CASH MANAGEMENT AGREEMENT

CASH MANAGEMENT AGREEMENT
Draft — Borrower's Form
Prepared by Calderwood & Harkness LLP
Matter No. 1036-00001
\\\\\\\\\\\\\\\\, 2025
among
FAIRWATER SUN BELT I LLC, FAIRWATER SUN BELT II LLC, FAIRWATER SUN BELT III LLC, FAIRWATER SUN BELT IV LLC, FAIRWATER SUN BELT V LLC, FAIRWATER SUN BELT VI LLC, FAIRWATER SUN BELT VII LLC, FAIRWATER SUN BELT VIII LLC, FAIRWATER SUN BELT IX LLC, FAIRWATER SUN BELT X LLC, FAIRWATER SUN BELT XI LLC, FAIRWATER SUN BELT XII LLC, FAIRWATER SUN BELT XIII LLC, and FAIRWATER SUN BELT XIV LLC,
each a Delaware limited liability company
(collectively, "Borrower")
and
CLARENDON METROPOLITAN INSURANCE COMPANY,
a New York domiciled insurance company
("Lender")
and
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
a \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\_
("Cash Management Bank")
In connection with a $240,000,000 Mortgage Loan Secured by the Sun Belt Portfolio (14 Multifamily Properties)
Target Execution Date: November 14, 2025 Target Closing Date: November 28, 2025 Prepared by: Lisa Morrow and Marcus Leung, Calderwood & Harkness LLP Reviewed by: Philip Hartmann, Calderwood & Harkness LLP
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CASH MANAGEMENT AGREEMENT
THIS CASH MANAGEMENT AGREEMENT (this "Agreement") is made and entered into as of \\\\\\\\\\\\\\\\, 2025, by and among:
(1) FAIRWATER SUN BELT I LLC, a Delaware limited liability company, FAIRWATER SUN BELT II LLC, a Delaware limited liability company, FAIRWATER SUN BELT III LLC, a Delaware limited liability company, FAIRWATER SUN BELT IV LLC, a Delaware limited liability company, FAIRWATER SUN BELT V LLC, a Delaware limited liability company, FAIRWATER SUN BELT VI LLC, a Delaware limited liability company, FAIRWATER SUN BELT VII LLC, a Delaware limited liability company, FAIRWATER SUN BELT VIII LLC, a Delaware limited liability company, FAIRWATER SUN BELT IX LLC, a Delaware limited liability company, FAIRWATER SUN BELT X LLC, a Delaware limited liability company, FAIRWATER SUN BELT XI LLC, a Delaware limited liability company, FAIRWATER SUN BELT XII LLC, a Delaware limited liability company, FAIRWATER SUN BELT XIII LLC, a Delaware limited liability company, and FAIRWATER SUN BELT XIV LLC, a Delaware limited liability company (each, individually, an "SPE Borrower" and, collectively, "Borrower");
(2) CLARENDON METROPOLITAN INSURANCE COMPANY, a New York domiciled insurance company ("Lender"); and
(3) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, a \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\_ ("Cash Management Bank").
Borrower, Lender, and Cash Management Bank are each sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
A. The Loan. Lender has agreed to make a mortgage loan to Borrower in the original principal amount of Two Hundred Forty Million Dollars ($240,000,000) (the "Loan"), as evidenced by (i) that certain Loan Agreement dated as of the date hereof (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the "Loan Agreement") among Borrower and Lender, (ii) that certain Promissory Note dated as of the date hereof in the original principal amount of $240,000,000 (the "Note"), and (iii) the other documents, instruments, and agreements executed and delivered in connection with or as security for the Loan (together with the Loan Agreement and the Note, collectively, the "Loan Documents").
B. The Properties. The Loan is secured by, among other things, first-priority mortgage liens on fourteen (14) multifamily residential properties (collectively, the "Properties" and each individually, a "Property") located in the States of Texas, Georgia, Florida, North Carolina, and Tennessee (collectively referred to as the "Sun Belt Portfolio"), as more particularly described in the Loan Agreement and the Mortgages (as defined in the Loan Agreement). The Properties comprise approximately 4,200 residential apartment units in the aggregate.
C. The Properties and SPEs. Each Property is owned by a separate SPE Borrower, each of which is a Delaware limited liability company and a direct, wholly owned subsidiary of Fairwater Operating Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"). The Operating Partnership is the operating partnership subsidiary of Fairwater Real Estate Investment Trust, a Maryland real estate investment trust (NYSE: FWTR) (the "Guarantor"). The organizational structure of the Borrower entities has been designed to comply with the single-purpose entity and bankruptcy-remoteness requirements set forth in the Loan Agreement and customary for commercial mortgage-backed securities financings.
D. Cash Management Requirement. As a condition to the making of the Loan, Lender requires that Borrower establish and maintain certain deposit accounts and cash management arrangements in accordance with the terms and conditions set forth herein to facilitate the orderly collection, deposit, and disbursement of revenues generated by the Properties.
E. Guarantor. Guarantor has executed that certain Guaranty Agreement of even date herewith (the "Guaranty") in favor of Lender in connection with the Loan, pursuant to which Guarantor has guaranteed certain obligations of Borrower arising under the Loan Documents, including, without limitation, certain recourse carve-out obligations as more fully set forth therein.
F. Property Manager. The Properties are managed by Fairwater Residential Management LLC, an affiliate of Borrower (the "Property Manager"), pursuant to those certain property management agreements effective as of July 1, 2025, by and between each SPE Borrower and the Property Manager (collectively, the "Property Management Agreements"), as more particularly described in Schedule 1 hereto.
G. Purpose. The Parties desire to set forth the terms and conditions under which rents, revenues, and other income from the Properties will be collected, deposited, held, invested, and disbursed during the term of the Loan, including the establishment of lockbox accounts, a cash management account, and certain reserve accounts, and the implementation of springing cash management controls that become operative upon the occurrence of specified triggering events.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the making of the Loan by Lender, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Account Control Agreement" means each tri-party account control agreement executed by the applicable SPE Borrower (or Borrower, as applicable), Lender, and Cash Management Bank with respect to a Lockbox Account, the Cash Management Account, a Reserve Account, the Operating Expense Account, or the Excess Cash Flow Sub-Account, in each case granting Lender a perfected first-priority security interest in and "control" (within the meaning of Article 8 and/or Article 9 of the Uniform Commercial Code) over such account, substantially in the form attached hereto as Exhibit D.
"Agreement" means this Cash Management Agreement, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Approved Annual Budget" means, with respect to each calendar year (or portion thereof), the operating budget for each Property approved (or deemed approved) by Lender in accordance with Section 4.5 hereof.
"Borrower" means, collectively, Fairwater Sun Belt I LLC, Fairwater Sun Belt II LLC, Fairwater Sun Belt III LLC, Fairwater Sun Belt IV LLC, Fairwater Sun Belt V LLC, Fairwater Sun Belt VI LLC, Fairwater Sun Belt VII LLC, Fairwater Sun Belt VIII LLC, Fairwater Sun Belt IX LLC, Fairwater Sun Belt X LLC, Fairwater Sun Belt XI LLC, Fairwater Sun Belt XII LLC, Fairwater Sun Belt XIII LLC, and Fairwater Sun Belt XIV LLC, each a Delaware limited liability company, and their respective successors and permitted assigns.
"Business Day" means any day other than (a) a Saturday, (b) a Sunday, or (c) a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close.
"Capital Expenditure Reserve Account" means the deposit account established at the Cash Management Bank for the purpose of holding periodic capital expenditure reserves in accordance with Section 5.2 hereof, as more particularly described in Exhibit B hereto.
"Cash Management Account" means the deposit account established at the Cash Management Bank in the name of Borrower (or a designated SPE Borrower, as directed by Lender) into which funds from each of the Lockbox Accounts are swept in accordance with Section 3.2 hereof and from which disbursements are made in accordance with the Waterfall set forth in Section 4.2 hereof, as more particularly described in Exhibit B hereto.
"Cash Management Bank" means \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\, a \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\, as depository under this Agreement, and any successor depository institution designated in accordance with Section 6.2 hereof.
"Cash Management Period" means the period commencing upon the occurrence of a Cash Management Trigger Event and continuing until a Cash Management Period Termination Event shall have occurred with respect to all then-existing Cash Management Trigger Events, as more particularly described in Section 2.5 hereof.
"Cash Management Period Termination Event" means, with respect to any Cash Management Period:
(a) if such Cash Management Period was triggered by a DSCR shortfall pursuant to clause (b) of the definition of "Cash Management Trigger Event," the restoration of the Debt Service Coverage Ratio to at least [1.20]x (or such other level as may be agreed upon by Borrower and Lender) as of the end of each of two (2) consecutive calendar quarters following the commencement of such Cash Management Period, in each case based on a trailing twelve-month calculation; or
(b) if such Cash Management Period was triggered by an Event of Default pursuant to clause (a) of the definition of "Cash Management Trigger Event," the cure of the applicable Event of Default to Lender's reasonable satisfaction or the waiver of such Event of Default by Lender in writing.
"Cash Management Trigger Event" means the occurrence of any of the following:
(a) the occurrence and continuance of an Event of Default under the Loan Agreement; or
(b) the Debt Service Coverage Ratio falling below [1.15]x as of the end of any calendar quarter, based on a trailing twelve-month calculation performed in accordance with the methodology set forth in Exhibit E hereto.
"Debt Service" means the aggregate monthly payments of principal and interest due and payable under the Note during the applicable measurement period. The annual Debt Service under the Note is approximately Seventeen Million Seven Hundred Thirty-Four Thousand One Hundred Fifty-Two Dollars ($17,734,152), based on monthly payments of approximately One Million Four Hundred Seventy-Seven Thousand Eight Hundred Forty-Six Dollars ($1,477,846) calculated at a fixed interest rate of 6.25% per annum with a thirty (30)-year amortization schedule.
"Debt Service Coverage Ratio" or "DSCR" means, as of any date of determination, the ratio of (x) Net Operating Income for the applicable measurement period to (y) Debt Service for the applicable measurement period, in each case calculated on a trailing twelve-month basis in accordance with the methodology set forth in Exhibit E hereto. As of the acquisition date, the initial DSCR is approximately 1.476x (calculated as $26,180,000 Net Operating Income divided by $17,734,152 annual Debt Service).
"Eligible Account" means a segregated deposit account maintained at an Eligible Institution.
"Eligible Institution" means an FDIC-insured depository institution (a) the long-term unsecured debt obligations of which (or of the holding company of which) are rated at least "A-" by S&P Global Ratings and at least "A3" by Moody's Investors Service, Inc. (or such other minimum ratings as may be specified in the Loan Agreement), or (b) having combined capital and surplus of at least $500,000,000, or (c) otherwise meeting the requirements set forth in the Loan Agreement.
"Event of Default" shall have the meaning ascribed to such term in the Loan Agreement.
"Excess Cash Flow" means the amount, if any, remaining in the Cash Management Account on any Monthly Payment Date after payment or allocation of all items in the Waterfall set forth in Section 4.2 hereof through and including the Sixth priority.
"Excess Cash Flow Sub-Account" means the segregated deposit sub-account established at the Cash Management Bank for the purpose of holding Excess Cash Flow during any Cash Management Period, as more particularly described in Exhibit B hereto.
"Guarantor" means Fairwater Real Estate Investment Trust, a Maryland real estate investment trust (NYSE: FWTR), and its successors and assigns.
"Guaranty" means that certain Guaranty Agreement of even date herewith executed by Guarantor in favor of Lender in connection with the Loan.
"Interest Rate" means 6.25% per annum, fixed for the term of the Loan.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, together with the rules and regulations promulgated thereunder.
"Leasing Commission Reserve Account" means the deposit account, if any, established at the Cash Management Bank for the purpose of holding reserves for leasing commissions and tenant improvement costs in accordance with Section 5.3 hereof, as more particularly described in Exhibit B hereto.
"Lender" means Clarendon Metropolitan Insurance Company, a New York domiciled insurance company (NAIC No. 38921), and its successors and assigns, including, without limitation, any master servicer, special servicer, or trustee acting on behalf of a CMBS trust or its certificate holders.
"Loan" means the mortgage loan in the original principal amount of Two Hundred Forty Million Dollars ($240,000,000) made by Lender to Borrower as evidenced by the Note, the Loan Agreement, and the other Loan Documents.
"Loan Agreement" means that certain Loan Agreement dated as of \\\\\\\\\\\\\\\\, 2025, by and among Borrower and Lender, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Loan Documents" means the Loan Agreement, the Note, the Mortgages, this Agreement, the Account Control Agreements, the Guaranty, and all other documents, instruments, and agreements executed and delivered by Borrower, Guarantor, or any other party in connection with or as security for the Loan, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Lockbox Account" means, individually, each of the fourteen (14) property-level deposit accounts established at the Cash Management Bank for the collection of Rents, one for each SPE Borrower and corresponding Property, as more particularly described in Section 2.1 hereof and Exhibit A hereto. "Lockbox Accounts" means all such accounts, collectively.
"Monthly Debt Service Payment" means the monthly payment of principal and interest due and payable under the Note on each Monthly Payment Date, which is approximately One Million Four Hundred Seventy-Seven Thousand Eight Hundred Forty-Six Dollars ($1,477,846), calculated at a fixed interest rate of 6.25% per annum on the outstanding principal balance amortized over thirty (30) years.
"Monthly Payment Date" means the first (1st) Business Day of each calendar month (or such other date as may be specified in the Note for the payment of monthly debt service installments).
"Mortgages" means the first-priority mortgage, deed of trust, or deed to secure debt instruments (as applicable in the relevant jurisdiction) executed by each SPE Borrower in favor of Lender (or for the benefit of Lender) encumbering the corresponding Property as security for the Loan, together with all related assignments of leases and rents.
"Net Operating Income" or "NOI" means, for any measurement period, the gross revenue from the Properties during such period minus operating expenses for such period, in each case determined on an accrual basis in accordance with generally accepted accounting principles and the methodology set forth in Exhibit E hereto. For the avoidance of doubt, "operating expenses" shall exclude debt service, depreciation, amortization, and capital expenditures. As of the acquisition date, the trailing twelve-month Net Operating Income for the Sun Belt Portfolio is approximately Twenty-Six Million One Hundred Eighty Thousand Dollars ($26,180,000).
"Note" means that certain Promissory Note dated as of the date hereof in the original principal amount of Two Hundred Forty Million Dollars ($240,000,000), made by Borrower and payable to the order of Lender, bearing interest at the Interest Rate, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Operating Expense Account" means the deposit account maintained at the Cash Management Bank (or, subject to the terms of the Loan Agreement, at Borrower's existing depository institution) for the payment of budgeted property-level operating expenses, as more particularly described in Section 2.4 hereof and Exhibit B hereto.
"Operating Partnership" means Fairwater Operating Partnership, L.P., a Delaware limited partnership (EIN 52-2847201), the sole member of each SPE Borrower.
"Permitted Investments" means (a) direct obligations of the United States of America or obligations the full and timely payment of which are unconditionally guaranteed by the United States of America, in each case maturing not later than thirty (30) days after the date of acquisition thereof, (b) money market funds that invest solely in obligations described in clause (a) and that are rated in the highest rating category by each of S&P Global Ratings and Moody's Investors Service, Inc., (c) certificates of deposit or time deposits issued by an Eligible Institution and maturing not later than thirty (30) days after the date of acquisition thereof, and (d) such other investments as may be approved by Lender in writing, in each case that are consistent with the requirements of the Loan Agreement and any applicable rating agency criteria.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, trust, unincorporated association, governmental authority, or any other entity.
"Property" or "Properties" means, individually and collectively, the fourteen (14) multifamily residential communities constituting the Sun Belt Portfolio, as more particularly described in the Loan Agreement, the Mortgages, and Exhibit A hereto.
"Property Management Agreement" means each of the property management agreements by and between the applicable SPE Borrower and the Property Manager, as more particularly described in Schedule 1 hereto.
"Property Management Fee" means the fee payable to the Property Manager under the applicable Property Management Agreement for the management and operation of the applicable Property.
"Property Manager" means Fairwater Residential Management LLC (EIN 52-2953810), an affiliate of Borrower, in its capacity as manager of the Properties pursuant to the Property Management Agreements, and any successor property manager approved by Lender in accordance with the Loan Agreement.
"REIT Distribution Carve-Out" means the provisions set forth in Section 4.3 hereof permitting distributions from the Cash Management Account necessary for Guarantor to maintain its qualification as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code, including, without limitation, the requirement that Guarantor distribute at least ninety percent (90%) of its REIT taxable income to its shareholders for each taxable year.
"REIT Taxable Income" shall have the meaning ascribed to such term in Section 857(b)(2) of the Internal Revenue Code.
"Rents" means all rents, revenues, income, and other receipts of any kind from the Properties, whether now existing or hereafter arising, including, without limitation, (a) monthly apartment rental payments from Tenants, (b) parking fees, (c) late charges and administrative fees, (d) application fees and move-in fees, (e) pet deposits and pet rent, (f) utility reimbursements or ratio utility billing system receipts, (g) amenity fees and service charges, (h) proceeds of rental interruption or business interruption insurance (to the extent not otherwise applied pursuant to the Loan Agreement), and (i) all other ancillary income generated at or attributable to the Properties.
"Reserve Accounts" means, collectively, the Tax and Insurance Reserve Account, the Capital Expenditure Reserve Account, and the Leasing Commission Reserve Account (if established).
"SPE Borrower" means each of Fairwater Sun Belt I LLC through Fairwater Sun Belt XIV LLC, individually, in its capacity as the owner of the corresponding Property.
"Tax and Insurance Reserve Account" means the escrow deposit account established at the Cash Management Bank for the purpose of holding monthly deposits for real estate taxes and insurance premiums in accordance with Section 5.1 hereof, as more particularly described in Exhibit B hereto.
"Tenant" means any tenant, occupant, or lessee of any unit, space, or premises at any Property under a lease, rental agreement, or license.
"Tenant Direction Letter" means a letter in the form attached hereto as Exhibit C, from the applicable SPE Borrower (or the Property Manager on its behalf) to Tenants at the corresponding Property directing that all Rent payments be made to the applicable Lockbox Account.
"UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York or, as applicable, any other relevant jurisdiction.
"Waterfall" means the order of priority for the application of funds set forth in Section 4.2 hereof.
Section 1.2 — Rules of Construction
(a) Unless otherwise specified, all references in this Agreement to "Articles," "Sections," "Exhibits," and "Schedules" are to Articles, Sections, Exhibits, and Schedules of this Agreement.
(b) The words "hereof," "herein," "hereto," "hereunder," and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(c) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation."
(d) Unless the context otherwise requires, words importing the singular number shall include the plural number and vice versa, and words importing a particular gender shall include any other gender.
(e) The headings and captions of the Articles and Sections of this Agreement and the Exhibits and Schedules hereto are inserted for convenience of reference only, shall not be deemed to constitute a part of this Agreement, and shall not affect the construction or interpretation of any provision hereof.
(f) All references to currency amounts are to lawful currency of the United States of America.
(g) References to any agreement or document (including this Agreement) shall mean such agreement or document as amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
(h) References to any Person shall include such Person's successors and permitted assigns.
Section 1.3 — Incorporation of Loan Agreement Provisions
(a) All capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Loan Agreement. In the event that a term is defined both in this Agreement and in the Loan Agreement, the definition set forth in this Agreement shall control for purposes of this Agreement unless the context clearly requires otherwise.
(b) In the event of any conflict or inconsistency between the terms and provisions of this Agreement and the terms and provisions of the Loan Agreement, the terms and provisions of the Loan Agreement shall control and govern, except with respect to the specific cash management mechanics, account operation procedures, and Waterfall provisions set forth herein, which shall control as to the establishment, operation, and administration of the accounts described herein.
(c) This Agreement is one of the Loan Documents and is subject in all respects to the terms and provisions of the Loan Agreement. Nothing contained herein shall be deemed to amend, modify, or limit any obligation of Borrower under the Loan Agreement or any other Loan Document.
ARTICLE II — ESTABLISHMENT OF ACCOUNTS; LOCKBOX ARRANGEMENTS
Section 2.1 — Establishment of Lockbox Accounts
(a) On or prior to the date of the initial disbursement of the Loan, Borrower shall establish and maintain, at the Cash Management Bank, fourteen (14) separate Lockbox Accounts, one for each SPE Borrower and corresponding Property, for the collection and deposit of Rents. The Lockbox Accounts shall be designated as follows:
(i) Lockbox Account No. 1: Fairwater Sun Belt I LLC — Ridgewater at Lakeline, Austin, Texas (320 units);
(ii) Lockbox Account No. 2: Fairwater Sun Belt II LLC — Sagebrush Commons, San Antonio, Texas (288 units);
(iii) Lockbox Account No. 3: Fairwater Sun Belt III LLC — Cypress Bend, Katy, Texas (340 units);
(iv) Lockbox Account No. 4: Fairwater Sun Belt IV LLC — Willowbrook Terrace, Sugar Land, Texas (310 units);
(v) Lockbox Account No. 5: Fairwater Sun Belt V LLC — Heritage at Stonebriar, Frisco, Texas (342 units);
(vi) Lockbox Account No. 6: Fairwater Sun Belt VI LLC — Peachtree Crossings, Alpharetta, Georgia (296 units);
(vii) Lockbox Account No. 7: Fairwater Sun Belt VII LLC — Cumberland Ridge, Smyrna, Georgia (264 units);
(viii) Lockbox Account No. 8: Fairwater Sun Belt VIII LLC — Sugarloaf Station, Duluth, Georgia (260 units);
(ix) Lockbox Account No. 9: Fairwater Sun Belt IX LLC — Bayshore Landings, Tampa, Florida (308 units);
(x) Lockbox Account No. 10: Fairwater Sun Belt X LLC — Solara at Millenia, Orlando, Florida (292 units);
(xi) Lockbox Account No. 11: Fairwater Sun Belt XI LLC — Riverside Preserve, Jacksonville, Florida (260 units);
(xii) Lockbox Account No. 12: Fairwater Sun Belt XII LLC — Stonewall Flats, Charlotte, North Carolina (284 units);
(xiii) Lockbox Account No. 13: Fairwater Sun Belt XIII LLC — Crabtree Pointe, Raleigh, North Carolina (256 units); and
(xiv) Lockbox Account No. 14: Fairwater Sun Belt XIV LLC — Harpeth Valley, Nashville, Tennessee (380 units).
(b) The Lockbox Accounts shall, in the aggregate, serve the approximately 4,200 residential apartment units comprising the Sun Belt Portfolio located across five (5) states (Texas, Georgia, Florida, North Carolina, and Tennessee). Additional account details, including account numbers and ABA/routing numbers, are set forth in Exhibit A hereto and shall be completed prior to the date of initial disbursement of the Loan.
(c) Each Lockbox Account shall be maintained in the name of the applicable SPE Borrower, subject to the first-priority security interest of Lender and the applicable Account Control Agreement. Each Lockbox Account shall at all times be an Eligible Account at an Eligible Institution.
(d) Borrower shall establish post office boxes or electronic lockbox addresses associated with each Lockbox Account, as applicable, and shall provide such information to Lender promptly upon establishment thereof.
(e) As a condition precedent to the initial disbursement of the Loan, Borrower shall execute and deliver (and shall cause the Cash Management Bank to execute and deliver) an Account Control Agreement with respect to each Lockbox Account, in form and substance satisfactory to Lender.
Section 2.2 — Establishment of Cash Management Account
(a) On or prior to the date of the initial disbursement of the Loan, Borrower shall establish and maintain at the Cash Management Bank a single Cash Management Account in the name of Borrower (or a designated SPE Borrower, as agreed by the Parties and directed by Lender), which shall serve as the central repository for all funds swept from the Lockbox Accounts in accordance with Section 3.2 hereof.
(b) The Cash Management Account shall at all times be an Eligible Account at an Eligible Institution and shall be subject to an Account Control Agreement in favor of Lender granting Lender a first-priority perfected security interest in and control over such account.
(c) All funds swept from the Lockbox Accounts shall be deposited into the Cash Management Account and shall be held and applied in accordance with the Waterfall set forth in Section 4.2 hereof.
(d) Borrower shall not make any withdrawal from the Cash Management Account except in accordance with the Waterfall or as otherwise expressly permitted under this Agreement. The Cash Management Account details, including the account number and ABA/routing number, are set forth in Exhibit B hereto and shall be completed prior to the date of initial disbursement of the Loan.
Section 2.3 — Establishment of Reserve Accounts
(a) Tax and Insurance Reserve Account. On or prior to the date of the initial disbursement of the Loan, Borrower shall establish and maintain at the Cash Management Bank a Tax and Insurance Reserve Account for the purpose of receiving and holding monthly escrow deposits for real estate taxes and insurance premiums payable with respect to all fourteen (14) Properties. The Tax and Insurance Reserve Account shall be an Eligible Account and shall be subject to an Account Control Agreement in favor of Lender. Deposits to and disbursements from the Tax and Insurance Reserve Account shall be governed by Section 5.1 hereof.
(b) Capital Expenditure Reserve Account. On or prior to the date of the initial disbursement of the Loan, Borrower shall establish and maintain at the Cash Management Bank a Capital Expenditure Reserve Account for the purpose of receiving and holding periodic capital expenditure reserves for the Properties. The Capital Expenditure Reserve Account shall be an Eligible Account and shall be subject to an Account Control Agreement in favor of Lender. Deposits to and disbursements from the Capital Expenditure Reserve Account shall be governed by Section 5.2 hereof.
(c) Leasing Commission Reserve Account. If required by the terms of the Loan Agreement, Borrower shall establish and maintain at the Cash Management Bank a Leasing Commission Reserve Account for the purpose of receiving and holding reserves for leasing commissions and tenant improvement costs with respect to the Properties. The Leasing Commission Reserve Account, if established, shall be an Eligible Account and shall be subject to an Account Control Agreement in favor of Lender. Deposits to and disbursements from the Leasing Commission Reserve Account shall be governed by Section 5.3 hereof.
(d) Each Reserve Account shall be maintained at the Cash Management Bank in the name of Borrower (or a designated SPE Borrower), subject to the first-priority security interest of Lender. The account details for each Reserve Account are set forth in Exhibit B hereto and shall be completed prior to the date of initial disbursement of the Loan.
Section 2.4 — Establishment of Operating Expense Account
(a) Borrower shall establish and maintain an Operating Expense Account at the Cash Management Bank (or, subject to Lender's prior written consent, at Borrower's existing depository institution) for the payment of budgeted property-level operating expenses in accordance with the Approved Annual Budget, including, without limitation, Property Management Fees payable to Fairwater Residential Management LLC, utility costs, maintenance and repair expenses, payroll costs for on-site property employees, marketing expenses, and other ordinary course operating expenses of the Properties.
(b) Funds shall be disbursed to the Operating Expense Account from the Cash Management Account in accordance with the Sixth priority of the Waterfall set forth in Section 4.2 hereof, and Borrower shall apply such funds solely to the payment of operating expenses in accordance with the Approved Annual Budget.
(c) To the extent the Operating Expense Account is maintained at an institution other than the Cash Management Bank, Borrower shall execute and deliver such account agreements, authorization letters, or other documentation as Lender may reasonably require to enable monitoring of the Operating Expense Account.
Section 2.5 — Cash Management Period; Springing Lockbox Mechanics
(a) Outside a Cash Management Period. At all times when no Cash Management Period is in effect, the following cash management procedures shall apply:
(i) Tenants at each Property shall direct Rent payments to the applicable Lockbox Account (or to the post office box or electronic payment address associated therewith), and Borrower and the Property Manager shall deposit all Rents received into the applicable Lockbox Account in accordance with Section 3.1 hereof;
(ii) Funds deposited in each Lockbox Account shall be swept daily to the Cash Management Account in accordance with Section 3.2 hereof;
(iii) From the Cash Management Account, debt service payments, Reserve Account deposits, and operating expense disbursements shall be made in accordance with the Waterfall set forth in Section 4.2 hereof;
(iv) All Excess Cash Flow remaining after application of funds through the Sixth priority of the Waterfall shall be released to Borrower's operating accounts (or to Operating Partnership's accounts, as directed by Borrower) for use at Borrower's discretion, including for distributions necessary for Guarantor to maintain its status as a real estate investment trust for federal income tax purposes; and
(v) Borrower shall retain operational control over property-level bank accounts for day-to-day operations, subject to the requirements of this Agreement and the Loan Agreement.
The foregoing provisions reflect the springing lockbox structure negotiated by Borrower, pursuant to which full cash trapping and lender control over Excess Cash Flow are activated only upon the occurrence of a Cash Management Trigger Event.
(b) Cash Management Trigger Events. A "Cash Management Period" shall commence upon the occurrence of any of the following Cash Management Trigger Events:
(i) the occurrence and continuance of an Event of Default under the Loan Agreement; or
(ii) the Debt Service Coverage Ratio falling below [1.15]x as of the end of any calendar quarter, based on a trailing twelve-month calculation performed in accordance with the methodology set forth in Exhibit E hereto.
(c) Commencement of Cash Management Period. Upon the occurrence of a Cash Management Trigger Event, Lender shall deliver written notice to Borrower and Cash Management Bank specifying the nature of the Cash Management Trigger Event and activating the cash management controls described in this Section 2.5(d). The Cash Management Period shall be deemed to have commenced upon the delivery of such notice (or, in the case of a Cash Management Trigger Event described in clause (b)(i) above, upon the occurrence of the Event of Default if Lender so elects).
(d) During a Cash Management Period. Upon the commencement and during the continuance of a Cash Management Period, the following cash management procedures shall apply:
(i) All Rents shall continue to be deposited into the applicable Lockbox Accounts and swept daily to the Cash Management Account in accordance with the procedures described in Sections 3.1 and 3.2 hereof;
(ii) Funds in the Cash Management Account shall be applied strictly in accordance with the Waterfall set forth in Section 4.2 hereof;
(iii) All Excess Cash Flow remaining after application of funds through the Sixth priority of the Waterfall shall be retained in the Cash Management Account or deposited into the Excess Cash Flow Sub-Account and held as additional collateral for the Loan, rather than being released to Borrower;
(iv) Notwithstanding the foregoing clause (iii), even during a Cash Management Period, Lender shall release from the Excess Cash Flow (whether held in the Cash Management Account or the Excess Cash Flow Sub-Account) such amounts as are necessary for Guarantor to comply with the REIT distribution requirements described in Section 4.3 hereof (the "REIT Distribution Carve-Out"); and
(v) Cash Management Bank shall comply with Lender's instructions with respect to the Cash Management Account, the Lockbox Accounts, the Reserve Accounts, and the Excess Cash Flow Sub-Account without further consent of Borrower, in accordance with the applicable Account Control Agreements.
(e) Termination of Cash Management Period. A Cash Management Period shall terminate upon the occurrence of a Cash Management Period Termination Event with respect to all then-existing Cash Management Trigger Events, as follows:
(i) If the Cash Management Period was triggered by a DSCR shortfall pursuant to Section 2.5(b)(ii), the Cash Management Period shall terminate upon the restoration of the Debt Service Coverage Ratio to at least [1.20]x (or such other level as may be agreed upon by Borrower and Lender) as of the end of each of two (2) consecutive calendar quarters following the date on which the DSCR first fell below [1.15]x, in each case based on a trailing twelve-month calculation;
(ii) If the Cash Management Period was triggered by an Event of Default pursuant to Section 2.5(b)(i), the Cash Management Period shall terminate upon the cure of the applicable Event of Default to Lender's reasonable satisfaction or the waiver of such Event of Default by Lender in writing;
(iii) Upon the termination of a Cash Management Period, all Excess Cash Flow trapped during such Cash Management Period (whether held in the Cash Management Account or the Excess Cash Flow Sub-Account) shall be released to Borrower, subject to (A) no other Cash Management Trigger Event then being in existence, and (B) the deduction of any amounts previously released to Borrower under the REIT Distribution Carve-Out during such Cash Management Period; and
(iv) No more than [two (2)] Cash Management Periods may be triggered by a DSCR shortfall pursuant to Section 2.5(b)(ii) during the term of the Loan. For the avoidance of doubt, there shall be no limitation on the number of Cash Management Periods that may be triggered by an Event of Default pursuant to Section 2.5(b)(i).
(f) Notice of Termination. Promptly following the occurrence of a Cash Management Period Termination Event, Lender shall deliver written notice to Borrower and Cash Management Bank confirming the termination of the Cash Management Period and the release of Excess Cash Flow, if applicable.
Section 2.6 — Tenant Direction Letters
(a) Upon the commencement of a Cash Management Period, or at any time following the occurrence and during the continuance of an Event of Default under the Loan Agreement, Borrower shall, within five (5) Business Days of Lender's written request, cause the Property Manager to distribute Tenant Direction Letters (in the form attached hereto as Exhibit C) to all Tenants at each Property, directing that all Rent payments be made to the applicable Lockbox Account at the address or pursuant to the electronic payment instructions specified therein.
(b) As a condition precedent to the initial disbursement of the Loan, Borrower shall deliver to Lender pre-signed Tenant Direction Letters for each Property, executed by the applicable SPE Borrower or the Property Manager on its behalf, in the form attached hereto as Exhibit C, which Tenant Direction Letters shall be held in escrow by Lender and deployed only upon the occurrence of a Cash Management Trigger Event or as otherwise permitted under this Section 2.6.
(c) During periods outside a Cash Management Period, Borrower may maintain its existing rent collection procedures (including, without limitation, online payment portals, automated clearinghouse debit arrangements, and direct check receipt at property management offices), provided that all Rents collected by or on behalf of Borrower or the Property Manager are ultimately deposited into the applicable Lockbox Account within two (2) Business Days of receipt by Borrower, the Property Manager, or any agent or employee thereof.
(d) Borrower shall cooperate with Lender in implementing any changes to rent collection procedures that may be necessary to ensure the prompt deposit of all Rents into the applicable Lockbox Accounts, including, without limitation, the establishment of electronic payment mechanisms that direct Rent payments automatically to the applicable Lockbox Account.
Section 2.7 — Account Control Agreements
(a) As a condition precedent to the initial disbursement of the Loan, Borrower shall execute and deliver, and shall cause the Cash Management Bank to execute and deliver, Account Control Agreements (each substantially in the form attached hereto as Exhibit D, or in such other form as may be required by the Cash Management Bank and approved by Lender) with respect to each of the following accounts:
(i) each of the fourteen (14) Lockbox Accounts;
(ii) the Cash Management Account;
(iii) the Tax and Insurance Reserve Account;
(iv) the Capital Expenditure Reserve Account;
(v) the Leasing Commission Reserve Account (if established);
(vi) the Operating Expense Account (to the extent maintained at the Cash Management Bank); and
(vii) the Excess Cash Flow Sub-Account (to be established in connection with the occurrence of the first Cash Management Period, or at closing, as directed by Lender).
(b) Each Account Control Agreement shall grant Lender a perfected, first-priority security interest in and "control" (within the meaning of Section 9-104 of the UCC, or Section 8-106 of the UCC to the extent applicable) over the applicable account.
(c) Pursuant to each Account Control Agreement, the Cash Management Bank shall acknowledge Lender's security interest in the applicable account and shall agree to comply with Lender's instructions (including, without limitation, instructions to freeze, redirect, or disburse funds) during a Cash Management Period or following an Event of Default, in each case without further consent of Borrower and without inquiry into the underlying basis for such instructions. Outside a Cash Management Period and absent an Event of Default, the Cash Management Bank shall follow Borrower's instructions with respect to the applicable account, subject to the sweep and Waterfall mechanics described herein.
(d) Borrower shall not enter into any other account control agreement, blocked account agreement, or similar arrangement with respect to any account described in this Section 2.7 in favor of any Person other than Lender.
ARTICLE III — DEPOSITS AND COLLECTIONS
Section 3.1 — Deposit of Rents
(a) All Rents and other income from the Properties shall be deposited into the applicable Lockbox Account no later than two (2) Business Days after receipt thereof by Borrower, the Property Manager, or any agent, employee, or representative of Borrower or the Property Manager. For purposes of this Section 3.1, "receipt" shall be deemed to occur on the date that the applicable Rent payment is received by Borrower, the Property Manager, or any on-site property employee, whether received in the form of cash, check, money order, automated clearinghouse transfer, wire transfer, credit card payment, or any other form of payment.
(b) Borrower shall direct and cause the Property Manager (Fairwater Residential Management LLC) to deposit all collected Rents directly into the applicable Lockbox Account and shall ensure that the Property Management Agreements contain provisions requiring the Property Manager to do so. Borrower shall promptly notify Lender if the Property Manager fails to comply with this requirement.
(c) Borrower shall not, and shall cause the Property Manager not to, commingle Rents with any other funds of Borrower, Guarantor, the Operating Partnership, any other SPE Borrower, or any affiliate, principal, member, partner, or agent of any of the foregoing. Without limiting the generality of the foregoing, Borrower shall not deposit Rents into any account other than the applicable Lockbox Account (or, for the limited purpose of daily operations pending deposit, a property-level operating account from which funds are transferred to the Lockbox Account within the time period specified in Section 3.1(a) above).
(d) Borrower shall maintain records of all Rents received and deposited, organized by Property, and shall make such records available to Lender upon request. Such records shall identify, with respect to each deposit, the Property from which the Rents were derived, the Tenant or source of payment, the amount, the date of receipt, and the date of deposit.
Section 3.2 — Sweep of Lockbox Accounts
(a) Funds deposited in each Lockbox Account shall be swept daily (on each Business Day) into the Cash Management Account. The Cash Management Bank shall perform each such sweep automatically, in accordance with standing instructions established at the time of account opening and as documented in the Account Control Agreements, without the need for individual instructions from Borrower or Lender with respect to each daily sweep.
(b) Each daily sweep shall transfer the entire available balance in each Lockbox Account (net of any minimum balance requirements imposed by the Cash Management Bank, if applicable) to the Cash Management Account. The Cash Management Bank shall perform each sweep by 2:00 p.m. (Eastern Time) on each Business Day (or such other time as may be agreed by the Parties and the Cash Management Bank).
(c) At all times, whether or not a Cash Management Period is then in effect, the daily sweep of each Lockbox Account into the Cash Management Account shall occur. The Parties acknowledge and agree that the distinction between the "springing lockbox" structure (applicable outside a Cash Management Period) and the "hard lockbox" structure (applicable during a Cash Management Period) pertains solely to the application, distribution, and release of Excess Cash Flow from the Cash Management Account in accordance with the Waterfall, and not to the daily sweep mechanism described in this Section 3.2.
(d) If a Lockbox Account is not swept on a particular day because such day is not a Business Day, the sweep shall occur on the next succeeding Business Day and shall include all amounts that have accumulated in such Lockbox Account since the most recent prior sweep.
Section 3.3 — Deposits from Other Sources
(a) Insurance proceeds and condemnation awards received in connection with any Property shall be deposited into the Cash Management Account (or such other account as may be designated under the Loan Agreement for the receipt of such proceeds) and shall be applied in accordance with the Loan Agreement, including, as applicable, for the restoration of the affected Property or for prepayment of the Loan.
(b) Refunds of real estate tax overpayments received by or on behalf of any SPE Borrower shall be deposited into the Tax and Insurance Reserve Account within five (5) Business Days of receipt thereof and shall be credited against future monthly escrow deposits in accordance with Section 5.1 hereof.
(c) Any other non-rental receipts or extraordinary income received by Borrower or any SPE Borrower shall be deposited into the Cash Management Account and applied in accordance with the Waterfall, unless the Loan Agreement provides otherwise with respect to the disposition of such receipts.
Section 3.4 — Investment of Funds
(a) Funds on deposit in the Cash Management Account and each of the Reserve Accounts may be invested in Permitted Investments as follows:
(i) Outside a Cash Management Period, Borrower shall have the right to direct the investment of such funds in Permitted Investments, provided that Borrower shall have delivered written investment instructions to the Cash Management Bank and Lender at least two (2) Business Days prior to the proposed date of investment; and
(ii) During a Cash Management Period, Lender shall have the sole right to direct the investment of such funds in Permitted Investments, and the Cash Management Bank shall follow Lender's investment instructions without further consent of Borrower.
(b) All interest, dividends, and other earnings on Permitted Investments shall be deposited into the Cash Management Account and shall be applied in accordance with the Waterfall on the next Monthly Payment Date following receipt of such earnings.
(c) Borrower bears all risk of loss on Permitted Investments. Neither Lender nor Cash Management Bank shall be responsible or liable for any loss or diminution in value of any Permitted Investment, except to the extent resulting from the negligence or willful misconduct of Lender or Cash Management Bank, as applicable.
(d) In the absence of investment instructions from Borrower (outside a Cash Management Period) or Lender (during a Cash Management Period), funds on deposit shall remain uninvested in the applicable account.
ARTICLE IV — APPLICATION OF FUNDS; WATERFALL
Section 4.1 — Priority of Application
(a) All funds in the Cash Management Account shall be applied on each Monthly Payment Date (and at such other times as may be expressly provided herein or in the Loan Agreement) in the order of priority set forth in Section 4.2 hereof (the "Waterfall").
(b) No disbursement or allocation shall be made to any lower-priority item in the Waterfall until all higher-priority items have been funded in full. If, on any Monthly Payment Date, the funds available in the Cash Management Account are insufficient to satisfy all items in the Waterfall in full, funds shall be applied in the order of priority set forth in Section 4.2 to the extent available, and any deficiency with respect to any unfunded or partially funded item shall constitute a shortfall that Borrower shall be obligated to cure within the time period specified in the Loan Agreement (or, if no such time period is specified, within ten (10) Business Days of Lender's notice to Borrower of such shortfall).
(c) Lender shall direct the Cash Management Bank to make disbursements from the Cash Management Account in accordance with the Waterfall on each Monthly Payment Date based on the information then available to Lender, including, without limitation, the Approved Annual Budget, the most recent real estate tax bills and insurance invoices, and the outstanding principal balance of the Loan.
Section 4.2 — Waterfall of Funds
On each Monthly Payment Date, funds in the Cash Management Account shall be applied in the following order of priority:
First — to the Cash Management Bank, payment of all fees and expenses then due and payable to the Cash Management Bank under this Agreement and the Account Control Agreements, including, without limitation, account maintenance fees, wire transfer fees, and any other charges incurred in connection with the administration of the accounts established hereunder.
Second — to Lender (or to such account as Lender may designate), payment of the Monthly Debt Service Payment then due under the Note, which is approximately One Million Four Hundred Seventy-Seven Thousand Eight Hundred Forty-Six Dollars ($1,477,846), consisting of scheduled principal and interest at the Interest Rate of 6.25% per annum on the outstanding principal balance of the Loan, amortized over thirty (30) years. If any default interest, late charges, or other amounts are then due and payable under the Note or the Loan Agreement, such amounts shall also be paid at this priority level.
Third — to the Tax and Insurance Reserve Account, an amount equal to one-twelfth (1/12) of the estimated annual real estate taxes and insurance premiums for all fourteen (14) Properties, as determined by Lender based on the most recent tax bills received from the applicable taxing authorities and the most recent insurance invoices received from Borrower's insurance carriers. Lender shall have the right to adjust the monthly escrow deposit amount from time to time as necessary to ensure that sufficient funds are on deposit in the Tax and Insurance Reserve Account to pay all real estate taxes and insurance premiums when due.
Fourth — to the Capital Expenditure Reserve Account, the monthly deposit amount required under the Loan Agreement for capital expenditure reserves. The monthly deposit amount shall be determined based on the independent engineer's report obtained in connection with the origination of the Loan and shall be in an amount per unit per annum that is consistent with industry standards for multifamily properties of similar age, condition, and class as the Properties.
Fifth — to the Leasing Commission Reserve Account (if applicable), the monthly deposit amount required under the Loan Agreement for leasing commissions and tenant improvement costs, if any.
Sixth — to the Operating Expense Account, an amount equal to the monthly budgeted operating expenses for all fourteen (14) Properties as set forth in the Approved Annual Budget, including, without limitation, Property Management Fees payable to Fairwater Residential Management LLC, utility costs, maintenance and repair expenses, payroll costs for on-site property employees, marketing expenses, administrative costs, and other ordinary course operating expenses of the Properties. Disbursements under this Sixth priority shall not exceed the amounts set forth in the Approved Annual Budget for the applicable month without Lender's prior written consent (which consent shall not be unreasonably withheld, conditioned, or delayed in the case of reasonable variances not exceeding five percent (5%) of the applicable monthly budgeted amount for any individual line item, or three percent (3%) of the total monthly budgeted operating expenses for all Properties in the aggregate).
Seventh — if no Cash Management Period is then in effect, the remaining balance, if any (the "Excess Cash Flow"), shall be released to Borrower's operating accounts (or to Operating Partnership's accounts, as directed by Borrower in writing) for use at Borrower's discretion, including, without limitation, for distributions by the Operating Partnership to Guarantor necessary for Guarantor to maintain its qualification as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code (the "REIT Distribution Carve-Out"). Lender shall direct the Cash Management Bank to wire transfer or otherwise remit such Excess Cash Flow to Borrower in accordance with the wire transfer instructions set forth in Exhibit F hereto (or such other instructions as Borrower may provide to Lender and the Cash Management Bank in writing from time to time).
Eighth — if a Cash Management Period is then in effect, the Excess Cash Flow shall be retained in the Cash Management Account or deposited into the Excess Cash Flow Sub-Account and held as additional collateral for the Loan; provided, however, that even during a Cash Management Period, Lender shall release from the Excess Cash Flow such amounts as are necessary for Guarantor to comply with the REIT Distribution Carve-Out in accordance with Section 4.3 hereof.
Section 4.3 — REIT Distribution Carve-Out
(a) Notwithstanding anything to the contrary contained in this Agreement, at all times (including during a Cash Management Period and at all times when Excess Cash Flow is being trapped by Lender pursuant to the Eighth priority of the Waterfall), Borrower shall be entitled to receive distributions from the Cash Management Account (or, as applicable, the Excess Cash Flow Sub-Account) — after payment of all amounts due under the First through Sixth priorities of the Waterfall — in an amount necessary to enable Guarantor (Fairwater Real Estate Investment Trust) to make distributions to its shareholders in an amount sufficient to maintain its qualification as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code, including, without limitation, the requirement set forth in Section 857(a)(1) of the Internal Revenue Code that Guarantor distribute at least ninety percent (90%) of its REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain) for each taxable year.
(b) To receive a distribution under this Section 4.3 during a Cash Management Period, Borrower shall deliver to Lender a written certification (a "REIT Distribution Certification") setting forth:
(i) the amount of the required distribution, calculated with reasonable specificity;
(ii) the portion of the required distribution attributable to the Properties (as opposed to other assets or operations of Guarantor not subject to this Agreement);
(iii) supporting calculations demonstrating that the requested distribution is the minimum amount necessary to enable Guarantor to satisfy the REIT distribution requirements under the Internal Revenue Code; and
(iv) a certification from either (A) Whitmore Hargrove & Co., P.C. (Guarantor's independent auditor), or (B) Naomi T. Sinclair, Chief Financial Officer of Guarantor, confirming the accuracy of the foregoing calculations.
(c) Lender shall process each REIT Distribution Certification and direct the Cash Management Bank to release the applicable distribution amount within five (5) Business Days of Lender's receipt of a complete REIT Distribution Certification. Lender shall not unreasonably withhold, condition, or delay its approval of any REIT Distribution Certification that complies with the requirements of this Section 4.3.
(d) The REIT Distribution Carve-Out is a material provision of this Agreement reflecting the interaction between the cash management requirements imposed in connection with the Loan and the federal income tax requirements applicable to Guarantor as a publicly traded real estate investment trust. The Parties acknowledge that the failure of Guarantor to make distributions sufficient to maintain its REIT qualification could result in severe adverse consequences to Guarantor, its shareholders, and the value of the collateral securing the Loan.
(e) For the avoidance of doubt, the REIT Distribution Carve-Out shall apply only with respect to distributions required for Guarantor to maintain its REIT qualification and shall not entitle Borrower to receive distributions in excess of the minimum amount necessary for such purpose during any Cash Management Period.
Section 4.4 — Application During Event of Default
(a) Following the occurrence of an Event of Default under the Loan Agreement that has resulted in the acceleration of the maturity of the Loan (or if Lender has otherwise exercised its right to accelerate the Loan), Lender may, in its sole and absolute discretion, apply all funds on deposit in the Cash Management Account, the Reserve Accounts, the Excess Cash Flow Sub-Account, and, to the extent permitted by applicable law, any other accounts subject to the Account Control Agreements, to the repayment of the Loan and all other obligations of Borrower under the Loan Documents, in such order and manner as Lender determines in its sole discretion.
(b) The REIT Distribution Carve-Out set forth in Section 4.3 hereof shall not apply following the acceleration of the Loan by Lender, and Lender shall have no obligation to release any funds from the Cash Management Account or any other account for the purpose of enabling Guarantor to make REIT distributions following such acceleration.
(c) Nothing in this Section 4.4 shall limit or restrict any other rights or remedies available to Lender under this Agreement, the Loan Agreement, any other Loan Document, or applicable law upon the occurrence of an Event of