LOAN AGREEMENT

Dated as of October 1, 1997

Between

SAUL SUBSIDIARY I LIMITED PARTNERSHIP,
as Borrower

AND

NOMURA ASSET CAPITAL CORPORATION,
as Lender

                                 TABLE OF CONTENTS
                                 -----------------
                                                                      Page
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I.             DEFINITIONS; PRINCIPLES OF CONSTRUCTION..............     1
          1.1  Specific Definitions.................................     1
          1.2  Index of Other Definitions...........................     8
          1.3  Principles of Construction...........................    10

II.            GENERAL..............................................    10
          2.1  The Loan.............................................    10
          2.2  Interest; Monthly Payments...........................    10
        2.2.1  Generally                                                10
        2.2.2  Accrued Interest                                         11
        2.2.3  Property Cash Flow Allocation........................    11
        2.2.4  Default Rate                                             11
          2.3  Loan Repayment and Defeasance........................    11
        2.3.1  Repayment                                                11
        2.3.2  Mandatory Prepayments................................    12
        2.3.3  Voluntary Defeasance of the Note.....................    12
          2.4  Release of Property..................................    14
        2.4.1  Release of All of the Properties.....................    14
        2.4.2  Release of Individual Properties.....................    14
        2.4.3  Release on Payment in Full...........................    15
        2.4.4  Release of Portion of Seven Corners Property.........    15
          2.5  Payments and Computations............................    16
        2.5.1  Making of Payments...................................    16
        2.5.2  Computations                                             16
        2.5.3  Late Payment Charge..................................    16

III.           CASH MANAGEMENT; ESCROWS AND RESERVES................    16
          3.1  Cash Management Arrangements.........................    17
          3.2  Required Repairs; Required Repair Funds..............    17
        3.2.1  Required Repairs: Deposits...........................    17
        3.2.2  Release of Required Repair Funds.....................    17
          3.3  Tax and Insurance Escrow Fund........................    18
        3.3.1  Tax and Insurance Escrow Fund........................    18
        3.3.2  Payment of Insurance Premiums by Borrower............    18
          3.4  Capital Reserve Fund.................................    19
        3.4.1  Capital Reserve Fund.................................    19
        3.4.2  Payment of Capital Expenses..........................    19
          3.5  Rollover Reserve Fund................................    19
        3.5.1  Rollover Reserve Fund................................    19
        3.5.2  Payment of Leasing Expenses..........................    20
          3.6  Payment of Approved Operating Expenses...............    20
          3.7  Security Deposits....................................    20

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          3.8  Grant of Security Interest; Application of Funds.....    21
          3.9  Security in Lieu of Deposits.........................    21

IV.            REPRESENTATIONS AND WARRANTIES.......................    22
          4.1  Borrower Representations.............................    22
        4.1.1  Organization; Special Purpose........................    22
        4.1.2  Proceedings; Enforceability..........................    22
        4.1.3  No Conflicts                                             23
        4.1.4  Litigation                                               23
        4.1.5  Agreements                                               23
        4.1.6  Title                                                    23
        4.1.7  Survey                                                   23
        4.1.8  No Bankruptcy Filing.................................    23
        4.1.9  Full and Accurate Disclosure.........................    24
       4.1.10  No Plan Assets                                           24
       4.1.11  Compliance                                               24
       4.1.12  Contracts                                                24
       4.1.13  Financial Information................................    24
       4.1.14  Condemnation                                             25
       4.1.15  Federal Reserve Regulations..........................    25
       4.1.16  Utilities and Public Access..........................    25
       4.1.17  Not a Foreign Person.................................    25
       4.1.18  Separate Lots                                            25
       4.1.19  Assessments                                              25
       4.1.20  Enforceability                                           25
       4.1.21  Insurance                                                25
       4.1.22  Use of Property; Licenses............................    25
       4.1.23  Flood Zone                                               26
       4.1.24  Physical Condition...................................    26
       4.1.25  Encroachments                                            26
       4.1.26  Leases                                                   26
       4.1.27  Filing and Recording Taxes...........................    27
       4.1.28  Investment Company Act...............................    27
       4.1.29  Fraudulent Transfer..................................    27
       4.1.30  Partners                                                 27
       4.1.31  Management Agreement.................................    27
       4.1.32  Hazardous Substances                                     28
          4.2  Survival of Representations..........................    28
          4.3  Agreement Concerning Subordination, Nondisturbance...    28

V.             AFFIRMATIVE COVENANTS................................    29
          5.1  Existence............................................    29
          5.2  Taxes and Other Charges..............................    29
          5.3  Repairs; Maintenance and Compliance..................    29
          5.4  Litigation...........................................    30
          5.5  Performance of Other Agreements......................    31

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          5.7  Cooperate in Legal Proceedings.......................    31
          5.8  Further Assurances...................................    31
          5.9  Financial Reporting..................................    31
        5.9.1  Bookkeeping                                              31
        5.9.2  Annual Reports                                           32
        5.9.3  Monthly Reports                                          32
        5.9.4  Other Reports                                            32
        5.9.5  Annual Budget                                            32
        5.9.6  Breach                                                   33
         5.10  Environmental Matters................................    33
       5.10.1  Hazardous Substances.................................    33
       5.10.2  Environmental Monitoring.............................    34
       5.10.3  Survival.                                                34
         5.11  Title to the Property................................    35
         5.12  Estoppel Statement...................................    35
         5.13  Principal Place of Business..........................    35
         5.14  Management Agreement.................................    35
         5.15  Special Purpose Bankruptcy Remote Entity.............    35
         5.16  Assumptions in Non-Consolidation Opinion.............    37

VI.            NEGATIVE COVENANTS...................................    37
          6.1  Management Agreement.................................    37
          6.2  Liens                                                    37
          6.3  Dissolution..........................................    38
          6.4  Change In Business...................................    38
          6.5  Debt Cancellation....................................    38
          6.6  Assets                                                   38
          6.7  Transfers............................................    38
          6.8  Debt                                                     38

VII.           INSURANCE; CASUALTY; AND CONDEMNATION................    38
          7.1  Insurance............................................    38
        7.1.1  Coverage                                                 38
        7.1.2  Policies                                                 39
          7.2  Casualty.............................................    40
        7.2.1  Notice; Restoration..................................    40
        7.2.2  Settlement of Proceeds...............................    40
          7.3  Condemnation.........................................    40
        7.3.1  Notice; Restoration..................................    40
        7.3.2  Collection of Award..................................    41
          7.4  Application of Proceeds or Award.....................    41
        7.4.1  Application to Restoration...........................    41
        7.4.2  Application to Debt..................................    41
        7.4.3  Release of Property upon Casualty or Condemnation....    42
        7.4.4  Procedure for Application to Restoration.............    42

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VIII.          DEFAULTS.............................................    43
          8.1  Events of Default....................................    43
          8.2  Remedies.............................................    45
        8.2.1  Acceleration.                                            45
        8.2.2  Remedies Cumulative..................................    45
        8.2.3  Severance.                                               46
        8.2.4  Delay                                                    46

IX.            SPECIAL PROVISIONS...................................    46
          9.1  Sale of Note and Securitization......................    46
        9.1.1  Cooperation                                              46
        9.1.2  Use of Information...................................    47
        9.1.3  Borrower Obligations Regarding Disclosure Documents..    47
        9.1.4  Indemnities Regarding Filings........................    48
        9.1.5  Indemnification Procedure............................    49
        9.1.6  Contribution.                                            49
        9.1.7  Rating Surveillance..................................    50
          9.2  Exculpation..........................................    50
          9.3  Termination of Manager...............................    51
          9.4  Retention of Servicer................................    51

X.             MISCELLANEOUS........................................    51
         10.1  Survival.............................................    51
         10.2  Lender's Discretion..................................    52
         10.3  Governing Law........................................    52
         10.4  Modification, Waiver in Writing......................    52
         10.5  Delay Not a Waiver...................................    52
         10.6  Notices..............................................    53
         10.7  Trial by Jury........................................    54
         10.8  Headings.............................................    54
         10.9  Severability.........................................    54
        10.10  Preferences..........................................    54
        10.11  Waiver of Notice.....................................    54
        10.12  Intentionally Deleted................................    55
        10.13  Expenses; Indemnity..................................    55
        10.14  Prior Agreements.....................................    56
        10.15  Offsets, Counterclaims and Defenses..................    56
        10.16  Publicity............................................    56
        10.17  Controlling Agreement................................    57
        10.18  Conflict; Construction of Documents..................    57
        10.19  Brokers and Financial Advisors.......................    57
        10.20  No Third Party Beneficiaries.........................    58

Schedule 1 -   Allocated Loan Amounts
Schedule 2 -   Location of Property
Schedule 3 -   Matters Regarding Representations
Schedule 4 -   Rent Roll
Schedule 5 -   Required Repairs
Schedule 6 -   Environmental Recommendations
Schedule 7 -   Form of Monthly Operating Statement
Schedule 8 -   Form of Leasing Status Report
Schedule 9 -   Description of Deeds of Trust
Schedule 10 -  Form of Subordination, Non-Disturbance and Attornment
               Agreement
Schedule 11 -  Legal Description of Released Property (Portion of Seven
               Corners)

LOAN AGREEMENT

LOAN AGREEMENT dated as of October 1, 1997, 1997 between SAUL SUBSIDIARY I LIMITED PARTNERSHIP, a Maryland limited partnership ("SAUL SUB I") ("BORROWER") and NOMURA ASSET CAPITAL CORPORATION, a Delaware corporation (together with its successors and assigns, "LENDER").

I0 DEFINITIONS; PRINCIPLES OF CONSTRUCTION

"AFFILIATE": as to any Person, any other Person that, directly or indirectly, is in Control of, is Controlled by or is under common Control with such Person or is a director or officer of such Person or of an Affiliate of such Person.

"APPROVED CAPITAL EXPENSES": Capital Expenses incurred by Borrower which (i) are included in the approved Capital Budget for the Current Month or
(ii) have been approved by Lender.

"APPROVED LEASING EXPENSES": expenses incurred in leasing space at the Property pursuant to Leases entered into in accordance with the Loan Documents, including brokerage commissions, tenant improvements and other inducements, which expenses (i) are (A) specifically approved by Lender in connection with approving the applicable Lease, (B) incurred in the ordinary course of business and on market terms and conditions in connection with Leases which do not require Lender's approval under the Loan Documents, or (C) otherwise approved by Lender, which approval shall not be unreasonably withheld or delayed, and (ii) are substantiated by executed Lease documents and brokerage agreements.

"APPROVED OPERATING EXPENSES": Operating Expenses incurred by Borrower which (i) are included in the approved Operating Budget for the Current Month, (ii) are for electric, gas, oil, water, sewer or other utility service to the Property or (iii) have been approved by Lender.

"BORROWER": Shall have the meaning set forth on the first page of this Agreement, and shall also mean the permitted successors and assigns of the entity identified on the first page of this Agreement as the Borrower.

"BUSINESS DAY": any day other than a Saturday, Sunday or any other day on which national banks in New York are not open for business.

"CAPITAL EXPENSES": expenses that are required under GAAP to be capitalized.

"CODE": the Internal Revenue Code of 1986, as amended, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

"CONTROL": with respect to any Person, either (i) ownership directly or through other entities of more than 50% of all beneficial equity interest in such Person, or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, by contract or otherwise.

"CURRENT MONTH": as of any date of determination, the then current calendar month.

"DEBT": the unpaid Principal, all interest accrued and unpaid thereon, the Yield Maintenance Premium and all other sums due to Lender in respect of the Loan, or under any Loan Document.

"DEBT SERVICE": with respect to any particular period, scheduled Principal and interest payments under the Note in such period.

"DEBT SERVICE COVERAGE RATIO": as of any date, the ratio of (i) the Net Operating Income for the 12-month period ending with the most recently completed calendar month to (ii) the Debt Service for such period.

"DEFAULT": the occurrence of any event under any Loan Document which, with the giving of notice or passage of time, or both, would be an Event of Default.

"DEFAULT RATE": a rate per annum equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) four (4%) percent above the Interest Rate or the Revised Interest Rate, as applicable.

"DEFEASANCE DEPOSIT": an amount equal to the sum of (i) an amount sufficient to purchase U.S. Obligations which provide payments that will meet the Scheduled Defeasance Payments, (ii) any reasonable costs and expenses incurred or to be incurred in the purchase of such U.S. Obligations and (iii) any revenue, documentary stamp or intangible taxes or any other tax or charge due in connection with the transfer of the Note, the creation of the Defeased Note and the Undefeased Note, if applicable, any transfer of the Defeased Note or otherwise required to accomplish the agreements of Sections 2.3 and 2.4.

"DEPOSIT ACCOUNT": the account established and maintained pursuant to the Deposit Account Agreement.

"DEPOSIT BANK": LaSalle National Bank, or such other bank as selected by Lender from time to time.

"ELIGIBLE ACCOUNT": (i) an account maintained with a federal or state chartered depository institution or trust company whose (x) commercial paper, short-term debt obligations or other short-term deposits are rated at least A-1 by the applicable Rating Agencies if the deposits in such account are to be held in such account for 30 days or less or (y) long-term unsecured debt obligations are rated at least AA- by the applicable Rating Agencies if the deposits in such account are to be held in such account for more than 30 days; or (ii) a segregated trust account maintained with the trust department of a federal or state chartered depository institution or trust company acting in its fiduciary capacity which institution or trust company is subject to regulations regarding fiduciary funds on deposit substantially similar to 12 C.F.R. (S) 9.10(b); or
(iii) an account otherwise acceptable to the applicable Rating Agencies, as confirmed in writing that such account would not, in and of itself, result in a downgrade, qualification or withdrawal of the then current ratings assigned to any Security.

"FAIR MARKET VALUE": With respect to a given Property, the fair market value of such Property as if unencumbered by the Deed of Trust and any other Loan Documents granting a Lien on such Property in favor of Lender, as reasonably determined by Lender.

"FISCAL YEAR": each twelve month period commencing on January 1 and ending on December 31 during each year of the Term.

"GAAP": generally accepted accounting principles in the United States of America as of the date of the applicable financial report.

"GENERAL PARTNER": Saul QRS, Inc., a Maryland corporation.

"GOVERNMENTAL AUTHORITY": any court, board, agency, commission, office or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) now or hereafter in existence.

"INTEREST RATE": a rate of interest equal to 7.67% per annum.

"LEASE": any lease, or, to the extent of the interest therein of Borrower, any sublease or sub-sublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any person is granted a possessory interest in, or right

to use or occupy, any space in a given Property, and every modification, amendment or other agreement relating thereto and every guaranty or other agreement entered into in connection therewith.

"LEGAL REQUIREMENTS": statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting all or part of the Property or the construction, use, alteration or operation thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instrument, either of record or known to Borrower, at any time in force affecting all or part of the Property, including any that may (i) require repairs, modifications or alterations in or to all or part of the Property, or
(ii) in any way limit the use and enjoyment thereof.

"LIEN": any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest or any other encumbrance, charge or transfer of, on or affecting all or part of the Property or any interest therein, or in Borrower, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic's, materialmen's and other similar liens and encumbrances.

"MANAGEMENT AGREEMENT": the management agreement dated July 31, 1994, between Borrower and Manager, as modified by an amendment of even date herewith, pursuant to which Manager is to manage the Properties.

"MANAGEMENT FEE": the fee payable to Manager under the Management Agreement.

"MANAGER": Saul Holdings Limited Partnership, a Maryland limited partnership.

"MATURITY DATE": the date on which the final payment of principal of the Note (or the Defeased Note, if applicable) becomes due and payable as therein provided, whether at the Stated Maturity Date, by declaration of acceleration, or otherwise.

"NACC": Nomura Asset Capital Corporation, a Delaware corporation.

"NET OPERATING INCOME": for any period, all Operating Income during such period minus all Operating Expenses during such period; determined by audit or in accordance with other agreed-upon procedures determined by Lender; provided that Net Operating Income shall not include payments to be received in respect of U.S. Obligations purchased in connection with a Defeasance.

"OFFICERS' CERTIFICATE": a certificate delivered to Lender by Borrower which is signed by a senior executive officer of the General Partner.

"OPERATING EXPENSES": for any period, all expenditures by or on behalf of Borrower as and to the extent required to be expensed or allowed to be expensed and in fact expensed under GAAP during such period in connection with the ownership, operation, maintenance, repair or leasing of the Property, including (i) Management Fees; Insurance Premiums; bank charges; expenses for accounting, advertising, marketing, architectural services, utilities, extermination, cleaning, trash removal, window washing, landscaping and security; and reasonable and necessary legal expenses incurred in connection with the operation of the Property; (ii) Taxes and Other Charges (excluding fines, penalties, interest or Taxes or Other Charges payable by reason of Borrower's failure to pay an imposition timely); (iii) wages, benefits, payroll taxes, uniforms, insurance costs and all other related expenses for employees of Borrower or its Affiliate engaged in the repair, operation or maintenance of the Property; and (iv) the cost of tenant improvements, routine interior and exterior maintenance, repairs and minor alterations; provided that Operating Expenses will not include Debt Service, Capital Expenses, non-cash items such as depreciation and amortization or any extraordinary one-time expenditures not considered operating expenses under GAAP.

"OPERATING INCOME": for any period, all regular on-going revenues actually received by Borrower from the operation of the Property during such period, including (i) Rents and (ii) all other amounts received which in accordance with GAAP are required to be or are included in Borrower's annual financial statements as operating income of the Property; provided, that Operating Income will not include income from non-recurring income sources, advance Rents or other payments, deposits, escrows, any income otherwise includable in Operating Income but paid to a Person other than Borrower, or income from a sale, financing or other capital transaction.

"OPTIONAL PREPAYMENT DATE": October 11, 2012.

"OTHER CHARGES": all ground rents, impositions other than Taxes, and any other charges now or hereafter levied or assessed or imposed against a Property or any part thereof, including maintenance charges, vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Property.

"PAYMENT DATE": the 11th day of each calendar month or, if in any month the 11th day is not a Business Day, then the Payment Date for such month shall be the first Business Day thereafter.

"PERMITTED TRANSFERS": (i) a Lease entered into in accordance with the Loan Documents, (ii) a Special Transfer or (iii) a Transfer of a limited partnership interest in Borrower, a direct or indirect interest in a limited partner of Borrower or stock in the General Partner if either (A) such Transfer would not cause the transferee to increase its direct or indirect interest in Borrower or its stock in the General Partner to an amount which equals or exceeds 49%, or (B) Borrower shall have delivered (or caused to be delivered)
(1) to Lender, written confirmation from the applicable Rating Agencies that such Transfer will not cause a qualification, withdrawal or downgrading of the ratings in effect immediately prior to such Transfer for the Securities then outstanding and (2) to Lender and the applicable Rating Agencies, a substantive non-consolidation opinion with respect to Borrower in form and substance satisfactory to Lender and the applicable Rating Agencies.

"PERSON": any individual, corporation, partnership, joint venture, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.

"POOLING AND SERVICING AGREEMENT": the Servicing Agreement entered into with the Servicer in connection with any Securitization.

"PROPERTIES": shall mean, collectively, the parcels of real property and improvements thereon owned by Borrower and encumbered by a Deed of Trust, together with all rights pertaining to the property and improvements, as more particularly described in the Granting Clauses of the Deeds of Trust and referred to therein as the "Property" or the "Trust Property," as the case may be. A list of the Properties and their respective locations is set forth in

"RATING AGENCY": each of Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Fitch Investors Service, Inc. or any other nationally-recognized statistical rating agency which has been approved by Lender.

"RELEASE AMOUNT": with respect to (i) a given Property, other than the Seven Corners Property, for which Borrower is seeking a release of Lien pursuant to Section 2.4.2 hereof, one hundred ten percent (110%) of the Allocated Loan Amount for such Property and (ii) the Seven Corners Property, if Borrower is seeking a release of Lien for the same pursuant to Section 2.4.2 hereof, one hundred twenty percent (120%) of the Allocated Loan Agreement for such Property;

"RELEASE DATE": the earlier of (i) three years after the date hereof and (b) two years from the "start-up day" (within the meaning of Section 860G(a)(9) of the Code) of the REMIC Trust.

"REMIC": a "real estate mortgage investment conduit" within the meaning of Section 860D of the Code.

"REMIC TRUST": a REMIC that holds the Note.

"RENTS": all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower or its agents or employees from any and all sources arising from or attributable to the Property, including all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale of the Property or any Lease, and proceeds, if any, from business interruption or other loss of income insurance.

"REVISED INTEREST RATE": the per annum rate of interest that is the greater of (i) the Interest Rate plus 5% and (ii) the Treasury Rate on the Optional Prepayment Date plus 5%.

"SECURITY DEPOSIT ACCOUNT": that certain account established and maintained by Lender at the Deposit Bank for the purpose of holding all security deposits of lessees under Leases.

"SERVICER": the entity appointed by Lender to service the Loan or its successor in interest, or if any successor servicer is appointed pursuant to the Pooling and Servicing Agreement, such successor servicer.

"SEVEN CORNERS PROPERTY": the real property and improvements, together with all rights pertaining thereto, owned by Borrower and located in Falls Church, Virginia.

"SPECIAL TRANSFER": the sale by the original Borrower of all of the Properties to one purchaser of all of the obligations of Borrower under the Loan Documents; provided Lender shall have received (i) evidence in writing from the applicable Rating Agencies to the effect that such a sale and assumption will not result in a qualification, withdrawal or downgrading of the ratings in effect

immediately prior to such sale for the Securities then outstanding. and
(ii) all reasonable out-of-pocket expenses incurred by Lender in connection with such assumption.

"STATE": the state in which a given Property is located.

"STATED MATURITY DATE": October 11, 2022.

"TAXES": all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against all or part of the Property.

"TERM": the entire term of this Agreement, which shall expire upon repayment in full of the Debt and full performance of each and every obligation to be performed by Borrower pursuant to the Loan Documents.

"TITLE INSURANCE POLICIES": collectively, the mortgagee title insurance policies, in form acceptable to Lender, issued with respect to the Properties and insuring the liens of the Deeds of Trust.

"TRANSFER": any sale, conveyance, transfer, Lease (including any amendment, extension, modification, waiver or renewal thereof), assignment, mortgage, pledge, grant of a security interest or hypothecation, whether by law or otherwise, of or in (i) all or part of the Property (including any legal or beneficial direct or indirect interest therein), (ii) any direct or indirect interest in Borrower, or (iii) any stock in the General Partner.

"TREASURY RATE": as of the Optional Prepayment Date, the linear interpolation of the bond equivalent yields as reported in Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading "U.S. Government Securities/Treasury Constant Maturities" (or such other recognized source of financial market information as lender shall select) for the week ending prior to the Optional Prepayment Date of U.S. Treasury constant maturities with maturity dates (one longer and one shorter) most nearly approximating the remaining term of the Note as of the Optional Prepayment Date.

"UCC": with respect to any given Property, the Uniform Commercial Code as in effect in its State.

"U.S. OBLIGATION": direct non-callable obligations of the United States of America.

"YIELD MAINTENANCE PREMIUM": the amount (if any) which, when added to the unpaid Principal or the principal amount of the Defeased Note, as applicable, will be sufficient to purchase U.S. Obligations providing the required Scheduled Defeasance Payments.

"Accrued Interest" - 2.2.2

"Annual Budget" - 5.9.5
"Award" - 7.3.2
"Capital Budget" - 5.9.5
"Capital Reserve Fund" - 3.4.1 "Capital Reserve Subaccount" - Deposit Account Agreement "Casualty" - 7.1.3
"Casualty/Condemnation Prepayment" - 2.3.2 "Casualty/Condemnation Subaccount" - Deposit Account Agreement "Clearing Account" - 3.1
"Clearing Bank" - 3.1
"Condemnation" - 7.3.1
"Defeasance" - 2.3.3
"Defeasance Date" - 2.3.3
"Defeased Note" - 2.3.3
"Disclosure Document" - 9.1.2
"Environmental Laws" - 4.1.32
"Equipment" - Deeds of Trust
"Event of Default" - 8.1
"Exchange Act" - 9.1.2
"Funds" - 3.8
"Hazardous Substances" - 4.1.32 "Improvements" - Deeds of Trust "Insurance Premiums" - 7.1.2
"Insured Casualty" - 7.2.2
"Lender's Consultant" - 5.10.1 "Liabilities" - 9.1.3
"Licenses" - 4.1.22
"Loan" - 2.1
"Lockbox Event" - 3.1
"Lockbox Termination" - 3.1
"Monthly Debt Service Payment Amount"- 2.2.1 "Nomura" - 9.1.2
"Nomura Group" - 9.1.2
"Operating Budget" - 5.9.5
"Operating Expense Subaccount" - Deposit Account Agreement "Permitted Investments" - Deposit Account Agreement "Policies" - 7.1.2
"Principal" - 2.1
"Provided Information" - 9.1
"Registration Statement" - 9.1.3 "Remedial Work" - 5.10.2
"Required Records" - 5.9.6
"Required Repair Fund" - 3.2.1 "Required Repairs" - 3.2.1
"Restoration" - 7.4.1

"Rollover Letter of Credit" - 3.9 "Rollover Reserve Fund" - 3.5.1 "Rollover Reserve Subaccount" - Deposit Account Agreement "Scheduled Defeasance Payments" - 2.3.3 "Securities" - 9.1
"Securities Act" - 9.1.2
"Securitization" - 9.1

"Security Agreement" - 2.3.3
"Special Purpose Bankruptcy Remote Entity" - 5.15 "Subaccounts" - Deposit Account Agreement "Successor Borrower" - 2.3.3
"Tax and Insurance Escrow Fund" - 3.3.1 "Tax and Insurance Escrow Subaccount" - Deposit Account Agreement "Undefeased Note" - 2.3.3
"Underwriter Group" - 9.1.2

(b On the date hereof, Borrower shall pay interest on the unpaid Principal from the date hereof through October 10, 1997. On November 11, 1997 and each Payment Date thereafter through and including the Maturity Date, the Principal and interest thereon at the Interest Rate shall be payable in equal monthly installments of $1,102,623.87 (the "MONTHLY DEBT SERVICE PAYMENT

AMOUNT"); which is based on the Interest Rate and a 300-month amortization schedule. The Monthly Debt Service Payment Amount due on any Payment Date shall first be applied to the payment of interest accrued from the 11th day of the month preceding the Payment Date through the 10th day of the month in which the Payment Date occurs, notwithstanding that the Payment Date may not have been the 11th day of such month because the 11th day of such month is not a Business Day. The remainder of such Monthly Debt Service Payment Amount shall be applied to the reduction of the unpaid Principal.

(b Commencing on the first Payment Date after the Optional Prepayment Date and continuing on each Payment Date thereafter until the entire Debt has been paid in full, and at any time during the continuance of an Event of Default (subject to the right of Lender, to apply Rents to the Debt following an Event of Default, as provided in Section 10(a)(viii) of the Deeds of Trust), any Rents deposited into the Deposit Account (or otherwise received by Borrower) during the immediately preceding calendar month shall be applied by Lender as follows in the following order of priority: (i) First, to make required payments to the Tax and Insurance Escrow Fund for each of the Properties; (ii) Second, to Lender to pay the Monthly Debt Service Payment Amount (plus, if applicable, interest at the Default Rate); (iii) Third, payments for Approved Operating Expenses for each of the Properties; (iv) Fourth, to make required payments to the Capital Reserve Fund for each of the Properties; (v) Fifth, to make required payments to the Rollover Reserve Fund for each of the Properties;
(vi) Sixth, payments to Lender to prepay the unpaid Principal until paid in full; (vii Seventh, payments to Lender to be applied against Accrued Interest and interest accrued thereon; and (viii) Lastly, payment to Borrower of any excess amounts.

of interest at the Default Rate is not a permitted alternative to timely payment and shall not constitute a waiver of any Default or Event of Default or an amendment to this Agreement or any other Loan Document and shall not otherwise prejudice or limit any rights or remedies of Lender.

(i Borrower shall provide not less than thirty (30) days' prior written notice to Lender specifying a Payment Date (the "DEFEASANCE DATE") on which the Defeasance is to occur. Such notice shall indicate the amount of Principal to be defeased (and, if such Defeasance involves the release of any Property pursuant to Section 2.4.2 hereof, such notice shall also identify such Property or Properties).

(ii Borrower shall pay to Lender (A) all accrued and unpaid interest on the unpaid Principal to but not including the Defeasance Date, (B) all other sums, not including scheduled interest or Principal payments, then due under the Loan Documents, (C) the required Defeasance Deposit for such Defeasance, and (D) all reasonable costs and expenses of Lender incurred in the Defeasance, including any costs and expenses associated with a release of Lien as provided in Section 2.4 and reasonable attorney's fees and expenses. If for any reason the Defeasance Date is not a Payment Date, Borrower shall also pay interest that would have accrued on the Note to but not including the next Payment Date.

(iii Except in the case of a Defeasance of the entire outstanding Principal balance of the Note, no Event of Default shall exist (unless such Event of Default relates solely to the Property or Properties to be released in connection with a partial Defeasance).

(iv If only a portion of the unpaid Principal is the subject of the Defeasance, Borrower shall execute and deliver all necessary documents to amend and restate the Note and issue two substitute notes: one having a principal balance equal to the defeased portion of the original Note (the "DEFEASED NOTE") and the other having a principal balance equal to the undefeased portion of the original Note (the "UNDEFEASED NOTE"). The Defeased Note and Undefeased Note shall have terms identical to the terms of the Note, except for the principal balance. A Defeased Note cannot be the subject of any further Defeasance.

(v Borrower shall execute and deliver a security agreement, in form and substance satisfactory to Lender, creating a first priority lien on the Defeasance Deposit and the U.S. Obligations purchased with the Defeasance Deposit in accordance with this Section 2.3.3 (the "SECURITY AGREEMENT").

(vi Borrower shall deliver (A) an opinion of counsel for Borrower in form satisfactory to Lender in its sole discretion stating, among other things, that (1) Lender has a perfected first priority security interest in the Defeasance Deposit and the U.S. Obligations delivered by Borrower and (2) such U.S. Obligations have been validly assigned to the REMIC Trust, (B) if required by the applicable Rating Agencies, a non- consolidation opinion with respect to the Successor Borrower in form and substance satisfactory to Lender and the applicable Rating Agencies, (C) an Officer's Certificate certifying that the requirements set forth in this
Section 2.3.3(a) have been satisfied, (D) a certificate from an independent certified public accountant certifying that the amounts of the U.S. Obligations comply with all of the requirements of this Agreement, and (E) such other certificates, documents or instruments as Lender may reasonably request.
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(vii Lender shall receive evidence in writing from the applicable Rating Agencies to the effect that such Defeasance will not result in a qualification, withdrawal or downgrading of the ratings in effect immediately prior to such Defeasance for the Securities then outstanding.

(b In connection with each Defeasance, Borrower hereby appoints Lender as its agent and attorney-in-fact for the purpose of using the Defeasance Deposit to purchase U.S. Obligations (which purchases, if made by Lender, shall be made by Lender on an arms-length basis at then prevailing market rates) which provide payments on or prior to, but as close as possible to, all successive Payment Dates after the Defeasance Date through and including the Optional Prepayment Date, for the entire unpaid Principal in the case of a Defeasance, or for the principal amount of the Defeased Note, in the case of a Defeasance for only a portion of the unpaid Principal (including, on the Optional Prepayment Date, the unpaid Principal of either the Note or the Defeased Note), and in amounts equal to the scheduled payments due on such dates under the Note or the Defeased Note, as applicable (the "SCHEDULED DEFEASANCE PAYMENTS"). Borrower, pursuant to the

Security Agreement or other appropriate document, shall irrevocably authorize and direct that the payments received from the U.S. Obligations be made directly to Lender and applied to satisfy the obligations of Borrower under the Note or the Defeased Note, as applicable. Any portion of the Defeasance Deposit in excess of the amount necessary to purchase the U.S. Obligations required by this
Section 2.3.3(b) and satisfy Borrower's obligations under Section 2.3 or 2.4 shall be remitted to Borrower. Any amounts received in respect of the U.S. Obligations in excess of the amounts necessary to make monthly payments pursuant to Section 2.2 shall be retained by Lender until payment in full of the Debt. Semi-annual payments in respect of U.S. Obligations shall be applied to payments under the Note or the Defeased Note, as applicable, as the same become due thereunder.

(c If requested by Borrower in connection with any Defeasance under this Section 2.3.3, NACC shall establish or designate a successor entity (the "SUCCESSOR BORROWER") and Borrower shall transfer and assign all obligations, rights and duties under and to the Note or the Defeased Note, as applicable, together with the pledged U.S. Obligations, to such Successor Borrower. The obligation of NACC to establish or designate a Successor Borrower shall be retained by NACC notwithstanding the sale or transfer of this Agreement unless such obligation is specifically assumed by the transferee. Such Successor Borrower shall assume the obligations under the Note or the Defeased Note, as applicable, and the Security Agreement, and Borrower shall be relieved of its obligations thereunder. Borrower shall pay $1,000 to any such Successor Borrower as consideration for assuming the obligations under the Note or the Defeased Note, as applicable, and the Security Agreement. Notwithstanding anything in this Agreement to the contrary, no other assumption fee shall be payable upon a transfer of the Note or the Defeased Note in accordance with this
Section 2.3.3, but Borrower shall pay all reasonable out-of-pocket costs and expenses incurred by Lender, including Lender's reasonable attorneys' fees and expenses, incurred in connection therewith. For purposes of this Section 2.3.3(c), the term "NACC" shall include NACC and its successors and assigns.

(b In connection with the releases of the Lien, Borrower shall submit to Lender, not less than ten (10) days prior to the Defeasance Date, a form of release for execution by Lender appropriate in the States in which the Properties are located and satisfactory to Lender in its reasonable discretion and all other documentation Lender requires to be delivered by Borrower, together with an Officer's Certificate certifying that such documentation (i) is in compliance with all Legal Requirements, and (ii) will effect such release in accordance with the terms of this Agreement.

(a In connection with a Defeasance of the Note under Section 2.3.3, the principal balance of the Defeased Note shall equal or exceed the Release Amount and the requirements of Section 2.3.3, shall have been satisfied.

(b Borrower shall submit to Lender, not less than ten (10) days prior to the date of such release, a release of Lien (and related Loan Documents) for such Property (for execution by Lender) in a form appropriate in each jurisdiction in which the Property is located satisfactory to Lender in its reasonable discretion and all other documentation Lender requires to be delivered by Borrower in connection with such release, together with an Officer's Certificate certifying that such documentation (i) is in compliance with all Legal Requirements, (ii) will effect such release in accordance with the terms of this Agreement, and (iii) will not impair or otherwise adversely affect the Liens, security interests and other rights of Lender under the Loan Documents not being released (or as to the parties to the Loan Documents and Properties subject to the Loan Documents not being released).

(c With respect to any release of an individual Property, after giving effect to such release, the Debt Service Coverage Ratio for all of the Properties then remaining subject to the Liens of the Deeds of Trust shall be equal to the greater of (i) the Debt Service Coverage Ratio on the Closing Date and (ii) the Debt Service Coverage Ratio on the date of the release of such Property.

shall, subject to the provisions of Section 2.4.4(b) below, be legally subdivided, (iv) Borrower shall deliver to Lender an updated survey showing the Released Property and the Remaining Property, (v) the Released Property shall be transferred to and developed by an Affiliate of Borrower, (vi) the transferee of the Released Property and Borrower shall enter into a reciprocal easement agreement, satisfactory in all respects to Lender, which shall provide for pedestrian and vehicular access to and from the Remaining Property, easements for all utility services provided to the Remaining Property over or across the Released Property, easements benefitting the Remaining Property for parking on the Released Property and the completion by the transferee of all improvements on the Released Property required for the continued compliance of the Remaining Property with all applicable Legal Requirements, (vii) Borrower shall provide Lender with an endorsement to the Title Insurance Policy relating to the Seven Corners Property confirming the matters described in clauses (ii) and (iii) above, insuring that the lien of the Deed of Trust on the Remaining Property is unaffected by the release of the Released Property therefrom and insuring Lender's lien on Borrower's interest in the foregoing reciprocal easement agreement, (viii) Borrower shall furnish Lender with evidence reasonably satisfactory to Lender that the Improvements located on the Remaining Property shall continue to be in compliance with applicable Legal Requirements notwithstanding such subdivision, the failure (if any) of the transferee to complete the planned improvements thereon, and any violations of Legal Requirements on or by the Released Property, and (ix) Borrower shall deliver to Lender such documents or instruments as Lender may reasonably require and shall pay the reasonable out of pocket costs incurred by Lender in connection with such release.

(b) Notwithstanding anything to the contrary contained in Section 2.2.4(a) above, if Borrower reasonably determines that it is unable to cause the Released Property to be legally subdivided from the Remaining Property, then Borrower shall have the right, upon notice to Lender, prior to development of the Released Property as provided herein, to enter into a long-term ground lease of the Released Property on the terms and conditions set forth in this Section
2.2.4(b). Such ground lease shall be a "triple-net" lease with an Affiliate of Borrower and shall be otherwise in form and substance reasonably satisfactory to Lender. In connection with any such ground lease and as a condition precedent to the release of the Released Property, Borrower shall deliver to Lender (i) a currently dated substantive non-consolidation opinion of Borrower's counsel, covering (inter alia) Borrower, the General Partner and the ground lessee, and otherwise in form and substance reasonably satisfactory to Lender and (ii) written confirmation, reasonably satisfactory to Lender, from the appropriate rating agency or agencies, that the rating(s) of Securities issued in the Securitization (if any) will not be downgraded as a result of the proposed ground lease and release of the Released Property from the lien of the applicable Deed of Trust. Upon satisfaction of all of the conditions set forth herein and in Section 2.2.4(a) above (other than subdivision as provided clause
(iii) thereof and the other conditions therein that are applicable only in the case of a subdivision), Lender shall release the Released Property from the lien of the applicable Deed of Trust.

date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrower. Whenever any payment hereunder or under the Note shall be stated to be due on a day that is not a Business Day, such payment shall be made on the first Business Day thereafter.

III.2  REQUIRED REPAIRS; REQUIRED REPAIR FUNDS.
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III.2.1  REQUIRED REPAIRS: DEPOSITS.  Borrower shall perform and
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III.3  TAX AND INSURANCE ESCROW FUND.
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III.3.1  TAX AND INSURANCE ESCROW FUND.  Subject to Sections 3.3.2
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and 3.9 hereof, Borrower shall pay to Lender on each Payment Date (i) one- twelfth of the Taxes that Lender estimates will be payable during the next twelve (12) months in order to accumulate with Lender sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates, and (ii) one-twelfth of the Insurance Premiums that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies (the amounts in the foregoing clauses (i) and (ii) being called the "TAX AND INSURANCE ESCROW FUND"). Lender will apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Sections 5.2 and 7.1, or to reimburse Borrower for such amounts upon presentation of evidence of payment and an Officer's Certificate in form and substance satisfactory to Lender; subject, however, to Borrower's right to contest Taxes in accordance with Section 5.2 In making any payment relating to the Tax and Insurance Escrow Fund, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Sections 5.2 and 7.1. Lender shall, in its sole discretion, return any excess to Borrower or credit such excess against future payments to be made to the Tax and Insurance Escrow Fund. If at any

time Lender determines that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay the Taxes or Insurance Premiums next coming due, Lender shall notify Borrower of such determination and Borrower shall increase its monthly payments to Lender by the amount that Lender estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes and/or expiration of the Policies, as the case may be.

III.4  CAPITAL RESERVE FUND.
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III.4.1  CAPITAL RESERVE FUND.  Borrower shall pay to Lender on each
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Payment Date (in addition to other payments required hereunder) a monthly installment of $24,435, as such monthly installment may be proportionately reduced from time to time by Lender, in connection with the release of one or more Properties as provided in Sections 2.4.2 and 7.4.3, to the extent applicable (the "CAPITAL RESERVE FUND"). If the amount of the Capital Reserve Fund shall exceed the amounts due for Approved Capital Expenses pursuant to the terms hereof, Lender shall, in its discretion, return any excess to Borrower or, if future Capital Reserve Fund payments are then required, credit such excess against such future payments.

identified Capital Expenses, and (B) reasonably detailed documentation as to the amount, necessity and purpose therefor.

III.5  ROLLOVER RESERVE FUND.
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III.5.1  ROLLOVER RESERVE FUND.  Subject to Section 3.9 hereof,
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Borrower shall pay to Lender $67,500 on each Payment Date (in addition to other payments required hereunder). Lender will apply such payments (the "ROLLOVER RESERVE FUND") to payment of Approved Leasing Expenses pursuant to the terms hereof. If the amount of the Rollover Reserve Fund shall exceed the amounts due for Approved Leasing Expenses pursuant to the terms hereof, Lender shall, in its discretion, return any excess to Borrower, credit such excess against future payments to the Rollover Reserve Fund or allocate such excess to other Subaccounts. If Lender determines in its reasonable judgment that the amount of the Rollover Reserve Fund will be insufficient to pay the amounts due or to become due for Approved Leasing Expenses, Lender may, in its reasonable discretion, adjust the monthly amounts required to be deposited into the Rollover Reserve Fund upon thirty (30) days' notice to Borrower. Alternatively, Lender may in its reasonable discretion determine that the amount of the Rollover Reserve Fund will exceed the amounts due or to become due for Approved Leasing Expenses, in which case Lender shall reduce the monthly amounts to be deposited therein.

amount, necessity and purpose therefor. Subject to satisfaction of the preceding conditions, if Lender receives from Borrower a valid request for a disbursement for payment of Approved Operating Expenses for the then Current Month at least five Business Days prior to the Payment Date occurring in such Current Month, then the disbursement in respect of such Approved Operating Expenses shall be made to Borrower on such Payment Date. If Borrower shall fail to validly request a disbursement for payment of Approved Operating Expenses for the then Current Month at least five (5) Business Days prior to the Payment Date in such Current Month, then Lender shall retain in the Operating Expense Subaccount an amount equal to the anticipated Operating Expenses for the then Current Month as set forth in the approved Operating Budget for such month, and Lender shall, subject to satisfaction of the preceding conditions, disburse the same to Borrower five (5) Business Days after Lender receives a valid request therefor.

conditions contained in any Permitted Encumbrance or any other agreement or instrument to which it is a party or by which it or any Property is bound.

within the meaning of (S) 1445(f)(3) of the Code.

          IV.1.18  SEPARATE LOTS.  Each Property is one or more separate tax
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lots and is not a portion of any other tax lot that is not a part of such
Property.

and matured. Borrower's assets, now or immediately following the execution and delivery of the Loan Documents, do not and will not constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower).

any nearby real property which could migrate to or otherwise affect any Property; and (v) no underground storage tanks exist on any Property.

Until the end of the Term or the Defeasance of the entire unpaid Principal, Borrower hereby covenants and agrees with Lender that:

(b) Borrower shall promptly repair, replace or rebuild any part of any Property that becomes damaged, worn or dilapidated and shall complete and pay for any Improvements at any time in the process of construction or repair. After prior notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the validity or application of any Legal Requirements, provided that (i) no

Default or Event of Default has occurred and remains uncured, (ii) such proceeding shall suspend the enforcement of such Legal Requirements, (iii) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder, (iv) no part of or interest in any Property will be in danger of being sold, forfeited, terminated, canceled or lost, (v) Borrower shall have furnished such security as may be required in the proceeding, or as may be requested by Lender, to insure the payment or performance (as the case may be) of any such Legal Requirements (including all interest and penalties), and (vi) Borrower shall promptly upon final determination thereof pay in full or perform such Legal Requirements (as the case may be), together with all costs, interest and penalties; and Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established.

acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of the Loan Documents, as Lender shall reasonably require from time to time.

(v) promptly enforce the performance and observance of all of the covenants and agreements required to be performed and observed by Manager under the Management Agreement.

Until the end of the Term or the Defeasance of the entire unpaid Principal, Borrower covenants and agrees with Lender that it will not, directly or indirectly:

(a) Property insurance insuring against loss or damage by standard, "all-risk" perils, which shall (i) be in an amount equal to the greatest of (A) the then full replacement cost of the Properties without deduction for physical depreciation, (B) the unpaid Principal, and (C) such amount as is necessary so that the insurer would not deem Borrower a co- insurer under such policies, (ii) have a deductible for each Property in an amount no greater than five (5%) percent of the full replacement cost of such Property, (iii) be paid annually in advance or monthly in accordance with the provisions of Section 3.3 of this Agreement, and (iv) contain a "Replacement Cost Endorsement" with a waiver of depreciation.

(b) Flood insurance if any part of any Property is located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Program, in an amount at least equal to the unpaid Principal or the maximum limit of coverage available with respect to such Property under such program, whichever is less.

(c) Comprehensive public liability insurance, including broad form property damage, blanket contractual and personal injuries (including death resulting therefrom) coverages and containing minimum limits per occurrence of $1,000,000 and $ 2,000,000 in the aggregate for any policy year; together with at least $ 20,000,000 excess and/or umbrella liability insurance for any and all claims, including all legal liability imposed upon such Borrower and all court costs and attorneys' fees incurred in connection with the ownership, operation and maintenance of the Properties.

(d) Rental loss and/or business interruption insurance in an amount equal to the greater of (i) the estimated Rents for the next succeeding twelve (12) month period or (ii) the projected Operating Expenses and Debt Service for such period. The amount of such insurance shall be increased from time to time during the Term as and when the estimated or actual Rents increase.

(e) Insurance against loss or damage from (i) leakage of sprinkler systems and (ii) explosion of steam boilers, air conditioning equipment, high pressure piping, machinery and equipment, pressure vessels or similar apparatus now or hereafter installed in any of the Improvements (without exclusion for explosions), in an amount at least equal to $25,000,000.

(f) Worker's compensation insurance with respect to any employees of Borrower, as required by any Legal Requirement.

(g) During any period of repair or restoration, builder's "all- risk" insurance in an amount equal to not less than the full insurable value of the applicable Property, against such risks (including fire and extended coverage and collapse of the Improvements to agreed limits) as Lender may request, in form and substance reasonably acceptable to Lender.

(h) Coverage to compensate for the cost of demolition and the increased cost of construction for each Property in an amount reasonably satisfactory to Lender.

(i) Such other insurance (including earthquake insurance and hurricane insurance) as may from time to time be reasonably required by Lender in order to protect its interests.

VII.2  CASUALTY.
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VII.2.1  NOTICE; RESTORATION.  If any Property is damaged or
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destroyed, in whole or in part, by fire or other casualty (a "CASUALTY"), Borrower shall give prompt notice thereof to Lender. Following the occurrence of a Casualty, Borrower, regardless of whether insurance proceeds are available but subject to the provisions of Section 7.4.3, shall promptly proceed to restore, repair, replace or rebuild the affected Property in accordance with Legal Requirements to be of at least equal value and of substantially the same character as prior to such damage or destruction.

settle and adjust any claim without the consent of Lender; provided such adjustment is carried out in a competent and timely manner; and Borrower is hereby authorized to collect and receipt for any such insurance proceeds. In the event of an Insured Casualty where the loss equals or exceeds$300,000, Borrower may, with Lender's consent (which consent shall not be unreasonably withheld or delayed), settle and adjust of any claim and agree with the insurer(s) to be paid on the loss, and the proceeds of any such Policy shall be due and payable solely to Lender and held by Lender in the Casualty/Condemnation Subaccount and disbursed in accordance herewith. The expenses incurred by Lender (in the adjustment and collection of insurance proceeds shall become part of the Debt and be secured hereby and shall be reimbursed by Borrower to Lender upon demand.

VII.3  CONDEMNATION.
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VII.3.1  NOTICE; RESTORATION.  Borrower shall promptly give Lender
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notice of the actual or threatened commencement of any condemnation or eminent domain proceeding affecting Property (a "CONDEMNATION") and shall deliver to Lender copies of any and all papers served in connection with such Condemnation. Following the occurrence of a Condemnation, Borrower, regardless of whether an Award is available but subject to the provisions of Section 7.4.3, shall promptly proceed to restore, repair, replace or rebuild the affected Property in accordance with Legal Requirements to the extent practicable to be of at least equal value and of substantially the same character as prior to such Condemnation.

VII.4  APPLICATION OF PROCEEDS OR AWARD.
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VII.4.1  APPLICATION TO RESTORATION.  In the event of an Insured
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Casualty or Condemnation where (i) the loss is in an aggregate amount less than twenty percent (20%) of the Fair Market Value of the affected Property immediately prior to such Insured Casualty or Condemnation, (ii) in the reasonable judgment of Lender, such Property can be restored within six (6) months, and

prior to the Scheduled Maturity Date and the expiration of the business interruption insurance with respect thereto, to an economic unit not less valuable and not less useful than the same was prior to the Insured Casualty or Condemnation, and after such restoration will adequately secure the unpaid Principal, and (iii) no Default or Event of Default shall have occurred and be then continuing, then the proceeds of insurance or the Award, as the case may be (after reimbursement of any expenses incurred by Lender), shall be disbursed to Borrower for application to the cost of restoring, repairing, replacing or rebuilding such Property (the "RESTORATION"), in the manner set forth herein. Borrower shall commence and diligently prosecute such Restoration; provided that (i) Borrower shall pay (and if required by Lender, Borrower shall deposit with Lender in advance) all costs of such Restoration in excess of the net proceeds of insurance or the Award made available pursuant to the terms hereof; and (ii) Lender shall have received evidence reasonably satisfactory to it that, during the period of the Restoration, the Rents for the affected Property will be at least equal to the sum of the Operating Expenses and Debt Service for such Property, as reasonably determined by Lender.

VIII. DEFAULTS

(a) on any Payment Date, the Monthly Debt Service Payment Amount, or any required payment to the Tax and Insurance Escrow Fund, the Capital Reserve Fund or the Rollover Reserve Fund for any Property, is not paid in full;

(b) any portion of the Debt, other than the regularly scheduled payments described in the foregoing clause (a), is not paid within five (5) days after Lender notifies Borrower in writing that the same is due and payable;

(c) any of the Taxes or Other Charges are not paid when due, subject to Borrower's right to contest Taxes in accordance with Section 5.2;

(d) the Policies are not kept in full force and effect, or if originals or certified copies thereof are not delivered to Lender within ten (10) days after written request;

(e) a Transfer other than a Permitted Transfer occurs;

(f) any representation or warranty made by Borrower herein or in any Loan Document, or in any report, certificate, financial statement or other instrument,

agreement or document furnished by or on behalf of Borrower in connection with any Loan Document, shall be false or misleading in any material respect as of the date the representation or warranty was made, and the default described above in this clause (f) is not cured by Borrower within 30 days after written notice by Lender;

(g) Borrower shall make an assignment for the benefit of creditors, or shall generally not be paying its debts as they become due;

(h) a receiver, liquidator or trustee shall be appointed for Borrower; or Borrower shall be adjudicated a bankrupt or insolvent; or any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Borrower; or any proceeding for the dissolution or liquidation of Borrower shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by such Borrower, only upon the same not being discharged, stayed or dismissed within sixty (60) days;

(i) Borrower shall assign or attempt to assign its rights or interest under any Loan Document in contravention of any Loan Document;

(j) Borrower shall breach any negative covenant contained in
Section 6 or any covenant contained in Section 5.15 and with respect to
Section 5.15 such breach is not cured by Borrower within fifteen (15) days after written notice by Lender;

(k) Borrower shall be in default under any other mortgage, deed of trust or security agreement covering any part of any Property whether it be superior or junior in Lien to the Deed of Trust;

(l) any Property becomes subject to any mechanic's, materialman's or other Lien and such Lien is not bonded or discharged within thirty (30) days after Borrower first receives notice in writing of such Lien, except a Lien for Taxes not then due or other Permitted Encumbrance;

(n) except as expressly permitted by the provisions of this Agreement, the alteration, improvement, demolition or removal of any of the Improvements without the prior consent of Lender;

(o) without Lender's prior consent, (i) the Manager under the Management Agreement (or any successor management agreement) resigns or is removed, or (ii) the ownership, management or control of the Manager is transferred to a person or entity other than an Affiliate of Borrower, or
(iii) there is any material change in the Management Agreement (or any successor management agreement);

(p) a default has occurred and continues beyond any applicable cure period under the Management Agreement (or any successor management agreement) if such default permits the Manager to terminate the Management Agreement (or such successor management agreement);

(q) Borrower shall cease to operate any Property for retail, office and ancillary uses (other than temporary cessation in connection with renovations to such Property or as a result of a Casualty or Condemnation);

(r) an Event of Default as defined or described in any other Loan Document occurs; or any other event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt;

(s) Borrower shall fail to pay when due any deposit into any Fund;

(t) any of the assumptions contained in any substantive non- consolidation opinion, delivered to Lender by Borrower's counsel in connection with the Loan or otherwise hereunder, were not true and correct as of the date of such opinion or thereafter became untrue or incorrect, and the default described above in this clause (t) is not cured by Borrower within 15 days after written notice by Lender; or

(u) Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement not specified in subsections (a) through (t) above, for ten (10) days after notice to such Borrower from Lender, in the case of any Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other Default; provided, however, that if such non- monetary Default is susceptible of cure but cannot reasonably be cured within such thirty (30)-day period, and such Borrower shall have commenced to cure such Default within such thirty (30)-day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30)- day period shall be extended for an additional period of time as is reasonably necessary for such Borrower in the exercise of due diligence to cure such Default, such additional period not to exceed ninety (90) days.

VIII.2  REMEDIES.
        --------

VIII.2.1  ACCELERATION.    Upon the occurrence of an Event of Default
          ------------

(other than an Event of Default described in paragraph (f), (g) or (h) of
Section 8.1) and at any time thereafter, in addition to any other rights or remedies available to it pursuant to the Loan Documents or at law

or in equity, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in and to any Property, including declaring the Debt to be immediately due and payable; and upon any Event of Default described in paragraph (f), (g) or (h) of Section 8.1, the Debt shall immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained in any Loan Document to the contrary notwithstanding.

(a) at no cost to Borrower other than for the expenses of Provided Information being delivered by Borrower or Manager in connection with the closing of the Loan, (i) provide such financial and other information with respect to the Properties, Borrower and its Affiliates, Manager and any tenants of the Properties, (ii) provide business plans and budgets relating to the Properties and (iii) perform or permit or cause to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I's and, if appropriate, Phase II's), engineering reports and other due diligence investigations of the Properties, as may be reasonably requested by Lender or the Rating Agencies or as may be necessary or appropriate in connection with the Securitization (the items provided to Lender pursuant to this paragraph (a) being called the "PROVIDED INFORMATION"), together, if customary, with appropriate verification of and/or consents to the Provided Information through letters of auditors or opinions of counsel of independent attorneys acceptable to Lender and the Rating Agencies;

(b) at Borrower's expense, cause counsel to render opinions as to non- consolidation, fraudulent conveyance, true sale and true contribution and any other opinion customary in securitization transactions with respect to the Properties and Borrower and its Affiliates, which counsel and opinions shall be reasonably satisfactory to Lender and the Rating Agencies;

(c) make such representations and warranties as of the closing date of the Securitization with respect to the Properties, Borrower and the Loan Documents as are customarily provided in securitization transactions and as may be reasonably requested by Lender or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date thereof, including the representations and warranties made in the Loan Documents;

(d) provide current certificates of good standing and qualification with respect to Borrower from appropriate Governmental Authorities; and

(e) execute such amendments to the Loan Documents and Borrower's organizational documents, and establish and fund such reserve funds (including reserve funds for deferred maintenance and capital improvements) as may be requested by Lender or the Rating Agencies or otherwise to effect the Securitization, provided that nothing contained in this subsection (e) shall result in a material economic change in the transaction.

(a) if requested by Lender, to certify in writing that such Borrower has carefully examined those portions of such memorandum or prospectus, as applicable, pertaining to Borrower, the Properties and the Loan, including applicable portions of the sections entitled "Special Considerations", "Description of the Deeds of Trust", "Description of the Deeds of Trust Loans and Trust Property", "The Manager", "The Borrower" and "Certain Legal Aspects of the Deeds of Trust Loan", and such sections (and any other sections reasonably requested and pertaining to Borrower, the Properties or the Loan) do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading;

(b) to indemnify Lender and the Affiliates of Nomura Securities International, Inc. ("NOMURA"), that have filed the registration statement relating to the Securitization (the "REGISTRATION STATEMENT"), each of its directors, each of its officers who have signed the Registration Statement and each person or entity who controls Nomura within the meaning of Section 15 of the Securities Act or Section 30 of the Exchange Act of 1933, as amended (collectively, the "NOMURA GROUP"), and Nomura, each of its directors and each person who controls Nomura, within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act (collectively, the "UNDERWRITER GROUP") for any losses, claims, damages or liabilities (the "LIABILITIES") to which Lender, the Nomura Group or the Underwriter Group may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the applicable portions of such sections applicable to, Borrower, the Properties or the Loan, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated in the applicable portions of such sections or necessary in order to make the statements in the applicable portions of such sections or in light of the circumstances under which they were made, not misleading; and

(c) to reimburse Lender and Nomura for any legal or other expenses reasonably incurred by Lender and Nomura in connection with investigating or defending the Liabilities.

Borrower's respective Liabilities under clause (a) or (b) above shall be limited to Liabilities arising out of or based upon any such untrue statement or omission made therein in reliance upon and in conformity with information furnished to Lender by or on behalf of Borrower in connection with the preparation of those portions of the Disclosure Document pertaining to Borrower, the Properties or the Loan or in connection with the underwriting of the debt, including financial statements of Borrower, operating statements, rent rolls, environmental site assessment reports and property condition reports with respect to the Properties. The foregoing indemnity will be in addition to any liability which Borrower may otherwise have.

(b) NACC agrees (i) to indemnify Borrower for any Liabilities to which Borrower may become subject insofar as the Liabilities arise out of or are based on any violations by NACC of the Securities Act, the Exchange Act or other applicable law in connection with a Securitization, other than Liabilities arising out of or based upon the acts or omissions, or alleged acts or omissions, of Borrower giving rise to Borrower's obligations to indemnify the Nomura Group and the Underwriter Group as provided in this Section 9.1.

counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. The indemnitor shall not be liable to any indemnified party for the expenses of more than one separate counsel unless there are legal defenses available to it that are different from or additional to those available to another indemnified party.

(a) fraud or intentional misrepresentation by Borrower or any guarantor in connection with the Loan;

(b) the gross negligence or willful misconduct of Borrower;

(c) the breach of any representation, warranty, covenant or indemnification in any Loan Document concerning Environmental Laws or Hazardous Substances, including Sections 4.1.32 and 5.10, and clauses
(viii) through (xi) of Section 10.13(b);

(d) the removal or disposal of any portion of any Property after an Event of Default;

(e) the misapplication or conversion by Borrower of (x) any insurance proceeds paid by reason of any Insured Casualty, (y) any Award received in connection with a Condemnation, or (z) any Rents received by Borrower or Manager following an Event of Default;

(f) failure to pay charges for labor or materials or other charges payable by Borrower that can create Liens on any portion of any Property unless such charges are the subject of a bona fide dispute in which Borrower is contesting the amount or validity thereof;

(g) any security deposits collected with respect to the Properties which are not delivered to Lender upon a foreclosure of or action in lieu thereof, except to the extent any such security deposits were applied in accordance with the terms and conditions of any of the Leases prior to such foreclosure or action in lieu thereof; and

(h) Borrower's indemnifications of Lender set forth in Sections 9.1.3 and 9.1.4.

Notwithstanding anything to the contrary in this Agreement or any of the Loan Documents, Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt or to require that all collateral shall continue to secure all of the Debt in accordance with the Loan Documents.

acknowledged), in any case addressed as follows (or to such other address or Person as a party shall designate from time to time by notice to the other party):

If to Lender:

Nomura Asset Capital Corporation

Two World Financial Center Building B
New York, New York 10281 Attention: Sheryl McAfee Telecopier: 212-667-1206

with copies to:

Nomura Asset Capital Corporation Two World Financial Center Building B
New York, New York 10281 Attention: Barry Funt
Telecopier: 212-667-1567

and

Battle Fowler LLP
75 East 55th Street
New York, New York 10022 Attention: Kenneth J. Friedman, Esq.

Telecopier: 212-856-7802

If to Borrower:

c/o Saul Centers, Inc.
8401 Connecticut Avenue
Chevy Chase, Maryland 20815

Attention: Scott Schneider Telecopier: (301) 986-6023

with a copy to:

Shaw, Pittman, Potts & Trowbridge 2300 N Street, N.W.

Washington, DC 20037

Attention: Sheldon J. Weisel, Esq.

Telecopier: (202) 663-8007

A notice shall be deemed to have been given: in the case of hand delivery, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; or in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day.

X.12 INTENTIONALLY DELETED.

(b) Borrower shall indemnify and hold harmless Lender from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender (collectively, the "INDEMNIFIED LIABILITIES") in any manner, relating to or arising out of or by reason of (i) any breach by Borrower of their obligations under, or any material misrepresentation by Borrower contained in, any Loan Document; (ii) the use or intended use of the proceeds of the Loan; (iii) any information provided by or on behalf of Borrower, or contained in any documentation approved by Borrower; (iv) ownership of any Deed of Trust, the Properties or any interest therein, or receipt of any Rents; (v) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about any Property or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (vi) any use, nonuse or condition in, on or about any Property or on adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (vii) performance of any labor or services or the furnishing of any materials or other property in respect of any Property; (viii) the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release, or threatened release of any Hazardous Substance on, from or affecting any Property; (ix) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Substance; (x) any lawsuit brought or threatened, settlement reached, or government

order relating to such Hazardous Substance; (xi) any violation of the Environmental Laws, which is based upon or in any way related to such Hazardous Substance, including, without limitation, the costs and expenses of any Remedial Work, attorney and consultant fees and disbursements, investigation and laboratory fees, court costs, and litigation expenses; (xii) any failure of any Property to comply with any Legal Requirement; (xiii) any claim by brokers, finders or similar persons claiming to be entitled to a commission in connection with any Lease or other transaction involving any Property or any part thereof under any Legal Requirement, or any liability asserted against Lender with respect thereto; and (xiv) the claims of any lessee of any portion of any Property or any person acting through or under any lessee or otherwise arising under or as a consequence of any Lease; provided, however, that Borrower shall not have any obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender. Any amounts payable to Lender by reason of the application of this paragraph shall become immediately due and payable and shall bear interest at the Default Rate from the date loss or damage is sustained by Lender until paid. The obligations and liabilities of Borrower under this Section 10.13 shall survive the Term and the exercise by Lender of any of its rights or remedies under the Loan Documents, including the acquisition of any Property by foreclosure or a conveyance in lieu of foreclosure.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.

SAUL SUBSIDIARY I LIMITED PARTNERSHIP, a Maryland
limited partnership

By: Saul QRS, Inc., a Maryland corporation, its sole
general partner

Title:

NOMURA ASSET CAPITAL CORPORATION,
a Delaware corporation

Title:

EXHIBIT 10(q)

THIS REVOLVING CREDIT AGREEMENT is made and entered into as of the first day of October, 1997, by and between SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited partnership and SAUL SUBSIDIARY II LIMITED PARTNERSHIP, a Maryland limited partnership (hereinafter collectively called "BORROWER"); and U.S. BANK NATIONAL ASSOCIATION, a national banking association ("AGENT") as agent for itself and for the other financial institutions (collectively, the "LENDERS") which may in the future become parties to that certain Intercreditor Agreement with Agent in its capacity as Agent and Lender (the "INTERCREDITOR AGREEMENT").

WITNESSETH THAT, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows:

For the purposes of this Agreement, the following terms shall have the following respective meanings, unless the context hereof clearly requires otherwise:

(a) Reference Rate Advances -- 0.00%.

(b) Eurodollar Rate Advances -- shall vary as follows:

(i) 1.375%, effective upon Agent's determination in its sole discretion, on the first day of each fiscal quarter for purposes of determining the Applicable Margin for such quarter, that the Leverage Ratio is not greater than fifty five percent (55%) and the Adjusted EBITDA/Debt Service Coverage Ratio is not less than 1.80 and continuing thereafter for so long as such tests are satisfied, as determined by Agent; and

(ii) 1.500%, effective upon Agent's determination, in its sole discretion, on the first day of each fiscal quarter for purposes of determining the Applicable Margin for such quarter, that the Leverage Ratio is not greater than sixty percent (60%) and the Adjusted EBITDA/Debt Service Coverage Ratio is not less than 1.70 and continuing thereafter for so long as such tests are satisfied, as determined by Agent; and

(iii) 1.625% at all other times.

connection with a dividend reinvestment plan), a Disqualifying Environmental Event, or if an Encumbrance, Imposition or Lien arises against an Approved Asset.

(i) the Borrower, any distribution of cash or other cash equivalent, directly or indirectly, to the partners of the Borrower; or any other distribution on or in respect of any partnership interests of the Borrower excluding distributions reinvested pursuant to Borrower's distribution reinvestment program; and

(ii) the Guarantor, the declaration or payment of any dividend on or in respect of any shares of any class of capital stock of Guarantor, excluding dividends payable solely in shares of common stock by Guarantor and dividends reinvested pursuant to Guarantor's dividend reinvestment program; the purchase, redemption, or other retirement of any shares of any class of capital stock of Guarantor, directly or indirectly through a subsidiary of Guarantor, or otherwise; the return of capital by Guarantor to its shareholders as such; or any other distribution on or in respect of any shares of any class of capital stock of Guarantor (except as excluded above).

be adjusted automatically on and as of the effective date of any change in the Eurodollar Reserve Percentage.

oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws.

(1) Any Interest Period that would otherwise end on a day which is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day, unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day; and

(2) Any Interest Period that begins on the last Eurodollar Business Day of a calendar month (or a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month.

No Interest Period may end after the Maturity Date, and each Interest Period must end on a date such that no default exists under SECTION 1.3 hereof as a result of a failure by Borrower to prepay the Advance to which such Interest Period applies. Any payment of a Eurodollar Rate Advance on a date other than the last

day of the Interest Period applicable thereto shall be accompanied by an additional payment in an amount computed in accordance with SECTION 1.12.

Upon the terms and subject to the conditions set forth in this Agreement, each Lender severally agrees to lend to Borrower, through the Agent, an amount up to such Lender's Commitment Percentage of Advances on a revolving basis, at any time and from time to time, in accordance with the terms hereof, from the Closing Date to the Termination Date, during which period Borrower may borrow, repay and reborrow in accordance with the terms hereof, for the purpose of funding pre-development, development, acquisitions, renovations/expansions and working capital, distributions and principal amortization requirements of the Borrower; provided, however, that (A) at no time shall any Lender be obligated to lend to Borrower more than its Commitment Percentage of the total amount of proceeds of the Loan which Borrower has then qualified to receive hereunder, and (B) the

amount of the Total Revolving Outstandings shall never exceed the lesser of (x) the Revolving Commitment Amount and (y) the Loan Availability.

All Advances by each Lender shall be evidenced by a Note. Each Note executed by the Borrower shall be in the aggregate principal amount equal to such Lender's Commitment Percentage of the Revolving Commitment Amount. Each Lender shall enter in its ledgers and records the amount of each such Advance, the amount of each Advance made, and of each payment made upon the Loan, and each Lender is authorized by Borrower to enter on a schedule attached to the Note a record of such Advances and payments; provided, however, that the failure by any Lender to make any such entry or any error by such Lender in making such entry shall not limit or otherwise affect the obligations of Borrower hereunder and under the Note. Notwithstanding the express principal amount of the Note, Borrower shall not at any time be obligated to repay more or less than the total of all Advances made by each Lender pursuant hereto and to the other Loan Documents, together with interest thereon at the rates specified below and in the Note, computed on each Advance from the date it is so made by such Lender, and all other advances made by such Lender pursuant to the terms of the Loan Documents, with interest thereon as therein provided, less all payments of principal of and interest on the Note, and of such advances and interest thereon, made by Borrower. The entire unpaid principal amount of the Loan shall be due and payable on the Termination Date.

Interest shall accrue and be payable on the Advances from the date made as follows:

A. Each Eurodollar Rate Advance shall bear interest on the unpaid principal amount thereof during the Interest Period applicable thereto at a rate per annum equal to the sum of (i) the Adjusted Eurodollar Rate for such Interest Period, plus (ii) the Applicable Margin. (If Borrower has made no election of an interest rate option with respect to any Advance, said Advance shall be deemed to be a Reference Rate Advance.) Notwithstanding anything to the contrary herein set forth, the Adjusted Eurodollar Rate payable upon any Eurodollar Rate Advance shall not decrease during any Interest Period.

B. Each Reference Rate Advance shall bear interest on the unpaid principal amount thereof at a varying rate per annum equal to the sum of (i) the Reference Rate, plus (ii) the Applicable Margin.

C. Any Advance not paid when due, whether at the date scheduled therefor or earlier upon acceleration, shall bear interest until paid in full
(i) during the balance of any Interest Period applicable to such Advance, at a rate per annum equal to the sum of

the rate applicable to such Advance during such Interest Period plus four percent (4%), and (ii) otherwise, at a rate per annum equal to the sum of (x) the Reference Rate, plus (y) the Applicable Margin for Reference Rate Advances, plus (z) four percent (4%) (herein called the "DEFAULT RATE").

D. Interest shall be payable by Borrower (i) with respect to each Advance, on the first Business Day of each calendar month, commencing on the first Business Day of the next calendar month after the calendar month in which the first Advance is made; (ii) with respect to all Advances, upon any permitted prepayment (on the amount prepaid); and (iii) with respect to all Advances, on the Termination Date; provided that interest under SECTION 1.2(C) shall be payable on demand, at Lenders' option. Interest on the Loan shall be computed on the basis of actual days elapsed and a year of 360 days.

E. In no event shall the Reference Rate or any applicable Adjusted Eurodollar Rate ever exceed the maximum rate permitted by applicable law (if any such maximum rate is established by applicable law), and such maximum rate shall change if and when applicable law changes to permit a higher maximum rate. Borrower and Lenders agree that no payment of interest or other consideration made or agreed to be made by Borrower to Lenders pursuant to the Note, this Agreement or any other instrument evidencing or securing the Loan shall, at any time, be deemed to have been computed at an interest rate in excess of the maximum rate of interest permissible by law, if any. In the event such payments of interest or other consideration provided for in the Note, this Agreement or any other instrument referring to or securing the Note shall result in payment of an effective rate of interest which, for any period of time, is in excess of the limit of the usury law or any other law applicable to the loan evidenced hereby, all sums in excess of those lawfully collectible as interest for the period in question shall, without further agreement or notice between or by any party or parties hereto, be applied to the principal balance immediately upon receipt of such monies by Lenders with the same force and effect as though Borrower had specifically designated, and Lenders had agreed to accept, such extra payments as a principal payment, without premium or penalty. If principal has been fully paid, any such excess amount shall be refunded to Borrower. This provision shall control over every other obligation of Borrower and Lenders under the Note, under this Agreement and under any instrument which secures the Note.

F. In the event that any required payment of principal and/or interest under the Note or hereunder is not made on the due date thereof, Borrower shall pay to Agent on behalf of Lenders a late payment charge equal to five percent (5%) of the amount of the overdue payment, for the purpose of reimbursing Lenders for a portion of the expense incident to handling the overdue payment.

On the terms and subject to the limitations hereof, Borrower shall have the option at any time and from time to time to convert all or any portion of the Advances into Reference Rate Advances or Eurodollar Rate Advances, or to

continue a Eurodollar Rate Advance as such; provided, however that a Eurodollar Rate Advance may be converted or continued only on the last day of the Interest Period applicable thereto and no Advance may be converted to, or continued as, a Eurodollar Rate Advance if an Event of Default has occurred and is continuing on the proposed date of continuation or conversion. In addition, Advances may be converted to, or continued as, Eurodollar Rate Advances only in amounts of $1,000,000.00 and in integral multiples of $100,000.00 in excess thereof. Borrower shall give Agent on behalf of Lenders written notice of any continuation or conversion of any Advance, and such notice must be given not later than 10:00 A.M. (Minneapolis time) two (2) Eurodollar Business Days prior to the requested date of conversion or continuation in the case of the continuation of, or conversion to, a Eurodollar Rate Advance, and not later than 10:00 A.M. (Minneapolis time) one day prior to the date of the requested conversion to a Reference Rate Advance. Each such notice shall specify (A) the amount to be continued or converted, (B) the date for the continuation or conversion (which must be (i) the last day of the preceding Interest Period for any continuation as Eurodollar Rate Advances, (ii) a Eurodollar Business Day in the case of any conversion to Eurodollar Rate Advances, and (iii) a Business Day in the case of conversions to Reference Rate Advances), and (C) in the case of conversions to, or continuations as, Eurodollar Rate Advances, the Interest Period applicable thereto. Any notice given by Borrower under this Section shall be irrevocable. If Borrower shall fail to notify Agent on behalf of Lenders of the continuation of any Eurodollar Rate Advance within the time required by this Section, such Advance shall, on the last day of the Interest Period applicable thereto, automatically be converted into a Reference Rate Advance of the same principal amount.

Borrower may prepay Reference Rate Advances, in whole or in part, at any time after one (1) Business Day's prior written notice of said prepayment from Borrower to Agent on behalf of Lenders, without premium or penalty. Any such prepayment must be accompanied by payment, in full, of all unpaid, accrued interest on the amount prepaid. Borrower may prepay Eurodollar Rate Advances only after three (3) Business Days' prior written notice of such prepayment from Borrower to Agent on behalf of Lenders and on the last day of the Interest Period applicable thereto, unless such prepayment (whether voluntary or mandatory upon an acceleration following an Event of Default) is accompanied by an additional payment in an amount computed pursuant to SECTION 1.12. Any such prepayment must be accompanied by payment, in full, of all unpaid, accrued interest on the amount prepaid. Notwithstanding the foregoing, Borrower may make partial prepayments pursuant to SECTION 2.B.3, without premium or penalty and without payment of such accrued interest, except the additional payment provided for above with respect to prepayment of Eurodollar Rate Advances. Any such partial prepayments shall be applied first to prepayment of Reference Rate Advances.

In addition to any other fees set forth in this Agreement, Borrower shall pay to Agent on behalf of Lenders, in Immediately Available Funds an up-front fee in the amount of Three Hundred Thousand and No/100ths Dollars ($300,000.00), payable on the Closing Date.

In addition to any other fees set forth in this Agreement, Borrower shall pay to Agent on behalf of Lenders in Immediately Available Funds a non-usage fee of 0.30% per annum of the unadvanced Revolving Commitment Amount (after deducting the undrawn amount of any Letters of Credit outstanding hereunder), payable on the first day of each calendar quarter, calculated in arrears based on average daily balance of the unadvanced Revolving Commitment Amount during the prior calendar quarter; the first quarter for which the non-usage fee shall be payable shall commence on October 1, 1997 and the first payment of such fee shall be due and payable on January 1, 1998; provided, however such percentage shall be equal to 0.25% per annum if as of the last day of the previous quarter the Leverage Ratio is not greater than sixty percent (60%) and the Adjusted EBITDA/Debt Service Coverage Ratio is not less than 1.70; and provided, further, such percentage shall be equal to 0.20% per annum if as of the last day of the previous quarter the Leverage Ratio is not greater than fifty five percent (55%) and the Adjusted EBITDA/Debt Service Coverage Ratio is not less than 1.80. The non-usage fee shall be shared among the Lenders in accordance with the daily average Commitment Percentages of the Lenders during such calendar quarter.

The unpaid principal balance of, and all unpaid, accrued interest on, and other amounts due with respect to, the Loan shall be due and payable and paid in full by Borrower, on the Termination Date. Payments and prepayments of principal of, and interest on, the Note and all fees, expenses and other obligations under this Agreement payable to Agent and Lenders shall be made without setoff, deduction or counterclaim in Immediately Available Funds not later than 1:00 P.M. (Minneapolis time) on the dates called for under this Agreement and the Note to Agent at the Agent's main office in Minneapolis, Minnesota. Funds received after such time shall be deemed to have been received on the next Business Day. Whenever any payment to be made hereunder or on the Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time, in the case of a payment of principal, shall be included in the computation of any interest on such principal payment. All principal amounts paid or prepaid hereunder may be reborrowed in accordance with the provisions of this Agreement.

If, on or prior to the date for determining the Adjusted Eurodollar Rate in respect of the Interest Period for any Eurodollar Rate Advance, any Lender

determines (which determination shall be conclusive and binding, absent error) that:

(a) deposits in dollars (in the applicable amount) are not being made available to such Lender in the relevant market for such Interest Period, or

(b) the Adjusted Eurodollar Rate will not adequately and fairly reflect the cost to such Lender of funding or maintaining Eurodollar Rate Advances for such Interest Period,

then such Lender shall forthwith give notice to Borrower of such determination, whereupon the obligation of such Lender to make or continue, or to convert any Advances to, Eurodollar Rate Advances shall be suspended until such Lender notifies Borrower that the circumstances giving rise to such suspension no longer exist. While any such suspension continues, all further Advances by such Lender shall be Reference Rate Advances. No such suspension shall affect the interest rate then in effect during the applicable Interest Period for any Eurodollar Rate Advance outstanding at the time such suspension is imposed.

If any Regulatory Change:

A. shall subject any Lender to any tax, duty or other charge with respect to its Eurodollar Rate Advances, the Note, or its obligation to make Eurodollar Rate Advances or shall change the basis of taxation of payment to such Lender of the principal of or interest on Eurodollar Rate Advances or any other amounts due under this Agreement in respect of Eurodollar Rate Advances or its obligation to make Eurodollar Rate Advances (except for changes in the rate of tax on the overall net income of such Lender imposed by the jurisdiction in which such Lender's principal office is located); or

B. shall impose, modify or deem applicable any reserve, special deposit, capital or similar requirement (including, without limitation, any such requirement imposed by the Board, but excluding with respect to any Eurodollar Rate Advance any such requirement to the extent included in calculating the applicable Adjusted Eurodollar Rate) against assets of, deposits with or for the account of, or credit extended by, such Lender or shall impose on such Lender or on the interbank Eurodollar market any other condition affecting its Eurodollar Rate Advances, the Note or its obligation to make Eurodollar Rate Advances;

and the result of any of the foregoing is to increase the cost to such Lender of making or maintaining any Eurodollar Rate Advance, or to reduce the amount of any sum received or receivable by such Lender under this Agreement or under the Note, then, within thirty (30) days after demand by such Lender, Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction. Such Lender will promptly notify

Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle it to compensation pursuant to this Section. A certificate of any Lender claiming compensation under this Section, setting forth the additional amount or amounts to be paid to it hereunder and stating in reasonable detail the basis for the charge and the method of computation, shall be conclusive in the absence of error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. Failure on the part of any Lender to demand compensation for any increased costs or reduction in amounts received or receivable with respect to any Interest Period shall not constitute a waiver of such Lender's rights to demand compensation for any increased costs or reduction in amounts received or receivable in any subsequent Interest Period.

If any Regulatory Change shall make it unlawful or impossible for any Lender to make, maintain or fund any Eurodollar Rate Advances, such Lender shall notify Borrower, whereupon the obligation of such Lender to make or continue, or to convert any Advances to, Eurodollar Rate Advances shall be suspended until such Lender notifies Borrower that the circumstances giving rise to such suspension no longer exist. If any Lender determines that it may not lawfully continue to maintain any Eurodollar Rate Advances to the end of the applicable Interest Periods, all of the affected Advances shall be automatically converted to Reference Rate Advances as of the date of such Lender's notice, and upon such conversion Borrower shall compensate such Lender in accordance with SECTION 1.12.

In the event that any Regulatory Change reduces or shall have the effect of reducing the rate of return on any Lender's capital or the capital of its parent corporation (by an amount such Lender deems material) as a consequence of the Loan to a level below that which such Lender or its parent corporation could have achieved but for such Regulatory Change (taking into account such Lender's policies and the policies of its parent corporation with respect to capital adequacy), then Borrower shall, within ten (10) days after written notice and demand from such Lender, pay to such Lender additional amounts sufficient to compensate such Lender, or its parent corporation, for such reduction. Any determination by such Lender under this Section and any certificate as to the amount of such reduction given to Borrower by such Lender shall be final, conclusive and binding for all purposes, absent error.

Borrower shall compensate any Lender, upon its written request, for all losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry Eurodollar Rate Advances to the extent not recovered by such Lender in connection with the re-employment of such

funds, including loss of anticipated profits) and which such Lender may sustain:
(A) if for any reason, other than a default by such Lender, a funding of a Eurodollar Rate Advance does not occur on the date specified therefor in the Borrower's request or notice as to such Advance hereunder, or (B) if, for whatever reason (including, but not limited to, acceleration of the maturity of Advances following an Event of Default), any repayment of a Eurodollar Rate Advance, or a conversion pursuant to SECTION 1.10, occurs on any day other than the last day of the Interest Period applicable thereto. Such Lender's request for compensation shall set forth in reasonable detail the basis for the amount requested and shall be final, conclusive and binding, absent error.

Any Lender shall be entitled to fund and maintain its funding of Eurodollar Rate Advances in any manner it may elect, it being understood, however, that for the purposes of this Agreement all determinations hereunder (including, but not limited to, determinations under SECTION 1.12, but excluding determinations that such Lender may make from the Reuters screen LIBO page) shall be made as if such Lender had actually funded and maintained each Eurodollar Rate Advance during the Interest Period for such Advance through the purchase of deposits, having a maturity corresponding to the last day of the Interest Period and bearing an interest rate equal to the Eurodollar Rate for such Interest Period.

Borrower may elect to extend the Maturity Date for one (1) additional period of one (1) year (the "EXTENSION PERIOD") upon the written request of Borrower given to Agent not less than thirty (30) days nor more than one hundred twenty (120) days prior to the Maturity Date then existing, such extension being subject to satisfaction of all of the following conditions:

A. Payment by Borrower on or before the first day of the Extension Period of an extension fee equal to One Hundred Fifty Thousand and No/100ths Dollars (0.25% of the Revolving Commitment Amount) in Immediately Available Funds;

B. At the time of the extension request and on the first day of the Extension Period, there shall exist no uncured Event of Default or event which, with the giving of notice or passage of time, or both, could become an Event of Default;

C. The delivery from Borrower to Agent on behalf of Lenders of all financial information relating to Borrower and Guarantor requested by Lenders and reflecting that no material adverse change, financial or otherwise, as determined by Agent in its sole discretion, shall have occurred with respect to any Borrower or Guarantor.

Notwithstanding Borrower's right to extend the Maturity Date as set forth above, Borrower hereby agrees that Lenders shall have no commitment or obligation to extend the Maturity Date beyond September 30, 2000 unless each of the foregoing conditions shall have been satisfied.

than thirty (30) days prior to the Maturity Date. Each Letter of Credit so issued, extended or renewed shall be subject to the Uniform Customs.

A. Upon reduction (but not termination) of the Revolving Commitment Amount to an amount less than the then Maximum Drawing Amount, an amount equal to such difference, which amount shall be held by the Agent in a non-interest bearing account as cash collateral for the benefit of Lenders and the Agent for all Reimbursement Obligations, and

B. Upon the termination of the Revolving Commitment, or the acceleration of the Reimbursement Obligations with respect to all Letters of Credit in accordance with SECTION 6.2(C), an amount equal to the then Maximum Drawing Amount on all Letters of Credit, which amount shall be held by Agent in a non-interest bearing account as cash collateral for the benefit of Lenders and Agent for all Reimbursement Obligations.

A. Any lack of validity or enforceability of any Letter of Credit;

B. The existence of any claim, setoff, defense or other right which the Borrower may have or claim at any time against any beneficiary, transferee or holder of any Letter of Credit (or any Person for whom any such beneficiary, transferee or holder may be acting), the Agent or any other Person, whether in connection with a Letter of Credit, this Agreement, the transactions contemplated hereby, or any unrelated transaction; or

C. Any statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever.

Neither the Agent nor its officers, directors or employees shall be liable or responsible for, and the obligations of the Borrower to the Agent shall not be impaired by:

(i) The use which may be made of any Letter of Credit or any acts or omissions of any beneficiary, transferee or holder thereof in connection therewith;

(ii) The validity, sufficiency or genuineness of documents, or of any endorsements thereon, even if such documents or endorsements should, in fact, prove to be in any or all respects invalid, insufficient, fraudulent or forged;

(iii) The acceptance by the Agent of documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; or

(iv) Any other action of the Agent in making or failing to make payment under any Letter of Credit if in good faith and in conformity with U.S. or foreign laws, regulations or customs applicable thereto.

calendar quarter in which such Letter of Credit is issued, drawn upon or otherwise reduced or terminated) and (b) shall be for the account of the Agent and the Lenders as follows: (i) an amount equal to 0.125% per annum of the face amount of the Letter of Credit shall be for the account of the Agent as issuer and (ii) the remainder of the Letter of Credit Fee shall be for the account of the Lenders (including the Agent) pro rata in accordance with their respective Commitment Percentages. In addition to the Letter of Credit Fee, the Borrower shall pay to the Agent, on demand, all issuance, amendment, drawing and other fees regularly charged by the Agent to its letter of credit customers and all out-of-pocket expenses incurred by the Agent in connection with the issuance, amendment, administration or payment of any Letter of Credit.

Lenders shall not be required to make any Advances hereunder until the pre- closing requirements, conditions and other requirements set forth below have been completed and fulfilled to the satisfaction of Lenders, with respect to said Advance, at Borrower's sole cost and expense.

The obligations of Lenders to make Advances and the effectiveness of this Agreement are subject to the following documents, certificates and opinions, each in form and substance acceptable to Lenders and its counsel, having been delivered to and approved by Lenders. It is agreed, however, that Lenders may, in their discretion, make such Advances prior to completion and fulfillment of any or all of such pre-closing requirements, conditions and other requirements, without waiving its right to require such completion and fulfillment before any additional Advances are made.

A. This Agreement duly executed by Borrower, Agent and Lenders; the Note duly executed by Borrower; the Negative Pledge Agreements with respect to each Unencumbered Asset duly executed by the applicable Borrower and in recordable form and the Guaranty duly executed by Guarantor;

B. Recordation of a Negative Pledge Agreement with respect to each Approved Asset among the land records in which each Approved Asset is located.

C. A copy of the Certificate of Limited Partnership of each Borrower and all amendments thereto, and a Certificate of Good Standing for each Borrower, each currently certified by the Secretary of State of its state of organization; each Borrower's Agreement of Limited Partnership and Transaction Authorization, all currently certified by such Borrower's general partner, and upon which Agent and Lenders may rely until revoked by written notice to Agent and Lenders;

D. A copy of the Articles of Incorporation of Guarantor and all amendments thereto, and a Certificate of Good Standing for Guarantor, each currently certified by the Secretary of State of its state of incorporation; Guarantor's By-Laws, Resolutions of Guarantor's Board of Directors authorizing the transactions described herein, and an incumbency certificate for Guarantor (including the names, titles and specimen signatures of officers thereof authorized to execute Loan Documents), all currently certified by Guarantor's corporate secretary or assistant secretary, as appropriate, and upon which Agent and Lenders may rely until revoked by written notice to Agent and Lenders;

E. A Certificate from the general partner of each Borrower and from a duly authorized officer of Guarantor, setting forth the names, titles, specimen signatures and telephone numbers of all persons authorized to (i) sign Draw Requests and/or other documents, instruments, certificates and agreements to be delivered by any Borrower and/or Guarantor to Agent and/or any Lender hereunder, and/or (ii) to give instructions to Agent hereunder, each of which Certificates shall be deemed to be in full force and effect until forty-eight (48) hours after receipt by Agent of an amendment thereof duly executed by said duly authorized officer or Guarantor;

F. A signed, written opinion from counsel to each Borrower and Guarantor, addressed to Agent and each Lender and currently dated, as to the due organization, existence, qualification and good standing of each Borrower and Guarantor; as to the due authorization, validity, legality, binding nature and enforceability of the Loan Documents listed in SECTION 2.B.1(A), without the consent or approval of any other Person; that, to such counsel's knowledge, the execution, delivery and performance by each Borrower and Guarantor of the Loan Documents to which each is a party will not violate any contracts or agreements of such Borrower or Guarantor or any applicable Governmental Requirements; as to the absence, to such counsel's knowledge, of litigation or governmental proceedings which could materially, adversely affect such Borrower or Guarantor; and such other matters as may be required by Agent on behalf of Lenders;

G. The most current available annual financial statements for Borrower and Guarantor on a consolidated basis, as well as financial statements for each of the three (3) full fiscal years of each immediately preceding the time period covered by said current financial statements; and

H. A sworn statement from and agreement by each Borrower and Guarantor listing all guarantees and contingent liabilities to which such Borrower and Guarantor is a party or for which such Borrower or Guarantor may be liable and agreeing to periodically update said listing, to which sworn statement shall be attached (or in which sworn statement shall be described) current financial statements of such Borrower and of Guarantor, which shall be, in such sworn statement, certified and sworn to by such Borrower and Guarantor as being true, correct, complete and not misleading in any material respect, and such Borrower and Guarantor shall also, in such sworn statement, certify that there has been no material change in the financial status of such Borrower or of Guarantor since the dates thereof.

I. With respect to each Unencumbered Asset which is to become an Approved Asset on the Closing Date, (i) a written description of the Unencumbered Asset, including the size, legal description and location of the Unencumbered Asset;
(ii) a title report, dated within thirty (30) days of the date on which such Unencumbered Asset is included as an Approved Asset, running in favor of the Agent on behalf of the Lenders , together with a copy of each document referred to therein (collectively "TITLE EVIDENCE"), evidencing that such Real Estate Asset is

an Unencumbered Asset; (iii) a current, certified rent roll for such Unencumbered Asset; and (iv) pro forma operating and capital budgets.

K The Borrower agrees that at the request of any Lender it will furnish all materials described in this SECTION 2.B.1 to such Lender after the Closing Date.

L. All proceedings in connection with the transactions contemplated by this Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in form and substance to each of the Lenders and to the Agent's counsel, and the Agent, each of the Lenders and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may request.

M. The Borrower shall have paid to the Agent, for the accounts of the Lenders or for its own account, as applicable, all of the fees and expenses that are due and payable as of the Closing Date in accordance with this Agreement.

N. The obligation of the Agent to issue any Letter of Credit shall be subject to the fulfillment of the following conditions:

Any Lender may advance to itself, pursuant to the provisions of SECTIONS 3.1 and 5.1, proceeds of the Loan sufficient to pay all reasonable costs and expenses

incurred by such Lender in connection with preparation and negotiation of the Loan Documents and the review of the foregoing.

A. Borrower shall provide, at the time of its request for approval, (i) a written description of the Unencumbered Asset, including the size, legal description and location of the Unencumbered Asset; (ii) Title Evidence evidencing that such Real Estate Asset is an Unencumbered Asset; (iii) a current, certified rent roll for such Unencumbered Asset; (iv) operating statement covering the prior three (3) year period for such Unencumbered Asset;
(v) pro forma operating and capital budgets; and (vi) evidence that such Unencumbered Asset meets the Minimum Lease Up Requirement.

B. Agent shall have completed to its satisfaction, and at the Borrower's expense, an inspection of the Unencumbered Asset, if it elects to do so.

C. All proceedings in connection with the transactions contemplated by this Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in form and substance to each of the Lender's and to the Agent's counsel, and the Agent, each of the Lenders and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may request.

D. If Borrower requests Lenders' approval to add an Approved Asset or release an Approved Asset more than five times during any twelve month period, then with respect to each subsequent request for approval of an Unencumbered Asset during such twelve month period, Borrower shall pay a review fee of $2,500.00 to Agent who shall retain such fee for its own account.

Upon receipt of the above-mentioned written request, certificate and other items ("APPROVAL PREREQUISITES"), Agent may, on behalf of the Lenders, engage legal counsel to review the deliveries, all at Borrower's sole cost and expense. If the Approval Prerequisites are satisfied as determined by Agent, whose approval shall not be unreasonably withheld, and if the proposed Unencumbered Asset complies with the terms, provisions, requirements and conditions of this Agreement, also in Agent's reasonable determination, Agent may, on behalf of the Lenders, approve the proposed Unencumbered Asset, in writing as an Approved Asset. Upon such

approval, Borrower shall execute and deliver to Agent for recordation a Negative Pledge Agreement with respect to such Approved Asset.

Nothing set forth herein or in any other Loan Document shall be read, deemed, construed or interpreted to impose any explicit or implicit obligation of any kind upon the Lenders to approve any Unencumbered Asset so that it is thereafter included as an Approved Asset, such approval to be, in each instance, subject to the sole, entire, unfettered and absolute discretion of the Lenders in all respects.

Loan Availability shall be calculated by Agent on behalf of the Lenders on the first day of each calendar quarter and on each Calculation Date.

For any period of determination, Loan Availability shall equal the lesser of the following amounts:

A. Unencumbered Adjusted EBITDA for the previous four (4) quarters attributable to the Approved Assets multiplied by six (6); or

B. The Permanent Loan Estimate (using Unencumbered Adjusted EBITDA for the previous four (4) quarters) for such Approved Assets.

provided, however, Loan Availability shall be reduced on a dollar for dollar basis by (x) the face amount of any Letters of Credit issued by Agent and outstanding hereunder and (y) the amount of any Imposition, Lien or Encumbrance arising with respect to any Approved Asset until same is paid in full, discharged or bonded over to the satisfaction of the Lenders:

In no event shall Lenders be obligated to make Advances which in the aggregate exceed Loan Availability as determined by Agent from time to time. If at any time Loan Availability is less than the Total Revolving Outstandings, Borrower shall, within thirty (30) days of such determination by Agent, either
(i) cure the cause of such reduction in Loan Availability, or (ii) pay the excess to Agent on behalf of the Lenders. No additional Advances shall be made hereunder and no additional Letters of Credit shall be issued hereunder until such time as Agent determines that Loan Availability exceeds the Total Revolving Outstandings. It shall be an Event of Default if Borrower fails to cure the cause of the reduction in Loan Availability or make the required payment within such thirty (30) day period.

Subject to the limitations on Advances contained elsewhere in this Agreement, the Loan proceeds shall be advanced by each Lender, to or for the benefit of Borrower, in accordance with the terms and conditions set forth in this ARTICLE III. All monies advanced by each Lender (including amounts payable to such Lender and advanced by such Lender to itself pursuant to the terms hereof) shall constitute loans made to Borrower under this Agreement, evidenced by the Note and secured by the other Loan Documents, and interest shall be computed thereon as prescribed by this Agreement and the Note, from the date advanced to or for the benefit of Borrower.

No Advance shall constitute a waiver of any condition precedent to the obligation of any Lender to make any further Advance or preclude such Lender from thereafter requiring Borrower to satisfy any such condition precedent with respect to any prior or further Advance. No Advance shall constitute a waiver of

any default or Event of Default hereunder which may exist at the time of said Advance, whether or not the same is known to such Lender. All conditions precedent to the obligation of each Lender to make any Advance are imposed hereby solely for the benefit of such Lender, and no other party may require satisfaction of any such condition precedent or shall be entitled to assume that such Lender will make or refuse to make any Advance in the absence of strict compliance with such condition precedent. All requirements of this Agreement may be waived by each Lender, in whole or in part, at any time.

Each Lender may, but shall not be obligated to, advance to itself, when due, from the proceeds of the Loan, without further order or request from Borrower, all interest payable to such Lender under the terms hereof or of the Note, and may, at such Lender's option, without any obligation to do so, advance to itself all other sums due or to become due to such Lender under this Agreement or under any of the other Loan Documents, including but not limited to its fees, administration fees, attorneys' fees, other consultants' fees and all out-of-pocket expenses incurred by such Lender in connection with this Agreement and with the Loan. Each Lender shall also have the right, but not the obligation, after the occurrence of an Event of Default, to advance and directly apply the proceeds of the Loan to the satisfaction of any of Borrower's other obligations hereunder or under any of the other Loan Documents.

Agent shall have access to each Real Estate Asset at all reasonable times and shall have the right to enter each Real Estate Asset and to conduct such inspections thereof as it shall deem necessary or desirable for the protection of the Lender's interests; provided that Agent gives reasonable prior notice thereof to Borrower. Borrower may elect to accompany Agent on any such inspections. No Lender shall be obligated to conduct any inspection of any Real Estate Asset.

Neither Borrower nor any third party shall have the right to use or rely upon any reports generated by Agent for any purpose whatsoever. Borrower shall be responsible for making its own inspections of each Approved Asset.

It is expressly understood and agreed that neither Agent nor any Lender assumes liability or responsibility for the any representations made by Borrower or for any acts on the part of Borrower.

A. At the time of each Advance, there shall exist no default or Event of Default hereunder, and all representations and warranties made herein shall be true and correct on and as of each Advance Date with the same effect as if made on

that date. Each Advance shall be made pursuant to a Draw Request submitted by Borrower to Agent on behalf of the Lenders.

B. Not later than 10:00 A.M. (Minneapolis time) two (2) Eurodollar Business Days prior to the Advance Date if any portion of the requested Advance is desired by Borrower to be a Eurodollar Rate Advance, and one Business Day prior to the Advance Date if any portion of the requested Advance is to be a Reference Rate Advance, Borrower shall deliver to Agent (with a copy to each Lender) a request, in writing, designating the amount of such portion (in the minimum amount of $1,000,000.00 and in integral multiples of $100,000.00 in excess thereof) and designating the initial Interest Period applicable thereto. Notwithstanding anything herein set forth to the contrary, there may not be more than five (5) Eurodollar Rate Advances outstanding at any given time during the term of the Note. If no such request is made by Borrower with respect to any Advance, the entire Advance shall be deemed to be a Reference Rate Advance.

C. On each Advance Date, if all the terms and conditions of this Agreement have been complied with by Borrower, to the satisfaction of Lenders, if no default or Event of Default exists hereunder, and if Lenders have approved the Draw Request, each Lender shall advance to Agent its Commitment Percentage of the principal amount of the requested Advance by delivering to Agent a wire transfer of funds. Agent shall then forward the Advance to Borrower. All Advances actually so made shall be deemed to be loans to Borrower, shall reduce the available amount of the Revolving Loan Commitment, and shall bear interest at the rates provided herein from the date so advanced.

D. To the extent agreed upon by the Lenders, each Lender shall also have the right, but not the obligation, to advance and directly apply the proceeds of any Advance to the satisfaction of any of Borrower's obligations hereunder or under the other Loan Documents. Any Advance by a Lender for such purpose shall be part of the Loan and shall be evidenced and secured by the Loan Documents from the date made. Borrower hereby authorizes each Lender to hold, use, advance and apply Loan proceeds for the payment or performance of any obligation of Borrower hereunder, including but not limited to the obligation to pay interest on the Loan.

E. In the event that a Lender shall determine, in its sole judgment, that proper documentation to support a requested Advance, as required by this Agreement, has not been furnished, it may withhold payment of such Advance, or of such portion of such Advance as shall not be so supported by proper documentation, and shall promptly notify Borrower of the discrepancy in or omission of such documentation. Until such time as such discrepancy or omission is corrected to the satisfaction of such Lender, it may withhold such funds.

F. Borrower shall provide notice to Agent in the Draw Request of the proposed use of the requested Advance. If Borrower anticipates using the Advance for purposes of financing construction on a Real Estate Asset Under Development, Borrower shall provide evidence to Agent at the time of each such Draw Request

that Borrower has entered into leases for not less than fifty percent (50%) of the rentable square footage of such Real Estate Asset Under Development. If Borrower fails to provide the foregoing evidence, Lenders shall have no obligation to make the requested Advance for such construction.

Each Borrower represents and warrants to Agent and Lenders that:

Such Borrower is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Maryland and is duly authorized to transact business in the jurisdictions in which the Approved Assets owned by it are located, and has all power, authority, permits, consents, authorizations and licenses necessary to carry on its business, to acquire, develop, demolish, construct, renovate, expand, equip, own and operate each Approved Asset owned by such Borrower and to execute, deliver and perform this Agreement and the other Loan Documents; and this Agreement and the other Loan Documents executed to date by such Borrower have been duly authorized, executed and delivered by and on behalf of such Borrower so as to constitute this Agreement and said other Loan Documents the valid and binding obligations of such Borrower, enforceable in accordance with their terms.

The consummation of the transactions contemplated hereby and the execution, delivery and/or performance of this Agreement and the other Loan Documents will not result in any breach of or constitute a default under the organizational documents of Borrower and Guarantor, any mortgage, deed of trust, lease, bank loan, credit agreement, guaranty or other instrument or violate any Governmental Requirements, to which such Borrower or Guarantor is a party, or by which such Borrower or Guarantor may be bound or affected.

The financial statements of, and other financial and cash flow information for, Borrower and Guarantor on a consolidated basis previously or hereafter delivered to Lenders fairly and accurately present, or will, in all material respects, fairly and accurately present, the financial condition of Borrower and Guarantor on a consolidated basis as of the dates of such statements and information, and the cash flows of each Borrower and Guarantor for the periods covered by such information, and neither this Agreement nor any document, financial statement, financial, cash flow or credit information, certificate or statement referred to herein or furnished to Lenders by each Borrower and Guarantor contains, or will contain, any untrue statement of a material fact or omits, or will omit, a material fact, or is or will be misleading in any material respect.

There is, and, until Agent and Lenders have been fully repaid the entire indebtedness evidenced or to be evidenced by the Note, there will be, no default or Event of Default on the part of Borrower under the Loan Documents and none of Borrower nor Guarantor is or will be in default under any instrument or agreement under and subject to which any recourse indebtedness in excess of $100,000.00 in the aggregate or any nonrecourse indebtedness in excess of $10 million in the aggregate for borrowed money has been issued or is secured, and no event has occurred, or will occur, which, with the lapse of time or the giving of notice or both, would constitute an Event of Default thereunder.

The fiscal year of each Borrower and of Guarantor ends on December 31.

Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland, and has all power, authority, permits, consents, authorizations and licenses necessary to carry on its business in the State of Maryland and to execute, deliver and perform the Guaranty and the other Loan Documents to which it is or will be a party, and all actions required to authorize the execution, delivery and performance by it of the Guaranty and such other Loan Documents have been duly taken and are in full force and effect; and the Guaranty and such other Loan Documents have been duly authorized, executed and delivered by and on behalf of Guarantor so as to constitute the Guaranty and such other Loan Documents, when executed by Guarantor, to be the valid and binding obligations of Guarantor, enforceable in accordance with their terms.

Borrower has not dealt with any brokers in connection with this Loan and no brokerage fees or commissions are payable by or to any person in connection with this Agreement or the Advances. Lenders shall not be responsible for the payment of any fees or commissions to any broker and Borrower shall indemnify, defend and hold Lenders harmless from and against any claims, liabilities, obligations, damages, costs and expenses (including attorneys' fees and disbursements) made against or incurred by Lenders as a result of claims made by any broker or person claiming by, through or under Borrower, Guarantor or their affiliates in connection with the Loan.

The undersigned represents and warrants that the Loan and this Note are made exclusively for business purposes in connection with holding, developing, and managing real estate for profit, within the meaning and intent of Maryland Code Annotated, Commercial Law Section 12-103(e), as amended, and that none of the proceeds of the Loan or the Note will be used for personal, family or household purposes of any person.

Except for Saul Subsidiary I Limited Partnership, Saul Subsidiary II Limited Partnership, Guarantor, Saul QRS, Inc. and SC Finance Corporation, there are no entities which are required under GAAP to be consolidated with Holdings for financial reporting purposes, except as otherwise disclosed to Agent in writing from time to time.

Borrower is not

A. Engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying margin stock (as defined in Regulation U of the Board), and the value of all margin stock owned by Borrower does not constitute more than twenty-five percent (25%) of the value of the assets of Borrower. No portion of any Advance is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.

B. An "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended.

C. A "holding company" or a "subsidiary company" of a holding company or an "affiliate" of a holding company or a subsidiary company of a holding company

within the meaning of the Public Utility Holding Company Act of 1935, as amended.

The Borrower has good title as of the Closing Date (with respect to Approved Assets designated as such on the Closing Date) or the date of designation as an Approved Asset (with respect to Approved Assets acquired and/or designated as such after the Closing Date), and in each case to the best of its knowledge thereafter, the Borrower or Guarantor holds good and clear record and marketable fee simple title to, subject to no mortgages, conditional sales agreements, title retention agreements, liens or, except as otherwise set forth in the title reports delivered by Borrower, encumbrances.

THE WARRANTIES AND REPRESENTATIONS IN THIS ARTICLE IV, AND ANY ADDITIONAL REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN AND IN THE OTHER LOAN DOCUMENTS, SHALL BE DEEMED TO HAVE BEEN RENEWED AND RESTATED BY BORROWER AND GUARANTOR AT THE TIME OF EACH REQUEST BY BORROWER FOR AN ADVANCE.

While this Agreement is in effect, and until Agent and Lenders have been paid in full the principal of and interest on all Advances made by Lenders hereunder and all other amounts payable hereunder and under the other Loan Documents and so long as any Letter of Credit is outstanding:

Borrower shall pay all reasonable costs and expenses of Agent and all costs and expenses of Borrower in connection with each Approved Asset and the Loan, the preparation and review of the Loan Documents and the evaluation, making, closing, funding, administration, transfer and/or repayment of the Loan and the review of Unencumbered Assets, including but not limited to the attorneys' fees, consultants' fees, administration fees, and all other costs and expenses payable to third parties incurred by Agent or Borrower in connection with the Loan. Such costs and expenses shall be so paid by Borrower whether or not the Loan is fully advanced.

The current limited partners of Saul Holdings Limited Partnership, those Persons controlling, controlled by or under common control with such current limited partners, and such other persons or entities as the Agent may approve in writing upon the written request of Borrower, shall continue to own legally and beneficially, directly or indirectly, thirty percent (30%) or more, in the aggregate, of (x) the limited partnership units of Borrower and (y) the common stock of the Guarantor on a fully diluted basis. Borrower shall immediately give written notice of the violation of this covenant to Agent.

Borrower shall set up and maintain accurate and complete books, accounts and records pertaining to each Approved Asset in a manner reasonably acceptable to Lenders. Borrower will permit representatives of Agent to have free access to and to inspect and copy all books, records and contracts of Borrower relating to each Approved Asset, and will permit representatives of Agent to have free access to and to inspect and copy all other books, records and contracts of Borrower at all reasonable times and upon reasonable prior notice to Borrower. Any such inspection shall be for the sole benefit and protection of Agent, and neither Agent nor any Lender shall have any obligation to disclose the results thereof to Borrower or to any third party.

Borrower shall furnish to Lenders such financial information concerning each Borrower and Guarantor, and each Borrower's and Guarantor's other assets and investments, as each Lender may reasonably request, and shall furnish to Agent, at Borrower's sole cost and expense the following:

(i) Not later than fifty (50) days after the end of each fiscal quarter, a balance sheet, statement of profit and loss and statement of cash flows for such fiscal quarter, for the Guarantor and its consolidated subsidiaries, to be prepared on an accrual basis and certified as complete and correct by the chief financial officer of such entities; and

C. Copies of all 8Ks, 10Ks and 10Qs filed with the U.S. Securities and Exchange Commission, the Maryland State Securities Commission, and any other state regulators regarding the Guarantor, which shall be delivered to Agent (with a copy to each Lender) as and when filed or distributed; and

D. Budget. Not later than sixty (60) days after the end of each fiscal year, a copy of the pro forma operating and capital budgets for each of the Approved Assets for the succeeding fiscal year, which Budget shall be in form satisfactory to the Agent, in its reasonable discretion.

E. Rent Rolls. Not later than forty-five (45) days after the end of each fiscal quarter, a copy of the rent roll for each of the Approved Assets as of the end of such quarter in form satisfactory to the Agent, and a tenant lease expiration summary, each certified as being true, correct and complete by the chief financial officer of the Borrower.

F. Such other statements or reports as the Lenders may through Agent reasonably request in form and detail satisfactory to such Lenders.

All such financial statements shall be in reasonable detail, shall be prepared in general accordance with GAAP (except that assets may be valued based on market value), or in accordance with another accounting method acceptable to Agent, and shall be certified as true, correct and complete by Borrower (by its chief financial officer) or Guarantor. In addition, Borrower shall permit Agent and each Lender to examine all of Borrower's and Guarantor's books and records pertaining thereto.

Borrower shall, at all times until Agent and Lenders have been fully repaid all indebtedness evidenced by the Note, maintain, or cause to be maintained, in effect, adequate insurance with respect to each Approved Asset.

Borrower shall not voluntarily or involuntarily agree to, cause, suffer or permit (A) any sale, transfer or conveyance of any interest of Borrower, legal or equitable, in any Approved Asset or any part or portion thereof; or (B) any mortgage, pledge, encumbrance or lien to be imposed or remain outstanding against any Approved Asset, or any security interest to exist therein (hereinafter each called an "ENCUMBRANCE"), except as created by the Loan Documents (if any), without, in each instance, complying with the provisions of
SECTION 2.B.4 hereof. In the event that any Encumbrance arises against any Approved Asset, Borrower shall give written notice thereof to Agent within five
(5) days after the imposition of such Encumbrance. Agent shall thereupon recalculate Loan Availability taking into account such Encumbrance. If necessary, Borrower shall make a payment as required pursuant to SECTION 2.B.3 if Loan Availability is then less than Total Revolving Outstandings.

Borrower shall, before any penalty or interest attaches thereto because of delinquency in payment, pay and discharge, or cause to be paid and discharged, all taxes, assessments, levies and governmental charges imposed upon or against each Approved Asset or upon or against the Note or the indebtedness evidenced hereby (hereinafter referred to as "IMPOSITIONS"). In the event any Impositions are payable in installments, Borrower shall have the right to pay the same in such installments, even though such Impositions then bear interest, so long as Borrower pays each such installment prior to delinquency. Borrower shall not suffer to exist and shall promptly pay and discharge any mechanic's, statutory or other lien or Encumbrance on the Approved Asset or any part thereof (hereinafter collectively referred to as "LIENS"). In the event that any Imposition or Lien arises against any Approved Asset, Borrower shall give written notice thereof to Agent within five (5) days after the occurrence of such Imposition or Lien. Agent shall thereupon recalculate Loan Availability taking into account such Imposition or Lien. If necessary, Borrower shall make a payment as required pursuant to SECTION 2.B.3 if Loan Availability is then less than Total Revolving Outstandings.

Each Borrower shall maintain its existence as a duly organized and qualified limited partnership, in good standing under the laws of the state of its formation and the laws of each state in which any Approved Asset is located, and neither Borrower nor Guarantor shall be dissolved, merged, wound-up or terminated. Borrower will cause Guarantor to do or cause to be done all things necessary to preserve and keep in full force and effect Guarantor's existence as a Maryland corporation. Borrower will cause Guarantor at all times to maintain its existence as a qualified real estate investment trust (a "REIT") within the meaning of the Internal Revenue Code and not to take any action which could lead to its

disqualification as a REIT. Within thirty (30) days after request by Agent from time to time, Guarantor shall provide evidence that Guarantor continues to qualify as a REIT.

Borrower shall cause all of the representations, warranties and covenants herein to remain true and correct during the term of the Loan, shall comply with and perform all of its agreements and obligations under the Loan Documents, and shall comply with all requests by Lenders which are consistent with the terms thereof. Borrower shall promptly provide Agent with copies of any notices of default or deficiency received from any creditor under loans with a principal balance in excess of $100,000.00 and shall promptly cure the same. Borrower shall comply in all material respects with all applicable laws, rules, regulations, orders and directions of any governmental authority having jurisdiction over it or its business.

Borrower hereby covenants and agrees that so long as the Revolving Commitment remains outstanding:

A. Minimum Equity Value. As of the end of each fiscal quarter and any other Calculation Date, Borrower shall provide evidence to Agent that Borrower has Minimum Equity Value of not less than the sum of $150 million plus ninety percent (90%) of Net Equity Proceeds.

B. Portfolio Loan to Value. As of the end of each fiscal quarter and any other Calculation Date, Borrower shall provide evidence to Agent that the ratio of Total Adjusted Outstanding Indebtedness to Capitalization Value does not exceed sixty five percent (65%).

C. Interest Expense Coverage. As of the end of each fiscal quarter and any other Calculation Date, Borrower shall provide evidence to Agent that the ratio of Adjusted EBITDA to Interest Expense is not less than 1.90 to 1.

D. Debt Service Coverage. As of the end of each fiscal quarter and any other Calculation Date, Borrower shall provide evidence to Agent that the ratio of Adjusted EBITDA to Debt Service is not less than 1.60 to 1.

E. Minimum Fixed Rate Debt. Borrower covenants and agrees that not less than seventy five percent (75%) of Total Adjusted Outstanding Indebtedness shall
(x) accrue interest at a fixed rate of interest and (y) have a term of not less than five (5) years. Absent Lenders' prior written approval, the Revolving Commitment shall constitute the only unsecured indebtedness incurred by Borrower which accrues interest at a floating rate of interest. In addition, Borrower hereby agrees that to the extent Borrower would like to incur secured indebtedness

accruing interest at a floating rate of interest from time to time, Borrower shall provide prior written notice to Agent. In the event that at any time Borrower intends to receive advances under indebtedness accruing interest at a floating rate of interest (including the Revolving Commitment), which advances aggregate in excess of $60 million, then Borrower shall provide prior written notice thereof to Agent and the Lenders may thereupon require that the Borrower make interest rate protection arrangements satisfactory to Borrower and Lenders with respect to all advances of floating rate indebtedness (including the Revolving Commitment) exceeding in the aggregate $60 million. The Borrower shall thereafter maintain such arrangements in full force and effect, and shall not, without the approval of the Lenders, modify, terminate, or transfer such arrangements.

F. Payout Ratio. For each of the following calendar years, Distributions shall not exceed the following percentage of Funds from Operations with respect to the Borrower and the Guarantor on a consolidated basis:

          Calendar Year                      Percentage
          -------------                      ----------
              1997                                       96%
              1998                                       94%
              1999                                       92%

5.9  Miscellaneous
---  -------------

Each Borrower shall also:

A. Maintain its qualification to transact business in its state of organization, in each state in which an Approved Asset is located, and in each jurisdiction where failure so to qualify would permanently preclude Borrower from enforcing its rights with respect to any material asset or would expose Borrower to any material liability.

B. File all tax returns and reports which are required by law to be filed by it and pay before they become delinquent all taxes, assessments and governmental charges and levies imposed upon it and all claims or demands of any kind which, if unpaid, might result in the creation of a lien upon its property; provided that the foregoing items need not be paid if they are being contested in good faith by appropriate proceedings in accordance with the applicable terms of SECTION 5.6, and as long as Borrower's title to its property is not materially adversely affected, its use of such property in the ordinary course of its business is not materially interfered with, and adequate reserves with respect thereto have been set aside on Borrower's books in accordance with GAAP. The provisions of SECTION 5.6 shall control over the provisions of this Subsection if and to the extent such provisions are inconsistent.

C. Give prompt written notice to Agent of (i) the breach of any representation, warranty or covenant contained in this Agreement or in any of the Loan Documents (which notice shall be accompanied by a certificate from

D. Maintain, preserve, protect and keep the Real Estate Assets in good repair, working order and condition and make all necessary and proper repairs, renewals and replacements, normal wear and tear excepted.

Each of the following events shall constitute an Event of Default under this Agreement:

A. Borrower shall default in the payment of principal due according to the terms hereof or of the Note and shall fail to cure said default within five
(5) days after the due date thereof, provided, however, in no event shall such grace period apply with respect to payments due on the Termination Date;

B. Borrower shall default in the payment of interest on Advances made by Lenders, or in the payment of any fees, including any Letter of Credit Fee, or any other amounts payable hereunder, under the Note or under any of the other Loan Documents and shall fail to cure said default within five (5) days after the due date thereof;

D. Borrower shall default in the performance or observance of any other agreement, covenant or condition required to be performed or observed by Borrower under the terms of this Agreement or the Loan Documents, which default, if curable, is not cured within thirty (30) days after Agent on behalf of Lenders gives Borrower written notice thereof;

E. Any representation or warranty made by any Borrower or Guarantor in this Agreement or in any of the other Loan Documents, or in any certificate or document furnished under the terms of this Agreement or in connection with the Loan, shall be untrue or incomplete in any material respect;

F. Any other event or occurrence herein expressly stated to be an Event of Default occurs or exists;

G. Any Loan Document is not in full force and effect or a default has occurred and is continuing thereunder after giving effect to any cure or grace period in any such document;

H. Any mortgaging, conveyance or other voluntary transfer or encumbrance of any of the Approved Assets or any portion thereof occurs without the prior consent of Agent; provided, however, the prior consent of the Lenders shall be required with respect to any mortgaging, conveyance or other voluntary transfer or encumbrance of any of the Major Assets or any portion thereof ;

I. Borrower or Guarantor shall commit an act of bankruptcy, shall file a voluntary petition in a bankruptcy, reorganization, composition, readjustment, arrangement, insolvency, liquidation, dissolution or similar proceeding under any present or future statute, law or regulation, shall consent to voluntary or involuntary adjudication in bankruptcy or to reorganization, or shall be adjudicated bankrupt or insolvent under any applicable law or laws pursuant to a voluntary proceeding, or admits, in writing, to having become insolvent or to be unable to pay its debts as they become due, or becomes unable to pay its debts as they mature, or makes an assignment for the benefit of its creditors, or is dissolved, liquidated, terminated or merged, or if it applies for, or if it consents to, the appointment of a trustee, custodian or receiver for it or a substantial portion of its assets.

J. A custodian, trustee or receiver is appointed for any portion of the assets of Borrower or Guarantor, or an involuntary petition in bankruptcy or insolvency is filed against Borrower or Guarantor and is not discharged within ninety (90) days after such appointment or filing;

L. Borrower or Guarantor permits the attachment or judicial seizure of any of its assets with a value in excess of One Hundred Thousand and No/100ths Dollars ($100,000.00);

M. Borrower or Guarantor shall be dissolved, liquidated, terminated or merged without Lenders' prior written consent;

N. Guarantor shall be terminated, dissolved, liquidated or wound-up, or shall contest, repudiate or purport to revoke the Guaranty, or the Guaranty for any reason (except pursuant to the express terms thereof) shall cease to be in full force and effect as to Guarantor or shall be judicially declared unenforceable or null and void;

O. Any entity comprising the Borrower or Guarantor is enjoined, restrained or in any way prevented by any court order or judgment or if a notice of lien, levy, or assessment is filed of record with respect to all or any part of the Approved Assets by any governmental department, office or agency which could materially adversely affect the performance of the obligations of such parties hereunder or under the Loan Documents, or if any proceeding is filed or commenced seeking to enjoin, restrain or in any way prevent the foregoing parties from conducting all or a substantial part of their respective business affairs and failure to vacate, stay, dismiss, set aside or remedy any of the foregoing within sixty (60) days after the occurrence thereof.

P. The default (after the expiration of any notice or cure periods) under any recourse indebtedness in excess of $100,000.00 in the aggregate or any nonrecourse indebtedness in excess of $10 million in the aggregate of Borrower or Guarantor or the maturity of any recourse indebtedness in excess of $100,000.00 in the aggregate or any nonrecourse indebtedness in excess of $10 million in the aggregate of Borrower or Guarantor (other than indebtedness under this Agreement) shall be accelerated, or Borrower or Guarantor thereof shall fail to pay any such recourse indebtedness in excess of $100,000.00 in the aggregate or any nonrecourse indebtedness in excess of $10 million in the aggregate, in each case when due (after the lapse of any applicable grace period) or, in the case of such indebtedness payable on demand, when demanded (after the lapse of any applicable grace period), or any event shall occur or condition shall exist and shall continue for more than the period of grace, if any, applicable thereto and shall have the effect of causing, or permitting the holder of any such indebtedness or any trustee or other person, party or entity acting on behalf of such holder to cause, such recourse indebtedness in excess of $100,000.00 in the aggregate or any nonrecourse indebtedness in excess of $10 million in the aggregate to become due prior to its stated maturity or to realize upon any collateral given as security therefor.

Q. There shall occur a material adverse change of any kind, financial or otherwise with respect to any Borrower or Guarantor, as determined by Majority Lenders in their sole discretion.

R. There shall occur any default or event which with the giving of notice, passage of time or both, would be a default under any other loans from one or more Lenders to Borrower or Guarantor;

Upon the occurrence of an Event of Default, unless such Event of Default is subsequently waived in writing by Agent on behalf of Lenders, Agent, acting on behalf of the Lenders, or Lenders, as the case may be, shall be entitled, at the option of Lenders, to exercise any or all of the following rights and remedies, consecutively or simultaneously, and in any order:

A. Lenders may make one (1) or more further Advances, without liability to make any subsequent Advances.

B. Lenders may suspend their obligation to make Advances under this Agreement, without notice to Borrower.

C. Subject to the provisions of SECTIONS 2.A.9 and 2.A.10, Lenders may terminate their obligation to make Advances under this Agreement, and may declare the entire unpaid principal balance of the Advances made under this Agreement and all Reimbursement Obligations to be immediately due and payable, together with accrued and unpaid interest on such Advances, without notice to or demand on Borrower.

D. Agent may terminate its obligation to issue, extend or renew Letters of Credit.

E. Lenders may exercise any or all remedies specified herein and/or in the other Loan Documents, and/or any other remedies which they may have therefor at law, in equity or under statute.

F. Agent, on behalf of Lenders, may cure the Event of Default on behalf of Borrower.

G. Borrower hereby irrevocably authorizes Lenders to set off any sum due to or incurred by Lenders against all deposits and credits of Borrower with, and any and all claims of Borrower against, Lenders. Such right shall exist whether or not Lenders shall have made any demand hereunder or under any other Loan Document, whether or not said sums, or any part thereof, or deposits and credits held for the account of Borrower is or are matured or unmatured, and regardless of the existence or adequacy of any collateral, guaranty or any other security, right or remedy available to Lenders. Lenders agree that, as promptly as is reasonably possible after the exercise of any such setoff right, Agent shall notify Borrower of the exercise by Lenders of such setoff right; provided, however, that the failure of Agent to provide such notice shall not affect the validity of the exercise of such setoff rights. Nothing in this Agreement shall be deemed a waiver or prohibition of or restriction on Lenders to all rights of banker's lien, setoff and counterclaim available pursuant to law.

In addition, upon the occurrence of any event described in SECTION 6.1(F) hereof which will not become an Event of Default prior to the expiration of some period of time, Lenders may suspend their obligations to fund Advances hereunder immediately upon the occurrence of said event.

The provisions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, personal representatives, legal representatives, successors and assigns, subject to the provisions of SECTION 5.6; provided, however, that neither this Agreement nor the proceeds of the Loan may be assigned by Borrower voluntarily, by operation of law or otherwise, without the prior written consent of Agent on behalf of the Lenders. No delay on the part of Agent or Lenders in exercising any right, remedy, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege hereunder constitute such a waiver or exhaust the same, all of which shall be continuing. The rights and remedies of Lenders specified in this Agreement shall be in addition to, and not exclusive of, any other rights and remedies which Lenders would otherwise have at law, in equity or by statute, and all such rights and remedies, together with Lenders' rights and remedies under the other Loan Documents, are cumulative and may be exercised individually, concurrently, successively and in any order.

All agreements, representations and warranties made in this Agreement shall survive the execution of this Agreement, the making of the Advances by Lenders, and the execution of the other Loan Documents, and shall continue until Lenders receive payment in full of all indebtedness of Borrower incurred under this Agreement and under the other Loan Documents and for so long as any Letter of Credit remains outstanding.

THIS AGREEMENT, THE RIGHTS OF THE PARTIES HEREUNDER, AND THE CONSTRUCTION, INTERPRETATION, VALIDITY AND ENFORCEABILITY HEREOF AND OF ALL OF THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF MARYLAND, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES RELATING TO NATIONAL BANKS. BORROWER, AGENT AND LENDERS HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THE LOAN, THE LOAN DOCUMENTS AND/OR THE TRANSACTIONS CONTEMPLATED THEREBY.

AT THE OPTION OF LENDERS, THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT SITTING IN THE STATE OF MARYLAND OR MARYLAND STATE COURT; AND BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUM IS NOT CONVENIENT. IN THE EVENT BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, LENDERS, AT THEIR OPTION, SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE.

This Agreement may be executed in any number of counterparts, all of which shall constitute a single Agreement.

Any notice required or permitted to be given by either party hereto to the other under the terms of this Agreement, or documents related hereto, shall be in writing and shall be sent by manual delivery, telegram, facsimile transmission, overnight courier, or United States registered or certified mail, return receipt requested (postage prepaid), addressed to such party at the address specified on the signature page hereof, or at such other address in the United States of America as such party shall have specified to the other party hereto in writing, at least ten (10) days prior to the effective date of said change of address. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by telegram or facsimile transmission, from the first Business Day after the date of sending if sent by overnight courier, or from four (4) days after the date of mailing if so mailed; provided, however, that any notice to Lenders designating, continuing or converting any Advance as or into a Eurodollar Rate Advance shall be deemed to have been given only when received by Lenders.

No third party shall be entitled to rely upon this Agreement or to have any of the benefits of any Lender's interest hereunder, unless such third party is an express assignee of all or a portion of Lenders' interest hereunder.

Any Lender may at any time sell, assign, transfer, syndicate, grant participations in or otherwise dispose of any portion of the Loan (each such interest so disposed of being herein called a "TRANSFERRED INTEREST") to banks, insurance

companies or other financial institutions (hereinafter called "TRANSFEREES"), pursuant to such transfer agreements, co-lender agreements, participation agreements, and/or agency agreements into which such Lender and its Transferees may enter and by which Borrower shall agree in writing to abide. Borrower agrees that each Transferee shall be entitled to the benefits of this Agreement with respect to its Transferred Interest. In addition, Borrower hereby agrees that any Lender may, at any time and from time to time, in its ordinary course of business and in accordance with applicable law, (A) assign an undivided interest in the Loan to an affiliate of such Lender, or (B) pledge or assign the same to any Federal Reserve Bank in accordance with applicable law. At the request of any Lender, in the event of any such sale, assignment, transfer or syndication, Borrower shall execute separate new Notes to the assignor and its assignee, in the amounts of their respective interests in the Loan after said assignment, and shall deliver the same to the assignor and the assignee, in exchange for the assignor's existing Note. All such separate new Notes shall be entitled to all the rights and benefits accorded to the existing Note under the terms of the Loan Documents. No such assignment shall be binding upon Borrower until a Lender gives written notice thereof to Borrower. Agent and each Lender may divulge all information relating to Borrower, Guarantor or any Real Estate Asset which Agent or such Lender has to any actual or potential Transferee, and Borrower shall cooperate with Agent and each Lender in satisfying the requirements of any Transferee with respect to the transfer. Borrower agrees that each Transferee shall be entitled to the benefits hereof with respect to its Transferred Interest and that each Transferee may exercise any and all rights of banker's lien, setoff and counterclaim as if such Transferee were a direct lender to Borrower. If any Lender makes any assignment to a Transferee, then upon notice to Borrower such Transferee, to the extent of such assignment (unless otherwise provided therein), shall become a Lender hereunder and shall have all the rights and obligations of a Lender hereunder, and such Lender shall be released from its duties and obligations under this Agreement to the extent of such assignment. Borrower further acknowledges that notwithstanding the provisions of this Agreement which require the consent or approval of Agent, Majority Lenders or Lenders, the terms and provisions of the Intercreditor Agreement and any future Assignment and Assumption Agreement which any Lender(s) may execute from time to time in connection with a transfer of all or a portion of Loan may require that Agent or one or more Lenders obtain the consent or approval of another Person or Lender; provided, however in no event shall Agent obligate itself to obtain the approval of one or more Lenders with respect to the release of an Approved Asset which is not a Major Asset pursuant to SECTION 2.B.4. In the event of a conflict between the provisions of this Agreement relating to consent or approval and the provisions of the Intercreditor Agreement or any future Assignment and Assumption Agreement, the provisions of the Intercreditor Agreement and any future document shall control, whether or not Borrower is advised by Agent or any Lender of such conflict. Notwithstanding the foregoing, nothing contained herein shall require the Borrower to communicate directly with the Lenders in lieu of communicating with Agent on behalf of Lenders. While Agent may provide Borrower with a copy of the Intercreditor Agreement, as amended from time to time and any Assignment and Assumption Agreement

executed from time to time and request that Borrower acknowledge the terms and provisions thereof, Borrower shall not have the right to approve or disapprove such agreements.

Time is of the essence hereof with respect to the dates, terms and conditions of this Agreement.

This Agreement, the Guaranty, the other Loan Documents and the other documents mentioned herein set forth the entire agreement of the parties with respect to the Loan and supersede all prior written or oral understandings and agreements between them with respect thereto. No modification or waiver of any provision of this Agreement shall be effective unless set forth in writing and signed by the parties hereto.

The headings or captions of the Articles and Sections set forth herein are for convenience only, are not a part of this Agreement and are not to be considered in interpreting this Agreement.

The relationship between Borrower and Lenders created hereby and by the other Loan Documents shall be that of a borrower and a lender only, and in no event shall any Lender be deemed to be a partner of, or a joint venturer with, Borrower.

In this Agreement, in the computation of a period of time from a specified date to a later specified date, unless otherwise stated, the word "from" means "from and including" and the word "to" or "until" each means "to but excluding". The words "hereof", "herein" and "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. References to Sections, Subsections, Exhibits, schedules and like references are to this Agreement unless otherwise expressly provided. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". Unless the context in which used herein otherwise clearly requires, "or" has the inclusive meaning represented by the phrase "and/or" where permitted by the context.

Borrower agrees to pay (a) the costs of producing and reproducing this Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (b) the reasonable fees, expenses and disbursements of the Agent's outside counsel or any local counsel to the Agent incurred in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (c) the fees, expenses and disbursements of the Agent incurred by the Agent in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, including, without limitation, the costs incurred by the Agent in connection with its inspection of the Unencumbered Assets, and the fees and disbursements of the Agent's counsel in preparing the documentation, (d) [intentionally omitted], (e) all expenses (including attorneys' fees and costs, which attorneys may be employees of any Lender or the Agent, and the fees and costs of appraisers, engineers, investment bankers, surveyors or other experts retained by the Lender or Agent in connection with any such enforcement proceedings) incurred by any Lender or the Agent in connection with (i) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or any of its Subsidiaries or any Guarantor or the administration thereof after the occurrence and during the continuance of an Event of Default (including, without limitation, expenses incurred in any restructuring and/or "workout" of the Loan), and (ii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to any Lender's or the Agent's relationship with the Borrower or any of its Subsidiaries or any Guarantor, (f) all reasonable fees, expenses and disbursements of the Agent incurred in connection with title searches or releases of Negative Pledge Agreements, and (g) all costs incurred by the Agent in the future in connection with its inspection(s) of the Unencumbered Assets. The covenants of this Section shall survive payment or satisfaction of payment of amounts owing with respect to the Note.

The Borrower, without further inquiry or investigation, shall, and is hereby authorized by the Lenders to, assume that all actions taken by the Agent hereunder and in connection with or under the Loan Documents are duly authorized by the Lenders. The Lenders shall notify Borrower of any successor to Agent by a writing signed by Lenders.

The Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Agreement and the other Loan Documents. The Agent may utilize the services of such Persons as

the Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrower.

Neither the Agent, nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Agent may be liable for losses due to its willful misconduct or gross negligence.

In its individual capacity as a Lender, Agent shall have the same obligations and the same rights, powers and privileges in respect to the Advances made by it, and as the holder of any Note, as it would have were it not also the Agent.

Agent, or any successor Agent, may resign as Agent at any time by giving written notice thereof to the Lenders and to the Borrower. Upon any such resignation, the Majority Lenders shall have the right to appoint a successor Agent, which is a Lender under this Agreement. If, in the case of a resignation by the

Agent, no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint any one of the other Lenders as a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent, and the retiring or removed Agent shall be discharged from all further duties and obligations as Agent under this Agreement. After any Agent's resignation or removal hereunder as Agent, the provisions of this SECTION 8.6 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. The Agent agrees that it shall not assign any of its rights or duties as Agent to any other Person.

IN WITNESS WHEREOF, each party has caused this Agreement to be duly executed and delivered as of the day and year first above set forth.

WITNESS/ATTEST:                 SAUL HOLDINGS LIMITED PARTNERSHIP,
                                a Maryland limited partnership

                                By:  Saul Centers, Inc., a Maryland corporation,
                                     its sole general partner

                                By:
                                     -------------------------------------------
                                     B. Francis Saul II
                                     Its:

WITNESS/ATTEST:                 SAUL SUBSIDIARY II LIMITED PARTNERSHIP,
                                a Maryland limited partnership

                                By:  Saul Centers, Inc., a Maryland corporation,
                                     its sole general partner

                                By:
                                     -------------------------------------------
                                     B. Francis Saul II
                                     Its:

                                Address:  8401 Connecticut Avenue
                                          Chevy Chase, Maryland  20814

                                U.S. BANK NATIONAL ASSOCIATION


                                By:
                                   ---------------------------------------------
                                Address:  First Bank Place - MPFP0802
                                          601 Second Avenue South
                                          Minneapolis, Minnesota  55402-4302
                                          Attn:     Real Estate Banking
                                                    Division Head