications, reimbursement agreements and other agreements as Lender shall deem appropriate. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Lender) to the Lender (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice in the form of Exhibit D-2 attached hereto, or such other form approved by the Lender, and signed by the Borrower requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of 22 Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Lender, the Borrower also shall submit a letter of credit application on the Lender's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed an amount equal to 10% of the Maximum Availability and (ii) the sum of the total Revolving Credit Exposures shall not exceed the Maximum Availability. (c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date. (d) Reimbursement. If the Lender shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Lender an amount equal to such LC Disbursement not later than 12:00 noon, Rochester, New York time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., Rochester, New York time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, Rochester, New York time, on (i) the Business Day that the Borrower receives such notice, if such notice is received prior to 10:00 a.m., Rochester, New York time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that, if such LC Disbursement is not less than $ 1,000,000, the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 that such payment be financed with an ABR Revolving Loan in an equivalent amount and, to the extent so financed, the Borrower's obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Loan. (e) Obligations Absolute. The Borrower's obligation to reimburse LC Disbursements as provided in paragraph (d) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Lender under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder. Neither the Lender nor any of its Related Parties, shall have any liability or 23 responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Lender; provided that the foregoing shall not be construed to excuse the Lender from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the fullest extent permitted by applicable law) suffered by the Borrower that are caused by the Lender's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Lender may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (f) Disbursement Procedures. The Lender shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Lender shall promptly notify the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Lender has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Lender with respect to any such LC Disbursement. (g) Interim Interest. If the Lender shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Revolving Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (d) of this Section, then Section 2.11 (e) shall apply. (h) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Lender demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Lender, in the name of the Lender, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII. Such deposit shall be held by the Lender as 24 collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Lender shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Lender and at the Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Lender to reimburse itself for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived to the satisfaction of the Lender. (i) Existing Letters of Credit. Heretofore, on the dates indicated in Schedule 2.04, Lender, at the request of Borrower, issued the letters of credit specified therein ("Existing Letters of Credit"). On and after the Closing Date, the Existing Letters of Credit shall not constitute Letters of Credit issued under this Agreement. If either or both of the Existing Letters of Credit are extended or renewed ("Renewal LCs"), the aggregate face amount of the Renewal LCs shall constitute LC Exposure of Lender and shall reduce the Maximum Availability under this Agreement and Borrower shall pay to Lender the Letter of Credit fees provided in Section 2.10(c) for the Renewal LCs. SECTION 2.05. Funding of Borrowings. (a) Lender shall make each Loan to be made by it hereunder on the proposed date thereof by deposit of immediately available funds by 12:00 noon, Rochester, New York time, to the account of the Borrower maintained with Lender, or as otherwise agreed by Borrower and Lender. ABR Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.04(d) shall be retained by the Lender to satisfy the reimbursement of the LC Disbursement. SECTION 2.06. Interest Elections. (a) Each Loan initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Loan, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Loan to a different Type or to continue such Loan and, in the case of a Eurodollar Loan, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Borrower shall notify the Lender of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by 25 hand delivery or telecopy to the Lender of a written Interest Election Request in a form approved by the Lender and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing, a Eurodollar Borrowing or a Money Market Borrowing; (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) if the resulting Borrowing is a Money Market Borrowing, the Money Market Loan Maturity Date to be applicable thereto, which shall be a date contemplated by the definition of the term "Money Market Maturity Date." If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration, and if any such Interest Election Request requests a Money Market Borrowing but does not specify a Money Market Maturity Date, then the Borrower shall be deemed to have selected a Money Market Maturity Date that is seven days after the date of such Borrowing. (d) If the Borrower fails to deliver a timely Interest Election Request with respect to (i) a Eurodollar Loan prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period, such Loan shall be converted to a Eurodollar Loan with an Interest Period of one month's duration and (ii) a Money Market Loan prior to the Money Market Maturity Date applicable thereto, then, unless such Borrowing is repaid as provided herein, on the Money Market Maturity Date such Loan shall be converted to an ABR Loan. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Lender so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Loan may be 26 converted to or continued as a Eurodollar Loan and (ii) unless repaid, each Eurodollar Loan shall be converted to an ABR Loan at the end of the Interest Period applicable thereto and each Money Market Loan shall be converted to an ABR Loan on the Money Market Maturity Date applicable thereto. SECTION 2.07. Termination and Reduction of Commitment. (a) Unless previously terminated, the Commitment shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitment; provided that (i) each reduction of the Commitment shall be in an amount that is an integral multiple of $100,000 and not less than $1,000,000 and (ii) the Borrower shall not terminate or reduce the Commitment if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.09, the Revolving Credit Exposure would exceed the total Commitment. (c) The Borrower shall notify the Lender of any election to terminate or reduce the Commitment under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitment delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Lender on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitment shall be permanent. SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date. (b) The Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to the Lender resulting from each Loan made by the Lender, including the amounts of principal and interest payable and paid to the Lender from time to time hereunder. (c) The Lender shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to the Lender hereunder and (iii) the amount of any sum received by the Lender from the Borrower. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. 27 SECTION 2.09. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section. (b) The Borrower shall notify the Lender by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Loan, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Loan, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment, or (iii) in the case of prepayment of a Money Market Loan, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.07, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.07. Each partial prepayment of any Loan shall be in an amount that would be permitted in the case of an advance of a Loan of the same Type as provided in Section 2.02. Each prepayment of a Loan shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.11. (c) If at any time the Borrower or any of its Subsidiaries receives proceeds from the sale, transfer, assignment, conveyance or refinancing of any Real Property or any interest in any Real Property, the Borrower shall be required to prepay Indebtedness owed to Chase and Lender under the Chase Agreement and under the Chase Documents, as specified in Section 2.09(c) of the Chase Agreement in an amount equal to the Net Cash Proceeds unless the Borrower shall have obtained prior written consent from Chase and the Lender to retain the Net Cash Proceeds. If there is no Indebtedness outstanding under the Chase Agreement and under the Chase Documents at the time Borrower receives the Net Cash Proceeds (or such Indebtedness under the Chase Agreement and under the Chase Documents is less than the Net Cash Proceeds), then the Net Cash Proceeds (or the remaining balance thereof after payment of all amounts owed under the Chase Agreement and Chase Documents) shall be prepaid by Borrower to the Lender as a prepayment of principal on the Loans outstanding under this Agreement, unless the Borrower shall have received the prior written consent of the Lender to retain the Net Cash Proceeds or a specified portion thereof. In the event of a required prepayment in accordance with this clause (c), the Borrower shall simultaneously with the receipt of such Net Cash Proceeds make such prepayment together with the interest accrued to the date of the prepayment on the principal amount prepaid. In connection with the prepayment of any Loan prior to the maturity thereof, the Borrower shall also pay any applicable expenses pursuant to Section 2.14 hereof. Each such prepayment shall be applied to prepay ratably the Loans of the Lender. As used in this clause (c) only, the phrase "sale, transfer, assignment, conveyance or refinancing" shall not include sales or conveyances among Borrower and any of its Subsidiaries. 28 (d) If at any time the Revolving Credit Exposure exceeds the Maximum Availability, the Borrower shall be required to prepay a portion of the Loan in an amount equal to such excess. In the event of a required prepayment in accordance with this clause (d), the Borrower shall immediately make such prepayment together with the interest accrued to the date of the prepayment on the principal amount prepaid and shall, to the extent necessary, return or cause to be returned to the Lender such Letters of Credit so that immediately following such prepayment and return of such Letters of Credit the Revolving Credit Exposure shall not exceed the Maximum Availability; provided that in lieu of returning any such Letters of Credit, the Borrower may deposit with the Lender cash collateral in accordance with Section 2.04(h). In connection with the prepayment of any Loan prior to the maturity thereof, the Borrower shall also pay any applicable expenses pursuant to Section 2.14 hereof. Each such prepayment shall be applied to prepay ratably the Loans of the Lender. (e) If at any time (i) the Company or the Borrower merges or consolidates with another Person and the Company or the Borrower, as the case may be, is not the surviving entity, or (ii) the Company, the Borrower, any of its Subsidiaries or either Management Company, individually or collectively, ceases to provide property management and leasing services to at least 80% of the total number of Projects in which the Borrower has an ownership interest (the date any such event shall occur being the "Prepayment Date"), the Borrower shall be required to prepay the Loans in their entirety as if the Prepayment Date were the Maturity Date, and the Commitment shall be terminated as of the Prepayment Date, without further notice to the Borrower. In the event of a required prepayment in accordance with this clause (e), the Borrower shall on the Prepayment Date make such prepayment together with the interest accrued to the date of the prepayment on the principal amount prepaid and shall return or cause to be returned all Letters of Credit to the Lender. In connection with the prepayment of any Loan prior to the maturity thereof, the Borrower shall also pay any applicable expenses pursuant to Section 2.14 hereof. Each such prepayment shall be applied to prepay ratably the Loans of the Lender. Amounts prepaid pursuant to this paragraph (e) of Section 2.09 may not be reborrowed. SECTION 2.10. Fees. (a) On the Closing Date Borrower shall pay to Lender a commitment fee of $187,500.00, which shall be fully earned and non-refundable. (b) The Borrower agrees to pay to the Lender an unused facility fee, which shall accrue at a rate of 22.5 basis points per annum on the daily amount of the unused Commitment of the Lender during the period from and including the date hereof to but excluding the date on which the Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after the Commitment terminates, then such unused facility fee shall continue to accrue on the daily amount of the Lender's unused Commitment from and including the date on which the Commitment terminates to but excluding the date on which the Lender ceases to have any Revolving Credit Exposure. Accrued unused facility fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitment terminates, commencing on September 30, 1998; provided that any unused facility fees 29 accruing after the date on which the Commitment terminates shall be payable on demand. All unused facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) Upon the issuance of each Letter of Credit, the Borrower agrees to pay to the Lender an annual issuance fee equal to 1% of the face amount of the Letter of Credit, which Letter of Credit fee shall also be due and payable on each anniversary date of the issuance of the Letter of Credit (or any extension or renewal thereof), so long as the Letter of Credit (or any extension or renewal thereof), remains outstanding. Upon the issuance of each Letter of Credit (and upon each anniversary thereof so long as the Letter of Credit remains outstanding), the annual issuance fee shall be fully earned and non-refundable. Each annual Letter of Credit Fee shall be payable quarterly in arrears, with one-quarter of the annual issuance fee due three months from the issuance of the Letter of Credit (and also three months from each anniversary of the issuance of the Letter of Credit), one quarter of the annual issuance fee due six months from the issuance of the Letter of Credit (and also six months from each anniversary of the issuance of the Letter of Credit), one quarter of the annual issuance fee due nine months from the date of issuance of the Letter of Credit (and also nine months from each anniversary of the issuance of the Letter of Credit), and one quarter of the annual issuance fee due on the anniversary of the issuance of the Letter of Credit (and twelve months from each anniversary of the issuance of the Letter of Credit). Borrower shall also pay to the Lender the Lender's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. (d) In the event that the Borrower exercises its option to extend the Maturity Date in accordance with Section 2.01(b), the Borrower shall pay to the Lender an aggregate amount equal to 15 basis points on the then amount of the Commitment. (e) The Borrower agrees to pay to the Lender additional fees payable in the amounts and at the times separately agreed upon between the Borrower and the Lender. (f) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Lender. SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate, which rates are subject to change without notice to the Borrower as in the definition of Alternate Base Rate. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Eurodollar Margin. (c) The Loans comprising each Money Market Borrowing shall bear interest at the Money Market Rate. 30 (d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section. (e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for the immediately preceding calendar month and upon termination of the Commitment; provided that (i) interest accrued pursuant to paragraph (d) of this Section 2.11 shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate and Money Market Rate shall be determined by the Lender, and such determination shall be conclusive absent manifest error. SECTION 2.12. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Lender determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Lender determines that that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to the Lender of making or maintaining Loans included in such Borrowing for such Interest Period; then the Lender shall give notice thereof to the Borrower by telephone or telecopy as promptly as practicable thereafter and, until the Lender notifies the Borrower that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Loan to, or continuation of any Loan as, a Eurodollar Loan shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Loan, such Borrowing shall be made as a Money Market Loan with a Money Market Maturity Date of seven days from the date of such Borrowing, provided that if the circumstances giving rise to such notice affect only one Interest Period or one Type of Borrowings, then the other Interest Periods and Type of Borrowings shall be permitted. 31 SECTION 2.13. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by the Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on the Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by the Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to the Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to the Lender of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by the Lender (whether of principal, interest or otherwise), then the Borrower will pay to the Lender such additional amount or amounts as will compensate the Lender for such additional costs incurred or reduction suffered. (b) If the Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on the Lender's capital or on the capital of the Lender's holding company, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, the Lender, to a level below that which the Lender or the Lender's holding company could have achieved but for such Change in Law (taking into consideration the Lender's policies and the policies of the Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to the Lender such additional amount or amounts as will compensate the Lender or the Lender's holding company for any such reduction suffered. (c) A certificate of the Lender setting forth the amount or amounts necessary to compensate the Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section 2.13 shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay the Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of the Lender to demand compensation pursuant to this Section shall not constitute a waiver of the Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate the Lender pursuant to this Section 2.13 for any increased costs or reductions incurred more than 270 days prior to the date that the Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of the Lender's intention to claim compensation therefor; provided, further, that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. 32 SECTION 2.14. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.09(b) and is revoked in accordance therewith) or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.17, then, in any such event, the Borrower shall compensate the Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to the Lender shall be deemed to include an amount determined by the Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which the Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of the Lender setting forth any amount or amounts that the Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay the Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.15. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made to the Lender free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower hereby indemnifies the Lender for the full amount of any Indemnified Taxes or Other Taxes paid by the Lender on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, 33 whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by the Lender shall be conclusive absent manifest error. This indemnification obligation and all Borrower's other indemnification obligations under this Agreement shall survive the termination of the Commitment and the termination of this Agreement, and the payment of all Indebtedness of Borrower to the Lender, whenever arising. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Lender. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Lender), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. SECTION 2.16. Payments Generally. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.13, 2.14 or 2.15, or otherwise) prior to 12:00 noon, Rochester, New York time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Lender at its offices at One M&T Plaza, Buffalo, New York 14240. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a) If Lender requests compensation under Section 2.13, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of the Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not subject the Lender to any unreimbursed cost or expense and would not otherwise be 34 disadvantageous to the Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by the Lender in connection with any such designation or assignment. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Lender that: SECTION 3.01. Organization; Powers. Each of the Borrower, the Company and their Affiliates is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where it owns property or where the conduct of its business or the ownership of its property or assets (including, without limitation, the Projects) requires such qualification. Neither the Borrower, the Company nor any of their Affiliates are "foreign persons" within the meaning of Section 1445 of the Code. SECTION 3.02. Authorization, Enforceability. (a) The Transactions have been duly authorized by all necessary partnership action of the Borrower and the General Partner has the requisite power and authority to execute, deliver and perform this Agreement and the other Loan Documents on behalf of the Borrower. The Guaranty has been duly authorized by all necessary action of the Company and the Company has the requisite power and authority to execute, deliver and perform the Guaranty and the other Loan Documents to which it is a party. This Agreement and each other Loan Document to which it is a party has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. The Guaranty and each other Loan Document to which it is a party has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. (b) Schedule 3.02 contains a diagram indicating the ownership structure of the Company, the Borrower and their respective Subsidiaries, indicating the nature of such interest with respect to each Person included in such diagram and accurately sets forth (1) the correct legal name of such Person, the jurisdiction of its incorporation or organization and the jurisdictions in which it is qualified to transact business as a foreign corporation, or otherwise, and (2) the authorized, issued and outstanding shares or interests of each class of securities of the Company. None of such issued and outstanding securities is subject to any 35 vesting, redemption, or repurchase agreement, and there are no warrants or options outstanding with respect to such securities, except as noted on such Schedule. The outstanding capital stock of the Company is duly authorized, validly issued, fully paid and nonassessable. The Company has no Subsidiaries other than as set forth on such Schedule 3.02. SECTION 3.03. Governmental Approvals; No Conflicts. Neither the Transactions nor the execution, delivery and performance of the Loan Documents by the Borrower or the Company, as the case may be, (a) requires any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except as may be required under applicable federal securities laws, (b) violates any applicable law or regulation or the charter, by-laws, partnership agreement or other organizational documents of the Company, the Borrower or any of their Subsidiaries, or any order of any Governmental Authority, (c) violates or results in a default under any indenture, agreement or other instrument binding upon the Company, the Borrower or any of their Subsidiaries or their assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries including but not limited to the Chase Agreement and all agreements executed by Borrower and/or by any other Person under the Chase Agreement (collectively, the "Chase Documents") or (d) results in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. Neither Borrower nor Guarantor, nor any other Person is in default under the Chase Agreement and/or under any Chase Document and no condition exists, which, with notice, lapse of time or both (including but not limited to the Borrower's execution of this Agreement and the full borrowing by Borrower to the extent of the Maximum Availability), would constitute a default under the Chase Agreement and/or under any Chase Document. SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders (i) its annual audited financial statements for the fiscal year ended December 31, 1997, reported on by Coopers & Lybrand LLP, independent public accountants, and (ii) quarterly financial statements for the quarter ended March 31, 1998, certified by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. (b) Since March 31, 1998, there has been no change, event or circumstance which has had or is reasonably likely to have a Material Adverse Effect. (c) Neither the Borrower nor any of its Subsidiaries has any Contingent Obligation or liability for any taxes, long-term leases or commitments, not reflected in its audited financial statements delivered to the Lender on or prior to the Effective Date or otherwise disclosed to the Lender in writing, which will have or is reasonably likely to have a Material Adverse Effect. 36 (d) Schedule 3.04 sets forth, as of the date hereof, all Indebtedness of the Borrower and its Subsidiaries and there are no defaults in the payment of principal or interest on any such Indebtedness and no payments thereunder have been deferred or extended beyond their stated maturity. SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries has good and marketable title to, or valid leasehold interests in, all its Property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. Ownership of all wholly owned Projects and other Property of the Consolidated Businesses is held by the Borrower and its Subsidiaries and is not held directly by the Company. (b) There are no pending or, to the best knowledge of the Borrower, threatened proceedings or actions to revoke, attack, invalidate, rescind or modify in any material respect (i) the zoning of any Projects, or any part thereof, or (ii) any building or other permits issued heretofore issued with respect to any Project, or asserting that any such zoning or permits do not allow the operation of any such Project or any part thereof or that any improvements located on such Project cannot be operated in accordance with its intended use or is in violation of applicable law. There are no pending or, to the best knowledge of the Borrower, threatened or contemplated proceedings relating to any (A) taking by eminent domain or other condemnation of any portion of any Project, (B) condemnation or relocation of any roadways abutting any Project and (C) denial of access to any Project from any point of access to such Project. Each Project has adequate and permanent legal access to water, gas and electrical public utilities, storm, and sanitary sewerage facilities, other required public utilities (with respect to each of the aforementioned items by means of either a direct connection to the source of such utilities or through connections available on publicly dedicated roadways directly abutting such Project), parking and means of access between such Project and public highways over recognized curb cuts; and all of the foregoing comply with all applicable laws, rules and regulations of Governmental Authorities. (c) Neither the existence of any Improvements upon a Project or the present use or condition of any Project violate in any material respect any applicable laws, rules and regulations of any Governmental Authority. Each Project may be operated in its current fashion and the Borrower has received no notices from any Governmental Authority alleging any violation by any Project of any applicable laws, rules or regulations. All of the Improvements located on the Projects and the use of such Improvements are covered by existing valid certificates of occupancy and all other certificates and permits required by applicable laws, rules, regulations, and ordinances or in connection with the use, occupancy, and operation thereof. No material portion of any Projects, nor any Improvements located on such Projects that are material to the operation, use, or value thereof, have been damaged in any respect as a result of any fire, explosion, accident, flood, or other casualty, except to the extent that the same have been restored to their condition prior thereto. No written notices of violation of any federal, state, or local law or ordinance or order or requirement have been received with respect to any Projects. 37 (d) There are no pending or,. to the best of Borrower's knowledge, proposed special or other assessments for public improvements or otherwise affecting any Project, nor, to the best of Borrower's knowledge, are there any contemplated improvements to any Projects that may result in such special or other assessments. (e) Each Project is free of material structural defects and all building systems contained therein are in good working order subject to ordinary wear and tear. (f) Each Project is being operated and maintained in accordance with the Borrower's usual and customary business practices. SECTION 3.06. Intellectual Property. The Company, the Borrower and their Subsidiaries own, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Company, the Borrower and their Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.07. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the best knowledge of the Borrower, threatened against or affecting the Company, the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Company, the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any pen-nit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) There has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. (d) Except as may be disclosed in detail by the Borrower to the Lender in writing from time to time, no Hazardous Materials are located on or about any of the Properties, and the Properties do not contain any underground tanks for the storage or disposal of Hazardous Materials except for storage tanks which are in full compliance with all federal, state and local Environmental Laws; provided that notwithstanding the delivery of any such notice, the Borrower and each of its Subsidiaries shall at all times be in compliance 38 with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its Properties except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Further, (i) the Borrower has not, and to the knowledge of the Borrower no other Person has, (A) stored or treated Hazardous Materials, (B) disposed of Hazardous Materials or incorporated Hazardous Materials into, on or around any of the Properties, and (C) permitted any underground storage tanks to exist on any of the Properties, (ii) no complaint, order, citation or notice with regard to air emissions, water discharges, noise emissions, or Hazardous Materials, if any, or any other environmental, health, or safety matters affecting any of the Properties or any portion thereof, from any person, government or entity, has been issued to the Borrower which has not been remedied or cured, and (iii) the Borrower has complied with all applicable laws, rules or regulations affecting the Properties. SECTION 3.08. Compliance with Laws and Agreements. Each of the Company, the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of all Governmental Authorities applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.09. Investment and Holding Company Status. Neither the Company, the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.10. Taxes. Each of the Company, Borrower and its Subsidiaries has timely filed or caused to be filed all tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.11. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $250,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $250,000 the fair market value of the assets of all such underfunded Plans. 39 SECTION 3.12. Disclosure. The Borrower has disclosed to the Lender all agreements, instruments and corporate or other restrictions to which the Company, the Borrower or any of its Subsidiaries is subject, and all other matters known to the Borrower, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. SECTION 3.13. Insurance. Schedule 3.13 accurately sets forth as of the Effective Date all insurance policies and programs currently in effect with respect to the Properties, assets and business of the Company, the Borrower and its Subsidiaries, specifying for each such policy and program, (i) the amount thereof, (ii) the risks insured against thereby, (iii) the name of the insurer and each insured party thereunder, (iv) the policy or other identification number thereof, and (v) the expiration date thereof. The Borrower has delivered to the Lender copies of all insurance policies set forth on Schedule 3.13. Such insurance policies and programs are currently in full force and effect, and, together with payment by the insured of scheduled deductible payments, are in amounts sufficient to cover the replacement value of the respective Properties and assets of the Borrower and its Subsidiaries. SECTION 3.14. REIT Status. The Company qualifies as a REIT under the Code. SECTION 3.15. Solvency. Within the meaning of Section 548 of Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"), the Uniform Fraudulent Transfer Act and the Uniform Fraudulent Conveyance Act as in effect in any relevant jurisdiction, and any similar laws or statutes, and after giving effect to the transactions contemplated hereby: the fair saleable value of the Borrower's assets exceeds and will, immediately following the making of the Loans, exceed the Borrower's total liabilities including, without limitation, subordinated, unliquidated, disputed, and contingent liabilities; the fair saleable value of the Borrower's assets is and will, immediately following the making of each Loan, be greater than the Borrower's probable liabilities, including the maximum amount of its contingent liabilities on its debts as such debts become absolute and matured; the Borrower's assets do not and, immediately following the making of the Loans will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted; and the Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including without limitation contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts of 40 cash to be received by the Borrower and the amounts to be payable on or in respect of obligations of the Borrower). SECTION 3.16. Margin Regulations. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying any margin stock or margin securities (within the meaning of Regulations G, T, U and X issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loan will be used, directly or indirectly, to purchase or carry any margin stock or margin securities or to extend credit to others for the purpose of purchasing or carrying any margin stock or margin securities. None of the transactions contemplated by this Agreement will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended. SECTION 3.17. Representations and Warranties in this Agreement and in the other Loan Documents. The representations and warranties of the Borrower and of the Company, as the case may be, in this Agreement and in the other Loan Documents (collectively, the "Representations") are true, complete and correct in all material respects, and the Borrower hereby confirms each such representation and warranty as being true, complete and correct in all material respects as of the relevant dates with the same effect as if set forth in its entirety herein. The Representations shall be deemed to be made to Lender on a continuing basis, until the Maturity Date, and Borrower agrees to promptly notify Lender at any time that any Representation becomes untrue or misleading. ARTICLE IV Conditions SECTION 4.01. Effective Date. The obligations of the Lender to make Loans and to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): (a) The Lender (or its counsel) shall have received from the Borrower and Company and all other Persons who are parties to any Loan Document a counterpart of this Agreement and all other Loan Documents to which it is a party, signed on behalf of such party including, without limitation, the Guaranty. (b) The Lender shall have received a favorable opinion (addressed to the Lender and dated the Closing Date) of Nixon Hargrave Devans & Doyle LLP, counsel for the Borrower and the Company, substantially in the form of Exhibit E, and covering such other matters relating to the Borrower, the Company, this Agreement or the Transactions as the Lender shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (c) The Lender shall have received such documents and certificates as the Lender or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the Company and their Affiliates, the authorization of the 41 Transactions and any other legal matters relating to the Borrower, the Company and their Affiliates, this Agreement or the Transactions, all in form and substance satisfactory to the Lender and its counsel. (d) The Lender shall have received a certificate, dated the Closing Date and signed by the President, an Executive Vice President or a Financial Officer of the General Partner, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (e) No change in the business, assets, management, operations, financial condition or prospects of the Borrower or any of its Properties shall have occurred since March 31, 1998 which change, in the judgment of the Lender, will have or is reasonably likely to have a Material Adverse Effect. (f) Except as disclosed to the Lender in a letter from Borrower dated July 6, 1998, since March 31, 1998, neither the Borrower nor the Company shall have (i) entered into any (as determined in good faith by the Lender) commitment or transaction, including, without limitation, transactions for borrowings and capital expenditures, which are not in the ordinary course of the Borrower's or the Company's business, (ii) declared or paid any dividends or other distributions other than dividends paid to the shareholders of the Company for the quarter ended March 31, 1998, (iii) established compensation or employee benefit plans or (iv) redeemed or issued any equity Securities other than shares of common stock, par value $.01 per share, of the Company (1) issued from time to time pursuant to the terms and conditions of the Company's Dividend Reinvestment and Stock Purchase, Resident Stock Purchase and Employee Stock Purchase Plan and (2) issued in exchange for limited partnership interests in the Borrower. (g) Since March 31, 1998, no agreement or license relating to the business, operations or employee relations of the Borrower or any of its Properties shall have been terminated, modified, revoked, breached or declared to be in default, the termination, modification, revocation, breach or default under which, in the reasonable judgment of the Lender, would result in a Material Adverse Effect. (h) Since March 31, 1998, no material adverse change shall have occurred in the conditions in the capital markets or the market for loan syndications generally. (i) The Lender shall have received all fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder including but not limited to the Lender's attorneys' fees and disbursements. (j) Chase, in its capacity as a lender and administrative agent under the Chase Agreement, shall give its written consent to Borrower's and Lender's execution of this Agreement and the other Loan Documents ("Chase Consent"), which Chase consents shall 42 be in the form of Exhibit F, with blanks appropriately completed. The Lender shall notify the Borrower of the Effective Date, and such notice shall be conclusive and binding. (k) Borrower shall deliver to Lender pro-forma covenant compliance statement showing that with an aggregate of $50,000,00.00 in outstanding borrowings under this Agreement or under the Chase Agreement, Borrower will be in full compliance with all financial covenants contained in this Agreement and in the Chase Agreement ("Pro-Forma"). Lender acknowledges receipt of a satisfactory Pro-Forma. SECTION 4.02. Each Credit Event. The obligation of Lender to make a Loan on the occasion of any Borrowing, and of the Lender to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrower set forth in this Agreement shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable. (b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing. (c) The Borrower has not received written notice from the Lender that an event has occurred since the date of this Agreement which has had, and continues to have, or is reasonably likely to have, a Material Adverse Effect. (d) The Borrower shall have delivered to Lender a certificate in the form of Exhibit D-1 or D-2, as applicable, attached hereto, signed by a Financial Officer of the Borrower, (1) representing and certifying that immediately prior to and immediately after the requested Borrowing or the issuance, amendment or extension of a Letter of Credit, the Company, the Borrower and their Subsidiaries are in compliance with the Representations and covenants contained in this Agreement and (2) including the calculations set forth therein. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) through (d) of this Section 4.02. ARTICLE V Affirmative Covenants Until the Commitment has expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lender that: 43 SECTION 5.01. Financial Statements and Other Information. The Borrower will furnish to the Lender: (a) Quarterly Reports. (i) Borrower Quarterly Financial Reports. As soon as practicable, and in any event within forty-five (45) days after the end of each fiscal quarter in each fiscal year (other than the last fiscal quarter in each fiscal year), a consolidated balance sheet and the related consolidated statement of operations of the Borrower and its Subsidiaries (to be prepared and delivered quarterly in conjunction with the other reports delivered hereunder) for each such fiscal quarter, in each case in form and substance used in the preparation of the consolidating financial statements of the Company and, with respect to the statement of operations, in comparative form, the corresponding figures for the corresponding periods of the previous fiscal year, certified by a Financial Officer of the Borrower as fairly presenting the consolidated financial position of the Borrower as of the dates indicated and the results of their operations for the months indicated in accordance with GAAP, subject to normal quarterly adjustments but without certain footnote disclosures required by GAAP. (ii) Company Quarterly Financial Reports. As soon as practicable, and in any event within forty-five (45) days after the end of each fiscal quarter in each fiscal year (other than the last fiscal quarter in each fiscal year), a consolidated balance sheet and the related consolidated statements of operations and cash flow of the Company, the Borrower and its Subsidiaries on Form 10-Q as at the end of such period and, with respect to the statements of operations and cash flow, setting forth in comparative form the corresponding figures for the corresponding period of the previous fiscal year, certified by a Financial Officer of the Company as fairly presenting the consolidated and consolidating financial position of the Company, the Borrower and its Subsidiaries as at the date indicated and the results of their operations and cash flow for the period indicated in accordance with GAAP, subject to normal adjustments but without certain footnote disclosures required by GAAP (as permitted by the requirements for reporting on Form 10-Q). (iii) Quarterly Compliance Certificates. Together with each delivery of any quarterly report pursuant to clauses (i) and (ii) of this Section 5.01 (a), the Borrower shall deliver a certificate of the Borrower and the Company in the form of Exhibit G attached hereto (the "Quarterly Compliance Certificate"), signed by the Borrower's and the Company's respective Financial Officers, representing and certifying (1) that the Financial Officer signatory thereto has reviewed the terms of this Agreement and the other Loan Documents, and has made, or caused to be made under his/her supervision, a review in reasonable detail of the Transactions and consolidated and consolidating financial condition of the Company, the Borrower and its Subsidiaries, during the fiscal quarter covered by such reports, that such review has not disclosed the existence during or at the end of such fiscal quarter, and that such 44 officer does not have knowledge of the existence as at the date of such Quarterly Compliance Certificate, of any condition or event which constitutes an Event of Default or Default or mandatory prepayment event, or, if any such condition or event existed or exists, and specifying the nature and period of existence thereof and what action the Company and/or the Borrower or any of its Subsidiaries has taken, is taking and proposes to take with respect thereto; and (2) the calculations evidencing compliance with each of the financial covenants set forth in Article VI hereof. (b) Annual Reports. (i) Borrower Financial Statements. As soon as practicable, and in any event within ninety (90) days after the end of each fiscal year, a consolidated balance sheet and the related consolidated statement of operations of the Borrower and its Subsidiaries as at the end of such fiscal year, in each case in form and substance used in the preparation of the consolidating financial statements of the Company and, with respect to the statement of operations, in comparative form, the corresponding figures for the corresponding periods of the previous fiscal year, certified by a Financial Officer of the Borrower as fairly presenting the consolidated financial position of the Borrower as of the dates indicated and the results of their operations for the months indicated in accordance with GAAP, subject to normal year-end adjustments but without certain footnote disclosures required by GAAP. (ii) Company Financial Statements. As soon as practicable, and in any event within ninety (90) days after the end of each fiscal year, (i) an audited consolidated balance sheet and the related consolidated statements of operations and cash flow of the Company and its Subsidiaries on Form 10-K as at the end of such fiscal year and a report setting forth in comparative form the corresponding figures from the consolidated financial statements of the Company and its Subsidiaries for the prior fiscal year; (ii) a report with respect thereto of Coopers & Lybrand LLP or other nationally recognized independent certified public accountants acceptable to the Lender, which report shall be unqualified and shall state that such financial statements fairly present the consolidated financial position of the Company and its Subsidiaries as at the dates indicated and the consolidated results of its operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes with which Coopers & Lybrand LLP or any such other independent certified public accountants, if applicable, shall concur and which shall have been disclosed in the notes to the financial statements) (which report shall be subject to the confidentiality limitations set forth herein); and (iii) in the event that the report referred to in clause (ii) above is qualified, a copy of the management letter or any similar report delivered to the Company or to any officer or employee thereof by such independent certified public accountants in connection with such financial statements. The Lender may, with the consent of the Company (which consent shall not be unreasonably withheld), communicate directly with such accountants, with any such communication to occur together with a representative of the Company, at the 45 expense of the Lender, upon reasonable notice and at reasonable times during normal business hours. (iii) Annual Compliance Certificates. Together with each delivery of any annual report pursuant to clauses (i) and (ii) of this Section 5.01(b), the Borrower shall deliver a certificate of the Borrower and the Company in the form of Exhibit G attached hereto (the "Annual Compliance Certificate"), signed by the Borrower's and the Company's respective Financial Officers, representing and certifying (1) that the officer signatory thereto has reviewed the terms of this Agreement and the other Loan Documents, and has made, or caused to be made under his/her supervision, a review in reasonable detail of the transactions and consolidated and consolidating financial condition of the Company, the Borrower and its Subsidiaries, during the accounting period covered by such reports, that such review has not disclosed the existence during or at the end of such accounting period, and that such officer does not have knowledge of the existence as at the date of such Annual Compliance Certificate, of any condition or event which constitutes an Event of Default or Default or mandatory prepayment event, or, if any such condition or event existed or exists, and specifying the nature and period of existence thereof and what action the Company and/or the Borrower or any of its Subsidiaries has taken, is taking and proposes to take with respect thereto; and (2) the calculations evidencing compliance with each of the financial covenants set forth in Article VI hereof. (c) Accountant's Certificate. Concurrently with any delivery of financial statements under clause 5.01(b) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines). (d) Property Reports. When requested by the Lender, a rent roll and income statement with respect to any Project. (e) Community Reinvestment Act. Promptly following any request therefor, such other information regarding the Loans and the use thereof, Qualified Community Reinvestment Projects and the Company, the Borrower and its Subsidiaries as any Lender may request to determine compliance by the Projects with the Community Reinvestment Act or other applicable federal or state law; provided that the Borrower shall have no obligation hereunder to deliver any such information to the Lender more than one time in any calendar quarter. (f) Additional Information. Promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Company, the Borrower or any Subsidiary of the Borrower, or compliance with the terms of this Agreement, as the Lender may reasonably request. 46 SECTION 5.02. Notices of Material Events. (a) The Borrower will furnish to the Lender prompt written notice of the following: (i) the occurrence of any Default; (ii) the filing or commencement of any judicial action or suit or proceeding by or before any arbitrator or by any Governmental Authority against or affecting the Borrower, the Company or any Affiliate or Subsidiary thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (iii) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $250,000; and (iv) any other development that results in, or could reasonably be expected to result in a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a certificate of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. (b) The Borrower shall deliver to the Lender written notice of each of the following not less than ten (10) Business Days prior to the occurrence thereof- (i) a sale, transfer or other disposition of assets, in a single transaction or series of related transactions, for consideration in excess of an amount equal to 10% of the Total Value, (ii) an acquisition of assets, in a single transaction or series of related transactions, for consideration in excess of 10% of the Total Value, and (iii) the grant of a Lien with respect to assets, in a single transaction or series of related transactions, in connection with Indebtedness aggregating an amount in excess of 10% of the Total Value. In addition, simultaneously with delivery of any such notice, the Borrower shall deliver to the Lender a certificate of the Borrower and its Chief Financial Officer certifying that Borrower is in compliance with this Agreement and the other Loan Documents both on a historical basis and on a pro forma basis, exclusive of the property sold, transferred and/or encumbered and inclusive of the property to be acquired or the indebtedness to be incurred, together with calculations, in the form of Schedule B to Exhibit G attached hereto, evidencing compliance with each of the financial covenants set forth in Article VI hereof. To the extent such proposed transaction, after giving effect to the prepayment required to be made pursuant to Section 2.09(c), would result in a failure to comply with the financial covenants set forth herein, the Borrower shall prepay outstanding Loans in such amount, as determined by the Lender, as may be required to reduce the Obligations so that 47 the Borrower will be in compliance with the covenants set forth herein upon the consummation of the contemplated transaction. SECTION 5.03. Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business. SECTION 5.04. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.05. Maintenance of Properties; Insurance; Management. (a) The Borrower will, and will cause each of its Subsidiaries to, (i) keep and maintain all Property useful and necessary to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (ii) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are described in Section 3.13 or substantially similar policies and programs as are acceptable to the Lender. (b) The Borrower, its wholly-owned Subsidiaries and either Management Company, individually or collectively, shall at all times manage Projects constituting the greater of (i) 80% of Total Value or (ii) 80% of the total number of apartment units comprising the Projects. SECTION 5.06. Books and Records, Inspection Right . The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.07. Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 48 SECTION 5.08. Use of Proceeds and Letters of Credit. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, T, U and X. The proceeds of the Loans will be used only for the purposes of: (a) acquisition of residential housing Projects similar to and consistent with the types of Projects owned and/or operated by the Borrower on the Effective Date (including Qualified Community Reinvestment Projects), located in the Northeast, Mid-Atlantic and Midwest regions of the United States; (b) renovation of Projects owned and operated by the Borrower; (c) Redemptions by the Borrower of interests of limited partnership units in the Borrower issued in connection with the acquisition from time to time of Projects; (d) financing expansions, renovations and new construction related to Properties owned and operated by the Borrower or its Subsidiaries and Affiliates; provided, however, that in no event, shall more than 50% of aggregate amount of the Loans be used for the construction of any new Projects; (e) refinancing of existing Indebtedness for borrowed money secured by Projects; (f) payment by the Borrower of distributions to its partners (including the Company); and (g) working capital needs of the Borrower, provided, however, in no event shall the LC Exposure and the amount of the Loans used by the Borrower for working capital purposes exceed 10% of the Maximum Availability in the aggregate. Promptly upon the utilization of any proceeds of the Loans in connection with the acquisition, expansion, renovation or construction of a Qualified Community Reinvestment Project, the Borrower shall deliver to the Lender a certificate of a Financial Officer or other executive officer of the Borrower setting for the details of each such utilization. SECTION 5.09. Company Status. The Company shall at all times (a) remain a publicly traded company listed on the New York Stock Exchange, (b) maintain its status as a REIT under Sections 856-860 of the Code and (c) retain direct or indirect management and control of the Borrower. SECTION 5.10. Ownership of Projects and Property. Unencumbered ownership of substantially all wholly owned Projects and other Property of the Consolidated 49 Businesses shall be held by the Borrower and its Subsidiaries and shall not be held directly by the Company. SECTION 5.11. Shareholder Communication, Filings, etc. Promptly upon the mailing or filing thereof, the Borrower shall deliver to the Lender copies of all financial statements, reports and proxy statements mailed to the Company's shareholders, and copies of all of the Company's final registration statements and other final documents filed with the Securities and Exchange Commission (or any successor thereto) or any national securities exchange. SECTION 5.12. Further Assurances. The Borrower agrees upon demand of the Lender to do any act or execute any additional documents as may be reasonably required by the Lender to exercise or enforce its rights under this Agreement, the Note or the other Loan Documents and to realize thereon. This covenant shall survive the termination of this Agreement until payment in full of all amounts due hereunder or under the Note and the other Loan Documents, provided that the covenant shall be reinstated if any payment of all amounts due hereunder or under the Note and the other Loan Documents is required to be returned to the payor or any other party under any applicable bankruptcy and/or other law. ARTICLE VI Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lender that: SECTION 6.01. (a) Indebtedness and Other Financial Covenants. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except that the Borrower and/or its Subsidiaries may create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness to the extent that Total Outstanding Indebtedness, would not exceed (i) 55% of Total Value, or (ii) in the case of Secured Indebtedness of the Consolidated Businesses, 50% of Total Value, or (iii) in the case of Recourse Secured Indebtedness of the Consolidated Businesses, 35% of Total Value, or (iv) in the case of Adjusted Recourse Secured Indebtedness, 12.5% of Total Value. Notwithstanding anything to the contrary herein contained, in no event shall (x) the aggregate amount of completion guarantees with respect to Projects at any time exceed 15% of Total Value and (y) the aggregate amount of Low Income Housing Credit Program Guarantees at any time exceed 15% of Total Value. (b) Minimum Equity Value. The Equity Value shall at no time be less than $270,800.00 plus an amount equal to 85% of all Net Offering Proceeds received by the Company after the date hereof. 50 (c) Minimum Consolidated Interest Coverage Ratio . As of the first day of each calendar quarter for the immediately preceding four consecutive calendar quarters, the ratio of Adjusted EBITDA to Total Interest Expense for such period shall not be less than 2.15 to 1.0. (d) Minimum Unsecured Interest Coverage Ratio. As of the first day of each calendar quarter for the immediately preceding four consecutive calendar quarters, the ratio of Adjusted Unencumbered NOI to Unsecured Interest Expense shall not be less than 1.65 to 1.0. (e) Minimum Unencumbered Total Property Value. The Total Property Value of Unencumbered Eligible Projects shall at no time be less than the greater of (a) 120% of the sum of the Revolving Credit Exposure and Lender's and Chase's revolving credit exposure under the Chase Agreement at such time and (b) $100,000,000. Unencumbered Eligible Projects shall consist at all times of not less than ten Eligible Projects. (f) Minimum Fixed Charge Coverage Ratio. As of the first day of each calendar quarter for the immediately preceding four consecutive calendar quarters, the ratio of Adjusted NOI to Fixed Charges shall not be less than 1.8 to 1.0. (g) Maximum Dividend Payout Ratio. The Company shall not make any Restricted Payment during any of its fiscal quarters, which, when added to all Restricted Payments made during the three immediately preceding fiscal quarters, exceeds the greater of (i) 90% of FFO, and 110% of CAD, and (ii) the amounts required to maintain its status as a REIT under the Code. For purposes of this provision, "Restricted Payment" means (i) any dividend or other distribution on any shares of the Company's capital stock (except dividends payable solely in shares of its capital stock or in rights to subscribe for or purchase shares of its capital stock), or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Company's capital stock or (b) any option, warrant or other right to acquire shares of the Company's capital stock. (h) Maximum Availability . The Revolving Credit Exposure shall not at any time exceed the Maximum Availability. If at any time the Revolving Credit Exposure exceeds the Maximum Availability, the Borrower shall immediately prepay a portion of the Loan in an amount equal to such excess as provided for in Section 2.09(d). SECTION 6.02. Liens. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Lien on any Property now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; and 51 (b) Liens securing permitted Secured Indebtedness, provided that a maximum Secured Indebtedness in an amount equal to not more than 15% of Total Value may be secured by any one Project or several cross collateralized Projects. SECTION 6.03. Fundamental Change . (a) The Borrower will not, and will not permit any of its Subsidiaries to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except (i) in connection with the issuance transfer, conversion or repurchase of limited partnership interests in Borrower, and (ii) if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing any Person may merge into the Borrower in a transaction in which the Borrower is the surviving entity and any Subsidiary of the Borrower may merge into the Borrower in a transaction in which the Borrower is the surviving entity. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary of the Borrower prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) investments in Real Property; (c) investments (including loans) in the Borrower's Subsidiaries, the Borrower's Affiliates and the Management Company; (d) loans to directors, officers and employees of the Company, the Borrower, the Borrower's Subsidiaries, the Borrower's Affiliates and either Management Company; (e) investments in notes secured by mortgages on any Real Property of any Person; 52 (f) investments in Real Property under development or construction; and (g) investments in equity securities issued by a REIT that primarily owns multi-family properties. Notwithstanding the foregoing, the investments set forth above shall be limited in the following manner: (i) the aggregate amount of investments in land and/or Real Property under development or construction shall not exceed 10% of Total Value; (ii) the aggregate amount of investments in partnerships, joint ventures, corporations, limited liability companies or other entities which are not wholly-owned by the Borrower or its Subsidiaries shall not exceed 10% of Total Value; (iii) the aggregate amount of investments by the Borrower and its Subsidiaries in Properties which are not residential in nature shall not exceed 5% of Total Value; (iv) the aggregate outstanding principal amount of such loans to directors, officers and employees shall not exceed $10,000,000; and (v) the aggregate amount of investments in equity securities issued by REITs that primarily own multi-family properties shall not exceed 10% of Total Value. SECTION 6.05. Hedging Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary of the Borrower is exposed in the conduct of its business or the management of its liabilities. SECTION 6.06. Transactions with Affiliates. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder or holders of more than 5% of any class of equity securities of the Borrower, or with any Affiliate of the Borrower which is not its Subsidiary, on terms that determined by the respective Boards of Directors of the Company to be less favorable to the Borrower or any of its Subsidiaries, as applicable, than those that might be obtained in an arm's length transaction at the time from Persons who are not such a holder or Affiliate. Nothing contained in this Section 6.06 shall prohibit (a) increases in compensation and benefits for officers and employees of the Borrower or any of its Subsidiaries which are customary in the industry or consistent with the past business practice of the Borrower or such Subsidiary, provided that no Event of Default or Default has occurred and is continuing; (b) payment of customary partners' indemnities; or (c) performance of any obligations arising under the Loan Documents. SECTION 6.07. Restriction on Fundamental Change . Neither the Borrower nor any of its Subsidiaries shall enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of the Borrower's or any such Subsidiary's business or Property, whether now or hereafter acquired, except in connection with issuance, transfer, conversion or repurchase of limited partnership interests in Borrower. Notwithstanding the foregoing, the Borrower shall be permitted to 53 merge with another Person so long as the Borrower is the surviving Person following such merger. SECTION 6.08. Margin Regulations, Securities Laws. Neither the Borrower nor any of its Subsidiaries, shall use all or any portion of the proceeds of any credit extended under this Agreement to purchase or carry Margin Stock. SECTION 6.09. Negative Covenants of the Company and the QRS subsidiary. (a) The Company will not acquire any assets of any nature whatsoever, other than (i) additional partnership units in the Borrower and (ii) its interest in the QRS Subsidiary and other Subsidiaries of the Company. The QRS Subsidiary will not acquire any assets of any nature whatsoever, other than its limited partnership interests in the Borrower and interests in other Subsidiaries of the Company. (b) From and after the date hereof, the Company will not incur any Indebtedness or any other obligations or liabilities or any Liens on its assets or any part thereof except (i) as the general partner of the Borrower in connection with trade payable incurred in the ordinary course of business, (ii) Indebtedness, the net proceeds of which are contributed to the QRS Subsidiary or the Borrower, as the case may be, simultaneously with the incurrence thereof by the Company, (iii) Guaranties of Indebtedness of any Affiliate of the Company incurred in the ordinary course of such Affiliate's business and (iv) the obligation to pay dividends when and if declared by the Company. From and after the date hereof, the QRS Subsidiary will not incur any Indebtedness or any other obligations or liabilities or any Liens on its assets or any part thereof. (c) From and after the date hereof, (i) the Company will not retain any Net Offering Proceeds, and the same will be contributed by the Company to the Borrower, or if the QRS Subsidiary is a limited partner in the Borrower, to the QRS Subsidiary simultaneously with receipt thereof by the Company and (ii) the QRS Subsidiary will not retain any Net Offering Proceeds so contributed to it by the Company, and the same will be contributed by the QRS Subsidiary to the Borrower simultaneously with receipt thereof by the QRS Subsidiary. (d) The Company shall not enter into any merger or consolidation, or liquidate, windup or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, any of its business or assets, including its interests in the Borrower or in the QRS Subsidiary. Notwithstanding the foregoing, the Company shall be permitted to merge with another Person so long as the Company is the surviving Person following such merger. The QRS Subsidiary shall not enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, any of its business or assets, including its interests in the Borrower. 54 ARTICLE VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay (i) any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise or (ii) any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise, and such failure shall continue unremedied for a period of three days after notice; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any dollar amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five Business Days; (c) any Representation made or deemed made by or on behalf of Borrower or any of its Subsidiaries in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect when made or deemed made. (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Article V or in Article VI; (e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 15 days after notice thereof from the Lender to the Borrower; (f) The Company, the Borrower or any Subsidiary of the Borrower shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable. Company acknowledges that failure to make any payment due under the Chase Agreement, and/or under any Chase Document shall constitute an Event of Default under this paragraph (f) of this Article VII, and that all amounts owed under the Chase Agreement and/or under notes or other agreements executed in connection with the Chase Agreement shall constitute Material Indebtedness; (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or 55 without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness unless prohibited by this Agreement; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Company, the Borrower or any Subsidiary of the Borrower or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company, the Borrower or any Subsidiary of the Borrower or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Company, the Borrower or any Subsidiary of the Borrower shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company, the Borrower or any Subsidiary of the Borrower or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Company, the Borrower or any Subsidiary of the Borrower shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $1,000,000 shall be rendered against the Company, the Borrower, any Subsidiary of the Borrower or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Company, the Borrower or any Subsidiary of the Borrower to enforce any such judgment; 56 (1) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $250,000; (m) a Change in Control shall occur; (n) an event shall occur which has a Material Adverse Effect; (o) the Company shall fail to (i) maintain its status as a REIT for federal income tax purposes, or (ii) continue as a general partner of the Borrower, or (iii) comply with all Requirements of Law applicable to it and its businesses and Properties, in each case where the failure to so comply individually or in the aggregate will have or is reasonably likely to have a Material Adverse Effect, or (iv) remain listed on the New York Stock Exchange, or (v) file all tax returns and reports required to be filed by it with any Governmental Authority as and when required to be filed or to pay any taxes, assessments, fees or other governmental charges upon it or its Property, assets, receipts, sales, use, payroll, employment, licenses, income, or franchises which are shown in such returns, reports or similar statements to be due and payable as and when due and payable, except for taxes, assessments, fees and other governmental charges (A) that are being contested by the Company in good faith by an appropriate proceeding diligently pursued, (B) for which adequate reserves have been made on its books and records, and (C) the amounts the nonpayment of which would not, individually or in the aggregate, result in a Material Adverse Effect; (p) the Company shall merge or liquidate with or into any other Person and, as a result thereof and after giving effect thereto, (i) the Company is not the surviving Person or (ii) such merger or liquidation would effect an acquisition of or investment in any Person not otherwise permitted under the terms of this Agreement. The Borrower shall merge or liquidate with or into any other Person and, as a result thereof and after giving effect thereto, (i) the Borrower is not the surviving Person or (ii) such merger or liquidation would effect an acquisition of or Investment in any Person not otherwise permitted under the terms of this Agreement; or (q) the Guaranty shall at any time and for any reason other than pursuant to the terms thereof, cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by the Company or the Company shall deny it has any further liability or obligation thereunder; (r) the occurrence of any Event of Default under the Chase Agreement; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Lender, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitment, and thereupon the Commitment 57 shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitment shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE VIII Miscellaneous SECTION 8.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail, return receipt requested, or sent by telecopy, as follows: (a) if to the Borrower, to it at 850 Clinton Square, Rochester, New York 14604, Attention: David P. Gardner (Telecopy No. 716-546-5433), with a copy to the Borrower at the same address, Attention: Amy L. Tait (Telecopy No. 716-546-5433); (b) if to Lender, to it at 255 East Avenue, Rochester, New York 14604, Attn: Miss Lisa Plescia, Vice President (Telecopy No. 716-546-5363). Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 8.02. Waivers; Amendments. (a) No failure or delay by the Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Lender hereunder are cumulative and are not exclusive of any rights or remedies that the Lender would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the 58 specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Lender. SECTION 8.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Lender and its Affiliates, including the reasonable fees, charges and disbursements of outside and in-house counsel for the Lender, in connection with the preparation, negotiation, execution and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated and also in connection with any subsequent assignment, participation and/or syndication by Lender of all or any portion of its rights and obligations under this Agreement) and under the Loan Documents, (ii) all reasonable out-of-pocket expenses incurred by Lender in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder; and (iii) all out-of-pocket expenses incurred by the Lender, including the fees, charges and disbursements of any counsel for the Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, and the other Loan Documents including, without limitation, the Note, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) The Borrower hereby indemnifies the Lender, and each Related Party of the Lender (each such Person being called an "Indemnitee") against, and holds each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Lender to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, 59 be available to the extent that such losses, claims, damages, liabilities or related expenses resulted from the negligence of such Indemnitee proven by clear and convincing evidence (and not merely a preponderance of the evidence) or willful misconduct of such Indemnitee. All obligations under this subsection shall survive the Maturity Date. (c) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (d) All amounts due under this Section shall be payable not later than ten Business Days after written demand therefor. SECTION 8.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of the Lender) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to an Affiliate of the Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the Lender subject to each such assignment shall not be less than $5,000,000 unless the Borrower otherwise consents, and (ii) each partial assignment shall be made as an assignment of a proportionate part of all the Lender's rights and obligations under this Agreement. From and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 8.03). Any assignment or transfer by the Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. 60 (c) The Lender, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in Rochester or Buffalo, New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by Lender and an assignee, the assignee's completed Administrative Questionnaire, the assignment fee, if any, and any written consent to such assignment required by paragraph (b) of this Section, the Lender shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Lender may, without the consent of the Borrower, sell participations to one or more banks or other Persons (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which the Lender sells such a participation shall provide that the Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that the Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 8.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 8.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.16(c) as though it were a Lender. (f) A Participant shall not be entitled to receive any greater payment under Section 2.13 or 2.15 than the Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.17 unless the 61 Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.15(e) as though it were a Lender. (g) Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of the Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release the Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 8.05. Survival. All covenants, agreements, Representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the Lender and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by the Lender or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default or incorrect Representation at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 8.03 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. SECTION 8.06. Counterparts; Integration, Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Lender constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective when it shall have been executed by the Borrower and the Lender and when the Lender shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a 62 particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 8.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, the Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 8.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement and all the other Loan Documents shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in Monroe County and of the United States District Court of the Western District of New York, and any appellate court from any thereof, or such other jurisdiction or venue as the Lender may determine, in any action or proceeding arising out of or relating to this Agreement and/or any other Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in New York State or, to the extent permitted by law, in Federal court, or in such other jurisdiction or venue as the Lender may so determine. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. The Borrower and the Lender hereby irrevocably waive, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) The Borrower and the Lender to this Agreement irrevocably consent to service of process in the manner provided for written notices in Section 8.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 63 SECTION 8.10. WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND/OR RELATING TO ANY OTHER LOAN DOCUMENTS AND/OR TO THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 8.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 8.12. Confidentiality. The Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. 64 SECTION 8.13. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. IN WITNESS WHEREOF, Borrower and Lender have executed and unconditionally delivered this Agreement to the other on the Closing Date. HOME PROPERTIES OF NEW YORK, L.P. By: Home Properties of New York, Inc. By: /s/ Amy L. Tait Name: Amy L. Tait Title: Executive Vice President MANUFACTURERS AND TRADERS TRUST COMPANY By: /s/ Lisa Plescia Name: Lisa Plescia Title: Vice President 65 STATE OF NEW YORK ) COUNTY OF MONROE ) ss.: On July 6, 1998, before me personally appeared AMY L. TAIT, to me known, who, being duly sworn, did depose and say that she is the Executive Vice President of Home Properties of New York, Inc. ("General Partner"), which is the sole General Partner of HOME PROPERTIES OF NEW YORK, L.P. ("Borrower"), the limited partnership which executed this Agreement and she acknowledged to me that she executed this Agreement at the direction of the Board of Directors of the General Partner, and on behalf of Borrower, as the sole General Partner of the Borrower. /s/ Gary F. Amendola Notary Public STATE OF NEW YORK) COUNTY OF MONROE) ss.: On the 6th day of July, 1998, before me personally came LISA PLESCIA, who being by me duly sworn did depose and say that she resides in Rochester, New York, that she is a Vice President of MANUFACTURERS AND TRADERS TRUST COMPANY, the corporation described in and which executed the foregoing instrument, and that she signed her name thereto by order of the Board of Directors. /s/ Gary F. Amendola Notary Public -----END PRIVACY-ENHANCED MESSAGE-----