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As used herein, "Operating Budget' 'and "Annual Budget" shall mean the annual operating
<br />budget for the Project that sets forth the projected Operating Expenses for the upcoming year that is
<br />subject to and shall be submitted for review and approval by Executive Director, in his/her
<br />reasonable discretion, each year during the Affordability Period pursuant to the Agreement.
<br />As used herein, "Deferred Developer Fee" shall mean the portion of the Developer Fee for
<br />the Project to be deferred and paid through cash flow, as set forth in the financing for the Project
<br />approved by the Executive Director in accordance with the Agreement.
<br />As used herein, "Operating Expenses" shall mean actual, reasonable and customary (for
<br />comparable high quality rental housing developments in Orange County) costs, fees and expenses
<br />directly incurred, paid, and attributable to the operation, maintenance and management of the Project
<br />in a calendar year, and which is reasonably consistent with the annual Operating Budget for the
<br />Project approved by Agency pursuant to the Agreement, including: painting, cleaning, repairs,
<br />alterations, landscaping, utilities, refuse removal, certificates, permits and licenses, sewer charges,
<br />real and personal property taxes, assessments, insurance, security, advertising and promotion,
<br />janitorial services, cleaning and building supplies, purchase, repair, servicing and installation of
<br />appliances, equipment, fixtures and furnishings, fees and expenses of property management, fees and
<br />expenses of accountants, attorneys and other professionals, the cost of social services and other
<br />housing supportive services provided at the Project consistent with Borrower's approved Tax Credit
<br />Applications to TCAC for the Project, repayment of any completion or operating loans made to
<br />Borrower, and other actual, reasonable and customary operating costs and capital costs which are
<br />directly incurred and paid by Borrower, but which are not paid from or eligible to be paid from the
<br />Capital Replacement Reserve or any other reserve accounts for the Project. To the extent the
<br />Operating Expenses for the Project are not reasonably consistent with the annual Operating Budget
<br />for a given year, the Executive Director shall reasonably review and approve to confirm such
<br />Operating Expenses are reasonable and actually incurred; provided, no approval shall be required for
<br />emergency expenditures reasonably necessary or appropriate to preserve life, limb, or property.
<br />Operating Expenses shall exclude all of the following: (i) salaries of employees of Borrower
<br />or Borrower's general overhead expenses, or expenses, costs and fees paid to an Affiliate of
<br />Borrower, to the extent any of the foregoing exceed the expenses, costs or fees that would be payable
<br />in a bona fide arms' length transaction between unrelated parties in the Orange County area for the
<br />same work or services; (ii) any amounts paid directly by a tenant of the Project to a third party in
<br />connection with expenses which, if incurred by Borrower, would be Operating Expenses;
<br />(iii) optional or elective payments with respect to the approved Senior Loan for the Project or other
<br />financing obtained for the Project (unless made with the consent of the Executive Director in her
<br />reasonable discretion); (iv) expenses, expenditures, and charges of any nature whatsoever arising or
<br />incurred by Borrower prior to completion of the Project with respect to the development,
<br />maintenance and upkeep of the applicable the Project, or any portion thereof, including, without
<br />limitation, all costs and capitalized expenses incurred by Borrower in connection with the acquisition
<br />of the Property (e.g. not leasing to low income tenants), all predevelopment and preconstruction
<br />activities conducted by Borrower in connection with the Project, including, without limitation, the
<br />preparation of all plans and the performance of any tests, studies, investigations or other work, and
<br />the construction of the Project and any on-site or off-site work in connection therewith;
<br />(vi) depreciation, amortization, and accrued principal and interest expense on deferred payment debt;
<br />and (vii) any partnership related fees to the extent they are not paid as capitalized expenses.
<br />DOCSOC/ I469583v5/200272-0003
<br />F-3
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