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RDA Packet 2003/10/07
Notice is hereby given that the Chairman of the Housing Authority has called and ,ill convene a special joint meeting of the City Council/Redevelopment Agency/Housing Authority, Tuesda' October 7, 2003, at 4:00 p.m., immediately following the City Council meeting in the Council Chamber.' located in the Public Services Building, 276 Fourth Avenue, Chula Vista, California/,t~consider, delibe~ te and act upon the StePhen C. Pa~a, Chairman CI1Y OF TUESDAY, OCTOBER 7, 2003 CHULA VIS-I'Ak {;OUNCIL CHAMBERS 4:00 P.M. PUBLIC:: SERVICES BUILDING (immediately following the City Council meeting) JOINT SPECIAL MEETING OF THE CITY COUNCIL/REDEVELOPMENT AGENCY/~LND HOUSING AUTHORITY AND REGULAR MEETING OF THE REDEVELOPMEI~T AGENCY OF THE CITY OF CHULA VISTA CALL TO ORDER ROLL CALL Agency/Council/Authority Members Davis, McCann, Rindone, Salas; Chi~ir/Mayor Padilla CONSENT CALENDAR The staff recommendations regarding the following item(s} listed under the Consent Calendar will be enacted by the Agency/Council/Authority by one motion without discussion unless an Agency/Council member, a member of the public or City staff requests that the item be pulled for discussion. If you wish to speak on one of the se items, please fill out a "Request to Speak Form" available in the lobby and submit it to the Secretary of the Redev~ Iopment Agency or the City Clerk prior to the meeting. Items pulled from the Consent Calendar will be discussed aft Action items. Items pulled by the public will be the first items of business. 1. WRITTEN COMMUNICATIONS A. Memorandum requesting that Agency Member McCann's 3sence from the September 30, 2003 meeting be excused. Staff recommendation: Agency excuse the absence. 2. JOINT RESOLUTION OF THE CITY COUNCIL AND REDEVELOPMENT AGENCY OF THE CITY OF CHULA VISTA APPROVING THE 2003 HOI.IDAY LIGHTING PROGRAM; AUTHORIZING WAIVING THE FORMAL BIDDING PROCESS AND AWARDING A SOLE SOURCE PURCHASE AGREEMENT "O DEKRA-LITE; APPROPRIATING FROM THE AVAILABLE BALANCE OF THE RCT FUND ($54,000) AND TCI FUND ($17,400); AND DIRECTING STAFF TO IMPLEV1ENT THE 2003 HOLIDAY LIGHTING PROGRAM - The Holiday Lighting Progra~ is a continued effort undertaken by the City to celebrate the holiday season. Since the program's inception in 1999, Dekra-Lite has decorated the downtown area with a variety of colorful holiday lights, displays, and thematic banners, including the lighting of three freeway overpasses. The 2003 Holiday Lighting Program will officially commence following the conclusion of the Downtown Starlight Yule Parade, which usually takes place on the first Saturday of December. Part of the program involves installing tree lights in the downtown area in mid-October and keeping them up until April to correspond to daylight savings time. [Community Development Director] - Continued from the 9/30/03 meeting 4/5ths VOTE REQUIRED STAFF RECOMMENDATION: Council/Agency adopt the resolution. ORAL COMMUNICATIONS This is an opportunity for the general public to address the Redevelopment Agency/City Council/Housing Authority on any subject matter within the Agency/Council/Authority's jurisdiction that is not an item on this agenda. (State law, however, generally prohibits the Redevelopment Agency/City Council/Housing Authority from taking action on any issues not included on the posted agenda.) If you wish to address the Agency/Council/Authority on such a subject, please complete the "Request to Speak Under Oral Communications Form" available in the lobby and submit it to the City Clerk prior to the meeting. Those who wish to speak, please give your name and address for record purposes and follow up action. ACTION ITEMS The items listed in this section of the agenda are expected to elicit substantial discussions and deliberations by the Council/Agency/Authority, staff, or members of the general public. The items will be considered individually by the Council/Agency/Authority and staff recommendation may in certain cases be presented in the alternative. Those who wish to speak, please fill out a Request to Speak form available in the lobby and submit it to the Secretary to the Redevelopment Agency or City Clerk prior to the meeting. 3. CONSIDERATION OF THE ISSUANCE OF $11,686,000 IN TAX EXEMPT BONDS FOR THE FINANCING OF THE RANCHO VISTA APARTMENTS - Request to the Housing Authority to approve a bond resolution authorizing the issuance of $11,686,000 in tax-exempt bonds for the financing of the Rancho Vista Apartments project and the execution of related documents in substantially the form on file with the City Clerk. In addition, as a condition of the Agency's/City's financial assistance, the developer is to enter into a loan and regulatory agreement with the Agency and the City specifying the terms of the financial assistance and use of the Rancho Vista Apartments project as an affordable housing development for low and moderate-income households for a period of fifty-five (55) years. [Community Development Director] 4/5ths VOTE REQUIRED ON 3.a. and 3.b. STAFF RECOMMENDATION: a) Housing Authority adopt resolution 3.a.; and b) Council/Agency adopt resolutions 3.b. and 3c. a. RESOLUTION OF THE HOUSING AUTHORITY OF THE CITY OF CHULA VISTA AUTHORIZING THE ISSUANCE OF MULTIFAMILY HOUSING REVENUE BONDS, SERIES 2003 A AND SUBORDINATE MULTIFAMILY HOUSING REVENUE BONDS SERIES 2003 B, IN A COMBINED PRINCIPAL AMOUNT NOT TO EXCEED $11,686,000 FOR THE PURPOSE OF FINANCING THE ACQUISITION AND CONSTRUCTION OF THE RANCHO VISTA MULTIFAMILY RENTAL Redevelopment Agency. October 7, 2003 Page 2 HOUSING PROJECT, APPROVING AND AUTHORIZING THE EXECUTION AND DELIVERY OF ANY AND ALL DOCUMENTS NECESSARY TO ISSUE THE BONDS AND IMPLEMENT THIS RESOLUTION b. JOINT RESOLUTION OF THE CITY COUNCIL AND THE F~EDEVELOPMENT AGENCY OF THE CITY OF CHULA VISTA [A] APPR3VING A LOAN AGREEMENT AND RELATED RESTRICTIVE COVENANTS AN£ APPROPRIATING $1,000,000 FROM THE AVAILABLE BALANCE IN THE AGENCY'S LOW AND MODERATE INCOME HOUSING FUND AND $500,000 FFOM THE CITY'S HOME FUNDS FOR FINANCIAL ASSISTANCE TO CIC EASTL,~ KE, L.P. FOR THE DEVELOPMENT AND OPERATION OF RANCHO VISTA c. JOINT RESOLUTION OF THE CITY COUNCIL AND THE :~EDEVELOPMENT AGENCY APPROVING THE AFFORDABLE HOUSING AGREEMENT BY AND BETWEEN THE REDEVELOPMENT AGENCY, THE CITY OF Cl' ULA VISTA, AND CIC EASTLAKE, L.P. AND AUTHORIZING THE EXECI. ITION OF SAID AGREEMENT 4. DIRECTOR/CITY MANAGER'S REPORT(S) 5. CHAIR/MAYOR REPORT(S) 6. AGENCY/COUNCIL COMMENTS ADJOURNMENT The meeting will adjourn to an adjourned meeting of the Redevelor,ment Agency on October 14, 2003, at 6:00 p.m., immediately following the City Courcil meeting in the City Council Chambers. AMERICANS WITH DISABILITIES ACT The City of Chula Vista, in complying with the Americans with Disabilities Act (ADA), request individuals who require special accommodates to access, attend, and/or participate in a City meeting, activity, e service request such accommodation at least 48 hours in advance for meetings and five days for scheduled service and activities. Please contact the Secretary to the Redeveropment Agency for specific information at (619) 691-5047 ~r Telecommunications Devices for the Deaf (TDD) at (619) 585-5647. California Relay Service is also available for the hearing impaired. Redevelopment Agency, October 7, 2003 Page 3 MEMORANDUM )ctober 3, 2003 TO: Mayor Padilla and City Councilmembers FROM: Donna Norris, Assistant City Clerk SUBJECT: Revised Redevelopment Agency Agenda Please 'replace the October 7, 2003 Redevelopment Agency Agenda an~ Item No. 1 in your binders with the attached revised agenda and Item No. 1 (men orandum from Councilmember McCann). Please disregard the minutes from the ~edevelopment Agency meeting of 9/30/03. They will be resubmitted for approval at a la :r date. Thank you. cc: Secretary to the Redevelopment Agency MEMORANDUM © :tober 3, 2003 TO: Mayor Padilla and City Councilmembers FROM: Councilmember John McCann ~r~0 ~$j 'J~'J~/'~ SUBJECT: Request for excused absence Due to illness (102 degree fever), I was unable to stay for the RedeveloI ,ment Agency Meeting on September 30, 2003. I respectfully request that my absence b{: excused, and that the minutes of the same meeting reflect the excused absence. Thank you. cc: City Manager City Attorney City Clerk Community Development PAGE 1, Il'EM NO.: ~ MEETI! IG DATE: 10/07/03 JOINT REDEVELOPMENT AGENCY / CITY COUNCIL / HOUSING AUTHORITY AGENDA STATEMEN ITEM TITLE: RESOLUTION OF THE HOUSING AUTHORITY QF THE CITY OF CHULA VISTA AUTHORIZING THE ISSUANCE qF MULTIFAMILY HOUSING REVENUE BONDS, SERIES 2003 A ANI~ SUBORDINATE MULTIFAMILY HOUSING REVENUE BONDS SERII~S 2003 B, IN A COMBINED PRINCIPAL AMOUNT NOT TO EXCI~ED $11,686,000 FOR THE PURPOSE OF FINANCING THE ACC~UISITION AND CONSTRUCTION OF THE RANCHO VISTA MULTqFAMILY RENTAL HOUSING PROJECT, APPROVING AND AUTHORIZING THE EXECUTION AND DELIVERY OF ANY AND A~.L DOCUMENTS NECESSARY TO ISSUE THE BONDS AND IMPLEMENT THIS RESOLUTION / JOINT RESOLUTION OF THE CiTY COUNCIL AND THE REDEVELOPMENT AGENCY OF THE CITY OF CI~IULA VISTA [A] APPROVING A LOAN AGREEMENT AND RELA'I1ED RESTRICTIVE COVENANTS AND APPROPRIATING $1,000,0~)0 FROM THE AVAILABLE BALANCE IN THE AGENCY'S LOW ~ND M,O, DERATE INCOME HOUSING FUND AND $500,000 FROM T~-IE CITY S HOME FUNDS FOR FINANCIAL ASSISTANCE TO CIC EAS~'LAKE, L.P. FOR THE DEVELOPMENT AND OPERATION OF RANCH(~ VISTA JOINT RESOLUTION OF THE CITY COUNCIL AND THE REDEVELOPMENT AGENCY APPROVING THI~ AFFORDABLE HOUSING AGREEMENT BY AND BETWEEN THE I~EDEVELOPMENT AGENCY, THE CITY OF CHULA VISTA, AND CIC IEASTLAKE, L.P. AND AUTHORIZING THE EXECUTION OF SAID AGI~EEMENT / SUBMITTED BY: COMMUNITY DEVELOPMENT DIRECTOR REVIEWED BY: CITY MANAGER/EXECUTIVE DIRECTOR~(~e BACKGROUND 4/5THS VOTE: I~ES [] NO On April 8, 2003, the Housing Authority of the City of Chula Vista held a I:ublic hearing and approved Housing Authority Resolution No. HA-22 which expressed the Author ty's intent to issue multi-family housing revenue bonds in an amount not to exceed $12 million to f nance a proposed 150 unit multi-family rental housing development for Iow and moderate income ouseholds, known PAGE 2, I'~ 'EM NO.: MEETI! IG DATE: 10/07/03 as "Rancho Vista Apartments at EastLake" (Project) within the EastLake master ~ lanned community (see Exhibit 1). Additionally, the City Council held a public hearing and app'oved City Council Resolution No. 2003-144 to conditionally approve the issuance of the bond~ and the Council through Resolution No. 2003-145 and Agency through Resolution No. 1819 con Jitionally approved financial assistance in the form of a residual receipts loan from the Agency's .ow and Moderate Income Housing Fund in an amount not to exceed $1 million and $500,000 fro the City's HOME funds for a total of $1.5 million in assistance. Since such time, CIC EastLake, L.P. (the "Developer"), a partnership betweer Pacific Southwest Community Development Corporation and SDS EASTLAKE, LLC, received a co~nmitment of 2003 private activity bonds for multi-family rental housing projects from the Ca ifornia Debt Limit Allocation Committee (CDLAC). At this time, the Housing Authority is asked t approve a bond resolution authorizing the issuance of $11,686,000 in tax-exempt bonds for ff financing of the projed and the execution of related documents in substantially the form on file witthe City Clerk. As a condition of the Agency's/City's financial assistance, the Developer is to en er into a loan and regulatory agreement with the Agency and the City specifying the terms of the 'inancial assistance and use of the project as an affordable housing development for Iow and moderate-income households for a period of fif~-five (55) years. The required Loan Agreement an(J Related Restrictive Covenants and Affordable Housing Agreement have been prepared and are aft.~ched as Exhibits 2 and 3. In accordance with the requirements of CEQA, the Environmental Review Coordinator has determined that the protect is covered by Addendum (IS-03-009) to the Ecstlake Replanning Program Final Subsequent Environmental Impact Report (FSEIR) 97-04 and =SEIR 86-04, plus other related environmental documents. The proposed project will not ~esult in any new environmental effects that were not previously identified, nor would the pr, )osal result in a substantial increase in severity in any impacts previously identified. RECOMMENDATION It is recommended that the Housing Authority, Redevelopment Agency, and Ct' take the following actions: 1. That the Housing Authority adopt a resolution authorizing the suance, sale and delivery of Multi-family Housing Revenue Bonds Series 2003 A a J B (Rancho Vista Apartments) in a combined principal amount not to exceed 11,686,000, and approving, in substantially final form subject to minor modificatic as approved by the City Attorney, related documents, and authorizing the executic of all necessary documents to implement this action. 2. That the Redevelopment Agency and City Council approve the Loc Agreement and related restrictive covenants and appropriate $1,000,000 from the vailable balance in the Agency's Low and Moderate-Income Housing fund and $:i00,000 from the City's HOME funds for financial assistance to CIC EastLake, L.P. the development and operation of Rancho Vista Apartments. That the Redevelopment Agency and City Council approve the Affordable Ho ng Agreement by and between the Redevelopment Agency, the City of Chub Vista, and CIC -=astLake, L.P. and authorize the execution of said agreement. BOARDS/COMMISSIONS RECOMMENDATION On February 26, 2003, the Housing Advisory Commission voted to recomme~ :1 the development of the proposed Rancho Vista Apartments and the use of tax-exempt bo~ds and Low and Moderate Income Housing Set-aside funds to finance the project. THE PROPOSED PROJECT CIC EastLake, L.P. has proposed a 150-unit rental housing development, to be known as "Rancho Vista" Apartments at EastLake, to satisfy EastLake II/lll's Io~-income housing requirement under the City's Balanced Communities Affordable Housing Program. The project is proposed for a vacant 8.25 acre (gross) site located on the east side of future Eastlake Parkway, approximately 3,000 feet south of Clubhouse Drive, in the Eastlak~ Greens Planned Community. The site is in the final permitting stages with the City and the gra~ted, fully improved site, is expected to be available to the Developer by November 2003. INCOME AND RENT RESTRICTIONS The Loan Agreement for the Agency's/City's financial assistance restricts rents and occupancy of 49 percent of the 150 units (73 units) for lower income households, with 30 u ~its for very Iow at 50 percent of the Area Median Income (AMI) and 43 units for Iow income households at 60 percent of AMI. The balance of the units, except for one manager's unit ill be restricted to moderate income households. The Agency's/City's affordability and Iow income restrictions are limited to on 49 percent of the units and therefore, the project is exempt under Article XXXIV of the State ¥,~nstitution. Article XXXIV of the California Constitution (Article 34) requires tha~ voter approval I: e obtained before any "state public body" develops, constructs or acquires a Pow rent housing proiect". Projects which are less than 49 percent restricted are not considered "public housin~ for purposes of Article XXXIV. The income and rent restrictions outlined above are incorporated into the Age y/City Affordable Housing Agreement and the Loan Agreement. These agreements are be ng presented for consideration by the Agency/City. PAGE 4. rEM NO.: MEETI IG DATE: 10/07/03 Approval of the Affordable Housing Agreement and its restrictive covenanJ , to be recorded against the properly, will assure that the Developer and all successors will be aware of and bound by this Agreement. The Agreement articulates the following restriction and mechanisms for monitoring compliance: 1. Thirty (30) units shall be restricted and affordable to very Iow incom~ households at 50 percent of AMI. 2. Forly-three (43) units shall be restricted and affordable to Iow incom~ households at 60 percent of AMI. 3. The remaining seventy-seven (77) units shall be restricted and affor able to moderate income households between 80 and 120 percent of AMI. 4. Monthly rental rates shall not exceed the affordable housing cost of 30 percent of the gross monthly income of a household at 50 percent of the AMI fo~ very Iow income households, 60 percent of the AMI for Iow income households, and 10 percent of the AMI for moderate income households. 5. Tenant income is certified at initial occupancy and each year thereafter 6. Certified reports must be submiited to the Agency/City on a semi-annua: basis. 7. The above conditions apply for a period of 55 years. PROPOSED FINANCING OF PROJECT Financing and development of this project is a ioint private-public partnership. It is estimated that the proposed total project cost will be $23,332,333 with $11,686,000 to be paid by bond proceeds and approximately $8,009,519 to be covered by Iow income housing tax cred ts, $1.5 million in Agency/City assistance, a cash contribution of $636,042 from the tax credit i ~vestor, $624,772 from the Developer, a loan of $517,950 from the EastLake Company tc be paid by the Developer, and a cash contribution of $358,050 from the EastLake Company. BOND STRUCTURE The Housing Authority is being asked to authorize the issuance of two series o~ bonds to finance the construction of Rancho Vista Apartments. The first series (Series A would t }tal approximately $10,990,000 and wou d be rated AAA by virtue of a credit enhancement provid~ ,d by Fannie Mae. The remaining balance of the authorized issuance, or $696,000, is proposed ~s a second series (Series B) subordinate to the first series, with a slightly higher interest rate, and, vould be unroted. These bonds would be sold only to accredited investors and may not be frans :erred without the consent of the Housing Authority. Although the Housing Authority has approved two series of bonds for other pro ects, typically, the issuance is for one series of bonds, but due to changing market conditions and :urther refinement of the project proforma, a request for issuance of two series of bonds is being proposed. Based upon the market conditions, specifically higher interest rates and higher than anticipated development impact fees, the lender is able to only underwrite the project for approximately $10,990,000 of the authorized $11,686,000. The developer did look al other avenues to address this gap, but particularly with costs exceeding the authorization, the o~ ~ly options that are viable to them and their investors is the issuance of a second series of bond~ for the remaining authorization of $696,000 and additional investment on the part of the .~eveloper into the proiect. After consulting with Bond Counsel, it is recommended that the Auff ority issue the ~,vo series in order to facilitate the development of Rancho Vista Apartments. While repayment of the bonds will not constitute a liability or obligation to the Housing Authority, should the Developer or a subsequent owner be unable to perform under th. conditions of the Financing Agreements, the Housing Authority's credit rating and future abilit to issue debt on behalf of developers could be negatively impacted. ISSUER FEE As issuer of the bonds, the Housing Authority will receive issuer fees related to ~e costs of issuing bonds and ongoing monitoring of the project for compliance with the Regulato~ y Agreement. The standard origination fee and annual administrative fee can range anywhere'rom 0.13 to 0.25 percent of the bond proceeds. Based upon negotiations with the Developer, staJ is recommending an origination fee and an annual administrative fee of 0.13 percent, estimated c $15,192. Under the Regulatory Agreement, the Developer has, in turn, agreed to maintain the ~ffordability of 30 units for persons of very Iow income for a period not less than 55 years, exceedir the 30- year term of the bonds. BOND DOCUMENTS At this time, the Housing Authority is being asked to approve in substantially final ~rm all documents related to the bond issuance. These documents are as follows and are on file ~ the Office of the City Clerk due to the substantial length of the documents, with exceptions as note · The Trust Indentures for the Series A Bonds are documents which spec the terms and conditions for the issuance and selling of the Series A Bonds and the use of Series A Bond proceeds during the construction phase and the permanent phase, respective I' · The Financing Agreements for the Series A Bonds are documents which sp ~cify the terms and conditions of the Series A Mortgage Loan for the Project during the construction phase and the permanent phase, respectively. · The Subordinate Trust Indenture for the Series B bonds is a document which|specifies the terms and conditions for the issuance and selling of the Series B Bonds and the us ,~ of Series B Bond proceeds. · The Subordinate Financing Agreement for the Series B Bonds is a document ~hich specifies the terms and conditions of the Series B Mortgage Loan for the Project. · The Regulatory Agreement is a document which specifies the regulations for the use and operation of the Project (see Exhibit 4). ? T PAGE 6, ITEM NO.: MEETING DATE: 10/07/03 · The Subordination Agreements are documents which set forth the priority the loans on the project. · The Assignment and Intercreditor Agreements are documents which speci how the letter of credit, bank, Fannie Mae, Housing Authority, and the trustee for the Series A ~nd Series B Bonds will exercise remedies in the case of default. · The Bond Purchase Agreement, for the Series A Bonds and the private placer ~ent agreement for the Series B Bonds set forth the terms upon which Red Capital Markets, Inc. will buy the Bonds from the Housing Authority and place the Series B Bonds with accredited inve~ tars. · The Preliminary Official Statement describes for investors the terms of the Se 'les A and B Bonds (see Exhibit 5}. REDEVELOPMENT AGENCY LOAN/CITY ASSISTANCE Agency/City assistance will be provided in the form of a residual receipt., loan secured by promissory notes and deeds of trust. The outstanding principal and interest ,~n the loan will be repaid over fifty-five years and shall accrue with simple interest at 3 percent p~ annum. Payment of principal and interest, or portions thereof, on the Agency/City loan shal be made on an annual basis, out of a fund equal to fifty (50%) percent of the net cash f >w of the project (Residual Receipts} subordinate to debt service on the bonds, payment of the ~leferred developer fee, payment of the EastLake Company Note, and reasonable operating expen ;es/ The Agency/City loans will be made on the following terms: 1. The loan repayment will be secured by a Deed of Trust and Promissory Nc te for the property on behalf of the Agency City and recorded against the Project property. The loan will be subordinate to the Series A Bonds, the Series B Bonds, EastLake Comp( ny Note, and the deferred developer fee. 2. The term of the loan shall be fifty-five (55) years. 3. The outstanding balance shall accrue simple interest at 3 percent per annur 4. Payment of principal and interest on the Agency/City loan shall be made, o an annual basis, out of a fund equal to fifty percent (50%) of the "Residual Receipts", renta income from the Project which is what remains after the payment of the debt service on the I~onds, payment of the deferred developer fee, payment of the EastLake Company Note and reasonable operating expenses. 5. Developer will be required to operate the Project consistent with the Reg~latory Agreement required by the Project's tax-exempt bond financing and tax credit financing, the covenants imposed by the Loan Agreement, the Affordable Housing Agreement and any other project requirements. 6. The Agency/City assistance is based upon the assumptions presented withi~ the sources and uses of funds, development budget, development proforma and other ink rmation filed with the Affordable Housing Review Application for the project as submitted an reviewed by the PAGE 7, ITEM NO.: MEETING DATE: 10/07/03 Community Development Department. The Agency/City assistance is a maximum level of participation. It is expected that any substantive revisions in such financing assumptions which would lead to an increase in other resources available, would theref~ ,re reduce the level of Agency/City assistance. The terms of the loan are incorporated into the Loan Agreement being :onsidered by the Agency/City. HOUSING AUTHORITY/AGENCY/CITY RISKS AND MITIGATION MEAS JRES There are several areas of risk of which the Housing Authority/Agency/Cily ne~ ~d to be cognizant. Listed below are the risks and measures staff has identified and incorporated nto the transaction to reduce these risks: Risk One - Performance of Developer: While repayment of the bonds will not :onstitute a liability or obligation to the Housing Authority, should the Developer or a subsequent ~ wner be unable to perform under the conditions of the Financing Agreements, the Housing Autho~ ity's ability to issue debt on behalf of a developer could be negatively impacted. Mitigation: The Developer has significant experience and an excellent track cord with this type of development project. Risk Two - Unrated Series 2003 B Bonds: The second series of bonds for ~bout $696,000 is proposed to be subordinate to the first series and would be unrated. This sub ~rdinated, unrated series involves a number of risks of repayment. Mitigation: The Housing Authority will impose appropriate restrictions on the sol e and resale of the second series to ensure that only "accredited investors" are purchasing the bone s, who will deliver an investor leffer to the Housing Authority. Subsequent sales and transfers of the series B Bonds would be subject to approval by the Authority. The subordination and non-ral ng of the Series B Bonds would be mitigated by the strength of the investors. Additionally, ;hould the Project experience normal growth or exceed expectations in the future, the Series B b ~nds could receive credit enhancement by Fannie Mae. These restrictions are incorporated into th bond documents that are presented to the Housing Authority at this time. Risk Three - No Repayment of Agency and Agency/City Loan. The Agenc~ ~ill be providing $1,000,000 and the City will be providing $500,000 in the form of three p ;rcent (3%) simple interest loans to the Developer to assist with the development costs of the proj ,~ct. Repayment of the loans will be made from fifty percent (50%) of the residual receipts, which is the amount left over after all expenses are deducted from the income received. The onler of priority for repayment will be Agency funds followed by repayment of City (HOME) funds. The reasoning is that Agency funds are easier to expend, and therefore are of higher value in terms of timely repayment. In the event that the Agency/City did not receive total repaymen~ on the loans the Agency funds would likely be repaid in full thereby creating future opportuni les for the City to provide other affordable housing opportunities. PAGE 8, ITEM NO.: MEETING DATE: 10/07/03 Mitigation: The likelihood of repayment is high given there is significant demand for these units and the vacancy rate is Iow. The revenue base is very reliable. The op~rating costs of the Project are standard. The Developer has significant experience and an excelle~t track record with this type of development project. Should problems occur, the Agency/City w be involved with the Developer to assure appropriate measures are taken to resolve issues. Risk Four - Subordination of Af:lency and City Loan~' It is anticipated that the gency/City Loans and the Affordable Housing Agreement's covenants will be subordinate to t~e Bonds and the EastLake Company Loan. Should the developer or a subsequent owner be Jnable to perform under the conditions of the Bond Indentures, Financing Agreements, or P, eg~ latory Agreement, the Agency/City may need to cure any loan defaults or lose the affordabilit~ restrictions on the project. Mitigation: The presence of other major financial commitments, such as the tax credit investments, means that other stakeholders depend on the short and Iong-t~ rm success of the Project. By its nature, affordable housing presents some, but very limited marl :et risk because of the deeply discounted rents. While the Agency/City is vulnerable due to its sub ~rdinate financing, it helps to make the bonds financeable. Finally should problems occur, the ~gency/City would be involved in the process of resolution to protect the Agency/City interests. FISCAL IMPACT All costs related to the issuance of the bonds will be paid for from bond proce~ ds or profits. The bonds will be secured by the Project and will not constitute a liability to or obli ~tion of the City. Some staff time costs will be associated with monitoring compliance wi the Regulatory Agreement. Those costs will be reimbursed from an origination fee of 0.13 p, cent of the bond proceeds, estimated at $15,192, and an annual administrative fee of 0.13 pErcent of the bond proceeds to be paid by the Developer to the Housing Authority for a 55-year pe ~iod. The Agency loan of $1,000,000 and City loan of $500,000 will be appn~priated from the available balance in the Agency's Low/Moderate Income Housing Set-aside fu~ds for the project and City's HOME funds for the project. As of June 30, 2003, the Agency's L ~w and Moderate Income Housing Set-Aside fund had an available balance of approximately ~1.8 million. The City's HOME fund has an available balance of $1.9 million. Funds for staff services are budgeted in the staff services portion of the Housing Division budget. Any r~ payment of these loans will be deposited into the Low and Moderate Income Housing Set-asid~ fund and HOME funds for further use in providing affordable housing programs. PAGE 9, ITEM NO.: MEETING DATE: 10/07/03 EXHIBITS The following exhibits are affached: 1. Location Map 2. Agency Loan Agreement and Related Restricted Covenants 3. AgencyAffordable Housing Agreement 4. Bond Regulatory Agreement 5. Series A Preliminary Official Statement The following exhibits are on file in the Office of the City Clerk: 6. Series A and Series B Indentures 7. Series A and Series B Financing Agreements 8. Subordination Agreements 9. Series A Assignment and Intercreditor Agreements 10. Series A Bond Purchase Agreement 11. Series B Private Placement Agreement J:\COMMDEV~STAFF.KEP~10-O7-O3~A113 Kancho Vista Final Kevised 10-01-03.doc RESOLUTION NUMBER A RESOLUTION OF THE HOUSING AUTHORiTY OF THE CITY OF T. HULA VISTA AUTHORiZING THE ISSUANCE OF MULTIFAMILY HOUSING REVENUE BONDS, SERIES 2003 A AND SUBORDINATE MULTIFAMILY HOUSING RE~'ENUE BONDS SERIES 2003 B, IN A COMBINED PRINCIPAL AMOUNT NOT TO EXCEED $11,686,000 FOR THE PURPOSE OF FINANCING THE ACQUISITION AND CONSTRUCTION OF THE RANCHO VISTA MULTlFAMlLY REN~'AL HOUSING PROJECT, APPROVING AND AUTHORIZING THE EXECUTION AND DELIVERY OF ANY AND ALL DOCUMENTS NECESSARY TO ISSUE THE BONDS AND IMPLEMENT THIS RESOLUTION WHEREAS, pursuant to Chapter ! of Part 2 of Division 24 of the 2alifornia Health & Safety Code ( 'Hous'ng Law '), the Hous'ng Authority of the City of Chula Vista (the "Authority") is empowered to issue revenue bonds for the purpose of financing the acquisition, :onstruction, rehabilitation, refinancing or development of multifamily rental housing; and WHEREAS, C1C Eastlake, L.P., a California limited partnership (~ he "Borrower"), on behalf of itself intends to acquire and construct a 150-unit project located in the City of Chula Vista (the "Project"); and WHEREAS, the Borrower has requested the Authority to issue mu Itifamily housing revenue bonds and loan the proceeds of the bonds to the Borrower to finance the a :quisition and construction of the Project; and WHEREAS, the Board of Commissioners of the Authority (the "B )ard") desires to assist the Borrower by making a portion of the units in the Project available for ve y low income persons or families, and in order to accomplish such purposes it is desirable for the Authority to provide for the financing of the Project through the issuance of bonds; and WHEREAS, the bonds are expected to be issued in two series, witl the first series (the "Series 2003A Bonds") being issued in the largest principal amount approved by Fannie Mae for credit enhancement and the second series (the "Series 2003B Bonds") being issuer on a basis subordinate to the Series 2003A Bonds and being unrated by any rating agency; ar, WHEREAS, the Authority will loan the proceeds of the bonds to tt Borrower; and WHEREAS, Fannie Mae will, subject to the satisfaction of certain :onditions, facilitate the financing of the Project by causing the issuance of a credit facility (th ,' "Credit Facility") guaranteeing payments of principal and interest on the loan made with r~ spect to the Series 2003A Bonds; and WHEREAS, Government Code Section 50191 requires a local age~ tcy to file an application with the California Debt Limit Allocation Committee (the "Committe ') prior to the issuance of tax-exempt multifamily housing revenue bonds; and WHEREAS, the Committee has allocated to the Project $11,686,( 00 of the State of California 2003 State ceiling for private activity bonds under Section 146 of the I ~ternal Revenue Code of 1986. NOW, THEREFORE, BE IT RESOLVED, by the Board of Com~ fissioners of the Housing Authority of the City of Chula Vista, as follows: 1. In accordance with the Housing Law and pursuant to the I ldenture (hereinafter defined), the Authority is authorized to issue the bonds in one or mot, ~ series to be designated "Housing Authority of the City of Chula Vista Multifamily Housing R :venue Bonds (Rancho Vista Apartments), Series 2003A" and "Housing Authority of the City o 'Chula Vista Multifamily Housing Revenue Bonds (Rancho Vista Apartments), Series 2003B,' in a combined aggregate principal amount for the Series 2003A Bonds and the Series 2003B Bo~ :ds (collectively, the "Bonds") not to exceed $11,686,000, with an interest rate or rates, a maturity ~late or dates and other terms as provided in the Indentures (as defined in Section 2 below) as finall" executed for the Bonds. The Bonds shall be in the forms set forth in and otherwise in accordance i vith the Indentures, and shall be executed by the manual or facsimile signature of the Chair or the Exe :utive Director of the Authority and the manual or facsimile seal of the Authority shall be impressed or reproduced thereon and attested by the manual or facsimile signature of the Secretary of the uthority. 2. The forms of the trust indentures (the "Indentures") for tt Bonds, between the Authority and Wells Fargo Bank, National Association, as trustee (the "Truste ?), am hereby approved in substantially the forms presented to the Board, copies of which are or file in the office of the Executive Director. Any one of the Chair or Executive Director or any design .~e thereof(each, an "Authorized Officer") is authorized to execute, and the Secretary of the Authority is authorized to attest, the Indentures in substantially said forms, with such additions thereto and c ~anges therein as such Authorized Officer may approve or recommend in accordance with Section 1~ hereof. The date, maturity date or dates, interest rate or rates, interest payment dates, denominations, form, registration privileges, manner of execution, place of payment, terms of redemption, and other terms of the Bonds shall be as provided in the Indentures as finally executed. 3. The forms of the financing agreements (the "Financing Ag 'eements") for the Bonds, among the Authority, the Borrower and the Trustee, are hereby approved i~ substantially the forms presented to the Board, copies of which are on file in the office of the Exect tive Director. Any Authorized Officer is authorized to execute, and the Secretary of the Authority is ~ uthorized to attest, the Financing Agreements, in substantially said forms, with such additions thereto and changes therein as such Authorized Officer may approve or recommend in accordance witt Section 8 hereof. 4. The form of regulatory agreement and declaration ofrestri{ tive covenants (the "Regulatory Agreement"), among the Authority, the Trustee and the Borrowe~, is hereby approved in substantially the form presented to the Board, a copy of which is on fi ~ in the office of the Executive Director. Any Authorized Officer is authorized to execute, and the ~,ecretary of the Authority is authorized to attest, the Regulatory Agreement, in substantially said tm, with such additions thereto and changes therein as such Authorized Officer may approve or ~commend in accordance with Section 8 hereof. 5. The forms of the assignment and intercreditor agreements ( :he Ass'gnments"), among the Authority, the Trustee and Fannie Mae, and the Autho 'ity, the Borrower and Provident Community Development Company, LLC, respectively, are hereby, approved, in substantially the forms presented to the Board, copies of which are on file in the t ~ce of the Executive Director. Any Authorized Officer is authorized to execute, and the Sec retary of the Authority is authorized to attest, the Assignments, in substantially said forms, wit ~ such additions thereto and changes therein as such Authorized Officer may approve or recomme: ~d in accordance with Section 8 hereof. 6. The Authority is authorized to sell the Series 2003A Bond; to Red Capital Markets, Inc. (the "Purchaser") and Fannie Mae pursuant to the terms and conditi, ~ns of a composite bond purchase agreement (the "Series 2003A Purchase Contract") among the Aut ~ority, the Borrower and the Purchaser and, should Fannie Mae buy all or a portion of the Bt nds, Fannie Mae, in substantially the form presented to the Board, a copy of which is on file in the t ffice of the Executive Director, and such Series 2003A Purchase Contract is approved for the Bonds. Any Authorized Officer is authorized to execute, and the Secretary of the Authority is ~ ~uthorized to attest, the Series 2003A Purchase Contract, in substantially said form, with such additior s thereto and changes therein as such Authorized Officer may approve or recommend in accord, tnce with Section 8 hereof. The Authority is authorized to sell the Series 2003B Bond~, to any Qualified Investor (as defined in the Indenture for the Series 2003B Bonds) upon receipt by he Trustee of an Investor Letter from such purchaser in the form attached to the Indenture for the S ~'ries 2003B Bonds. In connection with the sale of the Series 2003B Bonds directly to Qualifiet Investors, the Authority may enter into a private placement agreement for the Series 2003B Bon, Is (the 'Series 2003B Purchase Contract ), in substantially the form presented to the Board, a co[ y of which is on file in the office of the Executive Director, and such Series 2003B Purchase Contn ct is approved for the Bonds. Any Authorized Officer is authorized to execute, and the Secretary of~ he Authority is authorized to attest, the Series 2003B Purchase Contract, in substantially said forrr, with such additions thereto and changes therein as such Authorized Officer may approve or ~commend in accordance with Section 8 hereof. 7. The form of the Preliminary Official Statement for the Ser ~s 2003A Bonds presented at this meeting is hereby approved and the Purchaser is hereby authoriz~ to distribute the Preliminary Official Statement to prospective purchasers of the Series 2003A Bon ; substantially in the form hereby approved, together with such additions thereto and changes therei as are determined necessary by the Executive Director of the Authority, or his written designee, to m~ tke such Preliminary Official Statement final as of its date for purposes of Rule 15c2-12 of! he Securities and Exchange Commission, including, but not limited to, such additions and changes a~, are necessary to reflect the terms imposed by any rating agency or Fannie Mae or to make the infon aation therein accurate and not misleading. Each Authorized Officer is hereby authorized to exec ate a final Official Statement in the form of the Preliminary Official Statement, together with such ch~ nges as are determined necessary by the Authorized Officer to make such Official Statement c~ ,mplete and accurate as of its date. The Purchaser is further authorized to distribute the final Ol ficial Statement for the Series 2003A Bonds and any supplement thereto to the purchasers thereof u >on its execution on behalf of the Authority as described above. 8. Any Authorized Officer executing a document approved he~ ein, in consultation with General Counsel to the Authority and Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, is authorized :o approve and make such modifications, changes or additions to the Indentures, the Financing Agreements, the Regulatory Agreement, the Assignments, the Series 2003A Purchase Contract, th ~ Series 2003B Purchase Contract, the Preliminary Official Statement and the final Official State~ nent, or other document as may be necessary or advisable, and the approval of any modificatior, change or addition to any of the aforementioned agreements shall be evidenced conclusively by the ¢ ~ecution and delivery thereof by such Authorized Officer. 9. The officers, employees and agents of the Authority are at thorized and directed, for and in the name and on behalf of the Authority, to do any and all thir gs and take any and all actions and execute and deliver any and all certificates, agreements, assig~ ments and other documents, including, but not limited to, those documents described in the lndenl Ires and the other documents herein approved, which they, or any of them, may deem necessary or dvisable in order to consummate the lawful issuance and delivery of the Bonds and to effectuate the ~rposes thereof and of the documents herein approved in accordance with this resolution and msolutio ~s heretofore adopted by the Board. Pursuant to the foregoing, any Authorized Officer is autho ized and directed to execute and deliver any and all subordination agreements to evidence, as contel ~plated by the Indentures, the relative priority of the Bonds to other financing encumbering the F roject. In the event that the Secretary of the Authority is unavailable to sign any document related to ~e Bonds, any Deputy Secretary of the Authority may sign on behalf of the Secretary. 10. All prior resolutions or parts thereof in conflict with this r, ~olution are, to the extent of such conflict, repealed. 11. If any section, paragraph or provision of this resolution sh. I1 be held to be invalid or unenforceable for any reason, the invalidity or unenforceability of such ection, paragraph or provision shall not affect any remaining sections, paragraphs or provisions of ti resolution. 12. This resolution shall take effect immediately upon its adc ~n. Presented by Approved as to form by Laurie Madigan Ann/Moore ::-' ' Director of Community Development CJt~, Attorney J:\COMMDEV~RESOS~EastLak¢ Rancho Vista\Housing Authoriiy Reso. DOC RESOLUTION NO. A JOINT RESOLUTION OF THE CITY COUNCIL OF THE CI~ !Y OF CHULA VISTA AND THE REDEVELOPMENT AGENCY OF' ~IE CITY OF CHULA VISTA APPROVING A LOAN AGREEMENT ANI RELATED RESTRICTIVE COVENANTS AND APPROPRIATING $1,000 ~0 FROM THE AVAILABLE BALANCE IN THE AGENCY'S LOW AND MODERATE INCOME HOUSING FUND AND $500,000 FROM FHE CITY'S HOME FUNDS FOR FINANCIAL ASSISTANCE TO CI~ TM EASTLAKE, L.P. FOR THE DEVELOPMENT AND OPERATIG ~ OF RANCHO VISTA WHEREAS, the City has been allocated funds from the United States De )artment of Housing and Urban Development ("HUD") pursuant to the federal government's } [OME Investment Partnerships Program (42 U.S.C. Section 1274, et seq.) which can be used to prov de subsidies to or for the benefit of very low income and lower income households in accordance ~ th HOME regulations (24 C.F.R. Section 92, et seq.); and WHEREAS, California Health and Safety Code Sections 33334.2 and 33 ,34.6 authorize and direct the Redevelopment Agency of the City of Chula Vista (the "Agency") to ex >end a certain percentage of all taxes which are allocated to the Agency pursuant to Section 336; 0 for the purposes of increasing, improving and preserving the community's supply of low and mode rate income housing available at affordable housing cost to persons and families of low- and rr oderate-income, lower income, and very low income; and WHEREAS, pursuant to applicable law the Agency has established a Lou and Moderate Income Housing Fund (the "Housing Fund"); and WHEREAS, pursuant to Health and Safety Code Section 33334.2(e), in c', [rrying out its affordable housing activities, the Agency is authorized to provide subsidies to or fi ~r the benefit of very low income and lower income households, or persons and families of low or: noderate income, to the extent those households cannot obtain housing at affordable costs on the ope n market, and to provide financial assistance for the construction and rehabilitation of housing which will be made available at an affordable housing cost to such persons; and WHEREAS, pursuant to Section 33413(b), the Agency is required to ensu :e that at least 15 percent of all new and substantially rehabilitated dwelling units developed within project area under the jurisdiction of the Agency by private or public entities or persons other 1 mn the Agency shall be available at affordable housing cost to persons and families of Iow or moc ~rate income; and WHEREAS, CIC Eastlake, L.P. (the "Developer") has proposed to constn tct a 150 unit apartment building located at 1311 Eastlake Parkway in the City of Chula Vista (tl' e "Project"); and WHEREAS, in order to carry out and implement the requirements of the [ DME Program and the Redevelopment Plan for the Agency's redevelopment projects and the afro 'dable housing requirements thereof, the City and the Agency propose to enter into a Loan Agreen ~ent and Related Restricted Covenants (the "Loan Agreement") with the Developer, pursuant to whi :h the City would loan Five Hundred Thousand Dollars ($500,000) to the Developer, the Agency wo~ fid loan One Million Dollars ($1,000,000) to the Developer (the "Agency Loan"), and the Devel >per would agree to construct the Project in accordance with the requirements of the Loan Agreemen restrict occupancy of 149 of the apartment units in the Project to very low, lower income and low and moderate income households, and rent those units at an affordable rent; and WHEREAS, the Loan Agreement will leverage the investment of the Cit ~ and the Agency by requiring the Developer to obtain additional financing for the construction and operation of the Project through a combination of a loan obtained from the proceeds of multifamil ~ mortgage revenue bond financing to be issued by the Housing Authority of the City of Chula Vista, ~ private construction loan, an equity contribution by a limited partner investor in consider, ttion for the "4% Tax Credits" to be generated by the Project, and other outside financing; and WHEREAS, the City has adopted a Housing Element of the City Genera Plan which sets forth the objective of providing housing to satisfy the needs and desires ofvariou~ age, income and ethnic groups of the community, and which specifically provides for the developr lent of rental housing units through City assistance; and WHEREAS, the Loan Agreement furthers the goals of the City set forth i n the Housing Element as it will facilitate the creation of affordable housing which will serve th{ residents of the neighborhood and the City; and WHEREAS, the Project is located outside of the Agency's redevelopme~ L project areas, but the development and operation of the Project pursuant to the Loan Agreement wo dd benefit the Agency's redevelopment project areas by providing affordable housing for persor s who currently live and work within those redevelopment project areas; and WHEREAS, the Agency has adopted an Implementation Plan pursuant tc Health and Safety Code Section 33490, which sets forth the objective of providing housing to satisf3 the needs and desires of various age, income and ethnic groups of the community, and which sp, :cifically provides for the development of rental housing units through Agency assistance; and WHEREAS, the Loan Agreement furthers the goals of the Agency set for :h in the Implementation Plan as it will facilitate the creation of affordable housing which Jill serve the residents of the neighborhood and the City; and WHEREAS, the Legislature declares in Health and Safety Code Section 6000, et seq., that new forms of cooperation with the private sector, such as leased housing, disposil ~n of real property acquired through redevelopment, development approvals, and other forms of hous ng assistance may involve close participation with the private sector in meeting housing needs, withc ut amounting to development, construction or acquisition of low rent housing projects as contempl ited under Article XXXIV of the State Constitution; and WHEREAS, Health and Safety Code Section 37001 (a) provides that a lox ~ rent housing project does not include the development of privately owned housing, receiving n( ad valorem property tax exemption, other than exemptions granted pursuant to subdivision (f) or (g) of Section 214 of the Revenue and Taxation Code, not fully reimbursed to all taxing entities; and not more than 49 percent of the dwellings, apartments, or other living accommodations of the de' 'elopment may be occupied by persons of low income; and WHEREAS, the Project will be privately owned, will receive no ad valor{ m property tax exemption, other than exemptions granted pursuant to subdivision (f) or (g) of Sec :ion 214 of the Revenue and Taxation Code, and not more than 49 percent of the apartment units i a the Project are restricted to very Iow and lower income persons pursuant to the Loan Agreement; md WHEREAS, Health and Safety Code Section 37001.5 provides that a pul ~lic body does not develop, construct or acquire a Iow rent housing project under Article XXXIV of Ihe State Constitution when the public body provides assistance to a low rant housing proj~ ct and monitors construction or rehabilitation of the project to the extent of carrying out routine g{ ,vemmental functions, performing conventional activities ora lender, and imposing constituti{ ,nally mandated or statutorily authorized conditions accepted by a grantee of assistance; and WHEREAS, the Loan Agreement provides for assistance by the City and Agency to the Project, and the monitoring of construction of the Project by the City and Agency to the extent of carrying out routine governmental functions performing convent onal activ t es o 'a lender, and imp. osing constitutionally mandated or statutorily authorized conditions accepted ~y a grantee of assistance; and WHEREAS, the City Council and the Agency have duly considered all te :ms and conditions of the proposed Loan Agreement and believe that the Loan Agreement is in the be t interests of the City and the Agency and the health, safety, and welfare of the residents of the Cit~ and in accord with the public purposes and provisions of applicable Federal, State and local law~ equirements. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CHULA VISTA AND THE BOARD OF DIRECTORS OF THE REDEVELOPMENT AGENCY OF TI-E CITY OF CHULA VISTA DO JOINTLY RESOLVE AS FOLLOWS: Section 1. The City Council and the Agency hereby find that the use {,f funds from the Agency's Low and Moderate Income Housing Fund pursuant to the Loan Agreem, ~nt, for the acquisition, development and operation of real property whic,h is outside of the Ag mcy's redevelopment project areas, will be of benefit to the Agency s redevelopment prc~ ect areas for the reasons set forth above. Section 2. The City Council and the Agency hereby determine that thc Project is not a "low rent housing project" within the meaning of Article XXXIV of the State Con! titution, and that the assistance to be provided pursuant to the Loan Agreement does not constitute d ~velopment, construction or acquisition ora low-rent housing project within the meaning of Art cie XXXIV of the State Constitution. This Resolution is hereby deemed to constitute a final approval of a proposal which may result in housing assistance benefiting persons of low income, within tX e meaning of Health and Safety Code Section 36005. Section 3. The City Council and the Agency hereby approve the Loan Agreement in substantially the form presented to the City Council and Agency, subject to such re/isions as may be made by the City Manager/Agency Executive Director or his designee. The Mayor and City Manager and their designees are hereby authorized to execute the Loan Agreement on behalf of the City. The Chairman and Executive Director of the Agency and their designees are ~ereby authorized to execute the Loan Agreement on behalf of the Agency. A copy of the Loan Agre, :ment when executed by the City and Agency shall be placed on file in the office of the City CI{ rk. Section 4. The Mayor and City Manager (or their designee) on behalf{ ,fthe City, and the Chairman and Executive Director (or their designee) on behalf of the Agency, a 'e hereby .authorized to make revisions to the Loan Agreement which do not mater a y or sul: stantially Increase the obligations of the City or Agency thereunder or materially or substanti lly change the uses or deve opment permitted on the Site, to sign all documents, to make all appro ,als and take all actions necessary or appropriate to carry out and implement the Loan Agreement ar d to administer the obligations, responsibilities and duties of the City and Agency to be performed ~nder the Loan Agreement and related documents. Presented by Approved as to form by Laurie Madigan An~Moore ~ Director of Community Development .City Attorney J:\COMMDEV~RESOS\EastLake Rancho Vista\City CouncilAgency Joint Reso Approving Loan Agreement. DOC RESOLUTION NO. A JOINT RESOLUTION OF THE CITY COUNCIL OF THE CITY ( ~F CHULA VISTA AND THE REDEVELOPMENT AGENCY OF THE CITY O: CHULA VISTA APPROVING THE AFFORDABLE HOUS1NG AGREEMElx T BY AND BETWEEN THE REDEVELOPMENT AGENCY, THE CITY OF CE ULA VISTA, AND CIC EASTLAKE, L.P. AND AUTHORiZING THE EX ECUTION OF SAID AGREEMENT WHEREAS, CIC Eastlake, L.P. (the "Developer") has proposed t > construct a 150 unit apartment building located at 1311 Eastlake Parkway in the City of Chula V ta (the "Project"); and WHEREAS, the City Council of the City of Chula Vista (the "C ~ Council") and the Board of Directors of the Redevelopment Agency of the City of Chu,!a Vista (the' A " gency ) have approved a Loan Agreement and Related Restricted Covenants (the Loan Agreen tent") with the Developer, whereby the Agency and City have agreed to make loans to the Devel. per, and the Developer has agreed to develop, construct, and operate the Project, and to restric occupancy of 149 of the apartment units in the Project to very low, lower income and low and mode ~te income households, and rent those units at an affordable rent; and WHEREAS, the City, the Agency and the Developer are required ~ursuant to the Loan Agreement to enter into an Affordable Housing Agreement which would ~t forth the affordable requirements applicable to the Project; and WHEREAS, the City has adopted a Housing Element to the City eneral Plan which sets forth the objective of providing housing to satisfy the needs and desires of vari >us age, income and ethnic groups of the community, and which specifically provides for the devel >ment of rental housing units through City assistance; and WHEREAS, the Affordable Housing Agreement furthers the goal,. )fthe City set forth in the Housing Element as it will facilitate the creation of affordable housing, vhich will serve the residents of the neighborhood and the City; and WHEREAS, the Project is located outside of the Agency's redevel. ~pment project areas, but the development and operation of the Project pursuant to the Affordable ] lousing Agreement would benefit the Agency's redevelopment project areas by providing a 'fordable housing for persons who currently live and work within those redevelopment project areas; ~nd WHEREAS, the Agency has adopted an Implementation Plan pursl ant to Health and Safety Code Section 33490, which sets forth the objective of providing housing to s ttisfy the needs and desires of various age, income and ethnic groups of the community, and which 3ecifically provides for the development of rental housing units through Agency assistance; an, WHEREAS, the Affordable Housing Agreement furthers the goals 'the Agency set forth in the Implementation Plan as it will facilitate the creation of affordable housir which will serve the residents of the neighborhood and the City; and WHEREAS, the City Council and the Agency have duly considered all t ms and conditions of the proposed Affordable Housing Agreement and believe that the Aft} rdable Housing Agreement is in the best interests of the City and the Agency and the health, safety, and welfare of the residents of the City, and in accord with the public purposes and provisions of applicable Federal, State and local law requirements. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CHULA VISTA AND THE BOARD OF DIRECTORS OF THE REDEVELOPMENT AGENCY OF THE CITY OF CHULA VISTA DO JOINTL Y RESOLVE AS FOLLOWS: Section 1. The City Council and the Agency hereby approve the Affordable Housing Agreement in substantially the form presented to the City Council and Agency, subject to such revisions as may be made by the City Manager/Agency Executive Director or his designee. The Mayor and City Manager and their designees are hereby authorized to execute the Affordable Housing Agreement on behalf of the City. The Chairman and Executive Director and their designees are hereby authorized to execute the Affordable Housing Agreement on behalf of the Agency. A copy of the Affordable Housing Agreement when executed by the City and Agency shall be placed on file in the office of the City Clerk. Section 2. The Mayor and City Manager (or designee) on behalf of the City, and the Chairman and Executive Director of the Agency (or designee) on behalf of the Agency, are hereby authorized to make revisions to the Affordable Housing Agreement which do not materially or substantially increase the obligations of the City or Agency thereunder or materially or substantially change the uses or development permitted on the Site, to sign all documents, to make all approvals and take all actions necessary or appropriate to carry out and implement the Affordable Housing Agreement and to administer the obligations, responsibilities and duties of the City and Agency to be performed under the Affordable Housing Agreement and related documents. Presented by Approved as to form by Laurie Madigan Director of Community Development ~W/J+4Ih.t/ A Moore '-J ity Attorney J:\COMMDEV\RESOS\EastLake Rancho Vista\City CouncilAgency Joint Reso Approving Affordable Housing Agreement.DOC J -19 EXHIBIT 1 EXHIBIT 2 LOAN AGREEMENT AND RELATED RESTRICTIVE COVENA qTS/ HOME PROGRAM PARTICIPATION AGREEMENT by and among THE REDEVELOPMENT AGENCY OF THE CITY OF CHULA V[STA a Public Body, Corporate and Politic THE CITY OF CHULA VISTA, a Municipal Corporation, and CIC EASTLAKE, L.P. a California Limited Partnership __c' .,Z_ -/ Table of Contents Page ARTICLE 1 - RECITALS ........................................................................................................................ 1 1.1 AUTHORITY ............................................................................................................................................ 1 1.2 AVAILABLE FUNDS ................................................................................................................................. 1 1.3 THE PROPERTY ....................................................................................................................................... 2 1.4 PROJECT .................................................................................................................................................. 2 1.5 AGENCY FINANCIAL ASSISTANCE TO BORROWER ................................................................................. 2 1.6 INTERESTS OF THE AGENCY, CITY AND THE PUBLIC .............................................................................. 2 1.7 HOUSING OBJECTIVES AND GOALS ........................................................................................................ 2 ARTICLE 2 - DEFINITIONS .................................................................................................................. 3 ARTICLE 3 - FINANCING OF THE PROJECT ................................................................................... 5 3.1 SUMMARY OF FINANCING ....................................................................................................................... 5 ARTICLE 4 - AGENCY AND CITY LOANS ....................................................................................... 6 4.1 AMOUNT ................................................................................................................................................. 6 4.2 INTEREST ................................................................................................................................................ 6 B ' 4.3 ORROWER S OBLIGATIONS ................................................................................................................... 6 4.4 SOURCE OF AGENCY LOAN .................................................................................................................... 7 4.5 SOURCE OF CITY LOAN ........................................................................................................................... 7 4.6 REPAYMENT. [INSERT CITY LOAN REPAYMENT TERMS] ....................................................................... 8 4.7 PREPAYMENT ........................................................................................................................................ 10 4.8 ASSUMPTION ......................................................................................................................................... 10 4.9 USE OF LOAN PROCEEDS ...................................................................................................................... 10 4.I0 LIEN PRIORITY, TITLE INSURANCE ..................................................................................................... 10 4.11 SUBORDINATION; REFINANCING ...................................................................................................... Il 4.12 BORROWER'S EVIDENCE OF FINANCIAL CAPABILITY ........................................................................ 1 1 4.13 REPORTS AND ACCOUNTING OF RESIDUAL RECEIPTS ........................................................................ 1] ARTICLE 5 - NOTES AND DEEDS OF TRUST ................................................................................ 12 5.1 SECURITY FOR LOANS .......................................................................................................................... 12 5.2 NONRECOURSE OBLIGATION ................................................................................................................ 12 ARTICLE 6 -DISBURSEMENT OF AGENCY AND CITY LOANS ............................................... 13 6.1 DISBURSEMENT .................................................................................................................................... 13 ARTICLE 7 -CALIFORNIA COMMUNITY REDEVELOPMENT LAW RE( JIREMENTS .....13 7.1 REQUIREMENTS ................................................................................................................................. 13 ARTICLE 8 -HOME REQUIREMENTS ............................................................................................. 14 Table of Contents (continued) Page 8.1 REQUIREMENTS .................................................................................................................................... I4 ARTICLE 9 - DEVELOPMENT FEE ................................................................................................... 16 9.1 DEVELOPMENT FEE .............................................................................................................................. 16 ARTICLE 10 -DEVELOPMENT OF THE PROJECT ....................................................................... 16 10.1 WORK TO BE PERFORMED .................................................................................................................. 16 1 0.2 COMPLIANCE WITH PERMITS AND LAWS ............................................................................................ 17 10.3 COSTS OF DEVELOPMENT ................................................................................................................... 17 10.4 SCHEDULE OF PERFORMANCE: PROGRESS REPORTS .......................................................................... 17 10.5 ANTI-DISCRIMINATION ....................................................................................................................... 18 10.6 RIGHT OF ACCESS ............................................................................................................................... 18 10.7 MECHANICS LIENS, STOP NOTICES, AND NOTICES OF COMPLETION ................................................ 18 10.8 CERTIFICATE OF COMPLETION .......................................................................................................... 19 10.9 ESTOPPELS .......................................................................................................................................... 19 ARTICLE 11 USES OF THE PROPERTY .......................................................................................... 20 11.1 SUMMARY ........................................................................................................................................... 20 11.2 AFFORDABLE HOUSING ...................................................................................................................... 20 11.3 REPORTS ............................................................................................................................................. 21 11.4 SUBORDINATION OF AFFORDABILITY COVENANTS ........................................................................... 21 11.5 CONDITION OF THE PROPERTY ........................................................................................................... 21 11.6 MARKETING PLAN .............................................................................................................................. 23 11.7 MAINTENANCE OF PROPERTY ............................................................................................................ 23 11.8 PROPERTY MANAGEMENT .................................................................................................................. 23 11.9 AFFORDABLE HOUSING AGREEMENT ................................................................................................24 ARTICLE 12 - CONTINUING OBLIGATIONS OF BORROWER ................................................. 24 12.1 APPLICABILITY ................................................................................................................................... 24 12.2 INSURANCE ......................................................................................................................................... 24 12.3 PROCEEDS OF INSURANCE .................................................................................................................. 25 12.4 TAXES, ASSESSMENTS, ENCUMBRANCES, AND LIENS ....................................................................... 25 12.5 HOLD HARMLESS ................................................................................................................................ 25 12.6 FURTHER INDEMNIFICATION OF AGENCY AND CITY .......................................................................... 26 12.7 OBLiGAIION TO REFRAIN FROM DISCRIMINATION ............................................................................ 26 12.8 FORM OF NONDISCRIMINATION AND NONSEGREGATION CLAUSES ................................................... 26 12.9 EFFECT OF COVENANTS ...................................................................................................................... 27 12.10 PROHIBITION AGAINST ASSIGNMENT AND TRANSFER ..................................................................... 28 12.11 SECURED FINANCING; RIGHT OF HOLDERS ...................................................................................... 30 12.12 RIGHT OF AGENCY AND CITY TO SATISFY LIENS ............................................................................ 31 ARTICLE 13 - DEFAULTS, REMEDIES, AND TERMINATION ................................................... 31 13.1 DEFAULTS- GENERAL ......................................................................................................................... 31 Table of Contems (continued) Page 13.2 TERMINATION ..................................................................................................................................... 31 13.2.1 TERMINATION BY AGENCY AND CITY .............................................................................................31 13.2.2 TERMINATION BY BORROWER ......................................................................................................... 32 13.3 LEGAL ACTIONS ................................................................................................................................. 32 13.3.1 INSTITUTION OF LEGAL ACTIONS .................................................................................................... 32 13.3.2 APPLICABLE LAW ............................................................................................................................ 32 13.3.3 ACCEPTANCE OF SERVICE OF PROCESS ...........................................................................................32 13.3.4 ACTION FOR SPECIFIC PERFORMANCE ............................................................................................. 33 13.3.5 RIGHTS AND REMEDIES ARE CUMULATIVE ..................................................................................... 33 ARTICLE 14 - GENERAL PROVISIONS ............................................................................................ 33 14.1 NOTICES, DEMANDS, AND COMMUNICATIONS BETWEEN THE PARTIES ........................................... 33 14.2 NONL1ABILITY OF AGENCY AND CllY OFFICIALS AND EMPLOYEES: CONFLICTS OF INTEREST ........ 34 14.3 ENFORCED DELAY; EXTENSION OF TIMES OF PERFORMANCE .......................................................... 34 14.4 INSPECTION OF BOOKS AND RECORDS ............................................................................................... 35 14.5 INTERPRETATION ................................................................................................................................ 35 14.6 ENT1RE AGREEMENT, WAIVERS AND AMENDMENTS ......................................................................... 35 14.7 CONSENT/REASONABLENESS ............................................................................................................. 36 14.8 SEVERABILITY .................................................................................................................................... 36 14.9 THIRD PARTY BENEFiCiARIES ............................................................................................................ 36 14.10 REPRESENTATIONS AND WARRANTIES ............................................................................................ 36 14.11 EXECUTION ....................................................................................................................................... 36 14.12 RELATIONSHIP OF PARTIES ............................................................................................................... 37 14.13 ATTORNEY'S FEES ............................................................................................................................ 37 iii Table of Contents (continued) Page EXHIBITS Exhibit A Legal Description Exhibit B Agency Promissory Note Exhibit C Agency Deed of Trust Exhibit D City Promissory Note Exhibit E City Deed of Trust Exhibit F Affordable Housing Agreement Exhibit G Sources and Uses Exhibit H Project Budget Exhibit I Project Pro Forma Exhibit J Certificate of Completion Exhibit K Scope of Work Exhibit L Schedule of Performance Jv RECORDING REQUESTED BY: Redevelopment Agency of the City of Chu]a Vista City of Chula Vista WHEN RECORDED MAIL TO: Redevelopment Agency of the City of Chula Vista Attn: Housing Manager 276 Fourth Avenue Chula Vista CA 91910 City of Chula Vista At/n: Housing Manager 276 Fourth Avenue Chula Vista CA 91910 No fee for recording pursuant to (Space above for I~ ecorder's Use) Government Code Section 27383 LOAN AGREEMENT AND RELATED RESTRICTED COVENANTS THIS LOAN AGREEMENT AND RELATED RESTRICTED IOVENANTS (the "Agreement") is entered into as of October , 2003 by and among the EDEVELOPMENT AGENCY OF THE CITY OF THE CITY OF CHULA VISTA, a public body, orporate and politic ("Agency"), the C1TY OF CHULA VISTA, a municipal corporation ("City"), an, CIC EASTLAKE, L.P., a California limited partnership ("Borrower"), and/or its successors or assig~ ARTICLE 1 - Recitals 1.1 Authority. Agency is a public body, corporate and politic, exercising governm,:ntal functions and powers and organized and existing under the Community Redevelopment Ltw of the State of California (Health and Safety Code Section 33000, et seq.). City is a mu ficipal corporation, organized and existing under the laws of the State of California. Agency and Cry am authorized to enter into binding agreements for the purpose of protecting public health, safety, nd welfare. 1.2 Available Funds. Agency has available funds from the Agency's Low and Moderate-In, >me Housing Fund which can be used for the purposes of funding the obligations of the Agency und~ r this Agreement in accordance with the Community Redevelopment Law of the State of California. City has been allocated funds from the United States Department of]lousing and Urban Development ("HUD") pursuant to the federal government's HOME lnve~,tment Partnerships Program (42 U.S.C. Section 1274, et seq.) which can be used for the purposes of hnding certain City obligations under this Agreement in accordance with HOME regulations (24 .F.R. Section 92, et seq.). 1.3 The Property. Borrower is or will become the legal owner of the fee title to the real pn ,erty located at 1311 Eastlake Parkway in the City of Chula Vista, as described in the attached ixhibit A, which is incorporated herein (the "Property"). 1.4 Project. Borrower proposes to construct on the Property 150 multifamily apartn ~nt units, consisting of 149 affordable housing units and one manager's unit (the "Project"). The ~esidential units will consist of 30 units affordable to very low households at or below 50 percent )f the Area Median lncome ("AMI"), 43 units affordable to low-income households at or below 60 >ercent of AMI, and the remainder of the units (other than the unit which may be made available to an on-site manager) affordable to moderate income households at or below 120 percent of the Area Median Income (the "Project"). The Project will be subject to certain affordable housing obligatians pursuant to the Regulatory Agreement and Declaration of Restrictive Covenants by and amon ~, the Borrower, the Housing Authority of the City of Chula Vista and Trustee (the 'Regulatory Agre ment"). 1.5 Agency Financial Assistance to Borrower. Through the development and operation of the Project, Agency, City, an, I Borrower desire to provide very low, lower and low and moderate income households with affordable housing opportunities within the City in accordance with the Community Redevelopmen Law, the Agency's redevelopment plans, and the Housing Element of the City General Plan. In ord¢r to accomplish this goal, the Agency desires to make a loan from its Low and Moderate Income H~ ,using Fund and the City desires to make a loan from its HOME funds to Borrower for a portion of the costs of the acquisition, construction and equipping of the Project, subject to certain cot ditions designed to assure the implementation of the Project in accordance with the redevelopme~ t plans, the General Plan, state and federal law, HOME program regulations, and as otherwise provider heroin. 1.6 Interests of the Agency, City and the Public. The acquisition, construction, equipping and operation of the Proje :t pursuant to this Agreement, and the fulfillment generally of this Agreement, are in the vital and best interests of the Agency and the welfare of the residents of the City of Chula Vista, and in accord ance with the public purposes and provisions of applicable federal, state, and local laws and requirem~ nts. 1.7 Housing Objectives and Goals. The Project accommodates several of the City's Comprehensive Housiag Plan Objectives, which are expressly noted in the Housing Element as priorities for the City. The objectives this Project serves are: (1) Achievement of a balanced residential community through int~ :gration of low and moderate income housing throughout the City, and the adequate dispersal )f such housing to preclude establishment of specific low-income enclaves. (2) The provision of adequate rental housing opportunities and assi~, tance to households with low and very low incomes. WHEREFORE, based upon the foregoing recitals and in consideration ~f their mutual and prospective promises and subject to the terms and conditions hereinafter set orth, the parties do hereby agree as follows: ARTICLE 2 - Definitions The following terms as used in this Agreement shall have the me nings given unless expressly provided to the contrary: 2.1 "Affordable Housing Agreement" means that certain agreement, in substa atially the form set forth in Exhibit F attached hereto and incorporated herein, which sets forth Borro' ver's obligations to maintain the Project as an affordable multifamily housing project for very low, 1o ver and low and moderate income households, and other obligations related to the operation and rr anagement of the Project, which shall be recorded in the order of priority set forth in this Agreemen :. 2.2 "Agency" means the Redevelopment Agency of the City of Chula Vista t public body, corporate and politic, having its offices at 276 Fourth Avenue, Chula Vista, Calift mia 91910. The term "Agency" as used herein also includes any assignee of, or successor to, the r ghts, powers, and responsibilities of the Redevelopment Agency of the City of Chula Vista. 2.3 "Agency Loan" means the loan for an amount of One Million Dollars ($1, ~)00,000) by the Agency to Borrower, which loan is the subject of this Agreement. 2.4 "Agency Note" shall mean the promissory note, in substantially the form., et forth in Exhibit B attached hereto and incorporated herein, in the principal amount of One Million Dollars ($1,000,000), evidencing the Agency Loan. 2.5 "Agency Trust Deed" shall mean that certain deed of trust, in substantialb the form set forth in Exhibit C attached hereto and incorporated herein, which secures Borrower's ol ,ligations pursuant to the Agency Note, which shall be recorded in the order of priority set forth in thi Agreement. 2.6 "Agreement" means this Loan Agreement and Related Restricted Covenar s. 2.7 "Bonds" means multifamily mortgage revenue bonds issued by the Housir g Authority of the City of Chula Vista in the approximate aggregate amount of $11,686,000, as set fcrth in Section 3.1 of this Agreement. 2.8 "Borrower" means C1C Eastlake, L.P. The term "Borrower" includes any legally permissible assignee or successor to the rights, powers, and responsibilities of Borrower hereu ~der, following such assignment and succession, in accordance with Section 12.10 of this Agreem. :nt. 2.9 "Certificate of Completion" shall have the meaning ascribed in Section 10 8 of this Agreement. The form of the Certificate of Completion shall be as set forth in Exh bit J to this Agreement, which is incorporated herein. 2.10 "City" shall mean the City of Chula Vista, a municipal corporation, orgar ized under the laws of the State of California and having its offices at 276 Fourth Avenue, Chula Vis~ a, California 91910. 2.11 "City Loan" means the loan for an amount of Five Hundred Thousand D llars ($500,000) by the City to Borrower, which loan is the subject of this Agreement. 2.12 "City Note" shall mean the promissory note, in substantially the form sel ~'orth in Exhibit D attached hereto and incorporated herein, in the principal amount of Five Hundred Thousand Dollars ($500,000), evidencing the City Loan. 2.13 "City Trust Deed" shall mean that certain deed of trust, in substantially tl' e form set forth in Exhibit E attached hereto and incorporated herein, which secures Borrower's obi gations pursuant to the City Note, which shall be recorded in the order of priority set forth in this Ag~ eement. 2.14 "Development Fee" and "Deferred Development Fee" shall have the mea ting ascribed in Section 9.1. 2.15 "Effective Date" means the date first appearing in this Agreement above. 2.16 "Gross Revenue" shall have the meaning ascribed in Section 4.6. 2.17 "Housing Manager" means the Housing Manager of the Community Der flopment Department of the City. 2.18 "Housing Quality Standards" means the housing quality standards promu gated by the U.S. Department of Housing and Urban Development which are set forth in 24 CFR 9 ~2.401, or a successor regulation. 2.19 "Permanent Lender" means the Housing Authority of the City of Chula ista. 2.20 "Permanent Loan" means the loan to be made by the Permanent Lender . the Borrower with the proceeds of the Bonds. 2.21 "Permanent Loan Documents" means the Loan Agreement of even date h ~rewith by and between the Permanent Lender and the Borrower, and the promissory note, deed, )ftrust and other documents entered into pursuant to such Loan Agreement. 2.22 "Project" shall have the meaning ascribed in Section 1.4 of this Agreeme~t. 2.23 "Project Budget" means that certain budget referred to in Section 4.12 of :his Agreement and attached hereto as Exhibit H, which is incorporated herein by this reference, which budget may not be materially changed without the prior approval of the Housing Manager, which approval shall not be unreasonably withheld (a material change is a change that causes the total Pro ect cost to increase or decrease by three percent (3%) or more from what is shown in Exhibit H). 2.24 "Project Pro Forma" means that certain Project Pro Forma referred to in ection 4.12 of this Agreement and attached hereto as Exhibit 1, which is incorporated herein by this eference, which pro forma Borrower represents to be a good faith projection of the information set for Ih therein. 2.25 "Property" means that certain real property legally described in Exhibit ,5 which is attached hereto and incorporated herein. 2.26 "Property Manager" means the property management company managing the Project, whether or not the Project is managed by Borrower. The term Property Manager shall not mean the on-site property manager. 2.27 "Reasonable Operating Expenses" shall have the meaning ascribed in Sec tion 4.6. 2.28 "Regulatory Agreement" means the Regulatory Agreement and Declarati ~n of Restrictive Covenants by and among the Borrower, the Permanent Lender and the Trustee. 2.29 "Residual Receipts" shall have the meaning ascribed in Section 4.6. 2.30 "Restricted Units" means the residential units in the Project whose rent le ~els and occupancy are to be restricted as set forth in Section 11.2 of this Agreement. 2.31 "Schedule of Performance" means that certain Schedule of Performance ~ ttached hereto as Exhibit L and incorporated herein, as the same may be modified or extended puts aant to Sections 10.4 and 14.3 hereof. 2.32 "TCAC Regulatory Agreement" means the regulatory agreement to be ex ~cuted and recorded in favor of the California Tax Credit Allocation Commission. 2.33 "Title Insurer" means First American Title Insurance Company. ARTICLE 3 - Financing of the Project 3.1 Summary of Financing. Borrower's current sources and uses of funds summary for the Projects attached hereto as Exhibit G, which is incorporated herein. Borrower contemplates a total project budget of approximately $21,557,000. Borrower shall obtain construction and permalent loan financing funded by multifamily mortgage revenue bonds issued by the Permanent Lende ' in the approximate aggregate amount of $11,686,000, includ!,n,g sub,o, rdinate bonds issued by the l: ermanent Lender in the approximate amount of $696,000 (the Bonds ). Pursuant to the Bonds, the )eveloper will enter into certain "Collateral and Construction Loan Documents," as defined in the B( nd documents. The Developer will also obtain a construction loan from Provident Community Dev :lopment Company, LLC in the approximate amount of $3,815,000 (the "PCDC Construction Loan" ~. Agency shall loan to Borrower the amount of $1,000,000, secured by the Agency Trust De~d, which shall be subordinate to the Permanent Loan funded by the Bonds. City shall loan to Bor 'ower the amount of $500,000, secured by the City Trust Deed, which shall be subordinate to the Per: nanent Loan funded by the Bonds and the Agency Trust Deed. Borrower shall also apply for an all ~cation of "4%" tax credits for the Project from the California Tax Credit Allocation Committee (" FCAC") which will support an equity investment in Borrower by an investor limited partner in the amount of approximately $7,301,000. Agency acknowledges that the foregoing amounts (o her than the amount of the Agency Loan and City Loan) are approximations and may change. ARTICLE 4 - Agency and City Loans 4.1 Amount. Subject to the terms and conditions, set forth here!,n,, the Agency hereb) commits to loan to Borrower the total sum of $1,000,000 (the Agency Loan ) and the City hereb~ commits to loan to Borrower the sum of $500,000 (the "City Loan"), respectively, to be applied sol :ly for payment of a portion of the costs of the acquisition, construction and equipping of the Project. 4.2 Interest. The outstanding principal amounts of the Agency Loan and City Loa shall each accrue simple interest at the rate of three (3%) percent per annum. 4.3 Borrower's Obligations. The following conditions must be fully satisfied as reasonably determim by the Agency in order to obligate the Agency to make the Agency Loan and the City in order to obligate the City to make the City Loan: a. Borrower shall have submitted a complete application for a prelin inary allocation of 4¥0 low-mcome housing tax crethts from the Cahfomla Tax Credit Allocation ( ;ommittee in the amount set forth in the Sources and Uses attached hereto as Exhibit G, or such gr~ :ater or lesser amount as may be mutually agreed to by the parties. b. Borrower shall have acquired fee title to the Property, or shall be ~ :cquiring fee title to the Property concurrently with the first disbursement of the Agency Loan and Cit Loan. c. Borrower shall have received a firm commitment for an equity co tribution from an investor limited partner in Borrower of not less than $7,301,000, which number subject to adjustment pursuant to the Partnership Agreement or Funding Agreement betwe ~ Borrower and Borrower's limited partner investor, or such lesser amount as may be mutually ag 'eed to by the parties. The Agency and City shall not unreasonably withhold or delay their cons :nt to Borrower's request to approve such a lower amount. d. Borrower shall have obtained a firm commitment for the Permane ~t Loan in an amount equal to the net proceeds of the Bonds or such greater or lesser amount as may be mutually agreed to by the parties, and the Permanent Loan shall have closed or be ready to :lose concurrently with the Agency Loan and City Loan. e. Borrower shall have duly executed (and acknowledged, if applical ,le) the Agency Note, the Agency Trust Deed, the City Note, the City Trust Deed, and the Affords' ble Housing Agreement, and shall have submitted the same into the escrow established for the Borrower's acquisition of the Property, and the Agency Trust Deed, City Trust Deed and Afl( rdable Housing Agreement shall be ready to be recorded concurrently with the recording of the gr int deed conveying title to the Property to the Borrower as an encumbrance to the Property, subordin~ te only to the liens securing the Bonds, the Regulatory Agreement and other non-monetary encumbre nces approved by the Agency and City. fi Borrower shall have submitted to the Agency and City, and Agen. :y and City shall have reviewed and approved, in its reasonable discretion, any and all loan docum ~nts, regulatory agreements or grant contracts to be executed by or otherwise to be binding upon ~ agency, City or Borrower in connection with its acquisition of the Property, its construction, equii ~ping and operation of the Project and/or its financing thereof, including without limitation the Perma ~ent Loan Documents, the regulatory agreement to be executed and recorded in favor of the rCAC (the "TCAC Regulatory Agreement"), and the partnership agreement of the Borrower and doc ~ments executed pursuant thereto, such as guaranties and funding agreements. g. The Title Insurer or another title insurance company reasonably a~ ceptable to the Agency and City shall have unconditionally committed to issue the Lender's Poli, :les to the Agency and the City in accordance with Section 4.9 hereof. h. Borrower shall have submitted to the Agency and City a copy ofa a executed property management agreement for the Project with an experienced property manager wh ch is reasonably acceptable to the parties, in accordance with Section 11.8 hereofi i. At least 60 days shall have passed since the Agency's and City's f nal approval of this Agreement. Alternatively, the Borrower shall have provided to the Agency a~ ~d City (i) an opinion of legal counsel, in a form and from legal counsel which is reasonably sat sfactory to the Agency and City, that the Project is not a "low rant housing project" subject to the requirements of Article XXXIV of the California Constitution, or (b) an agreement in a form and I rom a party which is reasonably satisfactory to the Agency and City, in which the party agrees to ind ~'mnify, defend and hold harmless the Agency and City from any losses or liability arising from a lega I claim that the Agency Loan and/or City Loan violates the provisions of Article XXXIV of the ~ ~lifornia Constitution. j. Borrower shall have satisfied all other obligations under this Agr, :ment required to be performed prior to the closing on the Agency Loan and City Loan, and shall ne: be in default in any of its obligations under the terms of this Agreement. All representations and, varranties of Borrower contained herein shall be true and correct in all material respects on and as of the date of the disbursement of the Agency Loan and City Loan as though made at that time. 4.4 Source of Agency Loan. The source of the Agency Loan is the Agency's Low and Moderate-lnc( me Housing Fund. Pursuant to California Community Redevelopment Law the Project must meet a I1 of the California Community Redevelopment Law requirements for the term of the affordability restrictions on the units set forth herein. 4.5 Source of City Loan. The source of the City Loan is funds allocated to City by HUD purs~tant to the federal government's HOME Investment Partnerships Program (42 U.S.C. Section 12741 etseq.). Pursuant to the HOME Investment Partnerships Program requirements, out of the total o:' one-hundred fifty (150) units in the Project, eleven three-bedroom units are being assisted with tOME Investment Partnerships Program funds (the "HOME-assisted units") and must meet all of the HOME Investment Partnerships Program requirements for the term of the affordability restrictions on the units. The specific units to be designated HOME-assisted units may change from time to time in Developer's sole discretion, provided that the aggregate number and category of said units ren rains the same. 4.6 Repayment. Payments under the Agency Loan and City Loan shall be made as follow,. a. Commencing on the Initial Payment Date (defined below), payme of principal and interest on the Agency Note shall be made, on an annual basis, in an amount equ~ 1 to fifty percent (50%) of the "Residual Receipts" (defined below) derived from the Property andJ >r the operation of the Project. Such amounts shall be paid on a priority basis to all other debt service on the Property, except for the Permanent Loan funded with the proceeds of the Bonds and the De ferred Development Fee (as defined below), if any. Residual Receipts shall be calculated by Borrowe' each and every year commencing with the first anniversary of the issuance of the Certificate of£ ompletion by the Agency. The fifty percent (50%) Residual Receipts payments, if any, shall be m.' de on or before thirty (30) days after the later of(i) the first year anniversary of the issuance of th .~ Certificate of Completion by the Agency or (ii) the first year anniversary of the date on which ae Deferred Development Fee, if any, has been paid in full (the "Initial Payment Date"), and or before 30 days after each subsequent yearly anniversary of the lnitial Payment Date. b. Commencing upon the repayment in full of the Agency Loan, pa: lent of principal and interest on the City Note shall be made, on an annual basis, in an amount equ ~l to fifty percent (50%) of the Residual Receipts derived from the Property and/or the operation of the Project. Such amounts shall be paid on a priority basis to all other debt service on the Property, except for the Permanent Loan funded with the proceeds of the Bonds and the Deferred Develol ~ment Fee (as defined below), if any. Residual Receipts shall be calculated by Borrower each a ~d every year commencing with the first anniversary of the issuance of the Certificate of Comp etion by the Agency. The fifty percent (50%) Residual Receipts payments, if any, shall be mt de on or before thirty (30) days after each subsequent yearly anniversary of the Initial Payment [3 ate. c. "Residual Receipts" is specifically defined as the "Gross Revenue" (as defined below) from the Project minus the "Reasonable Operating Expenses" (as defined below) for the same period. (i) "Gross Revenue" shall mean all revenue, income, receipts, and other consideration actually received from operation and leasing of the Project. Gross i ~.evenue shall include, but not be limited to: all rents, fees and charges paid by tenants, Section 8 payments or other rental subsidy payments received for the dwelling units, all cancellation fees; pro, :eeds from vending and laundry room machines; the proceeds of business interruption or similar insu~ ance to the extent not applied to the Permanent Loan; the proceeds of casualty insurance to the exte not utilized to repair or rebuild the Project or applied to the Permanent Loan; and condemnation wards for a taking of part or all of the Project for a temporary period to the extent not applied to the )ermanent Loan or used to repair or restore the Project. Gross Revenue shall not include tenants' sec urity deposits, loan proceeds, capital contributions or similar advances or payments from reserve fun~ ts. (ii) "Reasonable Operating Expenses" shall include any and a I1 reasonable and actually incuxTed costs associated with the ownership, operation, use or maintena~ ~ce of the Property, calculated in accordance with generally accepted accounting principles. Such ex ,enses may include, without limitation, property and other taxes and assessments imposed on the Pro: :ct; premiums for property damage and liability insurance; utilities not directly paid for by the tenal tts including water, sewer, trash collection, gas and electricity, maintenance and repairs including pe~, t control, landscaping and grounds maintenance, painting and decorating, cleaning, general repairs, and supplies; tenant relocation costs and expenses; license fees or certificate ofoccup ~ncy fees required for operation of the Project; general administrative expenses directly attributable :o the Property including advertising and marketing, security services and systems, and professic hal fees for legal, audit and accounting; property management fees and reimbursements including c a-site manager and assistance manager expenses; asset management fees payable to the investor limi ed partner of the Borrower in an amount which does not exceed the amount set forth therefor in th: Sources and Uses, Project Budget and Pro Forma attached hereto; a reasonable property managemet t fee, cash deposited into a reserve for capital replacements of the Project improvements ant an operating reserve (and such other reserve accounts required with respect to the Bonds) in st ch amounts as are required by the Permanent Lender and as may be reasonably required by Project, :quity investors; tenant services costs; debt service payments (excluding debt service due to Agen, :y from Residual Receipts of the Project) on financing for the Project; reasonable supplemental ma aagement fees; and payment of the Deferred Development Fee. In no event shall expenditures, inclu ting attorneys' fees or litigation costs, normally required to be paid out of the Replacement Reserve, ~e treated as Reasonable Operating Expenses unless specifically approved in writing by the Al ~ency. For purposes of the foregoing definition of "Reasonable Operating Expenses," any property m~ nagement fee or partnership management fee which is paid to Borrower shall at no time exceed ar amount as is customary and standard for affordable housing projects similar in size, scope and character to the Project. Notwithstanding the foregoing, for purposes of this calculation, Reason~ ble Operating Expenses shall not include the following: principal and interest payments on any :lebt subordinate to the Agency Note, depreciation, amortization, depletion or other non-cash expens~ s, incentive partnership asset management fees payable to the Borrower or its affiliate (other hah the supplemental management fee described above), or any amount expended from a reserve account. d. The fifty percent (50%) of Residual Receipts remaining after the tnnual Residual Receipts payments on the Agency Note may be retained and used by Borrower ir Borrower's sole discretion. e. Except as otherwise expressly provided hereunder, Borrower's o[ ligation to repay the Agency Loan and City Loan shall be limited to Borrower's annual payment, unti the Agency Loan and City Loan are repaid in full, of fifty percent (50%) of the Residual Receipts ~ s described above for a period from the c,ompletion of the Project until the date which is fifty-five (: 5) years following the date of the Agency s issuance of the final Certificate of Completion for the P~ oject (but in no event later tha,n, sixty (60) years from the date of execution of the Agency Note) (:he "Conditional Maturity Date ). Upon the Conditional Maturity Date, Agency and City shall ea~ h have the option, at any time, in its sole discretion, but after good faith discussions with Borrower ~ts to available options, upon ninety (90) days' written notice to Borrower, to (a) declare the rem ~ining balance of all amounts owed under the Agency Note or City Note (as applicable) immediately ~ ue and payable, or (b) to require installment payments under the Agency Note or City Note (as appli gable) based upon (i) a restated principal balance comprised, in the aggregate, of any and all outsta~ ~ling principal and interest under the Agency Note or City Note (as applicable) existing as of the dar: of its election, (ii) a prospective fixed interest rate per annum equal to the prime rate then in effect f )r Bank of America, San Diego office, or such other rate mutually agreed to by the Agency or City (as applicable) and Borrower, and (iii) monthly installments of principal and interest paid over the ct urse of an amortization schedule to be determined by the Agency or City (as applicable) in ts sole discretion, not to be less than ten (10) years. In the event that Agency elects repayment appl oach (b), Borrower 9 agrees to execute an amendment to the Note in favor of Agency or City (as applica >le) reflecting the amended repayment terms described above. f. Notwithstanding the foregoing, in the event that Borrower or any s accessors thereto, is in defau t under this Agreement pursuant to Section 13.1 hereof, the Agency and City shall have the right in its sole discretion, upon ten days notice to Borrower, to declare immedi ~tely due and payable all outstanding principal, interest and other sums due under the Agency Nc te or City Note (as applicable), or to pursue any and all other remedies provided herein, under the~ ~.gency Note or City Note, Agency Trust Deed or City Trust Deed, or the Affordable Housing Agreement, or as otherwise provided at law or in equity. 4.7 Prepayment. Borrower may prepay the principal and any interest due under the Agency Note or City Note prior to or in advance of the time for payment thereof as provided in such note, without penalty; provided, however, that Borrower acknowledges that certain provisions hereof am the provisions of the Affordable Housing Agreement and the Regulatory Agreement will be applic, tble to the Project in accordance with their respective terms even though Borrower may have prel~aid such Agency Note. 4.8 Assumption. In the event the Project is sold or transferred as approved by the Ag.:ncy and City or otherwise permitted pursuant to Section 12.10 hereof, the Agency Loan and City Ioan shall be fully assumable by the approved or permitted transferee. The Agency Loan and City Loan shall not be assumable by any other transferee. 4.9 Use of Loan Proceeds. Borrower shall use Agency Loan and City Loan proceeds solely for paym~ nt ora portion of the costs of the acquisition, construction and equipping of the Project. 4.10 Lien Priority, Title Insurance. As a condition to the obligations of Agency to fund the Agency Loan, and as a condition to the obligations of City to fund the City Loan, there shall be no liens or encum ~rances upon the Property having priority over the Agency Trust Deed and City Trust Deed, other th~ n: (a) the deed of trust securing the Permanent Loan; (b) the Collateral and Construction Loan D~cuments; (c) the PCDC Construction Loan; (d) the Affordable Housing Agreement, (e) the Regul ttory Agreement, and (f) those existing non-monetary encumbrances which are disclosed in title re ~orts delivered to Agency and City and which have not been objected to by the Agency or City n writing. Such priority shall be evidenced by an ALTA lender's insurance policy to be issued to · gency, including title endorsements reasonably requested by the Agency with liability equal to tt amount of the Agency Loan, or such other amount as may be mutually agreed to by the partie and an ALTA lender's insurance policy to be issued to City, including title endorsements reasom ly requested by the City with liability equal to the amount of the City Loan (the "Lender's Policies" ), to be issued by Title Company at the close of escrow for the Borrower's acquisition of the Propert). Borrower shall be responsible for the cost of the Lender's Policy, which may be paid for from th,: proceeds of the Agency Loan and./or City Loan. Notwithstanding anything to the contrary set forth herein, the Agency acknowledges that the Agency Loan is subordinate and the City acknox Aedges that the City Loan is subordinate to §42(h)(6)(E)(ii) of the Internal Revenue Code of 1986, as ~mended. 4.11 Subordination; Refinancing. Agency agrees to take such actions as may he necessary to subordina e the Agency Trust Deed to the Permanent Loan or any future refinancings thereof and the PCD£ Construction Loan, and City agrees to take such actions as may be necessary to subordinate the Ci;y Trust Deed to the Permanent Loan or any future refinancings thereof and the PCDC Construct on Loan; provided, however, that any such subordination to the Permanent Loan shall be evidenced by a recorded subordination agreement containing such notice, cure, loan purchase or assr mption and Project purchase rights as may be reasonably required by the Agency or City in a form t~ ~ be approved by the Agency's and City's attorneys, which approval shall not be unreasonably withhe d or delayed. 4.12 Borrower's Evidence of Financial Capability. The anticipated sources and uses of funds for acquisition of the Property tnd construction and equipping of the Project are set forth in the Project Budget (Exhibit H). The tint ncial projections for the Project am set forth in the Project Pro Forma (Exhibit I). The Agency ac knowledges that the numbers in the foregoing exhibits may change, subject to reasonable Agem approval of such changes. Upon request but in no event later than the disbursement of the Agency oan and City Loan proceeds, Borrower shall submit to the Agency and City Housing Manager ~vidence reasonably satisfactory to the Agency and City Housing Manager that Borrower has the financial capability necessary for the acquisition of the Property and the construction and equit ping of the Project thereon in accordance with this Agreement, the Project Budget, and the Proje, Pro Forma. Such evidence of financial capability shall include the following: a. Copy of the partnership agreement, funding agreement, and othm Iocuments evidencing commitments for equity financing. b. Copy of the construction contract between Borrower and its gene 'al contractor for all of the improvements required to be constructed by Borrower hereunder, which st all be deemed to be certified by Borrower to be a true and correct copy thereof. c. Verifiable documentation that Borrower will receive an allocatio~ t of"4%" low income housing tax credits with respect to the Project. 4.13 Reports and Accounting of Residual Receipts. a. In connection with the annual repayment of the Agency Loan ant City Loan, commencing upon the Initial Payment Date, the Borrower shall furnish the Agen :y with an audited statement duly certified by an independent firm of certified public accountants at proved by the Agency, setting forth in reasonable detail the computation and amount of Residu d Receipts during the preceding calendar year. b. The Borrower shall keep and maintain in accordance with Sectiol~ 14.4 hereof full, complete and appropriate books, records and accounts necessary or prudent to ev idence and substantiate in full detail Borrower's calculation of Residual Receipts. All such I~ooks, records, and il 2. -/3 accounts shall be open to and available for inspection by the Agency and City, and their auditors or other authorized representatives in accordance with Section 14.4 hereof. ARTICLE 5 - Notes and Deeds of Trust 5.1 Security for Loans. a. Agency Loan. Borrower's obligations to pay the Agency Loan shall be evidenc ,'d by the Agency Note, and shall be subject to the terms and conditions contained therein. The l~gency Note shall provide for simple interest at the rate of three percent (3%) per annum. Amon~ other things, the Agency Note shall further provide that the Agency Note is non-recourse to the Borrower and the Partners of Borrower and that payments of principal and interest shall be mad only from fifty percent (50%) of the Residual Receipts (as defined in Article 4 hereof). The Agency Note shall be secured by the Agency Trust Deed :ncumbering the Property as a second priority deed of trust, junior only to the Bonds. The Agenc) Trust Deed shall further provide that the occurrence of any default pursuant to Section 13.1 of thi~ Agreement shall constitute a "default" or "event of default" under the Agency Trust Deed. Pri~,r to the close of escrow for the Borrower's acquisition of the Property, Borrower shall execute and ;leliver to Agency the Agency Note and the Agency Trust Deed. The Agency Trust Deed shall be 'ecorded with the Office of the San Diego County Recorder in accordance with Agency's instru:tions to escrow. Borrower shall be responsible for any and all of Agency's escrow, title and recordi ~g costs arising in connection with the Agency Loan, such costs to be paid by Borrower through escro' v. b. City Loan. Borrower's obligations to pay the City Loan shall be evidenced by ~e City Note, and shall be subject to the terms and conditions contained therein. The City Note shall rovide for simple interest at the rate of three percent (3%) per annum. Among other things, the City qote shall further provide that the City Note is non-recourse to the Borrower and the partners of [ orrower and that payments of principal and interest shall be made only from fifty percent (50% of the Residual Receipts which are available after the Agency Loan has been repaid in full. The City Note shall be secured by the City Trust Deed encumberin the Property as a third priority deed of trust, junior only to the Bonds and the Agency Loan. The ,z gency Trust Deed shall further provide that the occurrence of any default pursuant to Section 13.1 fthis Agreement shall constitute a "default" or "event of default" under the Agency Trust Deed. P vr to the close of escrow for the Borrower's acquisition of the Property, Borrower shall execute and ( eliver to City the City Note and the City Trust Deed. The City Trust D, eed shall be recorded with the Office of the San Diego County Recorder in accordance with City s instructions to escrow. B.~rrower shall be responsible for any and all of City's escrow, title and recording costs arising in co ~nection with the City Loan, such costs to be paid by Borrower through escrow. 5.2 Nonrecourse Obligation. Nothing herein contained shall be deemed to cause Borrower (or any of its p ~rtners, or any of their respective directors, officers, employees, partners, principals or members) .ersonally to be liable to pay or perform any of its obligations evidenced hereby, and the Agency and City shall not seek any personal or deficiency judgment on such obligations, and the sole rem~ dy of the Agency with respect to the repayment of the Agency Loan, and the sole remedy of the C ty with respect to the repayment of the City Loan, shall be against the Property; provided, however, that the foregoing shall not in any way affect any rights the Agency may have (as a secured p~ rty or otherwise) hereunder or under the Agency Note or Agency Trust Deed, or affect any rights 1 he City may have (as a secured party or otherwise) hereunder or under the City Note or City Trust 1 )eed, or any other rights the Agency or City may have to: (a) recover directly from the Borrower m y funds, damages or costs (including, without limitation, reasonable attorneys' fees and costs) incun ed by the Agency or City as a result of fraud, intentional misrepresentation or intentional waste b3 Borrower; or (b) recover directly from the Borrower any condemnation or insurance proceeds, or cther similar funds or payments attributable to the Property which under the terms of the Agency ~]'rust Deed should have been paid to the Agency, or which under the terms of the City Trust Deed should have been paid to the City, and any costs and expenses incurred by the Agency or City in cot nection therewith (including, without limitation, reasonable attorneys' fees and costs). ARTICLE 6 -Disbursement of Agency and City Loans 6.1 Disbursement. The proceeds of the Agency Loan and City Loan shall be disbursed on beh~ If of Borrower in three installments of Five Hundred Thousand Dollars ($500,000) each. The first i~stallment of loan proceeds shall be disbursed concurrently with the issuance of the Bonds. The sec~,nd installment of the Agency Loan and City Loan shall be disbursed upon completion of fifty pen ent (50%) of the construction of the Project, as evidenced by a certificate executed by the amhitect 'the Project. The third installment of the Agency Loan and City Loan shall be disbursed upon ompletion of the construction of the Project, as evidenced by the issuance of the Certificate of ~mpletion for the Project. ARTICLE 7 -California Community Redevelopment Law Requirer lents 7.1 Requirements. Because one source of the Agency Loan is the Agency's Low and Moderate-Income Housing Fund, Borrower is required to construct and operate the Project in compliance wit! all requirements of California Community Redevelopment Law (Health and Safety Code, Division 24), as said code may be amended or suspended from time to time. Not by way of limitation of the foregoing, in compliance with Health ~ nd Safety Code, D~vision 24, from the Effective Date of this Agreement through the end of the term that the units are required to remain affordable pursuant to the California Community Redevelopmen; Law, Borrower, as the operating entity, shall comply with all of the following requirements: a. Use of the Agency Low and Moderate Income Housing Funds. Low and Moderate Income Housing Funds shall be used only for eligible costs (see, e.g., Health and Sa i~ty Code Section 33334.3) in accordance with the Project Budget and Project Pro Forma; all a :quisition and development activities shall be completed within the times referenced in the Schedu e of T T Performance attached hereto, as said times may be extended in accordance with $ections 10.4 and 14.3 hereof. b. Affordability. The units shall meet the affordability requirements set forth in Section 11.2 herein. c. Housin~ Standards. Borrower shall maintain units in compliance with local housing code requirements or the provisions of this Agreement, whichever requirements a re more restrictive. d. Records and Reports. In addition to the other provisions of this ^ greement, including without limitation Section 4.13(b) hereof, Borrower shall provide to Agency all r~ ~cords and reports relating to the Project that may be reasonably requested by Agency in order to en~ tble it to perform its recordkeeping and reporting obligations pursuant to Health and Safety Code Sect OhS 33080.1 and 33418. e. Enforcement of Agreement. In addition to the other provisions se I forth herein, Agency shall have the authority to enforce Borrower's obligation to comply with the California Community Redevelopment Law as set forth in this Agreement. f. Duration of Covenants. In accordance with Health and Safety Co ]e Section 33334.3, the covenants in this Section 7.1 relating to Borrower's compliance with the Call: brnia Community Redevelopment Law shall remain in effect for the longest feasible time but not le ;s than a period of at least fifty-five (55) years from the date of the City's issuance of the final Certil icate of Completion for the Project. g. Monitoring. Not less than once every two years during the perioc covered by this Section 7.1, Agency may review Borrower's activities and operations under this, tgreement and Borrower's compliance with the requirements of the California Community Rede velopment Law, including, but not limited to, Borrower's compliance with the requirements ofthi; Section 7.1. Such review may include an on-site inspection of the Project (including unit interiors, ~ ubject, however, to the rights of tenants in possession). If such an on-site inspection of the Project is to be undertaken, Agency shall coordinate such inspection with Borrower and/or the Property Man~ .ger. ARTICLE 8 -HOME Requirements 8.1 Requirements. Because the source of the City Loan is funds allocated to City by HUD p~ trsuant to the federal government's HOME Program, Developer is required to construct and operate the l'roject in compliance with all requirements of the HOME Program and the HOME Regulations (24 C.F.Iq Section 92 et sea.), as said regulations may be amended or suspended from time to time. Not by way of limitation of the foregoing, in compliance with 24 C.F.R. Se. lion 92.504(c), from the Effective Date of this Agreement through the end of the term that the HOI~ IE-assisted units are required to remain affordable pursuant to the HOME Regulations, Developer, as the operating entity, shall comply with all of the following requirements: a. Use of the HOME Funds. HOME funds shall be used only for eli gible costs (see, e.g., 24 C.F.R. Sections 92.206 and 92.214) in accordance with the Project Budg~ :t and Project Pro Forma; all pre-construction and construction activities shall be completed within Ihe times referenced in the Schedule of Performance attached hereto, as said times may be extended in :cordance with Section 10.4 and Section 14.3 hereof. b. Affordability. The HOME-assisted units shall meet the affordabili ~ requirements of the HOME Regulations (24 C.F.R. Section 92.252), the TCAC Regulatory Agreem mt or this Agreement, whichever is more restrictive, as mom particularly set forth in Section 1.2 herein. c. Project Requirements. Developer shall comply with all project req irements set forth in Sections 92.250~92.258 of the HOME Regulations, as applicable in accordance ' 'ith the type of project assisted, or with the provisions of this Agreement, whichever requirements .re more restrictive. d. Housing Quality Standard. Developer shall maintain HOME-assist~ units in compliance with applicable Housing Quality Standards and local housing code requ ements or the provisions of this Agreement, whichever requirements are more restrictive. e. Affirmative Marketing. Developer shall perform those affirmative ~arketing responsibilities set forth in 24 C.F.R. Section 92.351 or in the marketing plan descr ~ed in Section 11.6 of this Agreement, whichever are more restrictive. f. Records and Reports. In addition to the other provisions of this Agr ;ement, including without limitation Section 11.3 hereof, Developer shall provide to City all records a ~d reports relating to the Project that may be reasonably requested by City in order to enable it to perform its record keeping and reporting obligations pursuant to Sections 92.508 and 92.509 of the HOME Regulations. g. Enforcement of Agreement. In addition to the other provisions set f ~rth herein, City shall have the authority to enforce Developer's obligation to comply with the HOMf; Investment Partnerships Program and the HOME Regulations as set forth in this Agreement. h .... 4 C.F.R,. · Duration of Covenants HOME-Assisted Units. In accordance with, Sections 92.252(e) and 92.504(c)(3)(ix), the covenants in this Section relating to De zeloper s compliance with the HOME Investment Partnerships Program and the HOME Regu ations shall remain in effect for a period of at least twenty (20) years after project completion. i. Monitoring. Not less than once every two years during the period cc vered by this Section 8, City may review Developer's activities and operations under this Agreem, '.nt and Developer's compliance with the requirements of the HOME Investment Partnershil: s Program and the HOME Regulations, including, but not limited to, Developer's compliance with 1 he requirements of this Section. Such review may include an on-site inspection of the Project (incluc lng unit interiors). If such an on-site inspection of the Project is to be undertaken, City shall :oordinate such inspection with Developer and/or the Property Manager. The monitoring required p trsuant to this paragraph shall be in compliance with the requirements of 24 C.F.R. Section 92.504 d). ARTICLE 9- Development Fee 9.1 Development Fee. Sysiphus Development Systems, LLC ("Developer") shall be entitled to a development fee, which includes general overhead and profit, in the amount which does not ex~ eed the amount set forth therefor in the Sources and Uses, Project Budget and Pro Forma attache:l hereto, and in no event greater than the maximum amount permitted pursuant to the Low Income Housing Tax Credit statutes and regulations (the "Development Fee"). It is anticipated that a portion of the Development Fee shall be paid by Borrower from the proceeds of the financing for the acqu isition, construction and equipping of the Project upon the close of such financing, with the balance ~f the Development Fee (the "Deferred Development Fee") to be paid from Gross Revenue of th~ Project and equity contributions to Borrower made after the closing. The Borrower's obligation :o pay the Deferred Development Fee shall be evidenced by a promissory note (the "Deferred Deve]opment Fee Note"). In the event there are any cost savings realized in the construction of the Projec', all available funds attributable to such cost savings shall also be applied to the Deferred Develor ment Fee. Regular payments on the Deferred Development Fee Note shall be made on an annual b~ sis out of the Gross Revenues of the Project. Such amounts shall be paid to Developer on a priority E asis to all other debt service on the Property except for the Permanent Loan. Developer shall speci ically be entitled to payment of the Deferred Development Fee before payment of the amounts due tc Agency pursuant to the Agency Note. The Deferred Development Fee Note shall not be secured b~' any liens upon the Property. ARTICLE 10 -Development of the Project 10.1 Work to be Performed. Borrower agrees to develop the Property so that it consists of a multi-family residential project consisting of 150 apartment units contained in five three-story wood-~ramed, garden-style residential apartment buildings, and to operate the Project for occupancy by ver3 low, lower and low and moderate income households, subject to the terms of this Agreement, he Scope of Work attached hereto as Exhibit K and incorporated herein, the Permanent Loin Documents, the Affordable Housing Agreement, and the Regulatory Agreement. The Project sh~ 11 consist of 30 two- bedroom/one bathroom units, 30 two-bedroom/two bathroom units, 80 three-bec room/two bathroom units, and 10 four-bedroom/two bathroom units, two tot lots, half basketball co Jrt, swimming pool, five shaded picnic and barbeque areas and a community center, which inclu ]es a multi-purpose community room, computer room, kitchen, rental office, laundry room and stor tge space, and other common area facilities in accordance with the plans approved by the City in connection with issuance of the building permit(s), and with the terms of and conditions of all and use permits and approvals required by the City to the extent such permits and approvals are r~ tuired by applicable law. The Project's units and occupancy shall be restricted in accordance wi Ih the terms of this Agreement. If Borrower desires to make any change in any construction or bu lding plans after the same have been approved, Borrower shall submit the proposed change to the ~tppropriate body for approval, if and to the extent required by applicable law. Borrower shall b, responsible for all construction and installation and for obtaining all the necessary permits. 10.2 Compliance with Permits and Laws. Borrower and its contractors shall carry out the development of the Proje~ t and operation of the Project in conformity with all applicable laws, regulations, and rules of the governmental agencies having jurisdiction, including without limitation all legally applical~le conditions and requirements of California Community Redevelopment Law (Health and Safety £ ade, Division 24); all conditions and requirements of the HOME Investment Partnerships Program and ]tOME Regulations referred to in Section 8.1; all legally applicable prevailing wage requirements, if an , the applicability of which is for Borrower to determine, pursuant to federal and state law, includin California Labor Code {}1770 et seq.; all legally applicable conditions and requirements imposed b the Low Income Housing Tax Credit Program; all legally applicable labor standards; the legally apl licable provisions of the City zoning and development standards, building, plumbing, mechanical ar d electrical codes, and all other provisions of the City Municipal Code, and all legally applic~tble disabled and handicapped access requirements, which may include, without limitation, the Americans With Disabilities Act, 42 U.S.C. Section 12101, et seq., Government Code Section4450, et seq., Government Code Section 11135, et seq.. the Unruh Civil Rights Act, Civil Code '~ ;ection 51, et seq., and the California Building Standards Code, Health and Safety Code Section 1 5900, et seq., and Agency policies adopted pursuant to said federal standard regulations and equirements, and applicable MBE/WBE regulations and City policies adopted pursuant to said federal s :andard regulations and requirements. Borrower shall not take any action which would cause the Proje ct to be construed as a low rent housing project under Article XXXIV of the California Constitution ~r otherwise be in violation of Article XXXIV of the California Constitution. The work shall proceed only after procurement of each permit, license, or (,ther authorization that may be required under applicable law by any governmental agency having ju :isdiction, and the Borrower shall be responsible to the Agency for procurement and maintenance t ~ereof, as may be required of the Borrower and all entities engaged in work on the Project. 10.3 Costs of Development. Subject to the terms and conditions of this Agreement, Borrower shall be 'esponsible for all costs of developing the Project, including but not limited to predevelopment costs incurred for items such as planning, design, engineering, and environmental remediation; all develop nent and building fees; the cost incurred to demolish and clear any and all existing improvements, fm nishings, fixtures, and equipment from the Property; costs for insurance and bonds (as required); c{,sts for financing; preparation of the Property for construction; and all on-site construction costs. Thi~ Agreement does not require Borrower to construct any off-site improvements. Borrower shall le responsible for verifying the adequacy and availability of all utilities. If at any time during :he course of the development of the Project, Borrower exhausts fifty percent (50%) or more o' the contingency amounts set forth in the Project Budget, Agency and City shall have the right, but ~ot the obligation, to approve any additional cost overruns (unless such approval has been obtained fr )m the Permanent Lender), which approval shall not be unreasonably withheld. 10.4 Schedule of Performance: Progress Reports. Subject to Section 14.3, Borrower shall begin and complete all constructio ~ within the times specified in the Schedule of Performance, subject to any extension granted by ,kgency and City, which extension shall not unreasonably be withheld upon the written request of thc Borrower. Once construction has commenced, it shall be continuously and diligently pursued to con ~letion, and shall not be abandoned for more than fifteen (15) consecutive business days, except ~hen due to causes beyond the control and without the fault of Borrower, as set forth in Section 14.3 )fthis Agreement. During the course of the construction, and prior to the completion of th: Project, Borrower shall keep Agency and City informed of the progress of the construction on l he Property and, if requested, shall provide Agency and City with monthly written progress rep)rts and meet with Agency staff as appropriate. If requested, Borrower shall furnish a construction ~chedule to Agency and City indicating completion dates for each portion of work showing progress toward completion of the Project. After completion of construction of the Project and within the time set fi ,rth in the Schedule of Performance (as it may be revised as provided above), Borrower shall prov de the Agency and City Housing Manager a true and correct copy of the final cost certification '. ubmitted to TCAC concerning the construction of the Project on the Property. Borrower shall pro ¢ide additional cost information as may be reasonably requested by the Agency and City Housing M tnager to permit the Agency and City Housing Manager to make such determinations as is reas, mably required for Agency and City to verify Borrower's conformance to this Agreement and the ~ cope of Work, as it may be revised by mutual agreement of the parties from time to time durin the course of the construction. 10.5 Anti-discrimination. Borrower, for itself and its successors and assigns, agrees that Borrower ill not discriminate against any employee or applicant for employment because of race, color, ~ reed, religion, sex, marital status, ancestry, or national origin in connection with activities underta ten pursuant to this Agreement. 10.6 Right of Access. For the purpose of assuring compliance with this Agreement, representa ives of Agency and City, upon reasonable prior notice of no less than 24 hours, shall have the reaso~ table right of access to the Property, without charges or fees, at normal construction hours dr ring the period of construction for the purposes of this Agreement, including but not limited to t ~e inspection of the work being performed by Borrower in constructing the Project. Such representa :ives of Agency and City shall be those who are so identified in writing by the Housing Manager. Al ~ency and City shall indemnify, defend, and hold harmless Borrower and Borrower's officers, em >loyees, and agents from any damage caused or liability arising out of the sole negligence or wllful misconduct of Agency and City or their officers, officials, employees, volunteers, agents, or reI ,resentatives in their exercise of this right of access; provided that it is understood that Agency and City do not by this Section 10.6 assume any responsibility or liability for a negligent inspection t r failure to inspect. Any inspection by Agency or City pursuant to this section shall be conducted so ~s not to interfere or impede the construction or operations of the Project. 10.7 Mechanics Liens, Stop Notices, and Notices of Completion. a. Subject to Borrower's right to contest set forth in Section 11.4 of :his Agreement, if any claim or lien is filed against the Project or a stop notice affecting the Agency Loan or City Loan is served on the Agency or City or any other lender or other third party in connec :ion with the Project, then the Borrower shall, within forty-five (45) days after such filing or sc rvice, either pay and fully discharge the lien or stop notice, effect the release of such lien or stop nc rice by delivering to the Agency and City a surety bond in sufficient form and amount, or provide th,: Agency and City with other assurance satisfactory to the Agency and City that the claim of lien or sop notice will be paid or discharged. b. If Borrower fails to discharge any lien, encumbrance, charge, or cl tim in the manner required in Section 10.7 (a), then in addition to any other right or remedy, the Age ~cy and City may (but shall be under no obligation to) discharge such lien, encumbrance, charge, or :laim at the Borrower's expense. Alternately, the Agency and City may require the Borrower :o immediately deposit with the Agency, City or title company the amount necessary to satisfy su~ h lien or claim and any costs pending resolution thereof. The Agency and City shall use such deposit to satisfy any claim or lien that is adversely determined against the Borrower. c. The Borrower shall file a valid notice of cessation or notice of con ~pletion upon cessation of construction on the Project for a continuous period of thirty (30) days or more, and take all other reasonable steps to forestall the assertion of claims of lien against the Pfc ject. The Borrower authorizes the Agency and City, but without any obligation, to record a~ ~y notices of completion or cessation of labor, or any other appropriate notice that the Agency ~,r City deems necessary or desirable to protect its respective interest in the Project. 10.8 Certificate of Completion. Upon Borrower's satisfactory completion of construction of the Projec;, Agency and City shall furnish Borrower with a Certificate of Completion upon written request th :refor by Borrower. Such Certificate of Completion shall be in a form so as to permit recordation n the Office of the Recorder of the County of San Diego as set forth in Exhibit J which is incorporat~ d herein. The Certificate of Completion shall be, and shall so state, a conclusi te determination of satisfactory completion of the construction of the Project and of full compliam e with the terms of ~f the Certificate of this Agreement relating to such construction. After the date of the issuance ~ Completion, and notwithstanding any other provisions of this Agreement to the contrary, any party then owning or thereafter purchasing, leasing, or otherwise acquiring any interest in the Property shall not (because of such ownership, purchase, lease, or acquisition) incur any cbligation or liability under this Agreement for the construction of the Project. Agency and City sh:tll not unreasonably withhold the Certificate of Completion. If Agency or City refuses or fails to furn h the Certificate of Completion after written request from Borrower, it shall, within fifteen (15) dal after such written request, provide Borrower with a written statement of the reasons it refused or f led to furnish such Certificate of Completion. The statement shall also contain its opinion of the a~:tion Borrower must take to obtain such Certificate of Completion. If the reason for such refusal is confined to the immediate availability of specific items or materials for landscaping, it shall is ;ue its Certificate of Completion upon the posting of cash deposit or an irrevocable letter of credit in favor of the Agency and City in an amount representing the fair value of the work not yet comp ieted and in a form reasonably acceptable to the Agency's and City's attorney. A Certificate of 2ompletion is not a notice of completion as referred to in California Civil Code Section 3093. 10.9 Estoppels. At the request of Borrower or any holder of a mortgage or deed of tr[ st, Agency and City shall, from time to time and upon the request of such holder, timely execute ant deliver to Borrower or such holder a written statement of Agency and City that no default or breach exists (or would exist with the passage of time, or giving of notice, or both) by Borrower under this Agre ~ment, the Agency Note, the Agency Trust Deed, the City Note, the City Trust Deed and/or the A [fordable Housing Agreement, if such be the case, and certifying as to whether or not Borrower has ~t the date of such certification complied with any obligation of Borrower hereunder or under such c f those documents as to which such holder may inquire. The form of any estoppel letter shall be pre[ ared by the holder or Borrower. ARTICLE 11 Uses Of The Property 11.1 Summary. Borrower covenants and agrees for itself and its successors and assigns t~, its interest in the Property that Borrower and such successors and assigns shall devote the Propert~ to uses consistent with California Community Redevelopment Law, the HOME Investment Partnerships Program and HOME Regulations referred to in Section 8.1, the Permanent Loan Documen~ the Regulatory Agreement, the Affordable Housing Agreement, the Agency Trust Deed, the Ci Trust Deed and this Agreement, whichever is most restrictive, for a period ending fifty-five (55) j ars from the date of the Agency's issuance of the final Certificate of Completion for the Project. Agency and City shall be third-party beneficiaries under the Regulatory Agreement and shall ha~ e full authority to enforce any breach or default by Borrower under such agreement in the same m tuner as though it were a breach or default hereunder. Without Agency's and City's prior writt:n consent, which consent may be withheld in Agency's and City's sole and absolute discretion, l~orrowcr shall not consent to any amendment of or modification to the TCAC Regulatory Agreen ent or Regulatory Agreement which (i) shortens the term of the affordability restrictions on the units in the Project to a term of less than fifty-five (55) years after the date of the issuance of the nal Certificate of Completion for the Project or (ii) modifies the number of units required to be nted at affordable housing costs to persons of specified incomes. 11.2 Affordable Housing:. Borrower covenants and agrees for itself and its successors and assigns . its interest in the Property that commencing upon the completion of the Project and continuing th eafter for a period of fifty-five (55) years from the date of the issuance of the final Certificate of (~ompletion for the Project, Borrower and such successors and assigns shall devote one hundred fort"-nine (149) of the one hundred fifty (150) residential units on the Property (hereinafter thc "Restrii:ted Units") to the continuous use as affordable rental housing for very low, lower and low and moderate income households in accordance with the terms of this Agreement (the remaining unit rr ay be occupied by the on-site property manager), subject to the occupancy restrictions contained in this Section 11.2. 30 Restricted Units shall be made available to very low income households at or I~ :low 50 percent of the Area Median Income ("AMI"), 43 Restricted Units shall be made availabl: to lower-income households at or below 60 percent of AMI, and 77 Restricted Units shall be mac e available to low and moderate income households at or below 120 percent of AMI, all at an afford, tble rent; provided, however, that eleven (11) of the three-bedroom units shall also be subject to restricti ~ns provided under the HOME Investment Partnerships Program and HOME Regulations discussed in S :ction 8.1. One of the Restricted Units may be rented or provided at an affordable rent to operatio~ al or maintenance employees of the Property Manager who otherwise meet the income requirement hereof which are applicable to their Restricted Units. In determining income eligibility for a particular Restricted Unit, Borrow :r shall be entitled to rely upon the documentation provided by the prospective tenant as required put., uant to the HOME Investment Partnerships Program procedures, TCAC Regulatory Agreement, A'fordable Housing Agreement and Regulatory Agreement. Borrower shall not be required t,~ perform further investigations into the household income other than those which are required pursuant to such agreements. Throughout this Agreement, wherever it is stated that Borrower mu ~t comply with the affordability requirements and/or verify such compliance, Borrower shall be entitl :d to rely upon the tenant documentation discussed in this paragraph. In addition to the foregoing, to the fullest extent allowed by law the lease ~ greement for each Restricted Unit in the Project shall restrict occupancy of the Restricted Unit to a total of five (5) persons for two bedroom units, seven (7) persons for three bedroom units, and n ne (9) persons for four bedroom apartment units. Any violation of such restrictions shall constitu~ a default by the tenant, unless such occupancy restriction is found invalid by a court of compete jurisdiction in a final non-appealable judgment in a lawsuit in which the Project's occupancy restri, ion is at-issue, or in an applicable and binding published appellate opinion, or by statute, regulatio a or other binding court order. 11.3 Reports. Borrower, at its expense, shall submit, or cause the Property Manager to submit, to the appropriate entities any and all reports required to be submitted by Borrower pur ;uant to California Community Redevelopment Law and the HOME Investment Partnerships Pre ram and HOME Regulations. 11.4 Subordination of Affordability Covenants. In the event that the Agency and City find that an economically feasible m :hod of financing for the construction and operation of the Project, without the subordination of the tffordable housing covenants as may be set forth in this Agreement, is not reasonably available, the Agency and City shall make the affordable housing covenants set forth in this Agreement junior and subordinate to the deeds of trust and other documents required in connection with the eonstructi.~n and permanent financing for the Project approved pursuant to this Agreement. Any subordination agreement entered into by the Agency and City shall contain written commitments which the Agenc: and City find are reasonably designed to protect Agency's and City's investment in the event ofdef~ ult, such as any of the following: (a) a right of Agency and City to cure a default on the loan prior tt foreclosure, (b) a right of Agency and City to negotiate with the lender after notice of default from tl te lender and prior to foreclosure, (c) an agreement that if prior to foreclosure of the loan, Agency o~ City takes title to the property and cures the default on the loan, the lender will not exercise any ri ght it may have to accelerate the loan by reason of the transfer of title to Agency or City, and (d) a ri ;ht of Agency and City to reacquire the Property from the Borrower at any time after a material default on the loan. 11.5 Condition of the Property. a. Borrower hereby represents that to the best of its knowledge, excep: as otherwise disclosed to the Agency and City in writing, it is not aware of and has not received ~ny notice or communication from any government agency having jurisdiction over the Property notifying Borrower of the presence of surface or subsurface zone Hazardous Materials in, on or under the Property, or any portion thereof. "Best knowledge," as used herein, shall mean the actual knowledge of the Borrower and its officers, directors, employees, agents and representatives, ~ts based upon the documents and materials in the possession of Borrower, and its officers, employee ;, agents and representatives, including the site investigation report or study referred to in Sectk 11.5(b) herein. b. In addition to the foregoing, the Borrower has, at its sole cost and e pense, engaged its own environmental consultant to conduct a Phase 1 investigation of the Propert ~ and produce a report thereof, a copy of which has been provided to the Agency and City by Borr( wer. Such report concludes that no Hazardous Materials have been detected on the Property. c. Borrower shall take all necessary precautions to prevent the release into the environment of any Hazardous Materials which may he located in, on or under the Property. Such precautions shall include compliance with all Governmental Requirements with re~ pect to Hazardous Materials. In addition, Borrower shall install and utilize such equipment and impl~ ment and adhere to such procedures as are consistent with commercially reasonable standards as res >ects the disclosure, storage, use, removal and disposal of Hazardous Materials. d. Borrower shall indemnify, defend and hold Agency and City harml :ss from and against any claim, action, suit, proceeding, loss, cost, damage, liability, deficiency, fine, penalty, punitive damage, or expense (including, without limitation, reasonable attomeys' f ~'es), resulting from, arising out of, or based upon (i) the release, use, generation, discharge, storat :e or disposal of any Hazardous Materials on, under, in or about, or the transportation of any such lq azardous Materials to or from, the Property, no matter when such claim, action, suit or proce :ding is first asserted or begun and no matter how the Hazardous Materials came to be released, used, generated, discharged, stored or disposed of on, under, in or about, to or from the Property, or by whom or how they are discovered, or (ii) the violation, or alleged violation, of any statute, ordina Ice, order, rule, regulation, permit, judgment or license relating to the use, generation, release, discl ~arge, storage, disposal or transportation of Hazardous Materials on, under, in or about, to or from the Property. This indemnity shall include, without limitation, any damage, liability, fine, penalt2 ', parallel indemnity after closing, cost or expense arising from or out of any claim, action, su it or proceeding, including injunctive, mandamus, equity or action at law, for personal injury (incluc lng sickness, disease or death), tangible or intangible property damage, compensation for lost w~ ges, business income, profits or other economic loss, damage to the natural resource or the envirt .nment, nuisance, contamination, leak, spill, release or other adverse effect on the environment. e. For purposes of this Agreement, "Hazardous Materials" means any substance, material, or waste which is or becomes regulated by any local governmental author ty, San Diego County, the State of California, regional governmental authority, or the United Stat ~s Government, including, but not limited to, any material or substance which is (i) defined as a "ha ~ardous waste," "extremely hazardous waste," or "restricted hazardous waste" under Section 25115 25117 or 25122.7, or listed pursuant to Section 25130 of the California Health and Safety Cc fie, Division 20, Chapter 6.5 (Hazardous Waste Control Law)), (ii) defined as a "hazardous substance" under Section 25316 of the Califomia Health and Safety Code, Division 20, Chapter 6.8 (Carpent :r-Presley-Tanner Hazardous Substance Account Act), (iii) defined as a "hazardous material," "hazar{ ous substance," or "hazardous waste" under Section 25501 of the California Health and Safety Cod. ~, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory), (iv) de ined as a "hazardous substance" under Section 25281 of the California Health and Safety Co te, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances), (v) petroleum, (vi) fr able asbestos, (vii) polychlorinated byphenyls, (viii) methyl tertiary butyl ether, (ix) listed under / rticle 9 or defined as "hazardous" or "extremely hazardous" pursuant to Article 11 of Title 22 of the California Code of Regulations, Division 4, Chapter 20, (x) designated as "hazardous substar ces" pursuant to Section 311 of the Clean Water Act (33 U.S.C. §1317), (xi) defined as a "hazardot s waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq. (42 U.S.C. §6903) or (xii) defined as "hazardous substances" pursuant to Section 101 of the 12 omprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §9601, et se 7. The term hazardous materials shall not include any material commonly used in the operatior and/or occupancy of a multifamily housing project. 11.6 Marketing Plan. Borrower shall submit for the approval of the Agency and City, which approval shall not unreasonably be withheld, a plan for marketing the rental of the apartment units in compliance with federal and state fair housing law. Such marketing plan shall include a plan br publicizing the availability of the apartment units within the City, such as notices in any City sp( nsored newsletter, newspaper advertising in local newspapers and notices in City offices. The m. trketing plan shall require Borrower to obtain from the Agency the names of low- and moderate-i~come households who have been displaced by the Agency's redevelopment projects, and to notify 1: :rsons on such list of the availability of units in the Project prior to undertaking other forms o' marketing. The marketing plan shall provide that the persons on such list of displaced persons I.e given not fewer than ten (10) days after receipt of such notice to respond by completing applicati, ~n forms for rental of apartment units, as applicable. 11.7 Maintenance of Property. Borrower agrees for itself and its successors in interest to all or any porti~ ,n of the Property, to maintain the improvements on the Property in conformity with applicable pro 4sions of the City Municipal Code, and shall keep the Property free from any accumulation o' debris or waste materials. During such period, the Borrower shall also maintain the landscaping planted on the Property in a healthy condition. If at any time Borrower fails to maintain the )roperty and such condition is not corrected within ten days after written notice from Agency or C ty with respect to graffiti, debris, waste material, and general maintenance, or thirty days after ~ ritten notice from Agency or City with respect to landscaping and building improvements, then Age ~cy, in addition to whatever remedy it may have at law or at equity, but subject to the rights of the l'ermanent Lender, shall have the right to enter upon the applicable portion of the Property and perforn i all acts and work necessary to protect, maintain, and preserve the improvements and landscaped are~ :s on the Property, and to attach a lien upon the Property, or to assess the Property, in the amount G t' the expenditures arising from such acts and work of protection, maintenance, and preservation by A ;ency and/or costs of such cure, including a fifteen percent (15%) administrative charge, which amount shall be promptly paid by Borrower to Agency or City upon demand. 11.8 Property Management. The parties acknowledge that the Agency and City are interested n the long term management and operation of the Property and in the qualifications of any perso~ or entity retained by the Borrower for that purpose (the "Property Manager"). Therefore, during the period of the effectiveness of the affordability covenants set forth herein, the Agency and City may from time to time review and evaluate the identity and performance of the Property Man ~ger as it deems appropriate. If the Agency or City determines that the performance of the Pr(perty Manager is materially deficient based upon the standards and requirements set forth in this Se :tion 11.8 and the approved Management Plan (as defined below), the Agency or City shall pfc vide notice to the Borrower of such deficiencies and the Borrower shall use its best efforts to correqt such deficiencies within a reasonable period of time, subject to the requirements of the Permandnt Lender and the terms and conditions of the Borrower's Limited Partnership Agreement. Upot~ the failure of the Property Manager to cure such deficiencies within the time set forth herein, the ~gency shall have the right to require the Borrower to immediately remove and replace the Property Manager with another property manager or property management company who is reasonabl~ acceptable to the Agency and City, who is not related to or affiliated with the Borrower. In addition, the Borrower shall submit for the reasonable approva of the Agency and City a detailed "Management Plan" which sets forth in reasonable detail the dut es of the Property Manager, the tenant selection process, a security system and crime proven:ion program, the procedures for the collection of rent, the procedures for monitoring of occ~tpancy levels, the procedures for eviction of tenants, the rules and regulations of the Properls~ and manner of enforcement, a standard lease form, and other matters relevant to the manageme it of the Property. The management plan shall require the Property Manager to adhere to a fair ase and grievance procedure and provide a plan for tenant participation in management decisions, he management of the Property shall be in compliance with the Management Plan which is approvec >y the Agency and City, subject, however, to any requirements of the Permanent Lender pursuant to Permanent Loan Documents. The Management Plan may be revised from time to time upon approval of the Agency, City and the Borrower. 11.9 Affordable Housing Agreement. Certain requirements with respect to the affordable housing obligations a~ other operational and maintenance obligations of the Project are set forth in the Affordable Housint: Agreement. The execution and recordation of the Affordable Housing Agreement is a conditio~ precedent to the disbursement of the Agency Loan and City Loan, as set forth in Section 4.3 hereofi ARTICLE 12 - Continuing Obligations of Borrower 12.1 Applicability. For the entire term of the requirements set forth in Section 12.1 hereof, ~e Borrower shall comply with the provisions of this Article 12. 12.2 Insurance. Within ten (10) days after the Borrower's acquisition of the Property, Bor )wer shall furnish to the Agency duplicate originals or appropriate certificates of insurance covera[ e evidencing that Borrower has obtained, or cause to be obtained, insurance coverage with respect t{, the Property and Project in type, amount and from insurers with Best's ratings as are reasonably acc :ptable to Agency and City (or have been approved by the Permanent Lender), naming the Agency ~nd City and their officers, agents, employees, representatives and their respective successors, as na ned or additional insureds by appropriate endorsements. Such policy shall include, without lin itation "all risk" property casualty insurance and comprehensive general liability insurance. Wilhout limiting the generality of the foregoing, such policy shall also include coverage to insure Bor~ ower's indemnity obligations provided herein. Borrower covenants and agrees for itself and its succ,:ssors and assigns that Borrower and such successors and assigns shall keep such liability policy in ~11 force and effect for the term of the Loan. In addition to any other remedy which Agency and City may have hereto :ter for Borrower's failure to procure, maintain, and/or pay for the insurance required herein, Agency and City may (but without any obligation to do so, and subject to the rights of the Permanent Lender under the Permanent Loan Documents) at any time or from time to time, after thirty (30) daI ,s written notice to Borrower, procure such insurance and pay the premiums therefor, in which ev,:nt Borrower shall immediately repay Agency and City all sums so paid by Agency and City tog :ther with interest thereon at the rate often percent (10%) per annum or the maximum legal rate, whi, :hever is less. 12.3 Proceeds of Insurance. Should the Project be totally or partially destroyed or rendered wholly or p ~rtly uninhabitable by fire or other casualty required to be insured against by Borrower, Borrov er shall promptly proceed to obtain insurance proceeds and take all steps necessary to proml:tly and diligently commence the repair or replacement of the Project to substantially the same cond tion as the Project is required to be maintained in pursuant to this Agreement if(i) the Borrower agree s in writing within ninety (90) days after payment of the proceeds that such repair or rebuilding is eco ~omically feasible, and (ii) the Permanent Lender permits such repair or rebuilding, provided hat the extent of Borrower's obligation to restore the Project shall be limited to the amount of the nsurance proceeds actually received by the Borrower. If the Borrower is unable or is not permitted tc repair, replace, or restore the Project, Borrower must give notice to Agency (in which event Borrowe~ will be entitled to all insurance proceeds, subject to any outstanding lien obligations, but Borrower s wall be required to remove all debris from the Property) and Borrower may construct such other im ~rovements on the Property as are consistent with applicable land use regulations and approved by Agency and the other governmental agency or agencies with jurisdiction. 12.4 Taxes, Assessments, Encumbrances, and Liens. Borrower shall pay prior to delinquency all real estate taxes and as sments properly assessed and levied on the Property. Until the payment in full of all amounts owing under the Agency Noe and City Note, Borrower shall not place or allow to be placed thereon any mortgage, trust deed encumbrance, or lien (except mechanic's liens prior to suit to foreclose the same being filed) not ~uthorized by this Agreement. Borrower shall remove or have removed any levy or attachment mad: on the Property, or assure the satisfaction thereof, within a reasonable time, but in any event prior to sale thereunder. Nothing herein contained shall be deemed to prohibit Borrower from cont ;ting the validity or amounts of any tax, assessment, encumbrance, or lien, nor to limit the rem :dies available to Borrower in respect thereto. 12.5 Hold Harmless. Borrower agrees to indemnify, protect, defend and hold harmless Agency. md City and their officers, agents, employees, representatives and successors, from and against ar y and all claims, damages, actions, costs, demands, expenses or liability, including without limi:ation, reasonable attorneys' fees and court costs, which may arise from the direct or indirect actions ~r inactions of the Borrower ,or those of its contractors, sub-contractors, agents employees or other persons acting on Borrowers behalf which relate to the Property or Project. This hold harmlesslagreement applies, without limitation, to all damages and claims for damages suffered or alleged to Ihave been suffered by reasons of the operations referred to in this paragraph, regardless of whetherlor not the Agency prepared, supplied or approved plans or specifications, or both, for the Propert[, or Project. This indemnity by Borrower, and all other indemnities set forth herein shall survive an ~ foreclosure of the Property by the Agency pursuant to the terms of the Agency Trust Deed or by tJ te City pursuant to the terms of the City Trust Deed. 12.6 Further Indemnification of Agency and City. It is understood and agreed that the parties hereto have entered this Agreen ent as a method of providing necessary assistance to Borrower in connection with the construction oi low and moderate income housing and development of the Property pursuant to all applicable laws and that by contributing public funds to assist in the accomplishment of such developmen or by otherwise contributing or assisting with the accomplishment of such development, the Agen¢ , and City assume no responsibility for insuring that the same is adequately undertaken (including, Athout limitation, the existence and/or remediation of any hazardous or toxic substances on the l'roperty) and as a material consideration to Agency or City for entering into this Agreement (aJ d not by way of limiting the generality of Section 12.5 above) Borrower agrees to indemnify, proteJ t, defend and hold harmless Agency and City and all of their representatives, officers, employees a~d their respective successors from and against any and all claims, damages, actions, demands, liab lities, obligations, expenses, losses or costs, including without limitation, reasonable attorneys' fee; and court costs, which may arise or in any manner connected with the development of the Proje,:t pursuant to this Agreement; excluding, however, from Borrower's indemnity any such liability losses, damages (including foreseeable or unforeseeable consequential damages), penalties, fines, e,' penses (including out-of-pocket litigation costs and reasonable attorneys' fees) directly or indirectly arising out of the actions of Agency or City or their employees, contractors, subcontractors or agents. 12.7 Obligation to Refrain from Discrimination. There shall be no discrimination against, or segregation of, any persons, or group of persons, on account of race, color, creed, religion, sex, marital status, ancestry, or natk nal origin in the enjoyment of the Property, nor shall Borrower itself, or any person claiming un, let or through it, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy of tenants, lessees, subtenan s, sublessees, or vendees of the Property or any portion thereofi BOiTower shall further comply with all the requirements of the Americans with Disabilities Act. 12.8 Form of Nondiscrimination and Nonsegree~ation Clauses Borrower shall refrain from restricting the rental, sale, or lease of any portio t of the Property, or contracts relating to the Property, on the basis of race, color, creed, religion, se x, marital status, ancestry, or national origin of any person and shall comply with all the requireme its for the ADA. All such deeds, leases or contracts, shall contain or be subject to substantial the following nondiscrimination or non-segregation clauses: a. In deeds: "The grantee herein covenants by and for himself or hersel his or her heirs, executors, administrators, and assigns, and all persons claiming under or thro ~ them, that there shall be no discrimination against or segregation of any person or group ofpe :sons on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure, or enjoyment of the land herein conveye t, nor shall the grantee himself, or any persons claiming under or through him, establish or permit iny such practice or practices of discrimination or segregation with reference to the selection, locatio t, number, use, or occupancy of tenants, lessees, subtenants, sublessees, or vendees in the land herein conveyed and further covenants that all such individuals and entities shall comply with all applic~ ble requirements of the Americans with Disabilities Act of 1990, as the same may be amended from time to time (42 U.S.C. {}12101, et seq.). The foregoing covenants shall run with the land." b. In leases: "The lessee herein covenants by and for himself or herse f, his or her heirs, executors, administrators, and assigns, and all persons claiming under or through h m, and this lease is made and accepted upon and subject to the following conditions: 'That there sha 1 be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the leasing, suble.~ sing, transferring, use, occupancy, tenure, or enjoyment of the land herein leased, nor shall the lessee aimself, or any person claiming under or through him, establish or permit any such practice or prat rices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, sublessees, subtenants, or vendees in the land herein lease and the ease shall be carried out in compliance with all applicable requirements of the Americans with £ isabilities Act of 1990, as the same may be amended from time to time (42 U.S.C. §12101, et seq.).' c. In contracts: "There shall be no discrimination against or segregati n of any persons or group of persons on account of race, color, creed, religion, sex, marital status, ar cestry, or national origin in the sale, lease, transfer, use, occupancy, tenure, or enjoyment of land, nor shall the transferee himself, or any person claiming under or through him, establish or permit any such practice or practices of discrimination or segregation with reference to the selectior, location, number, use, or occupancy of tenants, lessees, subtenants, sublessees, or vendees o 'land and all such activities shall be conducted in compliance with all applicable requirements of the %mericans with Disabilities Act of 1990, as the same may be amended from time to time (42 U.S.C. {}12101, et seq.)." 12.9 Effect of Covenants. a. Unless sooner terminated by Agency or City as provided for herein all covenants contained herein shall run with the land and shall be extinguished and of no further force and effect upon the fifty-fifth anniversary of the issuance of the Certificate of Completion for the Project, with the exception of the non-discrimination and non-segregation covenants which shall run in perpetuity. The covenants established herein shall, without regard to technical classification ar d designation, be binding on the part of Borrower and any successors and assigns to the Property or ~ ny part thereof, and the tenants, lessees, sublessees and occupants of the Property, for the benefit o: 'and in favor of the Property and the Agency and City, their successors and assigns and any succes~ or in interest thereto. Agency and City are deemed the beneficiaries of such covenants for and i~ their own right and for the purposes of protecting the interest of the community and other parties, 1 ,ublic or private, in whose favor and for whose benefit of such covenants running with the land have been provided, without regard to whether Agency or City has been, remained, or are owners of an, ~articular land or interest therein. Agency and City shall have the right to unilaterally terminate the ~ venants at any time (subject to the TCAC Regulatory Agreement) or, if such covenants are breacl~ ed (subject to any cure rights provided herein) to exercise all rights and remedies and to maintain an, actions or suits at law or in equity or other proper proceedings to enforce the curing of such breaches to which it or any other beneficiaries of this Agreement and the covenants may be entitled, includin[ specific performance (it being recognized that the breach of such covenants cannot be ade~ ~ately compensated by monetary damages), and any and all remedies provided in the the · respective Trust Deed and Note including, without limitation, foreclosure proceedings against the roperty. b. Without limiting the generality of the foregoing, in the event that ere is a breach of the terms of this Agreement or any covenants provided herein, the Agency and CitI, shall have the right, but not the obligation, to take any and all actions it deems necessary, to cure ;uch breach, including, without limitation, taking possession of the Property for management an :l/or repair purposes, and to obtain reimbursement from Borrower for any reasonable costs inc ~rred by the Agency and City in the exercise of such remedy. Furthermore, Borrower hereby cz ~venants by and for itself, its successors and assigns and every person acquiring an interest in the P~ operty, or any part thereof, that Agency and City and other public agencies at their sole risk and exper se, and subject to the rights of tenants in possession, shall have the right to enter the Property or any i ~art thereof at all reasonable times and with as little interference as possible for the purposes of cons ruction, reconstruction, maintenance, repair or service of any public improvements or publi: facilities located on the Property and to ensure compliance with the restrictions and covenants conta ned herein. Any such entry shall be made only after reasonable notice to Borrower (provided, howe ~er, that entry to ensure compliance with any restrictions may be without notice to Borrower) and, a ~y damage or injury to the Property resulting from such entry shall be promptly repaired at the so le expense of the public agency responsible for the entry except to the extent any such damage or inj ~ry arises as a result of the negligence or willful misconduct of the Borrower or its officers, empk yees, agents, invitees or contractors. c. No violation or breach of the covenants, conditions, restrictions, pr~ ,visions or limitations contained in this Agreement shall defeat or render invalid or in any way impair the lien or charge of any mortgage, deed of trust or other financing or security instrument; pro iided, however, that any successor of Borrower to the Property shall be bound by such remaining cz ,venants, conditions, restrictions, limitations and provisions, whether such successor's title x~ as acquired by foreclosure, deed in lieu of foreclosure, trustee's sale or otherwise. Failure to comI ly with the covenants, conditions, restrictions, provisions or the limitation contained in this Ag ;eement within the time period required by Section 13.1 shall constitute a material default hereund~ :r permitting the Agency and City to exercise any of its rights or obligations provided hereunder, including, without limitation, those provided under the Agency Note, the Agency Trust Deed, the Cit Note or the City Trust Deed, or otherwise provided at law or in equity. 12.10 Prohibition Against Assignment and Transfer. The qualifications and identity of Borrower are of particular concern to A ncy. It is because of those qualifications and identity that Agency has entered into this Agreeme~t with Bor[ower. Accordingly, for the term of the Agency Loan and City Loan, Borrower, with )ut Agency s and City's prior written approval, shall not, whether voluntarily, involuntarily, or by operation of law, and except as permitted in this Section 12.10, (1) undergo any significant chaage in ownership (including the sale or conveyance of any of the general partnership interests in the Borrower), or (2) assign all or any part of this Agreement or any rights hereunder, or (3) sell, lease, a ;sign or otherwise convey all or any part of the Property or Project, whether voluntarily, involuntaril or by operation of law. 28 Notwithstanding the foregoing, the following shall not be considered a si ;nificant change in ownership or an assignment or transfer and shall not require Agency and City apl ~roval for purposes of this Section 12.10: (i) Transfers to any entity or entities wholly owned and contrc lied by Borrower or all of its partners. (ii) Transfer of any ownership of any Limited Partner or Gener Partner of Borrower. (iii) Transfer of any Limited Partner Interest or General Partner ~terest in the Borrower pursuant to the terms of the Borrower's Partnership Agreement. (iv) The conveyance or dedication of portions of the Property tc the City or Agency or other appropriate governmental agency for the formation of an assessm nt district, or the granting of easements or permits to facilitate the development of the Property. (v) A sale or transfer of some or all of the limited partnership terests in the Borrower. (vi) The leasing of all or any apartment units to tenants in the c tinary course of business. (vii) The leasing of furniture, fixtures or equipment in the ordina: y course of business, including, without limitation, laundry equipment and facilities, cable telex ision equipment and facilities, and vending machine equipment and facilities. (viii) Transfers of property management responsibilities in accor race with Section 12.8 hereof, provided, however, that Borrower shall provide Agency and City thirl (30) days prior written notice of any such management change, and that this exception shall be lin :ed to transfers to property managers with significant experience in managing projects similar to the 'oject. Any such assignee shall be subject to all terms and conditions of this Ag~ ement, including, without limitation, all affordability restrictions concerning the occupancy of the Pr )erty. Borrower shall deliver written notice to Agency and City requestin approval of any assignment or transfer requiring Agency and City approval hereunder. Such noti:e shall be given prior to Borrower entering into a formal written agreement with the proposed assign ,'e. In considering whether it will grant approval to any assignment by Borrow~: of its interest in the Property or any portion thereof, which assignment requires Agency and City pproval, Agency and City shall consider factors such as (i) the financial strength and capabilil of the proposed assignee to perform Borrower's obligations hereunder and (ii) the proposed assi nee's experience and expertise in the planning, financing, construction, development, and operation, 'similar projects. No assignment, including assignments which do not require Agency approv ti hereunder, but excluding assignments for financing purposes, shall be effective unless and until the proposed assignee executes and delivers to Agency an agreement, in form satisfactory o the Agency's attorney, assuming the obligations of the assignor which have been assigned. Thereafter, the T assignor shall be relieved of all responsibility to Agency for performance of the ot ligations assumed by the assignee. No lender approved by Agency and City pursuant to Section 4 shall be reqt ired to execute an assumption agreement and such lender's rights and obligations hereunder shall be as set forth in Section 4. 12.11 Secured Financing; Right of Holders. a. Permit;ted Encumbrances. Mortgages, deeds of trust, conveyances, ind leases-back or any other form of conveyance required for any financing permitted and/or approve~ by the Agency and City pursuant to Section 4 hereof are permitted before Agency's issuance ofth~: Certificate of Completion. b. Holder Not Obligated to Construct Improvements. The holder of m ty mortgage or deed of trust or other security interest authorized by this Agreement shall in no wa) be obligated by the provisions of this Agreement to construct or complete the improvements or to ~ uarantee such construction or completion; provided, however, that nothing in this Agreement sha I be deemed or construed to permit or authorize any such holder (with the exception of the holder ~.f any deed of trust securing the loan made from the proceeds of the Bonds) to devote the Propert'. ' or any part thereof to any uses, or to construct any improvements thereon, other than those use; or improvements provided for or authorized by this Agreement. c. Notice of Default to Mortgage, Deed of Trust or Other Secured lnsl rument Holders; Right to Cure. Whenever Agency or City shall deliver any notice or demand to Bo :rower with respect to any breach or default by Borrower hereof, such party shall at the same ti: ne deliver a copy of such notice or demand to each approved holder of record of any mortgage, deed of trust, or other security instrument which has previously requested such notice in writing. Each st ch holder shall (insofar as the rights of Agency and City are concerned) have the right, at its optiol t within ninety (90) days after the receipt for the notice, to commence and thereafter to diligently [ roceed to cure or remedy such default and add the cost thereof to the security interest debt and the li~ ,n on its security interest. d. Right of Agency and City to Cure Mortgage, Deed of Trust, or Oth Jr Security Instrument Default. In the event of a default or breach by Borrower ora mortgage deed of trust, or other security instrument or lease-back or conveyance for financing prior to the iss ~ance of the Certificate of Completion for the Project, Agency and City may cure the default pr or to completion of any foreclosure. In such event, such party shall be entitled to reimbursement fr( m Borrower of all costs and expenses reasonably incurred by such party in curing the default, which ~ight of reimbursement shall be secured by a lien upon the Property to the extent of such c( sts and disbursements. Any such lien shall be subject to: (i) Any mortgage, deed of trust, or other security instrument ' sale and lease- back or other conveyance for financing permitted by this Agreement; or (ii) Any rights or interests provided in this Agreement for the rotection of the holders of such mortgages, deed of trust, or other security instruments, the lessor ~ ader a sale and lease-back, or the grantee under such other conveyance for financing; provided th~ t nothing herein shall be deemed to impose upon Agency or City any affirmative obligations (by th payment of 30 money, construction, or otherwise) with respect to the Property in the event of its ~ nforccment of its lien. 12.12 Right of A~ency and City to Satisfy Liens. Prior to the issuance of the Certificate of Completion for the Project, and after Borrower has had a reasonable time to challenge, cure, or satisfy any liens or encumbrance3 on the Property, Agency and City, after sixty (60) days prior written notice to Borrower, shall each have the right, but not the obligation, to satisfy any liens or encumbrances on the Property; provi, led, however, that nothing in this Agreement shall require Borrower to pay or make provision for t ~e payment of any tax, assessment, lien, or charge so long as Borrower in good faith shall contest the validity or amount thereof, and so long as such delay in payment shall not subject the Property to forfi iture or sale. ARTICLE 13 - Defaults, Remedies, And Termination 13.1 Defaults - General. Subject to all of the extensions of time available in Section 14.3, failure or telay by any party to perform any term or provision of this Agreement constitutes a default under this Agreement; however, the party shall not be deemed to be in default if(i) such party cures, co rects, or remedies such default within thirty (30) days after receipt of a notice specifying such failure. ~r delay, or (ii) for such defaults that cannot reasonably be cured, corrected, or remedied within thirt, (30) days, if such party commences to cure, correct, or remedy such failure or delay within thirty (3~ days after receipt ora notice specifying such failure or delay, and diligently prosecutes such cure, cc rection or remedy to completion. The injured party shall give written notice of default to the party in defa~ fit, specifying the default complained of by the injured party. Copies of any notice of default given to Borrower shall also be delivered to the Permanent Lender, the Limited Partner of Borrower, and m ty other permitted lender requesting such notice. Except as provided in Section 13.3 herein or as r ~'quired to protect against further damages, the injured party may not institute proceedings against ti party in default until thirty (30) days after giving such notice. Except as otherwise expressly ~rovided in this Agreement, any failure or delay in giving such notice or in asserting any of its righ! and remedies as to any default shall not constitute a waiver of any default, nor shall it change the ti: ne of&fault, nor shall it deprive either party of its rights to institute and maintain any actions or pro ;eedings which it may deem necessary to protect, assert or enforce any such rights or remedies. 13.2 Termination. 13.2.1 Termination by Agency and City. Notwithstanding any other provision of this Agreement to the cont 'ary, in the event that the Agency and City are not in default under this Agreement, Agency and Cty shall have the right to terminate this Agreement prior to disbursement of the Agency Loan and City Loan upon written notice to the other parties if: (i) Borrower commits a material default here~ tnder and fails to cure said default within the time specified in Section 13.1 hereof; or (ii) Borrower ~ hils to obtain the necessary approvals from the Tax Credit Allocation Committee for an allocatic n of "4%" Low Income Housing Tax Credits under terms that will restrict the residential units in he Project to the requirements set forth herein; or (iii) Escrow has not closed on the conveyance f the Property to -33 Borrower on or before ,2003, as such date may be extended by greement of all the parties hereto in their sole and absolute discretion; or (iv) Subject to exten., ons of time made pursuant to Section 14.3 hereof, Borrower shall have failed to commence constr~ etlon of the Project pursuant to a valid building permit or permits and is not diligently proceeding wi ~ such construction on or before the time required in the Schedule of Peryormance and does not timely cure such default. In addition, in the event of Borrower s uncured material default ur der this Agreement at the time Agency exercises its right under this Section 13.2 to terminate the Ag~ eement, nothing in this Section 13.2 is intended or shall be interpreted as a limitation of any othe~ legal or equitable rights to which Agency may be entitled. 13.2.2 Termination by Borrower. Notwithstanding any other provision of this Agreement to the con' rary, provided that Borrower is not in default under this Agreement, Borrower shall have the rigl~ to terminate this Agreement prior to disbursement of the Agency Loan and City Loan, upon writte notice to Agency and City, if: (i) Agency or City commits a material default hereunder and fails t cure said default within the time specified in Section 13.1; or (ii) Escrow has not closed on the onveyance of the Property to Borrower on or before _, 2003, as such date may be exte ~ded by agreement of all the parties hereto, in their sole and absolute discretion; or (iii) City fails to tpprove, after best efforts by Borrower to obtain such approval, such permits as are required to comm ~nce and complete construction of the Project on the Property. In addition, in the event of Agency's or City's uncured material default under this Agreement at the time Borrower exercises its right under this Section 13.2 to terminate the Agreement, nothing in this Section 13.2 is intended or shall be interpreted as a limi :ation of any other legal or equitable rights to which Borrower may be entitled. 13.3 Legal Actions. 13.3.1 Institution of Legal Actions. In addition to any other rights or remedies, any party may institt te legal action to cure, correct, or remedy any default, to recover damages for any default, or to obtain any other remedy consistent with the purposes of this Agreement. Such lega act ons must be instituted and maintained in the Superior Court of the County of San Diego, State of Californi or in any other appropriate court in that county. 13.3.2 Applicable Law. The laws of the State of California shall govern the interpretation atenforcement of this Agreement. 13.3.3 Acceptance of Service of Process. In the event that any legal action is commenced by Borrower agains ~gency or City, service of process on Agency or City shall be made by personal service upon thc Agency or City Housing Manager or City Clerk, or in such other manner as may be provided by law 32 In the event that any legal action is commenced by Agency or Cit) against Borrower, service of process on Borrower shall be made in such manner as may be provident by law, and shall be valid whether made within or without the State of California. 13.3.4 Action for Specific Performance. If either the Borrower, Agency or City defaults with regard to anI, of the provisions of this Agreement, the non-defaulting party shall serve written notice of suc~ default upon the defaulting party. If the default does not commence to be cured by the defaulting party within thirty (30) days after service of the notice of default, the non-defaulting party at its op! ion may thereafter commence an action for specific performance of the terms of this Agreement 9ertaining to such default, subject to the provisions of Sections 13.1 and 14.3 hereof. 13.3.5 Rights and Remedies are Cumulative. Except as otherwise expressly stated in this Agreement, the rights ~ id remedies of the parties are cumulative, and the exercise by either party of one or more of its right; or remedies shall not preclude the exercise by it, at the same or different times, of any other rights, remedies for the same default or any other default by the other party. ARTICLE 14 - General Provisions 14.1 Notices, Demands, and Communications Between the Parties. Formal notices, demands, and communications between Agency, City and ~orrower shall be given either by (i) personal service, (ii) delivery by reputable document delive 3~ service such as Federal Express that provides a receipt showing date and time of delivery, or ~iii) mailing in the United States mail, certified mail, postage prepaid, return receipt requested, to the address of the party as set forth below, or at any other address as that party may later designate bi notice: To Agency: Redevelopment Agency of the City of Chula Vista 276 Fourth Avenue Chula Vista, CA 91910 Attn: Housing Manager With a copy to Agency Attorney To City: City of Chula Vista 276 Fourth Avenue Chula Vista, CA 91910 Attn: Housing Manager With a copy to City Attorney To Borrower: C1C Eastlake, L.P. c/o Chelsea Investment Corporation 215 South Highway 101, Suite 200 Solana Beach, CA 92075 Attn: Wallace C. Dieckman With a copy to: SDS Eastlake, LLC c/o Red Capital Markets, Inc. Columbus, Ohio Notices personally delivered or delivered by document delivery servicl shall be deemed effective upon receipt. Notices mailed shall be deemed effective on the second business day following deposit in the United States mail. Such written notices, demands, an:t communications shall be sent in the same manner to such other addresses as either party may [rom time to time designate by mail. 14.2 Nonliabilit¥ of Agency and City Officials and Employees: Conflicts of lnt~ rest. No member, official, employee, or contractor of Agency or City shall be ~ersonally liable to Borrower in the event of any default or breach by Agency or City or for any mount which may become due to Borrower or on any obligations under the terms of this Agreement. No member, official, employee, or agent of Agency or City shall have an direct or indirect interest in this Agreement nor participate in any decision relating to this A 'eement which is prohibited by law. 14.3 Enforced Delay; Extension of Times of Performance. In addition to specific provisions of this Agreement, and except as ex 'essly set forth in Section 13.2 and this Section 14.3, performance by either party hereunder shall n )t be deemed to be in default and such party shall be entitled to an extension of time to perform its ob igations hereunder where delays in performance are due to causes beyond the control and without the fault of such party, including as applicable: war; insurrection; strikes; lock-outs; riots; floods; :arthquakes; fires; casualties; supernatural causes; acts of a public enemy; epidemics; quarantine estrictions; freight embargoes; lack of transportation; governmental restrictions or priority; litigatio~ unusually severe weather; inability to secure necessary labor, materials or tools; delays t any contractor, subcontractor or supplies; acts of the other party; acts or the failure to act of Age cy or City or any other public or governmental agency or entity (except that any act or failure to a :t of or by Agency shall not excuse timely performance by Agency or City). In addition, nothing in :his Section 14.3 is intended or shall be interpreted to entitle Borrower to an extension of time to close the escrow for acquisition of the Property or to delay commencement of construction of the Proje :t. An extension of time for any cause permitted under this Section 14.3 sh~ be limited to the period of the enforced delay and shall commence to run from the time of the cot nencement of the cause, if notice by the party claiming such extension is sent to the other party wit lin thirty (30) days of knowledge of the commencement of the cause, or if no written notice is sen: within thirty (30) days, from the date written notice is sent by the other party. Times of performance under this Agreement may be extended by mutual written agreement of Agency, City and Borrower. 14.4 Inspection of Books and Records. The Borrower shall keep and maintain at the Project, or elsewhere withir the County of San Diego, full, complete and appropriate books, records and accounts relating to th ~ Project, including all such books, records and accounts necessary or prudent to evidence and subst, mtiate in full detail Borrower's calculation of Residual Receipts and compliance w!th the ~ffordable housing requirements herein. Books, records and accounts relating to Borrower s compli~ nce with the terms, provisions, covenants, and conditions of this Agreement shall be kept and maint~ ined in accordance with generally accepted accounting principles consistently applied, and shall be consistent with requirements of this Agreement. All such books, records, and accounts shall be o ,en to and available for inspection by the Agency, its auditors or other authorized representatives at easonable intervals during normal business hours upon reasonable prior notice to Borrower. Copies ( ?all tax retums and other reports that Borrower may be required to furnish any governmental gency shall at all reasonable times, upon reasonable prior notice to Borrower, be open for inspecti( ~ by the Agency or City at the place that the books, records, accounts of the Borrower are kept. ~'he Borrower shall preserve records on which any statement of Residual Receipts is based for a per od of not less than five (5) years after such statement is rendered. Agency and City shall have the rig ht at all reasonable times to inspect the books and records of Borrower pertaining to the Property and the Project as pertinent to the purposes of this Agreement. Borrower shall provide its books and records to Agency or City without reasonable delay upon no less than five (5) business days prior written request by such party. Agency and City shall not request inspection for Borrower's book~ and records more than once in any twelve (12) month period, unless it is required to obtain infot mation in order to comply with reporting or other requirements of law herein. Borrower shall have the right at all reasonable times to inspect the bo~,ks and records of Agency or City pertaining to the Property and the Project as pertinent to th, purposes of this Agreement. 14.5 Interpretation. The terms of this Agreement shall be construed in accordance with t} ;' meaning of the language used and shall not be construed for or against any party by reason of the authorship of this Agreement or any other rule of construction which might otherwise apply. The se ction headings are for purposes of convenience only, and shall not be construed to limit or extend ti ~e meaning of this Agreement. 14.6 Entire Agreement, Waivers and Amendments. This Agreement integrates all of the terms and conditions mentioned he rein, or incidental hereto, and supersedes all negotiations and previous agreements between the part es with respect to all or any part of the subject matter hereofi All waivers of the provisions of this Agreement must be in writing . nd signed by the appropriate authorities of the party to be charged, and all amendments and modifi~ ~tions hereto must be in writing and signed by the appropriate authorities of Agency, City and Borrov ~r. 14.7 Consent/Reasonableness. Except when this Agreement specifically authorizes a party to withh( Id its approval or consent in its sole and absolute discretion, when either Agency, City or Borrow ~'r shall require the consent or approval of another party in fulfilling any agreement, covenant, prox ision, or condition contained in this Agreement, such consent or approval shall not be unreasonably withheld, conditioned, or delayed by the party from whom such consent or approval is sougl~ 14.8 Severabilit¥. If any term, provision, covenant, or condition of this Agreement is 1~ d by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of th s Agreement shall not be affected thereby to the extent such remaining provisions are not rendered impractical to perform taking into consideration the purposes of this Agreement. In the event tha I all or any portion of this Agreement is found to be unenforceable, this Agreement or that portion w rich is found to be unenforceable shall be deemed to be a statement of intention by the parties; and the parties further agree that in such event, and to the maximum extent permitted by law, they s ~all take all steps reasonably necessary to comply with such procedures or requirements as tray be reasonably necessary in order to make valid this Agreement or that portion which is found to I e unenforceable. 14.9 Third Party Beneficiaries. Notwithstanding any other provision of this Agreement to the contrar nothing herein is intended to create any third party beneficiaries to this Agreement, and no person c r entity other than Agency, City and Borrower, and the permitted successors and assigns of each of them, shall be authorized to enforce the provisions of this Agreement. 14.10 Representations and Warranties. Borrower and each partner of Borrower executing this Agreement on b~ half of Borrower represents and warrants that: (i) Borrower is a limited partnership organized and ~xisting under the laws of the State of California, in good standing, and authorized to do business and doing business in the County of San Diego; (ii) Borrower has all requisite power and authority to car 3~ out its business as now and whenever conducted and to enter, into and perform its obligat ons under this Agreement; (iii) by proper action of Borrower, Borrower s signatories have been duly authoriz ~d to execute and deliver this Agreement; (iv) the execution of this Agreement by Borrower doe; not violate any provision of any other agreement to which Borrower is a party; (v) except as may ~e specifically set forth in this Agreement, and except for the approval of Borrower's investor li~nited partner, no approvals or consents not heretofore obtained by Borrower are necessary in co~tnection with the execution of this Agreement by Borrower or with the performance by Borrower af its obligations hereunder, and (vi) no attachments, execution proceedings, assignments for the be ~efit of creditors, insolvency, bankruptcy, reorganization, receivership or other proceedings are penc lng or threatened against the Borrower, or any partners of Borrower, nor are any of such proceedings contemplated by Borrower or any partners of Borrower. 14.11 Execution. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and such counterparts shall constitute one and the same instrument. 14.12 Relationship of Parties. It is understood that the contractual relationship between the Agency, Ci~ y and Borrower is such that Borrower is an independent entity and not an agent or partner of Agenci' or City. Nothing in this Agreement shall constitute Borrower as the agent or partner or represent~ rive of Agency or City for any purpose whatsoever. 14.13 Attorney's Fees. If any party to this Agreement is required to initiate or defend litigation in tny way connected with this Agreement, the prevailing party in such litigation, in addition to any oth~ r relief which may be granted, whether legal or equitable, shall be entitled to its actual and reasonable attorney's fees. If either party to this Agreement is required to initiate or defend litigation with a thi~ d party because of the violation of any term or provision of this Agreement by the other party, then the party so litigating shall be entitled to its actual and reasonable attorney's fees from the other party to this Agreement. Attorney's fees shall include attorney's fees on any appeal, and n addition a party entitled to attorney's fees shall be entitled to all other reasonable costs for invest gating such action, retaining expert witnesses, taking depositions and discovery, and all other necessa: y costs incurred in such litigation. All such fees shall be deemed to have accrued on commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment, l'he parties hereto acknowledge and agree that each such party shall bear its own legal costs incurred in connection with the negotiation, approval, and execution of this Agreement. [NEXT PAGE IS SIGNATURE PAGE] IN WITNESS WHEREOF, the parties hereto have executed this Agr,'ement as of the Effective Date specified herein. "AGENCY" REDEVELOPMENT AGENCY O THE CITY OF CHULA VISTA, a public body, cot )rate and politic By: Its: Chair ATTEST: Agency Secretary "CITY" CITY OF CHULA VISTA, a munici )al corporation of the State of California By: Its: Mayor ATTEST: Susan Bigelow, City Clerk APPROVED AS TO FORM: City and Agency Attorney s-, E z--do 7' 'r [SIGNATURE PAGE CONTINUED] "BORROWER" CIC EASTLAKE, L.P., a California I mired partnership By: PACIFIC SOUTHWEST CO VIMUNITY DEVELOPMENT CORPOR \TION, a California non-profit public t enefit corporation, its Managing General Partne~ By: Brian F. Biber, Executive Di~ ector/President By: SDS EASTLAKE, LLC, a C; tlifomia limited liability company, its Co-Ge~ eral Partner By: James J. Schmid, Manager EXHIBIT A LEGAL DESCRIPTION That certain real property in the City of Chula Vista, County of San Diego, State of Ca lifomia, described as follows: Lot I of Chula Vista Tract No. 03-04, Eastlake Landswap, according to Map thereoC 14591, filed in the Office of the County Recorder of San Diego County, May 16, 2003 EXHIBIT B AGENCY PROMISSORY NOTE EXHIBIT C AGENCY DEED OF TRUST EXHIBIT D CITY PROMISSORY NOTE EXHIBIT E CITY DEED OF TRUST EXHIBIT F AFFORDABLE HOUSING AGREEMENT EXHIBIT G SOURCES AND USES EXHIBIT H PROJECT BUDGET EXHIBIT I PROJECT PRO FORMA EXHIBIT J CERTIFICATE OF COMPLETION THIS CERTIFICATE OF COMPLETION (the "Certificate") i: made by the REDEVELOPMENT AGENCY OF THE ClTY OF CHULA VISTA, a public body, .'orporate and politic (the "Agency"), and the CITY OF CHULA VISTA, a municipal corporation ("Ci y') in favor of CIC EASTLAKE, LP, a California limited partnership (the "Property Owner"), as of 2003. RECITALS A. The Agency, City, and the Property Owner have entered into that certain Loan Agreement and Related Restricted Covenants (thc "Loan Agreement') dated , 2003, concerning the redevelopment of certain real property situated in the City of Chula Vista, California as more fully described in Exhibit A attached hereto and made a part hereof. B. As referenced in Section 10.8 of the Loan Agreement, the Agency ~ ~d City are required to furnish the Property Owner with a Certificate of Completion upon completion of~ le development and construction of the Project in accordance with the Loan Agreement. This Cettific~ e of Completion is conclusive determination of satisfactory completion of the development and const'uction required by Article 10 of the Loan Agreement. C. The Agency and City have conclusively determined that the development and construction of the Project has been satisfactorily completed. NOW, THEREFORE, the Agency and the City hereby certify as follows: The development and construction of the Project to be performed by the Prope -ty Owner has been fully and satisfactorily completed in conformance with Article 10 of the Loan Agreem~ ~nt. [NEXT PAGE IS SIGNATURE PAGE] IN WITNESS WHEREOF, the Agency and City have executed this Certifi{ ate of Completion as of the date set forth above. REDEVELOPMENT AGENCY O[ THE CITY OF CHULA VISTA, a public body, cor ~orate and politic By: Its: THE CITY OF CHULA VISTA, a r ~unicipal corporation By: Its: ATTEST: City Clerk/Agency Secretary APPROVED AS TO FORM: City Attorney/Agency Counsel T ~ EXHIBIT K SCOPE OF WORK EXHIBIT L SCHEDULE OF PERFORMANCE EXHIBIT 3 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Redevelopment Agency of the City of Chula Vista and the City of Chula Vista 276 Fourth Avenue Chula Vista CA 91910 Attn: Housing Manager No fee for recording pursuant to Government Code Section 27383 (Space abo ,e for Recorder's Use) AFFORDABLE HOUSING AGREEMENT THIS AFFORDABLE HOUSING AGREEMENT (the "Agreement") is entered into as of October 7, 2003, between the REDEVELOPMENT AGENCY OF THE CITY O ? CHULA VISTA, a public body, corporate and politic ("Agency"), the CITY OF CHULA VISTA, a municipal corporation ("City"), and CIC EASTLAKE, L.P., a California limited part aership ("Property Owner") and/or its successors or assignees. ARTICLE 1 - Recitals 1.1 Authority. Agency is a public body, corporate and politic, exercising governmental functions and powers and organized and existing under the Community Redevelopment Law of the State of California (Health and Safety Code Section 33000, et seq.). City is a muricipal corporation, organized and existing under the laws of the State of California. Agency and Cily are authorized to enter into binding agreements for the purpose of protecting public health, safety, id welfare. 1.2 Property Owner. Property Owner is the legal owner of the fee title to the mai property loca :d at 1311 Eastlake Parkway in the City,~f Chula Vista, w,,h, ich is described in the attached Exhibit ~ t, which is hereby incorporated herein ( the Real Property ). The Real Property is currently unimpre red. 1.3 Loan Agreement. Property Owner, Agency, and City have entered into a Loan Agree nent and Related Restricted Covenants dated as of October 7, 2003 (the "Loan Agreement"), where >y the Agency and City have agreed to make loans to the Property Owner, and the Owner has greed to develop, construct, and operate the Real Property as an affordable housing project. 'he execution and recording of this Affordable Housing Agreement is a requirement of the Loan Agr ement. 1.4 Project. Property Owner proposes to construct a multifamily housing project with 150 apartment units. The residential units will consist of 30 units affordable to very low househ( lds at or below 50 percent of the Area Median Income ("AMI"), 43 units affordable to lowoinco~ ne households at or below 60 percent of AMI, and the remainder of the units (other than the unit Yhich may be made available to an on-site manager) affordable to moderate income households at c r below 120 percent of the Area Median Income (the "Project"). The number of units required l v be restricted to a particular level of income, by bedroom count of the units, shall be in accordance with the following: Unit Description No. of Units Income Group 12 50% AMI 2 Bdrm/2 Ba 17 60% AMI 31 120% AM1 16 50% AMI 3 Bdrm/2 Ba 23 60% AMI 41 120% AMI 2 50% AMI 4 Bdrm/2 Ba 3 60% AMI 5 120% AMI TOTAL 150 1.5 lntent. These parties intend that this Agreement constitute the agreement referred to in Paragraph 1.3 AGENCY, CITY, AND PROPERTY OWNER HEREBY AGREE AS FOLLOWS: ARTICLE 2 - Low Income Honsinl, 2.1 Definitions. For the purposes of this article, the following definitions apply: 2.1.1 "Area Median Income" means the latest median income from time to time determined by the United States Department of Housing and Urban Development (pursuant to Section 8 of the United States Housing Act of 1937) for the San Diego Standard Metropolkan Stat stical Ama, and as established by regulation of the State of Califomia pursuant to Health and Safety (:ode Section 50093. 2.1.2 "Low Income Tenants" means individuals or families with an inco ne which does not exceed 60 percent of the Area Median Income, as adjusted for household size. 2.1.3 "Moderate Income Tenants" means families with an income which does not exceed the applicable limits for moderate income households, adjusted for household size, which are established by regulation of the State of California pursuant to Health and Safety 12 ode Section 50093. 2.1.4 "Very Low Income Tenants" means individuals or families with a~ income which does not exceed the applicable limits for moderate income households, adjusted fo: household size, which are established by regulation of the State of California pursuant to Health ~ nd Safety Code Section 50093. 2.1.5 "Very Low Income Apartment" means any of the thirty (30) apar ment units on the Real Property which shall be continuously occupied only by and affordable to a ~ 'ery Low Income Tenant. 2.1.6 "Low Income Apartment" means any of the forty-three (43) apart nent units on the Real Property which shall be continuously occupied only by and affordable to a [ ow Income Tenant. 2.1.7 "Moderate Income Apartment" means any of the seventy-six (76) apartment units on the Real Property which shall continuously be occupied only by and affordable t, a Moderate Income Tenant. 2.1.8 "Affordable Apartment" means any one of the apartments defin in Paragraph 2.1.5 through 2.1.7; "Affordable Apartments" means all of such apartments collectivel, 2.1.9 "Manager's Unit" means that unit on the Real Property occupied I ' a resident property manager which may be exempt from occupancy restrictions. 2.1.10 "Rent" means the total of monthly payments for all of the followi g: (a) use and occupancy of the apartment unit and land and facilities associated therewith, (b) a ay separately charged fees or service charges assessed by the lessor which are required of all te~ rants, other than security deposits, and (c) a reasonable allowance for utilities not included in the a ~ove costs, excluding telephone service, which takes into consideration an adequate level of service. 2.1.11 "Housing Manager" means the Housing Manager of the Agency ~ nd City. 2.2 Qualification of Tenants. As to the Affordable Apartments, the following will apply: 2.2.1 2 BR Very Low Income Apartments. Each two bedroom Very Lo ~ Income Apartment will be leased to a household of up to five persons which qualify as a defy Low Income Tenant. 2.2.2 3 BR Very Low Income Apartments. Each three bedroom Very L)w Income Apartment will be leased to a household of up to seven persons which qualify as t Very Low Income Tenant. 2.2.3 4 BR Very Low Income Apartments. Each four bedroom Very Lc w Income Apartment will be leased to a household of up to nine persons which qualify as a Very Low Income Tenant. 2.2.4 2 BR Lower Income Apartments. Each two bedroom Lower lncm ne Apartment will be leased to a household of up to five persons which qualify as a Lower Income ~1 enant. 2.2.5 3 BR Lower Income Apartments. Each three bedroom Lower Inc( me Apartment will be leased to a household of up to seven persons which qualify as a Lower Income Tenant. 2.2.6 4 BR Low Income Apartments. Each four bedroom Lower lncom ,~ Apartment will be leased to a household of up to nine persons which qualify as a Lower Income Ter ant. 2.2.7 2 BR Moderate Income Apartments. Each two bedroom Moderat~ Income Apartment will be leased to a household of up to five persons which qualify as a i ~loderate Income Tenant. 2.2.8 3 BR Moderate Income Apartments. Each three bedroom Modera :e Income Apartment will be leased to a household of up to seven persons which qualify as t Moderate Income Tenant. 2.2.9 4 BR Moderate Income Apartments. Each four bedroom Moderat: Income Apartment will be leased to a household of up to nine persons which qualify as a Moderate Income Tenant. 2.3 Monthly Rent. As to the Affordable Apartments, the following will apply: 2.3.1 Very Low Income Apartments. The monthly rent charged for all t ~e Very Low Income Apartments shall not exceed one-twelfth of the amount obtained by multi )lying 30 percent times 50 percent of the Area Median Income, as adjusted for household size apprt xiate to the unit as specified in paragraph 2.3.4. 2.3.2 Lower Income Apartments. The monthly rent charged for all the ow Income Apartments shall not exceed one-twelfth of the amount obtained by multiplying 3 ) percent times 60 percent of the Area Median Income, as adjusted for household size appropriate to the unit as specified in paragraph 2.3.4. 2.3.3 Moderate Income Apartments. The monthly rent charged for all t ~e Moderate Income Apartments shall not exceed one-twelfth of the amount obtained by multi >lying 30 percent times 110 percent of the Area Median Income, as adjusted for household size app 'opriate to the unit. 2.3.4 Unit Sizes and Appropriate Household Sizes. The following are ~e household sizes appropriate to the unit, for calculation of monthly rent limits: Unit Size Household Size Two Bedroom Three Persons Three Bedroom Four Persons Four Bedroom Five Persons 2.4 Proof of Qualification. Property Owner will obtain from each person(s) to whom Propel y,,Owner rents an Affordable Apartment a "Supplemental Rental Application "("the Applicati( ,n ) in the form of Exhibit B attached hereto and incorporated herein (or such other form as Agenc: and City may from time to time adopt and of which Agency and City notify Property Owner in writing). Property Owner will be entitled to rely on the Application and the supporting dc cuments thereto in determining the eligibility of such person(s) to rent such Affordable Apartment. )mperty Owner will 4 retain the Application and supporting documents for a period of at least three yea after the applicant thereof ceases to occupy such Affordable Apartment. Copies of the most recent Supplemental Rental Application for Vet Low, Lower and Moderate Income Tenants commencing or continuing occupancy of an Afforda1 le Apartment shall be attached to the semi-annual report to be filed with the Agency and City jn compliance with Section 2.6 of this Agreement. / ! An Affordable Apartment occupied by a qualified tenant who at the co ,t~mencement of the occupancy qualifies as a very low income, low income or moderate income household shall be treated as occupied by a Very Low, Low Income Tenant or Moderate Income T{ nant (as applicable) until a recertification of such tenant's income in accordance with Section 2.4.1 >elow demonstrates that such tenant no longer qualifies as a Very Low, Low or Moderate Income T .'nant in accordance with the standards set forth in this Article 2. 2.4.1 _Recertification of lncom~e. Immediately prior to the first annivers:try date of the occupancy of an Affordable Apartment by a qualified tenant, and on each anniver ~ary date thereafter, the Property Owner shall recertify the income of the occupants of each Affordabl~, Apartment by obtaining a completed Supplemental Rental Application based upon the current come of each occupant of the Affordable Apartment. In the event the recertification demonstr es that such household's income exceeds the income at which such household originally qua ]ed, but such household remains qualified as a Very Low Income Tenant, Low Income Tenant, or Moderate Income Tenant, such tenant shall not be required to vacate the unit, and the Prope ty Owner will rent the next available unit of comparable or smaller size to a household of the tenant':, original income level. In the event the recertification demonstrates that such household's income ~xceeds the income for a Moderate Income Tenant, such tenant shall be required to vacate the unit. 2.5 Waiver. Property Owner may apply in writing to the Housing Manager for a waiver, as to a specifically designated Affordable Apartment. Each such application will be acco mpanied by written data or other evidence relied upon by Property Owner to show that, for the near 'uture, there will be no reasonable demand for such Affordable Apartments(s). Within 30 days after receipt of any such application, the Housing Manager will, in writing, either grant or disapprove the r .~quested waiver. If such waiver is granted, Property Owner may lease the Affordable Apartment is) affected by the granted waiver to such person(s) and at such rental as Property Owner determine~ subject to each of the following: 2.5.1 Month-to-Month Tenancy. Anything in Paragraph 2.5 to the contr ry notwithstanding, the lease or rental agreement will create only a month-to-month ! :nancy. 2.5.2 Termination of Waiver. At any time after granting any such waive r, the Housing Manager may, by writing delivered to Property Owner, terminate such grant. Witl tin five days after such delivery, Property Owner will appropriately notify the tenant (s) and occupar (s) (of the Affordable Apartment (s) for which the grant of waiver has been terminated) that ~ ~e month-to- month tenancy thereof will be and become terminated one month after delivery of such notification by Property Owner. Property Owner will take reasonable steps to effectuate such ermination, including diligent commencement and prosecution of an unlawful detainer action. T ~ 2.6 Records, Audits. Property Owner will submit to Agency and City semi-annual certified re nt rolls, disclosing with respect to each Affordable Apartment (i) the monthly rent rate, (ii) the numl~ ~r of occupants for which the Affordable Apartment is rented, and (iii) the income of such occupant(sI. Such submission shall be in the form of Exhibit C attached hereto and incorporated herein (or ~ uch other form as Agency and City may from time to time adopt and of which Agency and City not fy Property Owner in writing). If Agency or City reasonably believes that violations of the rent, occupancy and/or income requirements of this Agreement have occurred, and that an audit is ne.:essary to verify a submitted rent roll, it will so notify Property Owner in writing thereof. Within ten days after delivery of said notice, Property Owner will deliver to Agency and City the names of th 'ce certified public accountants doing business in the metropolitan San Diego area. Agency and ~ity will promptly deliver to Property Owner the former's approval of one or more of said names. The audit will be completed by an approved certified public accountant, at Property Owner's cost, ~ fithin 60 days after the delivery to Property Owner of Agency's and City's said approval. TI certified public accountant will promptly deliver a copy of the written audit to Agency and City. 2.7 Term. The term during which this Article 2 applies commences on the date here Said term ends on the date which is fifty-five (55) years after the date of issuance of a final certif cate of completion for the Project is issued pursuant to the Loan Agreement. 2.8 Reports. Property Owner, at its expense, shall submit, or cause the Property Mana8 ~r to submit, to the appropriate entities any and all reports required to be submitted pursuant to Cai fornia Community Redevelopment Law. 2.9 Subordination of Affordabilit¥ Covenants. In the event that the Agency and City find that an economically feasible n ~ethod of financing for the construction and operation of the Project, without the subordination of the ~ffordable housing covenants as may be set forth in this Agreement, is not reasonably available, th Agency and City shall make the affordable housing covenants set forth in this Agreement junior an~ subordinate to the deeds of trust and other documents required in connection with the construct on and permanent financing for the Project approved pursuant to the Loan Agreement, and the TCAC Regulatory Agreement. Any subordination agreement entered into by the Agency and City sl tall contain written commitments which the Agency and City find are reasonably designed to prctect Agency's and City's investment in the event of default, such as any of the following: (a) a right ~f Agency and City to cure a default on the loan prior to foreclosure, (b) a right of Agency and City t~ negotiate with the lender after notice of default from the lender and prior to foreclosure, (c) an agree~ nent that if prior to foreclosure of the loan, Agency or City takes title to the property and cures the ~tefault on the loan, the lender will not exercise any right it may have to accelerate the loan by reaso ~ of the transfer of title to Agency or City, and (d) a right of Agency and City to reacquire the Rea Property from the Property Owner at any time after a material default on the loan. T T ARTICLE 3 - Uses Of The Real Propert3~ 3.1 Condition of the Real Property. a. Property Owner shall take all necessary precautions to prevent the release into the environment of any Hazardous Materials which may be located in, on or unde the Real Property. Such precautions shall include compliance with all Governmental Requirements with respect to Hazardous Materials. In addition, Property Owner shall install and utilize s~ch equipment and implement and adhere to such procedures as are consistent with commercially r :asonable standards as respects the disclosure, storage, use, removal and disposal of Hazardous Materi als. b. Property Owner shall indemnify, defend and hold Agency and 2ity harmless from and against any claim, action, suit, proceeding, loss, cost, damage, liability, defic ency, fine, penalty, punitive damage, or expense (including, without limitation, reasonable attorneys' fees), resulting from, arising out of, or based upon (i) the release, use, generation, discharge, st{ rage or disposal of any Hazardous Materials on, under, in or about, or the transportation of ar y such Hazardous Materials to or from, the Real Property, no matter when such claim, action, suit o' proceeding is first asserted or begun and no matter how the Hazardous Materials came to be releast d, used, generated, discharged, stored or disposed of on, under, in or about, to or from the Real Prop~ rty, or by whom or how they are discovered, or (ii) the violation, or alleged violation, of any statut{, ordinance, order, rule, regulation, permit, judgment or license relating to the use, generation, release, discharge, storage, disposal or transportation of Hazardous Materials on under, in or about, ~ or from, the Real Property. This ndemn ty shall include, without limitation, any damage, liab lity, fine, penalty, parallel indemnity after closing, cost or expense arising from or out of any cl``im, action, suit or proceeding, including injunctive, mandamus, equity or action at law, for person,' 1 injury (including sickness, disease or death), tangible or intangible property damage, compensati>n for lost wages, business income, profits or other economic loss, damage to the natural resource c r the environment, nuisance, contamination, leak, spill, release or other adverse effect on the environ ent. c. For purposes of this Agreement, "Hazardous Materials" me ~s any substance, material, or waste which is or becomes regulated by any local governmental au hority, San Diego County, the State of California, regional governmental authority, or the United $ rotes Government, including, but not limited to, any material or substance which is (i) defined as a ' hazardous waste," "extremely hazardous waste," or "restricted hazardous waste" under Section 25115, 25117 or 25122.7, or listed pursuant to Section 25130 of the California Health and Safety ¢~ode, Division 20, Chapter 6.5 (Hazardous Waste Control Law)), (ii) defined as a "hazardous substm ce" under Section 25316 of the California Health and Safety Code, Division 20, Chapter 6.8 (Carpen er-Preslev-Tanner Hazardous Substance Account Act), (iii) defined as a "hazardous material," "haz~ rdous substance," or "hazardous aste under Sectton 25501 of the Cahfomla Health and Safety £ ode, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory), iv) defined as a "hazardous substance" under Section 25281 of the California Health and Safety (ode, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances), (v) petroleum, (vii friable asbestos, (vii) polyc,h, lorinated ,,byph, enyls, (viii) methyl tertiary butyl ether (ix) listed u ,der Article 9 or defined as hazardous or 'extremely hazardous" pursuant to Article 11 of Title 2~ of the California Code of Regulations, Division 4, Chapter 20, (x) desianated as "hazardous ~.h~t~ aces" pursuant to Section 311 of the Clean Water Act (33 U.S.C. §1317), (x,) defined as a "haz-a~t~u s waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. §6901, stseq. (42 U.S.C. §6903) or (xii) defined as "hazardous substances" pursuant to Section 101 of~he Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §9601, et s~q. d. For purposes of this Agreement, "Governmental RequirementS" means all laws, ordinances, statutes, codes, rules, regulations, orders and decrees of the United States, the State, the County of San Diego, the City, or any other political subdivision in which the ~roperty is located, and of any other political subdivision, agency or instrumentality exercising jt risdiction over the Agency, the City, the Borrower or the Property. 3.2 Marketing and Selection of Tenants. Property Owner shall submit for the approval of the Agency and City, ~ hich approval shall not unreasonably be withheld, a plan for marketing the rental of the apartment mits in compliance with federal and state fair housing law. Such marketing plan shall include a plar for publicizing the availability of the apartment units within the City, such as notices in any City si: >nsored newsletter, newspaper advertising in local newspapers and notices in City offices. The n~arketing plan shall require Property Owner to obtain from the Agen, cy the names of low- and moderate-income households who have been displaced by the Agency s redevelopment projects, arid to notify persons on such list of the availability of units in the Project prior to undertaking other forms of marketing. The marketing plan shall provide that the persons on such list of displaced p~rsons be given not fewer than ten (10) days after receipt of such notice to respond by completing aI ~lication forms for rental of apartment units, as applicable. All tenants of each Affordable Apartment shall meet the income req rements set forth herein, and shall be in conformance with the standards set forth in the approved Management Plan. Selection of residents shall be made randomly within the following levels of prim ity, rather than on a first come-first serve basis: a. First Priority. Households which are displaced from their primary residence as a result of an action of City or Agency, a condominium conversion involving the hc usehold's residence, expiration of affordable housing covenants applicable to such residenc{, or closure of a mobilehome or trailer park community in which the household's residence was lo :ate& and the household resided in such housing as the household's primary place of residence :ar at least two years prior to such action or event. b. Second Priority. Households which meet one of the following cri~ eria: (i) households which are displaced from their primary residence as a result of an action of City o' Agency, a condom~nmm conversion ~nvolv ng the household s residence, expiration of afro table housing covenants applicable to such residence, or closure of a mobilehome or trailer park community in which the household's residence was located, and the household resided in such h >using as the household's primary place of residence for at least one year but less than two yem s prior to such action or event, (ii) households with at least one member who has resided within 1 he City, as that person's primary place of residence, for at least two years prior to the date of app]ication for such housing, or (iii) households with at least one member who has worked within the 2ity, as that person's principal place of full-time employment, for at least two years prior to th date of application for such housing. c. Third Priority. Other Very Low, Lower and Moderate Income Hc useholds who do not meet the criteria for first priority or second priority above. 3.3 Maintenance of Real Property. Property Owner agrees for itself and its successors in interest to all or an~ portion of the Real Property, to maintain the improvements on the Real Property in conformi:y with applicable provisions of the City Municipal Code, and shall keep the Real Property free fro~ ~ any accumulation of debris or waste materials. During such period, the Property Owner shall also maintain the landscaping planted on the Real Property in a healthy condition. Property Owne~ shall participate in the City's Crime-Free Multi-Housing Program (or similar program which is a(opted by the City) which has been adopted to facilitate strong property management, screening of applicants, and maintenance of multifamily rental properties. If at any time Property Owner ftils to maintain the Real Property and such condition is not corrected within five days after written ~totice from Agency or City with respect to graffiti, debris, waste material, and general maintenance, or thirty days after written notice from Agency or City with respect to landscaping and building improvements, then Agency and City, in addition to whatever remedy it may have at law or at equit,. ', but subject to the rights of the Permanent Lender, shall have the right to enter upon the applicable portion of the Real Property and perform all acts and work necessary to protect, maintain, and preserve the improvements and landscaped areas on the Real Property, and to attach a lien upon the Real Property, or to assess the Real Property, in the amount of the expenditures arising from such acts and work of protection, maintenance, and preservation by Agency and City and/or costs of such cure, including a fifteen percent (15%) administrative charge, which amount shall b, promptly paid by Property Owner to Agency and City upon demand. 3.4 Property Management. The parties acknowledge that the Agency and City are interested in the long term management and operation of the Real Property and i~ the qualification,s, of a ~y person or entity retained by the Property Owner for that purpose (the ' Property Manager ). TI erefore, during the period of the effectiveness of the affordability covenants set forth herein, the A ency and City may from time to time review and evaluate the identity and performance of the Prc ~erty Manager as it deems appropriate. If the Agency or the City determines that the performa ce of the Property Manager is materially deficient based upon the standards and requirements set l>rth in this Section 4.4 and the approved Management Plan (as defined below), the Agency and City ;hall provide notice to the Property Owner of such deficiencies and the Property Owner shall use its b, :st efforts to correct such deficiencies within a reasonable period of time. Upon the failure of the P :operty Manager to cure such deficiencies within the time set forth herein, the Agency and City sh~ 11 have the right to require the Property Owner to immediately remove and replace the Property M~ nager with another property manager or property management company who is reasonably acceptabl, ', to the Agency and City, who (if required in the reasonable discretion of the Agency and City) s not related to or affiliated with the Property Owner, and who has not less than five (5) years ext erience in property management, including experience managing multifamily residential develo nents of the size, quality and scope of the Real Property. In addition, the Property Owner shall submit for the reasonable approw of the Agency and City a detailed "Management Plan" which sets forth in reasonable detail the du :les of the Property Manager, the tenant selection process, a security system and crime prevention pro gram in compliance with the City's Crime-Free Multi-Housing Program (or similar program whict is adopted by the City), the procedures for the collection of rent, the procedures for monitoring ~ [' occupancy levels, the procedures for eviction of tenants, the rules and regulations of the Real Pro erty and manner of enforcement, a standard lease form, and other matters relevant to the mana ement of the Real Property. The management plan shall require the Property Manager to adhere to a fair lease and grievance procedure and provide a plan for tenant participation in managem~nt decisions. The management of the Real Property shall be in compliance with the Manager~ent Plan which is approved by the Agency and City, subject, however, to any requirements of thc Permanent Lender pursuant to the Permanent Loan Documents. The Management Plan may be r~:vised from time to time upon the reasonable approval of the Agency, the City and the Property Owm 3.5 Insurance. Within ten (10) days after the Property Owner's acquisition of the Real ~roperty, Property Owner shall furnish to the Agency and City duplicate originals or appropriate certificates of insurance coverage evidencing that Property Owner has obtained, or cause to be obtained, insurance coverage with respect to the Real Property and Project in type, amount and from nsurers with Best's ratings as are reasonably acceptable to Agency and City (or have been approve by the Permanent Lender), naming the Agency and City and its officers, agents, employees, repre entatives and their respective successors, as named or additional insureds by appropriate endorser lents. Such policy shall include, without limitation "all risk" property casualty insurance and con prehensive general liability insurance. Without limiting the generality of the foregoing, such polic ? shall also include coverage to insure Property Owner's indemnity obligations provided herein; unl ~ss Property Owner can demonstrate to the Agency's and City's reasonable satisfaction that sm h coverage is not available, or is not available at a commercially reasonable cost consistent with :he Project Budget. Property Owner covenants and agrees for itself and its successors and assigns tl~at Property Owner and such successors and assigns shall keep such liability policy in full force and :ffect until the date that is fifty-two (52) years from the date of the City's issuance of the final certil icate of completion for the Project. In addition to any other remedy which Agency and City may have her~,under for Property Owner's failure to procure, maintain, and/or pay for the insurance required herei ~, Agency and City may (but without any obligation to do so, and subject to the rights of the Permane ~t Lender under the Permanent Loan Documents) at any time or from time to time, after thirty (30) d-~ ys written notice to Property Owner, procure such insurance and pay the premiums therefor, in wi ich event Property Owner shall immediately repay Agency and City all sums so paid by Agency am City together with interest thereon at the rate often percent (10%) per annum or the maximum leg* rate, whichever is less. 3.6 Proceeds of Insurance. / Should the Project be totally or partially destroyed or rendered wholly or ~artly uninhabitable by fire or other casualty required to be insured against by Property Owner, Prgperty Owner shall promptly proceed to obtain insurance proceeds and take all steps necessary to promptly and diligently commence the repair or replacement of the Project to substantially th~ same condition as the Project is required to be maintained in pursuant to this Agreement if (i) the Property Owner agrees in writing within ninety (90) days after payment of the proceeds that such ~'epair or rebuilding is economically feasible, and (ii) the Permanent Lender permits such repair or r~building, provided that the extent of Property Owner's obligation to restore the Project shall be limitgd to the amount of the insurance proceeds actually received by the Property Owner. lfthe Property ~)wner is unable or is not permitted to repair, replace, or restore the Project, Property Owner must giye notice to Agency and City (in which event Property Owner will be entitled to all insurance proceeds, subject to any outstanding lien obligations, but Property Owner shall be required to remove all d~bris from the Real £..q-t o Property) and Property Owner may construct such other improvements on the R ~al Property as are consistent with applicable land use regulations and approved by the Agency and City and the other governmental agency or agencies with jurisdiction. 3.7 Taxes, Assessments, Encumbrances, and Liens. Property Owner shall pay prior to delinquency all real estate taxes and as 3essments properly assessed and levied on the Real Property. Until the payment in full of all amounts owing under the Agency N(te and City Note, Property Owner shall not place or allow to be placed thereon any mortgage, trust ( ced, encumbrance, or lien (except mechanic's liens prior to suit to foreclose the same being filed) nc authorized by the Loan Agreement. Property Owner shall remove or have removed any levy or a achment made on the Real Property, or assure the satisfaction thereof, within a reasonable time, bu in any event prior to a sale thereunder. Nothing herein contained shall be deemed to prohibit Property Owner f'om contesting the validity or amounts of any tax, assessment, encumbrance, or lien, nor to limit the remedies available to Property Owner in respect thereto. 3.8 Hold Harmless. Property Owner agrees to indemnify, protect, defend and hold harmless Agency and City, and their officers, agents, employees, representatives and successors, from and ~tgainst any and all claims, damages, actions, costs, demands, expenses or liability, including vithout limitation, reasonable attorneys' fees and court costs, which may arise from the direct or indirect actions or inactions of the Property Owner or those of its contractors, subcontractors, ag, ',nts, employees or other persons acting on Property Owners' behalf which relate to the Real Proper y or Project. This hold harmless agreement applies, without limitation, to all damages and claims fo; damages suffered or alleged to have been suffered by reasons of the operations referred to in this ps mgraph, regardless of whether or not the Agency or City prepared, supplied or approved plans or spe~ :ifications, or both, for the Property or Project. This indemnity by Property Owner, and all other iq :lemnities set forth herein shall survive any foreclosure of the Real Property by the Agency pursuant to the terms of the Agency Trust Deed or by the City pursuant to the terms of the City Trust Deed. 3.9 Further Indemnification of Agency and City. It is understood and agreed that the parties hereto have entered the Lo~.n Agreement as a method of providing necessary assistance to Property Owner in connection with lhe construction of very low, lower and low and moderate income housing and construction of the ?roject pursuant to all applicable laws and that by contributing public funds to assist in the accon tplishment of such construction, or by otherwise contributing or assisting with the accoml:lishment of such construction, the Agency and City assume no responsibility for insuring that the ~ame is adequately undertaken (including, without limitation, the existence and/or remediation of any hazardous or toxic substances on the Real Property) and as a material consideration to Agency and C ty for entering into the Loan Agreement (and not by way of limiting the generality of Section 4.8 abo~ e) Property Owner agrees to indemnify, protect, defend and hold harmless Agency and City and all ti eir representatives, officers, employees and their respective successors from and against any and al claims, damages, actions, demands, liabilities, obligations, expenses, losses or costs, including ~ithout limitation, reasonable attorneys' fees and court costs, which may arise or in any manner connected with the construction of the Project pursuant to the Loan Agreement; excluding, how,~ver, from Property Owner's indemnity any such liability, losses, damages (including foreseeab e or unforeseeable consequential damages), penalties, fines, expenses (including out-of-pocket itigation costs and reasonable attorneys' fees) arising out of the sole negligence of Agency, City ~r their employees, contractors, subcontractors or agents. 3.10 Obligation to Refrain from Discrimination. There shall be no discrimination against, or segregation of, any persons, ,~r group of persons, on account of race, color, creed, religion, sex, marital status, ancestry, or na ional origin in the enjoyment of the Real Property, nor shall Property Owner itself, or any perso~ claiming under or through it, establish or permit any such practice or practices of discrimination >r segregation with reference to the selection, location, number, use, or occupancy of tenants, essees, subtenants, sublessees, or vendees of the Real Property or any portion thereof. Property )wner shall further comply with all the requirements of the Americans with Disabilities Act. 3.11 Form of Nondiscrimination and Nonsegregation Clauses. Property Owner shall refrain from restricting the rental, sale, or lease any portion of the Real Property, or contracts relating to the Real Property, on the basis of race, cc Ior, creed, religion, sex, marital status, ancestry, or national origin of any person and shall ccmply with all the requirements for the ADA. All such deeds, leases or contracts, shall contai or be subject to substantially the following nondiscrimination or nonsegregation clauses: a. In deeds: "The grantee herein covenants by and for himself or her If, his or her heirs, executors, administrators, and assigns, and all persons claiming under or thr, ~ugh them, that there shall be no discrimination against or segregation of any person or group ofp :rsons on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure, or enjoyment of the land herein convey~ d, nor shall the grantee himself, or any persons claiming under or through him, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, Iocati{ n, number, use, or occupancy of tenants, lessees, subtenants, sublessees, or vendees in the land hereir conveyed and further covenants that all such individuals and entities shall comply with all requir, ~ments of the Americans with Disabilities Act of 1990, as the same may be amended from time ! ~ time (42 U.S.C. §12101, et seq.). The foregoing covenants shall run with the land." b. In leases: "The lessee herein covenants by and for himself or herse If, his or her heirs, executors, administrators, and assigns, and all persons claiming under or through h[m, and this lease is made and accepted upon and subject to the following conditions: 'That there sha [1 be no discrimination against or segregation of any person or group of persons on accoun! of race, color, creed, religion, sex, marital status, ancestry, or national origin in the leasing, suble: .sing, transferring, use, occupancy, tenure, or enjoyment of the land herein leased, nor shall the lessee himself, or any person claiming under or through him, establish or permit any such practice or pra~ tices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, sublessees, subtenants, or vendees in the land herein lease and the [ease shall be carried out in compliance with all requirements of the Americans with Disabilities ~ct of 1990, as the same may be amended from time to time (42 U.S.C. §12101, et seq.).'" ! c. In contracts: "There shall be no discrimination against or segregatlon of any persons or group of persons on account of race, color, creed, religion, sex, marital status, apcestry,' or national origin in the sale, lease, transfer, use, occupancy, tenure, or enjoyment of land, nonshall the transferee himself, or any person claiming under or through him, establish or pent any such practice or practices of discrimination or segregation with reference to the selectio location, number, use, or occupancy of tenants, lessees, subtenants, sublessees, or vendees ( land and all such activities shall be conducted in compliance with all the requirements of the Ameri, ans with Disabilities Act of 1990, as the same may be amended from time to time (42 U.S.t §12101, et seq.)." ARTICLE 4 - Breach 4.1 Breach by Agency or City. If Agency or City breaches any of its covenants contained in this Agreement, Property Owner will have available to it all legal and equitable remedies afforded by the la vs of the State of California. 4.2 Breach by Property Owner of Rent Limit Requirements. If, with respect to any Affordable Apartment, Property Owner breaches this Agreement by char,ging higher rent than that herein permitted, Property Owner will, immediatelI, upon Agency's or City s demand, (i) reduce the rent to that permitted herein and (ii) refund t any tenants who theretofore paid such higher rent the amount of the excess, together with interest I :reon at the rate of 10 percent per annum, computed from the date(s) of payment of the excess by sai, I tenants to the date of said refund. The provisions of this paragraph constitute a third-party benefici~ ry contract in favor of such tenants. Further, Agency and City are hereby granted the power (but no: the duty) to act as attorney-in-fact of such tenants in enforcing this paragraph. Breach by ~ 4.3 Property Owner of Leasin~ Requirements. If, with respect to any Affordable Apartment, Property Owner breache this Agreement by leasing to tenants who are not qualified pursuant to paragraph 2.2, Property Owne~r will, immediately upon Agency's or City's written demand, and at Property Owner's sole cost, takq all lawful steps to terminate such leasing. 1 4.4 Breach by Property Owner of Other Requirements. If the Property Owner breaches any of its covenants contained in this t ~greement, the City and the Agency will have available to it all legal and equitable remedies afforde~ by the laws of the State of California. 4.5 Remedies Not Exclusive. The remedies set forth in Paragraphs 4.2 and 4.3 are not exclusive, but in addition to all legal or equitable remedies otherwise available to Agency and City. ARTICLE 5 - General Provisions 5.1 Assignment. The rights and obligations of Property Owner under this Agreement m. ty be transferred or assigned, provided such transfer or assignment is made as a part of the conveyance of the fee of all or a portion of the Real Property. Any such transfer or assignment will be subject to the provisions of this Agreement. During the term of this Agreement, any such assignee or transfe 'ee will observe and perform all of the duties and obligations of Property Owner contained in this Agreement as such duties and obligations pertain to the portion of said real property so conveyed. 5.2 Amendment or Cancellation of Agreement. This Agreement may be amended from time-to-time or cancelled by th,: mutual c,,onsent of the parties hereto but only in the same manner as its adoption. The term "this greement includes any such amendment properly approved and executed. 5.3 Enforcement. Unless amended or cancelled as provided in Section 5.2, this Agreeme~tt is enforceable by any party to it despite a change in the applicable general or specific plans, zo~ting, subdivision or building regulations adopted by City which alter or amend the rules, regt lations or policies governing permitted uses of the land, density and design. 5.4 Binding Effect of Agreement. The burdens of this Agreement bind and the benefits of the Agreement nure to the parties' successors or assignees in interest. 5.5 Relationship of Parties. It is understood that the contractual relationship between Agency, City an t Property Owner is such that Property Owner is an independent contractor and not an agent ofAgenci~ or City. 5.6 Notices. All notices, demands or requests provided for or permitted to be gi~ en pursuant to this Agreement must be in writing. All notices, demands or requests to be sent tc any party shall be deemed to have been properly given or served if personally served or deposited n the United States mail, addressed to such party, postage prepaid, registered or certified, with retma receipt requested, at the addresses identified herein as the places of business for each of the designal ed parties. Agency: Redevelopment Agency of the City of Chula Vista 276 Fourth Avenue Chula Vista, CA 91910 Attn: Community Development Director City: City of Chula Vista 276 Fourth Avenue Chula Vista, CA 91910 Attn: Community Development Director Property Owner: C|C Eastlake, L.P. c/o Chelsea Investment Corporation 215 South highway 101, Suite 200 Solana Beach, CA 92075 Attn: Wallace C. Dieckman With a copy to: SDS Eastlake, LLC c/o Red Capital Markets, Inc. Two Miranova Place, 12th floor Columbus, Ohio 43215 / A party may change its address by giving notice in writing to the other~arty. Thereafter, notices, demands and requests shall be addressed and transmitted to the new addrels. ARTICLE 6 - Conflicts of Law 6.1 Conflict of City and State or Federal Laws. In the event that state or federal laws or regulations enacted after this / greement has been entered into prevent or preclude compliance with one or more provisions of :his Agreement, or require changes in plans, maps or permits approved by the City, the parties will: 6.1.1 Notice and Copies: Provide the other party with written notice of ;uch state or federal restriction, provide a copy of such regulation or policy and statement of cc nflict with the provisions of this Agreement. 6.1.2 Modification Conferences: The parties will, within 30 days, meet and confer in good faith in a reasonable attempt to modify this Agreement to comply with such feder, ti or state law or regulation. 6.2 Agency Board and City Council Hearings. Thereafter regardless of whether the parties reach an agreement on the effect of such federal or state law or regulation upon this Agreement, the matter will be scheduled for consideration by the governing board of the Agency and the City Council. The Agency and Cily Council, at such meeting, will determine the exact modification or suspension which shall be .necessitated by such federal or state law or regulation. Property Owner, at the meeting, will have t~e right to offer oral and written testimony. Any modification or suspension will be taken by the affirmative vote of not less than a majority of the authorized voting members of the governing board of the Agency and City Council. 6.3 Cooperation in Securing Permits. The Agency and City shall cooperate with the Property Owner in the securing of any permits which may be required as a result of such modifications or suspensions. ARTICLE 7 - Miscellaneous Provisions 7.1 Rules of Construction. The singular includes the plural and the neuter gender includes the imasculine and the feminine. Any terms used herein which are not defined herein shall have the mehning given to such terms in the Loan Agreement. 7.2 Severabilit¥. The parties hereto agree that the provisions are severable. If any provisiofi of this Agreement is held invalid, the remainder of this Agreement will be effective and will remain in full force and effect unless amended or modified by mutual consent of the parties. 7.3 Entire Agreement, Waivers and Amendments; Regulatory Agreement to C~ontrol. Except for the Regulatory Agreement, this Agreement, together with any other written document referred to or contemplated herein, embody the entire Agreement and understanding between the parties relating to the subject matter hereof. Notwithstanding any provision in this Agreement to the contrary, so long as the Regulatory Agreement is in effect, the terms of the Regulatory Agreement shall control with respect to the Very Low Income Apartments. Neither this Agreement nor any provision hereof may be amended, modified, waived, or discharged except b~, an instrument in writing executed by the party against which enforcement or such amendment, wa!ver, or discharge is sought. 7.1 Capacities of Parties. Each signatory and party hereto hereby warrants and represents to the other party that it has legal authority and capacity and direction from its principal to enter into this Agreement, and that all resolutions or other actions have been taken so as to enable it to enter into this Agl'eement. 7.2 Governing Law/Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Any action arising under or relating to this Agreement shall be brought only in the Federal or State courts located in San Diego County, State of California, and if applicable, the City of Chula Vista, or as close thereto as possible. Venue for this Agreement, and perf )rmance hereunder, shall be the City of Chula Vista. [NEXT PAGE IS SIGNATURE PAGE] IN WITNESS WHEREOF the parties hereto have caused this agreement to be executed as of the day and year first written above. "AGENCY" REDEVELOPMENT AGENCY OF THE CITY OF CHULA VISTA, a public body, co~'porate and politic By: Its: Chair ATTEST: Agency Secretary "CITY" CITY OF CHULA VISTA, a muni~:ipal corporation of the State of California By: Its: Mayor ATTEST: Susan Bigelow, City Clerk APPROVED AS TO FORM: City and Agency Attorney "PROPERTY OWNER" CIC EASTLAKE, L.P., a Califomi, limited partnership By: PACIFIC SOUTHWEST CDMMUNITY DEVELOPMENT CORPORATION, a California non-profit public! benefit corporation, its Managing (~eneral Partner By: Brian F. Biber, Executive Director/President By: SDS EASTLAKE, LLC, a (~alifomia limited liability company, its Co-General Partner By: James J. Schmid, Manager STATE OF CALIFORNIA ) COUNTY OF SAN DIEGO ) On , before me, , Notary Public, (Print Name of Notary Public) ~ ~ersonally appeared [] personally known to me [] proved to me on the basis of satisfactory evidence to be the personls) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/sl~ :/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. W1TNESS my hand and official seal. ~/lgnature of Notary OPTIONAL Though the data below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent reattachment of this form. CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT [] Individual [] Corporate Officer Title(s) Title Or Type Of Document [] Partner(s) []Limited []General [] Attorney-ln-Fact [] Trustee(s) ' [] Guardian/Conservator Number Of Pages [] Other: Signer is representing: Name Of Person(s) Or Entity(les) Date Of Dgcuments DOCSOC\989729v2~24036.0030 E~t --~ STATE OF CALIFORNIA SS. COUNTY OF SAN DIEGO On , before me, , Notary Public, (Print Name of Notary Public): personally appeared [] personally known to me [] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/sl~e/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signatul'e(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary Si~ner(s) Other Than Named Above DOCSOC\989729v2X24036.0030 STATE OF CALIFORNIA ) COUNTY OF SAN DIEGO ) On , before me, , Notary Public, (Print Name of NotaD' Public) ~ersonally appeared [] personally known to me [] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature Of Notary OPTIONAL ?hough the data below is not required by law, it may prove valuable to persons relying on the ,document and could prevent fraudulent reattachment of this form. CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT [] Individual [] Corporate Officer Title(s) Title Or Type Of Document [] Partner(s) [] Limited [] General [] Attorney-In-Fact [] Trustee(s) [] Guardian/Conservator Number Of Pages [] Other: Signer is representing: Name Of Person(s) Or Entity(ies) Date Of Documents Signer(s) Other Than Named Above DOCSOC\989729v2~24036.0030 E ~" ~'' f EXHIBIT A LEGAL PROPERTY DESCRIPTION All that certain real property situated in the City of Chula Vista, County of San Diego, State of California, described as follows: Lot 1 of Chula Vista Tract No. 03-04, Eastlake Landswap, according to Map thereof No. 14591, filed in the Office of the County Recorder of San Diego County, May 16, 2003 Exhibit A-1 ~' ~ - & 7.- EXHIBIT B AGENCY RESOLUTION (COUNCIL RESOLUTION - ExhibitB-1 ~ ~ .-- Z3 EXHIBIT C Exhibit C-1 a~'.~ "2 ~ DOCSOC\989729v2~24036.0030 CHUI. A VISTA SEMI-ANNUAL AFFORDABLE HOUSING MONITORING REPORT Owner's Certification I am the owner or owner's representative for an affordable housing development in the City of Chula Vista, which is bound by a Housing Agreement with the City. I certify under penalty or perjury that the attached rent roll for affordable units at my project is true and correct to the best of my knowledge and complies with the terms and conditions stipulated in the Affordable Housing Agreement, or any agreement that implements the same, with the City of Chula Vista. Name Title Signature Date ? T CHUIA VISTA SUPPLEMENTAL RENTAL APPLICATION The rental unit for which you are applying has received governmental assistance under programs to encourage more affordable housing. As a result, the unit carries a rent level restriction and is restricted to occupancy by Iow and moderate-income households. The information required on this form is necessary to determine you income eligibility to occupy the unit. You must report all household income. Information provided will be confidential and not subject to public disclosure pursuant to State Government Code Section 6254(h). 1. Rental Unit Address 2. Head of Household Name 3. Household Members Household Member No. Name Date of Birth Age 1 (Head of Household) 2 3 4 5 4. Total Current Annual Household Income from all Sources: Household 8.4 Source Member No. Income I (HeadofHousehold) ARTICLE 9 - TOTAL $ DOCSOC\989729v2~24036.0030 E ~ '-~ ~ Supplemental Rental Application Page 2 of 2 5. Total Gross Annual Household Income shown on most recent Federal Tax return (attach copies of most recent Federal Tax returns for all household members receiving income). Total Gross Annual Income $ 6. Unit Size: Bedrooms 7. Monthly Rental Rate: $ APPLICANT'S STATEMENT I certify, under penalty of perjury, that the foregoing information is true and correct to the best of my knowledge. I understand that any misrepresentation of the information contained herein may be cause for eviction. Signature Date Applicant OWNER'S STATEMENT Based on the foregoing information, I certify, under penalty of perjury, that the applicant is eligible to occupy this restricted affordable unit. Eligibility is based on finding that the applicant household's current annual income is $ and does not exceed the current maximum household income of $ allowed under the terms of a Development Agreement with the City of Chula Vista regarding this residential development. Name Title Signature Date DOCSOC\989729v2L24036.0030 Stradling Yocca Carlson & Rauth Draft as of 9/23/03 RECORDING REQUESTED BY AND ) WHEN RECORDED RETURN TO: ) EXHIBIT 4 ) ROBERT J. WHALEN, ESQ. ) STRADLING YOCCA CARLSON & RAUTH ) 660 Newport Center Drive, Suite 1600 ) Newport Beach, California 92660 ) [Space above for Recorder's use.] REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS By and Among HOUSING AUTHORITY OF THE CITY OF CHULA VISTA and WELLS FARGO BANK, NATIONAL ASSOCIATION as Trustee and Subordinate Trustee and CIC EASTLAKE, L.P., as Borrower Dated as of October 1, 2003 Relating to $ HOUSING AUTHORITY OF THE CITY OF CHULA VISTA MULTIFAMILY HOUSING REVENUE BONDS (RANCHO VISTA APARTMENTS) SERIES 2003A $ HOUSING AUTHORITY OF THE CITY OF CHULA VISTA, CALIFORNIA SUBORDINATE MULTIFAMILY HOUSING REVENUE BONDS (RANCHO VISTA APARTMENTS) SERIES 2003B DOCSOC\987720v4~4036.0030 ~' ~"~ '~" / REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS THIS REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS (the "Regulatory Agreement"), made and entered into as of October 1, 2003, by and among the HOUSING AUTHORITY OF THE CITY OF CHULA VISTA, a political subdivision and public body corporate and politic duly organized and existing under the laws of the State of California (together with any successor to its rights, duties and obligations, the "Issuer"), WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Trustee (the "Trustee"), and CIC EASTLAKE, L.P., a California limited partnership (the "Borrower"), WITNESSETH: WHEREAS, the Legislature of the State of California enacted Chapter 1 of Part 2 of Division 24 o£the Health and Safety Code (the "Act") to authorize cities and counties to issue bonds to finance the acquisition, construction, rehabilitation and development of multifamily rental housing for families and individuals of low income; and WHEREAS, the Issuer is a political subdivision (within the meaning of that term in the Regulations of the Department o£ Treasury and the rulings of the Internal Revenue Service prescribed and promulgated pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the "Code")); and WHEREAS, on October 7, 2003, the governing board o£ the Issuer adopted a resolution (the "Resolution") authorizing the issuance of revenue bonds in connection with financing the acquisition and construction of a 150-unit multifamily rental housing project known as the Rancho Vista Apartments located in the City o£Chula Vista (the "Project"); and WHEREAS, in furtherance of the purposes o£ the Act and the Resolution and as a part of the Issuer's plan of financing residential rental housing, the Issuer has issued $ aggregate principal amount of its revenue bonds designated "Housing Authority of the City of Chula Vista Variable Rate Demand Multifamily Housing Revenue Bonds (Rancho Vista Apartments), Series 2003" and its $ aggregate principal amount of its revenue bonds designated "Housing Authority of the City of Chula Vista Subordinate Multifamily Housing Revenue Bonds (Rancho Vista Apartments), Series 2003B" (collectively, the "Bonds"), the proceeds of which will be loaned to the Borrower which will use the proceeds of the Bonds to finance the acquisition and construction of the Project £or the public purpose of providing decent, safe and sanitary housing for families and individuals of Iow and moderate income; and WHEREAS, the Issuer, the Trustee, and the Borrower have entered into a Financing Agreement, dated the date hereof (the "Financing Agreement"), providing the terms and conditions under which the Issuer will make the Mortgage Loan to the Borrower to finance the acquisition and construction of the Project; and WHEREAS, all things necessary to make the Bonds, when issued as provided in the Indenture, the valid, binding, and limited obligations of the Issuer according to the import thereof, and to constitute the Indenture a valid assignment of the amounts pledged to the payment of the principal of, and premium, if any, and interest on the Bonds have been done and performed, and the DOCSOC\987720v4~24036.0030 creation, execution, and delivery of the Indenture and the execution and issuance of the Bonds, subject to the terms thereof, in all respects have been duly authorized; and WHEREAS, the Issuer has obtained an allocation for the Project of a portion of the State of California's private activity bond volume cap, within the meaning of Section 146 of the Code, in accordance with the procedures established by the California Debt Limit Allocation Committee; and WHEREAS, the Code and the regulations and rulings promulgated with respect thereto and the Act prescribe that the use and operation of the Project be restricted in certain respects and in order to ensure that the Project will be owned and operated in accordance with the Code and the Act, the Issuer, the Trustee and the Borrower have determined to enter into this Regulatory Agreement in order to set forth certain terms and conditions relating to the acquisition, construction, equipping and operation of the Project; NOW, THEREFORE, in consideration of the mutual covenants and undertakings set forth herein, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Issuer, the Trustee and the Borrower hereby agree as follows: Section 1. Definitions and Interpretation. The following terms shall have the respective meanings assigned to them in this Section 1 unless the context in which they are used clearly requires otherwise: "Adjusted Income" - The adjusted income of all persons who intend to reside in one residential unit as calculated in the manner determined by the Secretary of the Treasury pursuant to Section 142(d)(2)(B) of the Code. "Administration Agreement" - The administration agreement to be entered into among the Issuer, the Borrower and any entity other than Issuer, which is acting as the Program Administrator. "Affiliated Party" - (1)a Person whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code, (2) a Person who together with the Borrower are members of the same controlled group of corporations (as defined in Section 1563(a) of the Code, except that "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears therein), (3) a partnership and each of its partners (and their spouses and minor children) whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code or (4) an S Corporation and each of its shareholders (and their spouses and minor children) whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code. "Area" - The San Diego County, California Primary Metropolitan Statistical Area. "Authorized Borrower Representative" - Any person from time to time designated as such by written certificate from the Borrower to the Trustee, and the Issuer including such persons' specimen signature. "Bonds" - Housing Authority of the City of Chula Vista Variable Rate Demand Multifamily Housing Revenue Bonds (Rancho Vista Apartments), Series 2003. "Borrower's Tax Certificate" - The certificate of the Borrower, dated as of the Closing Date, with respect to certain Project Costs delivered to the Issuer by the Borrower. DOCSOC~987720v4~24036.0030 "CDLAC" - The California Debt Limit Allocation Committee. "CDLAC Resolution" - Resolution No. 03-123 adopted by CDLAC on July 9, 2003. "Certificate of Continuing Program Compliance" - The certificate with respect to the Project to be filed by the Borrower with the Program Administrator, which shall be substantially in the form attached hereto as Exhibit 13. "City" - The Housing Authority of the City of Chula Vista. "Completion Date" - The date on which the Project is completed as set forth in the certificate regarding the Completion Date that is delivered pursuant to Section 2(c) hereof. "Credit Facility" - Initially, the Letter of Credit issued by Provident Bank to the Trustee or any Substitute Credit Facility in effect at the time, which shall include the Credit Enhancement Instrument (Stand-by) issued by Fannie Mae on the date of Loan Conversion, as any such facility may be amended, supplemented or restated from time to time. "Credit Provider" - So long as the Letter of Credit is in effect, Provident Bank and its successors and assigns, or so long as the Credit Enhancement Instrument (Stand-by) is in effect, Fannie Mae and its successors and assigns. "Income Certification" - The Income Computation and Certification Form in substantially the form attached hereto as Exhibit C. "Indenture" - The Trust Indenture, dated as of the date hereof, between the Issuer and the Trustee, pursuant to which the Bonds have been issued, as amended or supplemented from time to time. "Issuer's Annual Fee" - The Issuer's annual fee equal to $ payable by the Borrower in equal semiannual installments on April 1 and October 1 of each year, commencing October 1, 2004, in arrears, as provided in Section 4.3 of the Financing Agreement. Adjustment to 60% of Household Size Median Income for the Area I 70% 2 80% 3 90% 4 100% 5 108% 6 116% 7 124% 8 132% "Low Income Units" - The dwelling units in the Project designated for occupancy by Low Income Tenants pursuant to Section 4(a) of this Regulatory Agreement. "Median Income for the Area" - The median gross income for the Area as most recently determined by the Secretary of Treasury pursuant to Section 142(d)(2)(B) of the Code. DOCSOC\987720v4~24036.0030 "Person" - Any natural person, firm, partnership, association, limited liability company, corporation, company or public body. "Program Administrator" - The Issuer, or such other entity as is appointed by the Issuer from time to time to act in such capacity hereunder. "Program Administrator's Fee" - The administrative fee of the Program Administrator as set forth in the Administration Agreement. "Project" - The Project Facilities and the Project Site. "Project Costs" - To the extent authorized by the Code, the Regulations and the Act, any and all costs incurred by the Borrower with respect to the acquisition and construction of the Project, whether paid or incurred prior to or after the sixtieth day preceding April 8, 2003, including, without limitation, costs for site preparation, the planning of housing and related facilities and improvements, the acquisition of property, the removal or demolition of existing structures, the construction of housing and related facilities and improvements, and all other work in connection therewith, and all costs of financing, including, without limitation, the cost of consultant, accounting and legal services, other expenses necessary or incident to determining the feasibility of the Project, administrative and other expenses necessary or incident to the Project and the financing thereof (including reimbursement to any municipality, county or entity for expenditures made for t,he Project) and all other costs approved by Bond Counsel. "Project Facilities" - The buildings, structures and other improvements on the Project Site, and all fixtures and other property owned by the Borrower and located on, or used in connection with, such buildings, structures and other improvements constituting the Project. "Project Site" - The parcel or parcels of real property described in Exhibit "A", which is attached hereto and by this reference incorporated herein, and all rights and appurtenances thereunto appertaining. "Qualified Project Costs" - The Project Costs (excluding Costs of Issuance) incurred not more than 60 days prior to April 8, 2003 which either constitute land or property of a character subject to the allowance for depreciation under Section 167 of the Code or are chargeable to a capital account with respect to the Project for federal income tax and financial accounting purposes, or would be so chargeable either with a proper election by the Borrower or but for the proper election by the Borrower to deduct those amounts within the meaning of Regulation 1.103-8(a)(1)(i); provided, however, that only such portion of interest accrued during construction of the Project shall constitute a Qualified Project Cost as bears the same ratio to all such interest as the Qualified Project Costs bear to all Project Costs paid from Bond proceeds and interest earnings thereon; and provided further that interest accruing after the Completion Date shall not be a Qualified Project Cost; and provided still further that if any portion of the Project is being constructed by an Affiliated Party (whether as a general contractor or a subcontractor), "Qualified Project Costs" shall include only the actual out-of-pocket costs incurred by such Affiliated Party in constructing the Project (or any portion thereof) within the meaning of Section 147(d)(2) of the Code, as provided in the Tax Certificate. "Qualified Project Period" - The period beginning on the first date on which ten percent of the units in the Project are occupied and ending on the latest of the following dates: (a)the date DOCSOC\987720v4~24036.0030 which is 55 years after the date on which fifty percent of the units in the Project are occupied, (b) the first day on which no tax exempt bonds with respect to the Project are Outstanding, or (c) the date on which any assistance provided with respect to the Project under Section 8 of the United States Housing Act of 1937 terminates. "Security Instrument" - The Multifamily Deed of Trust Assignment of Rents and Security Agreement, dated as of October 1, 2003, together with all riders and exhibits, securing the Note and the obligations of the Borrower to the Credit Provider under the Credit Facility, executed by the Borrower with respect to the Mortgaged Property, as it may be amended, supplemented or restated from time to time, or any security instrument executed in substitution therefor, as such substitute security instrument may be amended, supplemented or restated from time to time. "Servicer" - The multifamily mortgage loan servicer designated from time to time by the Credit Provider. "Very Low Income Tenants" - Individuals or families with an Adjusted Income that does not exceed 50 percent of the Median Income for the Area as adjusted for household size as set forth below. In no event, however, will the occupants of a residential unit be considered to be Very Low Income Tenants if all the occupants are students, as defined in Section 151(c)(4) of the Code, as such may be amen.ded, no one of which is entitled to file a joint federal income tax return. Currently, Section 151 (c)(4) defines a student as an individual enrolled as a full-time student during each of 5 calendar months during the calendar year in which occupancy of the unit begins at an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance or is an individual pursuing a full-time course of institutional on-farm training under the supervision of an accredited agent of such an educational organization or of a state or political subdivision thereof. Adjustment to 50% of Median Household Size Income for the Area 1 70% 2 80% 3 90% 4 100% 5 108% 6 116% 7 124% 8 132% "Very Low Income Units" - The dwelling units in the Project designated for occupancy by Very Low Income Tenants pursuant to Section 4(a) of this Regulatory Agreement. Such terms as are not defined herein shall have the meanings assigned to them in the Indenture. Unless the context clearly requires otherwise, as used in this Regulatory Agreement, words of the masculine, feminine or neuter gender shall be construed to include each other gender when appropriate and words of the singular number shall be construed to include the plural number, and DOCSOC\987720v4~24036.0030 vice versa, when appropriate. This Regulatory Agreement and all the terms and provisions hereof shall be construed to effectuate the purposes set forth herein and to sustain the validity hereof. The defined terms used in the preamble and recitals of this Regulatory Agreement have been included for convenience of reference only, and the meaning, construction and interpretation of all defined terms shall be determined by reference to this Section 1 notwithstanding any contrary definition in the preamble or recitals hereof. The titles and headings of the sections of this Regulatory Agreement have been inserted for convenience of reference only, and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof or be considered or given any effect in construing this Regulatory Agreement or any provisions hereof or in ascertaining intent, if any question of intent shall arise. Section 2. Acquisition, Construction, Equipping and Completion of the Project. The Borrower hereby represents, as of the date hereof, and covenants, warrants and agrees as follows: (a) The Borrower has incurred a substantial binding obligation to acquire, construct and equip the Project, pursuant to which the Borrower is obligated to expend at least five percent of the net sale proceeds of the Bonds. (b) The Borrower's reasonable expectations respecting the total cost of the acquisition, construction and equipping of the Project and the disbursement of Bond proceeds are accurately set forth in the Borrower's Tax Certificate attached to the Tax Certificate which has been delivered to the Issuer. (c) The Borrower shall construct the Project and will proceed with due diligence to complete the acquisition, construction and equipping of the Project and expects to expend the full amount of the proceeds of the Mortgage Loan for Project Costs prior to October 17, 2006. Upon completion of the Project, the Borrower shall deliver to the County and the Program Administrator a certificate executed by the Borrower certifying the date the Project is completed, which the Borrower shall cause to be recorded in the real property records of the County. (d) The statements made in the various certificates delivered by the Borrower to the Issuer or the Trustee are true and correct. (e) Money on deposit in any fund or account in connection with the Bonds, whether or not such money was derived from other sources, shall not be used by or under the direction of the Borrower, in a manner which would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code, and the Borrower specifically agrees that the investment of money in any such fund shall be restricted as may be necessary to prevent the Bonds from being "arbitrage bonds" under the Code. (f) The Borrower (and any person related to it within the meaning of Section 147(a)(2) of the Code) will not take or omit to take, as is applicable, any action if such action or omission would in any way cause the proceeds from the sale of the Bonds to be applied in a manner contrary to the requirements of the Indenture, the Financing Agreement or this Regulatory Agreement. Section 3. Residential Rental Property. The Borrower shall own, manage and operate the Project as a "qualified residential rental project" (within the meaning of Section 142(d) of the DOC SOC\987720~4~24036.0030 Code) until the expiration of the Qualified Project Period. To that end, and for the term of this Regulatory Agreement, the Borrower hereby represents, as of the date hereof, and covenants, warrants and agrees as follows: (a) The Project is being acquired, constructed and equipped for the purpose of providing multifamily residential rental property, and the Borrower shall own, manage and operate the Project as a project to provide multifamily residential rental property comprised of a building or structure or several interrelated buildings or structures, together With any functionally related and subordinate facilities, and no other facilities, in accordance with applicable provisions of Section 142(d) of the Code and Section 1.103-8(b) of the Regulations, and the Act, and in accordance with such requirements as may be imposed thereby on the Project from time to time. (b) All of the dwelling units in the Project will be similarly constructed units, and, to the extent required by the Code and the Regulations, each dwelling unit in the Project will contain complete separate and distinct facilities for living, sleeping, eating, cooking and sanitation for a single person or a family, including a sleeping area, bathing .and sanitation facilities and cooking facilities equipped with a cooking range, refrigerator and sink; provided that any Low Income Tenant may, but shall not be obligated to, provide a refrigerator for the unit to be occupied. (c) None of the dwelling units in the Project will at any time be utilized on a transient basis, or will ever be used as a hotel, motel, dormitory, fraternity house, sorority house, rooming house, nursing home, hospital, sanitarium, rest home, retirement house or trailer court or park. (d) No part of the Project will at any time be owned or used as a condominium or by a cooperative housing corporation nor shall the Borrower take any steps in connection with a conversion to such ownership or uses. Other than obtaining a final subdivision map on the Project and a Final Subdivision Public Report from the California Department of Real Estate, the Borrower shall not take any steps in connection with a conversion of the Project to a condominium or cooperative ownership except with the prior written approving opinion of Bond Counsel that the interest on the Bonds will not become taxable thereby under Section 103 of the Code. (e) All of the dwelling units will be available for rental on a continuous basis to members of the general public and the Borrower will not give preference to any particular class or group in renting the dwelling units in the Project, except to the extent that dwelling units are required to be leased or rented to Low Income Tenants, Very Low Income Tenants, senior citizens over the age of 55 and to holders of Section 8 certificates or vouchers. (f) The Project Site consists of a parcel or parcels that are contiguous except for the interposition of a road, street or stream, and all of the Project Facilities will comprise a single geographically and functionally integrated project for residential rental property, as evidenced by the ownership, management, accounting and operation of the Project. (g) No dwelling unit in any building or structure in the Project which contains fewer than five units shall be occupied by the Borrower or by persons related to or affiliated with the Borrower. (h) Should involuntary noncompliance with the provisions of Section 1.103-8(b) of the Regulations be caused by fire, seizure, requisition, foreclosure, transfer of title by deed in lieu DOCSOC\987720v4~24036.0030 of foreclosure, change in a federal law or an action of a federal agency after the Closing Date which prevents the Issuer from enforcing the requirements of the Regulations, or condemnation or similar event, the Borrower covenants that, within a "reasonable period" determined in accordance with the Regulations, it will either prepay the Mortgage Note or apply any proceeds received as a result of any of the preceding events to reconstruct the Project to meet the requirements of Section 142(d) of the Code and the Regulations. (i) The Borrower shall not discriminate on the basis of race, religion, creed, color, ethnic group identification, sex, soume of income (e.g. AFDC, SSI), mental or physical disability, age, national origin or marital status in the rental, lease, use or occupancy of the Project or in connection with the employment or application for employment of persons for the operation and management of the Project. (j) Following the expiration or termination of the Qualified Project Period, Very Low Income Units shall remain available to the Very Low Income Tenants then occupying such units at the date of expiration or termination of the Qualified Project Period at a rent not greater than the rent determined pursuant to Section 4(a)(ii) below until the earliest of any of the following occurs: (i) The household's income exceeds 140 percent of the income at which such household would qualify as a Very Low Income Tenant. (ii) The household voluntarily moves or is evicted for "good cause." For these purposes, "good cause" means the nonpayment of rent or allegation of facts necessary to prove major, or repeated minor, violations of material provisions of the lease agreement which detrimentally affect the health and safety of other persons or the structure, the fiscal integrity of the Project, or the purposes or special programs of the Project. (iii) Sixty (60) years after the commencement of the Qualified Project Period. (iv) The Borrower pays relocation assistance and benefits to such tenant as provided in Government Code Section 7264(b). (k) During the three-year period prior to the expiration of the Qualified Project Period, the Borrower shall continue to make available to Very Low Income Tenants Very Low Income Units that have been vacated to the same extent that other units in the Project are made available to the general public. (1) The Issuer may but shall not be required to monitor the Borrower's compliance with the provisions of subparagraph (j) above. Section 4. Very Low Income Tenants and Low Income Tenants. Pursuant to the requirements of Section 142(d) of the Code and applicable provisions of the Act, the Borrower hereby represents, as of the date hereof, and warrants, covenants and agrees as follows: (a) During the Qualified Project Period not less than twenty percent (20%) of the units in the Project shall be designated as Very Low Income Units and shall be continuously occupied by or held available for occupancy by Very Low Income Tenants at monthly rents paid by the Very Low Income Tenants which do not exceed one-twelfth of the amount obtained by multiplying 30% times 50% of the Median Income for the Area, as adjusted for household size utilizing the percentages set forth above under the definition of Very Low Income Tenant less a reasonable deduction for utilities paid by the tenant and assuming the following unit sizes and household sizes: Unit Size Household Size Studio One Person One Bedroom Two Persons Two Bedrooms Three Persons Three Bedrooms Four Persons Such Very Low Income Units shall be of comparable quality and offer a range of sizes and number of bedrooms comparable to those units which are available to other tenants and shall be distributed throughout the Project. A unit occupied by a Very Low Income Tenant who at the commencement of the occupancy is a Very Low Income Tenant shall be treated as occupied by a Very Low Income Tenant until a recertification of such tenant's income in accordance with Section 4(c) below demonstrates that such tenant no longer qualifies as a Very Low Income Tenant and thereafter any residential unit of comparable size in the Project is occupied by a new resident other than a Very Low Income Tenant. Moreover, a unit previously occupied by a Very Low Income Tenant and then vacated shall be considered occupied by a Very Low Income Tenant until reoccupied, other than for a temporary period, at which time the character of the unit shall be redetermined. In no event shall such temporary period exceed thirty-one (31) days. A unit occupied by a Very Low Income Tenant who at the commencement of the occupancy is a Very Low Income Tenant shall be treated as occupied by a Very Low Income Tenant until a recertification of such tenant's income in accordance with Section 4(c) below demonstrates that such tenant no longer qualifies as a Very Low Income Tenant and thereafter any residential unit of comparable size in the Project is occupied by a new resident other than a Very Low Income Tenant. Moreover, a unit previously occupied by a Very Low Income Tenant and then vacated shall be considered occupied by a Very Low Income Tenant until moccupied, other than for a temporary period, at which time the character of the unit shall be redetermined. In no event shall such temporary period exceed thirty-one (31) days. (b) Immediately prior to a Very Low Income Tenant's occupancy of a Very Low Income Unit, the Owner will obtain and maintain on file an Income Certification from each Very Low Income Tenant occupying a Very Low Income Unit, dated immediately prior to the initial occupancy of such Very Low Income Tenant in the Project. In addition, the Owner will provide such further information as may be required in the future by the State of California, the Issuer, the Act, Section 142(d) of the Code and the Regulations, as the same may be amended from time to time, or in such other form and manner as may be required by applicable rules, rulings, policies, procedures or other official statements now or hereafter promulgated, proposed or made by the Department of the Treasury or the Internal Revenue Service with respect to obligations issued under Section 142(d) of the Code. The Owner shall verify that the income provided by an applicant is accurate by taking one or more of the following steps as a part of the verification process: (1)obtain a federal income tax return for the most recent tax year, (2) obtain a written verification of income and employment from the applicant's current employer, (3) if an applicant is unemployed or did not file a tax return DOCSOC\987720v4~24036.0030 for the previous calendar year, obtain other verification of such applicant's income satisfactory to the Issuer or (4) such other information as may be reasonably requested by the Issuer. Copies of the most recent Income Certifications for Very Low Income Tenants commencing or continuing occupancy of a Very Low Income Unit shall be attached to the quarterly report to be filed with the Issuer as required in (d) below. (c) Immediately prior to the first anniversary date of the occupancy of a Very Low Income Unit by one or more Very Low Income Tenants, and on each anniversary date thereafter, the Owner shall recertify the income of the occupants of each Very Low Income Unit by obtaining a completed Income Certification based upon the current income of each occupant of the unit. In the event the recertification demonstrates that such household's income exceeds 140% of the income at which such household would qualify as Very Low Income Tenants, such household will no longer qualify as Very Low Income Tenants and to the extent necessary to comply with the requirements of Section 4(a)(i) above, the Owner will rent the next available unit of comparable size to one or more Very Low Income Tenants. (d) Not later than ten (10) days after the commencement of the Qualified Project Period, and within ten days of the last day of each quarter thereafter during the term of this Regulatory Agreement, the Borrower shall advise the Program Administrator of the status of the occupancy of the Project by delivering to the Program Administrator and the Issuer a Certificate of Continuing Program Compliance. (e) The Borrower will maintain complete and accurate records pertaining to the Very Low Income Units and the Low Income Units, and will permit, upon 24 hours notice, any duly authorized representative of the Issuer, the Program Administrator, the Trustee, Credit Provider, the Department of the Treasury or the Internal Revenue Service to inspect the books and records of the Borrower pertaining to the Project, including those records pertaining to the occupancy of the Very Low Income Units and Low Income Units. (f) The Borrower shall submit to the Secretary of the Treasury annually on the anniversary date of the start of the Qualified Project Period, or such other date as is required by the Secretary, a certification that the Project continues to meet the requirements of Section 142(d) of the Code, and shall provide a copy of such certification to the Program Administrator. (g) Prior to renting any Very Low Income Units, the Borrower shall prepare and present to the City a marketing plan for the Very Low Income Units. The Borrower may begin leasing the Very Low Income Units following the City Manager's approval of the marketing plan, which consent shall not be unreasonably conditioned, delayed or withheld. The Borrower shall accept as tenants on the same basis as all other prospective tenants, persons who are recipients of federal certificates or vouchers for rent subsidies pursuant to the existing program under Section 8 of the United States Housing Act of 1937, or its successor. The Borrower agrees to contact the San Diego County Housing Authority for a list of persons who are recipients of, or who are applying for, Section 8 certificates or vouchers whenever a Very Low Income Unit becomes available but not more frequently than every four weeks. The Borrower shall not apply selection criteria to Section 8 certificate or voucher holders that are more burdensome than criteria applied to all other prospective tenants. DOCSOC\987720v4~24036.0030 (h) The Very Low Income Units shall be of a comparable quality and offer a range of sizes and number of bedrooms comparable to the units that are available to other tenants. (i) The Borrower shall not collect any additional fees or payments from a Very Low Income Tenant except security deposits or other deposits required of all tenants or for services or items requested by a tenant. The Borrower shall not collect security deposits or other deposits from Section 8 certificate or voucher holders in excess of those allowed under the Section 8 Program. The Borrower shall not discriminate against Very Low Income Tenant applicants on the basis of source of income (i.e., AFDC or SSI), and the Borrower shall consider a prospective tenant's previous rent history of at least one year as evidence of the ability to pay the applicable rent. (j) Each lease pertaining to a Very Low Income Unit shall contain a provision to the effect that the Borrower has relied on the Income Certification and supporting information supplied by the Very Low Income Tenant in determining qualification for occupancy of the Very Low Income Unit and that any material misstatement in such certification (whether or not intentional) will be cause for immediate termination of such lease. Each lease will also contain a provision that failure to cooperate with the annual recertification process reasonably instituted by the Borrower pursuant to Section 4(c) above may at the option of the Borrower disqualify the unit as a Very Low Income Unit or provide grounds for termination of the lease. (k) The Borrower will execute and deliver to the Issuer an Administration Agreement applicable to the Project at the request of the Issuer. (1) Prior to the completion of construction of the Project, the Borrower agrees to provide to the Program Administrator a copy of the form of application and lease to be provided to prospective Very Low Income Tenants. The term of the lease shall be not less than thirty (30) days. (m) The Borrower shall notify the Program Administrator of any change in leasing agents or managers for the Project. Section 5. Tax Status of the Bonds. The Borrower and the Issuer each represents, as of the date hereof, and warrants, covenants and agrees that: (a) It will not knowingly take or permit, or omit to take or cause to be taken, as is appropriate, any action that would adversely affect the exclusion from gross income for federal income tax purposes or the exemption from California personal income taxation of the interest on the Bonds and, if it should take or permit, or omit to take or cause to be taken, any such action, it will take all lawful actions necessary to rescind or correct such actions or omissions promptly upon obtaining knowledge thereof; (b) It will take such action or actions as may be necessary, in the written opinion of Bond Counsel filed with the Issuer and the Trustee, to comply fully with the Act and all applicable rules, rulings, policies, procedures, Regulations or other official statements promulgated, proposed or made by the Department of the Treasury or the Internal Revenue Service pertaining to obligations issued under Section 142(d) of the Code to the extent necessary to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds; and (c) The Borrower, at the Borrower's expense, will file of record such documents and take such other steps as am necessary, in the written opinion of Bond Counsel filed with the il DOCSOC\987720v4~24036.0030 Issuer and the Trustee, in order to insure that the requirements and restrictions of this Regulatory Agreement will be binding upon all owners of the Project, including, but not limited to, the execution and recordation of this Regulatory Agreement in the real property records of the County of San Diego. The Borrower hereby covenants to notify any subsequent owner of the Project of the requirements and restrictions contained in this Regulatory Agreement in any documents transferring any interest in the Project to another person to the end that such transferee has notice of such restrictions, and to obtain the agreement from any transferee to abide by all requirements and restrictions of this Regulatory Agreement; provided that the covenants contained in this paragraph shall not apply to Credit Provider should Credit Provider become the owner of the Project by foreclosure, deed in lieu of foreclosure or comparable conversion of the Mortgage Loan. Section 6. Modification of Special Tax Covenants. The Borrower, the Trustee and the Issuer hereby agree as follows: (a) To the extent any amendments to the Act, the Regulations or the Code shall, in the written opinion of Bond Counsel filed with the Issuer, the Credit Provider, the Borrower and the Trustee, impose requirements upon the ownership or operation of the Project more restrictive than those imposed by this Regulatory Agreement which must be complied with in order to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds, this Regulatory Agreement shall be deemed to be automatically amended to impose such additional or more restrictive requirements. (b) To the extent any amendments to the Act, the Regulations or the Code shall, in the written opinion of Bond Counsel filed with the Issuer, the Credit Provider, the Borrower and the Trustee, impose requirements upon the ownership or operation of the Project less restrictive than imposed by this Regulatory Agreement, this Regulatory Agreement may be amended or modified to provide such less restrictive requirements but only by written amendment approved and signed by the Issuer, the Trustee and the Borrower, approved by the Credit Provider and approved by the written opinion of Bond Counsel that such amendment will not affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. (c) The Borrower, the Issuer and, if applicable, the Trustee shall execute, deliver and, if applicable, file of record any and all documents and instruments, necessary to effectuate the intent of this Section 6, and each of the Borrower and the Issuer hereby appoints the Trustee as its true and lawful attorney-in-fact to execute, deliver and, if applicable, file of record on behalf of the Borrower or the Issuer, as is applicable, any such document or instrument (in such form as may be approved in writing by Bond Counsel) if either the Borrower or the Issuer defaults in the performance of its obligations under this subsection (c); provided, however, that the Trustee shall take no action under this subsection (c) without first notifying the Borrower or the Issuer, or both of them, as is applicable, unless directed in writing by the Issuer or the Borrower and without first providing the Borrower or the Issuer, or both, as is applicable, an opportunity to comply with the requirements of this Section 6. Section 7. Indemnification. The Borrower hereby releases the Issuer, the Trustee and the Program Administrator and their officers and employees from, and covenants and agrees to indemnify, hold harmless and defend the Issuer, the Trustee and the Program Administrator and their respective officers, members, directors, officials, agents and employees and each of them (each, an "indemnified party") from and against any and all claims, losses, costs, damages, demands, expenses, taxes, suits, judgments, actions and liabilities of whatever nature, joint and several (including, without limitation, costs of investigation, reasonable attorneys' fees, litigation and court costs, amounts paid in settlement, and amounts paid to discharge judgments), directly or indirectly (a) by or on behalf of any person arising from any cause whatsoever in connection with transactions contemplated hereby or otherwise in connection with the Project, the Bonds, or the execution or amendment of any document relating thereto; (b) arising from any act or omission of the Borrower or any of its agents, servants, employees or licensees, in connection with the Mortgage Loan or the Project; (c) arising in connection with the issuance and sale, resale or reissuance of any Bonds or any certifications or representations made by any person other than the Issuer or the party seeking indemnification in connection therewith and the carrying out by the Borrower of any of the transactions contemplated by the Bonds, the Indenture, the Financing Agreement and this Regulatory Agreement; (d)arising in connection with the operation of the Project, or the conditions, environmental or otherwise, occupancy, use, possession, conduct or management of work done in or about, or from the planning, design, acquisition, installation or construction of, the Project or any part thereof; and (e) arising out of or in connection with the Trustee's acceptance or administration of the trusts created by the Indenture and the exercise of its powers or duties thereunder or under the Financing Agreement, this Regulatory Agreement or any other agreements in connection therewith to which it is a party; except (1) in the case of the foregoing indemnification of the Trustee, the Program Administrator or any of their respective officers, members, directors, agents and employees, to the extent such damages are caused by the negligence or willful misconduct of such person, and (2) in the case of the foregoing indemnification of the Issuer or any of its officers, members, directors, officials, agents and employees, to the extent such damages are caused by the gross negligence or willful misconduct of such person. In the event that any action or proceeding is brought against any indemnified party with respect to which indemnity may be sought hereunder, the Borrower, upon written notice from the indemnified party, shall assume the investigation and defense thereof, including the employment of counsel selected (i) by the Borrower and reasonably approved by the indemnified party, when the indemnified party is other than the Issuer, and (ii) by the Issuer when the indemnified party is the Issuer or any of its officers, members, directors, officials, agents and employees; and the Borrower shall assume the payment of all expenses related thereto, with full power to litigate, compromise or settle the same in its sole discretion; provided that an affected indemnified party shall have the right to review and approve or disapprove any such compromise or settlement. Each indemnified party shall have the right if such indemnified party shall conclude in good faith that a conflict of interest exists to employ separate counsel in any such action or proceeding and participate in the investigation and defense thereof, and the Borrower shall pay the reasonable fees and expenses of such separate counsel. The Borrower also shall pay and discharge and shall indemnify and hold harmless the Trustee, the Issuer and the Program Administrator from (i) any lien or charge upon payments by the Borrower to the Trustee, the Issuer or the Program Administrator hereunder and (ii)any taxes (including, without limitation, all ad valorem taxes and sales taxes), assessments, impositions and other charges in respect of any portion of the Project. If any such claim is asserted, or any such lien or charge upon payments, or any such taxes, assessments, impositions or other charges, are sought to be imposed, the Issuer or the Program Administrator shall give prompt notice to the Borrower and the Borrower shall have the sole right and duty to assume, and will assume, the defense thereof, with full power to litigate, compromise or settle the same in its sole discretion. DOCSOC\987720v4~24036.0030 Notwithstanding any transfer of the Project to another owner in accordance with the provisions of the Financing Agreement, the Security Agreement and this Regulatory Agreement, the transferor shall remain obligated to indemnify each indemnified party pursuant to this Section for all matters arising prior to the date of transfer and with respect to the Issuer for all matters arising on or after the transfer date if such subsequent owner fails to indemnify the Issuer, unless the Issuer consents at the time of transfer to indemnification under this Section 7 from such subsequent owner. In no event, however, shall any such consent by any indemnified party hereunder be deemed to constitute the consent of any other indemnified party. Notwithstanding the foregoing, the Credit Provider nor any successor in interest to the Credit Provider, will assume or take subject to any liability for the indemnification obligations of the Borrower for acts or omissions of the Borrower prior to any transfer of title to the Credit Provider, whether by foreclosure, deed in lieu of foreclosure or comparable conversion of the Mortgage Loan; the Borrower shall remain liable under the indemnification provisions of the Regulatory Agreement for its acts and omissions prior to any transfer of title to the Credit Provider, as applicable. The Credit Provider shall indemnify the Issuer and the Trustee following acquisition of the Project by the Credit Provider by foreclosure, deed in lieu of foreclosure or comparable conversion to the Mortgage Loan, during, and only during, any ensuing period that the Credit Provider owns and operates the Project, provided that the liability of the Credit Provider shall be strictly limited to acts and omissions of the Credit Provider occurring during the period of ownership and operation of the Project by the Credit Provider. The Credit Provider's obligation, as applicable, to provide indemnification shall be contingent upon the Credit Provider's receipt of written notice from any party asserting a right to indemnification in time sufficient to enable the Credit Provider to defend any action, claim or proceeding in a manner which is not prejudicial to the Credit Provider's rights, the Credit Provider shall have no indemnification obligations with respect to the Bonds or the Mortgage Loan Documents. In addition thereto, subject to Section 17 hereof, the Borrower will pay upon demand all of the fees and expenses paid or incurred by the Trustee, the Issuer or the Program Administrator in enforcing the provisions hereof. The provisions of this Section 7 shall survive the term of the Bonds and this Regulatory Agreement and the resignation or removal of the Trustee. The obligations of the Borrower under this Section are independent of any other contractual obligation of the Borrower to provide indemnity to the parties named herein or otherwise, and the obligation of the Borrower to provide indemnity hereunder shall not be interpreted, construed or limited in light of any other separate indemnification obligation of the Borrower. Any indemnified party shall be entitled simultaneously to seek indemnity under this Section and any other provision under which it is entitled to indemnity. Section 8. Consideration. The Issuer has issued the Bonds to make the Mortgage Loan to finance the Project, all for the purpose, among others, of inducing the Borrower to acquire, rehabilitate, equip and operate the Project. In consideration of the issuance of the Bonds by the Issuer, the Borrower has entered into this Regulatory Agreement and has agreed to restrict the uses to which the Project can be put on the terms and conditions set forth herein. Section 9. Reliance. The Issuer and the Borrower hereby recognize and agree that the representations, warranties, covenants and agreements set forth herein may be relied upon by all DOCSOC\987720v4~24036.0030 persons interested in the legality and validity of the Bonds, and in the exclusion from gross income for federal income tax purposes and the exemption from California personal income taxes of the interest on the Bonds. In performing their duties and obligations hereunder, the Issuer, the Trustee and the Program Administrator may rely upon statements and certificates of the Borrower, the Very Low Income Tenants and the Low Income Tenants, and upon audits of the books and records of the Borrower pertaining to the Project. In addition, the Issuer, the Program Administrator and the Trustee may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Issuer, the Program Administrator or the Trustee under this Regulatory Agreement in good faith and in conformity with such opinion; provided, however, if there are conflicting opinions among the counsel selected by such parties, the opinion of Bond Counsel shall govern the interpretation and enforcement of this Regulatory Agreement. In determining whether any default or lack of compliance by the Borrower exists under this Regulatory Agreement, the Trustee shall not be required to conduct any investigation into or review of the operations or records of the Borrower and may rely solely on any notice or certificate delivered to the Trustee by the Borrower, the Issuer or the Program Administrator with respect to the occurrence or absence of a default. Section 10. Sale or Transfer of the Proiect; Syndication. The Borrower intends to hold the Project for its own account, has no current plans to sell, transfer or otherwise dispose of the Project, and hereby covenants and agrees not to sell, transfer or otherwise dispose of the Project, or any portion thereof (other than for individual tenant use as contemplated hereunder and replacement of personal property), without obtaining the prior written consent of the Issuer, which consent shall be given upon receipt by the Issuer of(i) such certifications from the Borrower or the Trustee as are reasonably deemed necessary by the Issuer to establish that the Borrower shall not be in default under this Regulatory Agreement or under the Financing Agreement or, if any such defaults exist, the purchaser or assignee undertakes to cure such defaults to the satisfaction of the Issuer; (ii) a written instrument by which the Borrower's purchaser or transferee has assumed in writing and in full the Borrower's duties and obligations under this Regulatory Agreement and under the Administration Agreement, (iii) an opinion of counsel for the transferee that the transferee has duly assumed the obligations of the Borrower under this Regulatory Agreement and the Administration Agreement and that such obligations and this Regulatory Agreement and the Administration Agreement are binding on the transferee, (iv) documentation from the transferee reflecting the transferee's experience with owning and/or operating multifamily housing projects such as the Project and with use and occupancy restrictions similar to those contained in this Regulatory Agreement, and (v) an opinion of Bond Counsel addressed to the Issuer to the effect that such transfer will not cause interest on any Bond to become includable in the gross income of the recipients thereof for federal income tax purposes. No transfer of the Project shall operate to release the Borrower from its obligations under this Regulatory Agreement with respect to any action or inaction taken prior to such transfer. Nothing contained in this Section 10 shall affect any provision of the Security Instrument, any of the other Mortgage Loan Documents to which the Borrower is a party which requires the Borrower to obtain the consent of the Credit Provider as a precondition to sale, transfer or other disposition of, or any direct or indirect interest in, the Project or of any direct or indirect interest in the Borrower or which gives the holder of the Mortgage Note the right to accelerate the maturity of the Mortgage Loan or to take some other similar action with respect to the Mortgage Loan, upon the sale, transfer or other disposition of the Project. Notwithstanding anything contained in this Section 10 to the contrary, neither the consent of the Issuer nor the delivery of items (i) through (v) of the preceding paragraph shall be required in the case of a foreclosure or deed in lieu of foreclosure, whereby the Credit DOCSOC\987720v4~24036.0030 Provider or its designee, becomes the owner of the Project, and nothing contained in this Section 10 shall otherwise affect the right of the Credit Provider, or its designee, to foreclose on the Project or to accept a deed in lieu of foreclosure or to effect a comparable conversion of the Mortgage Loan. Consent of the Issuer and delivery of items (i), (ii), (iii) and (v) of the preceding paragraph shall be required for any transfer of the Project by the Credit Provider, or its designee, subsequent to the purchase at foreclosure or transfer pursuant to deed in lieu of foreclosure as described in the preceding sentence. It is hereby expressly stipulated and agreed that any sale, transfer or other disposition of the Project in violation of this Section 10 shall be null, void and without effect, shall cause a reversion of title to the Borrower, and shall be ineffective to relieve the Borrower of its obligations under this Regulatory Agreement. Not less than 20 days prior to consummating any sale, transfer or disposition of any interest in the Project, the Borrower shall deliver to the Issuer and the Trustee a notice in writing explaining the nature of the proposed transfer. The Borrower shall not syndicate the Project unless, prior to such syndication, an opinion of counsel acceptable to the Issuer is delivered to the Issuer to the effect that (i) the terms and conditions of the syndication do not reduce or limit any of the requirements of the Act or regulations adopted or documents executed pursuant to the Act, (ii) no requirements of the Issuer shall be subordinated to the syndication agreement and (iii)the syndication shall not result in the provision of fewer assisted units, or the reduction of any benefits or services, than were in existence prior to the syndication agreement. Section 11. Term. Except as provided in Section 3(j), (k), (1) and Section 7 above, which provisions shall continue beyond the Qualified Project Period, and, except as provided in the second paragraph of this Section 11, this Regulatory Agreement and all and several of the terms hereof shall become effective upon its execution and delivery and shall remain in full force and effect during the Qualified Project Period, it being expressly agreed and understood that the provisions hereof are intended to survive the retirement of the Bonds and expiration of the Indenture, the Financing Agreement, the Mortgage Note and the Security Agreement. Notwithstanding any other provisions of this Regulatory Agreement to the contrary, this entire Regulatory Agreement, or any of the provisions or sections hereof, may be terminated upon agreement by the Issuer, the Trustee and the Borrower only if there shall have been received by the Issuer an opinion of Bond Counsel that such termination will not adversely affect the exclusion from gross income for federal income tax purposes or the exemption from State personal income taxes of the interest on the Bonds. The terms of this Regulatory Agreement to the contrary notwithstanding, this Regulatory Agreement, and each and all of the terms hereof, shall terminate and be of no further force and effect in the event of involuntary noncompliance with the provisions of this Regulatory Agreement caused by (a) foreclosure of the Security Instrument or delivery of a deed in lieu of foreclosure, or (b) fire, seizure, requisition, change in a federal law or an action of a federal agency after the Closing Date which prevents the Issuer and the Trustee from enforcing the provisions of this Regulatory Agreement or condemnation or a similar event, but only if within a reasonable period thereafter the Bonds are paid in full and retired or amounts received as a consequence of such event are used to provide a project that meets the requirements of the Code set forth in this Regulatory Agreement; provided, however, that the preceding provisions of this sentence shall cease to apply and the restrictions contained herein shall be reinstated if, at any time subsequent to the termination of such provisions as the result of the foreclosure on the Project or the delivery of a deed in lieu of foreclosure or a similar event, the Borrower or any Affiliated Party obtains an ownership interest in the Project for federal income tax purposes. Upon the termination of the terms of this Regulatory Agreement, the parties hereto agree to execute, deliver and record appropriate instruments of release 16 ~ e"~t~' ~/~'~ DOCSOC\987720v4~24036.0030 and discharge of the terms hereof; provided, however, that the execution and delivery of such instruments shall not be necessary or a prerequisite to the termination of this Regulatory Agreement in accordance with its terms. Section 12. Covenants to Run With the Land. The Borrower hereby subjects the Project (including the Project Site) to the covenants, reservations and restrictions set forth in this Regulatory Agreement. The Issuer, the Trustee and the Borrower hereby declare their express intent that the covenants, reservations and restrictions set forth herein shall be deemed covenants running with the land and shall pass to and be binding upon the Borrower's successors in title to the Project; provided, however, that on the termination of this Regulatory Agreement said covenants, reservations and restrictions shall expire. Each and every contract, deed or other instrument hereafter executed covering or conveying the Project or any portion thereof shall conclusively be held to have been executed, delivered and accepted subject to such covenants, reservations and restrictions, regardless of whether such covenants, reservations and restrictions are set forth in such contract, deed or other instruments. No breach of any of the provisions of the Regulatory Agreement shall defeat or render invalid the lien of the Security Instrument. Section 13. Burden and Benefit. The Issuer, the Trustee and the Borrower hereby declare their understanding and intent that the burden of the covenants set forth herein touch and concern the land in that the Borrower's legal interest in the Project is rendered less valuable thereby. The Issuer, the Trustee and the Borrower hereby further declare their understanding and intent that the benefit of such covenants touch and concern the land by enhancing and increasing the enjoyment and use of the Project by Very Low Income Tenants and Low Income Tenants, the intended beneficiaries of such covenants, reservations and restrictions, and by furthering the public purposes for which the Bonds were issued. Section 14. Uniformity; Common Plan. The covenants, reservations and restrictions hereof shall apply uniformly to the entire Project in order to establish and carry out a common plan for the use, development and improvement of the Project Site. Section 15. Enforcement. If the Borrower defaults in the performance or observance of any covenant, agreement or obligation of the Borrower set forth in this Regulatory Agreement, and if such default remains uncured for a period of 60 days after written notice thereof shall have been given by the Issuer or the Trustee to the Borrower, the Credit Provider and the Servicer (or such longer period if the Borrower provides the Issuer with an opinion of Bond Counsel to the effect that such extension will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds), then the Trustee, subject to the provisions of Section 9 hereof and acting on its own behalf or on behalf of the Issuer, or the Issuer shall declare an "Event of Default" to have occurred hereunder, and, at its option, may take any one or more of the following steps: (i) by mandamus or other suit, action or proceeding at law or in equity, require the Borrower to perform its obligations and covenants hereunder or enjoin any acts or things which may be unlawful or in violation of the rights of the Issuer or the Trustee hereunder; (ii) have access to and inspect, examine and make copies of all of the books and records of the Borrower pertaining to the Project; 17 ~' ~/gt,~ /gg) DOCSOC\987720v4~24036.0030 (iii) with the prior written consent of the Credit Provider, take such other action at law or in equity as may appear necessary or desirable to enforce the obligations, covenants and agreements of the Borrower hereunder. The Borrower hereby agrees that specific enforcement of the Borrower's agreements contained herein is the only means by which the Issuer may fully obtain th~ benefits of such agreements made by the Borrower herein, and the Borrower therefore agrees to th~ imposition of the remedy of specific performance against it in the case of any Event of Default by the Borrower hereunder. , The Trustee shall have the right, in accordance with this Section 15 and the provisions of the Indenture, upon notice to but without the consent or approval of the Issuer, to exercise any or all of the rights or remedies of the Issuer hereunder. All fees, costs and expenses of the Trustee (including, without limitation, reasonable attorneys fees) incurred in taking any action pursuant to this Section 15 shall be the sole responsibility of the Borrower. After the Indenture has been discharged, or if the Trustee fails to act under this Section 15, the Issuer may act on its own behalf to declare an "Event of Default" to have occurred and to take any one or more of the steps specified hereinabove to the same extent and with the same effect as if taken by the Trustee. After the date on which no Bonds remain outstanding as provided in the Indenture, the Trustee shall no longer have any duties or obligations under this Regulatory Agreement, and all references to the Trustee herein shall be deemed references to the Issuer. As long as the Credit Provider is not in payment default under the terms of the Credit Facility, neither the Issuer, the Trustee nor any person under their control shall, without the prior written consent of the Credit Provider, exercise any remedies or direct any proceedings hereunder other than to enforce rights of specific performance hereunder against the Borrower, provided that such enforcement shall not include a judgment lien against the Project for monetary damages. Notwithstanding anything contained in this Regulatory Agreement and the Indenture to the contrary, the occurrence of an event of default under this Regulatory Agreement shall not be deemed, under any circumstances whatsoever, to constitute a default under the Mortgage Loan Documents except as may be otherwise specified in the Mortgage Loan Documents. The parties hereto agree that the maturity date of the Mortgage Loan may be accelerated solely by the holder thereof upon the occurrence of a default on the part of the Borrower under the Mortgage Loan Documents and that no person other than the Credit Provider shall have the right to (i) declare the principal balance of the Mortgage Note to be immediately due and payable, or (ii) commence foreclosure or other like action without express written authorization from the Credit Provider. The rights of the Trustee under this Section are in addition to all rights conferred upon the Trustee under the Indenture and in no way limit those rights. All monetary obligations of the Borrower that may arise under this Regulatory Agreement shall be subject and subordinate to the repayment of amounts owed by the Borrower under the Mortgage Loan Documents. Section 16. Recording and Filing. The Borrower shall cause this Regulatory Agreement and all amendments and supplements hereto and thereto, to be recorded and filed in the real property records of the County of San Diego and in such other places as the Issuer or the Trustee may DOCSOC\987720v4~24036.0030 reasonably request. The Borrower shall pay all fees and charges incurred in connection with any such recording. Section 17. Payment of Fees. The Borrower shall pay to the Issuer the Issuer's Annual Fee through the end of the Qualified Project Period. It is anticipated that moneys on deposit in the funds established under the Indenture will be sufficient to pay the Trustee's and Issuer's costs and expenses. However, to the extent that there are unforeseen and unusual costs and expenses and the moneys in said funds are insufficient therefor, the Borrower hereby agrees to pay all reasonable costs and expenses of the Trustee and the Issuer in connection with the Bonds and the financing of the Project as such costs and expenses become due and payable. Neither the Credit Provider nor the Servicer shall have any liability with respect to accrued and unpaid fees which the Borrower or any other prior or subsequent owner of the Project failed to pay if the Credit Provider or the Servicer acquire title to the Project by foreclosure, deed-in-lieu of foreclosure or comparable conversion of the Mortgage Loan. Notwithstanding any prepayment of the Mortgage Loan and notwithstanding a discharge of the Indenture, throughout the term specified in clauses (a), (b) and (c) of the Qualified Project Period, the Borrower shall continue to pay the Issuer's Annual Fee in equal semiannual installments on each April 1 and October 1, and to the Trustee reasonable compensation for any services rendered by it hereunder and reimbursement for all expenses reasonably incurred by either of them in connection therewith. The foregoing provisions of this Section 17 shall in no way limit amounts payable by the Borrower under Section 7 hereof, or arising after an Event of Default in connection with the Issuer's or the Trustee's enforcement of the provisions of this Regulatory Agreement. During any period that the Credit Provider owns the Project, the Credit Provider's obligations to make payments under this Section 17 shall be limited to amounts due in respect of the Bonds accruing during such period. Neither the Credit Provider not the Servicer shall be liable for the payment of any compensation or any fees, costs, expenses or penalties otherwise payable by the Borrower or any subsequent owner of the Project. Section 18. Governing Law. This Regulatory Agreement shall be governed by the laws of the State of California. Except as expressly provided herein and in the Agreement, the Trustee's rights, duties and obligations hereunder are governed in their entirety by the terms and provisions of the Indenture. Section 19. Amendments. Except as provided in Section 6(a) hereof, this Regulatory Agreement shall be amended only with the written consent of the Credit Provider by a written instrument executed by the parties hereto or their successors in title, and duly recorded in the real property records of the County. The parties hereto acknowledge that for so long as the Bonds are outstanding, the Credit Provider and the owners of the Bonds are third party beneficiaries to this Regulatory Agreement. Section 20. Consents of the Credit Provider. The written consents of the Credit Provider as required under this Regulatory Agreement shall not be required if the Credit Provider is not the provider of credit enhancement for the Bonds. Section21. Trustee Acting Solely in Such Capacity. In accepting its obligations hereunder, the Trustee acts solely as trustee for the benefit of the Registered Owners, and not in its individual capacity; and the duties, powers, rights and liabilities of the Trustee in acting hereunder DOCSOC\987720v4~24036.0030 shall be subject to the provisions of the Indenture, including, without limitation, Article X of the Indenture. Section 22. Compliance by Borrower. Unless it acts as the Program Administrator, the Trustee shall not be responsible for monitoring or verifying compliance by the Borrower with its obligations under this Regulatory Agreement. The Program Administrator shall assume such responsibilities under the terms of the Administration Agreement among the Program Administrator, the Issuer and the Borrower. Section 23. Notice. All notices, certificates or other communications shall be sufficiently given and (except for notices to the Trustee, which shall be deemed given only when actually received by the Trustee) shall be deemed given on the date personally delivered or on the second day following the date on which the same have been mailed by certified mail, return receipt requested, postage prepaid, addressed as follows: Issuer: Housing Authority of the City of Chula Vista 430 Davidson Street, Suite B Chula Vista, California 91910 Attention: Executive Director Program Administrator: Housing Authority of the City of Chula Vista 276 Fourth Avenue Chula Vista, California 91910 Attention: Executive Director Trustee: Wells Fargo Bank, National Association 707 Wilshire Boulevard, 17th Floor Los Angeles, CA 90071 Attention: Corporate Trust Services Borrower: CIC Eastlake, L.P. c/o Chelsea Investment Corporation 215 South Highway 101, Suite 200 Solana Beach, CA 92075 Attention: Wallace C. Dieckman Telephone: (858) 259-2624, Ext. 103 with copies to: Pillsbury Winthrop, LLP 50 Freemont Street San Francisco, CA 94105 Attention: Gary Downs, Esq. Telephone: (415) 983-1853 Fax: (415) 983-1200 DOCSOCX987720v4X24036.0030 Fannie Mae: Fannie Mae 3900 Wisconsin Avenue, NW Drawer AM Washington, D.C. 20016-2899 Attention: Director, Multlfamily Asset Management Telephone: (202) 752-2854 Facsimile: (202) 752-3542 RE: $11,686,000 Housing Authority of the City of Chula Vista Variable Rate Demand Multifamily Housing Revenue Bonds (Rancho Vista Apartments), Series 2003; Red Mortgage Capital, Inc. with a copy to: Fannie Mae 3900 Wisconsin Avenue, NW Drawer AM Washington, D.C. 20016-2899 Attention: Vice President, Multifamily Services Telephone: (202) 752-7869 Facsimile: (202) 752-8369 RE: $11,686,000 Housing Authority of the City of Chula Vista Variable Rate Demand Multifamily Housing Revenue Bonds (Rancho Vista Apartments), Series 2003; Red Mortgage Capital, Inc. [For courier to all Fannie Mae addresses use 4000 Wisconsin Avenue, N.W. and delete Drawer AM] with a copy to: O'Melveny & Myers 400 South Hope Street Los Angeles, California 90071 Attention: Debbie J. Gezon Telephone: (213)430-6492 Facsimile: (213) 430-6407 provided, however, that any notice required to be delivered to the Credit Provider pursuant to Section 2.17(1)(1) will also be sent to: Fannie Mae 3900 Wisconsin Avenue, N.W. Washington, DC 20016-2899 Attention: Director, Fiscal Agency Relations and Treasury Backoffice Telephone: (202) 752-7916 Facsimile: (202) 752-6087 DOCSOC\987720v4~24036.0030 Servicer: Red Mortgage Capital, Inc. Two Miranova Place, 12th Floor Columbus, OH 43215 Telephone: (703) 610-1400 Facsimile: (703) 610-1430 with a copy to: the Credit Provider at the address specified above Any of the foregoing parties may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, documents or other communications shall be sent. Copies of notices sent by any party hereto shall be sent concurrently to the Servicer. Section 24. CDLAC Requirements. The acquisition, construction and operation of the Project and the financing thereof are and shall be in compliance with the conditions set forth in Exhibit A to the CDLAC Resolution, a copy of which is attached hereto as Exhibit D, which conditions are incorporated herein by reference and are made a part hereofi The Issuer shall have the right, but not the obligation, to monitor and enforce the Borrower's compliance with the provisions of this Section 24. The Borrower shall prepare and submit to CDLAC on each anniversary of the Closing Date, and on such other date as is reasonably requested by CDLAC, a Certificate of Compliance in substantially the form attached hereto as Exhibit E, executed by an authorized representative of the Borrower. CDLAC shall be a third-party beneficiary of this Regulatory Agreement for purposes of enforcing the terms of the CDLAC Resolution. CDLAC shall have the right to enforce the terms of the CDLAC Resolution through an action for specific performance or any other available remedy; provided, however, that CDLAC shall not take any action or enforce any remedy that would be materially adverse to the interests of the Bondholders or the Credit Provider and any such action or enforcement shall otherwise be subject to the terms, conditions and limitations applicable to the enforcement of remedies under this Regulatory Agreement. Section 25. Third-Party Beneficiary. The parties to this Regulatory Agreement recognize and agree that the terms of this Regulatory Agreement and the enforcement of those terms are essential to the security of the Credit Provider and are entered into for the benefit of the Credit Provider. The Credit Provider shall accordingly have contractual rights in this Regulatory Agreement and shall be entitled (but not obligated) to enforce, separately or jointly with the Issuer and/or the Trustee, or to cause the Issuer or the Trustee to enforce, the terms of this Regulatory Agreement. In addition, the Credit Provider is intended to be and shall be a third-party beneficiary of this Regulatory Agreement, and the Credit Provider shall have the right (but not the obligation) to enforce the terms of this Regulatory Agreement insofar as this Regulatory Agreement sets forth obligations of the Borrower. Section 26. Severability. If any provision of this Regulatory Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining portions hereof shall not in any way be affected or impaired thereby. Section 27. Multiple Counterparts. This Regulatory Agreement may be executed in multiple counterparts, all of which shall constitute one and the same instrument, and each of which shall be deemed to be an original. Section 28. Personal Obligation of Borrower; Limitations on Recourse to Borrower. Notwithstanding any provisions of this Regulatory Agreement to the contrary, all obligations of the Borrower under this Regulatory Agreement for the payment of money and all claims for damages DOCSOC\987720v4~24036.0030 against the Borrower occasioned by breach or alleged breach by the Borrower of its obligations under this Regulatory Agreement, including indemnification obligations, shall be unsecured by, and subordinated in priority and right to, payment and in all other respects to the obligations and liens, rights (including, without limitation, the right to payment) and interests arising or created under the Mortgage Loan Documents. This Regulatory Agreement shall not be deemed to create a lien or security interest of any kind in the Project in favor of the Issuer, the Trustee or any other person with respect to any monetary obligations of the Borrower arising under this Regulatory Agreement, and no such person shall have recourse to the Project or have the right to enforce such obligations other than directly against the Borrower as provided in Section 15 of this Regulatory Agreement. Except as otherwise provided in Section 7 of this Regulatory Agreement, no subsequent Borrower shall be liable or obligated for the breach or default of any obligation of the Borrower under this Regulatory Agreement on the part of any prior Borrower. Such obligations shall be personal to the Person who was the Borrower at the time the default or breach was alleged to have occurred, and such Person shall remain liable for any and all damages occasioned by the default or breach even after such Person ceases to be the Borrower. Notwithstanding anything contained in any other provision of this Regulatory Agreement to the contrary, the Borrower's obligations under Sections 7 and 17 hereof shall be and remain the joint and several full recourse obligations of the Borrower and each general partner of the Borrower, which, subject to the provisions of the first paragraph of this Section 28, are payable from and enforceable against any and all income, assets and properties of the Borrower and each general partner of the Borrower; provided that in no event shall Borrower or any partner of Borrower be personally liable for the payment of the principal, interest or any premium on the Mortgage Loan or the Bonds, which shall be non-recourse to Borrower and shall be enforced solely against the Project and other property securing such obligations, in each case subject to and in accordance with the terms and conditions of the Mortgage Loan Documents. DOCSOC\987720v4X24036.0030 IN WITNESS WHEREOF, the Issuer, the Trustee and the Borrower have executed this Regulatory Agreement by duly authorized representatives, all as of the date first written hereinabove. HOUS1NG AUTHORITY OF THE CITY OF CHULA VISTA By: Its: Executive Director ATTEST: Secretary DOC SOC\987720v4~24036.0030 WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: Its: Authorized Officer S-2 ~ '~tt- a'~ ~' DOCSOC\987720v4k24036.0030 CIC EASTLAKE, L.P., a California limited partnership By: PACIFIC SOUTHWEST COMMUNITY DEVELOPMENT CORPORATION, a Califomia non-profit public benefit corporation, its Managing General Partner By: Brian F. Biber Its: Executive Director By: SDS EASTLAKE, LLC, a California limited liability company, its Co-General Partner By: James J. Schmid Its: Manager S-3 DOCSOC\987720v4~24036.0030 STATE OF CALIFORNIA ) ) ss COUNTY OF SAN DIEGO ) On October__, 2003 before me, Notary Public, personally appeared , personally known to me (mr proved to me on the basis of satisfactory evidence) to be the person(s) whose names(s) is/am subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(les), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC DOCSOC\987720v4~24036.0030 STATE OF CALIFORNIA ) ) ss COUNTY OF ORANGE ) On __., 2003 before me, ., Notary Public, personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC DOCSOC\987720v4~24036.0030 STATE OF CALIFORNIA ) ) ss COUNTY OF ORANGE ) On ___, 2003 before me, , Notary Public, personally appeared ., personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose names(s) is/am subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(les), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC DOCSOC\987720v4X24036.0030 EXHIBIT A Project Site [TO COME] DOCSOC\987720v4~24036.0030 EXHIBIT B CERTIFICATE OF CONTINUING PROGRAM COMPLIANCE The undersigned, , being duly authorized to execute this certificate on behalf of CIC EASTLAKE, L.P. (the "Borrower"), hereby represents and warrants that: 1. The undersigned has read and is thoroughly familiar with the provisions of the following documents associated with the Borrower's participation in the Housing Authority of the City of Chula Vista, California (the "Issuer") Multifamily Housing Revenue Bonds, Series 2003 (Rancho Vista Apartments), such documents including: (a) the Regulatory Agreement and Declaration of Restrictive Covenants (the "Regulatory Agreement") dated as of October 1, 2003 among the Borrower, the Issuer and Wells Fargo Bank, National Association (the "Trustee"); (b) the Mortgage Note dated 1, 2003 from the Borrower to the Issuer representing the Borrower's obligation to repay the Mortgage Loan. 2. As of the date of this certificate, the following percentages of residential units in the Project (i)are occupied by Low-Income Tenants (as such term is defined in the Regulatory Agreement) or (ii) are currently vacant and being held available for such occupancy and have been so held continuously since the date a Low-Income Tenant vacated such unit; as indicated: 1 Bedroom 2 Bedroom Total Occupied by Low-Income Tenants: % Unit Nos.: Held vacant for occupancy continuously sine last occupied by a Low-Income Tenant: % Unit Nos.: 3. As of the date of this certificate, the following percentages of residential units in the Project (i)are occupied by Very Low Income Tenants (as such term is defined in the Regulatory Agreement) at monthly rents in compliance with the Regulatory Agreement or (ii)are currently vacant and being held available for such occupancy and have been so held continuously since the date a Very Low Income Tenant vacated such unit; as indicated: 1 Bedroom 2 Bedroom 3 Bedroom Total Occupied by Very Low Income Tenants: % Unit Nos.: Held vacant for occupancy continuously since last occupied by a Very Low Income Tenant: % Unit Nos. DOC SOC\987720v4L24036.0030 4. The Borrower hereby certifies that the Borrower is not in default under any of the terms of the above documents and no event has occurred which, with the passage of time, would constitute an event of default thereunder, with the exception of the following [state actions being taken to remedy default]. CIC EASTLAKE, L.P., a California limited partnership By:. Authorized Borrower Representative DOCSOC\987720v4~24036.0030 EXHIBIT C INCOME COMPUTATION AND CERTIFICATION NOTE TO APARTMENT OWNER: This form is designed to assist you in computing Annual Income in accordance with the method set forth in the Department of Housing and Urban Development ("HUD") Regulations (24 CFR 5.609). You should make certain that this form is at all times up to date with the HUD Regulations. All capitalized terms used herein shall have the meaning set forth in the Regulatory Agreement. Re: [Address of Apartment Building] I/We, the undersigned state that I/we have read and answered fully, frankly and personally each of the following questions for all persons who are to occupy the unit being applied for in the above apartment project. Listed below are the names of all persons who intend to reside in the unit: 1 2 3 4 5 Name of Members Relationship to of the Head of Social Security Age Place of Household Household Number Employment HEAD SPOUSE DOCSOC\987720v4L24036.0030 Income Computation 6. The total anticipated income, calculated in accordance with this paragraph 6, of all persons (except children under 18 years) listed above for the 12-month period beginning the earlier of the date that I/we plan to move into a unit or sign a lease for a unit is $ lncluded in the total anticipated income listed above are: (a) The full amount, before any payroll deductions, of wages and salaries, overtime pay, commissions, fees, tips and bonuses, and other compensation for personal services; (b) The net income from the operation of a business or profession. Expenditures for business expansion or amortization of capital indebtedness shall not be used as deductions in determining net income. An allowance for depreciation of assets used in a business or profession may be deducted, based on straight line depreciation, as provided in Internal Revenue Service regulations. Any withdrawal of cash or assets from the operation of a business or profession will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested in the operation by the family; (c) Interest, dividends, and other net income of any kind from real or personal property. Expenditures for amortization of capital indebtedness shall not be used as deductions in determining net income. An allowance for depreciation is permitted only as authorized in paragraph (6)(b) of this section. Any withdrawal of cash or assets from an investment will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested by the family. Where the family has net family assets in excess of $5000, annual income shall include the greater of the actual income derived from all net family assets or a percentage of the value of such assets based on the current passbook savings rate, as determined by the Department of Housing and Urban Development; (d) The full amount of periodic amounts received from Social Security, annuities, insurance policies, retirement funds, pensions, disability or death benefits, and other similar types of periodic receipts, including a lump-sum amount or prospective monthly amounts for the delayed start of a periodic amount except deferred periodic amounts from supplemental security income and social security benefits that are received in a lump sum amount or in prospective monthly amounts; (e) Payments in lieu of earnings, such as unemployment and disability compensation, worker's compensation and severance pay except lump-sum additions to family assets, such as inheritances, insurance payments (including payments under health and accident insurance and worker's compensation), capital gains and settlement for personal or property losses (excluding payments in lieu of earnings, such as unemployment and disability compensation, worker's compensation and severance pay); (f) Welfare assistance. If the welfare assistance payment includes an amount specifically designated for shelter and utilities that is subject to adjustment by the DOCSOC\987720v4~24036.0030 welfare assistance agency in accordance with the actual cost of shelter and utilities, the amount of welfare assistance income to be included as income shall consist off (1) The amount of the allowance or grant exclusive of the amount specifically designated for shelter or utilities; plus (2) The maximum amount that the welfare assistance agency could in fact allow the family for shelter and utilities. If the family's welfare assistance is ratably reduced form the standard of need by applying a percentage, the amount calculated under this paragraph shall be the amount resulting from one application of the percentage; (g) Periodic and determinable allowances, such as alimony and child support payments, and regular contributions or gifts received from organizations or from persons not residing in the dwelling; (h) All regular pay, special pay and allowances of a member of the Armed Forces except the special pay to a family member serving in the Armed Fomes who is exposed to hostile fire. Excluded from such anticipated income are: (a) Income from employment of children (including foster children) under the age of 18 years; (b) Payments received for the care of foster children or foster adults (usually persons with disabilities, unrelated to the tenant family, who are unable to live alone); (c) Lump-sum additions to family assets, such as inheritances, insurance payments (including payments under health and accident insurance and worker's compensation), capital gains and settlement for personal or property losses except payments in lieu of earnings, such as unemployment and disability compensation, worker's compensation and severance pay; (d) Amounts received by the family that are specifically for, or in reimbursement of, the cost of medical expenses for any family member; (e) Income of a live-in aide, as defined by 24 CFR {}5.403; (f) The full amount of student financial assistance paid directly to the student or to the educational institution; (g) The special pay to a family member serving in the Armed Forces who is exposed to hostile fire; (h) (1) Amounts received under training programs funded by the Department of Housing and Urban Development; (2) Amounts received by a person with a disability that are disregarded for a limited time for purposes of Supplemental Security Income eligibility and c-3 E 5/-$ DOCSOC\987720v4L24036.0030 benefits because they are set aside for use under a Plan to Attain Self- Sufficiency (PASS): (3) Amounts received by a participant in other publicly assisted programs which are specifically for or in reimbursement of out-of-pocket expenses incurred (special equipment, clothing, transportation, child care, etc.) and which are made solely to allow participation in a specific program; (4) Amounts received under a resident service stipend. A resident service stipend is a modest amount (not to exceed $200 per month) received by a resident for performing a service for the Public Housing Authority or owner, on a part- time basis, that enhances the quality of life in the development. Such services may include, but are not limited to, fire patrol, hall monitoring, lawn maintenance, and resident initiatives coordination. No resident may receive more than one such stipend during the same period of time; (5) Incremental earnings and benefits resulting to any family member from participation in qualifying State or local employment training programs (including training programs not affiliated with a local govemment) and training of a family member as resident management staff. Amounts excluded by this provision must be received under employment training programs with clearly defined goals and objectives, and are excluded only for the period during which the family member participates in the employment training program; (i) Temporary, nonrecurring or sporadic income (including gifts); O) Reparation payments paid by a foreign govemment pursuant to claims filed under the laws of that government by persons who were persecuted during the Nazi era; (k) Earnings in excess of $480 for each full-time student 18 years old or older (excluding the head of household and spouse); (I) Adoption assistance payments in excess of $480 per adopted child; (m) Deferred periodic amounts from supplemental security income and social security benefits that are received in a lump sum amount or in prospective monthly amounts. (n) Amounts received by the family in the form of refunds or rebates under State or local law for property taxes paid on the dwelling unit; (o) Amounts paid by a State agency to a family with a member who has a developmental disability and is living at home to offset the cost of services and equipment needed to keep the developmentally disabled family member at home; or (p) Amounts specifically excluded by any other Federal statute from consideration as income for purposes of determining eligibility or benefits under a category of assistance programs that includes assistance under any program to which the exclusions set forth in 24 CFR §5.609(c) apply. DOCSOC\987720v4~24036.0030 7. Do the persons whose income or contributions are included in item 6 above (a) have savings, stocks, bonds, equity in real property or other form of capital investment (excluding the values of necessary items of personal property such as furniture and automobiles and interests in Indian trust land)? __ Yes __ No; or (b) have they disposed of any assets (other than at a foreclosure or bankruptcy sale) during the last two years at less than fair market value? Yes No (c) If the answer to (a) or (b) above is yes, does the combined total value of all such assets owned or disposed of by all such persons total more than $5,000? Yes No (d) If the answer to (c) above is yes, state: (1) the combined total value of all such assets: $ ; (2) the amount of income expected to be derived from such assets in the 12-month period beginning on the date of initial occupancy in the unit that you propose to rent: $ , and (3) the amount of such income, if any, that was included in item 6 above: $ 8. (a) Are all of the individuals who propose to reside in the unit full-time students*? Yes No *A full-time student is an individual enrolled as a full-time student during each of 5 calendar months during the calendar year in which occupancy of the unit begins at an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance or is an individual pursuing a full-time course of institutional on farm training under the supervision of an accredited agent of such an educational organization or of a state or political subdivision thereof. (b) lfthe answer to 8(a) is yes, is at least 2 of the proposed occupants of the unit a husband and wife entitled to file a joint federal income tax return? Yes No 9. Neither myself nor any other occupant of the unit l/we propose to rant is the owner of the rental housing project in which the unit is located (hereinafter the "Borrower"), has any family relationship to the Borrower; or owns directly or indirectly any interest in the DOCSOC\987720v4~24036.0030 Borrower. For purposes of this paragraph, indirect ownership by an individual shall mean ownership by a family member, ownership by a corporation, partnership, estate or trust in proportion to the ownership or beneficial interest in such corporation, partnership, estate or trustee held by the individual or a family member; and ownership, direct or indirect, by a partner of the individual. 10. This certificate is made with the knowledge that it will be relied upon by the Borrower to determine maximum income for eligibility to occupy the unit; and l/we declare that all information set forth herein is true, correct and complete and based upon information I/we deem reliable and that the statement of total anticipated income contained in paragraph 6 is reasonable and based upon such investigation as the undersigned deemed necessary. 11. l/we will assist the Borrower in obtaining any information or documents required to verify the statements made herein, including either an income verification from my/our present employer(s) or copies of federal tax returns for the immediately preceding calendar year. 12. l/we acknowledge that I/we have been advised that the making of any misrepresentation or misstatement in this declaration will constitute a material breach of my/our agreement with the Borrower to lease the unit and will entitle the Borrower to prevent or terminate my/our occupancy of the unit by institution of an action for ejection or other appropriate proceedings. I/we declare under penalty of perjury that the foregoing is true and correct. Executed this day of in the County of San Diego, California. Applicant Applicant [Signature of all persons (except children under the age of 18 years) listed in number 2 above required] c-6 ~ Y~'' s~') DOCSOC\987720v4~24036.0030 FOR COMPLETION BY BORROWER ONLY: 1. Calculation of eligible income: a. Enter amount entered for entire household in 6 above: $ b. (1) If the answer to 7(c) above is yes, enter the total amount entered in 7(d)(2), subtract from that figure the amount entered in 7(d)(3) and enter the remaining balance ($ ) (2) Multiply the amount entered in 7(d)(l) times the current passbook savings rate as determined by HUD to determine what the total annual earnings on the amount in 7(d)(1) would be if invested in passbook savings ($ ), subtract from that figure the amount entered in 7(d)(3) and enter the remaining balance ($ ); (3) Enter at right the greater of the amount calculated under (1) or (2) above: $ c. TOTAL ELIGIBLE INCOME (Line l.a plus line l.b(3)): $ 2. The amount entered in line l.c: Qualifies the applicant(s) as a Very Low Income Tenant(s) Does not qualify the applicant(s) as a Very Low Income Tenant Qualifies the applicant(s) as a Low Income Tenant(s). Does not qualify the applicant(s) as a Low Income Tenant(s). 3. Number of apartment unit assigned: __ Bedroom Size__ Rent: 4. This apartment unit [was/was not] last occupied for a period of 31 or more consecutive days by persons whose aggregate anticipated annual income as certified in the above manner upon their initial occupancy of the apartment unit qualified them as Very Low Income Tenants or Low Income Tenants, as applicable. 5. Method used to verify applicant(s) income: DOCSOC\987720v4~4036.0030 Employer income verification. Copies of tax returns. Other ( ) Authorized Borrower Representative DOCSOC\987720v4X24036.0030 INCOME VERIFICATION (for employed persons) The undersigned employee has applied for a rental unit located in a project financed under the Housing Authority of the City of Chula Vista Multifamily Housing Revenue Bond Program for persons of lower income. Every income statement of a prospective tenant must be stringently verified. Please indicate below the employee's current annual income from wages, overtime, bonuses, commissions or any other form of compensation received on a regular basis. Annual wages Overtime Bonuses Commissions Other Income Total current income I hereby certify that the statements above are true and complete to the best of my knowledge. Signature Date Title I hereby grant you permission to disclose my income to in order that they may determine my income eligibility for rental of an apartment located in their project which has been financed under the Housing Authority of the City of Chula Vista Multifamily Housing Revenue Bond Program. Signature Date Please send to: DOCSOC\987720~4~24036.0030 INCOME VERIFICATION (for self-employed persons) l hereby attach copies of my individual federal and state income tax returns for the immediately preceding calendar year and certify that the information shown in such income tax returns is true and complete to the best of my knowledge. Signature Date DOCSOC\987720v4L24036.0030 EXHIBIT D CDLAC RESOLUTION RESOLUTION NO. 01-176 (QUALIFIED RESIDENTIAL RENTAL PROJECT) EXHIBIT A 1. Applicant: Housing Authority of the City of Chula Vista 2. Application #: 03-147 3. Project Sponsor: CIC Eastlake, L.P. (SDS Eastlake LLC and James J. Schmid, an individual) 4. Project Name: Rancho Vista Apartments Project 5. Type of Project: New Construction 6. Location: Chula Vista, California 7. Credit Enhancement Provider: Red Mortgage Capital, Inc./Fannie Mae 8. The Credit Enhancement Provider at the time of issuance will be the same as represented in the application: Applicable 9. Total Number of Units: 149 plus 1 manager unit 10. Total Number of Restricted Rental Units: 149 11. The term of the income and rental restrictions for the Project will be at least 55 years. 12. The Project will utilize Gross Rents as defined in Section 2 of the Committee's Procedures: Applicable 13. Income and Rental Restrictions: For the entire term of the income and rental restrictions, the Project will have: At least 30 Qualified Residential units rented or held vacant for rental for persons or families whose income is at 50% or below of the Area Median Income; and At least 119 Qualified Residential units rented or held vacant for rental for persons or families whose income is at 60% or below of the Area Median Income. 14. For acquisition/construction projects, a minimum of $7,500 in hard construction costs will be expended for each Project unit. Not Applicable 15. A minimum of $1,500,000 of public funds will be expended for the Project. Applicable DOCSOC\987720v4~24036.0030 16. At a minimum, the financing for the Project shall include a Taxable Tail in the amount of $0. Taxable debt may only be utilized for Project related expenses, not for the cost of issuance, for which the Project Sponsor could otherwise have used tax-exempt financing. Not Applicable 17. If the Project received points for having large family units, for the entire term of the income and rental restrictions, the Project will have at least 89 three-bedroom or larger units. Not Applicable 18. For a period of ten (10) years after the Project is placed in use, the Project will offer to Project residents an after school program on-site or there must be an after school program available to Project residents within ¼ mile of the Project. Applicable 19. For a period of ten (10) years after the Project is placed in use, the Project will offer to Project residents a licensed day care facility on-site or there must be a licensed day care facility available to Project residents within ¼ mile of the Project. Not Applicable 20. For a period often (10) years after the Project is placed in use, the Project will offer to Project residents, educational classes pursuant to a written agreement with a third party provider on-site or there must be educational classes (pursuant to a written agreement with a third party provider) available to Project residents within ¼ mile of the Project. Not Applicable 21. For a period of ten (10) years after the Project is placed in use, the Project will offer to Project residents, (describe service) on-site or such service must be available to the Project residents within ¼ mile of the Project. Applicable 22. All projects that receive points for being a Federally Assisted At-Risk Project, will renew all Section 8 HAP Contracts or equivalent Project-based subsidies for their full term, and will seek additional renewals, if available, throughout the Project's useful life. Not Applicable 23. All projects that receive points for being a Federally Assisted At-Risk Project based on an expiring Low Income Housing Tax Credit Regulatory Agreement shall have a plan in place to re-certify the incomes of the existing tenants and shall not cause involuntary displacement of any tenant whose income may exceed the Project's income limits. Not Applicable. 24. The Project will utilize building materials that will increase energy efficiency by at least 15% above the energy standards set forth by the California Energy Commission Title 24, Part 6 of the California Code of Regulations (Title 24 energy standards). Applicable 25. The Project will incorporate the following energy efficient items: 1. Appliances with the Energy Star rating for refrigerators, dishwashers, furnaces, air conditioners and windows. Applicable 2. Natural gas for cooking and space heating. Applicable 3. Occupancy sensors to turn off lights for all bathrooms, garages and storage spaces. Not Applicable D-2 DOCSOC\987720v4~24036.0030 4. Fluorescent light fixtures for at least 75% of light fixtures. Applicable DOC SOC\987720v4~24036.0030 EXHIBIT E CDLAC COMPLIANCE CERTIFICATE Project Name: Rancho Vista Apartments CDLAC Application No.: 03-147 Pursuant to Section 13 of Resolution No. 03-123 (the "Resolution"), adopted by the California Debt Limit Allocation Committee (the "Committee") on July 9, 2003, 1, , an officer of the Project Sponsor, hereby certify under penalty of perjury that, as of the date of this Certification, the above-mentioned Project is in compliance with all of the terms and conditions set forth in the Resolution. I further certify that I have read and understand Section 3 of the Resolution, which specifies that once the Bonds are issued, the terms and conditions set forth in the Resolution shall be enforceable by the Committee through an action for specific performance or any other available remedy (as further explained in Section 12 of the Resolution). C1C EASTLAKE, L.P., a California limited partnership By:. Authorized Borrower Representative DOCSOC\987720v4~24036.0030 Table of Contents Page Section 1. Definitions and Interpretation ....................................................................................... 2 Section 2. Acquisition, Construction, Equipping and Completion of the Project .......................... 6 Section 3. Residential Rental Property ........................................................................................... 6 Section 4. Very Low Income Tenants and Low Income Tenants .................................................. 8 Section 5. Tax Status of the Bonds .............................................................................................. 11 Section 6. Modification of Special Tax Covenants ...................................................................... 12 Section 7. Indemnification ........................................................................................................... 12 Section 8. Consideration .............................................................................................................. 14 Section 9. Reliance ....................................................................................................................... 14 Section I 0. Sale or Transfer of the Project; Syndication ............................................................... 15 Section 11. Term ............................................................................................................................ 16 Section 12. Covenants to Run With the Land ................................................................................ 17 Section 13. Burden and Benefit ..................................................................................................... 17 Section 14. Uniformity; Common Plan .......................................................................................... 17 Section 15. Enforcement ................................................................................................................ 17 Section 16. Recording and Filing ................................................................................................... 18 Section 17. Payment of Fees .......................................................................................................... 19 Section 18. Governing Law ............................................................................................................ 19 Section 19. Amendments ............................................................................................................... 19 Section 20. Consents of the Credit Provider .................................................................................. 19 Section 21. Trustee Acting Solely in Such Capacity ..................................................................... 19 Section 22. Compliance by Borrower ............................................................................................ 20 Section 23. Notice .......................................................................................................................... 20 Section 24. CDLAC Requirements ................................................................................................ 22 Section 25. Third-Party Beneficiary ............................................................................................... 22 Section 26. Severability ................................................................................................................. 22 Section 27. Multiple Counterparts ................................................................................................. 22 Section 28. Personal Obligation of Borrower; Limitations on Recourse to Borrower ................... 22 Signatures .................................................................................................................. S- 1 EXHIBIT A -- PROJECT SITE ........................................................................................................ A-I EXHIBIT B -- CERTIFICATE OF CONTINUING PROGRAM COMPLIANCE ......................... B-1 EXHIBIT C -- INCOME COMPUTATION AND CERTIFICATION ........................................... C-I EXHIBIT D -- CDLAC RESOLUTION .......................................................................................... D- 1 EXHIBIT E -- CDLAC COMPLIANCE CERTIFICATE'. ............................................................. E-I ,/-gq- i DOC SOC\987720v4L24036.0030 PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER l, 2003 EXHIBIT 5 NEW ISSUE -- BOOK-ENTRY ONLY RATING: S&P:" (See "RATING" he~) rulings and judicial decisions and assuming the accuracy of certain representat oas and compl ance with certain covenants and requirements described here n. nterest on the t~onds is excluded from gross income for federal ncome tax purposes excep for nterest on any Band for any period during which such Bond is held by a "substantial user" of the facihties financed with the proceeds of the Bonds or a "related person" with n he meaning of Secaon 147(a) of the Internal Revenue Code of 1986 as amendett and interest on the Bonds is an item of tax preference for the purposes of ca culat ng he federal alternative mm mum ox mposed on ndtv duals and corpor~ttions, lathe fi~rther opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax Bond Counselexpresses no opinion regarding any other tax c~n~equences retated t~ the ~wner~hip ~r disp~siti~n ~f ~r the ~ccr~al ~r recdtPt ~~ mterest ~n the B~nds. See "T/LY MATTERS" herein $11,686,000' KUTAK ROCK LLP Housing Authority of the City of Chula Vista DRAFT 09/23/2003 Multifamily Housing Revenue Bonds (Rancho Vista Apartments) Series 2003A Dated: October 1, 2003 Due: As shown on Ihe inside front cover The Housing AuthoriW of the City of Chula Vista the "Issuer") s ssu ng the above-capt oned bonds (the "Bonds") under a Trust Indenture, dated os of October I, 2003(he"n a Indenture") between the lssuer and Wel/s Fargo Bank. Nationa]Association, as trustee (the -Trustee-) The Bonds will bear interest from their dated date to June I, 2024 (the "Initial Remarketing Date") The Bonds Outstandingon the Initial Remarketing Date are subject to mandato tender and remarket n and the interest rae on such Bonds will be adjus ed to a new rate. See "THE BONDS--Mandatory Purchase offBonds on Inthal Remarketin~ryDate ' Interest on the ~onds will be payable semiannua y on June I and December l of each year (each. an "Interest Payment Date"). commencing June I 2004 The Bonds are issuable as fu reg s ered Bonds in minimum denom nations of $5,000 tinct al amount or an interal multiple thereof The Bonds will initially be registered in the name °fCede& ~°, as registered owner and nominee for/he Depository ~P~st ~om an , New'York, ~erw York .... B0nd~ the "Ben.eficial Owners") will not rece ye phys cai delive, of the Bonds As long as Cede & Co is thep r~istered owner as nomin(~;Do~Cl~)[c,P~raC~Seenr~ o°ff [hhee prmc~pa[ of and interest on the Bonds will be made d~rectly to such reg s ered owner which will, in turn, rem such payments to DTC Participants (os defined herein and Indirect Participants (as defined herein) for subsequent disbursement to the Beneficial Owners See "THE BaND.Book-Entry Only System" The Bonds are being issued by he ssuer to fund a loan (the "Mortgage Loan") to C C Eastlake, L P. a California limited partnership (the '~Borrower ') pursuant to a Financing Agreement, dated as of the date of the Indenture (the "Initial Financing Agreemen "), among the Issuer, the Borrower and the Trustee, for the purpose of financing the costs of~e acquisition, construction, and equ pp ng of the multifamily renta hous ng development described herein (the "Project"), located in ChulaVista, California. occupied by persons and families of iow ncome to the extent required by federa ax law, as re uired by the Issuer and as re uired in connection with the Borrower's participation m the Low Income Housing Tax Cred Program Such income restrictions are described more fully herein. See "~'C~E BORROWER AND THE PROJECT" and "APPEND X C--SUMMARY OF CERTAIN PROVISIONS OF THE REGULATORY AGREEMENT" attached hereto. As described herein in connection with Loan Conversion (as defined herein), if it occurs, the Initial Indenture and the Initial Financing Agreeruent will be autoreatically replaced b~ the Permanent Indenture and the Permanent Financing Agreement (as both such terms are defined herein) and, as described below, the Initial Credit Facili~ and the Initial Standby Cred t Fac t~{ will be replaced by the Permanent Credil Facility (as each such term is defined below). Prior to Loan Conversion, references herein to the Indenture, the Financing Agreement, the Credit Facility and the Credit Provider will be references to the Initial Indenture. the Initial Financing Agreement, the Initial Credit Facility and Ihe Initial Credit Provider (as each such term is defined herein or below), respectively. Following Loan Conversion references to the Indenture, the F nancing Agreement, the Credit Facility and the Credit Provider will be references to the Permanent Indenture, the Permanent Financing Agreement, the Permanen Credit Facility and the Permanent Credit Provider (as each such term is defined herein or below , respectively. If Loan Conversion occurs Bondholders w receive prior written notice of Loan Convers on but the Bondholders will not have the right or the obbgation to tender the r Bonds in connection therewith, and the interest rate on the Bonds wi not be reset. There can be no assurance that Loan Conversion will Prior to Loan Conversion paymen of pr nc pa of interest on and the purchase price of thc Bonds will be secured by a pledge of revenues under the Indenture, including amounts drawn under 'a direct-pay Irrevocable ~ransferable Letter of Cred ( he "Initial Credit Facility") issued by Provident Bank (the "Initial Credit Provider") and amounts draum under an Irrevocable Standby Letter of Cred t (the" n tial Standby Credit Facility") issuedby the Federal Home Loan Bank of Cincinnati (the "Initial Standby Credit Provider") and a first priority mortgage lien against he ProJect Forms of the Initial Credit Facility and the Initial Standby Credit Facility are auacbed hereto Following Loan Conversion if it occurs, payment of the principal of and interest on the Bonds will be secured, to the extent described herein, b the Mortga e Loan ~nd.b.y,c..eftain. o~er r?~ou,r.c.e,s an~ assets c,,onsfi~uting the lmst Estate under the Permanent Indenture (as defined herein). In addition certain reauire~V~avments d~g~ under [n~e~m.~ll.y~.~-q,o..te .[tn? Mo~rt[age...Not~e~ ev?de~c~g, the Mortgage Loan will be secured by FantheMae ('Fannie Mae" or he "Pe~cr~anent Crldit Pr~v(der') purs~ta~i~- ~,~i~i~t~J~t,,u, ,t.~ amlm?on,~ ot,.me *tanu-¢y~ crc. att ~nnancement restrument ~ssugd by Fanme Mae (the "Permanent Credit Facility") to the lmstee. The Permfinent Credi~ A ty wm also prowue nqulolty support rut me Bonds Outstanding on the lnthal Remarketin Date A form of the Permanent Credit Facili is aaached hereto at ppendix E-2 There can be no assurance that Loan Conversion will occur EVEN IF LOAN COPq~ERSION OCCURS AND/HE PERMANENT ~t~EDII FACILITY IS DELIVERED, PAYMENT OF PRINCIPAL OF PREMIUM. IF ANY AND INTEREST ON IHE BONDS S NOI GUARANTEED BY FANNIE MAE FANNIE MAC'S OBLIGATIONS WILL BE CONTAINEI~ IN THE PERMANENT CRED T FACILITY. SO LONG AS THE PERMANENT CREDIT FACILITY IS IN EFFECT AND WILL BE LIMITED SOLELY TO ITS OBLIGATIONS THEREUNDER AS DESCRIBED GENERALLY HEREIN THE OBLIGATIONS OF FANNIE MAI~ UNDER THE PERMANENT CREDIT FACILITY WILL BE OBLIGATIONS SOLELY OF FANNIE MAE. THE OBLIGATIONS OF FANNIE MAE UNDER THE PERMANENT CREDIT FACILITY WILL BE OBLIGATIONS SOLELY OF FANNIE MAE, A FEDERALLY CHARTERED STOCKHOLDER-OWNED CORPORATION, AND WILL NOT BE BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES OF AMERICA THE BONDS ARE NOT A DEBT OF /HE UNITED STATES OF AMERICA OR ANY OTHER AGENCY OR INSTRUMENTALITY THEREOF OR OF FANNIE MAE THE BONDS ARE NOT GUARANTEED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES OF AMERICA The principal areount of the Mortgage Loan may be prepaid in part by the Borrower prior to and os a condition to Loan Conversion to reduce the pr nc pa amount of the Mortgage Loan in order to satisl~ Fannie Mac's underwriting requirements If the principal amount of the Mortgage Loan is prepaid in part by the Borrower prior to and as a condition ~ Loan Conversion, the Bonds will be sublec to corresponding mandato redemption, in pa~ at a price equal to the tinct al amount of the Bonds being redeemed, plus accrued interest thereon to the redemption da e No premium will be pai~Yre connection with such a redemption See '~HE ~ONDS--Redempfion Prior to Loan Conversion" herein. The Bonds are also subject to optional mandatory s nk ng fund and special mandatory redemption riortomaturityatthetimesandtotheextentdescribedberein The redemption provisions differ before and after Loan Conversion, as described under the head ngs "~HE BONDS--Redemption Prior to Loan Conversion" and "-- Rcdem tion After Loan Conversion" herein respectively. Persons who urchase Bonds at a price in excess of their principal amount risk the loss of any premium paid in the event t~¢ Bonds ar~ redeemed prior to ma{urity. See "BONDHOLD~'P~s' RISKS" herein The Bonds are also subject to mandatory tender for purchase prior to Loan Conversion as described under the heading "IHE BONDS-- Other Mandatory Tenders Prior to Loan Conversion" herein THE BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELYOUT OF THE REVENUES, RECEIPTS AND OTHER MONEYS PLEDGED THEREFORE UNDER THE INDENTURE. THE BONDS ARE NOT A DEBT OF THE STATE, THE ISSUER EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE) OR OF ANY OTHER POLITICAL SUBDIVISION OF THE STATE, AND NEI~ HER THE STATE, THEISSUER EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE NOR ANY OTHER POLITICAL SUBDIVIS1ON OF THE STATE IS LIABLE F~R THE PAYMENT OF THE BONDS. NE1THER THE FAITH AND C~EDIT OF THE STATE, THE ISSUER NOR OF ANY OTHER POLITICAL SUBDIVISION OF THE STATE ARE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. In addition simultaneously with the ssuance of he Bonds the ssuer w ssue under a Subord nate Indenture of Trust, dated as of the date of the indenture (the "Subordinate Indenture", by andbe ween the ssuer m~d the Trustee $ aggregate principal amount of its Subordinate Multifamily Housing Revenue Bonds (Rancho seeViSta"lNTRODUCTION"Apartments) Set es 2003Bherein.(the "Subordinate Bonds The Subordreate Bonds willnot be secured by the Trust Estate securing the Bonds or by the Credit Facility. This cover page contains certain information for quick reference on y t s not a complete summa~ of the Bonds or the financing Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision The Bonds are offered when, as and if issued and received by the Underwriter, subject to the approving opinion of StradBng Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California Bond Counsel. In connec on w th he initial issuance of the Bonds cera n legal matters will be pa~sed upon for the Issuer by the CiO/Attorney, for the Initial Credit Provider by its in-house counsel, for the Initial Standby Credit Provide~ by Taft, Stettini~ ~ Ho/lister LLP, Cincinnati. Ohio, for the Borrower by Pillsbury Winthrop LLP, San Francisco. Cahfornia and for the Under*~riter by Ku ak Rock LLP. In connection with the Loan Conversion tf t occurs certain legal matters will be passed upon for the Permanent Credi Provider by its legal deportmen and by i s special counsel, 0 Me veny & Myers LLP. It is expected that the 01-503376.3 Bonds will be available for delivery to The Deposito~v Trust Company in ~Vew York, New York, on or abou Oc ober 21, 2003 Dated: October ,2003 * Preliminary; subject to change. 01-503376.3 AMOUNTS, MATURITIES AND INTEREST RATES $ --__% Term Bonds due ~ Price: %, CUSIP: $ --__% Term Bonds due ., Price: %, CUSIP: (Price includes accrued interest from the dated date of the Bonds set forth on the cover hereof.) (The Bonds maturing on are subject to mandatory tender for purchase on the lnitial Remarketing Date specified on the cover hereof at a price equal to the principal amount of the Bonds plus accrued interested thereon to the Initial Remarketing Date as described under the heading "THE BONDS--Mandatory Purchase of Bonds on Initial Remarketing Date" herein.) 01-503376.3 No dealer, broker, salesperson or other person has been authorized by the Issuer, the Borrower, the Trustee, the lnitial Credit Provider, the Initial Standby Credit Provider, the Permanent Credit Provider, the Loan Servicer, the Under~vriter or the Remarketing Agent to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information in this Official Statement has been obtained from the Issuer, the Borrower, the Initial Credit Provider, the Initial Standby Credit Provider, the Permanent Credit Provider, the Loan Servicer and DTC and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of, the Issuer (except ~vith respect to the information under the captions "THE ISSUER" and "NO LITIGATION--The Issuer"), the Borrower (except with respect to the information under the captions "THE BORROWER AND THE PROJECT" and "NO LITIGATION--The Borrower"), the Trustee, the Initial Credit Provider (except with respect to the information under the caption "THE CREDIT PROVIDERS~Credit Providers Prior to Loan Conversion--Initial Credit Provider"), the Initial Standby Credit Provider (except with respect to the information under the caption "THE CREDIT PROVIDERS~redit Providers Prior to Loan Conversion --lnitial Standby Credit Provider"), the Permanent Credit Provider (except with respect to the information under the caption "THE CREDIT PROVIDERS~redit Provider After Loan Conversion-- Permanent Credit Provider"), the Loan Servicer (except with respect to the information under the heading "THE LOAN SERVICER"), the Underwriter or the Remarketing Agent. In particular, none of the Issuer (except with respect to the information under the captions "THE ISSUER" and "NO LITIGATION--The Issuer'), the Borrower (except with respect to the information under the captions "THE BORROWER AND THE PROJECT" and "NO LITIGATION--The Borrower"), the Initial Credit Provider (except with respect to the information under the caption "THE CREDIT PROVIDERS--Credit Providers Prior to Loan Conversion--Initial Credit Provider"), the Initial Standby Credit Provider (except with respect to the information under the caption "THE CREDIT PROVIDERS~redit Providers Prior to Loan Conversion Initial Standby Credit Provider"), the Permanent Credit Provider (except with respect to the information under the caption "THE CREDIT PROVIDERS~redit Provider After Loan Conversion--Permanent Credit Provider") or the Loan Servicer (except with respect to the information under the heading "THE LOAN SERVICER"), has provided or approved any information in this Official Statement, and such entities take no responsibility for any other information contained in this Official Statement. Without limiting the foregoing, none of the lssuer, the Initial Credit Provider, the Initial Standby Credit Provider, the Permanent Credit Provider or the Loan Servicer make any representation as to the suitability of the Bonds for any investor, the feasibility or performance of the Project, or compliance with any securities, tax or other laws or regulations. Following delivery of the Permanent Credit Facility, the Permanent Credit Provider's role with respect to the Bonds is limited to entering into the Permanent Credit Facility described herein with the Trustee. No assurance can be given that the conditions to delivery of the Permanent Credit Facility will be satisfied. The information and expression of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale hereunder shall, under any circumstances, create any implication that there has been no change in the information contained herein since the date hereof. 01-503376.3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 01-503376.3 TABLE OF CONTENTS Page INTRODUCTION ....................................................................................................................................... 1 THE ISSUER .............................................................................................................................................. 6 THE BONDS ............................................................................................................................................... 6 SECURITY FOR THE BONDS ............................................................................................................... 20 BONDHOLDERS' R1SKS ........................................................................................................................ 26 THE CREDIT PROVIDERS ..................................................................................................................... 29 ESTIMATED SOURCES AND USES OF FUNDS ................................................................................. 32 THE BORROWER AND THE PROJECT ............................................................................................... 32 THE MORTGAGE NOTE ........................................................................................................................ 34 THE LOAN SERVICER ........................................................................................................................... 41 TAX MATTERS ....................................................................................................................................... 42 NO LITIGATION ..................................................................................................................................... 42 ENFORCEABILITY OF REMEDIES ...................................................................................................... 43 CONTINUING DISCLOSURE ................................................................................................................ 43 VERIFICATION OF CASH FLOWS AND SUFFICIENCY OF CASH FLOW .................................... 44 RATING .................................................................................................................................................... 44 UNDERWRITING .................................................................................................................................... 45 CERTAIN LEGAL MATTERS ............................................................................................................ 2.. 45 MULTIPLE ROLES .................................................................................................................................. 45 MISCELLANEOUS .................................................................................................................................. 45 APPENDIX A-1 CERTAIN DEFINITIONS PRIOR TO LOAN CONVERSION APPENDIX A-2 CERTAIN DEFINITIONS AFTER LOAN CONVERSION APPENDIX B-I SUMMARY OF CERTAIN PROVISIONS OF THE INITIAL INDENTURE APPENDIX B-2 SUMMARY OF CERTAIN PROVISIONS OF THE PERMANENT INDENTURE APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE REGULATORY AGREEMENT APPENDIX D-1 SUMMARY OF CERTAIN PROVISIONS OF THE INITIAL FINANCING AGREEMENT APPENDIX D-2 SUMMARY OF CERTAIN PROVISIONS OF THE PERMANENT FINANCING AGREEMENT APPEND1X E-1 FORMS OF INITIAL CREDIT FACILITY AND THE INITIAL STANDBY CREDIT FACILITY APPENDIX E-2 FORM OF PERMANENT CREDIT FACILITY APPENDIX F FORM OF OPINION OF BOND COUNSEL APPENDIX G FORM OF CONTINUING DISCLOSURE AGREEMENT APPENDIX H-1 SUMMARY OF CERTAIN PROVISIONS OF THE INITIAL REIMBURSEMENT AGREEMENT APPENDIX H-2 SUMMARY OF CERTAIN PROVISIONS OF THE PERMANENT REIMBURSEMENT AGREEMENT 01-503376.3 OFFICIAL STATEMENT relating to $11,686,000' Housing Authority of the City of Chula Vista Multifamily Housing Revenue Bonds (Rancho Vista Apartments) Series 2003A INTRODUCTION The following introductory statement is subject in all respects to more complete information contained elsewhere in this Official Statement. The order and placement of materials in this Official Statement, which includes the cover page and Appendices hereto, are not to be deemed to be a determination of relevance, materiality or relative importance, and this Official Statement, including the cover page and Appendices hereto, must be considered in its entirety. All capitalized terms used in this Official Statement that are not otherwise defined herein will have the meanings ascribed to them in the applicable Indenture, the applicable Financing Agreement, the Regulatory Agreement, the applicable Reimbursement Agreement and the applicable Credit Facility (as each such term is defined herein). This Official Statement and the Appendices hereto set forth certain information relating to the issuance by the Housing Authority of the City of' Chula Vista (the "Issuer") of the above-captioned bonds (the "Bonds"). The Bonds are being issued pursuant to Chapter I of Part 2 of Division 24 of the California Health and Safety Code (the "Act"), under a Trust Indenture, dated as of October 1, 2003 (the "Initial Indenture"), between the Issuer and Wells Fargo Bank, National Association, as trustee (the "Trustee"), and a resolution of the Issuer authorizing issuance and sale of the Bonds and execution and delivery of all related documents required to be executed and delivered by the Issuer (the "Bond Resolution"). The Bonds are being issued to provide funding for a Mortgage Loan (the "Mortgage Loan") to be made by the Issuer to CIC Eastlake, L.P., a California limited partnership (the "Borrower"). The Borrower will apply the proceeds of the Mortgage Loan to finance the costs of acquiring, constructing and equipping a multifamily rental housing development known as the Rancho Vista Apartments located in Chula Vista, California (the "Project"). The Project will be occupied by persons and families of low income to the extent required by federal tax law, as required by the Issuer and as required in connection with the Borrower's participation in the Low Income Housing Tax Credit Program. See "THE BORROWER AND THE PROJECT" herein and Appendix C hereto. The Mortgage Loan will be made pursuant to a Financing Agreement, dated as of the date of the Initial Indenture (the "Initial Financing Agreement"), by and among the Issuer, the Trustee and the Borrower. The obligations of the Borrower under the Initial Financing Agreement will be secured by a Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (prior to Loan Conversion, the "Security Instrt~ment") from the Borrower in favor of the Issuer and Provident Community Development Company, LLC ("PCDC'). The Security Instrument will encumber the Project. On the Closing Date, the Security Instrument will be assigned by the Issuer to the Trustee and PCDC, as their interests may appear, and upon such assignment, will be part of the Trust Estate securing the Bonds. Pursuant to an Assignment and Intercreditor Agreement, dated as of the date of the Initial Indenture, by and among the Issuer, PCDC and the Trustee, and acknowledged, by the Borrower (the *Preliminary; subject to change. 01-503376.3 "Initial Assignment"), the right, power and authority to make all decisions in connection with the Mortgage Loan will be vested exclusively in the Initial Credit Provider. To secure the Bonds initially, in addition to granting to the Issuer a first mortgage lien against the Project pursuant to the Security Instrument, the Borrower will cause to be delivered to the Trustee a direct-pay Irrevocable Transferable Letter of Credit (the "Initial Credit Facility") issued by Provident Bank ("Provident Bank" or the "Initial Credit Provider"). The form of the Initial Credit Facility is attached hereto under the heading "THE INITIAL CREDIT FACILITY" in AppeadixE-l. See also "THE CREDIT PROVIDERS~redit Providers Prior to Loan Conversion--Initial Credit Provider" herein. The Initial Credit Facility will be issued pursuant to a Reimbursement Agreement, dated as of the Closing Date (the "Initial Reimbursement Agreement"), between PCDC (an affiliate of the Initial Credit Provider) and the Borrower. The Borrower will agree in the Initial Reimbursement Agreement to reimburse PCDC for drawings made under the Initial Credit Facility and to make certain other payments to PCDC. See Appendix H-1 hereto. The payment of draws under the Initial Credit Facility will initially be secured by an Irrevocable Standby Letter of Credit (the "Initial Standby Credit Facility") issued by the Federal Home Loan Bank of Cincinnati ("FHLB" or the "Initial Standby Credit Provider"). The form of the Initial Standby Credit Facility is attached hereto under the heading "THE INITIAL STANDBY CREDIT FACILITY" in Appendix E-1. See also "THE CREDIT PROVIDERS~redit Providers Prior to Loan Conversion-- Initial Standby Credit Provider" herein. If the Initial Credit Provider fails to honor a properly presented and conforming draw on the Initial Credit Facility, or the Initial Credit Facility is repudiated, the Trustee is directed to draw on the Initial Standby Credit Facility and apply the proceeds of such draw to the mandatory redemption of the Bonds, in whole, at a price equal to the principal amount of the Bonds redeemed, plus accrued interest to the redemption date. No premium will be paid in connection with such redemption. See "THE BONDS~Redemption Prior to Loan Conversion" herein. Upon the satisfaction of certain conditions including, but not limited to, completion of acquisition, construction and equipping of the Project and the achievement of a specified level of occupancy from the leasing of units in the Project (the "Conditions to Loan Conversion"), the Mortgage Loan will convert ("Loan Conversion") and the following events will take place. No assurance can be given that the Conditions to Loan Conversion will be satisfied or that other events or circumstances may or may not occur as a result of which Loan Conversion will not occur. If Loan Conversion occurs, the principal amount of the Mortgage Loan may be prepaid in part by the Borrower prior to and as a condition to Loan Conversion to reduce the principal amount of the Mortgage Loan in order to satisfy Fannie Mae's underwriting requirements. If the principal amount of the Mortgage Loan is prepaid in part by the Borrower prior to and as a condition to Loan Conversion, the Bonds will be subject to corresponding special mandatory redemption, in part, at a price equal to the principal amount of the Bonds being redeemed, plus accrued interest thereon to the redemption date. No premium will be paid in connection with such a redemption. See "THE BONDS--Redemption Prior to Loan Conversion" and "BONDHOLDERS' RISKS--Reduction in Authorized Mortgage Loan Amount" herein. If Loan Conversion occurs, Bondholders will receive prior written notice of Loan Conversion, but the Bondholders will not have the right or the obligation to tender their Bonds in connection therewith, and the interest rate on the Bonds will not be adjusted. There can be no assurance that Loan Conversion will occur. After Loan Conversion, if it occurs, Fannie Mae ("Fannie Mae" or the "Permanent Credit Provider") will provide credit enhancement for the Mortgage Loan, pursuant to, and subject to the limitations of, a Stand-By Credit Enhancement Instrument, dated as of the date of Loan Conversion (the 01-503376.3 2 ~ ~'-~OC/ "Permanent Credit Facility") provided by the Permanent Credit Provider to the Trustee. The Permanent Credit Facility will also provide liquidity support for the Bonds Outstanding on the Initial Remarketing Date. The form of the Permanent Credit Facility is attached hereto in Appendix E-2. See also "THE CREDIT PROVIDERS--Credit Provider After Loan Conversion--Permanent Credit Provider" herein. Upon receipt of the Permanent Credit Facility, the Initial Credit Facility and the Initial Standby Credit Facility will be released and will no longer secure the Bonds. The obligation of the Borrower to reimburse the Permanent Credit Provider for any funds provided by the Permanent Credit Provider under the Permanent Credit Facility will be set forth in a Reimbursement Agreement, dated as of the date of Loan Conversion (the "Permanent Reimbursement Agreement") between the Borrower and the Permanent Credit Provider. After Loan Conversion, if it occurs, the Mortgage Loan will be evidenced by a Multifamily Note (the "Mortgage Note") executed by the Borrower. See "THE MORTGAGE NOTE" herein. The Mortgage Note will be payable to the Issuer and will be secured by, among other things, a new Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (from and after Loan Conversion, the "Security Instrument") from the Borrower to the Issuer and the Permanent Credit Provider. On the date of Loan Conversion, the Mortgage Note and the Security Instrument will be assigned by the Issuer to the Trustee and Fannie Mae, as their interests may appear, and will continue to be part of the Trust Estate securing the Bonds. Pursuant to an Assignment and Intercreditor Agreement dated as of the date of Loan Conversion (the "Permanent Assignment") by and among the Issuer, the Permanent Credit Provider and the Trustee and acknowledged by the Borrower, the right, power and authority to make all decisions in connection with the Mortgage Loan and under the Mortgage Loan Documents will be vested exclusively in the Permanent Credit Provider. After Loan Conversion, if it occurs, the Permanent Credit Facility will provide credit support for certain payments due under the Mortgage Note (designated in the Permanent Credit Facility as "Required Mortgage Payments") and liquidity support for the Bonds. The Permanent Credit Facility will be a stand-by facility, providing coverage in the event that the Borrower fails to make a Required Mortgage Payment. The Permanent Credit Facility will also cover the risk of disgorgement in bankruptcy. Required Mortgage Payments, if made timely and in full, are intended to be sufficient to pay the principal of and interest on the Bonds. The Permanent Credit Provider will have no obligation under the Permanent Credit Facility to pay premium, if any, on the Bonds. The Permanent Credit Provider's obligation to make payments under the Permanent Credit Facility will be absolute, unconditional and irrevocable. Such obligation will be a general, unsecured obligation of the Permanent Credit Provider. If the Permanent Credit Provider fails to perform such obligation, the Trustee will receive only payments and other recoveries on the Mortgage Loan itself, and a delinquency or default on the Mortgage Loan at that time would seriously and adversely affect monthly payments to the Trustee. The interest rate on the Mortgage Note (the "Mortgage Note Rate") has been established at a rate, (subject to adjustment on the Initial Remarketing Date) and the monthly payments under the Mortgage Note have been scheduled, such that the monthly payments of principal and interest on the Mortgage Note will be sufficient, together with other money on deposit with the Trustee pursuant to the Indenture, and certain Investment Income, to pay, when due, the semi-annual interest or principal and interest on the Bonds, the fees of the Permanent Credit Provider, fees of the Loan Servicer and the "Third Party Fees" (which include the Trustee's Annual Fee, the Rebate Analyst's Annual Fee, if any, and the Issuer's Annual Fee), but only to the extent that the Third Party Fees are included in the Mortgage Note Rate. The Trustee will accumulate and invest the monthly payments on the Mortgage Loan for application semiannually to payments of interest or principal and interest, as due, on the Bonds and for the payment of certain fees. The Permanent Credit Provider has not prepared, reviewed or verified, makes no representation or warranty with respect to, does not certify to, and assumes no responsibility or liability for, any calculations used to establish such schedule of payments or distributions, the assumptions used in 01-503376,3 3 making such calculations, their mathematical accuracy or for the sufficiency of payments or any investment income on which they are based to pay the principal of and interest on the Bonds when due, any fees, including any Third Party Fees, when due, or any other amounts at any time. EVEN IF LOAN CONVERSION OCCURS AND THE PERMANENT CREDIT FACILITY IS DELIVERED, PAYMENT OF PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS IS NOT GUARANTEED BY FANNIE MAE. FANNIE MAE'S OBLIGATIONS WILL BE CONTAINED IN THE PERMANENT CREDIT FACILITY, SO LONG AS THE PERMANENT CREDIT FACILITY IS 1N EFFECT, AND WILL BE LIMITED SOLELY TO ITS OBLIGATIONS THEREUNDER AS DESCRIBED GENERALLY HEREIN. THE OBLIGATIONS OF FANNIE MAE UNDER THE PERMANENT CREDIT FACILITY WILL BE OBLIGATIONS SOLELY OF FANNIE MAE, A FEDERALLY CHARTERED STOCKHOLDER-OWNED CORPORATION, AND WILL NOT BE BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES OF AMERICA. THE BONDS ARE NOT A DEBT OF THE UNITED STATES OF AMERICA OR ANY OTHER AGENCY OR INSTRUMENTALITY THEREOF OR OF FANNIE MAE. THE BONDS ARE NOT GUARANTEED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES OF AMERiCA. In connection with Loan Conversion, if it occurs, the Initial Indenture and the Initial Financing Agreement will be automatically replaced by (a) the Trust Indenture dated as of the date of the Initial Indenture (the "Permanent Indenture"), by and between the Issuer and the Trustee, relating to the Permanent Credit Facility and (b) the Financing Agreement dated as of the date of the Initial Indenture (the "Permanent Financing Agreement"), by and among the Issuer, the Trustee, and the Borrower relating to the Permanent Credit Facility, respectively. Following Loan Conversion, the Initial Indenture and the Initial Financing Agreement will be of no further force or effect. Prior to Loan Conversion, references herein to the Indenture, the Financing Agreement, the Reimbursement Agreement, the Credit Facility, the Assignment and the Credit Provider will be references to the Initial Indenture, the Initial Financing Agreement, the Initial Reimbursement Agreement, the Initial Credit Facility, the Initial Assignment and the Initial Credit Provider, respectively. Following Loan Conversion, if it occurs, references herein to the Indenture, the Financing Agreement, the Reimbursement Agreement, the Credit Facility, the Assignment and the Credit Provider will be references to the Permanent Indenture, the Permanent Financing Agreement, the Permanent Reimbursement Agreement, the Permanent Credit Facility, the Permanent Assignment and the Permanent Credit Provider, respectively. In order to assure compliance with the applicable provisions of the Code and applicable laws, the Borrower, the Trustee and the Issuer have entered into a Regulatory Agreement and Declaration of Restrictive Covenants, dated as of the date of the Initial Indenture (the "Regulatory Agreement"), which requires that certain of the residential rental units in the Project be occupied by persons and families of low income. See Appendix C hereto. The Project is subject to additional affordable housing restrictions in connection with the City Loan (as defined herein) and the participation in the Low Income Housing Tax Credit Program. See "THE BORROWER AND THE PROJECT" herein. Any failure of the Borrower to comply with the terms of the Regulatory Agreement may cause interest on the Bonds to be included in the gross income for federal income tax purposes, possibly retroactively as well as prospectively. See "TAX MATTERS." The Bonds are not subject to acceleration or redemption solely because of a default by the Borrower under the Regulatory Agreement or because interest on the Bonds becomes includable in the gross income of the owners thereof for federal income tax purposes. In addition, the interest rate on the Bonds will not be adjusted in the event that interest payable on the Bonds becomes includable in the gross income of the owners thereof for federal income tax purposes. Notwithstanding the foregoing, prior to Loan Conversion, the Bonds are subject to 0,-503376.3 4 mandatory tender for purchase in connection with a Determination of Taxability as described under the heading "THE BONDS~ther Mandatory Tenders Prior to Loan Conversion" herein. Red Capital Markets, Inc. (the "Remarketing Agent") will serve as remarketing agent with respect to the Bonds under a Remarketing Agreement dated as of the date of the Initial Indenture (the "Remarketing Agreement") by and between the Remarketing Agent and the Borrower. The Borrower expects to secure various subordinate loans as described under the heading "THE BORROWER AND THE PROJECT Additional Financing" herein. Each such loan is subordinate to the Loan financed with the proceeds of the Bonds. Nevertheless, a default with respect to any such loan shall constitute a default under the Mortgage Note and the Security Instrument and entitle the Credit Provider, (as holder of the Mortgage Loan rights), in its discretion, to direct or invoke any remedies available to it at law or in equity, including but not limited to, the remedy of acceleration set forth in the Mortgage Note. The Credit Provider can cause a mandatory redemption of the Bonds in whole or in part upon a default under the Security Instrument. See "THE BONDS--Redemption Before Loan Conversion" and "--Redemption After Loan Conversion" heroin. THE BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELYOUT OF THE REVENUES, RECEIPTS AND OTHER MONEYS PLEDGED THEREFORE UNDER THE INDENTURE. THE BONDS ARE NOT A DEBT OF THE STATE, THE ISSUER (EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE) OR OF ANY OTHER POLITICAL SUBDIVISION OF THE STATE, AND NEITHER THE STATE, THE ISSUER (EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE) NOR ANY OTHER POLITICAL SUBDIVISION OF THE STATE IS LIABLE FOR THE PAYMENT OF THE BONDS. NEITHER THE FAITH AND CREDIT OF THE STATE, THE ISSUER NOR OF ANY OTHER POLITICAL SUBDIVISION OF THE STATE ARE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. The Bonds are subject to optional, mandatory sinking fund and special mandatory redemption prior to maturity at the times and to the extent described herein. The redemption provisions differ before and after Loan Conversion, as described under the headings "THE BONDS--Redemption Prior to Loan Conversion" and "~Redemption After Loan Conversion" herein, respectively. Persons who purchase Bonds at a price in excess of their principal amount risk the loss of any premium paid in the event the Bonds are redeemed prior to maturity. See"BONDHOLDERS' RISKS"herein. On the Initial Remarketing Date specified on the cover hereof, the Bonds Outstanding on such date are subject to mandatory tender for purchase and remarketing. If the Bonds are remarketed on the Initial Remarketing Date, the terms of the Bonds after such date may differ materially from the description provided in this Official Statement. Therefore, prospective purchasers of the Bonds on and after the Initial Remarketing Date cannot rely on this Official Statement, but rather must rely upon any disclosure documents prepared in connection with such remarketing. Subordinate Bonds In addition, simultaneously with the issuance of the Bonds, the Issuer is issuing $__ aggregate principal amount of its Subordinate Multifamily Housing Revenue Bonds (Rancho Vista Apartments) Series 2003B (the "Subordinate Bonds") pursuant to the Subordinate Indenture of Trust, dated as of the date of the Indenture (the "Subordinate Indenture"), by and between the Issuer and the Trustee. The loan of the proceeds of the Subordinate Bonds to the Borrower (the "Subordinate Loan") is governed by the Subordinate Financing Agreement, dated as of the date of the Indenture (the "Subordinate Financing Agreement"), by and among the Borrower, the Issuer and the Trustee and the /5 01-503376.3 5 Subordinate Note, dated as of the date of the Indenture (the "Subordinate Note"), by Borrower in favor of the Trustee. The Subordinate Bonds are not offered hereby. The Subordinate Bonds are secured by (a) the Subordinate Mortgage, Assignment of Rents and Leases and Security Agreement, dated as of the date of the Indenture (the "Subordinate Mortgage"), between the Borrower and the Trustee and (b) revenues pledged for the repayment of the Subordinate Bonds under the Subordinate Indenture (the "Subordinate Trust Estate"). The Subordinate Bonds are scheduled to mature after the maturity date of the Bonds. The Subordinate Financing Agreement, the Subordinate Note, the Subordinate Mortgage and all other documents evidencing, securing or otherwise executed and delivered in connection with the Subordinate Loan are referred to herein as the "Subordinate Loan Documents." The Subordinate Bonds are payable primarily from a portion of the amounts constituting "Available Cash Flow." Available Cash Flow means for any month (i) all cash generated by the Project plus (ii) withdrawals from the replacement reserve (or any repair reserve) held in connection with the Mortgage Loan Documents, plus (iii) withdrawals from any Borrower or manager held reserve for operating expenses less (iv) operating expenses of the Project, calculated in accordance with generally accepted accounting principles consistently applied, less (v) all payments and allowances for all obligations under the Bond Documents and the Collateral and Construction Loan Documents, less (vi) rental income prepaid more than one month in advance (which excluded increase will be included in the month to which it applies), proceeds of loans, proceeds resulting from capital transactions (including, without limitation, sale, casualty or condemnation) and other unusual or extraordinary cash items, the use and application of which is restricted or encumbered by the Mortgage Loan Documents, unless the Credit Provider has consented to their unrestricted use, less (vii) actual expenditures with respect to the Project other than operating expenses related to the Project, less (viii) additions to the replacement reserve held in connection with the Mortgage Loan Documents, and less (ix) additions to the Borrower or manager held reserve for operating expenses as calculated by the Borrower in accordance with sound business practices, and (x) less payments when due of deferred developer fees, asset management fees, partnership management fees and architect fees. For purposes of the calculation of Available Cash Flow, any portion of the management fee payable to any affiliate of the Borrower in excess of 4% percent of gross collected income plus any customary expense reimbursements and any incentive fees that are payable under the management contract or otherwise and any developer or general contractor or asset management fees payable to affiliates of the Borrower shall not be included in operating expenses of the Project to reduce the calculation of Available Cash Flow. [Pursuant to the Subordination Agreement and the Indenture, no more than 75% of Available Cash Flow, following the transfer of Available Cash Flow to the Rebate Fund and the application of Available Cash Flow to the payment of amounts the fees and expenses of the Issuer and the Trustee, may be made available by the Borrower to pay debt service on the Subordinate Bonds. In addition, the Subordination Agreement, dated as of the date of the Indenture (the "Subordination Agreement"), by and among the Credit Provider, the Trustee and the Borrower, provides that the Trustee's right and interest in and to the Borrower's equity in the Project in the event of a sale or other transfer, except as otherwise provided therein, after the payment of the Mortgage Loan, the satisfaction of all other accounts (other than the Subordinate Loan) in connection with such sale or transfer, may not exceed 75%. For this purpose, debt service on the Subordinate Loan and Surplus Cash will be measured monthly, whether or not such debt service is actually payable monthly. As used in this context, "Surplus Cash" means, for any month, the amount (if any) by which the Property's monthly gross revenues from all sources (excluding the proceeds of capital contributions, loans or advances by any partner of Borrower) exceeds the sum of (1) all debt service payments due under the Mortgage Loan, plus (2) all obligations of the Borrower under the Senior Loan Documents, plus (3) all costs, charges and expenses of owning, operating, maintaining and repairing the Mortgaged Property, including, without limitation, insurance, taxes, assessments and 01-503376.3 6 other public charges, plus (4) any and all fees, costs and expenses of the Credit Provider, the Trustee and the Issuer in connection with the Mortgage Loan, plus (5) all amounts required to be deposited into any replacement reserve, completion/repair reserve or other reserve or escrow established by the Credit Provider and the Trustee in connection with the Mortgage Loan and the Senior Loan Documents, plus (6) all capital expenditures required for the proper maintenance of the Project in accordance with the Senior Loan Documents (excluding (A) payments made to affiliates in excess of market norms, (B) developer fees (however characterized), and (C) property management fees in excess of 4% of gross rent). If the Borrower fails to perform or observe any of the terms, covenants or conditions in any of the Subordinate Loan Documents to be performed or observed by it, such failure which continues beyond any applicable period provided in the Subordinate Loan Documents for curing the default (a "Subordinate Loan Default") and such failure is continuing, the Trustee is precluded by the terms of the Subordination Agreement, without the prior written consent of the Credit Provider and the Trustee (as their interests may appear, the "Senior Lender"), from commencing foreclosure proceedings with respect to the Project under the Subordinate Loan Documents or exercising any other rights or remedies it may have under the Subordinate Loan Documents, including, but not limited to accelerating the Subordinate Loan (and enforcing any "due on sale" provision included in the Subordinate Loan Documents), collecting rents, appointing (or seeking the appointment of) a receiver or exercising any other rights or remedies thereunder. A Subordinate Loan Default shall constitute an "Event of Default" as that term is defined in the Senior Loan Documents (a "First Mortgage Loan Default"), and the Senior Lender shall have the right to exercise all rights and remedies under the Senior Loan Documents in the same manner as in the case of any other First Mortgage Loan Default, including the right to direct the Trustee to redeem the Bonds. Notwithstanding any contrary provision contained in the Subordinate Loan Documents, a First Mortgage Loan Default shall not constitute a default under the Subordinate Loan Documents (if no other default has occurred under the Subordinate Loan Documents) until either (i) the Senior Lender has accelerated the maturity of the Mortgage Loan, or (ii) the Senior Lender has taken affirmative action to exercise its rights under the Security Instrument to collect rent, to appoint (or seek the appointment of) a receiver or to foreclose on (or to exercise a power of sale contained in) the Security Instrument. If at any time the Borrower cures any First Mortgage Loan Default to the satisfaction of the Senior Lender, any default under the Subordinate Loan Documents arising from such First Mortgage Loan Default shall be deemed cured and the Subordinate Loan shall be retroactively reinstated as if such First Mortgage Loan Default had never occurred.] Copies of Documents Brief descriptions of the Bonds, the security for the Bonds, the Issuer, the Credit Providers, thd Borrower and the Project are included in this Official Statement together with summaries of the Indentures, the Financing Agreements, the Regulatory Agreement, the Note and the Reimbursement Agreements. Such descriptions do not purport to be comprehensive or definitive. The forms of the Credit Facility and the Disclosure Agreement are attached to this Official Statement. All references herein to the Indenture, the Financing Agreement, the Regulatory Agreement, the Reimbursement Agreement, the Disclosure Agreement, the Credit Facility and other documents are qualified in their entirety by reference to such documents, and references herein to the Bonds are qualified in their entirety by reference to the forms thereof included in the Indenture and the information with respect thereto in the aforementioned documents, copies of all of which are available for inspection in the designated office of the Trustee, Wells Fargo Bank, National Association, 707 Wilshire Boulevard, 17th Floor, Los Angeles, CA 90017, Attention: Corporate Trust Department, Attention: Corporate Trust Department. 01-503376,3 7 THE ISSUER The information under this heading has been provided solely by the Issuer and has not been independently verified by the Borrower, the Underwriter, the Retnarketing Agent, Provident Bank, FHLB, Fannie Mae, the Loan Servicer or any of their respective counsel, members, officers or employees. No representation whatsoever as to the accuracy, adequacy or completeness of such information is made by the Borrower, the Underwriter, the Remarketing Agent, Provident Bank, FHLB, Fannie Mae, the Loan Servicer or any of their respective counsel, members, officers or employees. The City of Chula Vista, incorporated in 1911, is a municipal corporation and charter city organized and existing under the laws of the State of California. The City established the Issuer pursuant to the terms of the Act. Under the Act, the Issuer is empowered to issue revenue bonds for the purpose, among others, of financing multifamily rental housing for persons of Iow and moderate income. The Bonds are limited obligations of the Issuer and are not payable from the Issuer's general funds. The Issuer has no taxing power. THE BONDS ARE SPECIAL, LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELYOUT OF THE REVENUES, RECEIPTS AND OTHER MONEYS PLEDGED THEREFORE UNDER THE INDENTURE. THE BONDS ARE NOT A DEBT OF THE STATE, THE ISSUER (EXCEPT TO THE LIMITED EXTENT SET FORTH 1N THE INDENTURE) OR OF ANY OTHER POLITICAL SUBDIVISION OF THE STATE, AND NEITHER THE STATE, THE ISSUER (EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE) NOR ANY OTHER POLITICAL SUBDIVISION OF THE STATE IS LIABLE FOR THE PAYMENT OF THE BONDS. NEITHER THE FAITH AND CREDIT OF THE STATE, THE ISSUER NOR OF ANY OTHER POLITICAL SUBDIVISION OF THE STATE ARE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. The Issuer takes no responsibility for the financial feasibility of the Project and makes no representation, direct or indirect, that the Project will be able to generate sufficient income to pay debt service on the Loan and operating expenses. THIS OFFICIAL STATEMENT, EXCEPT FOR THE INFORMATION SET FORTH UNDER THIS HEADING AND THE HEADING "NO LITIGATION--THE ISSUER" HAS NOT BEEN REVIEWED OR APPROVED BY THE ISSUER. THE ISSUER HAS NOT ASSUMED AND HAS NO RESPONSIBILITY FOR THE INFORMATION CONTAINED HEREIN AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY OF SUCH INFORMATION, EXCEPT FOR THE INFORMATION SET FORTH UNDER THIS HEADING AND THE HEADING "NO LITIGATION--THE ISSUER." THE BONDS General The Bonds are issuable only as fully registered bonds, without coupons, in Authorized Denominations. The Bonds are dated as of the Dated Date set forth on the cover hereof and will mature as set forth on the inside front cover hereof. The Bonds will initially bear interest at the Reset Rate set forth on the inside front cover hereof commencing on the Dated Date and terminating on the Initial Remarketing Date. On the Initial Remarketing Date, the Bonds Outstanding on such date will be subject to mandatory tender and 01-503376.3 8 remarketing as described under the heading "Mandatory Tender and Purchase of Bonds on Initial Remarketing Date" below. Interest on the Bonds will be calculated on the basis of a 360-day year consisting of twelve 30-day months and be payable on each Interest Payment Date. The interest on the Bonds will be calculated from the Interest Payment Date next preceding the date of authentication of the Bonds, provided that if the date of authentication is an Interest Payment Date for which interest has been paid or is after the Record Date, but prior to the next Interest Payment Date, the Bonds will bear interest from such Interest Payment Date. If the date of authentication is prior to the Record Date for the first Interest Payment Date, the Bonds will bear interest from the Dated Date of the Bonds. Notwithstanding the foregoing, following Loan Conversion, if it occurs, as provided in the Indenture, if, at the time of authentication of any Bond, interest on the Bond is in default, the Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment or, if no interest has theretofore been paid on the Bond, from the Dated Date of the Bond. The Bonds will be delivered in fully registered form only and, when issued and delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC'). Ownership interest in the Bonds may be purchased in book-entry form only. Ultimate purchasers of Bonds will not receive physical certificates representing their interest in the Bonds. So long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, references herein to the Bondholders will mean Cede & Co. and will not mean the ultimate purchasers of the Bonds. Payments of the principal of and interest on the Bonds while under the Book-Entry Only System will be made in accordance with the rules, regulations and procedures established by DTC in connection with such Book-Entry Only System. See "THE BONDS--Book-Entry Only System" herein. Mandatory Purchase of Bonds on Initial Remarketing Date Not less than 30 days preceding the Initial Remarketing Date, the Trustee shall give written notice to the holders of the Bonds then Outstanding by mail, at their respective addresses appearing on the Bond Register specifying (i) the Initial Remarketing Date, (ii) that all Outstanding Bonds are subject to mandatory tender for purchase on the Initial Remarketing Date, (iii) that all Outstanding Bonds must be tendered to the Trustee for purchase not later than 12:00 noon, New York time on the Initial Remarketing Date, (iv) that Bondholders will not have the right to elect to retain their Bonds, (v) that all Outstanding Bonds will be purchased on the Initial Remarketing Date (or not later than 3 Business Days after the Initial Remarketing Date, in the event that the Trustee does not, after a remarketing, have sufficient funds on the Initial Remarketing Date to purchase all of the Outstanding Bonds) at a price equal to the principal amount of the Outstanding Bonds plus interest accrued to the Initial Remarketing Date, and (vi) that any Bonds not tendered (an "Undelivered Bond") will nevertheless be deemed to have been tendered and will cease to bear interest from and after the Initial Remarketing Date. Accrued interest payable to the Initial Remarketing Date on the Outstanding Bonds shall be paid to the owners of the Outstanding Bonds as of the Record Date in the same manner as if the Outstanding Bonds were not purchased. The principal portion of the purchase price of the Outstanding Bonds shall be payable only upon surrender of such Bonds pursuant to the Indenture. An Undelivered Bond shall be treated as a lost Bond and shall be deemed tendered. An Undelivered Bond shall not bear interest from and after the Initial Remarketing Date, and shall not be otherwise entitled to any rights under, or be secured by the lien of, the Indenture, but shall have only the right to receive the amount due as a result oftbe purchase oftbe Bonds pursuant to the Indenture. 01-503376.3 9 Notwithstanding the foregoing, during any period that the Bonds are Book Entry Bonds, (i) any notice given to Bondholders as described under this heading shall be given only to the entity designated in the Letter of Representations, as required the Indenture and (ii) it shall not be necessary for any Bonds to be physically delivered on the date specified for purchase of such Bonds, but such purchase shall be made as if such Bonds had been so delivered, and the purchase price of such Bonds shall be paid to DTC. The purchase price of the Bonds will be paid, first, from the proceeds of remarketing the Bonds and, second, to the extent the remarketing proceeds are insufficient, from a draw on the Permanent Credit Facility. Other Mandatory Tenders Prior to Loan Conversion Thc Trustee shall notify the registered owners of the Bonds of a mandatory tender and purchase of the Bonds at the Purchase Price (A) on any Reset Date or thc Conversion Date; (B) on thc last Business Day that is not less than five days before the date of the expiration of the Standby Credit Facility, unless (1) a Standby Credit Facility is no longer required to be provided pursuant to the Financing Agreement and the Trustee received written confirmation that the expiration of the Standby Credit Facitity will not cause thc rating on thc Bonds to be withdrawn or reduced, or (2) the Trustee receives, on a Business Day that is not less than 30 days before such date of expiration, a renewal or extension of or replacement for such Standby Credit Facility meeting the requirements of the Financing Agreement; or (C)on the first Business Day that is at least five days after thc occurrence of a Determination of Taxability (each a "Mandatory Tender Date"), by first-class mail, postage prepaid, not less than 10 days prior to the Mandatory Tender Date as further described below. Any Bond not tendered for purchase on or before the Mandatory Tender Date shall be deemed to have been tendered for purchase on such Mandatory Tender Date for all purposes of the Indenture. Payment of the Purchase Price of any such Bonds shall be made only upon delivery and surrender thereof to the Tender Agent. The Trustee shall give notice of the mandatory tender and purchase to the registered owners of the Bonds specifying: (i) the Mandatory Tender Date, (ii) that all Outstanding Bonds not tendered for purchase on or before the Mandatory Tender Date will be deemed to have been so tendered and shall be purchased on the Mandatory Tender Date at a price equal to thc principal amount thereof plus interest accrued to such date; and (iii) that all Bonds must be surrendered to the Tender Agent for purchase not later than 9:30 a.m., New York City time, on such Mandatory Tender Date. Any Bond not tendered to the Tender Agent on or before thc Mandatory Tender Date shall be deemed to have been tendered for purchase on such Mandatory Tender Date pursuant to this section for all purposes of this Indenture. The purchase price of the Bonds will be paid, first, from thc proceeds of remarkcting the Bonds and, second, to thc extent the remarkcting proceeds are insufficient, from a draw on the Initial Credit Facility or the Initial Standby Credit Facility. If the Initial Credit Provider fails to honor a properly presented and conforming draw on the Initial Credit Facility, or the Initial Credit Facility is repudiated, the Trustee is directed to draw on the Initial Standby Credit Facility and apply the proceeds of such draw to the mandatory redemption of the Bonds, in whole, at a price equal to the principal amount of the Bonds redeemed, plus accrued interest to the redemption date. No premium will be paid in connection with such redemption. See "THE BONDS~Redemption Prior to Loan Conversion" herein. Notwithstanding the foregoing, during any period that the Bonds arc Book Entry Bonds, (i) any notice given to Bondholders as described under this heading shall be given only to thc entity designated in 01-503376.3 1 0 the Le~er of Representations, as required the Indenture and (ii) it shall not be necessary for any Bonds to be physically delivered on the date specified for purchase of such Bonds, but such purchase shall be made as if such Bonds had been so delivered, and the purchase price of such Bonds shall be paid to DTC. Redemption Prior to Loan Conversion A description oft he redemption provisions set forth in the Initial Indenture in effect prior to Loan Conversion is set forth below. After Loan Conversion, if it occurs, this description is of no force or effect. A description of the redemption provisions set forth in the Permanent Indenture in effect after Loan Conversion, if it occurs, is set forth under the heading "Redemption After Loan Conversion" below. Circumstances of Redemption. The Bonds are subject to redemption upon the circumstances, on the dates and at the prices set forth as follows: (a) (i) The Bonds shall be subject to redemption in part on the first Interest Payment Date that is at least 180 days after the Completion Date (or such later date as may be established under the Indenture), at a price equal to the principal amount of the Bonds called for redemption, plus interest accrued thereon to the date of redemption, without premium, in the event and to the extent that funds on deposit in the Program Fund are transferred to the Bond Fund as described in the Indenture. (ii) The Bonds shall be subject to redemption in part on the date of the Loan Conversion in the event that the Substitute Credit Facility delivered on the date of the Loan Conversion credit enhances a principal amount of the Bonds less that thc principal amount of the Bonds outstanding on the date of the Loan Conversion, in the amount of such difference at a price equal to the principal amount of the of the Bonds called for redemption, plus accrued interest thereon to the date of the redemption. (b) The Bonds shall be subject to redemption in whole or in part on any Interest Payment Date, at a price equal to the principal amount of Bonds redeemed, plus interest accrued thereon to the date fixed for redemption, without premium, upon prepayment of the Mortgage Loan in whole or in part, (i) in an amount as nearly equal as possible to, but not exceeding, the amount of any Net Proceeds of insurance or condemnation awards not used to repair or replace the Project, or (ii) during any Variable Period or on any Reset Date or the Conversion Date, from moneys on deposit in the Bond Fund and paid therefrom as described herein under the heading "Bond Fund" in Appendix B-1 hereto in the amount of any voluntary prepayments of principal of the Mortgage Loan (provided, however, that following any such prepayment no Bond shall be Outstanding in an amount other than an Authorized Denomination). (c) The Bonds shall be subject to redemption in whole on any date at a price equal to the principal amount of Bonds redeemed, plus interest accrued thereon to the date fixed for redemption, without premium, upon acceleration of the Mortgage Loan in whole following an Acceleration Default or at the request of or with the consent of the Credit Provider (or with the written consent of the sole Bondowner, in the circumstances described under the heading "No Default; Deemed Redemption" in Appendix B-2 hereto) (i) following any other Event of Default under the Financing Agreement (except an Event of Default described under paragraph (e) under the heading "Events of Default and Remedies--Events of Default" in Appendix D-I hereto), in an amount as nearly equal as possible to, but not exceeding, the amount of the Mortgage Loan so accelerated, or (ii) following any Event of Default under the Reimbursement Agreement as so notified by the Credit Provider, and in each case on a date not later than 10 days after receipt of such notice, in an amount equal to the amount of the Bonds Outstanding. 01-503376.3 1 1 (d) The Bonds shall be subject to redemption in whole, at a price equal to the principal amount thereof, plus interest accrued thereon to the date fixed for redemption, without premium, on the last Business Day that is not less than five days before the date of expiration of the Credit Facility unless, in each case not less than 10 days before the expiration of the then existing Credit Facility, the Trustee receives a renewal or extension of or replacement for such Credit Facility meeting the requirements of the Financing Agreement or, in the case of replacement of the Credit Facility in connection with any Reset Date or the Conversion Date pursuant to the Indenture, meeting the requirements of the Financing Agreement, such Credit Facility to be effective upon and after such Reset Date or Conversion Date or a Substitute Credit Facility meeting the requirements of the Financing Agreement, such Substitute Credit Facility to be effective upon and after such Reset Date of Conversion Date. (e) The Bonds are subject to optional redemption in whole or in part, on any Interest Payment Date from voluntary prepayments of the Loan which constitute Available Amounts, on the dates and at the respective redemption prices set forth below expressed as percentages of the principal amount of the Bonds called for redemption, plus accrued interest, as follows: Redemption Dates Redemption Prices (f) The Bonds shall be subject to redemption in whole, at a price equal to the principal amount of Bonds so called for redemption, plus interest accrued thereon to the date of redemption, without premium, on a date not later than five days after the date on which the Credit Provider wrongfully fails to honor a properly presented and conforming draw on the Credit Facility or the Credit Facility is repudiated. The Trustee has been authorized and directed, and has agreed, to give notice of the call for redemption of Bonds at the times described in this paragraph, to fix the date for any such redemption within the periods described under the heading "Notice of Redemption" below, and, if moneys are available, to redeem the Bonds so called on the date so fixed by the Trustee and set forth in such notice. The Trustee shall give such redemption notice (i) in the case of redemption described in (b) above, not less than 30 days after receipt of the amount of the Mortgage Loan prepayment to be applied to such redemption; (ii) in the case of redemption described in (a) or (d) above, at the time described under the heading "Notice of Redemption' below, without any further authorization or direction; (iii) in the case of redemption described in (e) above, at the time required therefor described under the heading "Notice of Redemption" below, upon receipt of notice that the option is being exercised but only if the Trustee then holds Available Amounts on deposit in the Bond Fund sufficient to pay, and set aside for the payment of, any premium due upon such redemption, or if the Credit Facility then in effect may be drawn upon to pay such premium and is in an amount equal to such premium plus the other amounts required by the Financing Agreement (which Available Amounts or funds available under the Credit Facility shall be used to pay premiums on the Bonds); (iv) in the case of redemption described in (c) above, as soon as practicable, but not more than five days after receipt from the Credit Provider of a request for or consent to acceleration of the Mortgage Loan following any Event of Default under the Financing Agreement or following any Event of Default under the Reimbursement Agreement; and (v) in the case of a redemption described in (f) above, as soon as practicable, but not more than two days after the Credit Provider has failed to honor a drawing made under the Credit Facility or the Trustee has actual knowledge such Credit Facility has been repudiated. For all purposes of the Indenture, such "actual knowledge" shall mean 01 -$ 03376.3 1 2 actual knowledge at the Principal Office of the Trustee by the officer of the Trustee with responsibility for the regular administration of matters related to the Indenture. Selection of Bonds for Redemption. When any redemption is made pursuant to any of the provisions of the Indenture and less than all of the Outstanding Bonds are to be redeemed, the Trustee shall select the Bonds to be redeemed by lot, in any manner the Trustee deems appropriate, in whole multiples of Authorized Denominations, unless otherwise provided in the Indenture or as directed by the Credit Provider. In no event shall Bonds be redeemed in amounts other than whole multiples of Authorized Denominations. For purposes of redeeming Bonds in denominations greater than minimum Authorized Denominations, the Trustee shall assign to such Bonds a distinctive number for each such principal amount and, in selecting Bonds for redemption by lot, shall treat such amounts as separate Bonds. The Trustee shall promptly notify the Issuer in writing of the numbers of the Bonds selected for redemption. Notice of Redemption. Notice of redemption shall be given by the Trustee for and on behalf of the Issuer, by first-class mail, not more than 20 and not less than 10 days or, in the case of a redemption described under paragraphs (c) or (d) under the heading "Circumstances of Redemption" above, not less than five days or in the case of a redemption described under paragraph (f) under the heading "Circumstances of Redemption" above not less than three days, prior to the redemption date, to the registered owner of each Bond called for redemption, at its address as it appears on the registration books, and the Remarketing Agent but neither failure to mail such notice to any Bondholder nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the redemption of any of the Bonds with respect to which such failure or defect shall have occurred. Each notice of redemption shall state the redemption date, the place of redemption, the source of the funds to be used for such redemption, the principal amount and, if less than all, the distinctive numbers of the Bonds to be redeemed, and shall also state that the interest on the Bonds in such notice designated for redemption shall cease to accrue from and after such redemption date and that on said date there will become due and payable on each of said Bonds the principal amount thereof to be redeemed, interest accrued thereon to the redemption date and the premium, if any, thereon (such premium to be specified). Neither the Issuer nor the Trustee shall have any responsibility for any defect in the CUSIP number that appears on any Bond or in any redemption notice with respect thereto, and any such redemption notice may contain a statement to the effect that CUSIP numbers have been assigned by an independent service for convenience of reference and that neither the Issuer nor the Trustee shall be liable for any inaccuracy in such numbers. Each redemption notice shall also be sent by facsimile transmission, overnight delivery service or other secure means, postage prepaid, to certain municipal registered Securities Depositories that are known to the Trustee to be holding Bonds and to at least two of the national Information Services that disseminate securities redemption notices, at the time notice is provided to the registered owners prior to the redemption date, and in the case of the notice to Securities Depositories, when possible, at least two days prior to the mailing of notices required by the first paragraph of this Section. Failure to give notice by mailing to any Securities Depository or Information Service, failure to receive such notice, any defect of any notice so mailed or the failure to give timely notice of redemption shall not affect the validity of the proceedings for the redemption of any Bond. PartiaIRedemption of Bonds. Any Bond may be redeemed in whole or in part, but no part of any Bond shall be redeemed in an amount less than an Authorized Denomination. Upon surrender of any Bond redeemed in part only, the Issuer shall execute and the Trustee shall authenticate and deliver to the registered owner thereof, without charge to the owner thereof, a new Bond or Bonds of like series and maturity and of Authorized Denominations designated by such owner equal in aggregate principal amount to the unredeemed portion of the Bond surrendered. 01-503376.3 l 3 Effect of Redemption. Notice of redemption having been duly given as described above, and moneys for payment of the redemption price being held by the Trustee, the Bonds so called for redemption shall, on the redemption date designated in such notice, become due and payable at the redemption price specified in such notice, interest on the Bonds so called for redemption shall cease to accrue, said Bonds shall cease to be entitled to any lien, benefit or security under the Indenture, and the holders of said Bonds shall have no rights in respect thereof _except to receive payment of the redemption price thereof. All Bonds fully redeemed as described above shall be destroyed by the Trustee, which shall thereupon deliver to the Issuer a certificate evidencing such destruction. Purchase in Lieu of Redemption. Notwithstanding anything to the contrary provided in the Indenture, if the Bonds shall become eligible for redemption as described in paragraphs (c), (d) or under the heading "Circumstances of Redemption" above, then the Bonds shall either (i) be redeemed in accordance with the applicable provisions of the lndentum or (ii) be pumhased in lieu of redemption by the Credit Provider if the Credit Provider shall have given written notice to the Trustee no later than 10:00 a.m., Pacific time, on or before the second Business Day immediately preceding the date otherwise scheduled for redemption to the effect that the Credit Provider desires that all of the Bonds be purchased by the Credit Provider and not redeemed. If such a notice is provided to the Trustee by the Credit Provider, then (a) the Bonds shall not be redeemed but shall be pumhased by the Credit Provider, and (b) after the consummation of the pumhase of the Bonds as described in this paragraph: (i) the rights of the holders of the Bonds and the benefits and security of the Indenture shall not be adversely affected by the giving of any notice of redemption pursuant to the Indenture, (ii) so long as the Bonds are owned by a single Bondowner them shall be no requirement for a Credit Facility or the Initial Standby Credit Facility to be outstanding securing the repayment of the Bonds, the Bonds shall be subject to transfer solely as permitted by the Indenture, and all rights of the Credit Provider under and as set forth under the heading "Events of Default and Remedies--Remedies on Default" in Appendix D-1 hereto shall be exercised by the sole Bondowner and all references to the Credit Provider under such heading shall be deemed to be references to the sole Bondowner, and (iii) the Trustee shall surrender the Credit Facility and the Initial Standby Credit Facility in effect prior to such purchase to the respective providers thereof with written directions of the Trustee to terminate the Credit Facility and the Initial Standby Credit Facility. The purchase price for each Bond shall be equal to the redemption price which would otherwise apply pursuant to the Indenture and shall be paid as provided in the Indenture. Redemption After Loan Conversion A description of the redemption provisions set forth in the Permanent Indenture in effect after Loan Conversion is set forth below. This description is applicable only after Loan Conversion, if it occurs..4 description of the redemption provisions set forth in the Initial Indenture in effect prior to Loan Conversion is set forth under the heading "Redemption Prior to Loan Conversion" above. The Bonds am subject to redemption prior to maturity only as set forth in the Indenture. All redemptions shall be in Authorized Denominations. Optional Redemption. Optional Redemption Prior to Initial Remarketing Date. The Bonds are not subject to optional redemption prior to The Bonds shall be subject to optional redemption only upon optional prepayment of the Mortgage Loan in accordance with the Mortgage Loan Documents. Optional redemption shall 01-503376.3 14 occur on the first day of any month for which timely notice of redemption can be given during the periods and at the respective redemption prices set forth below (expressed as percentages of the principal amounts of the Bonds called for redemption), plus accrued interest, if any, to the Redemption Date: Redemption Period Redemption Prices (Both Dates Inclusive) (Expressed as a Percentage) Optional Redemption After Initial Remarketing Date. If the Bonds then Outstanding are mmarketed on the Initial Remarketing Date or, if applicable, any subsequent Remarketing Date for a Remarketing Period: (i) of 10 years or more, such Bonds shall be subject to optional redemption upon optional prepayment of the Mortgage Loan in accordance with the Mortgage Loan Documents; such redemption shall occur on the first day of any month on or after the seventh anniversary of the Remarketing Date, at a redemption price equal to (a) 102% of the principal amount of such Bonds if the redemption occurs in the period beginning on the seventh anniversary of the Remarketing Date and ending on the day prior to the eighth anniversary of the Remarketing Date, (b) 101% of the principal amount of such Bonds if the redemption occurs in the period beginning on the eighth anniversary of the Remarketing Date and ending on the day prior to the ninth anniversary of the Remarketing Date and (c) 100% of the principal amount of such Bonds if the redemption occurs on or after the ninth anniversary of the Remarketing Date, in each case together with accrued interest to the Redemption Date; (ii) less than 10 years but not less than four years, such Bonds shall be subject to optional redemption upon optional prepayment of the Mortgage Loan in accordance with the Mortgage Loan Documents; such redemption shall occur on the first day of any month on or after the second anniversary of the most recent Remarketing Date, at a redemption price equal to (a) 102% of the principal amount of such Bonds if the redemption occurs in the period beginning on the second anniversary of the Remarketing Date and ending on the day prior to the third anniversary of the Remarketing Date, (b) 101% of the principal amount of such Bonds if the redemption occurs in the period beginning on the third anniversary of the Remarketing Date and ending on the day prior to the fourth anniversary of the Remarketing Date and (c) 100% of the principal amount of such Bonds if the redemption occurs on or after the fourth anniversary of the Remarketing Date, in each case together with accrued interest to the Redemption Date; (iii) greater than one year but less than four years, such Bonds shall be subject to optional redemption upon optional prepayment of the Mortgage Loan in accordance with the Mortgage Loan Documents, on the first day of any month on or after the first anniversary of the Remarketing Date at a redemption price equal to 100.5% of the principal amount of such Bonds plus accrued interest to the Redemption Date; or 01-503376.3 15 (iv) of one year or less, such Bonds shall not be subject to optional redemption prior to the next succeeding Remarketing Date or maturity date of such Bonds, as appropriate. General Requirements. Optional redemption pursuant to the Indenture is not permitted unless (i)the redemption is effected solely with Available Moneys or (ii)the Credit Provider provides its prior written consent to a redemption with other than Available Moneys. Notwithstanding any other provision of the Indenture to the contrary, optional redemption of the Bonds shall not be permitted unless, on or before the Redemption Date, the Trustee has on hand Available Moneys in an amount sufficient to pay the End Period Payment on the Redemption Date. Neither the Issuer, the Credit Provider nor the Loan Servicer shall have any responsibility or liability to provide funds to be included in the End Period Payment. Special Mandatory Redemption. The Bonds are subject to special mandatory redemption as provided in the Indenture. Unless otherwise specified in any paragraph below, each special mandatory redemption will be (a) effected on the earliest practicable Redemption Date for which timely notice of redemption can be given pursuant to the Indenture following the occurrence of the event requiring such redemption and (b)at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed plus accrued interest on such Bonds to the Redemption Date. Bonds subject to special mandatory redemption in part will be redeemed in Authorized Denominations; if the Trustee receives an amount for the special mandatory redemption of the Bonds which is not equivalent to an Authorized Denomination, Bonds will be redeemed in an amount equal to the next lowest whole integral of an Authorized Denomination to the amount received by the Trustee, with any excess to be held in the Redemption Account. (a) Casualty or Condemnation. The Bonds will be redeemed in whole or in part, at the direction of the Credit Provider in the event and to the extent that proceeds of insurance from any casualty to, or proceeds of any award from any condemnation or any award as part of a settlement in lieu of condemnation of, the Project (in any such events, "Proceeds") are not applied in accordance with the Financing Agreement and the Mortgage Loan Documents, after payment of the expenses, if any, of collecting the Proceeds, to restoring or repairing the Project or, with the prior written consent of the Credit Provider, otherwise used for improvements to the Project, or applied to the reimbursement of amounts owed to the Credit Provider pursuant to the Reimbursement Agreement. Such special mandatory redemption will be: (i) (A) in whole following the involuntary destruction or loss of the Project in its entirety or nearly in its entirety, (B) funded with the Proceeds, with funds on deposit in the Funds and Accounts (other than the Rebate Fund, the Costs of Issuance Fund and the Fees Account) and with funds provided by the Borrower pursuant to the Financing Agreement; provided, however, that the Trustee will be entitled to an Advance under the Credit Facility, in accordance with its terms, to the extent that the sum of the Proceeds, funds on deposit in the Funds and Accounts (other than the Rebate Fund, the Costs of Issuance Fund and the Fees Account) and funds provided by the Borrower pursuant to the Financing Agreement are insufficient to redeem all of the Bonds Outstanding and (C) deemed a corresponding involuntary prepayment of the Mortgage Loan; or (ii) (A) in part following the involuntary destruction or loss of the Project in part, (B) funded with the Proceeds, (C) in a principal amount equal to the next lowest whole integral of an Authorized Denomination to which such Proceeds can be rounded with any remaining Proceeds to be held in the Redemption Account and (D) deemed a corresponding involuntary prepayment of the Mortgage Loan in part. 01-503376.3 1 6 (b) Certain Defaults. The Bonds will be redeemed in whole or in part at the written direction, or with the prior written consent, of the Credit Provider given to the Trustee and in the amount specified by the Credit Provider if the redemption is in part, upon the occurrence of an Event of Default under (and respectively as defined in) the Security Instrument, the Credit Facility Agreement or the Financing Agreement. (c) From Excess Cash Flow Distributions. The Bonds will be redeemed in whole or in part, in the event and to the extent that funds are transferred to the Redemption Account pursuant to the Indenture. Mandatory SinMng Fund Redemption. The Bonds maturing on shall be subject to mandatory sinking fund redemption in part, by lot, prior to maturity, from sinking fund installments on the dates and in the amounts set forth in the below table. The redemption price shall be equal to 100% of the principal amount of Bonds to be redeemed (and, therefore, without premium), plus accrued interest to the Redemption Date. Maturity Date Principal Amount Maturity Date Principal Amount *Maturity Amount. The Bonds maturing on shall be subject to mandatory sinking fund redemption in part, by lot, prior to maturity, from sinking fund installments (a) on and before the Initial Remarketing Date on the dates and in the amounts set forth in the below table, and (b) after the Initial Remarketing Date in principal amounts to be determined by the Remarketing Agent and the Loan Servicer upon the remarketing of the Outstanding Bonds on the Initial Remarketing Date, so as to maintain payments on the Mortgage Loan, and amortization of principal of the Mortgage Loan, consistent with a term equivalent to the number of months remaining to the maturity date of the Mortgage Loan. The redemption price shall be equal to 100% of the principal amount of Bonds to be redeemed (and, therefore, without premium), plus accrued interest to the Redemption Date. Maturity Date Principal Amount Maturity Date Principal Amount 01-503376.3 17 *Mandatory Sinking Fund Amount. The balance of the principal amount of the Bonds maturing on will be subject to mandatory tender on such date. Not less than two Business Days prior to each Remarketing Date, the Loan Servicer shall prepare and provide to the Trustee, the Borrower, the Remarketing Agent and the Credit Provider an amortization schedule for the Mortgage Note showing substantially level monthly debt service on the Mortgage Note, based on the principal amount of the Mortgage Note outstanding on the applicable Remarketing Date and the interest rate established under the Mortgage Note in connection with the remarketing of the Bonds. Based on that amortization schedule, the Remarketing Agent shall provide to the Trustee, the Borrower, the Loan Servicer and the Credit Provider a schedule showing the sinking fund installments for the Bonds beginning on each Interest Payment Date following the Remarketing Date. The amortization schedule shall become effective on the applicable Remarketing Date and shall be binding on the Trustee, the Issuer, the Borrower, the Loan Servicer, the Credit Provider and the Bondholders, absent manifest error in the amortization schedule. Adjustment for Redemptions From Other Than Sinking Fund Installments. If less than all of the Bonds of a specific maturity have been redeemed other than from sinking fund installments applicable to such Bonds, the principal amount of the Bonds of such maturity to be redeemed in each year from sinking fund installments will be decreased pro rata among all sinking fund installments applicable to such Bonds. Notice of Redemption. The Trustee will give notice of redemption of any Bonds in the name and on behalf of the Issuer by mail not less than 15 nor more than 20 days prior to the specified Redemption Date, to the Registered Owner of each Bond to be redeemed at the address of such Registered Owner as shown on the Bond Register. Notwithstanding the foregoing, so long as the Book-Entry System is maintained in effect, the Trustee must give notice of redemption only to the entity designated in the Representation Letter. The Trustee may give notice of redemption prior to the receipt of all funds necessary to effect the redemption, provided that redemption will not occur unless and until the Trustee has on deposit and available or, if applicable, has received, all of the funds necessary to effect the redemption; otherwise, such redemption will be cancelled. The Trustee will cause a second notice of redemption to be sent by mail within 10 days after the thirtieth day after the Redemption Date to any Bondholder who has not submitted its Bond to the Trustee for payment on or before the thirtieth day following the Redemption Date. Redemption Payments. Notice of redemption having been given in the manner described above, and all conditions precedent to redemption having been satisfied, the Bonds so called for redemption will become due and payable on the Redemption Date, and interest on the Bonds will cease to accrue from and after the Redemption Date and the holders of the Bonds so called for redemption will thereafter no longer have any security or benefit under the Indenture except to receive payment of the redemption price for such Bonds upon surrender of such Bonds to the Trustee. Except during any period in which the Bonds are subject to the Book-Entry System: (a) no payment shall be made by the Trustee with respect to any Bond called for redemption until such Bond is presented for payment or cancellation or the Trustee receives the items required by the Indenture with respect to any mutilated, lost, stolen or destroyed Bond; and 01-503376.3 1 8 (b) if less than the entire principal amount of a Bond is called for redemption, the Issuer will execute, and the Trustee will authenticate and deliver, upon the surrender of such Bond to the Trustee, without charge by the lssuer or the Trustee to the Bondholder, in exchange for the unredeemed principal amount of such Bond, a new Bond or Bonds of the same interest rate, maturity and term, in any Authorized Denomination, in aggregate principal amount equal to the unredeemed balance of the principal amount of the Bond so surrendered. During any period in which the Bonds are subject to the Book-Entry System, the rules, regulations and practices governing the Book-Entry System will govern whether and the extent to which the Trustee will make payments on any Bond called for redemption with or without surrender of the Bond (or portion of the Bond) to be redeemed, and the circumstances (if any) under which the Issuer will be required to execute, and the Trustee will authenticate and deliver, a new Bond in exchange for the unredeemed portion of any Bond called for redemption in part. All moneys held by or on behalf of the Trustee for the redemption of particular Bonds will be held in trust for the account of the holders of the Bonds to be redeemed, as provided in and in accordance with the Indenture. CUSIP number identification with appropriate dollar amounts for each CUSIP number also will accompany all redemption payments. Selection of Bonds To Be Redeemed Upon Partial Redemption of Bonds. If less than all of the Outstanding Bonds are called for redemption (other than mandatory sinking fund redemption), Bonds to be redeemed will be selected by the Trustee on a reasonably proportionate basis, in minimum amounts of $5,000, from among all the then existing maturities of the Bonds Outstanding. "Reasonably proportionate basis" will be determined and effectuated as nearly as practicable by multiplying the total amount of money available to redeem Bonds by the ratio which the principal amount of Bonds Outstanding in each maturity bears to the principal amount of all of the Bonds Outstanding, and within a maturity by lot or in such other manner as the Trustee shall, in its sole discretion, deem fair. In the case of an optional redemption from an optional prepayment of the Mortgage Loan, the Trustee will make its selection immediately following receipt of notice of the optional prepayment. In the case ora special mandatory redemption, the Trustee will make such selection immediately following: (a) a transfer of funds pursuant to the Indenture with respect to a special mandatory redemption from excess cash under the Indenture; or (b) receipt of funds with respect to a special mandatory redemption as a result of (i) a casualty or condemnation or (ii) certain defaults specified in the Indenture and described above under the heading "Special Mandatory Redemption~ertain Defaults" above. With respect to any special mandatory redemption in part pursuant to the Indenture described in paragraphs (a) or (b) under the heading "Special Mandatory Redemption" above, the sufficiency of the scheduled cash flow from the monthly payments to be made under the Mortgage Note and Investment Income with respect to the General Account to pay the principal of and interest on the Bonds and the Third Party Fees (to the extent included in the Mortgage Note Rate) when due and payable following such redemption must, if necessary, be established by a then current Cash Flow Projection which must be verified by a Verification Report (upon each of which the Trustee may rely), each prepared and delivered to the Trustee, the Credit Provider and the Loan Servicer, at the Borrower's expense, at least 15 days prior to the Redemption Date. Absent a Cash Flow Projection, the Bonds to be redeemed shall be redeemed proportionately. In the event that any Bonds of the same maturity are to be redeemed in part, the Trustee will assign to each Bond then Outstanding a distinctive number for each $5,000 of the principal amount of such Bond and from the numbers so assigned to such Bonds, the Trustee will randomly select as many numbers as, at $5,000 for each number, will equal the principal amount of such Bonds to be redeemed. The Bonds within a maturity that are to be redeemed will be the Bonds to which are assigned the numbers 01-503376.3 19 selected by the Trustee, but only so much of the principal amount of each such Bond of a denomination of more than $5,000 will be redeemed as will equal $5,000 for each number assigned to it and so selected. Bonds may be redeemed only in Authorized Denominations. For the purposes of this provision as provided in the Indenture, Bonds which have theretofore been selected for redemption will not be deemed Outstanding. If there is called for redemption less than the entire principal amount ora Bond, the Issuer will execute and the Trustee will authenticate and deliver, upon surrender of such Bond, without charge to the holder of such Bond, in exchange for the unredeemed principal amount of such Bond, Bonds of the same maturity, interest rate, principal amount and tenor in any Authorized Denomination in the amount of the unredeemed principal of the surrendered Bond. Purchase of Bonds in Lieu of Redemption. Unless otherwise expressly provided in the Indenture, if at any time Available Moneys are held in any Fund or Account to be used to redeem Bonds, in lieu of such redemption the Borrower may, in writing and with the written consent of the Credit Provider, direct the Trustee to use part or all of such moneys to purchase Bonds which would otherwise be subject to redemption from such moneys. The purchase price of such Bonds (excluding accrued interest, but including any brokerage and other charges) will not exceed the applicable redemption price of the Bonds which would be redeemed but for the operation of the Indenture, with accrued interest on any such Bond to be paid from the same Fund or Account from which accrued interest would be paid upon the redemption of such Bond. Any such purchase must be completed prior to the time notice would otherwise be required to be given to redeem the Bonds and may not occur, without the consent of the Trustee, after a Record Date. All Bonds so purchased will be canceled by the Trustee and the face amount of the Bonds so purchased will be applied as a credit against the Issuer's obligation to redeem such Bonds from such moneys. Savings resulting from the purchase of Bonds at less than their respective redemption prices will be used to purchase or redeem additional Bonds to the extent permitted by the Indenture. The Borrower may, at the expense of the Borrower, direct the Trustee to request the submission of tenders following notice to Bondholders requesting such submission prior to making the purchases authorized by the Indenture. Notice of acceptance of tenders will be given by first-class mail, postage prepaid, to all registered Bondholders or, in the case of Book-Entry Bonds, to DTC, or any successor Securities Depository. The Borrower may specify the maximum and minimum period of time which will transpire between the date upon which such notice is to be given and the date upon which such tenders are to be accepted. No tenders will be considered or accepted at any price exceeding the price specified in the Indenture. The Trustee will accept bids with the lowest price and in the event the moneys available for purchase pursuant to such tenders are not sufficient to permit acceptance of all tenders and if there are tenders at an equal price above the amount of moneys available for purchase, then the Trustee will select by lot, in such manner as it will determine in its discretion, the Bonds tendered which will be purchased. Book-Entry Only System The information under this heading has been provided solely by DTC and has not been independently verified by the Issuer, the Borrower, the Underwriter, the Remarketing Agent, Provident Bank, FHLB, Fannie Mae, the Loan Servicer or any of their respective counsel, members, officers or employees. No representation whatsoever as to the accuracy, adequacy or completeness of such information is made by the Issuer, the Borrower, the Underwriter, the Remarketing Agent, Provident Bank, FHLB, Fannie Mae, the Loan Servicer or any of their respective counsel, members, officers or employees. The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative 01-503376.3 20 of DTC. One fully registered Bond certificate will be issued for each issue of the Bonds, each in the aggregate principal amount of such issue and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over two million issues of U.S. and non-U.S, equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation and Emerging Markets Clearing Corporation (NSCC, GSCC, MBSCC and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S, securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain 01-503376.3 21 steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices able provided directly to them. Redemption notices shall be sent to DTC. If less than all of the securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, redemption price and interest payments on the Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or the Trustee, on each payment date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the Trustee or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price (if applicable) and interest to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC, is the responsibility of the Issuer or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to Beneficial Owners is the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor depository). In that event, the Bond certificates will be printed and delivered. SECURITY FOR THE BONDS The security for the Bonds differs before and after Loan Conversion, as described under the headings "Security for the Bonds Prior to Loan Conversion" and "Security for the Bonds After Loan Conversion" below, respectively. Security for the Bonds Prior to Loan Conversion A description of security for the Bonds prior to Loan Conversion is set forth below. ~tfier Loan Conversion, this description is of no force or effect. 21 description of the security for the Bonds after Loan Conversion, if it occurs, is set forth under the heading "Security for the Bonds After Loan Conversion" below. 01-503376.3 22 References under this heading to the Indenture. the Financing Agreement, the Reimbursement Agreement, the Credit Facility and the Credit Provider will be references to the Initial Indenture, the Initial Financing Agreement, the Initial Reimbursement Agreement, the Initial Credit Facility and the Initial Credit Provider, respectively. Pledge of Revenues. Pursuant to the Indenture, all of the Revenues have been irrevocably pledged first to the punctual payment of the principal of, premium, if any, and interest on the Bonds and second to the payment of all amounts owed to PCDC under the Reimbursement Agreement, subject to the provisions of the Indenture permitting the application of such Revenues for the purposes and on the terms and conditions set forth in the Indenture. The Issuer has also transferred in trust, granted a security interest in and assigned to the Trustee, for the benefit of the holders from time to time of the Bonds and the Credit Provider, all of its right, title and interest in the Revenues, as further described in the following paragraph, and in the Issuer Loan Documents (except for its Reserved Rights). Pursuant to the Indenture, the Issuer has transferred, assigned and set over to the Trustee, for the benefit of the Bondholders and the Credit Provider, and the Trustee has accepted, all of the Revenues, all moneys at any time held in any fund under the Indenture (other than moneys held in the Rebate Fund), and any and all rights and privileges the Issuer has under the Financing Agreement, other than the Issuer's Reserved Rights and any Revenues or other amounts payable to the Trustee under the Indenture or under the Financing Agreement that are collected or received by the Issuer and shall be deemed to be held, and to have been collected or received, by the Issuer as the agent of the Trustee, and shall forthwith be paid by the Issuer to the Trustee. The Trustee also shall be entitled to and shall subject to the provisions of the Indenture take all steps, actions and proceedings reasonably necessary in its judgment (1) to enforce the terms, covenants and conditions of, and preserve and protect the priority of its interest in and under, the Financing Agreement and the Credit Facility and (2) to assure compliance with all covenants, agreements and conditions on the part of the lssuer contained in the Indenture with respect to the Revenues. Credit Facility General. Prior to Loan Conversion, in addition to a first mortgage lien against the Project pursuant to the Security Instrument, payment of principal of, interest on and the purchase price of the Bonds will be secured by a pledge of revenues under the Indenture, including amounts drawn under the Initial Credit Facility issued by the Initial Credit Provider and amounts drawn under the Initial Standby Credit Facility issued by the Initial Standby Credit Provider. Forms of the Initial Credit Facility and the lnitial Standby Credit Facility are attached hereto at Appendix E-1. If the Initial Credit Provider fails to honor a properly presented and conforming draw on the Initial Credit Facility, or the Initial Credit Facility is repudiated, the Trustee is directed to draw on the Initial Standby Credit Facility and apply the proceeds of such draw to the mandatory redemption of the Bonds, in whole, at a price equal to the principal amount of the Bonds redeemed, plus accrued interest to the redemption date. No premium will be paid in connection with such redemption. See "THE BONDS~ Redemption Prior to Loan Conversion" herein. Indenture Provisions Relating lo Credit Facility. The Trustee has been directed to draw on the Credit Facility in accordance with its terms, in order to receive payment thereunder on the following dates in the following amounts: (a) On the Business Day preceding each Interest Payment Date, in an amount that will be sufficient to pay the interest due and payable on such Interest Payment Date on all Outstanding Bonds; 01-503376.3 23 (b) On the Business Day preceding any date fixed for redemption of Bonds described in paragraphs (a), (b), (c), (d) or (e) under the heading "THE BONDS--Redemption Prior to Loan Conversion~Circumstances of Redemption" herein, in an amount that will be sufficient to pay the redemption price, including accrued interest to the date of redemption; (c) On the Business Day preceding the date fixed for payment of the Bonds in connection with any declaration of the acceleration of the maturity of the Bonds following an Event of Default, as provided in the Indenture, in an amount that will be sufficient to pay all principal and interest due on the Bonds as a result of such declaration on the date fixed for such payment; (d) On the Business Day preceding each Demand Date, in an amount sufficient to pay the Purchase Price of any Bonds tendered pursuant to the Indenture, such draw to be in an amount not less than the total Purchase Price of the Bonds so tendered, as such amounts are identified to the Trustee by the Remarketing Agent and the Tender Agent pursuant to the provisions of the Indenture; (e) On the Business Day preceding the final maturity date of the Bonds, in an amount that will be sufficient to pay the principal and interest due on all Outstanding Bonds on such final maturity date; and (f) On the Business Day prior to the date fixed for redemption of Bonds described in paragraphs (b), (c) or (d) under the heading "THE BONDS--Redemption Prior to Loan Conversion~ircumstances of Redemption" herein and in the event that the Credit Provider shall have provided the notice provided in the Indenture, in an amount sufficient to pay the Purchase Price of all Bonds to be purchased in lieu of redemption pursuant to the terms of said paragraph. Except as provided in (e) above,.each such drawing shall be made not later than the time required by the Credit Facility in order to receive payment thereunder on the Business Day preceding the day on which payment of the amount of such drawing is required to be made to the holders of the Bonds pursuant to the Indenture. The Trustee will not draw upon the Credit Facility at any time for payment of the principal or Purchase Price of and interest on any Bonds registered in the name of the Credit Provider or the Borrower or any general partner or guarantor of the Borrower or the Issuer or known by the Trustee to be registered in the name of any nominee of the Credit Provider, the Borrower, any general partner or guarantor of the Borrower, or the Issuer (provided that the Trustee shall have no duty to investigate whether Bonds are registered in the names of such nominees). In the event that the Credit Provider wrongfully fails to honor a properly presented and conforming draw on the Credit Facility or the Credit Facility is repudiated, the Trustee shall, upon receipt of actual knowledge thereof immediately, notify the Initial Standby Credit Provider, the Borrower and the Issuer of such event. The Trustee shall draw on the Initial Standby Credit Facility in accordance with its terms when required pursuant to the Indenture. The Trustee has agreed to accept any Credit Facility conforming to the requirements of the Financing Agreement that is delivered to the Trustee in connection with a Reset Date or during a Reset Period in substitution for the then outstanding Credit Facility, and to accept any Credit Facility conforming to the requirements of the Financing Agreement that is delivered to the Trustee in connection with Conversion or which is delivered to the Trustee at any time after Conversion in substitution for the then outstanding Credit Facility and any Standby Credit Facility conforming to the requirement of the Financing Agreement. E --3o 01-503376.3 24 Written notice of a substitute Credit Facility, substitute Standby Credit Facility or Substitute Credit Facility shall also be provided by the Trustee to the Bondholders not less than 10 days prior to the delivery of the substitute Credit Facility, substitute Standby Credit Facility or Substitute Credit Facility. Indenture Provisions Relating to Initial Standby Credit Facility. Except as otherwise provided in the following paragraph, in the event the Credit Provider wrongfully fails to honor a properly presented and conforming draw on the Credit Facility in a timely manner or the Credit Facility is repudiated, the Trustee is directed to draw on the Initial Standby Credit Facility in the full stated amount of the Initial Standby Credit Facility in accordance with its terms, in order to immediately receive payment thereunder on the date amounts drawn on the Credit Fac ty were to be applied pursuant to the Indenture, as to allow the payments due and payable to the Bondholders to be made in a timely manner and to effect a redemption of the Bonds pursuant to the Indenture. Such drawing shall be made not later than the time required by the Standby Credit Facility in order to receive payment thereunder on the Business Day on which payment of the amount of ~uch drawing is required to be made to the holders of the Bonds pursuant to the Indenture. The Trustee will not draw upon the Standby Credit Facility at any time for payment of the principal or Purchase Price of any Bonds registered in the name of the Credit Provider, the Borrower, any general partner or guarantor of the Borrower, the lssuer, or known by the Trustee to be registered Jn the name of any nominee of the Credit Provider, the Borrower, any general partner or guarantor of the Borrower, or the Issuer (provided that the Trustee shall have no duty to investigate whether Bonds are registered in the names of such nominees). The Trustee agrees to accept, subject to the terms of a supplemental indenture amending or supplementing the Indenture and the Financing Agreement, a Substitute Credit Facility in substitution for the Initial Standby Credit Facility. The Trustee shall give notice of such substitution to Bondholders (with a copy to the Issuer) by first class mail as soon as practicable upon receipt by the Trustee of notice of such substitution. The Investment Agreement. Bond proceeds on deposit in the Program Fund will be invested by the Trustee in an investment agreement (the "Investment Agreement") with (the "Investment Agreement Provider"). The Investment Agreement Provider will pay interest at the rate of __% per annum on money contained in the Program Fund and invested under the Investment Agreement. The Investment Agreement represents the unconditional obligation of the Investment Agreement Provider to provide repayment to the Trustee of money invested under the Investment Agreement pursuant to the Indenture, subject to the terms set forth in the Investment Agreement. The Investment Agreement is not a guaranty of or credit enhancement of the Bonds. None of the lssuer, the Borrower, the Underwriter, the Remarketing Agent, Provident Bank, FHLB, Fannie Mae, the Loan Servicer or any of their respective counsel, members, officers or employees makes any representation as to the ability of the Investment Agreement Provider to make payments thereunder in amounts necessary to make scheduled payments of debt service on the Bonds. See "BONDHOLDERS' RISKS--Failure of Provider of the Investment Agreement To Make Payment Thereunder." Security for the Bonds After Loan Conversion ,4 description of the security for the Bonds after Loan Conversion, if it occurs, is set forth below. This description is applicable only after Loan Conversion, if it occurs..4 description of the security for the Bonds prior to Loan Conversion is set forth under the heading "Security for the Bonds Prior to Loan Conversion" above. 01-503376.3 25 References under this heading to the Indenture, the Financing Agreement, the Reimbursement Agreement, the Credit Facility, the Assignment and the Credit Provider will be references to the Permanent ]ndenture, the Permanent Financing Agreement, the ?ermanent Reimbursement Agreement, the Permanent Credit Facility, the Permanent Assignment and the Permanent Credit Provider, respectively. Pledge of Trus! Estate. In order to secure the payment of thc principal of, redemption premium, if any, and interest on, and the purchase price of, the Bonds according to their tenor and effect, to secure, on a parity basis, all obligations owed to the Credit Provider under the Credit Facility Agreement and the Mortgage Loan Documents, and to secure the performance and observance by the Issuer of the covenants expressed or implied in the Indenture and in the Bonds, the Issuer has assigned and granted a security interest in and to the property described in paragraphs (i) through (vi) below to the Trustee and its successors in trust, for the benefit of the Bondholders, and to the Credit Provider, and its successors and assigns, as their interests may appear, subject to the provisions of the Assignment and subject to the provisions of the Indenture permitting the application of such property for the purposes set forth in the Indenture: (i) all right, title and interest of the Issuer in and to the Financing Agreement, the Mortgage Loan, including the Mortgage Note, the Security Instrument and the other Mortgage Loan Documents, and all amendments, modifications, supplements, renewals and restatements of the foregoing, reserving, however, the Reserved Rights; (ii) all rights to receive payments on the Mortgage Note and under the other Mortgage Loan Documents, including all proceeds of insurance or condemnation awards; (iii) all right, title and interest of the Issuer in and to the Net Bond Proceeds and the accrued interest, if any, derived from the sale of the Bonds, and all Funds, Accounts and Investments under the Indenture (including, but not limited to, moneys, documents, securities, investments, instruments and general intangibles on deposit or otherwise held by the Trustee under the Indenture), including Investment Income, but excluding moneys in the Fees Account, the Rebate Fund and the Costs of Issuance Deposit Account of the Costs of Issuance Fund (including within such exclusion Investment Income retained in the Costs of Issuance Deposit Account of the Costs of Issuance Fund and Investment Income retained in the Rebate Fund); (iv) all documents, securities, instruments and general intangibles and any and all other rights and interests in property, whether tangible or intangible, from time to time by delivery or by writing of any kind conveyed, mortgaged, pledged, assigned or transferred as and for additional security under the Indenture for the Bonds by the Issuer, or by anyone on its behalf, or with its written consent, to the Trustee, which is authorized by the Indenture to receive any and all such property at any and all times, and to hold and apply the same subject to the terms of the Indenture; and (v) all of the proceeds of the foregoing, including, but not limited to, Investments and Investment Income (except as excluded in paragraph (iii) above). Credit Facility General. On the date on which Loan Conversion occurs, if it occurs, Fannie Mae will deliver the Credit Facility to the Trustee. The Credit Facility is an irrevocable obligation of Fannie Mae to make 01-503376.3 26 advances to the Trustee on a stand-by basis. The form of the Credit Facility is attached to this Official Statement as Appendix E-2. Each purchaser of the Bonds should be aware that the Credit Facility does not guarantee payment of principal of, premium, if any, or interest on the Bonds. The Credit Facility provides that only payments corresponding to the "Required Mortgage Payments" (as defined in the Credit Facility) due under the Mortgage Note will be made by Fannie Mae if not made by the Borrower. The Permanent Credit Facility will also provide liquidity support for the Bonds Outstanding on the Initial Remarketing Date to the extent remarketing proceeds are insufficient. Indenture Provisions Relating to Credit Facility. The Trustee is required to present Certificates (as defined in the Credit Facility) to the Credit Provider as required by and in accordance with the Credit Facility in order to receive Advances under, and as and to the extent provided in and permitted by, and in the amounts available under, the Credit Facility. For purposes of determining the amount of any Advance, the Trustee will, at the direction of the Credit Provider, first apply any amounts then on deposit in the Funds and Accounts (other than the Rebate Fund, the Costs of lssuance Fund and Fees Account) for such purposes. The Trustee will not, without the prior written consent of the Registered Owners of all of the Bonds then Outstanding, transfer, assign or release the Credit Facility until the principal of and interest on the Bonds will have been paid or duly provided for in accordance with the terms of the Indenture, except (a) to a successor Trustee or (b) to the Credit Provider upon expiration or other termination of the Credit Facility in accordance with its terms, including expiration on its stated expiration date or (c)upon payment under the Credit Facility of the full amount payable under the Credit Facility. If, at any time during the term of the Credit Facility, a successor Trustee is appointed and qualified under the Indenture and the Credit Facility is not assignable or transferable to the successor Trustee, the resigning Trustee will request the Credit Provider to deliver a new Credit Facility, substantially identical to the Credit Facility, to the successor Trustee. The resigning Trustee will continue to serve as Trustee under the Indenture until such time as the new Credit Facility is delivered to the successor Trustee. If the resigning Trustee fails to make this request, the successor Trustee will do so before accepting its appointment. Upon delivery of the new Credit Facility to the successor Trustee, the prior Credit Facility will be returned to the Credit Provider and canceled, and the new Credit Facility will thereafter be subject to all of the provisions of the Indenture relating to the Credit Facility and will be deemed for all purposes of the Indenture to be the Credit Facility then in effect. Replacement Credit Facility. At the request of the Credit Provider, the Trustee shall exchange the Credit Facility with the Credit Provider for a new Credit Facility (a "Replacement Credit Facility"), provided that such exchange shall not adversely affect the rating then in effect for the Bonds. FANNIE MAE'S OBLIGATIONS WITH RESPECT TO THE BONDS ARE SOLELY AS PROVIDED IN THE CREDIT FACILITY. THE OBLIGATIONS OF FANNIE MAE UNDER THE PERMANENT CREDIT FACILITY WILL BE OBLIGATIONS SOLELY OF FANNIE MAE, A FEDERALLY CHARTERED STOCKHOLDER-OWNED CORPORATION, AND WILL NOT BE BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES OF AMERICA. THE BONDS ARE NOT A DEBT OF THE UNITED STATES OF AMERICA OR ANY OTHER AGENCY OR INSTRUMENTALITY THEREOF OR OF FANNIE MAE. THE BONDS ARE NOT GUARANTEED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES OF AMERICA. Subordinate Bonds ,.5"'-33 01-503376.3 2'/ The Subordinate Bonds shall be secured by and payable only from amounts pledged under the Subordinate Indenture. The Subordinate Bonds are not secured by the Credit Facility. BONDHOLDERS' RISKS The following is a summary of certain risks associated with the purchase of the Bonds. This summary is not intended to be a comprehensive or exhaustive list of the risk factors associated with the Bonds. Prior to Loan Conversion, references under this heading to the Indenture, the Financing Agreement, the Reimbursement Agreement, the Credit Facility and the Credit Provider will be references to the Initial Indenture, the Initial Financing Agreement, the Initial Reimbursement Agreement, the Initial Credit Facility and the Initial Credit Provider, respectively. After Loan Conversion, if it occurs, references under this' heading to the Indenture, the Financing Agreement, the Reimbursement Agreement, the Credit Facility and the Credit Provider will be references to the Initial Indenture, the Initial Financing Agreement, the Initial Reimbursement Agreement, the Initial Credit Facility and the Initial Credit Provider, respectively. Bond Ratings Based on Credit Facility The rating on the Bonds is based on the Credit Facility then in effect and the creditworthiness of the applicable Credit Provider. The main credit risk is that the Credit Provider will fail to perform under the Credit Facility. Early Redemption A variety of factors described herein may result in an early redemption of the Bonds. The possibility of an early redemption could affect the ability of the Bonds to be valued or sold at a premium. Early redemption would also cause a loss of any premium otherwise owing to the holder of any Bond. See "THE BONDS--Redemption Prior to Loan Conversion" and "~Redemption After Loan Conversion" herein. Failure To Satisfy Conditions to Loan Conversion If the conditions to Loan Conversion are not satisfied by then, (a)Loan Conversion will not occur and (b) unless the Initial Credit Provider extends the term of the Initial Credit Facility and causes the extension of the Initial Standby Credit Facility, the Bonds will be subject to mandatory redemption pursuant to the Indenture or to purchase in lieu of redemption pursuant to the Indenture. See "THE BONDS--Redemption Prior to Loan Conversion" herein. Reduction in Authorized Mortgage Loan Amount The Bonds are subject to mandatory redemption in part if the Mortgage Loan is prepaid in part in order to satisfy Fannie Mae's underwriting criteria for determining the final principal amount of the Mortgage Loan as of the date of Loan Conversion. This would occur, for example, if the net income from the Project does not provide sufficient debt service coverage to support a loan amount equal to the original principal amount of the Mortgage Loan. In such event, the Borrower must, as a condition to Loan Conversion, prepay the Mortgage Loan in an amount sufficient to reduce the principal amount of the Mortgage Loan. Such prepayment of the Mortgage Loan will result in a mandatory redemption of the 01-503376.3 28 Bonds at a price of par plus accrued interest thereon. No premium will be paid in connection with any such redemption. See "THE BONDS--THE BONDS--Redemption Prior to Loan Conversion." No Acceleration or Redemption Upon Loss of Tax Exemption The Borrower has covenanted and agreed to comply with the provisions of the Code relating to the exclusion from gross income for federal income tax purposes of the interest payable on the Bonds. The financing documents contain provisions and procedures designed to assure compliance with such covenant. See "TAX MATTERS" herein. However, the Borrower's covenant to comply with the requirements of the Code is nonrecourse to the Borrower, and the Borrower's liability is limited to the revenues and assets comprising the Project. Furthermore, the Borrower's failure to comply with such provisions will not constitute a default under the Mortgage Loan and will not give rise to a redemption or acceleration of the Bonds (unless the Credit Provider determines, at its option and in its sole and absolute discretion, that such failure will constitute such a default) and is not the basis for an increase in the rate of interest payable on the Bonds. Consequently, interest on the Bonds may become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of the Bonds by reason of the Borrower's failure to comply with the requirements of federal tax law, and neither the Issuer, the Trustee nor the Bondholders will have remedies available to them to mitigate the adverse economic effects to the Bondholders of such inclusion by reason of the Borrower's noncompliance. Notwithstanding the foregoing, prior to Loan Conversion, the Bonds are subject to mandatory tender for purchase in connection with a Determination of Taxability as described under the heading "THE BONDS--Other Mandatory Tenders Prior to Loan Conversion" herein. Bankruptcy of Borrower In the event of a bankruptcy filing by or against the Borrower, all or a portion of any payments made to Bondholders within 91 days of the filing of such bankruptcy could be recovered from Bondholders by the order of a bankruptcy judge finding that such payments to Bondholders were "preferential" payments within the meaning of Section 547 of the United States Bankruptcy Code. In the event Bondholders were ordered to return payments previously received, Bondholders' recourse, through the Trustee, would be to the obligations of the Credit Provider to the Trustee as and to the extent provided in the Credit Facility. The United States Bankruptcy Code automatically stays enforcement of any liens, such as the Security Instrument, against the property of a bankrupt estate, even if such liens arose prior to the filing of the bankruptcy petition. In the event of the bankruptcy of the Borrower, the Trustee's ability to enforce the provisions of the Security Instrument would be substantially impaired, absent relief by the bankruptcy court from the automatic stay. In the event of such a stay, Bondholders recourse, through the Trustee, would be to the obligations of the Credit Provider to the Trustee as and to the extent provided in the Credit Facility. Failure To Complete Project The Bonds am subject to redemption in part on the first Interest Payment Date that is at least 180 days after the Completion Date (or such later date as may be established under the Initial Indenture), at a price equal to the principal amount of the Bonds called for redemption, plus interest accrued thereon to the date of redemption, without premium, in the event and to the extent that funds on deposit in the Program Fund are transferred to the Bond Fund as described in the Initial Indenture. 01-503376.3 29 Performance of the Project No assurance can be given as to the future performance of the Project. Thc economic feasibility of the Project depends in large part upon the ability of the Borrower to attract sufficient numbers of residents and to maintain substantial occupancy throughout the term of the Bonds at sufficient rents. As referenced previously in this Official Statement, failure to meet projected net operating income at the time of Loan Conversion could result in a redemption of the Bonds in whole or in part. Occupancy of the Project may be affected by competition from existing housing facilities (including facilities owned by an affiliate of the Borrower) or from housing facilities which may be constructed in the area served by the Project (including facilities constructed by affiliates of the Borrower). Restrictions imposed under the Code on tenant income and the rent that can be charged could have an adverse effect on the Borrower's ability to satisfy its obligations under the Mortgage Loan documents, especially if operating expenses should increase beyond what the Borrower had anticipated. A default by the Borrower under the Financing Agreement, including the failure by the Borrower to pay on the date due any amounts required to be paid by the Borrower under the Financing Agreement, the Mortgage Note, the Security Instrument or the Reimbursement Agreement, may result in a mandatory redemption or acceleration of the Bonds. No premium will be paid on the Bonds in the event of such a redemption or acceleration. See "THE BONDS--Redemption Prior to Loan Conversion" and "--Redemption After Loan Conversion" herein. Environmental Matters There are potential risks relating to environmental liability associated with the ownership of real property. If hazardous substances are found to be located on a property, the owner of such property may be held liable for costs and other liabilities relating to such hazardous substances. In the event of a foreclosure of the Project or active participation in the management of the Project by the Trustee on behalf of the Bondholders, the Trustee (and, indirectly, the Bondholders) may be held liable for costs and other liabilities related to hazardous substances, if any, on the site of the Project on a strict liability basis and such costs might exceed the value of such property. Estimated Rental Revenue/Vacancies The economic feasibility of the Project depends in large part upon its being substantially occupied at rentals adequate to cover all operating expenses and debt service. Although representatives of the Borrower believe, based on surveys of the area where the Project is located, that a substantial number of persons currently need housing facilities such as the Project, occupancy of the Project may be affected by competition from existing housing facilities or from housing facilities which may be constructed in the area served by the Project, including new housing facilities which the Borrower, or its affiliates, may construct. While the Borrower believes the Project is needed, no assurance can be given that there may not be delays in the initial renting of the Project or there may be difficulties in keeping it substantially occupied in future years. Furthermore, no assurance can be given that the Iow-income tenants are able to afford the rental rates of the Project, albeit at below-market rental rates. The rental rates are capped at the levels described under the heading "THE BORROWER AND THE PROJECT Income and Rent Restrictions" herein, thus greatly restricting the rents that may be charged to tenants of the Project. The prospective tenant pool contains only persons whose income is at or below the levels described under the heading "THE BORROWER AND THE PROJECT--Income and Rent Restrictions" herein. These rent and affordability restrictions may adversely affect the revenues of the Project. Estimated Project Expenses; Management The success of the Project depends upon economic conditions, successful management of the Project and other factors. Furthermore, should management of the Project in the future prove to be 01-503376.3 ~0 inefficient, increases in operating expenses might exceed increases in rents which can be supported by market conditions. The economic feasibility of the Project also depends to a large extent on operating expenses. No assurances can be given that moneys available to the Borrower from operation of the Project will be sufficient to make the required payments on the Financing Agreement and the Mortgage Note. Competing Facilities The Issuer, the Borrower and its affiliates and others may develop, construct and/or operate other facilities that could compete with the Project for tenants. Any competing facilities, if so constructed, could adversely affect occupancy and revenues of the Project. Secondary Markets and Prices The Underwriter will not be obligated to repurchase any of the Bonds, and no representation is made concerning the existence of any secondary market. There can be no assurance that any secondary market will develop following the completion of the offering of thc Bonds. Further, there can bc no assurance that the initial offering prices for the Bonds will continue for any period of time. Nonrecourse Obligation The Borrower's obligations under the Financing Agreement and the Mortgage Loan documents, including the Security Instrument and, after Loan Conversion, if it occurs, the Mortgage Note, are strictly nonrecourse obligations. With limited exceptions, the Borrower has no obligation to fund operating deficits, to cover any losses in the event of a default on the Bonds or otherwise to invest its own funds in the Project or to continue the Project in operation. Energy Shortages and Allocations There may be shortages or increases in the cost of fuel, natural gas, electric power or allocations thereof by suppliers or governmental regulatory bodies in the area of the Project. In the event such shortages, price increases or allocations occur, the operation or construction of the Project may be adversely affected. The Borrower is unable to predict the extent, if any, to which such shortages, price increases or allocations will occur or the degree to which such events will influence the ability of the Borrower to meet its objectives. Delayed Purchase on Failed Remarkeflng of Bonds In the event that the Trustee does not, after a remarketing, have sufficient funds on the Initial Remarketing Date to purchase all of the Outstanding Bonds, the Trustee shall present a certificate for an advance under the Permanent Credit Facility. If the request is payable by the Credit Provider not later than three Business Days after the Initial Remarketing Date, such event shall not be an Event of Default under the Permanent Indenture. Subordinate Loan Default Pursuant to the Subordination Agreement, a default with respect to the Subordinate Loan shall constitute a default under the Mortgage Loan Documents and Fannie Mae shall have the right to exercise all rights or remedies under the Mortgage Loan Documents in the same manner as in the case of any other default under the Mortgage Loan. See "THE MORTGAGE NOTE" herein. 01-503376.3 3 1 THE CREDIT PROVIDERS The Credit Providers differ before and after Loan Conversion, as described under the headings "Credit Providers Prior to Loan Conversion" and "Credit Provider After Loan Conversion" below, respectively. Credit Providers Prior to Loan Conversion Descriptions of the Credit Providers prior to Loan Conversion are set forth below. After Loan Conversion, these descriptions are of no force or effect. A description of the Credit Provider after Loan Conversion, if it occurs, is set forth under the heading "Credit Provider After Loan Conversion" below. Initial Credit Provider. The information under this heading has been provided solely by Provident Bank and has not been independently verified by the Issuer, the Borrower, the Underwriter, the Remarketing Agent, PCDC, Ftt£B, Fannie Mae, the Loan Servicer or any of their respective counsel, members, of~cers or employees. No representation whatsoever as to the accuracy, adequacy or completeness of such information is' made by the Issuer, the Borrower, the Underwriter, the Remarketing Agent, PCDC, FH£B, Fannie Mae, the Loan Servicer or any of their respective counsel, members, officers or employees. Provident Bank (the "Initial Credit Provider") is organized under the laws of the State of Ohio. The Initial Credit Provider's principal office is located in Cincinnati, Ohio. Accounts in the Initial Credit Provider are insured by the Federal Deposit Insurance Corporation through its Savings Association Insurance Fund up to $100,000. Additional information on the Initial Credit Provider, including available annual audits, is available, upon reasonable request, by writing Provident Bank, c/o Provident CDC, 150 East Gay Street, 22"a Floor, Columbus, Ohio 43215. Initial Standby Credit Provider. The information under this heading has been provided solely by FHLB and has not been independently verified by the Issuer, the Borrower, the Underwriter, the Remarketing Agent, Provident Bank, Fannie Mae, the Loan Servicer or any of their respective counsel, members, officers or employees. No representation whatsoever as to the accuracy, adequacy or completeness of such information is made by the Issuer, the Borrower, the Underwriter, the Remarketing Agent, Provident Bank, Fannie Mae, the Loan Servicer or any of their respective counsel, members, officers or employees. Excerpts from the 2002 Annual Report of the Initial Standby Credit Provider showing financial results for the year ending December 31, 2002, and the unaudited financial results for the nine months ending September 30, 2002 are available at www.x'hlbcin.com/03_Fin.asp. Credit Provider After Loan Conversion A description of the Credit Provider after Loan Conversion is set forth below. This description is applicable only after Loan Conversion, if it occurs. Descriptions of the Credit Providers prior to Loan Conversion are set forth under the heading "Credit Providers Prior to Loan Conversion" above. 01-503376.3 32 Permanent Credit Provider. The information under this heading has been provided solely by Fannie Mae and has not been independently verified by the Issuer, the Borrower, the Underwriter, the Remarketing Agent, Provident Bank, FHLB, the Loan Servicer or any of their respective counsel, members, officers or employees. No representation whatsoever as to the accuracy, adequacy or completeness of such information is made by the Issuer, the Borrower, the Underwriter, the Remarketing Agent, Provident Bank, FHLB, the Loan Servicer or any of their respective counsel, members, officers or employees. Fannie Mae is a federally chartered and stockholder-owned corporation organized and existing under the Federal National Mortgage Association Charter Act, 12 U.S.C. 1716 et seq. It is the largest investor in home mortgage loans in the United States with a net portfolio of $823 billion of mortgage loans as of March 31, 2003. Fannie Mae was originally established in 1938 as a United States government agency to provide supplemental liquidity to the mortgage market and became a stockholder-owned and privately managed corporation by legislation enacted in 1968. Fannie Mae purchases, sells, and otherwise deals in mortgages in the secondary market rather than as a primary lender. It does not make direct mortgage loans but acquires mortgage loans originated by others. In addition, Fannie Mae issues mortgage-backed securities ("MBS"), primarily in exchange for pools of mortgage loans from lenders. Fannie Mae receives guaranty fees for its guarantee of timely payment of principal of and interest on MBS certificates. Fannie Mae is subject to regulation by the Secretary of Housing and Urban Development ("HUD") and the Director of the independent Office of Federal Housing Enterprise Oversight within HUD. Approval of the Secretary of Treasury is required for Fannie Mae's issuance of its debt obligations and MBS. Five of the eighteen members of Fannie Mae's Board of Directors are appointed by the President of the United States, and the other thirteen are elected by the holders of Fannie Mae's common stock. The securities of Fannie Mae are not guaranteed by the United States and do not constitute a debt or obligation of the United States or any agency or instrumentality thereof other than Fannie Mae. As of March 31, 2003, Fannie Mae's core capital* was $29.5 billion. Information on Fannie Mae and its financial condition is contained in Fannie Mae's most current annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K that are filed with the SEC. The SEC filings are available at the SEC's website at www.sec.gov. The periodic reports filed by Fannie Mae with the SEC are also available on Fannie Mae's web site at http://www.fanniemae.com/ir/sec. Fannie Mae makes no representation as to the contents of this Remarketing Statement, the suitability of the Bonds for any investor, the feasibility of performance of any project, or compliance with any securities, tax or other laws or regulations. Fannie Mae's role with respect to the Bonds is limited to issuing and discharging its obligations under the Credit Facility and exercising the rights reserved to it in the Indenture and the Reimbursement Agreement. *Core capital is the sum of (a) the stated value of outstanding common stock, (b) the stated value of outstanding noncumulative perpetual preferred stock, (c) paid-in capital, and (d) retained earnings. 01-503376.3 33 ESTIMATED SOURCES AND USES OF FUNDS The anticipated sources and uses of proceeds of the Bonds, together with other moneys, at Bond Closing are estimated to be as £ollows: Sources of Funds: Bond Proceeds Borrower Contribution General Contractor Contribution Total Uses of Funds: Project Costs, Borrower Counsel and Title Bond Costs of Issuance Credit Enhancement Costs and Escrows Total THE BORROWER AND THE PROJECT The information under this heading has been provided solely by the Borrower and has not been independently verified by the Issuer, the Underwriter, the Remarketing Agent, Provident Bank, FHLB, Fannie Mae, the Loan Servicer or any of their respective counsel, members, officers or employees. No representation whatsoever as to the accuracy, adequacy or completeness of such information is made by the Issuer, the Underwriter, the Remarketing ~4gent, Provident Bank, FHLB, Fannie Mae, the Loan Servicer or any of their respective counsel, members, officers or employees. The Borrower The Borrower is CIC Eastlake, L.P., a California limited partnership. Pacific Southwest Community Development Corporation, a California nonprofit public benefit corporation is the managing general partner of the Borrower (the "Managing General Partner"). SDS Eastlake, LLC, a California limited liability company is the co-general partner of the Borrower (the "Co-General Partner"). The Co- General Partner and its affiliates have been involved in the multifamily housing industry for 17 years, having built, owned and/or managed 30 apartment complexes comprised of approximately 3,849 units located in the states of California and Arizona. The Project The Project will be located on an 8.25-acre site at 1311 Eastlake Parkway in Chula Vista, California. The Project will consist of 150 residential, multifamily apartment units, contained in five, three-story, wood-framed, garden style residential apartment buildings. Construction of the Project is expected to be completed by December, 2004. The Project will have 195 surface parking spaces and 150 covered parking spaces. Amenities at the Project include two tot lots, hal£ basketball court, swimming pool, five shaded picnic and barbeque areas and a community center, which includes a multi-purpose community room, computer room, kitchen, rental office, a laundry room and storage space. The rent structure, as of September, 2003 (the most recent month for which such information is available), the unit mix and approximate square footage for the various units ia the Project are summarized in the following table: 01-503376.3 34 Average Rent Unit Type Average Sq. Feet No. of Units (less utilities) 2 Bedroom- 1 Bath 868 30 $778 2 Bedroom -- 2 Bath 880 30 778 3 Bedroom--2 Bath 1,112 80 895 4 Bedroom -- 2 Bath 1,233 10 989 The Project will be managed by CIC Management, Inc. (the "Manager"). The Manager and its affiliates have been involved in managing multifamily housing projects for 16years and currently manage 16 apartment complexes comprised of approximately 1,397 units located in the states of California and Arizona. Income and Rent Restrictions The Project is required to be occupied in part by persons or families whose incomes satisfy certain requirements of the Internal Revenue Code of 1986, as amended (the "Code"), the applicable income tax regulations issued under the Code, the Act and the Issuer as set forth in the Regulatory Agreement. See Appendix C hereto. In addition, in connection with the low-income housing tax credits anticipated to be granted for the Project, the Borrower will execute a Iow-income housing agreement in compliance with the requirements of Section 42 of the Code (the "Low-income Housing Agreement"). The Low-income Housing Agreement requires the low-income housing tax credit income targeting and rent restrictions for the Project under Section 42 of the Code for the initial 15-year compliance period, plus an additional 15-year period, subject to a few exceptions. The Low-income Housing Agreement for the Project will among other things, require that 100% of the completed and occupied dwelling units in the Project be occupied by tenants whose gross income is at or below 60% of area median gross income and that annual rent charged with respect to the units be limited to 30% of 60% of area median gross income as provided in Section 42(g)(2) of the Code throughout the extended use period as defined in the Code. Finally, in connection with the Agency Loan and the City Loan described under the heading "Additional Financing" below, there will be executed an Affordable Housing Agreement dated as of the date of the Indenture (the "Affordable Housing Agreement") by and among the Borrower, the Redevelopment Agency of the City of Chula Vista and the City of Chula Vista. The Affordable Housing Agreement will, among other things, require that (a) 30 dwelling units in the Project be occupied by tenants whose gross income is at or below 50% of area median gross income and that annual rent charged with respect to the units be limited to 30% of 50% of area median gross income, (b) 43 dwelling units in the Project be occupied by tenants whose gross income is at or below 60% of area median gross income and that annual rent charged with respect to the units be limited to 30% of 60% of area median gross income and (c) the remaining dwelling units in the Project be occupied by tenants whose gross income is at or below 120% of area median gross income and that annual rent charged with respect to the units be limited to 30% of 120% of area median gross income. Additional Financing The Borrower expects to secure a collateral loan from PCDC in the approximate principal loan of $11,686,000 (the "Collateral Loan"), the proceeds of which will be used to secure the Borrower's reimbursement obligations to PCDC pursuant to the Initial Reimbursement Agreement. The Borrower also expects to secure a construction loan from PCDC in the approximate principal amount of $3,815,000 (the "PCDC Construction Loan") the proceeds of which shall be used to fund construction costs with 01-503376.3 3 5 respect to the Project. The proceeds of the PCDC Construction Loan are expected to be available after the Closing Date, but prior to completion of the Project. The Borrower also expects to secure a permanent loan from the Redevelopment Agency of the City of Chula Vista in the approximate principal amount of $1,000,000 (the "Agency Loan") to provide permanent financing with respect to the Project. The Borrower finally expects to secure a permanent loan from the City of Chula Vista in the approximate principal amount of $500,000 (the "City Loan") to provide permanent financing with respect to the Project. The proceeds of the Agency Loan and the City Loan are expected to be available in three $500,000 installments upon acquisition of the real estate, 50% completion of construction and completion of construction. The funds deposited under the Collateral Loan are expected to be used to repay the Collateral Loan, and the additional equity investment to be made by the Borrower are expected to be used to repay the PCDC Construction Loan. Each of the Collateral Loan, PCDC Construction Loan, the Agency Loan and the City Loan are subordinate to the Loan financed with the proceeds of the Bonds. Nevertheless, a default with respect to any of the Collateral Loan, the PCDC Construction Loan, the Agency Loan or the City Loan shall constitute a default under the Mortgage Note and the Security Instrument and entitle the Credit Provider, (as holder of the Mortgage Loan rights), in its discretion, to direct or invoke any remedies available to it at law or in equity, including but not limited to, the remedy of acceleration set forth in the Mortgage Note. The Credit Provider can cause a mandatory redemption of the Bonds in whole or in part upon a default under the Security Instrument. See "THE BONDS-- Redemption Before Loan Conversion" and "--Redemption After Loan Conversion" herein. TIlE MORTGAGE NOTE The following is a summary of certain provisions of the Mortgage Note, which is qualified in its entirety by reference to the Mortgage Note, a copy of which may be obtained from the Trustee. The Mortgage Note is effective with respect to the Mortgage Loan only after Loan Conversion, if it occurs. Prior to Loan Conversion, the Borrower ~ repayment obligations with respect to the Mortgage Loan are set forth in the Initial Financing Agreement. See Appendix D-1 hereto. After Loan Conversion, if it occurs, the Mortgage Loan will be evidenced by a Mortgage Note. The Mortgage Note will be a nonrecourse obligation of the Borrower (subject to certain enumerated exceptions to nonrecourse liability as provided in the Mortgage Note) to repay the Mortgage Loan and will be secured by the Security Instrument. Defined Terms Capitalized terms used under this heading which are not defined herein shall have the meanings assigned thereto in the Mortgage Note. General In the Note, the Borrower has agreed to pay to the Issuer and its successors, assigns and transferees, or order, the principal sum equal to the principal amount of the Bonds Outstanding on the date of Loan Conversion, together with interest on the unpaid principal balance at the following rates of interest (in each instance, the "Mortgage Note Rate," the components of which are more fully described below): (a) the per annum interest rate set forth in the Mortgage Note for the period beginning on the Accrual Date (as specified below) to the first day of the month immediately preceding the Initial Remarketing Date (the "Initial Adjustment Date"). Effective as of the Initial Adjustment Date, the Mortgage Note Rate shall be a per annum rate equal to the Remarketing Rate which takes effect on the Initial Remarketing Date plus such additional basis points of interest ("Additional Basis Points") as shall be necessary to ensure that (a) the payments under the Mortgage Note will at all times be sufficient to pay 01-503376.3 36 when due the principal and interest on the Bonds and (b) the Mortgage Note Rate will be sufficient to (1) cover Set Rate Interest and (2) produce a Pass-Through Rate sufficient to cover Third Party Fees to the extent included, in accordance with the Financing Agreement, in, and payable out of, the Mortgage Note Rate, (collectively, as to clauses (a) and (b), the "Required Mortgage Note Rate Coverage"), all as shown in a then current Cash Flow Projection and Verification Report. If the Bonds Outstanding are remarketed on a Remarketing Date after the Initial Remarketing Date, the Mortgage Note Rate shall, effective as of the first day of the month immediately preceding such Remarketing Date, be a per annum rate equal to the Remarketing Rate which takes effect on such Remarketing Date plus such Additional Basis Points as shall be necessary to ensure that the Mortgage Note Rate produces the Required Mortgage Note Rate Coverage, all as shown in then current Cash Flow Projection and Verification Report. Interest shall begin to accrue on the Mortgage Note on the accrual date specified in the Mortgage Note (the "Accrual Date") and shall accrue continuously thereafter until the Mortgage Note is paid in full. The principal of and interest on the Mortgage Note shall be payable monthly, as follows: the Mortgage Note shall be payable interest only, in arrears, at the Mortgage Note Rate, in consecutive monthly installments, such monthly installments of interest to be due and payable on the first day of each month beginning on the date specified in the Mortgage Note (the "Amortization Commencement Date"), until the entire indebtedness evidenced by the Mortgage Note is paid in full, provided that any remaining indebtedness, including principal, accrued interest and any and all other sums due under the Mortgage Note, shall, if not sooner paid, be due and payable on the date specified in the Mortgage Note (the "Maturity Date"), provided, further, that the outstanding principal balance of the Mortgage Note shall, based on a then current Cash Flow Projection and Verification Report, be reamortized as of each Remarketing Date, so as to change the amount of each subsequent installment of principal and interest to the amount necessary to amortize the then remaining principal balance of the Mortgage Note at an interest rate equal to the adjusted Mortgage Note Rate over a period of 360 months minus the number of months in which regularly scheduled monthly installments of principal and interest shall have become due commencing with the Amortization Commencement Date through the first day of the month immediately preceding such Remarketing Date, with the first such revised payment being due on the first day of the month in which such Remarketing Date occurs, provided, however, that all remaining indebtedness evidenced by the Mortgage Note, if not sooner paid, shall be due and payable on the Maturity Date, but, in any event, not later than the date set forth in the Mortgage Note. The Borrower shall not make any regularly scheduled payment of interest or principal and interest earlier than the date such payment is due. Mortgage Note Rate The Mortgage Note shall bear interest at the Mortgage Note Rate in effect from time to time, computed as described above. The Mortgage Note Rate comprises: (i) a fixed pass-through rate of interest (the "Pass-Through Rate"), which is the applicable fixed rate of interest per annum described below; and (ii) the Set Rate Interest described below. Pass-Through Rate. The Pass-Through Rate is, beginning on and including the Accrual Date to but not including the first day of the month immediately preceding the Initial Remarketing Date, the per annum rate set forth in the Mortgage Note, which Pass-Through Rate includes an amount, expressed as a percentage, sufficient to pay Third Party Fees to the extent included, in accordance with the Financing Agreement in, and payable out of, the Mortgage Note Rate, and thereafter, the Pass-Through Rate shall be equivalent to the Mortgage Note Rate in effect from time to time, as described above, minus Set Rate Interest. 01-503376.3 3 7 Set Rate Interest. Set Rate Interest comprises a percentage equivalent to the Facility Fee payable to the Credit Provider and the Servicing Fee payable to the Loan Servicer. Set Rate Interest accrues from and including the Accrual Date, to, but not including, the date the Mortgage Note is paid in full, and is payable on the first day of each month, in arrears, as part of the Mortgage Note Rate, to and including the date the Mortgage Note is paid in full. Set Rate Interest payable on the first day of each month to and including the date the Mortgage Note is paid in full, shall, as part of the Mortgage Note Rate, be paid to and received by the Loan Servicer, and retained by the Loan Servicer as to the Servicing Fee component of Set Rate Interest and remitted to the Credit Provider as to the Facility Fee component of Set Rate Interest. Remarketing Fees, Costs and Expenses At least seven (7) Business Days prior to each Remarketing Date, the Borrower shall pay to the Trustee an amount equal to the estimated fees, costs and expenses to be incurred in connection with the remarketing of the Bonds Outstanding on the Remarketing Date. In the event that the Borrower shall fail to pay the estimated remarketing fees, costs and expenses (or actual remarketing fees, costs and expenses in excess of such estimate as provided in the Mortgage Note) on or prior to the date such payment is due, such failure shall, at the option of the Loan Servicer or the Credit Provider, constitute a default under the Mortgage Note, in which event the then outstanding principal balance of the Mortgage Note, together with an additional amount equal to all interest on such principal balance which has accrued and has not been paid and all interest which would (if the amount so declared to be due were not paid) accrue on such principal balance to and including the first day of the month immediately following the month in which the amount so declared to be due is paid, and all other amounts then due and payable under the Mortgage Note, shall become immediately due and payable. Prepayment ALTHOUGH THE BORROWER MAY HAVE THE RIGHT TO PREPAY THE MORTGAGE LOAN IN ACCORDANCE WITH THE MORTGAGE NOTE, THE REIMBURSEMENT AGREEMENT MAY LIMIT THE BORROWER'S EXERCISE OF THESE RIGHTS WITHOUT THE WRITTEN CONSENT OF THE CREDIT PROVIDER OR DURING CERTAIN PERIODS. THE BORROWER MAY BE REQUIRED TO PAY A TERMINATION FEE TO THE CREDIT PROVIDER. PREPAYMENTS ARE SUBJECT TO LOAN SERVICING UNDER THE REIMBURSEMENT AGREEMENT. SEE THE REIMBURSEMENT AGREEMENT FOR ALL DETAILS. No prepayments, in whole or in part, are permitted prior to the last business day of the month set forth in the Mortgage Note, except (a) involuntary prepayments, (b) prepayments from (1) insurance proceeds or (2) the proceeds of any condemnation award, in either case, in connection with a special mandatory redemption of the Bonds, in whole or in part, pursuant to the Indenture, or (d) other prepayments expressly permitted or required by the Mortgage Note. On or after the last business day of the month set forth in the Mortgage Note, the Borrower may, at the option of the Borrower, voluntarily prepay the Mortgage Note, in whole, but not in part (it being understood and agreed that the right to optionally prepay the Mortgage Note other than with Available Moneys shall be subject to, and evidenced by, the prior written consent of the Credit Provider provided to the Trustee and the Loan Servicer). If the Bonds Outstanding are remarketed on a Remarketing Date (including the Initial Remarketing Date) for a term of not less than 10 years, the Borrower may, at the Borrower's option, make a voluntary prepayment of the outstanding principal balance of the Mortgage Note, in whole, but not in part, on the last Business Day of any month during the period beginning on the last Business Day of the 01-503376.3 3 8 second month preceding the seventh anniversary of the most recent Remarketing Date and ending on the last Business Day of the second month preceding the next scheduled Remarketing Date, upon payment of an amount equal to 100% of the principal amount to be prepaid together with accrued interest on such principal amount to the first day of the month following the date of such voluntary prepayment and any other sums due the Loan Servicer or the Credit Provider at the time of such voluntary prepayment (it being understood and agreed that the right to optionally prepay the Mortgage Note other than wholly with Available Moneys shall be subject to, and evidenced by, the prior written consent of the Credit Provider provided to the Trustee and the Loan Servicer). If the Bonds Outstanding are remarketed on a Remarketing Date (including the Initial Remarketing Date) for a term of more than 4 years but less than 10 years, the Borrower may, at the Borrower's option, make a voluntary prepayment of the outstanding principal balance of the Mortgage Note, in whole, but not in part, on the last Business Day of any month during the period beginning on the last Business Day of the second month preceding the second anniversary of the most recent Remarketing Date and ending on the last Business Day of the second month preceding the next scheduled Remarketing Date, upon payment of an amount equal to 100% of the principal amount to be prepaid together with accrued interest on such principal amount to the first day of the month following the date of such voluntary prepayment and any other sums due to the Loan Servicer or the Credit Provider at the time of such voluntary prepayment (it being understood and agreed that the right to optionally prepay the Mortgage Note other than wholly with Available Moneys shall be subject to, and evidenced by, the prior written consent of the Credit Provider provided to the Trustee and the Loan Servicer). If the Bonds Outstanding are remarketed on a Remarketing Date (including the Initial Remarketing Date) for a term of more than l year but less than 4 years, the Borrower may, at the Borrower's option, make a voluntary prepayment of the outstanding principal balance of the Mortgage Note, in whole, but not in part, on the last Business Day of any month during the period beginning on the last Business Day of the second month preceding the first anniversary of the most recent Remarketing Date and ending on the last Business Day of the second month preceding the next scheduled Remarketing Date, upon payment of an amount equal to 100% of the principal amount to be prepaid together with accrued interest on such principal amount to the first day of the month following the date of such voluntary prepayment and any other sums due the Loan Servicer or the Credit Provider at the time of such voluntary prepayment (it being understood and agreed that the right to optionally prepay the Mortgage Note other than wholly with Available Moneys shall be subject to, and evidenced by, the prior written consent of the Credit Provider provided to the Trustee and the Loan Servicer). If the Bonds Outstanding are remarketed for a term not exceeding 1 year, the Mortgage Note may not be voluntarily prepaid prior to the last Business Day of the second month preceding the next scheduled Remarketing Date. Notwithstanding any other provision of the Mortgage Note to the contrary, the Mortgage Note is, at the option and written direction of the Credit Provider (as holder of the Mortgage Loan Rights), subject to involuntary prepayment by the Borrower, at any time, in whole, upon acceleration of payment of the Mortgage Note or acceleration of the Bonds, or in whole or in part, in amounts sufficient, and in time, to pay, when due, the redemption price of Bonds to be redeemed or paid upon any special mandatory redemption of Bonds pursuant to the Indenture. If the Borrower makes a prepayment for any reason, including, without limitation, an optional prepayment, as permitted by the terms of the Mortgage Note, and an involuntary prepayment, the Borrower shall pay, in addition to paying the principal of the Mortgage Note to be prepaid, as an additional obligation under the Mortgage Note, the following: 01-503376.3 39 (i) all accrued and unpaid interest due on the Mortgage Note through the date of prepayment or, if the prepayment is in whole, all accrued and unpaid interest due on the Mortgage Note to the first day of the month following the date of prepayment; (ii) all other amounts due and payable under the Mortgage Loan Documents as of the date of prepayment including, but not limited to, all amounts which the Loan Servicer or the Credit Provider has advised the Borrower are due and payable at the time of such prepayment; (iii) any Termination Fee due under the Reimbursement Agreement; (iv) all other amounts due and payable upon such prepayment and the corresponding redemption of a corresponding principal amount of Bonds under the Bond Documents including premium, if any, payable to the Bondholders of the Bonds to be redeemed and interest to accrue on the principal amount of the Bonds to be redeemed to the date of redemption; and (v) an amount sufficient to pay all fees, costs and expenses in connection with such prepayment and redemption and, in the case of redemption in whole, to pay all other amounts payable under the Mortgage Note, the Indenture and the Financing Agreement. Acceleration Nonpayment. If any installment or other amount due under the Mortgage Note is not paid when due, the entire outstanding principal balance of the Mortgage Note and all accrued interest on such principal balance shall, at the direction of the Credit Provider, as holder of the Mortgage Loan Rights, or any successor in interest to the Credit Provider, at once become due and payable. Acceleration Relating to Remarketing. On each Remarketing Date, in the event (i) the Bonds cannot be remarketed for a term of ten years or more at or below the Strike Rate or the net operating income for the Mortgaged Property is less than at the original underwriting, and (ii) Credit Provider elects, as holder of the Mortgage Loan Rights, not to continue to provide credit enhancement for the Mortgage Loan, and liquidity support for the remarketing of the Bonds, the outstanding principal balance of the Mortgage Note shall become immediately due and payable at the direction of the Credit Provider, together with an additional amount equal to all interest on such principal balance which has accrued and has not been paid and all interest which would (if the amount so declared to be due were not paid) accrue on such principal balance to and including the final day of the month immediately following the month in which the amount so declared to be due is paid and all other amounts then due and payable under the Mortgage Note. Limits on Personal Liability Except as otherwise described under this heading or in any of the other Mortgage Loan Documents, the Borrower shall have no personal liability under the Mortgage Note, the Security Instrument or any other Mortgage Loan Document for the repayment of the Mortgage Note or for the performance of any other obligations of the Borrower under the Mortgage Loan Documents, and the Issuer's only recourse for the satisfaction of the Mortgage Note and the performance of such obligations shall be the Issuer's exercise of its rights and remedies with respect to the Mortgaged Property and any other collateral held by the Issuer as security for the Mortgage Note. This limitation on the Borrower's liability shall not limit or impair the Issuer's enforcement of its rights against any guarantor of the Mortgage Note or any guarantor of any other obligations of the Borrower. 01-503376.3 40 The Borrower shall be personally liable to the Issuer for the repayment of a portion of the Mortgage Note equal to any loss or damage suffered by the Issuer as a result of (1) failure of the Borrower to pay to the lssuer upon demand after an Event of Default under the Security Instrument, all Rents to which the Issuer is entitled under the Security Instrument and the amount of all security deposits collected by the Borrower from tenants then in residence; (2) failure of the Borrower to apply all insurance proceeds and condemnation proceeds as required by the Security Instrument; (3) failure of the Borrower to comply with certain provisions of the Security Instrument relating to the delivery of books and records, statements, schedules and reports; (4) fraud or written material misrepresentation by the Borrower, Key Principal or any officer, director, partner, member or employee of the Borrower in connection with the application for or creation of the Mortgage Loan or any request for any action or consent by the Issuer; or (5) failure to apply Rents and Profits, first, to the payment of reasonable operating expenses (other than Mortgaged Property management fees that are not currently payable pursuant to the terms of an Assignment of Management Agreement or any other agreement with the Issuer executed in connection with the Mortgage Loan) and then to amounts ("Debt Service Amounts") payable under the Mortgage Note, the Security Instrument or any other Mortgage Loan Document (except that the Borrower will not be personally liable (i) to the extent that the Borrower lacks the legal right to direct the disbursement of such sums because of a bankruptcy, receivership or similar judicial proceeding, or (ii) with respect to Rents and Profits that are distributed in any calendar year if the Borrower has paid all operating expenses and Debt Service Amounts for that calendar year). The Borrower shall become personally liable to the Issuer for the repayment of all of the principal of and interest on the Mortgage Note and for the payment, performance and observation of all obligations, covenants and agreements of the Borrower contained in the Security Instrument, including the payment of all sums advanced by or on behalf of Issuer to protect the security of the Security Instrument under the Security Instrument, upon the occurrence of any of the following Events of Default: (1) the Borrower's acquisition of any property or operation of any business not permitted by the Security Instrument; or (2) a Transfer (as that term is defined in the Security Instrument) that is an Event of Default under the Security Instrument. To the extent that the Borrower has personal liability as described under this heading, the Issuer may exercise its rights against the Borrower personally without regard to whether the Issuer has exercised any rights against the Mortgaged Property or any other security, or pursued any rights against any guarantor, or pursued any other rights available to the Issuer under the Mortgage Note, the Security Instrument, any other Mortgage Loan Document or applicable law. If the Borrower is a married person, then the Borrower agrees that Issuer may look to all of the Borrower's community property and separate property to satisfy the Borrower's recourse obligations described under this heading. Events of Default The failure by the Borrower to pay when due any amount payable by the Borrower under the Mortgage Note or to perform or observe any covenant or obligation of the Borrower contained in the Mortgage Note, the Security Instrument or any other Mortgage Loan Document shall, at the option of the Credit Provider (as holder of the Mortgage Loan Rights), constitute an "Event of Default" under the Mortgage Note, whatever the reason for such failure and whether it shall be voluntary or involuntary, or within or without the control of the Borrower, or be impeded by operation of law or by any judgment or order of any court or any order, rule or regulation of any governmental body. Cross Default A default by the Borrower in the payment or performance of any obligation of the Borrower contained in (a) any of the Bond Documents, (b) any of the other Mortgage Loan Documents, (c) the 01o503376.3 41 Reimbursement Agreement, (d) any subordinate financing, (e) the Regulatory Agreement or any other regulatory or restrictive agreement recorded against the Mortgaged Property in connection with the allocation to the Mortgaged Property of federal low income housing tax credits, or (f) any form of public, quasi-public, public/private or private debt and/or equity infusion, grant, subsidy, tax relief or abatement, plan program or other form of assistance, not cured within any applicable cure period, shall, at the option of the Credit Provider (as holder of the Mortgage Loan Rights), constitute a default under the Mortgage Note, the Security Instrument and each of the other Mortgage Loan Documents and entitle the Credit Provider (as holder of the Mortgage Loan Rights), at its option, in its discretion, to direct or invoke any remedies set forth in the Mortgage Note, including, but not limited to, any remedy set forth in the Mortgage Note or as otherwise afforded by law or in equity. A default under the Mortgage Note shall, at the Credit Provider's option, in the Credit Provider's discretion, constitute a default under the Reimbursement Agreement. Certain Defaults The Borrower has acknowledged and agreed that any default by the Borrower under or violation of the provisions of the Regulatory Agreement, or any failure of the Borrower to perform any obligation, covenant or agreement or breach of any covenant, agreement or warranty contained in the Regulatory Agreement, not cured within any applicable cure period, shall constitute a default by the Borrower under the Mortgage Note and the Security Instrument and, at the option of the Credit Provider (as holder of the Mortgage Loan Rights), the entire outstanding principal balance, accrued interest and any other sums due under the Mortgage Note shall become immediately due and payable in full. The Borrower has further acknowledged and agreed that, (a) a default under or violation of the provisions of (1) the City Note (the "Subordinate City Note") executed by the Borrower to the order of the City of Chula Vista ("City") in the original principal amount of $1,500,000, evidencing a loan made by City to the Borrower in the original principal amount of $1,500,000 (the "Subordinate City Loan"), (2) the City Deed of Trust and Security Agreement (the "Subordinate City Security Instrument") executed by the Borrower to secure the Subordinate City Note, (3) the City Loan Agreement (the "Subordinate City Loan Agreement") or (4) the Regulatory Agreement and Declaration of Restrictive Covenants (the "Subordinate City Regulatory Agreement") by and between the Borrower and the City entered into with respect to the Subordinate City Loan (the Subordinate City Note, the Subordinate City Security Instrument, the Subordinate City Loan Agreement, the Subordinate City Regulatory Agreement and all other instruments documenting, evidencing and securing the Subordinate City Loan are referred to, collectively, as the "Subordinate City Loan Documents"), (b) any failure of the Borrower to perform any obligation, covenant or agreement, or breach of any covenant, agreement or warranty, contained in the Subordinate City Loan Documents, or (c) any failure of the Borrower to perform any obligation, covenant or agreement or breach by the Borrower of any covenant, agreement or warranty contained in, or the exercise by the City of any rights in violation of, any subordination agreement entered into with respect to the Subordinate City Loan (collectively, the "Subordination Agreements"), which is not cured within any applicable cure period, shall constitute a default under the Mortgage Note and the security instrument and entitle the Credit Provider, (as holder of the mortgage loan rights), at its option, in its discretion, to direct or invoke any remedies available to it at law or in equity, including but not limited to, the remedy of acceleration set forth in the Mortgage Note. Any and all amounts advanced or expended by the Loan Servicer or by the Credit Provider, at their respective options, to cure a default under the Subordinate City Loan Documents or otherwise to pay any fees or fulfill any other payment obligation of the Borrower shall be deemed to have been advanced pursuant to and shall become additional indebtedness of the Borrower under and secured by the lien of the Security Instrument. 01-503376.3 42 Tax Event Thc occurrence of a Tax Event shall, at the option of the Credit Provider, in its sole and absolute discretion, constitute a default under the Mortgage Note. THE LOAN SERVICER The information under this heading has been provided solely by the £oan Servicer and has not been independently veri~ed by the Issuer, the Borrower, the Underwriter, the Remarketing Agent, Provident Bank, FH£B, Fannie Mae or any of their respective counsel, members, o~icers or employees. No representation whatsoever as to the accuracy, adequacy or completeness of such information is made by the Issuer, the Borrower, the Underwriter, the Remarkeling Agent, Provident Bank, FH£B, Fannie Mae or any o/their respective counsel, members, officers or employees. Red Mortgage Capital, Inc. (the "Loan Servicer"), an Ohio corporation, is a mortgage banking firm specializing in FHA-insured construction and permanent mortgage loans, Fannie Mae forward commitments and permanent mortgage loans, and both Fannie Mae and FHA bond credit enhancements for multifamily and seniors housing projects across the United States. The Loan Servicer also is approved by GNMA to issue modified pass-through securities. Thc Loan Servicer is one of thc most active FHA mortgagees and GNMA issuers for HUD insured project loans and one of the top Fannie Mac DUS lenders (by annual volume) in the country. As of June 30, 2003, the Loan Servicer serviced more than 800 multifamily and seniors housing project loans aggregating nearly $5 billion, including 268 FHA-insured mortgage loans totaling approximately $1.1 billion and 456 Fannie Mae mortgage loans totaling approximately $3.5 billion. Beginning on the date of Loan Conversion, if it occurs, the Loan Servicer will perform mortgage-servicing functions with respect to the Mortgage Loan on behalf of and in accordance with Fannie Mae requirements. The servicing arrangements between Fannie Mae and the Loan Servicer for the servicing of the Mortgage Loan are solely between Fannie Mae and the Loan Servicer, and neither the lssuer nor the Trustee is deemed to be party thereto or has any claim, right, obligation, duty or liability with respect to the servicing of the Mortgage Loan. The Loan Servicer will be obligated, pursuant to its arrangements with Fannie Mae and Fannie Mac's servicing requirements, to perform diligently all services and duties customary to the servicing of mortgages, as well as those specifically prescribed by Fannie Mae. Fannie Mae will monitor the Loan Servicer's performance and has the right to remove the Loan Servicer with or without cause. The duties performed by the Loan Servicer include general loan servicing responsibilities, collection and remittance of principal and interest payments, administration of mortgage escrow accounts and collection of insurance claims. The selection (or replacement) of the Loan Servicer is in the sole and absolute discretion of Fannie Mae. The servicing arrangements between the Loan Servicer and Fannie Mae are subject to amendment or termination from time to time without the consent of the Issuer, the Trustee or the Borrower, and none of the Trustee, the lssuer or the Borrower have any rights under, and none is a third-party beneficiary of, the servicing arrangements between the Loan Servicer and Fannie Mae. The Loan Servicer is an approved DUS seller/servicer under Fannie Mae's Delegated Underwriting and Servicing product line. 01-503376.3 43 The Loan Servicer makes no representation as to the contents of this Official Statement, the suitability of the Bonds for any investor, the feasibility of performance of the Project or compliance with any securities, tax or other laws or regulations. The Loan Servicer's role is limited to underwriting and servicing the Mortgage Loan. TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ("Bond Counsel"), under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, interest on the Bonds is excludable from gross income for federal income tax purposes, except for interest on any Bond for any period during which such Bond is held by a "substantial user" of any facilities financed with the proceeds of the Bonds or by a "related person" as such terms am used in Section 147(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Bonds is an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. Bond Counsel is also of the opinion that interest on the Bonds is exempt from State of California personal income tax. A complete copy of the proposed form of the opinion of Bond Counsel is set forth in Appendix F hereto. The opinions expressed by Bond Counsel are based on an analysis of existing statutes, regulations, rulings and judicial decisions. Such opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine or to inform any person, whether any such actions or events are taken or do occur. The Indenture, the Financing Agreement, the Regulatory Agreement, and the Tax Certificate permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the exclusion from gross income for federal income tax purposes of interest on any Bond if any such action is taken of omitted based upon the opinion or advice of counsel other than Stradling Yocca Carlson & Rauth. Additionally, Bond Counsel's opinions are based upon certain representations made by the Issuer and others and are subject to the condition that the Issuer and the Borrower comply with certain covenants and the requirements of the Code and Regulations that must be satisfied subsequent to the issuance of the Bonds to assure that interest on the Bonds will remain excludable from gross income for federal income tax purposes. Failure to comply with such requirements may cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The Issuer and the Borrower each have covenanted to comply with all such requirements. Although Bond Counsel has rendered an opinion that interest on the Bonds is excluded from gross income for federal income tax purposes, as described above, the ownership of the Bonds and the accrual or receipt of interest on the Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, all potential purchasers of the Bonds should consult their tax advisors before purchasing any of the Bonds with respect to collateral tax consequences. NO LITIGATION The Issuer There is, to the best knowledge of the Issuer, no action, suit or proceeding known to be pending or threatened, restraining or enjoining the execution or delivery of the Bonds, the Indentures, the 01-503376.3 44 Financing Agreements, the Regulatory Agreement, the Credit Facilities or in any way contesting or affecting the validity of the foregoing or the Bond Resolution. The Borrower There is not now pending or threatened any proceeding or litigation against the Borrower affecting the ability of the Borrower to enter into or deliver the Financing Agreements, the Regulatory Agreement, the Mortgage Note, the Security Instruments or any other Mortgage Loan documents, seeking to restrain or enjoin the Borrower's participation in the transactions, or contesting the existence or powers of the Borrower with respect to the transactions described in this Official Statement. ENFORCEABILITY OF REMEDIES The remedies available to the Trustee and the Owners of the Bonds upon an Event of Default under the Financing Agreements, the Regulatory Agreement or the Indentures are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, including specifically the Federal Bankruptcy Code (Title 11 of the United States Code), the remedies provided for under the Federal Bankruptcy Code, the Financing Agreements, the Regulatory Agreement or the Indentures may not be readily available or may be limited. In addition, the Financing Agreement and thc Regulatory Agreement provide that the obligations of the Borrower contained in such agreements (other than certain obligations to the Issuer and the Trustee individually and not on behalf of the Owners of the Bonds) will be limited obligations payable solely from the income and assets of the Borrower and that no general or limited partner of the Borrower will have any personal liability for the satisfaction of any obligation of the Borrower under such agreements or of any claim against the Borrower arising out of such agreements or the Indentures. The various legal opinions to be delivered in connection with the delivery of the Bonds, the Indentures, the Financing Agreements, the Regulatory Agreement and the Security Instruments will be qualified to the extent that the enforceability of certain legal rights related to the Bonds, the Indentures, the Financing Agreements and the Regulatory Agreement are subject to limitations imposed by such things as the exercise of judicial discretion in accordance with general principles of equity (whether applied by a court of law or a court of equity), including judicial limitations on rights to specific performance and bankruptcy, insolvency, reorganization. The Issuer has consented to the distribution of this Official Statement by the Underwriter to prospective purchasers of the Bonds, and this Official Statement has been approved by the Borrower (as to the portions thereof relating to the Borrower and the Project, including restrictions thereon) for distribution by the Underwriter to prospective purchasers of the Bonds. CONTINUING DISCLOSURE The Borrower will enter into a Continuing Disclosure Agreement with the Trustee, dated as of the date of the Initial Indenture (the "Disclosure Agreement"), obligating the Borrower to send, or cause to be sent, certain financial information with respect to the Project to certain information repositories annually and to provide notice, or cause notice to be provided, to the Municipal Securities Rulemaking Board and a state information repository, if any, of certain enumerated events for the benefit of the Beneficial Owners and Holders of any of the Bonds, in order to allow the Underwriter to meet the requirements of Section (b)(5)(i) of Securities Exchange Commission Rule 15c2-12, as amended (the "Rule"). A failure by the Borrower to comply with the provisions of the Disclosure Agreement will not constitute a default under the Indenture or Financing Agreement (although Bondholders will have any O1-503376.3 45 available remedy at law or in equity for obtaining necessary disclosures). Nevertheless, such a failure to comply is required to be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds. The form of the Disclosure Agreement is attached hereto as Appendix G. VERIFICATION OF CASH FLOWS AND SUFFICIENCY OF CASH FLOW The following disclosure relates only to the period beginning with Loan Conversion, if it occurs. The mathematical accuracy of certain computations included in the schedules provided by the Underwriter on behalf of the Issuer relating to the computation of cash flows for the projected payments of principal and interest in the Mortgage Loan and the sufficiency of such payments together with certain amounts held under the Indenture for the payment of the principal of and interest on the Bonds and certain fees will, at Loan Conversion, be verified by Causey Demgen & Moore Inc. (the "Verification Agent"). The Verification Agent has restricted its procedures to verifying information on which the computations are based and, accordingly, has not expressed an opinion on thc data used, the reasonableness of the assumptions or the achievability of the projected outcome. Fannie Mae does not guarantee the payment of the principal of, premium, if any, or interest on, the Bonds or the return on any investment. The interest rate on the Mortgage Loan has been established at a rate such that payments on the Mortgage Loan and any interest earned on such payments during the period they are on deposit with the Trustee are expected by the Borrower, on the basis of a Cash Flow Projection prepared by Red Capital Markets, Inc. and verified by the Verification Agent, to be sufficient to pay the principal of and interest on the Bonds, the Servicing Fee of the Loan Servicer, the Fannie Mae Facility Fee and Third Party Fees (to the extent included in the Mortgage Note Rate). The Cash Flow Projection takes into consideration the projected investment earnings in certain moneys on deposit in various Funds and Accounts under the Indenture. In the event that the investment earnings on any investment is less than the return anticipated in the Cash Flow Projections or if there is an error in the Cash Flow Projections, there may not be sufficient amounts available to pay the principal of and interest on the Bonds. This could result in a payment default in the Bonds even though there is no default under the Mortgage Loan or under the Credit Facility. Fannie Mae has no obligation to fund any such shortfall. The remedies of the Trustee are limited in this event. Fannie Mae has not prepared, reviewed or verified, makes no representation or warranty with respect to, does not certify to, and assumes no responsibility or liability for, any Cash Flow Projection or Verification Report, the calculations used in any Cash Flow Projection, the assumptions used in making such calculations, the mathematical accuracy of such calculations or the sufficiency of any payments (and any projected investment income) based on any Cash Flow Projection to pay the principal of and interest on the Bonds when due, any fees, including any Third Party Fees, when due, or any other amounts at any time. RATING Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. (the "Rating Agency") has assigned the rating set forth on the cover hereof to the Bonds. Any desired explanation of the significance of the rating should be obtained from the Rating Agency. Certain information and materials not included in this Official Statement were furnished to the Rating Agency. Generally, rating agencies base their ratings on the information and materials so furnished and on investigations, studies and assumptions by the rating agencies. The rating is not a recommendation to buy, sell or hold the Bonds. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the Rating Agency originally establishing the rating, circumstances so warrant. Neither the Underwriter nor the 01-503376.3 46 Issuer has undertaken responsibility either to bring to the attention of the registered Owner of the Bonds any proposed revision or withdrawal of the rating of the Bonds or to oppose any such proposed revision or withdrawal. Any such change in or withdrawal of such rating could have an adverse effect on the market price of the Bonds ifa registered Owner attempts to sell the same. UNDERWRITING Red Capital Markets, Inc. (the "Underwriter") has agreed to purchase the Bonds at a price equal to % of the principal amount thereof pursuant to the Bond Purchase Agreement by and among the Issuer, the Underwriter and the Borrower. The Underwriter will be paid an underwriter's fee equal to % of the aggregate principal amount of the Bonds, plus reimbursement for certain expenses. From such fee, the Underwriter will pay certain fees and expenses in connection with the sale of the Bonds. The initial public offering prices may be changed from time to time by the Underwriter. The Under~vriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) and certain dealer banks and banks acting as agents at prices lower than the public offering price stated on the cover of this Official Statement. CERTAIN LEGAL MATTERS Certain legal matters relating to the authorization and validity of the Bonds will be subject to the approving opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, which will be furnished at the expense of the Borrower upon delivery of the Bonds in substantially the form set forth as Appendix F (the "Bond Opinion"). In connection with the initial issuance of the Bonds, certain legal matters will be passed upon for the Issuer by the City Attorney, for the Initial Credit Provider by its in-house counsel, for the Initial Standby Credit Provider by Taft, Stettinius & Hollister LLP, Cincinnati, Ohio, for the Borrower by Pillsbury Winthrop LLP, San Francisco, California, and for the Underwriter by Kutak Rock LLP. In connection with Loan Conversion, if it occurs, certain legal matters will be passed upon for the Permanent Credit Provider by its legal department and by its special counsel, O'Melveny & Myers LLP. Payment of the fees of certain above-mentioned parties is contingent upon the closing of the Bonds. MULTIPLE ROLES Several entities of Red Capital Group and its parent, Provident Financial Group, have various roles in the planned financing of the Project. Red Capital Markets, Inc. will act as the tax credit syndicator, Underwriter and Remarketing Agent. Provident Community Development Company, LLC will be the construction lender, will provide the investment agreement pursuant to which amounts in the Program Fund are invested and will be the general partner of the limited partner of the Borrower. Provident Bank will provide the Initial Credit Facility. After Loan Conversion, if it occurs, Red Mortgage Capital, Inc. will be the Fannie Mae DUS lender and servicer on the transaction. MISCELLANEOUS This Official Statement is submitted in connection with the sale of the securities referred to herein and may not be reproduced or used, as a whole or in part, for any other purpose. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such 01-503376.3 47 and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Issuer and the purchasers or Owners of any of the Bonds. The use of this Official Statement has been approved by the Issuer and the Borrower. [Remainder of Page Left Blank Intentionally] 01-503376.3 48 [Issuer's Signature Page to the Official Statement] HOUSING AUTHORITY OF THE CITY OF CHULA VISTA By Its Executive Director 01-503376.3 S- ! [Borrower's signature page to Official Statement] CIC EASTLAKE, L.P., a California Limited Partnership By: PACIFIC SOUTHWEST COMMUNITY DEVELOPMENT CORPORATION, a California non-profit public benefit corporation, its Managing General Partner By Brian F. Biber, Executive Director/President By: SDS EASTLAKE, LLC, a California limited liability company, its Co-General Partner By James J. Schmid, Manager 01-503376.3 S-2 APPENDIX A-1 CERTAIN DEFINITIONS PRIOR TO LOAN CONVERSION The following summary of the definitions contained in the various documents entered into with respect to the Bonds relates only to the period beginning on the date of issuance of the Bonds and continuing through Loan Conversion, if it occurs. After Loan Conversion, if it occurs, this description is of no force or effect. A summary of the definitions contained in the various documents entered into with respect to the Bonds after Loan Conversion, if it occurs, is set forth in Appendix A-2 hereto. Furthermore, the following is only a summary and does not purport to be a complete statement of the defined terms contained in the various documents entered into with respect to the Bonds. Reference is made to the full text of the documents' herein described for the complete terms thereof References in this Appendix to the Indenture, the Financing Agreement, the Reimbursement Agreement and the Credit Provider will be references to the Initial Indenture, the Initial Financing Agreement, the Initial Reimbursement Agreement and the Initial Credit Provider, respectively. "Acceleration Default" shall mean an Event of Default under the Financing Agreement described in paragraph (a) under the heading "Events of Default and Remedies--Events of Default" in Appendix D-I hereto. "Act of Bankruptcy" shall mean the filing of a petition in bankruptcy (or other commencement of a bankruptcy or similar proceeding) by or against the Borrower and/or a general partner of the Borrower, under any applicable bankruptcy, insolvency or similar law as now or hereafter in effect, provided that any filing of a petition against the Borrower or any general partner of the Borrower (or other involuntary commencement of a bankruptcy or similar proceeding), shall not constitute an Act of Bankruptcy if a court of competent jurisdiction dismisses such petition (or such proceeding) within 60 days of the filing thereofi "Act of Bankruptcy of the Credit Provider" shall mean the closing, liquidation, insolvency or bankruptcy of the Credit Provider, or its failure to pay its debts generally as such debts become due (including its obligations to pay draws made on the Credit Facility) or its admission in writing of its inability to pay any of its indebtedness or its consent to appointment of a receiver, liquidator, trustee or similar official for itself or for all or any substantial part of its properties or assets or the appointment of any such trustee, receiver, liquidator or similar official or the institution of insolvency, reorganization, arrangement or liquidation proceedings (or similar proceedings) by or against the Credit Provider, unless the appropriate regulatory agency has confirmed in writing the effectiveness of the Credit Facility. "Administrator" shall mean the Issuer, or a substitute or replacement administrator, if any, appointed by the Issuer, in any case acting as agent of the Issuer in the administration of the Regulatory Agreement, and may include the Issuer or the Credit Provider. "Agents" shall mean the Remarketing Agent, the Tender Agent and any paying agents under the Indenture. "Authorized Denominations" mean $5,000 and any integral multiple thereof (provided, one Bond may be an integral multiple of $6,000 in excess thereof). 01-503376.3 "Available Amounts" shall mean moneys that are (a) continuously on deposit with the Trustee in trust for the benefit of the owners of the Bonds in a separate and segregated account in which only Available Amounts are held and (b) any of the following: (i) amounts drawn under the Credit Facility, (ii) amounts drawn under the Initial Standby Credit Facility, (iii) proceeds of sale of the Bonds received contemporaneously with the issuance and sale of the Bonds, (iv) proceeds of the remarketing of the Bonds, (v) any other amounts for which in each case the Trustee has received, at the time such amounts are deposited with the Trustee, an opinion of nationally recognized counsel experienced in bankruptcy matters or Bond Counsel to the effect that the use of such amounts to make payments on the Bonds would not he voidable as preferential payments or recoverable under the United States Bankruptcy Code should the Issuer, the Borrower or any general partner of the Borrower become a debtor in proceedings commenced thereunder and (vi) income from the investment of any of the foregoing. "Bond Counsel" shall mean any attorney at law or firm of attorneys selected by the Issuer, of nationally recognized standing in matters pertaining to the federal tax exemption of interest on bonds issued by states and political subdivisions, and duly admitted to practice la~v before the highest court of any state of the United States of America or the District of Columbia, but shall not include counsel for the Borrower or the Credit Provider. "Bond Fund" shall mean the fund established pursuant to the Indenture. "Bond Pledge Agreement" shall meant the Pledge and Security Agreement dated as of the date of the Indenture, by and among the Borrower, the Trustee and the Credit Provider, as amended, restated or supplemented and any similar document with the issuer of any substitute Credit Facility or other credit instrument. "Bond Year" shall mean the period of 12 consecutive months ending on the last day of [May] in each year in which Bonds are or will be Outstanding, provided that the first Bond Year shall commence on the Closing Date and end on the date set forth in the Indenture. "Business Day" shall mean any day, not including Saturday or Sunday, on which banks in the City of New York, New York, banks and trust companies in the city in which the Principal Office of the Trustee is located and banks in the city in which the Principal Office of the Credit Provider is located are not required or authorized by law to remain closed and on which the New York Stock Exchange is not closed. "Closing Date" shall mean the date of initial issuance and delivery of the Bonds. "Code" shall mean the Internal Revenue Code of 1986 as in effect on the date of issuance of the Bonds or (except as otherwise referenced in the Indenture) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable temporary and final regulations promulgated, and applicable official public guidance published, under the Code. "Collateral and Construction Loan Documents" means all documents executed with respect to the loan made by PCDC to the Borrower pursuant to that certain Collateral Loan and Financing Agreement, dated the Closing Date, by and between the Borrower and PCDC, and with respect to the Loan made by PCDC to the Borrower pursuant to the Loan and Financing Agreement, dated as of the Closing Date, by and between the Borrower and PCDC. "Collateral Funds" shall mean any amounts realized by the Trustee from the liquidation of Eligible Collateral. 01-503376.3 A- 1-2 "Completion Date" shall mean or such later date determined pursuant to the Indenture as described under the heading "Program Fund" in Appendix B-1 hereto. "Construction Phase Investment Agreement" means the Investment Agreement dated as of the Closing Date between the Trustee and the Investment Agreement Provider pursuant to which the Bond Proceeds are invested prior to Loan Conversion. "Conversion" shall mean establishment of the interest rate on the Bonds at the Fixed Rate, pursuant to the Indenture. "Costs of Issuance Fund' means the fund established pursuant to the Indenture. "Conversion Date" shall mean the date on which the Fixed Rate becomes effective with respect to the Bonds. "Daily Mode" shall mean any period during which the interest rate on the Bonds is reset on each Business Day, as provided in the Indenture. "Debt Service" means the scheduled amount of interest and amortization of principal payable on the Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. "Demand Date" shall mean any date on which any Bond is required to be purchased pursuant to the Indenture. "Determination of Taxability" shall mean (a) the failure of the Credit Provider or the Borrower to consent within 45 days to any amendment to the Indenture, the Financing Agreement or the Regulatory Agreement, which in the written opinion of Bond Counsel is necessary to preserve the exclusion from gross income for federal income tax purposes of interest on the Bonds, or (b) the enactment of legislation or a final judgment or order of a court of original jurisdiction, a final order of any other court of competent jurisdiction, or a final ruling or decision of the Internal Revenue Service, in any such case to the effect that the interest on the Bonds (other than interest on any Bond for any period during which such Bond is held by a "substantial user" of any facility financed with the proceeds of the Bonds or a "related person," as such terms are used in Section 147(a) of the Code) is includable for federal income tax purposes in the gross income of all recipients thereof subject to federal income taxes. With respect to clause (b) above, a judgment or order of a court or a ruling or decision of the Internal Revenue Service shall be considered final only if no appeal or action for judicial review has been filed and the time for filing such appeal or action has expired. "Eligible Collateral" shall mean cash, noncallable Government Obligations maturing on or prior to the applicable Interest Payment Dates or other collateral, which shall be rated "AAA" (or the equivalent) by the Rating Agency, which collateral may be provided pursuant to a collateral pledge agreement acceptable to the Issuer and the Rating Agency. "Event of Default" as used in the Indenture other than with respect to defaults under the Financing Agreement shall have the meaning specified under the heading "Default--Events of Default; Acceleration; Waiver of Default" in Appendix B-1 hereto, and as used in the Financing Agreement shall have the meaning specified under the heading "Events of Default and Remedies--Events of Default" in Appendix D-I hereto. 01-503376.3 A- 1-3 "Fair Market Value" shall mean the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's-length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (a) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (b) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (c) the investment is a United States Treasury Security-State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (d) the investment is the Local Agency Investment Fund, but only if at all times during which the investment is held its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States. The Trustee shall have no duty in connection with the determination of Fair Market Value other than to follow the investment directions of the Borrower in any written direction of the Borrower. "Fixed Rate" shall mean the interest rate borne by the Bonds after Conversion and until the maturity date of the Bonds, determined in accordance with the Indenture. "Government Obligations" shall mean noncallable and nonprepayable direct obligations of the United States of America or obligations which as to full and timely payment of principal and interest constitute full faith and credit obligations of the United States of America (excluding therefrom unit investment trusts and money market funds comprised of such securities). "holder" or "Bondholder" or "owner" shall mean the person in whose name any Bond is registered. "Inducement Date" shall have the meaning set forth in the Tax Certificate. "Information Services" shall mean Financial Information, Inc. "Daily Called Bond Service," 10th Floor, 30 Montgomery Street, Jersey City, Ne~v Jersey 07302, Attention: Editor; Kenny Information Services, "Called Bond Service," 28th Floor, 55 Broad Street, New York, New York 10004; Moody's Investors Service "Municipal and Government," 8th Floor, 99 Church Street, New York, New York 10007, Attention: Municipal News Repons; and Standard & Poor's Ratings Group "Called Bond Record," 55 Water, New York, New York 10004; or, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds, or any other such services as the Issuer may designate in writing to the Trustee. "Interest Payment Date" shall mean, while the Bonds bear interest at a Reset Rate or the Fixed Rate, the interest payment dates identified on the cover hereof. "Interest Period'' shall mean each period commencing on an Interest Payment Date and ending on the day before the next succeeding Interest Payment Date, except that the first Interest Period shall begin on the Closing Date and shall end on the day before the first Interest Payment Date. "Investment Property" shall mean any security (as said term is defined in Section 165(g)(2)(A) or (B) of the Code), obligation, annuity or investment-type property, excluding, however, obligations the interest on which is excluded from gross income under Section 103 of the Code. 01-503376.3 A- 1-4 "Investment Securities" shall mean any of the following (including any funds comprised of any of the following, which may be funds maintained, available to or managed by the Trustee or its affiliates and which are rated in the highest rating category by the Rating Agency): (a) United States Treasury notes bonds, b s or certificates of indebtedness, or those for which the full faith and credit of the United States are pledged for the full and timely payment of principal and interest (including state and local government series); (b) obligations, participation or other instruments of or issued by a federal agency or a United States government-sponsored enterprise, the principal of and interest on which is unconditionally guaranteed by the United States; (c) any obligations on which the interest is exempt from federal income taxation and which are rated by the Rating Agency in one of its two highest long-Term rating categories or its highest short-Term rating category; (d) certificates of deposit issued by, or time or demand deposits or other banking arrangements with, a nationally- or state-chartered bank (including the Credit Provider, the Initial Standby Credit Provider and the Trustee or its affiliates) or savings and loan association which, to the extent they arc not insured by federal deposit insurance, are collateralized by securities eligible to secure public deposits in the state, or which are issued by or with such an institution having a minimum capital of $500,000,000 and rated within the top two ratings of a nationally recognized rating service; (e) money market portfolios rated "AAA" by the Rating Agency; (f) rcpurchase agreements, which may include repurchase agreements of the Trustee, securcd by any of the obligations referred to in (a) and (b) above and the debt of the issuer of the repurchase agreement is rated at least in one of two highest rating categories of the Rating Agency; (g) any other investments selected by the Borrower and approved by the Credit Provider, the unsecured general obligations of the provider of which are rated at least in one of the two highest rating categories of the Rating Agency and (h)the Construction Phase Investment Agreement. "Issuance Costs" shall mean all costs and expenses of issuance of the Bonds including, but not limited to: (a) underwriters' fees; (b) counsel fees, including Bond Counsel, underwriters' counsel, Borrower's counsel and Issuer attorneys' fees, as well as any other specialized counsel fees incurred in connection with the borrowing; (c) the Issuer fees and expenses incurred in connection with the issuance of the Bonds; (d) Rating Agency fees; (e) initial Trustee's fees and Trustee's counsel fees, and initial fees of the Remarketing Agent and Tender Agent; (f) paying agent and certifying and authenticating agent fees related to issuance of the Bonds; (g) accountant fees rclated to issuance of the Bonds; (h) printing costs of the Bonds and of the preliminary and final official statement; and (i) publication costs associated with the financing proceedings. "Issuer Fee" shall mean the annual fee payable to the Issuer pursuant to the Financing Agreement. "Issuer Loan Documents" shall mean the Financing Agreement, the Regulatory Agreement, the Credit Facility and the Security Instrument and such other agreements and instruments executed for the purpose of granting the Issuer or the Trustee a senior lien upon the Project. "Market Risk Event" shall mean (a)(i) legislation enacted by the Congress, or (ii) a decision rendercd by a court established under Article III of the Constitution of the United States, or the United States Tax Court, or (iii) an order, ruling or rcgulation issued by the United States Department of the Treasury or the Internal Revenue Service, with the purpose or effect, dircctly or indircctly, of causing interest on the Bonds to be includable in the gross income of the holders thereof for purposes of federal income taxation; or (b) legislation enacted or any action taken by the Securities and Exchange Commission which, in the opinion of counsel to the Remarketing Agent, has the effect of requiring the remarketing of the Bonds to be rcgistercd under the Securities Act of 1933, as amended (the "Securities Act"), or any other "security," as defined in the Securities Act, issued in connection with or as part of the remarketing of the Bonds to be so registered or the Indenture to be qualified as an indenture under the Trust Indenture Act of 1939, as amended; or any event shall have occurred or shall exist which, in the reasonable judgment of the Remarketing Agent, makes or has made untrue or incorrect in any material respect any statement or information contained in any reoffering circular distributed in connection with the next succeeding Reset Date or the Conversion or is not or was not reflected in such reoffering circular but should be or should have been reflected therein in order to make the statements or information contained therein not misleading in any material respect; or (c) in the reasonable judgment of the Remarketing Agent, any event which makes it impractical or inadvisable for the Remarketing Agent to remarket or enforce agreements to remarket Bonds because (i) trading in securities generally shall have been suspended on the New York Stock Exchange, Inc., or a general banking moratorium shall have been established by federal, New York or State of California authorities or (ii) the State of New York or the State of California shall have taken any action, whether administrative, legislative, judicial or otherwise which materially and adversely affects the Remarketing Agent's ability to remarket the Bonds or (iii) a war involving the United States or other national calamity shall have occurred. "Maximum Interest Rate" shall mean the lesser of 12% or any maximum rate permitted by law (as set forth in an Opinion of Counsel) to be paid on the Bonds or to be charged on the Mortgage Loan. "Net Proceeds," when used with respect to any insurance proceeds or condemnation award, shall mean the amount remaining after deducting from the gross proceeds thereof all expenses (including attorneys' fees) incurred in the collection of such proceeds or award and, when used with respect to the Bonds, means the proceeds of the Bonds received by or for the Issuer on the Closing Date, less amounts, if any, used to pay Issuance Costs. "Nonpurpose Obligation" shall mean any Investment Property which is acquired with the Gross Proceeds of the Bonds other than the Mortgage Loan. "Opinion of Counsel' shall mean a written opinion of counsel in form and substance satisfactory to the Credit Provider, which counsel shall not be unsatisfactory to the Credit Provider and, may be counsel for the Issuer or Bond Counsel or counsel for the Trustee or counsel for the Borrower. "Original Purchaser" shall mean the purchaser or purchasers of the Bonds from the Issuer on the Closing Date. "Outstanding," when used as of any particular time with reference to Bonds, shall mean, subject to the provisions of the Indenture, all Bonds which have been authenticated and delivered by the Trustee or the Tender Agent under the Indenture except: (a) Bonds which have been cancelled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds for the payment or redemption of which moneys or securities in the necessary amount (as provided in the Indenture) have been deposited with the Trustee (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in provided in the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice; and (c) Bonds in lieu of or'in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the terms of the Indenture. "person" shall mean an individual, a corporation, a partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof. 01-503376.3 A-l-6 "Pledged Bonds" shall mean Bonds purchased by the Trustee with the proceeds of a draw on the Credit Facility under the Indenture so long as such Bonds are held in accordance with the terms of the Bond Pledge Agreement. "Pledged Bonds Rate" shall mean the rate of interest borne by Pledged Bonds, as specified in the Reimbursement Agreement. "Principal Office" with respect to the Trustee shall mean the corporate trust office of the Trustee located at the address set forth in the Indenture, or at such other place as the Trustee shall designate by notice given under the Indenture or such office designated by the Trustee in writing for the payment, transfer, exchange or registration of the Bonds; and with respect to the Borrower shall mean its office located at the address set forth in the Indenture, or at such other place as the Borrower shall designate to the Trustee as provided in the Indenture; and with respect to the Remarketing Agent shall mean its office located at the address set forth in the Indenture, or at such other place as the Remarketing Agent shall designate to the Trustee as provided in the Indenture; and with respect to the Credit Provider shall mean its office located at the address set forth in the Indenture, or at such other place as the Credit Provider shall designate as provided in the Indenture; and with respect to the Initial Standby Credit Provider shall mean its office located at the address set forth in the Indenture or at such other place as the Initial Standby Credit Provider shall designate as provided in the Indenture; and with respect to the Tender Agent shall mean its office located at the address set forth in the Indenture, or at such other place as the Tender Agent shall designate to the Trustee as provided in the Indenture. "Program Fund' shall mean the fund established pursuant to the Indenture. "Project Costs" shall mean to the extent authorized by the Code, the Regulations and the Act, any and all costs incurred by the Borrower with respect to the acquisition, construction and development of the Project. "Purchase Price," with respect to any Bond required to be purchased pursuant to the Indenture, shall mean the principal amount of such Bond plus interest accrued thereon to the Demand Date. "Qualified Project Costs" shall mean Project Costs (excluding Issuance Costs) incurred after the Inducement Date, which either constitute land or property of a character subject to the allowance for depreciation under Section 167 of the Code or are chargeable to a capital account with respect to the Project for federal income tax and financial accounting purposes, or would be so chargeable either with a proper election by the Borrower or but for the proper election by the Borrower to deduct those amounts within the meaning of Regulation 1.103-8(a)(1)(i); provided, however, that only such portion of interest accrued during construction of the Project shall constitute a Qualified Project Cost as bears the same ratio to all such interest as the Qualified Project Costs bear to all Project Costs; and provided further that interest accruing after the Completion Date shall not be a Qualified Project Cost; and provided still further that if any portion of the Project is being constructed by an "affiliated party" (whether as a general contractor or a subcontractor), "Qualified Project Costs" shall include only (a) the actual out-of-pocket costs incurred by such affiliated party in constructing the Project (or any portion thereof), (b) any reasonable fees for supervisory services actually rendered by the affiliated party and (c) any overhead expenses incurred by the affiliated party that are directly attributable to the work performed on the Project, and shall not include, for example, intercompany profits resulting from members of an affiliated group (within the meaning of Section 1504 of the Code) participating in the construction of the Project or payments received by such affiliated party due to early completion of the Project (or any portion thereof). 01-503376.3 A-l-7 "Rating Agency" shall mean Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., or its successors and assigns, or any other nationally recognized rating agency designated by the Issuer with the consent of the Credit Provider. "Rebate Analyst" shall mean a certified public accountant, financial analyst or attorney, or any firm of the foregoing, or a financial institution (which may include the Trustee) experienced in making the arbitrage and rebate calculations required pursuant to Section 148 of the Code and retained by the Borrower to calculate the amount of rebatable arbitrage. "Record Date" shall mean, with respect to any Interest Payment Date during a Reset Period or after Conversion, the close of business on the fiReenth day of the month (whether or not a Business Day) prior to the calendar month in which an Interest Payment Date occurs. "Regulations" shall mean the Income Tax Regulations promulgated by the Department of the Treasury pursuant to the Code from time to time or pursuant to any predecessor statute to the Code. "RemarketingAgent" shall mean, initially, Red Capital Markets, Inc. "Remarketing Agreement" shall mean the Remarketing Agreement, dated as of the date of the Indenture, between the Borrower and the Remarketing Agent and any similar substitute or additional such agreement providing for the remarketing of thc Bonds, in each case as supplemented or amended from time to time. "Remarketing Date" shall mean the date, on or prior to each Demand Date, by which the Remarketing Agent is required to notify the Trustee, the Tender Agent and the Credit Provider of the Bonds for which it has found purchasers, as set forth in the Indenture. "Reserved Rights" shall mean those certain rights of the Issuer under the Issuer Loan Documents to indemnification and to payment or reimbursement of fees and expenses of the Issuer, its right to enforce the Regulatory Agreement and to enforce the provisions of the Financing Agreement relating to the Issuer's rights to notice and reporting requirements and restrictions on transfer of ownership, its right to inspect and audit the books, records and premises of the Borrower and the Project, its right to collect attorneys' fees and related expenses, its right to enforce the Borrower's covenant to comply with applicable federal tax law and State law (including the Act, the Housing Law and the rules of the Issuer, if any), its right to grant or withhold consents or waivers under the Issuer Loan Documents, and its right to amend the Issuer Loan Documents in accordance with the provisions thereof. "Reset Date" shall mean any date upon which the Bonds begin to bear interest at a new Reset Rate for the succeeding Reset Period, at a Variable Rate following a Reset Period or in a Variable Rate of a different mode. "Reset Period" shall mean each period during which the Bonds bear interest at a Reset Rate. "Reset Rate" shall mean the rate of interest initially borne by the Bonds as determined in accordance with the Indenture. "Revenues" shall mean all amounts pledged under the Indenture to the payment of principal of, premium, if any, and interest on the Bonds, consisting of the following: (a) all moneys drawn by the Trustee under the Credit Facility and the Initial Standby Credit Facility; (b) any portion of the Net Proceeds of the Bonds deposited with the Trustee under the Indenture; (c) Collateral Funds; (d) any income earned on investments pursuant to the Indenture; and (e) any repayments of the Mortgage Loan 01-503376.3 A-I-8 made by the Borrower pursuant to the Financing Agreement and any amounts derived from or in connection with the Borrower or the Issuer Loan Documents, including all amounts obtained through the exercise of the remedies provided in the Issuer Loan Documents upon the occurrence of an event of default thereunder; but such term shall not include payments to the United States, the Issuer, the Administrator or the Trustee, for its account, pursuant to provisions of the Financing Agreement relating to the payment of fees, the Regulatory Agreement relating to indemnification or the Indenture relating to the payment of fees and indemnification of the Trustee and its agents; nor shall Revenues include remarketing proceeds or any amount drawn on the Credit Facility to pay the Purchase Price. "Securities Depositories" shall mean The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax: (516) 227-4171 or 4190; or in accordance with the then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Issuer may designate in writing to the Trustee and the Credit Provider. "State" shall mean the State of California. "Substitute Credit Facility" shall mean bond insurance or third-party guarantees, Eligible Collateral, direct pay and standby letter of credit, liquidity facilities, loans to lenders or other credit instruments, or any combination of the foregoing, acceptable to the Issuer and the Rating Agency, and meeting the requirements of the Financing Agreement which shall include the Permanent Credit Facility issued by Fannie Mae on the date of Loan Conversion. "supplemental indenture" or "indenture supplemental to the Indenture" shall mean any indenture duly authorized and entered into between the Issuer and the Trustee in accordance with the provisions of the Indenture. "Tax Certificate" shall mean the Certificate As To Arbitrage dated the Closing Date, executed and delivered by the Issuer and the Borrower, together with the Certificate Regarding Use of Proceeds, dated as of the Closing Date, executed and delivered by the Borrower. "Tender Agent" means the Tender Agent appointed in accordance with the Indenture. "Variable Interest Accrual Period" shall mean (i) during any Variable Period that the Bonds bear interest in a Weekly Mode, a period beginning on any Thursday and ending on the following Wednesday, except that the first Variable Interest Accrual Period for any Variable Period shall begin on the first day of such Variable Period and end on the following Wednesday (the Remarketing Agent may, by prior written notice to the Trustee, cause the Variable Interest Accrual Period to begin on any Tuesday and end on the following Monday, to begin on any Wednesday and end on the following Tuesday, or to begin on any Friday and end on the following Thursday), and (ii) during any Variable Period that the Bonds bear interest in a Daily Mode, a period beginning on each Business Day and ending on the following Business Day. "Variable Interest Computation Date" shall mean, with respect to any Variable Interest Accrual Period (other than the first Interest Accrual Period), the last Business Day before the first day of such Variable Interest Accrual Period. "Variable Mode" shall mean the Daily Mode and/or Weekly Mode. "Variable Period" shall mean each period during which the Bonds bear interest at a Variable Rate. o1-503376.3 A- 1-9 "Variable Rate" shall mean the variable rate of interest borne by the Bonds in a Daily Mode or Weekly Mode as determined in accordance with the Indenture. "Variable Rate Adjustment Date" shall mean any date upon which the Bonds begin to bear interest at a Variable Rate for the succeeding Variable Period. "Weekly Mode" shall mean any period during which the interest rate on the Bonds is reset once each week, as provided in the Indenture. 01-50337&3 A- 1 - 1 0 APPENDIX A-2 CERTAIN DEFINITIONS AFTER LOAN CONVERSION The following summary of the definitions contained in the various documents entered into with respect to the Bonds relates only to the period beginning with Loan Conversion, if it occurs. Prior to Loan Conversion this description is of no force or effect. A summary of the definitions contained in the various documents entered into with respect to the Bonds prior to Loan Conversion is set forth in Appendix A-1 hereto. Furthermore, the following is only a summary and does not purport to be a complete statement of the defined terms contained in the various' documents entered into with respect to the Bonds. Reference is made to the full text of the documents herein described for the complete terms thereof References in this Appendix to the Indenture, the Financing Agreement, the Reimbursement Agreement, the Credit Facility, the Assignment and the Credit Provider will be references to the Permanent Indenture, the Permanent Financing Agreement, the Permanent Reimbut~sement Agreement, the Permanent Credit Facility, the Permanent Assignment and the Permanent Credit Provider, respectively. "Account" means any Account within a Fund. "Act of Bankruptcy" means any proceeding instituted under the Bankruptcy Code or other applicable insolvency law by or against the Issuer. "Advance" means an advance under the Credit Facility, as defined in the Credit Facility. "Authorized Borrower Representative" means any person who, at any time and from time to time, may be designated as the Borrower's authorized representative by written certificate furnished to the Issuer, the Loan Servicer, the Credit Provider and the Trustee containing the specimen signature of such person and signed on behalf of the Borrower by or on behalf of any authorized general partner of the Borrower if the Borrower is a general or limited partnership, by any authorized managing member of the Borrower if the Borrower is a limited liability company, or by any authorized officer of the Borrower if the Borrower is a corporation, which certificate may designate an alternate or alternates. The Trustee may conclusively presume that a person designated in a written certificate filed with it as an Authorized Borrower Representative is an Authorized Borrower Representative until such time as the Borrower files with it (with a copy to the Issuer, the Loan Servicer and the Credit Provider a written certificate identi~ing a different person or persons to act in such capacity. "Authorized Denomination" means $5,000 or any integral multiple of $5,000. "Available Moneys"' means, as of any date of determination, (a) the proceeds of the Bonds and remarketing proceeds (other than funds provided by the Borrower, any general partner of the Borrower or any guarantor of the Borrower's obligations relating to the Mortgage Loan or the Bonds, if applicable, or the Issuer), (b) moneys received by the Trustee pursuant to the Credit Facility, (c) any other amounts with respect to which the Trustee has received an Opinion of Counsel to the effect that (i) the use of such amounts to make payments on the Bonds would not violate Section 362(a) of the Bankruptcy Code or that relief from the automatic stay provisions of such Section 362(a) would be available from the bankruptcy court and (ii) payments of such amounts to the Bondholders would not be avoidable as preferential payments under Section 547 of the Bankruptcy Code should the Issuer or the Borrower become a debtor 01-503376.3 in proceedings commenced under the Bankruptcy Code, and (d) Investment Income derived from the investment of moneys described in clause (a), (b) or (c). "Bankruptcy Code" means Title 1 l of the United States Code, entitled "Bankruptcy," as in effect now and in the future, or any successor statute. "Beneficial Owner" means the beneficial owner of any Bond held in book-entry form or the Registered Owner of any Bond held in certificated form. "Bond Counsel" means (a)on the Closing Date, the law firm or law firms delivering the approving opinion(s) with respect to the Bonds or (b) after the Closing Date, any law firm selected by the Issuer and acceptable to the Credit Provider, of nationally recognized standing in matters pertaining to the excludability from gross income, for federal income tax purposes, of the interest payable on bonds issued by states and political subdivisions. "Bond Documents" means the Indenture, the Financing Agreement, the Regulatory Agreement, the Bond Purchase Agreement, the Assignment, the endorsement of the Mortgage Note, the Credit Facility, the Tax Certificate, the Remarketing Agreement and the Disclosure Agreement, and all other documents, agreements and instruments executed and delivered in connection with the issuance, sale, delivery and/or remarketing of the Bonds, as each such document, agreement or instrument may be amended, modified, supplemented or restated from time to time. "Bondholder," "holder," "Owner," "owner," "Registered Owner" or "registered owner" means, with respect to any Bond, the Registered Owner of the Bond. "Bond Payment Date" means any (a) Interest Payment Date, (b) other date on which interest is payable, including any Redemption Date, each Maturity Date and the date of acceleration of the Bonds and (c) date on which principal of the Bonds is payable. "Bond Purchase Agreement" means the Bond Purchase Agreement relating to the Bonds by and among the Underwriter, the Issuer and the Borrower. "Bond Purchase Fund" means the Bond Purchase Fund created by the Indenture. "Bond Register" means the bond register established and maintained by the Trustee pursuant to the Indenture. "Bond Registrar" means the Trustee or its designee as keeper of the Bond Register. "Bond Year" means the period of 12 consecutive months ending on the date set forth in the Indenture in any year in which Bonds are or will be Outstanding, provided that the first Bond Year shall commence on the Closing Date and end on the date set forth in the Indenture. "Book-Entry Bonds" means any Bonds which are issued in book-entry form, as evidenced by a single certificate for each stated principal maturity of the Bonds, and registered in the name of and delivered to a Securities Depository. "Book-Entry System" means an electronic system in which the clearance and settlement of securities transactions is made through electronic book-entry changes. 01-503376.3 A-2-2 "Business Day" means any day other than (a)a Saturday or a Sunday, (b)any day on which banking institutions located in the city or cities in which the Principal Office of the Trustee is located are required or authorized by law or executive order to close, (c) a day on which banking institutions located in the city in which the Principal Office of the Loan Servicer is located are required or authorized by law or executive order to close, (d) a day on which the Credit Provider is closed or (e) a day on which the New York Stock Exchange is closed. "Cash Flow Projection" means a cash flow projection prepared by an independent firm of certified public accountants, a financial advisory firm or other independent third party qualified and experienced in the preparation of cash flow projections for Mortgage Loans, designated by the Borrower and acceptable to the Credit Provider and the Rating Agency, establishing, to the satisfaction of the Rating Agency, the sufficiency of (a) the scheduled payments due under the Mortgage Note (together with and after taking into account the Initial Debt Service Deposit) and (b) Investment Income with respect to the General Account to pay the principal of and interest on the Bonds and the Third Party Fees (to the extent included in the Mortgage Note Rate), in each instance, when due and payable, including, but not limited to, any cash flow projection prepared in connection with (i)the initial issuance and delivery of the Bonds, as provided in the Indenture, (ii) Loan Conversion or (iii) a remarketing of the Bonds as provided in the Indenture or a partial prepayment of the Mortgage Loan and a corresponding partial redemption of Bonds pursuant to the Indenture. "Closing Date" means the date on which the Bonds are issued and delivered. "Code" means the Internal Revenue Code of 1986, as amended; each reference to the Code shall be deemed to include (a) any successor internal revenue law and (b) the applicable regulations whether final, temporary or proposed under the Code or such successor law. Any reference to a particular provision of the Code shall be deemed to include (i) any successor provision of any successor internal revenue law and (ii)the applicable regulations, whether final, temporary or proposed, under such provision or successor provision. "Credit Facility Account" means the Credit Facility Account of the Revenue Fund. "Credit Facility Agreement" means, individually or collectively, the Reimbursement Agreement, the Pledge Agreement and all other agreements and documents securing the Credit Provider or otherwise relating to the provision of the Credit Facility, as any such agreement may be amended, modified, supplemented or restated from time to time. "Credit Provider" means Fannie Mae. "Custodian" means the custodian under the Pledge Agreement. "Dated Date" means the dated date for the Bonds set forth on the cover hereof. "Disclosure Agreement" means the Continuing Disclosure Agreement, dated as of the date of the Indenture between the Borrower and the Trustee. "DTC" means The Depository Trust Company and any successor to it or any nominee of it. "DTC Participant" has the meaning given to that term in the Indenture. "DTC System" has the meaning given to that term in the Indenture 01-503376.3 A-2-3 "Electronic Means" means telecopy transmission or other similar electronic means of communication approved in writing by the Credit Provider, including a telephonic communication confirmed by writing or written transmission. "End Period Payment" means, with respect to any optional redemption of Bonds pursuant to the Indenture, the premium due on the Bonds, if any, and interest due on the Bonds from the date of prepayment of the Mortgage Loan to the Redemption Date. "Event of Default" means any of the events specified as events of default described under the heading "Default Provisions and Remedies" in Appendix B-2. "Extraordinary Items" means, with respect to the Trustee, reasonable compensation for extraordinary services and/or reimbursement for reasonable extraordinary costs and expenses. "Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, ann's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contact or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security-State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the Issuer and related parties do not own more than a ten percent (10%) beneficial interest therein if the return paid by the fund is without regard to the source of the investment. "Fannie Mae" means Fannie Mae, a corporation organized and existing under the Federal National Mortgage Association Charter Act, 12 U.S.C., § 1716 et seq., and its successors and assigns. "Fannie Mae Commitment" means Fannie Mae's Commitment to the Loan Servicer, accepted by the Loan Servicer on the date of the Indenture, pursuant to which Fannie Mae has agreed, upon satisfaction of the terms and conditions set forth in the Fannie Mae Commitment, to provide credit enhancement for the Mortgage Loan and liquidity support for the Bonds on the Initial Remarketing Date. "Fees Account" means the Fees Account of the Revenue Fund. "Fund" means any Fund created by the Indenture. "General Account" means the General Account of the Revenue Fund. "Government Obligations" means direct obligations of, and obligations on which the full and timely payment of principal and interest is unconditionally guaranteed by, the full faith and credit of the United States of America. "Highest Rating Category" means, with respect to an Investment, that the Investment is rated by S&P or Moody's, or both, and the rating assigned to the security is the highest rating given by that rating agency for that general category of security; by way of example, the Highest Rating Category for the general category of tax-exempt municipal debt established by S&P is "A-I +" for debt with a term of one 01-503376.3 A-2-4 year or less and "AAA" for a term greater than one year, with corresponding ratings by Moody's of "MIG-I" (for fixed rate) or "VMIG-I" (for variable rate) for one year or less and "Aaa" for greater than one year; if both S&P and Moody's rate the Investment and one of those ratings is not in the Highest Rating Category, then such Investment is not rated in the Highest Rating Category. "Improvements" means the improvements made or to be made upon the Land. "Initial Debt Service Deposit" means the deposit to be made by the Borrower with the Trustee on the Closing Date, as required by the Financing Agreement and deposited by the Trustee into the General Account as provided in the Indenture. "Interest Payment Date" means each interest payment date set forth on the cover hereof, each Redemption Date, each Maturity Date and the date of acceleration of the Bonds. "Investment Agreement" means any investment agreement with respect to amounts on deposit in any Fund or Account, as described in paragraph (g) of the definition of Permitted Investments. "Investment Income" means the earnings, profits and accreted value derived from the investment of moneys pursuant to the Indenture. "Investments" means any Permitted Investment and any other investment held under the Indenture that does not constitute a Permitted Investment. "Issuer's Annual Fee" means the Issuer's annual fee in the amount set forth in the Indenture payable by the Borrower pursuant to the Financing Agreement. "Land" means the real property described in the Security Instrument. "Maturity Date" means any maturity date shown on the inside front cover hereofi "Mortgage Loan Documents" means, collectively, the Mortgage Note, the Security Instrument and all other agreements and instruments, including any Collateral Agreements (as defined in the Security Instrument), documenting, evidencing, securing, arising under, made in connection with or otherwise relating to the Mortgage Loan, as each such agreement or document may be amended, modified, supplemented, or restated from time to time, but excluding the Financing Agreement and the Regulatory Agreement. "Mortgage Loan Fund" means the Mortgage Loan Fund created by the Indenture. "Net Bond Proceeds" means the proceeds derived from the issuance, sale and delivery of the Bonds, representing the total purchase price of the Bonds, including any premium paid as part of the purchase price of the Bonds, but excluding the accrued interest, if any, on the Bonds paid by the initial purchaser(s) of the Bonds. "Opinion of Bond Counsel" means a written opinion of Bond Counsel addressed to the Issuer, the Trustee and, at its request, the Credit Provider, and in form and substance acceptable to the Issuer, the Trustee and the Credit Provider. "Opinion of Counsel" means a written opinion of legal counsel acceptable to the recipient(s) of the opinion; if the opinion is with respect to an interpretation of federal tax laws or regulations, or 6-"7/ 01-503376.3 A-2-5 bankruptcy matters, such legal counsel will also be an attorney or firm of attorneys experienced in such matters. "Outstanding" means, when used with reference to the Bonds at any date as of which the amount of Outstanding Bonds is to be determined, all Bonds which have been authenticated and delivered under the Indenture except: (d) Bonds canceled or delivered for cancellation at or prior to such date; (e) Bonds deemed to be paid in accordance with the Indenture; and (f) Bonds in lieu of which others have been authenticated under the Indenture. In determining whether the owners of a requisite aggregate principal amount of Outstanding Bonds have concurred in any request, demand, authorization, direction, notice, consent or waiver under the provisions of the Indenture, Bonds which are owned or held by or for the account of the Borrower, including Purchased Bonds, will be disregarded and deemed not to be Outstanding under the Indenture for the purpose of any such determination unless all Bonds are owned or held by or for the account of the Borrower. In determining whether the Trustee will be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Bonds which are either registered in the name of or known by the Trustee to be held for the account of the Borrower, including Purchased Bonds, will be disregarded. "Permitted Investments" means, to the extent authorized by law for the investment of moneys of the Issuer: (a) Government Obligations; (b) direct obligations of, and obligations on which the full and timely payment of principal and interest is unconditionally guaranteed by, any agency or instrumentality of the United States of America (other than the Federal Home Loan Mortgage Corporation) or direct obligations of the World Bank, which obligations are rated in the Highest Rating Category; (c) obligations, in each case rated in the Highest Rating Category, of (i) any state or territory of the United States of America, (ii) any agency, instrumentality, authority or political subdivision of a state or territory, (iii) any public benefit or municipal corporation the principal of and interest on which are guaranteed by such state or political subdivision or (iv)any state or territory of the United States of America or any agency, instrumentality, authority or political subdivision of a state or territory which have been advance refunded and are secured by Government Obligations or by other such prerefunded municipal securities; (d) any written repurchase agreement entered into with a Qualified Financial Institution whose unsecured short-term obligations are rated in the Highest Rating Category; (e) commercial paper rated in the Highest Rating Category; (f) (i) interest-bearing negotiable certificates of deposit, interest-bearing time deposits, interest-bearing savings accounts and bankers' acceptances, issued by a Qualified Financial Institution if either (A)the Qualified Financial Institution's unsecured short-term obligations are rated in the Highest Rating Category or (B) such deposits or accounts are fully insured by the Federal Deposit Insurance Corporation; 01-503376.3 A-2-6 (g) an agreement held by the Trustee for the investment of moneys at a guaranteed rate (an "Investment Agreement") with (i)the Credit Provider or (ii)a Qualified Financial Institution whose unsecured long-term obligations are rated in the Highest Rating Category, or whose obligations are unconditionally guaranteed or insured by a Qualified Financial Institution whose unsecured long-term obligations are rated in the Highest Rating Category, provided that the Investment Agreement is in a form acceptable to the Issuer and the Credit Provider, and provided further that the Investment Agreement includes the following restrictions: (A) the invested funds are available for withdrawal without penalty or premium at any time that (1) the Trustee is required to pay moneys from the Fund(s) to which the Investment Agreement is applicable or (2) any Rating Agency indicates that it will lower, suspend or withdraw or actually lowers, suspends or withdraws the rating on the Bonds on account of the rating of the Qualified Financial Institution providing, guaranteeing or insuring, as applicable, the Investment Agreement; (B) the Investment Agreement is the unconditional and general obligation of the Qualified Financial Institution providing, and, if applicable, the Qualified Financial Institution guaranteeing or insuring, the Investment Agreement, and is not subordinated to any other obligation; (C) the Trustee receives an Opinion of Counsel that the Investment Agreement is legal, valid, binding and enforceable, in accordance with its terms, upon the Qualified Financial Institution providing the Investment Agreement and, if applicable, an Opinion of Counsel that any guaranty or insurance policy provided by a Qualified Financial Institution guaranteeing or insuring the Investment Agreement is legal, valid, binding and enforceable, in accordance with its terms, upon such Qualified Financial Institution; and (D). the Investment Agreement provides that if during its term the rating of the Qualified Financial Institution providing, guaranteeing or insuring, as applicable, the Investment Agreement is withdrawn or suspended by any rating agency or falls below the Highest Rating Category, such Qualified Financial Institution will, within 10days following the withdrawal, suspension or downgrade, either: (1) (x)collateralize the Investment Agreement (if the Investment Agreement is not already collateralized) with Permitted Investments described in paragraph (a) or (b) above by depositing such collateral with the Trustee or a third-party custodian, such collateralization to be effected in a manner and in an amount sufficient to maintain (1) the integrity of the Cash Flow Projection most recently provided with respect to the Bonds and (II)the then current rating of the Bonds, or, if the Investment Agreement is already collateralized, increase the collateral with Permitted Investments described in paragraph (a) or (b) above by depositing such collateral with the Trustee or a third-party custodian, such collateralization to be effected in a manner and in an amount sufficient to maintain (lid the integrity of the Cash Flow Projection most recently provided with respect to the Bonds and (IV)the then current rating of the Bonds, (y) transfer the Investment Agreement and the rights and obligations of the Qualified Financial Institution under the Investment Agreement to a Qualified Financial Institution whose unsecured long-term obligations are rated in the Highest Rating Category or whose obligations are unconditionally guaranteed or insured by a Qualified Financial Institution whose unsecured long-term obligations are rated in the Highest Rating Category (z) deliver a guarantee from a Qualified Financial Institution whose unsecured long-term obligations are rated in the Highest Rating Category or (2) at the direction of the Trustee, following 01-503376.3 A-2-7 the failure of the Qualified Financial Institution to take one or more of the actions described in the foregoing clauses (l)(x)-(1)(z), repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the Trustee unless required by law (the Investment Agreement may provide that the Qualified Financial Institution providing the Investment Agreement shall have the right to elect among the actions described in clauses (1)(x), (1)(y) and (I)(z), but shall not have the right to elect the action described in clause (b) as an alternative to the actions described in clauses (l)(x), (1)(y) and ( 1)(z); (h) any money market mutual fund (including those of the Trustee and its affiliates) registered under the Investment Company Act of 1940, as amended, that have been rated "AAAm-G' or "AAAm" by S&P or "Aaa" by Moody's, so long as the portfolio of such money market mutual fund is limited to Government Obligations and/or agreements to purchase Government Obligations; if approved in writing by the Credit Provider, a money market mutual fund portfolio may also contain obligations and agreements to repurchase obligations described in paragraph (b) or (c) above; a money market mutual fund is not a Permitted Investment if both S&P and Moody's rate the money market mutual fund and one such rating is below the level required by this paragraph (h); (i) any other investment authorized by the laws of the State if such investment is approved by the Credit Provider and the Rating Agency; provided that Permitted Investments will not include the following: (i)any investment with a final maturity or any agreement with a term greater than one year from the date of the investment (except (A) obligations that provide for the optional or mandatory tender, at par, by the holder of such obligations at least once within one year of the date of purchase, (B) Government Obligations irrevocably deposited with the Trustee for payment of Bonds pursuant to the Indenture and (C) investments listed in paragraphs (g) and (i) above), (ii) any obligation (other than obligations described in paragraphs (a) and (b) above) with a purchase price greater or less than the par value of such obligation, (iii)any asset-backed security, including mortgage-backed securities, real estate mortgage investment conduits, collateralized mortgage obligations, credit card receivable asset-backed securities and auto loan asset-backed securities, (iv)any interest-only or principal-only stripped security, (v)any obligation bearing interest at an inverse floating rate, (vi) any investment which may be prepaid or called at a price less than its purchase price prior to stated maturity, (vii)any investment the interest rate on which is variable and is established other than by reference to a single interest rate index plus a single fixed spread, if any, and which interest rate moves proportionately with that index, (viii) any investment described in paragraph (d) or (g) above with a Qualified Financial Institution (as defined in clause (d) of the definition of "Qualified Financial Institution") if the Qualified Financial Institution does not agree to submit to jurisdiction, venue and service of process in the United States of America in the Investment Agreement and (ix) any investment to which the Rating Agency has added an "r' or "t" highlighter. If an Investment Agreement is entered into which does not require the Qualified Financial Institution providing the Investment Agreement to either (A) satisfy one or more of the requirements of clause (1) of subparagraph (D) of paragraph (g) above upon a withdrawal or suspension of, or downgrade in the rating of the Qualified Financial Institution providing the Investment Agreement or (B) compensate the Trustee for any loss in yield upon minvestment if the Investment Agreement is terminated following a withdrawal or suspension of, or downgrade in, the rating of the Qualified Financial Institution providing, guaranteeing or insuring the Investment Agreement, the yield on the Investment Agreement above the minimum yield permitted by the Rating Agency shall not be taken into account in any Cash Flow Projection provided to the Rating Agency in connection with its rating of the Bonds. 01-503376.3 A-2-8 "Pledge Agreement" means the Pledge, Security and Custody Agreement, dated as of the date of the Indenture, by and among the Borrower, the Trustee, as collateral agent for the Credit Provider, and the Credit Provider, as such agreement may be amended, modified, supplemented or restated from time to time. "Principal Amount" means the principal amount of the Bonds Outstanding on the date of Loan Conversion. "Principal Office" of the Trustee or the Loan Servicer means, respectively, the office of the Trustee or the Loan Servicer at the respective address set forth in the Indenture, or such other address as may be specified in writing by the Trustee or the Loan Servicer, as applicable, as provided in the Indenture. "Proceeds"' has the meaning assigned thereto under the heading "THE BONDS--Redemption After Loan Conversion--Special Mandatory Redemption--Casualty or Condemnation." "Project" means the Land and the Improvements. "Project Account" means the Project Account of the Mortgage Loan Fund. "Purchased Bond" means any Bond (a) tendered for purchase by a Bondholder pursuant to the Indenture and purchased by the Trustee for the account of the Borrower, with amounts provided by the Credit Provider under the Credit Facility, and (b) pledged to the Custodian under the Pledge Agreement for the benefit of the Credit Provider. A Bond is a "Purchased Bond" only during the period (a) beginning on and including the date of its purchase by the Borrower and (b) ending on and excluding the date on which the Amount Available under (and as defined in) the Credit Facility with respect to the Bond is reinstated under the Credit Facility. "Qualified Financial Institution" means any (a) bank or trust company organized under the laws of any state of the United States of America, (b) national banking association, (c) savings bank, a savings and loan association, or an insurance company or association chartered or organized under the laws of any state of the United States of America, (d) federal branch or agency pursuant to the International Banking Act of 1978 or any successor provisions of law or a domestic branch or agency of a foreign bank which branch or agency is duly licensed or authorized to do business under the laws of any state or territory of the United States of America, (e) government bond dealer reporting to, trading with, and recognized as a primary dealer by the Federal Reserve Bank of New York, (f') securities dealer approved in writing by the Credit Provider the liquidation of which is subject to the Securities Investors Protection Corporation or other similar corporation, or (g) any other entity which is acceptable to the Credit Provider. With respect to an entity which provides an agreement held by the Trustee for the investment of moneys at a guaranteed rate as set out in paragraph (g) of the definition of the term "Permitted Investments" or an entity which guarantees or insures, as applicable, the agreement, a "Qualified Financial Institution" may also be a corporation or limited liability company organized under the laws of any state of the United States of America. "Rating Agency' means any national rating agency then maintaining a rating on the Bonds. "Rating Category" means one of the generic rating categories of the Rating Agency. "Rebate Analyst" means a person that is (a) qualified and experienced in the calculation of rebate payments under Section 148 of the Code and in compliance with the arbitrage rebate regulations 01-503376.3 A-2-9 promulgated under the Code, (b) chosen by the Borrower and (c) engaged for the purpose of determining the amount of required deposits, if any, to the Rebate Fund. "Rebate Analyst's Annual Fee" means the annual fee of the Rebate Analyst, if any, in the amount set forth in the Indenture for its rebate calculation services. "Rebate Fund" means the Rebate Fund created by the Indenture. "Record Date" means, with respect to any Interest Payment Date, the fifteenth day of the month preceding the month in which the Interest Payment Date falls. "Redemption Account" means the Redemption Account of the Revenue Fund. "Redemption Date" means any date upon which Bonds are to be redeemed pursuant to the Indenture. "Registered Owner" means the registered owner of any Bonds, as shown in the Bond Register. "Remarketing Agreement" means the Remarketing Agreement, dated as of the date of the Indenture, between the Borrower and the Remarketing Agent, as amended, modified, supplemented or restated from time to time, or any agreement entered into in substitution therefor with a substitute Remarketing Agent. "Remarketing Date" means the Initial Remarketing Date and, if the Bonds Outstanding on such date or on any subsequent Remarketing Date are remarketed pursuant to the Indenture for a Remarketing Period which does not extend to the final maturity of the Bonds, the day at'er the last day of the Remarketing Period. "Remarketing Expenses" means the costs and expenses incurred by the Trustee and its counsel, the Remarketing Agent and its counsel, the Issuer and its counsel, the Loan Servicer and its counsel, the Credit Provider and its counsel and Bond Counsel in connection with the remarketing of the Bonds, including bond printing and registration costs, costs of funds advanced by the Remarketing Agent, registration and filing fees, rating agency fees and other costs and expenses incurred in connection with or properly attributable to the remarketing of Bonds. "Remarketing Expenses Account" means the Remarketing Expenses Account of the Bond Purchase Fund. "Remarketing Period" means the period beginning on a Remarketing Date and ending on the last day of the term for which Bonds are remarketed pursuant to the Indenture or the final Maturity Date of the Bonds, as applicable. "Remarketing Proceeds Account" means the Remarketing Proceeds Account of the Bond Purchase Fund. "Remarketing Rate" means the interest rate established pursuant to the Indenture and borne by the Bonds then Outstanding from and including each Remarketing Date to, but not including, the next succeeding Remarketing Date or the final Maturity Date of the Bonds, as applicable. "Representation Letter" means a letter of representations in the form required by DTC executed by the Issuer and the Trustee. 01-503376.3 A-2 - 10 "Reserved Rights" means those certain rights of the Issuer under the Financing Agreement to indemnification and to payment or reimbursement of fees and expenses of the Issuer, its right to give and receive notices and to enforce notice and reporting requirements and restrictions on transfer of ownership, its right to inspect and audit the books, records and premises of the Borrower and of the Project, its right to collect attorneys' fees and related expenses, its right to specifically enforce the Borrower's covenant to comply with applicable federal tax law and State law (including the Act and the rules and regulations of the Issuer, if any), and its rights to give or withhold consent to amendments, changes, modifications and alterations to the Financing Agreement and the Regulatory Agreement. "Revenue Fund' means the Revenue Fund created by the Indenture. "Revenues" means all (a) payments made under the Mortgage Note, (b) payments made under the Credit Facility and (c) Investment Income (excluding Investment lncome earned from moneys on deposit in the Rebate Fund and the Costs of Issuance Deposit Account of the Costs of Issuance Fund). "Securities Depository" means, initially, The Depository Trust Company, New York, New York, and its successors and assigns, and any replacement securities depository appointed under the Indenture. "Security" means the Trust Estate and the Credit Facility. "Set Rate Interest" has the meaning given to that term in the Mortgage Note. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors and assigns, or if it shall be dissolved or shall no longer assign credit ratings to long-term debt, then any other nationally recognized statistical rating agency, designated by the Issuer and acceptable to the Trustee, the Credit Provider and the Borrower, as shall assign credit ratings to long-term debt. "State" means the state of California. "Supplemental Indenture" means any indenture duly authorized and entered into between the Issuer and the Trustee amending or supplementing the Indenture in accordance with the provisions of the Indenture. "Tax Certificate" means the Certificate As To Arbitrage dated the Closing Date, executed and delivered by the Issuer and the Borrower. "Third Party Fees" means, individually or collectively, as the context shall require, the (a) Issuer's Annual Fee, (b) Trustee's Annual Fee and (c) Rebate Analyst's Annual Fee, if any. "Trustee's Annual Fee" means the annual ongoing trust administration fee of the Trustee in the amount set forth in the Indenture payable as provided in the Financing Agreement, computed and payable semiannually in advance on each Interest Payment Date. "Trust Estate" means the property, rights, money, securities and other amounts pledged and assigned by the Issuer to the Trustee pursuant to the Indenture and the Assignment. "Verification Agent" means an independent firm of certified public accountants, an independent financial advisory firm or other independent third party designated by the Borrower and acceptable to the Credit Provider, qualified and experienced in the verification of the mathematical accuracy of scheduled 01-503376.3 A-2-1 1 cash flows and other funds to pay the principal of and interest on bonds and fees, which has been engaged to prepare a Verification Report. "Verification Report" means a report prepared by a Verification Agent verifying the mathematical accuracy of a Cash Flow Projection. "Wrongful Dishonor" means an uncured failure by the Credit Provider to make an Advance to the Trustee upon proper presentation of a Certificate which conforms to the terms and conditions of the Credit Facility. 01-503376.3 A -2 - 12 APPENDIX B-1 SUMMARY OF CERTAIN PROVISIONS OF THE INITIAL INDENTURE The following summary of the Initial Indenture relates only to the period beginning on the date of issuance of the Bonds and continuing through Loan Conversion, if it occurs. After Loan Conversion, if it occurs, this description ia' of no force or effect. A summary of the Permanent Indenture entered into with respect to the Bonds after Loan Conversion, if it occurs, is set forth in Appendix B-2 hereto. Furthermore, the following summary of the Initial Indenture is a summary only and does not purport to be a complete statement of the contents thereof Reference is made to the Initial Indenture for the complete terms thereof References in this Appendix to the Indenture, the Financing Agreement, the Assignment, the Reimbursement Agreement and the Credit Provider will be references to the Initial Indenture, the Initial Financing Agreement, the Initial Assignment, the Initial Reimbursement Agreement and the Inilial Credit Provider, respectively. Application of Proceeds of Bonds Thc proceeds received by the Issuer from the sale of the Bonds shall be depos?ted in trust with the Trustee, who shall deposit such proceeds in thc Program Fund. Program Fund Moneys in the Program Fund and the Borrower Equity Fund, which shall include the moneys in the accounts therein, shall be applied only as described under this heading. The Credit Provider has been granted a security interest in the amounts held in the Program Fund to secure the Borrower's repayment obligations under the Reimbursement Agreement, said security interest to be subordinate to the pledge and lien on such amounts under the Indenture for the benefit of the Bondowncrs. No moneys shall be disbursed from the Program Fund or the Borrower Equity Fund until the Trustee shall have received evidence that the Regulatory Agreement and the Security Instrument have been recorded. The Trustee may conclusively rely on notification from the title company responsible for recording such documents (which may be telephonic) of such recordation. The Trustee shall make all disbursements from the Program Fund and the Borrower Equity Fund only after compliance with the provisions for disbursement under the Financing Agreement and in the Indenture, to pay or reimburse the Borrower for Project Costs. On the Completion Date (provided that such date may be extended one or more times upon delivery by the Borrower of a Written Notice to the Trustee at least 60 days prior to each such date specifying a new Completion Date accompanied by an opinion of Bond Counsel to the effect that the provision for any such later date will not, in itself, cause the interest on the Bonds to be included in the gross incomes of the Bondholders for purposes of federal income taxation), the Trustee shall (i) if the amount then on deposit in the Program Fund is less than $100,000, transfer all amounts then on deposit to the Bond Fund, to be used to pay Debt Service on the Bonds, or (ii) if the amount then on deposit in the Program Fund is equal to or greater than $100,000, transfer all amounts then in such Account to the Bond Fund to be used by the Trustee to redeem a portion of the Bonds as described in paragraph (a) under the 01-503376.3 heading "THE BONDS--Redemption Prior to Loan Conversion" in the Indenture or to be used to reimburse the Credit Bank for any draw on the Letter of Credit for any such redemption. Neither the Trustee nor the Issuer shall be responsible for the application by the Credit Provider or the Borrower of moneys disbursed to the Credit Provider or the Borrower in accordance as described under this heading. Bond Fund The Trustee shall deposit in the Bond Fund from time to time, upon receipt thereof, (i) all amounts drawn by the Trustee under the Credit Facility and the Initial Standby Credit Facility as provided in the Indenture; (ii) income received from the investment of moneys on deposit in the Bond Fund; and (iii) any other Revenues, including insurance proceeds, condemnation awards and other Loan prepayment amounts received from or for the account of the Borrower. Amounts drawn under the Credit Facility, the Initial Standby Credit Facility and other Available Amounts shall not be commingled with other moneys in the Bond Fund and the Trustee shall set up separate sub-accounts in the Bond Fund for amounts drawn under the Credit Facility, the Initial Standby Credit Facility and other Available Amounts, respectively. The Trustee shall have the sole right of withdrawal from the sub-accounts of the Bond Fund in which amounts drawn under the Credit Facility, the Initial Standby Credit Facility and other Available Amounts are deposited, and none of the Issuer, the Borrower or any general partner or guarantor of the Borrower shall have any legal, equitable or beneficial right, title or interest in amounts on deposit therein. Except as described under this heading and under the heading "Defeasance--Payment of Bonds after Discharge of Indenture" below, moneys in the Bond Fund shall be used solely for the payment of the principal of and premium, if any, and interest on the Bonds as the same shall become due, whether at maturity or upon redemption or acceleration or otherwise. In making such payments, the Trustee shall (a) use amounts drawn by the Trustee under the Credit Facility, (b) then use amounts drawn by the Trustee under the Initial Standby Credit Facility, (c) then use Available Amounts held under the Indenture (except proceeds of a draw under the Credit Facility or Initial Standby Credit Facility) and (d) then use any other Revenues received by the Trustee. Any amounts remaining in the Bond Fund on June 15 of each year that represent investment earnings on amounts on deposit in the Bond Fund shall be transferred on such date by the Trustee to the Credit Provider and applied to the reimbursement of the Credit Provider for drawings made on the Credit Facility. Costs of Issuance Fund Amounts in the Costs of Issuance of Fund are available solely to pay the costs of issuance of the Bonds. Investment of Moneys Except as otherwise described under this heading, any moneys in any of the funds and accounts established by the Trustee pursuant to the Indenture shall be invested by the Trustee, if and to the extent then permitted by law, in Investment Securities selected and directed by the Borrower in a Written Direction, as approved in writing by the Credit Provider, such direction to be given to the Trustee by noon Pacific Time on the second Business Day prior to such investment with respect to which payments of principal thereof and interest thereon are scheduled or otherwise payable not later than the date on which it is estimated that such moneys will be required by the Trustee. 01-503376 3 B-1-2 In the absence of such Written Direction from the Borrower, the Trustee shall invest solely in Investment Securities described in clause (e) of the definition thereof with maturities of 30 days or less, as needed. The Borrower shall provide investment instructions, approved in writing by the Credit Provider, such that amounts drawn under the Credit Facility, the Initial Standby Credit Facility, any Collateral Funds and proceeds received from the remarketing of the Bonds shall be invested, if at all, only in Investment Securities described in clause (a) of the definition thereof (or money market funds comprised solely of such securities which are rated not lower than the rating on the Bonds) with maturities of 30 days or less as needed. The Borrower shall provide investment instructions, approved in writing by the Credit Provider, such that Available Amounts held in the Bond Fund, other than amounts drawn under the Credit Facility, the Initial Standby Credit Facility, and any Collateral Funds shall be invested only in Investment Securities described in clause (a) of the definition thereof (or money market funds comprised solely of such securities which are rated no lower than the then-current rating on the Bonds, but not in unit investment trusts comprised of securities described in such clause) maturing or subject to payment at the principal amount thereof upon demand of the holder thereof within 30 days after the acquisition of any such investment and in any event not later than the date on which it is estimated that such moneys will be required by the Trustee. The Trustee shall have no liability or responsibility for any loss resulting from any investment made as described under this heading, except through its negligence or willful misconduct. Except as otherwise described in the next sentence, all investments of amounts deposited in any fund or account created by or pursuant to the Indenture or otherwise containing gross proceeds of the Bonds (within the meaning of Section 148 of the Code) shall be acquired, disposed of, and valued (as of the date that valuation is required by the Indenture or the Code) at Fair Market Value. Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Code shall be valued at their present value (within the meaning of Section 148 of the Code). Any interest, profit or loss on such investment of moneys in any fund or account shall be credited or charged to the respective funds or accounts from which such investments are made. The Trustee may sell or present for redemption any obligations so purchased whenever it shall be necessary in order to provide moneys to meet any payment, and the Trustee shall not be liable or responsible for any loss resulting from such sale or redemption, except through its negligence or willful misconduct. The Trustee may make any and all investments as described under this heading through its own investment or bond department (or that of any of its affiliates) and may pay said bond or investment department reasonable, customary fees for placing such investments. The Trustee or any of its affiliates may act as sponsor, advisor, manager or provide administrative services in connection with any lnvestmen~ Securities purchased by the Trustee under the Indenture. Rebate of Excess Investment Earnings to United States The Borrower shall, annually, within 30 days of the end of each Bond Year, cause a Rebate Analyst to calculate, in accordance with the Regulations and the Tax Certificate, excess investment earnings to the extent required by Section 148(f) of the Code from amounts deposited with the Trustee as provided in the Financing Agreement. The Borrower shall engage a Rebate Analyst (i) to make such calculations; (ii) to provide a written copy of all such calculations to the Issuer and written instructions to the Trustee of amounts to be paid from the Rebate Fund; and (iii) to pay the Trustee any amounts required to be rebated to the federal government in accordance with such calculations pursuant to the Financing Agreement. Any fees or expenses incurred by the Trustee or the Issuer under or as described under this heading shall be billed to the Borrower under the Financing Agreement. d"? 01-503376.3 B - 1-3 The Trustee shall deposit to the Rebate Fund any amounts paid to the Trustee to be rebated to the federal government as described under this heading and the Financing Agreement. Any amount deposited in the Rebate Fund, together with any earnings thereon, shall be for the sole benefit of the United States of America and shall not be subject to the lien of the Indenture or to the claim of any other person, including, without limitation, the Bondholders and the Issuer. The requirements described under this heading are subject to, and shall be interpreted in accordance with, Section 148(f) of the Code and the Treasury Regulations applicable thereto (the "Regulations") and shall apply except to the extent the Trustee and the Credit Provider are furnished with an opinion of Bond Counsel or other satisfactory evidence that the Regulations contain an applicable exception. Default Events of Default; Acceleration; Waiver of Default. Each of the following events shall constitute an "Event of Default" under the Indenture: (a) failure to pay the principal of or premium (if any) on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise; (b) failure to pay any installment of interest on any Bond when such interest installment shall become due and payable; (c) failure to pay the Purchase Price of any Bond tendered in accordance with the Indenture when such Purchase Price shall become due and payable; and (d) failure by the Issuer to perform or observe any other of the covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, and the continuation of such failure for a period of 60 days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Issuer, the Borrower and the Credit Provider by the Trustee, or to the Issuer, the Credit Provider, the Borrower and the Trustee by the holders of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding. No default described in (d) above shall constitute an Event of Default unless the Issuer, the Borrower or the Credit Provider shall have failed to correct such default within the applicable period; provided, however, that if the default shall be such that it cannot be corrected within such period, it shall not constitute an Event of Default if corrective action is instituted by the Issuer, the Borrower or the Credit Provider within the applicable period and diligently pursued until the default is corrected. With regard to any alleged default concerning which notice is given to the Borrower or the Credit Provider under the provisions of (d) above, the Issuer has granted the Borrower and the Credit Provider full authority for the account of the Issuer to perform any covenant or obligation the nonperformance of which is alleged in said notice to constitute a default in the name and stead of the Issuer with full power to do any and all things and acts to the same extent that the Issuer could do and perform any such things and acts and with power of substitution. Notwithstanding any other provision of the Indenture or the Financing Agreement, if the Credit Provider is unable to cure any default described in paragraph (d) above and no default has occurred under any other paragraph above, no person other than the Credit Provider shall have the right to declare an Event of Default described in paragraph (d) above or exercise any right arising from any such Event of Default. In the event of an Event of Default and subject to the terms of the Assignment, unless the principal of all the Bonds shall have already become due and payable, the Trustee may, and upon the 01-503376.3 B-I-4 occurrence of any Event of Default described in paragraph (a), (b) or (c) above or upon the written request of the Credit Provider in the case of any other Event of Default, the Trustee shall, by notice in writing to the Issuer, the Credit Provider, the Borrower and the Remarketing Agent, declare the principal of all the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding. Upon any such declaration of acceleration the Trustee shall fix a date for payment of the Bonds, which date shall be as soon as practicable after such declaration, and shall draw upon any then outstanding Credit Facility in accordance with its terms and the provisions of the Indenture and apply the amount so drawn to pay the principal of and interest on the Bonds so due and payable. The preceding paragraph, however, is subject to the condition that if, at any time after the principal of the Bonds shall have been so declared due and payable, and before any drawing is made under the Credit Facility or any judgment or decree for the payment of the moneys due shall have been obtained or entered as provided in the Indenture, there shall have been deposited with the Trustee a sum sufficient to pay all the principal of the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal, and the reasonable fees and expenses of the Trustee, its agents and counsel, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the holders of at least a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Issuer and to the Trustee and with indemnification satisfactory to the Trustee and with the written approval of the Credit Provider, may, on behalf of the holders of all the Bonds, rescind and annul such declaration and its consequences and waive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Institution of Legal Proceedings by Trustee. If one or more of the Events of Default shall occur and subject to the terms of the Assignment, the Trustee in its discretion may, and upon the written request of the holders of a majority in principal amount of the Bonds then Outstanding and, in the case of an Event of Default described in paragraph (d) under the heading "Events of Default; Acceleration; Waiver of Default" above, upon the written request of the Credit Provider, and upon being indemnified to its satisfaction therefor the Trustee shall proceed to protect or enforce its rights or the rights of the holders of Bonds under the Indenture, the Financing Agreement and the Credit Facility, by a suit in equity or action at law, either for the specific performance of any covenant or agreement contained in the Indenture or therein, or in aid of the execution of any power in the Indenture or therein granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights or duties under the Indenture, provided that any such request from the Bondholders or the Credit Provider shall not be in conflict with any rule of law or with the Indenture, expose the Trustee to personal liability or be unduly prejudicial to Bondholders not joining therein. Application ofMoneys Collected by Trustee. Any moneys collected by the Trustee as described under the heading "Institution of Legal Proceedings by Trustee" above or the heading "Covenant To Pay Bonds in Event of Default" below, provided, however, any moneys realized from a draw on the Credit Facility or the Initial Standby Credit Facility shall be applied only to the payment of the principal and Purchase Price of and interest on the Bonds, shall be applied in the order following, at the date or dates fixed by the Trustee and, in the case of distribution of such moneys on account of principal (or premium, if any) or interest, upon presentation of the Bonds and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid: 01-503376.3 B-l-5 First: For payment of all amounts due to the Trustee under the Indenture. Second: For deposit in the Bond Fund and applied to payment of the principal of all Bonds then due and unpaid and the premium, if any, and interest thereon, ratably to the persons entitled thereto without discrimination or preference; except that no payment of principal or premium or interest shall be made with respect to any Bonds known by the Trustee to be registered in the name of the Issuer, the Credit Provider or the Borrower and/or a general partner or any guarantor of the Borrower to the extent certified in writing to the Trustee, until all amounts due on all Bonds not so registered have been paid. Third: For payment of all other amounts due to any person under the Indenture or under the Financing Agreement as certified by the Credit Provider to the Trustee. Fourth: To the Credit Provider to the extent of any amounts due it under the Reimbursement Agreement. Covenant To Pay Bonds in Event of Default. The Issuer has covenanted that, upon the happening of any Event of Default, the Issuer will pay to the Trustee upon demand, but only out of Revenues, for the benefit of the holders of the Bonds, the whole amount then due and payable thereon (by declaration or otherwise) for interest or for principal and premium, or both, as the case may be, and all other sums which may be due under the Indenture or secured by the Indenture, including reasonable compensation to the Trustee, its agents and counsel, and any expenses or liabilities incurred by the Trustee under the Indenture. In case the Issuer shall fail to pay the same forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, and upon being indemnified to its satisfaction shall be entitled to institute proceedings at law or in equity in any court of competent jurisdiction to recover judgment for the whole amount due and unpaid, together with costs and reasonable attorneys' fees, subject, however, to the condition that such judgment, if any, shall be limited to, and payable solely out of, Revenues and any other assets pledged, transferred or assigned to the Trustee under the Indenture and not otherwise. The Trustee shall be entitled to recover such judgment as aforesaid, either before or after or during the pendency of any proceedings for the enforcement of the Indenture, and the right of the Trustee to recover such judgment shall not be affected by the exercise of any other right, power or remedy for the enforcement of the provisions of the Indenture. Trustee Appointed Agent for Bondholders. The Trustee has been appointed under the Indenture to be the agent and attorney of the holders of all Bonds Outstanding for the purpose of filing any claims relating to the Bonds. Right of Credit Provider and Bondholders to Direct Proceedings. Anything in the Indenture to the contrary notwithstanding, the Credit Provider (so long as the Initial Standby Credit Provider is not in default under the Initial Standby Credit Facility), and the Holders of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the method of conducting all remedial proceedings taken by the Trustee under the Indenture, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Bondholders not parties to such direction or for which it has not been provided adequate indemnity. In the event of conflict between the directions of the Credit Provider and those of the registered owners with respect to an Event of Default, the directions of the Credit Provider shall prevail so long as the Initial Standby Credit Provider is not in default under the Initial Standby Credit Facility. 01-503376.3 B-I-6 Limitation on Bondholders' Right To Sue. No holder of any Bond issued under the Indenture shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture, unless (a) such holder shall have previously given to the Trustee written notice of the occurrence of an Event of Default under the Indenture; (b) the holders of at least a majority in aggregate principal amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such action, suit or proceeding in its own name; (c) said holders shall have tendered to the Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have refused or omitted to comply with such request for a period of 30 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) so long as the Initial Standby Credit Provider is not in default under the Initial Standby Credit Facility, the Credit Provider has given its consent to such suit, action or proceeding. Such notification, request, tender of indemnity and refusal or omission have been declared under the Indenture, in every case, to be conditions precedent to the exercise by any holder of Bonds of any remedy under the Indenture; it being understood and intended that no one or more holders of Bonds shall have any right in any manner whatever by its or their action to enforce any right under the Indenture, except in the manner in the Indenture provided, and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted, had and maintained in the manner in the Indenture provided and for the equal benefit of all holders of the Outstanding Bonds. The right of any holder of any Bond to receive payment of the principal of (and premium, if any) and interest on such Bond out of Revenues, as in the Indenture and therein provided, on and after the respective due dates expressed in such Bond, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such holder, notwithstanding the foregoing provisions described under this heading or under the heading "Right of Credit Provider and Bondholders to Direct Proceedings" above or any other provision of the Indenture. Limitation of Liability to Revenues. Notwithstanding anything in the Indenture, the Issuer shall not be required to advance any moneys of the Issuer, the State or by any political subdivision thereof or from any source of income of any of the foregoing other than the Revenues, for any of the purposes in the Indenture mentioned, whether for the payment of the principal of or interest on the Bonds or for any other purpose of the Indenture. The Bonds are limited obligations of the Issuer, and are payable from and secured by the Revenues only. Notice of Defuult. If a default occurs of which the Trustee is required by the Indenture to take notice or if notice of default be given as provided in the Indenture, the Trustee shall (a) unless the Trustee received notice thereof from the Credit Provider, immediately give telephonic notice thereof to the Borrower and the Credit Provider, with written confirmation of such notice to follow within three Business Days thereafter, and (b) within 15 days thereafter (unless such default is cured or waived), give notice of such default to each registered owner of Bonds then Outstanding, provided that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Bond, the Trustee may withhold such notice to the Bondholders if and so long as the Trustee in good faith determines that the withholding of such notice is in the interests of the Bondholders; and provided further that, in the case of any default of the character described in paragraph (d) under the heading "Events of Default; Acceleration; Waiver of Default" above, no such notice to the Bondholders shall be given until at least 30 days after notice thereof is received by the Trustee. No Default; Deemed Redemption. Notwithstanding the provisions described under the heading "Events of Default; Acceleration; Waiver of Default" above, during any period in which no Credit Facility is then in effect (by reason of the Indenture) there shall never occur an Event of Default described 01-503376,3 B-I-7 in paragraph (a), (b) or (c) under the heading "Events of Default; Acceleration; Waiver of Default" above, by reason of a failure of the Borrower to make full payments on the Loan. If there is an Event of Default under and as defined in the Financing Agreement, the then sole Bondholder shall have the right to cause the Bonds to be subject to mandatory redemption pursuant to the Indenture. Upon such mandatory redemption of the Bonds, all Outstanding Bonds shall be deemed redeemed as of the date of mandatory redemption. Upon such redemption date, all of the Bonds shall cease to bear interest and the Bondholders shall have no further rights except to obtain the distribution of the proceeds of the funds and other assets pledged to the Bonds, and such deemed redemption shall constitute payment in full of the Bonds, notwithstanding that amounts so distributed may be insufficient to pay the outstanding principal amount of the Bond and accrued interest thereon. The Trustee shall liquidate and distribute such funds and assets as described under the heading "Application of Moneys Collected by Trustee" above. By their acceptance of the Bonds, the Bondholders consent to the deemed redemption as described above and upon such deemed redemption the Bondholders shall no longer look to the Issuer to receive payment of the principal and interest and all other sums, if any, which are due under the Bonds, but shall look solely to the funds and other assets pledged to the Bondholders under the Indenture. The Trustee Duties, Immunities and Liabilities of Trustee. The Trustee shall, prior to an Event of Default, and after the curing of all Events of Default which may have occurred, perform such duties and only such duties as are specifically set forth in the Indenture, including the duty to draw on the Credit Facility and the Initial Standby Credit Facility as required by the Indenture, and no additional covenants or duties of the Trustee shall be implied in the Indenture, the Issuer Loan Documents or otherwise. The Trustee shall, during the existence of any Event of Default (which has not been cured), exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under similar circumstances in the conduct of its own affairs. No provision of the Indenture shall be construed to relieve the Trustee from liability for its own negligent action or its own negligent failure to act, except that: (a) Prior to such an Event of Default under the lndentum and after the curing of all Events of Default which may have occurred, (i) the duties and obligations of the Trustee shall be determined solely by the express provisions of the Indenture, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in the Indenture, and no implied covenants or obligations shall be mad into the Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificate or written opinion furnished to the Trustee conforming to the procedural requirements of the Indenture; but in the case of any such certificate or written opinion which by any provision of the Indenture is specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not it conforms to the procedural requirements of the Indenture; (b) At all times, regardless of whether or not any Event of Default shall exist, (i) the Trustee shall not be liable for any error of judgment made in good faith by a responsible officer or officers or by any agent or attorney of the Trustee appointed with due care unless the Trustee was negligent in ascertaining the pertinent facts; and (ii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Credit Provider, in accordance with an opinion of Bond Counsel as provided in the Indenture or in accordance with the directions of the holders of not less than a majority, or such other 01-503376.3 B-1-8 percentage as may be required under the Indenture, in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture; (c) The Trustee shall not be required to take notice or be deemed to have notice of (i) any default under the Indenture or under the Financing Agreement, except defaults described in paragraphs (a), (b) or (c) under the heading "Events of Default; Acceleration; Waiver of Default" above, unless a responsible officer of the Trustee shall be specifically notified in writing of such default by the Issuer, the Credit Provider or the owners of at least 25% in aggregate principal amount of all Bonds then Outstanding, or (ii) any default under the Regulatory Agreement unless a responsible officer of the Trustee shall be specifically notified in writing of such default by the lssuer; (d) Before taking any action under the Indenture at the request or direction of the Bondholders or the Credit Provider, the Trustee may require that a satisfactory indemnity bond be furnished by the Bondholders or the Credit Provider, respectively, for the reimbursement of all expenses (including fees of its attorneys) to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any action so taken; (e) Upon any application or request by the lssuer to the Trustee to take any action under any provision of the Indenture, the Issuer shall furnish to the Trustee a Written Direction, Written Order or Written Request stating, among other things, that all conditions precedent, if any, provided for in the Indenture relating to the proposed action have been complied with, and, upon the request of the Trustee, an Opinion of Counsel stating that in the opinion of such Counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of the Indenture relating to such particular application or request, no additional certificate or opinion need be furnished; (f) The Trustee may execute any of the trusts or powers under the Indenture or perform any duties under the Indenture or under the Financing Agreement or the Regulatory Agreement either directly or through agents, receivers or attorneys; (g) Neither the Credit Provider, the Remarketing Agent, the Issuer, the Tender Agent nor the Borrower shall be deemed to be agents of the Trustee for any purpose, and the Trustee shall not be liable for any noncompliance of any of them in connection with their respective duties under the Indenture or in connection with the transactions contemplated by the Indenture; (h) The Trustee shall be entitled to rely upon telephonic notice for all purposes whatsoever so long as the Trustee reasonably believes such telephonic notice has been given by a person authorized to give such notice; and (i) The immunities extended to the Trustee also extend to its directors, officers, employees and agents. Anything to the contrary in the Indenture notwithstanding, the Trustee shall not be required to enter, take possession of, or take any other action whatsoever with respect to the Project, and shall not be required to initiate foreclosure proceedings with respect to the Project and the Security Instrument unless the Trustee is satisfied that the Trustee will not be subject to any liability under any local, state or federal 01-$03376.3 B-1-9 environmental laws or regulations of any kind whatsoever or from any circumstances present at the Project relating to the presence, use management, disposal or, or contamination by any environmentally hazardous materials or substances of any kind whatsoever. The Trustee shall not be liable for any actions taken or not taken by it in accordance with the direction of a majority (or other percentage provided for in the Indenture) in aggregate principal amount of Bonds outstanding relating to the exercise of any right, power or remedy available to the Trustee. Qualifications of Trustee. There shall at all times be a trustee under the Indenture, which shall be a banking association with trust powers organized and doing business under the laws of the United States or of a state thereof, authorized under such laws to exercise corporate trust powers, having (or, in the case of a corporation, its corporate parent shall have) a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal or state authority. If such corporation or banking association publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of this Section the combined capital and surplus of such corporation or banking association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the eft'ect described under the heading "Resignation and Removal of Trustee and Appointment of Successor Trustee" below. Resignation and Rernoval of Trustee and Appointntent of Successor Trustee. The Trustee may at any time resign by giving written notice delivered to the Issuer, the Borrower and the Credit Provider and by giving written notice to the Bondholders by first-class mail. Upon receiving such notice of resignation, the Issuer shall promptly appoint a successor trustee by an instrument in writing. If no successor trustee shall have been so appointed and have accepted appointment within 45 days after the giving of such notice of resignation, the resigning trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or the Credit Provider or any Bondholder who has been a bona fide holder of a Bond for at least six months may, on behalf of itself and others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and may prescribe, appoint a successor trustee. In case at any time either (i) the Trustee shall cease to be eligible as described under the heading "Qualifications of Trustee" above and shall fail to resign after written request therefor by the Issuer or the Credit Provider or by any Bondholder who has been a bona fide holder of a Bond for at least six months, or (ii) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Issuer shall remove the Trustee and, upon such removal or upon any removal as described in the succeeding paragraph, except as otherwise described in the succeeding paragraph, the Issuer shall appoint a successor trustee by an instrument in writing, with the consent of the Credit Provider and notice to the Remarketing Agent and the Borrower, or any such Bondholder or the Credit Provider may, on behalf of itself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and may prescribe, remove the Trustee and appoint a successor trustee. The Issuer, on its own initiation or at the request of the Borrower (and if at the request of the Borrower, with the consent of the Credit Provider), or the Credit Provider, with the written consent of the Issuer, or the Credit Provider or, if the Issuer is in default under the Indenture, the holders of a majority in aggregate principal amount of the Bonds at the time Outstanding, may at any time remove the Trustee and 01-503376.3 B-l-10 may appoint a successor Trustee, by an instrument or concurrent instruments in writing signed by the lssuer or such Bondholders, as the case may be, and delivered to the Trustee, the Tender Agent, the Issuer, the Credit Provider, the Borrower and the Remarketing Agent. Any resignation or removal of the Trustee and appointment of a successor Trustee as described under this heading shall become effective only upon acceptance of appointment and assumption of duties by the successor trustee as provided in the Indenture, upon transfer of the Credit Facility and the Initial Standby Credit Facility in accordance with its terms to the successor Trustee. Modification of Indenture Modification of Indenture Without Consent of Bondholders. The Issuer and the Trustee, from time to time and at any time, subject to the conditions and restrictions contained in the Indenture, may and in connection with Loan Conversion shall, enter into an indenture or indentures supplemental to the Indenture, which indenture or indentures thereafter shall form a part of the Indenture, for any one or more of the following purposes: (a) to add to the covenants and agreements of the Issuer contained in the Indenture, other covenants and agreements thereafter to be observed, or to assign or pledge additional security for the Bonds, or to surrender any right or power in the Indenture reserved to or conferred upon the Issuer, provided that no such covenant, agreement, assignment, pledge or surrender shall materially adversely affect the interests of the holders of the Bonds; (b) to evidence the succession of a new Trustee under the Indenture, or to provide for the appointment of a co~Trustee or for a paying agent in addition to the Trustee; (c) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing, correcting or supplementing any defective provision contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the Issuer may deem necessary or desirable and not inconsistent with the Indenture and which shall not materially adversely affect the interests of the holders of the Bonds; (d) to provide for the issuance of coupon bonds or to provide for the use of a book- entry system; provided, however, that the Issuer and the Trustee shall have received an opinion of Bond Counsel to the effect that issuance of the Bonds in coupon form or the use ora book-entry system, respectively, complies with all applicable laws and will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes; (e) to modify, amend or supplement the Indenture or any indenture supplemental to the Indenture in such manner as to permit the qualification of the Indenture or thereof under the Trust Indenture Act of 1939 or any similar federal statute hereafter in effect, and, if they so determine, to add to the Indenture or any indenture supplemental to the Indenture such other terms, conditions and provisions as may be permitted by said Trust Indenture Act of 1939 or similar federal statute, and which shall not materially adversely affect the interests of the holders of the Bonds; (t) to make such additions, deletions or modifications as may be necessary to assure compliance with Section 142(d), 148(d)(3) or 148(f) of the Code, or otherwise to assure the exclusion from gross income under federal tax law of interest on the Bonds; 01-503376.3 B-I-I 1 (g) to modify, alter, amend or supplement the Indenture in any other respect, including amendments which would otherwise be described under the heading "Modification of Indenture With Consent of Bondholders" below, if notice of the proposed supplemental indenture is given to Bondholders (in the same manner as notices of redemption are given) at least 30 days before the effective date thereof and, on or before such effective date, the Bondholders have the right to demand purchase of their Bonds pursuant to the Indenture; (h) to modify, alter, amend or supplement the Indenture in any other respect, in connection with the providing ora substitute Credit Facility or a substitute Initial Standby Credit Facility (including a Substitute Credit Facility as provided in the Financing Agreement), and which shall not materially adversely affect the interests of the holders of the Bonds; (i) to modify, alter, amend or supplement the Indenture in any other respect, including amendments that would otherwise be described under the heading "Modification of Indenture With Consent of Bondholders" below, (1) if such supplemental indenture will take effect on a Demand Date (other than as described in the Indenture) following the mandatory purchase of Bonds, or (2) if notice of the proposed supplemental indenture is given to Bondholders (in the same manner as notices of redemption are given) at least 30 days before the effective date thereof and, on or before such effective date, the Bondholders have the right to demand purchase of their Bonds pursuant to the Indenture; or (j) to modify, alter, amend or supplement the Indenture in any other respect in connection with the Loan Conversion, if such modification, alteration, amendment or supplement shall not materially adversely affect the interests of the holders of the Bonds. Any supplemental indenture authorized by the provisions of the Indenture described under this heading may be executed by the Issuer and the Trustee without the consent of or, except in the case of clause (g) above, notice to the holders of any of the Bonds at the time Outstanding, notwithstanding any of the provisions described under the heading "Modification of Indenture With Consent of Bondholders" below, but (i) the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under the Indenture or otherwise; (ii) the Trustee shall not enter into any such supplemental indenture which affects the rights or obligations of the Borrower under the Indenture or under the Financing Agreement without first obtaining the written consent of the Borrower, except as required in the opinion of Bond Counsel to maintain the tax-exempt status of interest on the Bonds, in which case the Trustee shall give notice thereof to the Borrower; and (iii) the Trustee shall not enter into any such supplemental indenture without first obtaining the written consent of the Credit Provider and the Initial Standby Credit Provider, except as required in the opinion of Bond Counsel to maintain the tax-exempt status of interest on the Bonds, in which case the Trustee shall give notice thereof to the Credit Provider and the Initial Standby Credit Provider. Modification of Indenture With Consent of Bondholders. With the prior written consent of the Credit Provider and the consent of the holders of a majority in aggregate principal amount of the Bonds at the time Outstanding, evidenced as provided in the Indenture, the Issuer and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental to the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture; provided, however, that, except to the extent described under the heading "Modification of Indenture Without Consent of Bondholders" above, no such supplemental indenture shall (a) extend the fixed maturity of any Bond or reduce the rate of interest thereon or extend the time of payment of interest, or reduce the amount of the principal thereof, or reduce any premium payable on the redemption thereof, without the consent of the holder of each Bond so affected, or (b) reduce the aforesaid percentage of holders of Bonds whose consent is required for the execution of such 01-503376.3 B-l-12 supplemental indentures, or permit the creation of any lien on the Revenues prior to or on a parity *vith the lien of the Indenture, except as permitted in the Indenture, or permit the creation of any preference of any Bondholder over any other Bondholder or deprive the holders of the Bonds of the lien created by the Indenture upon the Revenues, or impair the right of the owners of Bonds to demand purchase thereof pursuant to the Indenture, without in each case the consent of the holders of all the Bonds then Outstanding. Nothing described under this heading shall be construed as making necessary the approval of any Bondholder of any supplemental indenture described under the heading "Modification of Indenture Without Consent of Bondholders" above. Upon receipt by the Trustee of a Certified Resolution authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Bondholders, as aforesaid, the Trustee shall join with the Issuer in the execution of such supplemental indenture, unless (i) such supplemental indenture affects the Trustee's own rights, duties or immunities under the Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture; (ii) such supplemental indenture affects the rights or obligations of the Borrower under the Indenture or under the Financing Agreement, in which case the Trustee shall enter into such supplemental indenture only if the Trustee has received the Borrower's written consent thereto, except as required in the opinion of Bond Counsel to maintain the tax-exempt status of interest on the Bonds, in which case the Trustee shall give notice thereof to the Borrower; or (iii) such supplemental Indenture affects the rights or obligations of the Tender Agent under the Indenture, in which case the Trustee shall enter into such supplemental indenture only if the Trustee has received the Tender Agent's written consent thereto, except as required in the opinion of Bond Counsel to maintain the tax-exempt status of interest on the Bonds, in which case the Trustee shall give notice thereof to the Tender Agent. It shall not be necessary for the consent of the Bondholders described under this heading to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent approves the substance thereof. Promptly after the execution by the Issuer and the Trustee of any supplemental indenture described under this heading, the Trustee shall give Bondholders, by first-class mail, a notice setting forth in general terms the substance of such supplemental indenture. Any failure of the Trustee to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Effect of Supplemental Indenture. Upon the execution of any supplemental indenture pursuant to the provisions of the Indenture described under the heading "Modification of Indenture" herein, the Indenture shall be and be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the Issuer, the Trustee and all holders of Outstanding Bonds shall thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be part of the terms and conditions of the Indenture for any and all purposes. Opinion of Counsel as to Supplemental Indenture. Subject to the provisions of the Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel for the Issuer or Bond Counsel as conclusive evidence that any supplemental indenture executed pursuant to the provisions of the Indenture described under the heading "Modification of Indenture" herein is authorized and permitted by the Indenture and will not cause interest on the Bonds to be includable in gross income for federal income tax purposes. Notation of Modification on Bonds; Preparation of New Bonds. Bonds authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of the Indenture described under the heading "Modification of Indenture" herein may bear a notation, in form approved by 01-503376,3 m- 1 - 13 the Trustee and the Issuer as to any matter provided for in such supplemental indenture, and if such supplemental indenture shall so provide, new Bonds, so modified as to conform, in the opinion of the Trustee and the Issuer, to any modification of the Indenture contained in any such supplemental indenture, may be prepared by the Issuer, authenticated by the Trustee and delivered without cost to the holders of the Bonds then Outstanding, upon surrender for cancellation of such Bonds in equal aggregate principal amounts. Defeasance Discharge of Indenture. If the entire indebtedness on all Bonds Outstanding shall be paid and discharged in any one or more of the following ways: (a) by the payment of the principal of (including redemption premium, if any) and interest on all Bonds Outstanding; or (b) by the deposit or credit to the account of the Trustee, in trust, at or before maturity, of money or Government Obligations in the necessary amount (as described under the heading "Deposit of Money or Securities With Trustee" below) to pay or redeem Bonds Outstanding, whether by redemption or otherwise and prior receipt by the Trustee of written evidence from the Rating Agency that such deposit or credit will not cause a reduction or withdrawal of the then current rating on the Bonds; or (c) by the delivery to the Trustee, for cancellation by it, of all Bonds Outstanding; and if all other sums payable under the Indenture by the Issuer and all amounts payable to the Credit Provider under the Reimbursement Agreement shall be paid and discharged, then and in that case the Indenture shall cease, terminate and become null and void, except only as provided in the Indenture, and thereupon the Trustee shall, upon Written Request of the Issuer, and upon receipt by the Trustee of a Written Certificate of the Issuer and an Opinion of Counsel, each stating that in the opinion of the signers all conditions precedent to the satisfaction and discharge of the Indenture have been complied with, forthwith execute proper instruments acknowledging satisfaction of and discharging the Indenture. The fees and charges of the Trustee and the Tender Agent (including reasonable counsel fees) must be paid in order to effect such discharge. The satisfaction and discharge of the Indenture shall be without prejudice to the rights of the Trustee to charge and be reimbursed by the Borrower for any expenditures which it may thereafter incur in connection with the Indenture. The Issuer or the Credit Provider or the Borrower may at any time surrender to the Trustee for cancellation by it any Bonds previously authenticated and delivered which the Issuer or the Credit Provider or the Borrower lawfully may have acquired in any manner whatsoever, and such Bonds upon such surrender and cancellation shall be deemed to be paid and retired. Subject to the provisions of the Indenture described under the heading "Payment of Bonds After Discharge of Indenture" below and notwithstanding any other provision of the Indenture, the Financing Agreement or any other document, agreement or instrument executed in connection with the issuance and delivery of the Bonds, any amounts remaining in any fund or account established under the Indenture after the discharge of the Indenture described under the heading "Defeasance" herein shall be paid to the Borrower. Discharge of £iabili~y on Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as described under the heading "Deposit of Money or Securities With Trustee" below) to pay or redeem Outstanding Bonds (whether upon or prior to 01-503376~3 B- 1-14 their maturity or the redemption date of such Bonds) provided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice, all liability of the lssuer in respect of such Bonds shall cease, terminate and be completely discharged, except only that thereafter the holders thereof shall be entitled to payment by the Issuer, and the Issuer shall remain liable for such payment, but only out of the money or securities deposited with the Trustee as aforesaid for their payment, subject, however, to the provisions of the Indenture described under the heading "Payment of Bonds After Discharge of Indenture" below. Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys deposited with the Trustee or any paying agent in trust for the payment of the principal of, or interest or premium on, any Bonds remaining unclaimed for two years after the principal of all the Outstanding Bonds has become due and payable (whether at maturity or upon call for redemption or by declaration as provided in the Indenture), shall then be paid to the Issuer, and the holders of such Bonds shall thereafter be entitled to look only to the Issuer for payment thereof, and only to the extent of the amount so paid to the Issuer, and all liability of the Trustee or any paying agent with respect to such moneys shall thereupon cease. In the event of the payment of any such moneys to the Issuer as aforesaid, the holders of the Bonds in respect of which such moneys were deposited shall thereafter be deemed to be unsecured creditors of the Issuer for amounts equivalent to the respective amounts deposited for the payment of such Bonds and so paid to the Issuer (without interest thereon). Deposit of Money or Securities With Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or credited to the account of or held in trust by the Trustee money or securities purchased with Available Amounts in the necessary amount to pay or redeem any Bonds (assuming for any Variable Period that the Bonds will bear interest at the Maximum Interest Rate from the date of such deposit or credit through the redemption or payment date), the money or securities so to be deposited or held shall be Available Amounts constituting: (a) lawful money of the United States of America in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which there shall have been furnished to the Trustee proof satisfactory to it that notice of such redemption on a specified redemption date has been duly given or provision satisfactory to the Trustee shall be made for such notice, the amount so to be deposited or held shall be the principal amount of such Bonds and interest thereon to the redemption date, together with the redemption premium, if any; or (b) Government Obligations in such amounts and maturing at such times that the proceeds of said obligations received upon their respective maturities and interest payment dates, without further reinvestment, will provide funds sufficient, in the opinion of a nationally recognized firm of certified public accountants, to pay the principal, premium, if any, and interest to maturity, or to the redemption date, as the case may be, with respect to all of the Bonds to be paid or redeemed, as such principal, premium and interest become due, provided that the Trustee shall have been irrevocably instructed by the Issuer to apply the proceeds of said obligations to the payment of said principal, premium, if any, and interest with respect to such Bonds. Eft' 01-50337&3 B-I-15 APPENDIX B-2 SUMMARY OF CERTAIN PROVISIONS OF THE PERMANENT INDENTURE The following summary of the Permanent Indenture relates only to the period beginning with Loan Conversion, if it occurs. Prior to Loan Conversion this description is of no force or effect. A summary of the Initial Indenture entered into with respect to the Bonds prior to Loan Conversion is set forth in Appendix B-1 hereto. Furthermore, the following summary of the Permanent Indenture is a summary only and does not purport to be a complete statement of the contents thereof Reference is made to the Permanent Indenture for the complete terms thereof References in this Appendix to the Indenture, the Financing Agreement, the Reimbursement Agreement, the Credit Facility, the Assignment and the Credit Provider will be references to the Permanent Indenture, the Permanent Financing Agreement, the Permanent Reimbursement Agreement, the Permanent Credit Facility, the Permanent Assignment and the Permanent Credit Provider, respectively. Funds and Accounts The following Funds and Accounts have been created with the Trustee: (a) the Revenue Fund and, within the Revenue Fund, the General Account, the Redemption Account, the Credit Facility Account and the Fees Account; (b) the Rebate Fund; and (c) the Bond Purchase Fund, and within the Bond Purchase Fund, a Remarketing Proceeds Account and a Remarketing Expenses Account. The Revenue Fund General Account Deposits Into the GeneralAccount. The Trustee will deposit each of the following amounts into the General Account: (1) on or before the date of Loan Conversion, the Initial Debt Service Deposit, as provided in the Indenture; (2) all regularly scheduled payments of principal, if any, and interest on the Mortgage Loan; (3) interest paid in connection with any prepayment of the Mortgage Loan; (4) all Investment Income on the Funds and Accounts (except that, as provided in the Indenture, Investment Income earned on amounts on deposit in the Accounts of the Mortgage Loan Fund will be credited to and be retained in the respective Accounts of the Mortgage Loan Fund, Investment Income earned on amounts on deposit in the Rebate Fund will be credited to and be retained in the Rebate Fund); 01-503376.3 (5) from time to time, upon receipt, Available Moneys provided pursuant to the Indenture to fund the interest portion of any End-Period Payment; and (6) any other moneys made available for deposit into the General Account from any other source including, but not limited to, any excess amounts in the Bond Purchase Fund. Disbursements From the GeneralAccount. The Trustee will disburse or transfer, as applicable, moneys on deposit in the General Account at the following times and apply such moneys in the following manner and in the following order of priority: (a) on each Interest Payment Date, the Trustee will disburse an amount equal to the amount of interest due on the Bonds on such Interest Payment Date and will apply such amount to the payment of such interest so due; (b) on each Redemption Date on which a mandatory sinking fund redemption pursuant to the Indenture is scheduled to take place, the Trustee will transfer to the Redemption Account an amount of principal equal to the sinking fund redemption payment due on such Redemption Date; (c) on each Maturity Date and the date of acceleration of the Bonds, the Trustee will disburse an amount equal to the principal due on the Bonds on such date and will apply such amount to the payment of such principal so due; (d) on each Interest Payment Date, the Trustee will transfer an aggregate amount equal to that portion of the Issuer's Annual Fee, the Trustee's Annual Fee and the Rebate Analyst's Annual Fee (to the extent (a) such Third Party Fees are included in the Mortgage Note Rate, as described in the Financing Agreement, and (b)such Third Party Fees are not paid in advance on the Closing Date) payable on such date (or on any date prior to the next Interest Payment Date) to the Fees Account; and (e) on each Interest Payment Date and following the disbursement, transfer and application of funds described in the preceding paragraphs (a) through (d), the Trustee will transfer any amounts remaining in the General Account in excess of the minimum balance required to be maintained by the Rating Agency on the basis of the Cash Flow Projection delivered on or before Loan Conversion, to the Redemption Account and, following such transfer, will apply any moneys so transferred (including any moneys so transferred on any prior Interest Payment Date), to the redemption of Bonds as provided in the Indenture. Redemption Account Deposits Into the Redemption Account. The Trustee will deposit each of the following amounts into the Redemption Account: (a) any prepayment of principal of the Mortgage Loan, and any Available Moneys provided by or on behalf of the Borrower pursuant to the Indenture to fund any premium on the Bonds to be paid in connection with such prepayment; (b) that portion of any other deposit or transfer of funds representing principal corresponding to the principal to be paid on any optional or special mandatory redemption of Bonds; 01-503376.3 B-2-2 (c) any amounts required to be transferred to the Redemption Account pursuant to the Indenture; (d) the amounts provided for in the Indenture; and (e) any other amount received by the Trustee and required by the terms of the Indenture or the Financing Agreement to be deposited into the Redemption Account. Disbursements From the Redemption Account. The Trustee will disburse moneys on deposit in the Redemption Account at the following times and apply such moneys in the following manner: (a) on each Redemption Date on which a mandatory sinking fund redemption pursuant to the Indenture is scheduled to take place, the Trustee will apply amounts on deposit in the Redemption Account, including amounts transferred pursuant to the Indenture, to payment of the sinking fund redemption due on such Redemption Date; and (b) on each Redemption Date on which a redemption pursuant to the Indenture is scheduled to take place, the Trustee will apply amounts on deposit in the Redemption Account to the payment of principal of and premium, if any, on the Bonds to be redeemed on such Redemption Date. Credit Facility Account Deposits Into the Credit Facility Account. The Trustee will deposit all amounts advanced under the Credit Facility into the Credit Facility Account. No other moneys will be deposited into the Credit Facility Account. The Credit Facility Account will be closed at such time as the Credit Provider has no continuing liability under the Credit Facility. Disbursements From the Credit Facility Account. The Trustee will, on each date on which a payment is due under the Indenture and in respect of which an Advance is made under the Credit Facility, apply such Advance, on the date such payment is due, to the payment of the amounts in respect of which such Advance was made. Fees Account Deposits Into the Fees Account. The Trustee will deposit into the Fees Account (a) amounts provided for in the Indenture and (b) any payment of a Third Party Fee pursuant to the Financing Agreement to the extent that such Third Party Fee is not included in the Mortgage Note Rate. Disbursements From the Fees Account. Following the deposit provided for in the Indenture, the Trustee will disburse moneys on deposit in the Fees Account on each Interest Payment Date to the payment of Third Party Fees in satisfaction of the obligations of the Borrower under the Financing Agreement. In the event the amount in the Fees Account is insufficient to pay such Third Party Fees, the Trustee will inform the Loan Servicer and make written demand on the Borrower for the amount of such insufficiency and, pursuant to the terms of the Financing Agreement, the Borrower will be liable to promptly pay the amount of such insufficiency to the Trustee within five Business Days after the date of the Trustee's written demand. 01-503376.3 B-2-3 The Rebate Fund Deposits; Administration. The "Rebate Fund" shall be held and applied as provided in thc Indenture. On any date on which any amounts are required by applicable federal tax law to be rebated to the federal government, amounts shall be withdrawn by the Trustee from the General Account and deposited into the Rebate Fund for such purpose. All money at any time deposited into the Rebate Fund will be held by the Trustee in trust, to the extent required to satisfy any rebate requirement (as calculated by the Rebate Analyst) to the United States government. Neither the Issuer, the Borrower, the Bondholders nor the Credit Provider will have any rights in or claim to such moneys. All amounts deposited into or on deposit in the Rebate Fund will be governed by the Indenture and the Financing Agreement and by the Tax Certificate. Bond Purchase Fund The Trustee shall deposit: (i) all proceeds of the remarketing of Bonds remitted to the Trustee by the Remarketing Agent pursuant to the provisions of the Indenture into the Remarketing Proceeds Account; and (ii) all amounts paid to the Trustee by the Borrower, the Issuer or the Credit Provider to pay Remarketing Expenses into the Remarketing Expenses Account. (iii) The Trustee shall apply amounts on deposit in the (a) Remarketing Proceeds Account to pay the purchase price of Bonds purchased under the Indenture to the former owners of such Bonds upon presentation of the Bonds to the Trustee, and (b) Remarketing Expenses Account to pay Remarketing Expenses, as provided in the Indenture. In the event that the Bonds Outstanding are not remarketed on a scheduled Remarketing Date, all amounts in the Bond Purchase Fund in excess of amounts on deposit in the Bond Purchase Fund required to pay the purchase price of the Bonds shall be disbursed as provided in the Indenture. In the event that the Bonds Outstanding are remarketed and the proceeds of remarketing exceed 100% of the principal amount of the Bonds Outstanding or in the event funds received by the Trustee to pay Remarketing Expenses are not required for such purpose, such excess amounts shall be transferred to the General Account. Investments Moneys held as part of any Fund or Account shall be invested and reinvested in Permitted Investments. Permitted Investments shall have maturities corresponding to, or shall be available for withdrawal without penalty no later than, the dates upon which such moneys will be needed for the purpose for which such moneys are held. Moneys on deposit in the (a) General Account and the Fees Account shall be invested only in investments described in paragraphs (i), (ii), (iii), (vii) and (viii) of the definition of Permitted Investments, (b) Redemption Account shall be invested only in investments described in paragraph (i) of the definition of Permitted Investments, and (c) Credit Facility Account and the Bond Purchase Fund shall be held uninvested. Permitted Investments shall be held by or under the control of the Trustee. All Investment Income from moneys held in all Funds and Accounts other than the Mortgage Loan Fund, the Rebate Fund and the Costs of Issuance Fund (other than as provided in the Indenture) upon receipt shall be deposited into the General Account; Investment Income from moneys held in the Mortgage Loan Fund shall be retained in the Mortgage Loan Fund. 01-503376.3 B-2-4 Discharge of Lien and Security Interest Discharge. Upon satisfaction of the conditions precedent set out in the Indenture, the Trustee will (a) execute and deliver to the Issuer such instruments in writing prepared by the Issuer or its counsel and provided to the Trustee and the Credit Provider as will be required to cancel and discharge the Indenture and the pledge and assignment of the Trust Estate, (b) reconvey, assign and deliver to the lssuer so much of the Trust Estate as may be in its possession or subject to its control (except for (i) moneys and Government Obligations held for the purpose of paying Bonds and (ii) moneys and Permitted Investments held in the Rebate Fund for payment to the United States government), who will, in turn, convey, assign and deliver the remaining Trust Estate to the Borrower, and (c) return the Credit Facility to the Credit Provider. Conditions to Discharge. The conditions precedent to the cancellation and discharge of the Indenture and the other acts described in the Indenture are (a) payment in full of the Bonds, (b) payment of the Trustee's Annual Fee and the Trnstee's ordinary costs and expenses under the Indenture, (c) receipt by the Trustee of a written statement from the Credit Provider stating that all obligations owed to the Credit Provider under the Credit Facility Agreement and the Mortgage Loan Documents have been fully paid, (d) payment of all Extraordinary Items, (e) receipt by the Trustee of a written statement from the Issuer stating that all amounts owed to the Issuer in respect of Reserved Rights have been fully paid, (f') receipt by the Trustee of an Opinion of Counsel, at the expense of the Borrower, to the effect that the Credit Provider has no further obligation under the Credit Facility and (g) receipt by the Trustee of an Opinion of Counsel, at the expense of the Borrower, stating that all conditions precedent to the satisfaction and discharge of the Indenture have been satisfied. Defeasance Provision for Payment of Bonds. Any Bond will be deemed to have been paid within the meaning of the Indenture if: (a) there has been irrevocably deposited with the Trustee either (i) sufficient Available Moneys or (ii) Government Obligations, which are not subject to early redemption and which are purchased with Available Moneys, of such maturities and interest payment dates and bearing such interest as will, without further investment or reinvestment of either the principal amount of such Government Obligations or the interest earnings on Government Obligations (the earnings to be held in trust also), be sufficient, together with any Available Moneys deposited pursuant to this paragraph, in each case as verified by a written report of an independent certified public accountant, for the payment on their respective maturity dates, or redemption dates prior to maturity, of the principal of such Bonds and redemption premium, if any, and interest to accrue on such Bonds to such maturity or redemption dates, provided that the Trustee has received, at the expense of the Borrower (A) an Opinion of Counsel rendered by bankruptcy counsel that such Available Moneys or Government Obligations purchased with Available Moneys are not subject to avoidance under Section 547 or 544 and are not subject to an automatic stay pursuant to Section 362 of the Bankruptcy Code or any successor statute, and, as such, are not recoverable under Section 550(a) of the Bankruptcy Code or other applicable insolvency law, should there be a petition by or against the Borrower, any general partner of the Borrower or the Issuer under the Bankruptcy Code or any other bankruptcy act, and (B) an Opinion of Bond Counsel to the effect that such deposit with the Trustee and consequent defeasance of the Bonds does not adversely affect the excludability of the interest payable on the Bonds from gross income for federal income tax purposes; 01-5033763 B-2-5 (b) all Third Party Fees due or to become due have been paid or sufficient additional moneys to make the required payments have been irrevocably deposited with the Trustee; and (c) for any such Bonds to be redeemed on any date prior to their maturity, the Trustee has received in form satisfactory to it irrevocable instructions to redeem such Bonds on a date on which the Bonds are subject to redemption, and either evidence satisfactory to the Trustee that all redemption notices required by the Indenture have been given or irrevocable power authorizing the Trustee to give such redemption notices. The Trustee will redeem the Bonds specified by such irrevocable instructions on the date specified by such irrevocable instructions. Defeased Bonds No Longer Outstanding. At such time as a Bond will be deemed to be paid under the Indenture, it will no longer be secured by or entitled to the benefits of the Indenture, except for the purposes of payment in accordance with the terms of the Indenture. Default Provisions and Remedies Events of Default. Each of the following will constitute an Event of Default under the Indenture: (a) default in the payment of any interest due on any Bond (other than a Purchased Bond) on any Interest Payment Date or any other date when and as the same becomes due; (b) default in the payment of the principal of any Bond (other than a Purchased Bond) when and as the same becomes due, whether at the stated maturity of the Bond or upon any redemption of the Bond; (c) written notice to the Trustee from the Credit Provider of a default by the Issuer in the observance or performance of any covenant, agreement, warranty or representation on the part of the lssuer included in the Indenture or in the Bonds (other than an Event of Default set forth in subsection (a) or (b) above) and the continuance of such default for a period of 30 days after the Trustee receives such notice; or (d) an Act of Bankruptcy. Preliminary Notice. The Trustee will immediately notify the Issuer, the Loan Servicer, the Borrower and the Credit Provider after the Trustee obtains knowledge or receives notice of the occurrence of an Event of Default or an event which would become an Event of Default with the passage of time or the giving of notice, or both, identifying the paragraph in the Indenture under which the Event of Default has occurred or may occur. Nondefault and Prohibition of Mandatory Redemption Upon Event of TaxabiliO~. The occurrence of any event (a "Tax Event") which results in the interest payable on the Bonds being includable for federal income tax purposes, in the gross income of the Bondholders, including, but not limited to, any violation of any provision of the Regulatory Agreement or any of the other Bond Documents, will not (a) constitute an Event of Default under the Indenture, the Bonds or any of the other Bond Documents, or permit any party (other than the Credit Provider) to accelerate, or require acceleration of, the Mortgage Loan or the Bonds, or give rise to a mandatory redemption of the Bonds, unless the Credit Provider, in its sole and absolute discretion, provides written notice to the Trustee that such Tax Event constitutes an Event of Default under the Security Instrument and, by cross-default, a default under the Financing Agreement, or (b) give rise to the payment to the Bondholders of any amount, 01-503376~3 B-2-6 denoted as "supplemental interest," "additional interest," "penalty interest," "damages," "liquidated damages" or otherwise, in addition to the amounts payable to the owners of the Bonds prior to the occurrence of the Tax Event. Nothing contained in the Indenture will be deemed to amend or modify the terms of the Mortgage Loan Documents. Promptly upon determining that a Tax Event has occurred, the Issuer or the Trustee, by notice in writing to the Credit Provider, the Loan Servicer, all Registered Owners of the Bonds will state that a Tax Event has occurred and whether the Tax Event is cured, curable within a reasonable period or incurable. Notwithstanding the availability of the remedy of specific performance to cure a Tax Event that is curable within a reasonable period, neither the Issuer nor the Trustee will have, and each of them has acknowledged that, except at the direction of the Credit Provider, they will not have, upon the occurrence of a Tax Event, any right or obligation to cause or direct acceleration of the Bonds or the Mortgage Loan, to enforce the Mortgage Note or to foreclose the Security Instrument, to accept a deed to the Project in lieu of foreclosure, or to effect any other comparable conversion of the Mortgage Loan. Remedies; Rights of Bondholders Acceleration; Rescission of Acceleration. Upon: (a) the occurrence of the Event of Default described in paragraph (a) or (b) of the section entitled "Events of Default" above, the Trustee may, and will upon the written request of Bondholders owning not less than 51% in aggregate principal amount of Bonds then Outstanding, by written notice to the Issuer, the Borrower, the Credit Provider and the Loan Servicer, declare the principal of all Bonds then Outstanding (if not then due and payable) and the interest accrued, and to accrue, on the Outstanding Bonds to the date of such declaration immediately due and payable; or (b) the occurrence of an Event of Default described in the Indenture, the Trustee may, upon receiving the prior written consent of the Credit Provider, and will, upon the written direction of the Credit Provider, by written notice to the Issuer, the Borrower, the Credit Provider the Loan Servicer, declare the principal of all Bonds then Outstanding (if not then due and payable) and the interest accrued, and to accrue, on the Outstanding Bonds to the date of such declaration immediately due and payable. Upon any such declaration of acceleration, the Trustee will (i) give immediate notice to the Credit Provider and request an Advance under the Credit Facility pursuant to the Indenture, (ii) exercise such rights as it may have under the Mortgage Note to declare all payments under the Mortgage Note to be immediately due and payable and (iii) give the notice required by the Indenture. Notice. Upon any decision to accelerate payment of the Bonds, the Trustee will notify the Bondholders of the declaration of acceleration, that interest on the Bonds will cease to accrue upon such declaration, and that payment of such Bonds will be made upon presentment of the Bonds at the Principal Office of the Trustee not earlier than 15 days following the date of acceleration. Such notice will be sent by registered mail, overnight delivery service or other secure means, postage or charges prepaid, or, at the Tmstee's option, may be given by Electronic Means to each Registered Owner of Bonds at such Registered Owner's last address appearing in the Bond Register. Any defect in or failure to give notice of such declaration will not affect the validity of such declaration. Other Remedies. Subject to the Indenture, upon the occurrence and continuance of an Event of Default, the Trustee may, with or without taking action under the Indenture, but only with the prior written consent of the Credit Provider, and will, at the direction of the Credit Provider if the Event of 01-503376.3 B-2-7 Default occurs under paragraph (c) or (d) of the section entitled "Events of Default" above, pursue any of the following remedies: (a) an action in mandamus or other suit, action or proceeding at law or in equity (i) to enforce the payment of the principal of, premium, if any, or interest on the Bonds then Outstanding, (ii) for the specific performance of any covenant or agreement contained in the Indenture or in the Financing Agreement or in the Regulatory Agreement or (iii) to require the Issuer to carry out any other covenant or agreement with Bondholders and to perform its duties under the Act; (b) the liquidation of the Trust Estate pledged under the Indenture (subject to the provisions of the Indenture); or (c) an action or suit in equity, to enjoin any acts or things which may be unlawful or in violation of the rights of the Bondholders and to execute any other papers and documents and do and perform any and all such acts and things as may be necessary or advisable in the opinion of the Trustee in order to have the respective claims of the Bondholders against the Issuer allowed in any bankruptcy or other proceeding. Subject to the provisions of the Indenture and the requirement, if any, that the Credit Provider consent in writing to the exercise by the Trustee of any such available remedy, upon the occurrence and continuance of an Event of Default, the Trustee will exercise such of the rights and powers conferred by the Indenture as the Trustee, being advised by counsel, will deem most effective to enforce and protect the interests of the Bondholders and the Credit Provider. Preservation of Security and Remedies if Wrongful Dishonor Occurs; Rights of Bondholders. Upon the occurrence and during the continuance of a Wrongful Dishonor, the Trustee may proceed, and upon the written request of the holders of not less than 25% of the aggregate principal amount of the Bonds Outstanding and the receipt of indemnity reasonably satisfactory to the Trustee, will proceed, to protect and enforce its rights and the rights of the Bondholders under the Indenture by such suits, actions or special proceedings in equity or at law, or by proceedings in the office of any board or officer having jurisdiction, whether for the specific performance of any covenant or agreement contained in the Indenture or the Financing Agreement, or in aid of the execution of any power granted in the Indenture, or in the Financing Agreement or by the Act, or for the enforcement of any legal or equitable right or remedy, as the Trustee, being advised by counsel, shall deem most effective to protect and enforce such rights or to perform any of its duties under the Indenture. Remedies Not Exclusive. Subject to the provisions of the Indenture, no right or remedy conferred upon or reserved to the Trustee (or to the Bondholders) by the terms of the Indenture is intended to be exclusive of any other right or remedy, but each and every such right and remedy will be cumulative and will be in addition to any other right or remedy given to the Trustee or to the Bondholders under the Indenture or under the Financing Agreement, the Regulatory Agreement or the Credit Facility or now or hereafter existing at law or in equity. Waiver. To the extent not precluded by law, the Trustee, upon notice to and with the prior written consent of the Credit Provider (unless a Wrongful Dishonor has occurred and is continuing) may waive any Event of Default under the Indenture and its consequences and, if the Trustee has accelerated payment of the Bonds, rescind the declaration of acceleration (unless precluded by the Indenture or unless clause (b) following shall be applicable) and will do so upon the written request of(a) the Credit Provider or (b) Bondholders owning not less than 51% in aggregate principal amount of Bonds then Outstanding; provided, however, that there will be no such waiver or rescission unless the principal and interest on the 01-503376.3 B-2-8 Bonds in arrears (without regard to the acceleration), together with interest at the applicable rate or rates of interest borne by the Bonds on such overdue principal and, to the extent permitted by law, on such overdue interest, will have been paid or provided for by the Borrower or by the Credit Provider and all fees and expenses of the Trustee will have been paid or provided for by the Borrower or the Credit Provider. In the case of any such waiver, the Issuer, the Borrower, the Trustee and the Bondholders will be restored to their former positions and rights under the Indenture. The Trustee may not waive any Event of Default under the Indenture unless, after the waiver, the Credit Facility will remain in effect in an amount equal to the aggregate principal amount of the Bonds outstanding (other than a Purchased Bond) plus the Interest Requirement; provided, however, that such waiver will be permitted if (i)the Issuer consents to the waiver, (ii) the Rating Agency then rating the Bonds is notified and the Trustee gives written notice to the Bondholders that the ratings on the Bonds may be reduced or withdrawn upon the occurrence of such ~vaiver, and (iii) 100% of the Bondholders consent to the waiver. Limited Effect of Waiver. No waiver of any Event of Default, whether by the Trustee or by the Bondholders, will extend to or will affect any subsequent Event of Default or will impair any rights or remedies consequent to such Event of Default. Delay or Otm'ssion. No delay or omission to exercise any right or remedy provided in the Indenture upon any Event of Default will impair any such right or remedy or will be construed to be a waiver of any such Event of Default or acquiescence in it and every such right and remedy may be exercised from time to time as often as may be deemed expedient. Rights of the Credit Provider and the Bondholders To Direct Proceedings; Rights and Limitations Applicable to Bondholders, Issuer and Trustee Rights To Direct Proceedings. Notwithstanding anything contained in the Indenture to the contrary, the Credit Provider itself or Bondholders owning not less than 51% in aggregate principal amount of Bonds then Outstanding, but only with the prior written consent of the Credit Provider, will have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture or any other proceedings under the Indenture, provided that such direction will not be otherwise than in accordance with the provisions of law and of the Indenture, and provided that the Trustee will be indemnified to its satisfaction (except for actions required under the Indenture relating to a specific Advance under the Credit Facility and certain other actions required under the Indenture). Limitations on Bondholders' Rights. No Bondholder will have the right to enforce the provisions of the Indenture, the Financing Agreement or any Mortgage Loan Document, or to institute any proceeding in equity or at law for the enforcement of the Indenture or the Financing Agreement, or to take any action with respect to an Event of Default under the Indenture or an "Event of Default" under (and as defined in) the Financing Agreement, or to institute, appear in or defend any suit or other proceeding with respect to the Indenture, the Financing Agreement or any Mortgage Loan Document upon an Event of Default unless (a)such Bondholder has given the Trustee, the Issuer, the Credit Provider, the Loan Servicer and the Borrower written notice of the Event of Default, (b) the holders of not less than 51% in aggregate principal amount of Bonds then Outstanding will have requested the Trustee in writing to institute such proceeding, (c) the Trustee will have been afforded a reasonable opportunity to exercise its powers or to institute such proceeding, (d) the Trustee has been offered reasonable indemnity, where required, and (e) the Trustee has thereafter failed or refused to exercise such powers or to institute such proceeding within a reasonable period of time. Except as provided in the Indenture, no Bondholder 01-503376,3 B-2-9 will have any right in any manner whatever by his or her action to affect, disturb or prejudice the pledge of Revenues or of any other moneys, funds or securities under the Indenture. No Bondholder will have the right, directly or indirectly, individually or as a group, to seek to enfome, collect amounts available under, or otherwise realize on, the Credit Facility. Noninterference and Nonimpairment of Mortgage Loan. Notwithstanding anything contained in the Indenture to the contrary, so long as the Credit Facility remains in effect and a Wrongful Dishonor has not occurred or, if it has occurred is not continuing, neither the Issuer, the Trustee nor any person under their control nor the Bondholders will, without the prior written consent of the Credit Provider exercise, directly or indirectly, any remedy or direct any proceeding under the Bond Documents or with respect to the Mortgage Loan or, directly or indirectly: (a) initiate or take any action which may have the effect, directly or indirectly, of (i) impairing the ability of the Borrower to timely pay the principal of, interest on, or other amounts due and payable under, the Mortgage Loan Documents or (ii) impairing or defeating the validity or priority of the lien created by the Security Instrument; (b) interfere with or attempt to influence the exercise by the Credit Provider of its rights under the Mortgage Loan Documents, including, but not limited to, the Credit Provider's remedial rights under the Mortgage Loan Documents upon the occurrence of an Event of Default by the Borrower under the Security Instrument; or (c) upon the occurrence of an Event of Default under the Security Instrument, take any action to accelerate or otherwise enforce payment or seek other remedies with respect to the Mortgage Loan, provided that, subject to the provisions of the foregoing paragraphs (a) through (c), the Indenture will not prohibit the Issuer's right to enforce its Reserved Rights, and provided further that the Issuer or the Trustee, as the case may be, may (i) enforce rights under the Credit Facility (so long as the Credit Facility is in effect), (ii) enforce the tax covenants set forth in the Indenture and the Financing Agreement and (iii) enforce rights of specific performance under the Financing Agreement and the Regulatory Agreement, except that neither the Issuer nor the Trustee will seek damages or any monetary recovery under the Financing Agreement or the Regulatory Agreement. Discontinuance of Proceedings. Prior to a demand for payment under the Credit Facility in case the Trustee has proceeded to enforce any right under the Indenture by the appointment of a receiver or otherwise, and such proceedings have been discontinued or abandoned for any reason, or have been determined adversely, then and in every such case the Issuer, the Credit Provider and the Trustee will be restored to their former positions and rights under the Indenture, and all rights, remedies, powers, duties and obligations of the Issuer, the Trustee and the Credit Provider will continue as if no such proceedings had been taken, subject to the limits of any adverse determination. Action by Trustee. All rights of action under the Indenture or upon any of the Bonds enforceable by the Trustee may be enforced by the Trustee without the possession of any of the Bonds, or the production of the Bonds at the trial or other proceedings relative to such suit, action or proceeding, and any such suit, action or proceeding instituted by the Trustee may be brought in its name for the ratable benefit of the Bondholders, without the necessity of joining any Bondholder as a party, and for the benefit of the Credit Provider. In any action, suit or other proceeding by the Trustee, the Trustee shall be paid fees, counsel fees and expenses in accordance with the Indenture. -503376.3 B-2 - 1 0 Application of Moneys Amounts derived from payments under the Credit Facility shall be deposited into the Credit Facility Account and applied solely to pay the principal of and interest on the Bonds and will not be applied to pay any fees or expenses or advances o£the Trustee or thc Issuer (except to the extent such fees are payable out of the Fees Account from transfers to the Fees Account from the General Account), including amounts in respect of indemnification. All other moneys received by the Trustee pursuant to any action taken under the Indenture and all moneys on deposit in the Funds and Accounts under the Indenture (other than the Rebate Fund, the Costs of lssuance Fund and the Fees Account) will b¢ deposited into the General Account after payment of the ordinary costs and expenses of the Trustee. The balance of such moneys, less such amounts as the Trustee determines may be needed for possible use in paying future fees and expenses and for the preservation and management of the Project (as identified by the Credit Provider), will be applied as described below. Principal on Bonds Not Due and Payable. Unless the principal of all Bonds shall have become or been declared due and payable, all such moneys will be applied: FIRST, to the payment of amounts, if any, payable to the United States pursuant to the Indenture; SECOND, to the payment of all interest then due on the Bonds, in the order of the maturity of such interest and, if the amount available will not be sufficient to pay in full said amount, then to the payment ratably of the amounts due, without any discrimination or privilege; THIRD, to the payment of the unpaid principal of any of the Bonds which will have become due (other than Bonds matured or called for redemption for the payment of which moneys are held pursuant to the provisions of the Indenture), in the order of their due dates upon which they became due, with interest on such Bonds from the respective dates upon which they became due at the rate or rates borne by the Bonds, to the extent permitted by law, and, if the amount available will not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the persons entitled to such payment without any discrimination or privilege; and FOURTH, to the payment of amounts owed to the Credit Provider under the Credit Facility Agreement and the Mortgage Loan Documents, as specified to the Trustee in writing by the Credit Provider and then to any unpaid amounts due to the Trustee for Extraordinary Items, for this purpose including the costs and expenses of any proceedings resulting in the collection of such moneys and of advances incurred or made by the Trustee. Principal on Bonds Declared Due and Payable. If the principal of all the Bonds has become or been declared due and payable, all such moneys will be applied, first, to the payment of amounts, if any, payable to the United States pursuant to the Indenture; second, to the payment of the principal and interest then due and unpaid upon the Bonds, without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably according to the amounts due respectively for principal and interest to the persons entitled to payment, until all such principal and interest has been paid; third, to pay the Credit Provider amounts owed to it under the Credit Facility Agreement and the Mortgage Loan Documents, as specified to the Trustee in writing by the Credit Provider; and, fourth, to the Borrower (but only if all amounts due the Trustee and the Issuer have been paid, otherwise to first pay such amounts in the priority set forth in the Indenture). 01-503376.3 B-2-1 1 Acceleration Rescinded. lfthe principal of all the Bonds has been declared due and payable, and if such declaration is thereafter rescinded under the Indenture, then, in the event that the principal of all the Bonds will later become or be declared due and payable, the moneys will be applied in accordance with the Indenture. General. Whenever moneys are to be applied pursuant to the Indenture, such moneys will be applied at such times, and from time to time, as the Trustee determines, having due regard for the amount of such moneys available for application, the likelihood of additional moneys becoming available for such application in the future, and potential expenses relating to the exercise of any remedy or right conferred on the Trustee by the Indenture. Whenever the Trustee applies such moneys, it will fix the date (which will be an Interest Payment Date unless it deems an earlier date more suitable) upon which such application is to be made, and upon such date interest on the amounts of principal to be paid on such date will cease to accrue. The Trustee will give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and will not be required to make payment to the owner of any Bond until such Bond is presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Whenever the principal of and interest on all Bonds have been paid in full under the provisions of the Indenture and all other conditions set out in the Indenture have been satisfied, any balance remaining in the Funds and Accounts will be paid as provided in the Indenture. The Trustee Resignation of Trustee. The Trustee may resign only upon giving 60 days' prior written notice to the Issuer, the Credit Provider, the Loan Servicer, the Borrower and to each Registered Owner of Bonds then outstanding as shown on the Bond Register. Notwithstanding such notice, such resignation shall take effect only upon the appointment of a successor Trustee in accordance with the Indenture and the acceptance of such appointment by such successor Trustee. Removal of Trustee. The Trustee may be removed at any time, upon 30 days' prior written notice to the Trustee, (a) by the Issuer, with the prior written consent of the Credit Provider, (b) by an instrument or concurrent instruments in writing delivered to the Issuer, the Credit Provider, the Loan Servicer, the Trustee and the Borrower, signed by the owners of not less than 51% in aggregate principal amount of Bonds then Outstanding, and approved by the Credit Provider which written instrument shall designate a successor trustee, or (c) by the Credit Provider. Such removal shall not be effective until a successor Trustee satisfying the requirements of the Indenture is appointed and has accepted its appointment. Appointment of Successor Trustee. Upon the resignation or removal of the Trustee, a successor Trustee shall be appointed by the Borrower with the prior written consent of the Issuer and the Credit Provider, provided that if the Borrower is then in default under any Bond Document or any Mortgage Loan Document or if an event has occurred and is continuing which, with notice or the passage of time or both, would constitute such a default, such appointment shall be made by the Issuer with the prior written consent of the Credit Provider. If, in the case of resignation or removal of the Trustee, no successor is appointed within 30 days after the notice of resignation or within 30 days after removal, as the case may be, then, in the case of a resignation, the resigning Trustee shall appoint a successor with the prior written consent of the Issuer and the Credit Provider or apply to a court of competent jurisdiction for the appointment of a successor Trustee and, in the case of a removal, the Credit Provider shall have the right to appoint a successor Trustee or to apply to a court of competent jurisdiction for the appointment of a successor Trustee. Qualifications of Successor Trustee. Any successor Trustee (a) shall be a bank or trust company organized under the laws of the United States of America or any state of the United States of America, 01-503376.3 B-2-12 having (or its parent having) a combined capital stock, surplus and undivided profits aggregating at least $50,000,000 and (b)shall accept in writing its duties and responsibilities under the Indenture, the Financing Agreement, the Assignment and the Regulatory Agreement. Such written acceptance shall be filed with the Issuer, the Credit Provider, the Loan Servicer and the Borrower. The successor Trustee shall give notice of such succession by first-class mail, postage prepaid, to each Bondholder at the address of such Bondholder shown on the Bond Register. Upon appointment ora successor Trustee, the resigning or removed Trustee, as the case may be, shall assign all of its right, title and interest in the Security, including its right, title and interest in the Credit Facility and the Indenture, to the successor Trustee. Supplemental Indentures; Amendments Supplemental Indentures Not Requiring Bondhohler Consent. The Issuer and the Trustee, without the consent of or notice to any of the Bondholders, may enter into an indenture or indentures supplemental to the Indenture for one or more of the following purposes: (a) to cure any ambiguity or to correct or supplement any provision contained in the Indenture or in any supplemental indenture which may be defective or inconsistent with any other provision contained in the Indenture or in any supplemental indenture; (b) to amend, modify or supplement the Indenture in any respect if, in the judgment of the Trustee, such amendment, modification or supplement is not materially adverse to the interests of the Bondholders; (c) to grant to or confer upon the Trustee for the benefit of the Bondholders any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Bondholders or the Trustee, or to grant or pledge to the Trustee for the benefit of the Bondholders any additional security other than that granted or pledged under the Indenture; (d) to modify, amend or supplement the Indenture or any supplemental indenture in such manner as to permit the qualification of the Indenture or such supplemental indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute then in effect, or to permit the qualification of the Bonds for sale under the securities laws of any of the States of the United States; (e) to appoint a successor trustee, separate trustee or co-trustee, or a separate Bond Registrar in the manner provided in the Indenture; (f) to make any change requested by the Credit Provider which, in the judgment of the Trustee, is not materially adverse to the interests of the Bondholders, including, but not limited to, provision ora Credit Facility other than or in substitution for the Credit Facility then in effect, provided that the provision of such other Credit Facility does not adversely affect the rating then in effect for the Bonds; (g) to make any change in the Indenture or in the terms of the Bonds necessary or desirable in order to maintain the rating of "AAA" and/or "Aaa" awarded to the Bonds by the Rating Agency or to otherwise comply with the requirements of any Rating Agency then rating the Bonds; (h) to comply with the Code and the regulations and rulings issued with respect to the Code, to the extent determined as necessary or desirable in the Opinion of Bond Counsel; 01-503376.3 B-2-13 (i) to implement any secondary market disclosure, required under applicable law with respect to the Bonds, the Issuer, the Borrower or the Project; and (i) to modify the terms of the Indenture or the Bonds to be effective as of a Remarketing Date if a supplemental indenture is executed and delivered at least 30 days prior to such Remarketing Date and notice of the execution and delivery together with a copy of the supplemental indenture or a summary of the provisions of the supplemental indenture is given to all Bondholders and to the Rating Agency not later than the time notice of remarketing of Bonds is given to Bondholders pursuant to the Indenture; (k) to change any of the time periods for provision of notice relating to: (a) the remarketing of Bonds and (b) the determination of the interest rate on the Bonds; (I) to change or modify any provision of the Indenture in connection with the remarketing of Bonds following any mandatory tender of the Bonds pursuant to the Indenture but only upon the condition that such change is effective only after mandatory purchase; or (m) in connection with any other change in the Indenture which, in the judgment of the Trustee, is not materially adverse to the interests of the Bondholders. If the Trustee has received written confirmation from the Rating Agency to the effect that such supplemental indenture will not result in the suspension, withdrawal or reduction of the then current rating on the Bonds and all conditions precedent in the Indenture have been satisfied, the Trustee will join the Issuer in the execution of any such supplemental indenture. The Trustee will promptly furnish a copy of any such supplemental indenture to the Credit Provider, the Loan Servicer and the Borrower. The Trustee shall provide not less than 10 days' written notice to Bondholders by first-class mail of any supplemental indenture delivered pursuant to paragraph (f) above. Supplemental Indentures Requiring Bondholder Consent. Exclusive of supplemental indentures covered by the Indenture and subject to the terms and provisions contained in the Indenture, the Issuer, in its sole discretion, and the Trustee may, with the consent of Bondholders owning 51% or more in aggregate principal amount of Bonds then Outstanding, from time to time, execute indentures supplemental to the Indenture for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Indenture or in any supplemental indenture, provided that nothing in the Indenture shall permit, or be construed as permitting: (a) an extension of the maturity of the principal of or interest on, or the mandatory redemption date of, any Bond, without the consent of the owners of all of the Bonds then Outstanding; (b) a reduction in the principal amount of, or the rate of interest on, any Bond, without the consent of the owner of such Bond; (c) a preference or priority of any Bond or Bonds over any other Bond or Bonds, without the consent of the owners of all such Bonds; (d) the creation of a lien prior to or on parity with the lien of the Indenture, without the consent of the owners of all of the Bonds then Outstanding; (e) a change in the percentage of Bondholders necessary to waive an Event of Default or otherwise approve matters requiring Bondholder approval under the Indenture, 01-503376.3 B-2-14 including consent to any supplemental indenture, without the consent of the owners of all the Bonds then Outstanding; (f) a transfer, assignment or release of the Credit Facility (or modification of the provisions of the Indenture governing such transfer, assignment or release), other than as permitted by the Indenture, the Assignment or the Credit Facility; (g) a reduction in the aggregate principal amount of the Bonds required for consent to such supplemental indenture, without the consent of the holders of all of the Bonds then Outstanding; (h) the creation of any lien other than a lien ratably securing all of the Bonds at any time Outstanding under the Indenture, without the consent of the holders of all of the Bonds then Outstanding; or (i) the amendment of the Indenture, without the consent of the holders of all of the Bonds then Outstanding. The giving of notice to and consent of the Bondholders to any such supplemental indenture will be obtained as provided in the Indenture. When requested by the Issuer or the Borrower, and if all conditions precedent under the Indenture have been satisfied, the Trustee will join the Issuer in the execution of any such supplemental indenture. The Trustee will promptly furnish a copy of any such supplemental indenture to the Credit Provider, the Remarketing Agent, the Loan Servicer and the Borrower. 01-s03376.3 B-2-1 5 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE REGULATORY AGREEMENT The following summary of the Regulatory Agreement is a summary only and does not purport to be a complete statement of the contents thereof Reference is made to the Regulatory Agreement for the complete terms thereof Prior to Loan Conversion, references herein to the Indenture, the Financing Agreement, the Reimbursement Agreement and the Credit Provider will be references to the Initial Indenture, the Initial Financing Agreement, the Initial Reimbursement Agreement and the Initial Credit Provider, respectively. Following Loan Conversion, if it occurs, references herein to the Indenture, the Financing Agreement, the Reimbursement Agreement and the Credit Provider will be references to the Permanent Indenture, the Permanent Financing Agreement, the Permanent Reimbursement Agreement and the Permanent Credit Provider, respectively. Definitions "Adjusted Income" means the adjusted income of all persons who intend to reside in one residential unit as calculated in the manner determined by the Secretary of the Treasury pursuant to Section 142(d)(2)(B) of the Code. "Administration Agreement" means the administration agreement to be entered into among the Issuer, the Borrower and any entity other than Issuer, which is acting as the Program Administrator. "Affiliated Party" means (1) a Person whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code, (2) a Person who together with the Borrower are members of the same controlled group of corporations (as defined in Section 1563(a) of the Code, except that "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears therein), (3) a partnership and each of its partners (and their spouses and minor children) whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code or (4) an S Corporation and each of its shareholders (and their spouses and minor children) whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code. "Area" means the San Diego County, California Primary Metropolitan Statistical Area. "CDLAC" means the California Debt Limit Allocation Committee. "CDIMCResolution" means Resolution No. 03-123 adopted by CDLAC on July 9, 2003. "Certificate of Continuing Program Compliance" means the certificate with respect to the Project to be filed by the Borrower with the Program Administrator, which shall be substantially in the form attached to the Regulatory Agreement. "Income Certification" means the Income Computation and Certification Form in substantially the form attached to the Regulatory Agreement. 01-503376.3 "Low Income Tenants" means individuals or families with an Adjusted Income which does not exceed 60 percent of the Median Income for the Area as adjusted for household size as set forth below. In no event, however, will the occupants of a residential unit be considered to be Low Income Tenants if all the occupants are students, as defined in Section 151(c)(4) of the Code, as such may be amended, no one of which is entitled to file a joint federal income tax tatum. Currently, Section 151(c)(4) defines a student as an individual enrolled as a full-time student during each of 5 calendar months during the calendar year in which occupancy of the unit begins at an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance or is an individual pursuing a full-time course of institutional on-farm training under the supervision of an accredited agent of such an educational organization or ora state or political subdivision thereof. Adjustment to 60% of Household Size Median Income for the Area 1 70% 2 80% 3 90% 4 100% 5 10g% 6 116% 7 124% g 132% "Low Income Units" means the dwelling units in the Project designated for occupancy by Low Income Tenants pursuant to the Regulatory Agreement. "Median Income for the Area" means the median gross income for the Area as most recently determined by the Secretary of Treasury pursuant to Section 142(d)(2)(B) of the Code. "Person" means any natural person, firm, partnership, association, limited liability company, corporation, company or public body. "Program Administrator" means the Issuer, or such other entity as is appointed by the Issuer from time to time to act in such capacity under the Regulatory Agreement. "Project" means the Project Facilities and the Project Site. "Project Facilities" means the buildings, structures and other improvements on the Project Site, and all fixtures and other property owned by the Borrower and located on, or used in connection with, such buildings, structures and other improvements constituting the Project. "Project Site" means the parcel or pamels of real property described in an exhibit attached to the Regulatory Agreement, which is incorporated in the Regulatory Agreement, and all rights and appurtenances thereunto appertaining. "Qualified Project Period" means the period beginning on the first date on which ten percent of the units in the Project are occupied and ending on the latest of the following dates: (a) the date which is 55 years after the date on which fifty percent of the units in the Project are occupied, (b) the first day on which no tax exempt bonds with respect to the Project are Outstanding, or (c) the date on which any I10 O1-503376 3 C-2 assistance provided with respect to the Project under Section 8 of the United States Housing Act of 1937 terminates. "Very Low Income Tenants" means individuals or families with an Adjusted Income that does not exceed 50 percent of the Median Income for the Area as adjusted for household size as set forth below. In no event, however, will the occupants of a residential unit be considered to be Very Low Income Tenants if all the occupants are students, as defined in Section 151(c)(4) of the Code, as such may be amended, no one of which is entitled to file a joint federal income tax return. Currently, Section 151(c)(4) defines a student as an individual enrolled as a full-time student during each of 5 calendar months during the calendar year in which occupancy of the unit begins at an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance or is an individual pursuing a full-time course of institutional on-farm training under the supervision of an accredited agent of such an educational organization or of a state or political subdivision thereofi Adjustment to 50% of Household Size Median Income for the Area 1 70% 2 80% 3 90% 4 100% 5 108% 6 116% 7 124% 8 132% "Very Low Income Units" means the dwelling units in the Project designated for occupancy by Very Low Income Tenants pursuant to the Regulatory Agreement. Residential Rental Property The Borrower shall own, manage and operate the Project as a "qualified residential rental project" (within the meaning of Section 142(d) of the Code) until the expiration of the Qualified Project Period. To that end, and for the term of the Regulatory Agreement, the Borrower has represented, as of the date of the Regulatory Agreement, and covenanted, warranted and agreed as follows: (a) The Project is being acquired, constructed and equipped for the purpose of providing multifamily residential rental property, and the Borrower shall own, manage and operate the Project as a project to provide multifamily residential rental property comprised of a building or structure or several interrelated buildings or structures, together with any functionally related and subordinate facilities, and no other facilities, in accordance with applicable provisions of Section 142(d) of the Code and Section 1.103-8(b) of the Regulations, and the Act, and in accordance with such requirements as may be imposed thereby on the Project from time to time. (b) All of the dwelling units in the Project will be similarly constructed units, and, to the extent required by the Code and the Regulations, each dwelling unit in the Project will contain complete separate and distinct facilities for living, sleeping, eating, cooking and sanitation for a single person or a family, including a sleeping area, bathing and sanitation facilities and cooking 01-503376.3 C-3 facilities equipped with a cooking range, refrigerator and sink; provided that any Low Income Tenant may, but shall not be obligated to, provide a refrigerator for the unit to be occupied. (c) None of the dwelling units in the Project will at any time be utilized on a transient basis, or will ever be used as a hotel, motel, dormitory, fraternity house, sorority house, rooming house, nursing home, hospital, sanitarium, rest home, retirement house or trailer court or park. (d) No part of the Project will at any time be owned or used as a condominium or by a cooperative housing corporation nor shall the Borrower take any steps in connection with a conversion to such ownership or uses. Other than obtaining a final subdivision map on the Project and a Final Subdivision Public Report from the California Department of Real Estate, the Borrower shall not take any steps in connection with a conversion of the Project to a condominium or cooperative ownership except with the prior written approving opinion of Bond Counsel that the interest on the Bonds will not become taxable thereby under Section 103 of the Code. (e) All of the dwelling units will be available for rental on a continuous basis to members of the general public and the Borrower will not give preference to any particular class or group in renting the dwelling units in the Project, except to the extent that dwelling units are required to be leased or rented to Low Income Tenants, Very Low Income Tenants, senior citizens over the age of 55 and to holders of Section 8 certificates or vouchers. (f) The Project Site consists of a parcel or parcels that are contiguous except for the interposition of a road, street or stream, and all of the Project Facilities will comprise a single geographically and functionally integrated project for residential rental property, as evidenced by the ownership, management, accounting and operation of the Project. (g) No dwelling unit in any building or structure in the Project which contains fewer than five units shall be occupied by the Borrower or by persons related to or affiliated with the Borrower. (h) Should involuntary noncompliance with the provisions of Section 1.103-8(b) of the Regulations be caused by fire, seizure, requisition, foreclosure, transfer of title by deed in lieu of foreclosure, change in a federal law or an action of a federal agency after the Closing Date which prevents the Issuer from enforcing the requirements of the Regulations, or condemnation or similar event, the Borrower has covenanted that, within a "reasonable period" determined in accordance with the Regulations, it will either prepay the Mortgage Note or apply any proceeds received as a result of any of the preceding events to reconstruct the Project to meet the requirements of Section 142(d) of the Code and the Regulations. (i) The Borrower shall not discriminate on the basis of race, religion, creed, color, ethnic group identification, sex, source of income (e.g. AFDC, SSI), mental or physical disability, age, national origin or marital status in the rental, lease, use or occupancy of the Project or in connection with the employment or application for employment of persons for the operation and management of the Project. (j) Following the expiration or termination of the Qualified Project Period, Low Income Units shall remain available to the Low Income Tenants then occupying such units at the date of expiration or termination of the Qualified Project Period at a rent not greater than the rent 01-503376.3 C-4 determined as described in paragraph (a)(ii) under the heading "Low Income Tenants" below until the earliest of any of the following occurs: (i) The household's income exceeds 140 percent of the income at which such household would qualify as a Low Income Tenant. (ii) The household voluntarily moves or is evicted for "good cause." For these purposes, "good cause" means the nonpayment of rent or allegation of facts necessary to prove major, or repeated minor, violations of material provisions of the lease agreement which detrimentally affect the health and safety of other persons or the structure, the fiscal integrity of the Project, or the purposes or special programs of the Project. (iii) Sixty years after the commencement of the Qualified Project Period. (iv) The Borrower pays relocation assistance and benefits to such tenant as provided in Government Code Section 7264(b). (k) During the three-year period prior to the expiration of the Qualified Project Period, the Borrower shall continue to make available to Low Income Tenants Low Income Units that have been vacated to the same extent that other units in the Project are made available to the general public. (1) The Issuer may but shall not be required to monitor the Borrower's compliance with the provisions of paragraph (j) above. Low Income Tenants Pursuant to the requirements of Section 142(d) of the Code and applicable provisions of the Act, the Borrower has represented, as of the date of the Regulatory Agreement, and warranted, covenanted and agreed as follows: (a) During the Qualified Project Period: (i) not less than twenty percent (20%) of the units in the Project shall be designated as Very Low Income Units and shall be continuously occupied by or held available for occupancy by Very Low Income Tenants at monthly rents paid by the Very Low lncome Tenants which do not exceed one-twelfth of the amount obtained by multiplying 30% times 50% of the Median Income for the Area, as adjusted for household size utilizing the percentages set forth above under the definition of Very Low Income Tenant less a reasonable deduction for utilities paid by the tenant and assuming the following unit sizes and household sizes: Unit Size Household Size Studio One Person One Bedroom Two Persons Two Bedrooms Three Persons Three Bedroom Four Persons 01-503376.3 C-5 Such Very Loxv Income Units shall be of comparable quality and offer a range of sizes and number of bedrooms comparable to those units which are available to other tenants and shall be distributed throughout the Project. A unit occupied by a Very Low Income Tenant who at the commencement of the occupancy is a Very Low Income Tenant shall be treated as occupied by a Very Low Income Tenant until a recertification of such tenant's income as described in paragraph (c) below demonstrates that such tenant no longer qualifies as a Very Low Income Tenant and thereafter any residential unit of comparable size in the Project is occupied by a new resident other than a Very Low Income Tenant. Moreover, a unit previously occupied by a Very Low Income Tenant and then vacated shall be considered occupied by a Very Low Income Tenant until reoccupied, other than for a temporary peri~d, at which time the character of the unit shall be redetermined. In no event shall such temporary period exceed thirty-one (31) days. (ii) in addition to the Very Low Income Units set aside under paragraph (i) above, not less than another thirty-nine percent (39%) of the units in the Project shall be designated as Low Income Units and shall be continuously occupied by or held available for occupancy by Low Income Tenants at monthly rents paid by the Low Income Tenants which do not exceed one-twelfth of the amount obtained by multiplying 30% times 60% of the Median Income for the Area, as adjusted for household size utilizing the percentages set forth above under the definition of Low Income Tenant less a reasonable deduction for utilities paid by the tenant and assuming the following unit sizes and household sizes: Unit Size Household Size Studio One Person One Bedroom Two Persons Two Bedrooms Three Persons Three Bedroom Four Persons Such Low Income Units shall be of comparable quality and offer a range of sizes and number of bedrooms comparable to those units which are available to other tenants and shall be distributed throughout the Project. A unit occupied by a Low Income Tenant who at the commencement of the occupancy is a Low Income Tenant shall be treated as occupied by a Low Income Tenant until a mcertification of such tenant's income as described in paragraph (c) below demonstrates that such tenant no longer qualifies as a Low Income Tenant and thereafter any residential unit of comparable size in the Project is occupied by a new resident other than a Low Income Tenant. Moreover, a unit previously occupied by a Low Income Tenant and then vacated shall be considered occupied by a Low Income Tenant until reoccupied, other than for a temporary period, at which time the character of the unit shall be redetermined. In no event shall such temporary period exceed thirty-one (31) days. (b) Immediately prior tO a Very Low Income Tenant's occupancy of a Very Low Income Unit and a Low Income Tenant's occupancy of a Low Income Unit, the Borrower will obtain and maintain on file an lncome Certification from each Very Low Income Tenant 01-503376.3 C-6 occupying a Very Low Income Unit and each Low Income Tenant occupying a Low Income Unit, dated immediately prior to the initial occupancy of such Very Low Income Tenant or Low Income Tenant, as applicable, in the Project. In addition, the Borrower wilt provide such further information as may be required in the future by the State of California, the Issuer, the Act, Section 142(d) of the Code and the Regulations, as the same may be amended from time to time, or in such other form and manner as may be required by applicable rules, rulings, policies, procedures or other official statements now or hereafl, er promulgated, proposed or made by the Department of the Treasury or the Internal Revenue Service with respect to obligations issued under Section 142(d) of the Code. The Borrower shall verify that the income provided by an applicant is accurate by taking one or more of the following steps as a part of the verification process: (l) obtain a federal income tax return for the most recent tax year, (2) obtain a written verification of income and employment from the applicant's current employer, (3) if an applicant is unemployed or did not file a tax return for the previous calendar year, obtain other verification of such applicant's income satisfactory to the Issuer or (4) such other information as may be reasonably requested by the Issuer. Copies of the most recent Income Certifications for Very Low Income Tenants commencing or continuing occupancy of a Very Low Income Unit and Low Income Tenants commencing or continuing occupancy of a Low Income Unit shall be attached to the quarterly report to be filed with the Issuer as required in paragraph (d) below. (c) (i) Immediately prior to the first anniversary date of the occupancy of a Very Low Income Unit by one or more Very Low Income Tenants, and on each anniversary date thereafter, the Borrower shall recertify the income of the occupants of each Very Low Income Unit by obtaining a completed Income Certification based upon the current income of each occupant of the unit. In the event the recertification demonstrates that such household's income exceeds 140% of the income at which such household would qualify as Very Low Income Tenants, such household will no longer qualify as Very Low Income Tenants and to the extent necessary to comply with the requirements described in paragraph (a)(i) above, the Borrower will rent the next available unit of comparable size to one or more Very Low Income Tenants. (ii) Immediately prior to the first anniversary date of the occupancy of a Low Income Unit by one or more Low Income Tenants, and on each anniversary date thereafter, the Borrower shall recertify the income of the occupants of each Low Income Unit by obtaining a completed Income Certification based upon the current income of each occupant of the unit. In the event the recertification demonstrates that such household's income exceeds 140% of the income at which such household would qualify as Low Income Tenants, such household will no longer qualify as Low Income Tenants and to the extent necessary to comply with the requirements described in paragraph (a)(ii) above, the Borrower will rent the next available unit of comparable size to one or more Low Income Tenants. (d) Not later than ten days after the commencement of the Qualified Project Period, and within ten days of the last day of each quarter thereafter during the term of the Regulatory Agreement, the Borrower shall advise the Program Administrator of the status of the occupancy of the Project by delivering to the Program Administrator and the Issuer a Certificate of Continuing Program Compliance. (e) The Borrower will maintain complete and accurate records pertaining to the Very Low Income Units and the Low Income Units, and will permit any duly authorized representative of the Issuer, the Program Administrator, the Trustee, the Credit Provider, the Department of the Treasury or the Internal Revenue Service to inspect the books and records of the Borrower 01-503376.3 C-7 pertaining to the Project, including those records pertaining to the occupancy of the Very Low Income Units and Low lncome Units. (f) The Borrower shall submit to the Secretary of the Treasury annually on the anniversary date of the start of the Qualified Project Period, or such other date as is required by the Secretary, a certification that the Project continues to meet the requirements of Section 142(d) of the Code, and shall provide a copy of such certification to the Program Administrator. (g) Prior to renting any Very Low lncome Units or Low Income Units, the Borrower shall prepare and present to the Issuer a marketing plan for the Very Low Income Units and the Low Income Units. The Borrower may begin leasing the Very Low lncome Units and the Low Income Units following the Issuer Manager's approval of the marketing plan, which consent shall not be unreasonably withheld. The Borrower shall accept as tenants on the same basis as all other prospective tenants, persons who are recipients of federal certificates or vouchers for rent subsidies pursuant to the existing program under Section 8 of the United States Housing Act of 1937, or its successor. The Borrower has agreed to contact the San Diego County Housing Authority for a list of persons who are recipients of, or who are applying for, Section 8 certificates or vouchers whenever a Very Low Income Unit or a Low Income Unit becomes available but not more frequently than every four weeks. The BorroYver shall not apply selection criteria to Section 8 certificate or voucher holders that are more burdensome than criteria applied to all other prospective tenants. (h) The Very Low Income Units and the Low Income Units shall be ora comparable quality and offer a range of sizes and number of bedrooms comparable to the units that are available to other tenants. (i) The Borrower shall not collect any additional fees or payments from a Very Low Income Tenant or a Low Income Tenant except security deposits or other deposits required of all tenants or for services or items requested by a tenant. The Borrower shall not collect security deposits or other deposits from Section 8 certificate or voucher holders in excess of those allowed under the Section 8 Program. The Borrower shall not discriminate against Very Low Income Tenant or Low Income Tenant applicants on the basis of source of income (i.e., AFDC or SSI), and the Borrower shall consider a prospective tenant's previous rent history of at least one year as evidence of the ability to pay the applicable rent. (j) Each lease pertaining to a Very Low Income Unit and a Low lncome Unit shall contain a provision to the effect that the Borrower has relied on the lncome Certification and supporting information supplied by the Very Low Income Tenant and the Low Income Tenant in determining qualification for occupancy of the Very Low Income Unit or Low Income Unit, as applicable, and that any material misstatement in such certification (whether or not intentional) will be cause for immediate termination of such lease. Each lease will also contain a provision that failure to cooperate with the annual recertification process reasonably instituted by the Borrower described in paragraph (c) above may at the option of the Borrower disqualify the unit as a Very Low Income Unit or Low Income Unit, as applicable, or provide grounds for termination of the lease. (k) The Borrower will execute and deliver to the Issuer an Administration Agreement applicable to the Project at the request of the Issuer. (l) Prior to the completion of construction of the Project, the Borrower has agreed to provide to the Program Administrator a copy of the form of application and lease to be provided 01-503376.3 C-8 to prospective Very Low Income Tenants and Low Income Tenants. The term of the lease shall be not less than thirty days. (m) The Borrower shall notify the Program Administrator of any change in leasing agents or managers for the Project. Sale or Transfer of the Project; Syndication The Borrower intends to hold the Project for its own account, has no current plans to sell, transfer or otherwise dispose of the Project, and has covenanted and agreed not to sell, transfer or otherwise dispose of the Project, or any portion thereof (other than for individual tenant use as contemplated under the Regulatory Agreement and replacement of personal property), without obtaining the prior written consent of the Issuer, which consent shall be given upon receipt by the Issuer of (i) such certifications from the Borrower or the Trustee as are reasonably deemed necessary by the Issuer to establish that the Borrower shall not be in default under the Regulatory Agreement or under the Financing Agreement or, if any such defaults exist, the purchaser or assignee undertakes to cure such defaults to the satisfaction of the Issuer; (ii) a written instrument by which the Borrower's purchaser or transferee has assumed in writing and in full the Borrower's duties and obligations under the Regulatory Agreement and under the Administration Agreement, (iii) an opinion of counsel for the transferee that the transferee has duly assumed the obligations of the Borrower under the Regulatory Agreement and the Administration Agreement and that such obligations and the Regulatory Agreement and the Administration Agreement are binding on the transferee, (iv) documentation from the transferee reflecting the transferee's experience with owning and/or operating multifamily housing projects such as the Project and with use and occupancy restrictions similar to those contained in the Regulatory Agreement, and (v) an opinion of Bond Counsel addressed to the Issuer to the effect that such transfer will not cause interest on any Bond to become includable in the gross income of the recipients thereof for federal income tax purposes. No transfer of the Project shall operate to release the Borrower from its obligations under the Regulatory Agreement with respect to any action or inaction taken prior to such transfer. Nothing described under this heading shall affect any provision of the Security Instrument, any of the other Mortgage Loan Documents to which the Borrower is a party which requires the Borrower to obtain the consent of the Credit Provider as a precondition to sale, transfer or other disposition of, or any direct or indirect interest in, the Project or of any direct or indirect interest in the Borrower or which gives the holder of the Mortgage Note the right to accelerate the maturity of the Mortgage Loan or to take some other similar action with respect to the Mortgage Loan, upon the sale, transfer or other disposition of the Project. Not~vithstanding anything described under this heading to the contrary, neither the consent of the Issuer nor the delivery of items (i) through (v) of the preceding paragraph shall be required in the case of a foreclosure or deed in lieu of foreclosure, whereby the Credit Provider or its designee, becomes the owner of the Project, and nothing described under this heading shall otherwise affect the right of the Credit Provider, or its designee, to foreclose on the Project or to accept a deed in lieu of foreclosure or to effect a comparable conversion of the Mortgage Loan. Consent of the Issuer and delivery of items (i), (ii), (iii) and (v) of the preceding paragraph shall be required for any transfer of the Project by the Credit Provider, or its designee, subsequent to the purchase at foreclosure or transfer pursuant to deed in lieu of foreclosure as described in the preceding sentence. It has been expressly stipulated and agreed that any sale, transfer or other disposition of the Project in violation of the provisions of the Regulatory Agreement described under this heading shall be null, void and without effect, shall cause a reversion of title to the Borrower, and shall be ineffective to relieve the Borrower of its obligations under the Regulatory Agreement. Not less than 20 days prior to consummating any sale, transfer or disposition of any interest in the Project, the Borrower shall deliver to the Issuer and the Trustee a notice in writing explaining the nature of the proposed transfer. The 01-503376.3 C-9 Borrower shall not syndicate the Project unless, prior to such syndication, an opinion of counsel acceptable to the Issuer is delivered to the Issuer to the effect that (i) the terms and conditions of the syndication do not reduce or limit any of the requirements of the Act or regulations adopted or documents executed pursuant to the Act, (ii) no requirements of the Issuer shall be subordinated to the syndication agreement and (iii) the syndication shall not result in the provision of fewer assisted units, or the reduction of any benefits or services, than were in existence prior to the syndication agreement. Term Except as described in paragraphs (j), (k) and (1) under the heading "Residential Rental Property" above and as otherwise provided in the Regulatory Agreement, which provisions shall continue beyond the Qualified Project Period, and, except as provided in the second paragraph under this heading, the Regulatory Agreement and all and several of the terms of the Regulatory Agreement shall become effective upon its execution and delivery and shall remain in full force and effect during the Qualified Project Period, it being expressly agreed and understood that the provisions of the Regulatory Agreement are intended to survive the retirement of the Bonds and expiration of the Indenture, the Financing Agreement, the Mortgage Note and the Security Agreement. Notwithstanding any other provisions of the Regulatory Agreement to the contrary, this entire Regulatory Agreement, or any of the provisions or sections of the Regulatory Agreement, may be terminated upon agreement by the Issuer, the Trustee and the Borrower only if there shall have been received by the Issuer an opinion of Bond Counsel that such termination will not adversely affect the exclusion from gross income for federal income tax purposes or the exemption from State personal income taxes of the interest on the Bonds. The terms of the Regulatory Agreement to the contrary notwithstanding, the Regulatory Agreement, and each and all of the terms of the Regulatory Agreement, shall terminate and be of no further force and effect in the event of involuntary noncompliance with the provisions of the Regulatory Agreement caused by (a) foreclosure of the Security Instrument or delivery of a deed in lieu of foreclosure, or (b) fire, seizure, requisition, change in a federal law or an action of a federal agency after the Closing Date which prevents the Issuer and the Trustee from enforcing the provisions of the Regulatory Agreement or condemnation or a similar event, but only if within a reasonable period thereafter the Bonds are paid in full and retired or amounts received as a consequence of such event are used to provide a project that meets the requirements of the Code set forth in the Regulatory Agreement; provided, however, that the preceding provisions of this sentence shall cease to apply and the restrictions contained in the Regulatory Agreement shall be reinstated if, at any time subsequent to the termination of such provisions as the result of the foreclosure on the Project or the delivery of a deed in lieu of foreclosure or a similar event, the Borrower or any Affiliated Party obtains an ownership interest in the Project for federal income tax purposes. Upon the termination of the terms of the Regulatory Agreement, the parties to the Regulatory Agreement agree to execute, deliver and record appropriate instruments of release and discharge of the terms of the Regulatory Agreement; provided, however, that the execution and delivery of such instruments shall not be necessary or a prerequisite to the termination of the Regulatory Agreement in accordance with its terms. Enforcement If the Borrower defaults in the performance or observance of any covenant, agreement or obligation of the Borrower set forth in the Regulatory Agreement, and if such default remains uncured for a period of 60 days after written notice thereof shall have been given by the Issuer or the Trustee to the Borrower, the Credit Provider and the Loan Servicer (or such longer period if the Borrower provides the Issuer with an opinion of Bond Counsel to the effect that such extension will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds), then the Trustee, subject to the provisions of the Regulatory Agreement and acting on its own behalf or on behalf of the 01-503376.3 C- 10 Issuer, or the Issuer shall declare an "Event of Default" to have occurred under the Regulatory Agreement, and, at its option, may take any one or more of the following steps: (i) by mandamus or other suit, action or proceeding at law or in equity, require the Borrower to perform its obligations and covenants under the Regulatory Agreement or enjoin any acts or things which may be unlawful or in violation of the rights of the Issuer or the Trustee under the Regulatory Agreement; (ii) have access to and inspect, examine and make copies of all of the books and records of the Borrower pertaining to the Project; (iii) with the prior written consent of the Credit Provider, take such other action at law or in equity as may appear necessary or desirable to enforce the obligations, covenants and agreements of the Borrower under the Regulatory Agreement. The Borrower has agreed that specific enforcement of the Borrower's agreements contained in the Regulatory Agreement is the only means by which the Issuer may fully obtain the benefits of such agreements made by the Borrower in the Regulatory Agreement, and the Borrower therefore has agreed to the imposition of the remedy of specific performance against it in the case of any Event of Default by the Borrower under the Regulatory Agreement. The Trustee shall have the right, in accordance with the provisions of the Regulatory Agreement described under this heading and the provisions of the Indenture, upon notice to but without the consent or approval of the Issuer, to exercise any or all of the rights or remedies of the Issuer under the Regulatory Agreement. All fees, costs and expenses of the Trustee (including, without limitation, reasonable attorneys fees) incurred in taking any action pursuant to the provisions of the Regulatory Agreement described under this heading shall be the sole responsibility of the Borrower. After the Indenture has been discharged, or if the Trustee fails to act under the provisions of the Regulatory Agreement described under this heading, the Issuer may act on its own behalf to declare an "Event of Default" to have occurred and to take any one or more of the steps specified above to the same extent and with the same effect as if taken by the Trustee. After the date on which no Bonds remain outstanding as provided in the Indenture, the Trustee shall no longer have any duties or obligations under the Regulatory Agreement, and all references to the Trustee in the Regulatory Agreement shall be deemed references to the Issuer. As long as the Credit Provider is not in payment default under the terms of the Credit Facility, neither the Issuer, the Trustee nor any person under their control shall, without the prior written consent of the Credit Provider, exercise any remedies or direct any proceedings under the Regulatory Agreement other than to enforce rights of specific performance under the Regulatory Agreement against the Borrower, provided that such enforcement shall not include a judgment lien against the Project for monetary damages. Notwithstanding anything contained in the Regulatory Agreement and the Indenture to the contrary, the occurrence of an event of default under the Regulatory Agreement shall not be deemed, under any circumstances whatsoever, to constitute a default under the Mortgage Loan Documents except as may be otherwise specified in the Mortgage Loan Documents. The parties to the Regulatory Agreement have agreed that the maturity date of the Mortgage Loan may be accelerated solely by the holder thereof upon the occurrence of a default on the part of the Borrower under the Mortgage Loan Documents and that no person other than the Credit Provider shall have the right to (i) declare the 01-503376.3 C-I 1 principal balance of the Mortgage Note to be immediately due and payable, or (ii) commence foreclosure or other like action without express written authorization from the Credit Provider. The rights of the Trustee described under this heading are in addition to all rights conferred upon the Trustee under the Indenture and in no way limit those rights. All monetary obligations of the Borrower that may arise under the Regulatory Agreement shall be subject and subordinate to the repayment of amounts owed by the Borrower under the Mortgage Loan Documents. Amendments Except as provided in the Regulatory Agreement, the Regulatory Agreement shall be amended only with the written consent of the Credit Provider by a written instrument executed by the parties to the Regulatory Agreement or their successors in title, and duly recorded in the real property records of the County. The parties to the Regulatory Agreement acknowledge that for so long as the Bonds are outstanding, the Credit Provider and the owners of the Bonds are third party beneficiaries to the Regulatory Agreement. CDLAC Requireruents The acquisition, construction and operation of the Project and the financing thereof are and shall be in compliance with the conditions set forth as an exhibit to the CDLAC Resolution, a copy of which is attached to the Regulatory Agreement as an exhibit, which conditions are incorporated in the Regulatory Agreement by reference and are made a part of the Regulatory Agreement. The CDLAC Resolution requires, among other things, that (a) 20% of the units in the Project be rented or held vacant for rental for persons or families whose income is at 50% or below of the Area Median Income and (b) 80% of the units in the Project be rented or held vacant for rental for persons or families whose income is at 60% or below of the Area Median Income. The rental restrictions set forth in the CDLAC Resolution have a term of 55 years. The Issuer shall have the right, but not the obligation, to monitor and enfome the Borrower's compliance with the provisions of the Regulatory Agreement described under this heading. The Borrower shall prepare and submit to CDLAC on each anniversary of the Closing Date, and on such other date as is reasonably requested by CDLAC, a Certificate of Compliance in substantially the form attached to the Regulatory Agreement as an exhibit, executed by an authorized representative of the Borrower. CDLAC shall be a third-party beneficiary of the Regulatory Agreement for purposes of enforcing the terms of the CDLAC Resolution. CDLAC shall have the right to enforce the terms of the CDLAC Resolution through an action for specific performance or any other available remedy; provided, however, that CDLAC shall not take any action or enforce any remedy that would be materially adverse to the interests of the Bondholders or the Credit Provider and any such action or enforcement shall otherwise be subject to the terms, conditions and limitations applicable to the enforcement of remedies under the Regulatory Agreement. Third-Party Beneficiary The parties to the Regulatory Agreement have recognized and agreed that the terms of the Regulatory Agreement and the enforcement of those terms are essential to the security of the Credit Provider and are entered into for the benefit of the Credit Provider. The Credit Provider shall accordingly have contractual rights in the Regulatory Agreement and shall be entitled (but not obligated) to enforce, separately or jointly with the Issuer and/or the Trustee, or to cause the Issuer or the Trustee to enforce, the terms of the Regulatory Agreement. In addition, the Credit Provider is intended to be and shall be a third- party beneficiary of the Regulatory Agreement, and the Credit Provider shall have the right (but not the · 01-503376.3 C - 1 2 obligation) to enforce the terms of the Regulatory Agreement insofar as the Regulatory Agreement sets forth obligations of the Borrower. Personal Obligation of Borrower; Limitations on Recourse to Borrower Notwithstanding any provisions of the Regulatory Agreement to the contrary, all obligations of the Borrower under the Regulatory Agreement for the payment of money and all claims for damages against the Borrower occasioned by breach or alleged breach by the Borrower of its obligations under the Regulatory Agreement, including indemnification obligations, shall be unsecured by, and subordinated in priority and right to, payment and in all other respects to the obligations and liens, rights (including, without limitation, the right to payment) and interests arising or created under the Mortgage Loan Documents. The Regulatory Agreement shall not be deemed to create a lien or security interest of any kind in the Project in favor of the Issuer, the Trustee or any other person with respect to any monetary obligations of the Borrower arising under the Regulatory Agreement, and no such person shall have recourse to the Project or have the right to enforce such obligations other than directly against the Borrower as described under this heading "Enforcement" above. Except as otherwise provided in the Regulatory Agreement, no subsequent owner shall be liable or obligated for the breach or default of any obligation of the Borrower under the Regulatory Agreement on the part of any prior owner. Such obligations shall be personal to the Person who was the owner at the time the default or breach was alleged to have occurred, and such Person shall remain liable for any and all damages occasioned by the default or breach even after such Person ceases to be the owner. Notwithstanding anything contained in any other provision of the Regulatory Agreement to the contrary, the Borrower's obligations under the Regulatory Agreement relating to indemnification and payment of fees shall be and remain the joint and several full recourse obligations of the Borrower and each general partner of the Borrower, which, subject to the provisions of the first paragraph under this heading, are payable from and enforceable against any and all income, assets and properties of the Borrower and each general partner of the Borrower; provided that in no event shall Borrower or any partner of Borrower be personally liable for the payment of the principal, interest or any premium on the Mortgage Loan or the Bonds, which shall be non-recourse to Borrower and shall be enforced solely against the Project and other property securing such obligations, in each case subject to and in accordance with the terms and conditions of the Mortgage Loan Documents. 01-503376.3 C- ! 3 APPENDIX D-1 SUMMARY OF CERTAIN PROVISIONS OF THE INITIAL FINANCING AGREEMENT The following summary of the Initial Financing Agreemenl relates only to the period beginning on the date of issuance of the Bonds and continuing through Loan Conversion, ifil occurs. After Loan Conversion, if it occurs, this description is of no force or effecL A summary of the Permanent Financing Agreement entered into with respect to the Bonds after Loan Conversion, if it occurs, is set forth in Appendix D-2 hereto. Furthermore, the following summary of the Initial Financing Agreement is a summary only and does not purport to be a complete statement of the contents thereof Reference is made to the Initial Financing Agreement for the complete terms thereof References in this Appendix to the Indenture, the Financing Agreement, the Assignment, the Reimbursement Agreement and the Credit Provider will be references to the Initial Indenture, the Initial Financing Agreement, the Initial Assignment, the Initial Reimbursement Agreement and the ]nitial Credit Provider, respectively. Loan of Proceeds; Payment Provisions Loan of Bond Proceeds. The Issuer has agreed, upon the terms and conditions in the Financing Agreement, to make the Mortgage Loan to the Borrower in an amount equal to the aggregate principal amount of the Bonds for the purpose of financing the acquisition and construction of the Project. Pursuant to such agreement, the Issuer will issue the Bonds upon the terms and conditions contained in the Financing Agreement and the Indenture and will cause the proceeds of the Bonds to be applied by the Trustee as provided in the Indenture and the Financing Agreement. Mortgage Loan Repayment and Payment of Other Amounts. (a) The Borrower has acknowledged its indebtedness to the Issuer and agreed to repay the Mortgage Loan in the amounts and at the times necessary to enable the Trustee, on behalf of the Issuer, to pay when due all amounts payable with respect to the Bonds when due, whether at maturity or by purchase, redemption or acceleration or otherwise. The Issuer has agreed that the Borrower's repayment obligations under the Financing Agreement shall be reduced from time to time by any amounts drawn under the Credit Facility and applied to the payment of debt service on the Bonds. The Borrower hereby agrees to cause the Credit Facility and the Initial Standby Credit Facility to be delivered to the Trustee in accordance with the Financing Agreement. (b) The Borrower has agreed (i) to pay to the Trustee from time to time reasonable compensation for all services rendered by it under the Indenture and the other agreements relating to the Bonds to which the Trustee is a party; (ii) except as otherwise expressly provided in the Indenture or such other agreements, to reimburse each of the Trustee and the Tender Agent upon its request for all reasonable expenses, disbursements and advances (including reasonable counsel fees) incurred or made by the Trustee or the Tender Agent in accordance with any provision of the Indenture or other agreements to which the Trustee or the Tender Agent is a party or pursuant to which it is required to act (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence, bad faith or willful misconduct; (iii) in accordance with the Financing Agreement, to indemni~ the Trustee and the Tender Agent for, and hold each harmless against, any loss, liability or expense incurred without negligence, 01-503376.3 willful misconduct or bad faith on its part, arising out of or in connection with the acceptance or administration of the trusts under the Indenture or any other agreement relating to the Bonds to which the Trustee or the Tender Agent is a party or pursuant to which it is required to act, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties thereunder; and (iv) to pay any initial and annual fee of any Rating Agency then rating the Bonds, the fees of the Remarketing Agent, the Tender Agent and any paying agents, and any other amounts referred to in the Indenture. The rights of the Trustee to compensation and indemnification under the Financing Agreement shall survive removal or resignation of the Trustee and discharge of the Indenture. (c) The Borrower has also agreed to pay (i) within 30 days after receipt of request for payment thereof, which request shall set forth in detail the expenses with respect to the Project, all reasonable fees and expenses of the Issuer related to the Project and the financing thereof, which are not otherwise required to be paid by the Borrower under the terms of the Financing Agreement and are not paid from the Cost of Issuance Fund under the Indenture, including, without limitation, legal fees and expenses incurred in connection with the amendment, interpretation and enforcement of any documents relating to the Project or the Bonds, and (ii) notwithstanding any prepayment of the Mortgage Loan and a discharge of the Indenture, to the Trustee for remittance to the Issuer, an annual Issuer Fee in the amount set forth in the Financing Agreement, payable in equal semiannual installments, in advance, on the dates set forth in the Financing Agreement and continuing for the term of the Qualified Project Period (as defined in the Regulatory Agreement). In addition, in the event the Borrower prepays the Mortgage Loan pursuant to the Financing Agreement during the Qualified Project Period, the Borrower has also agrees to pay amounts due and payable as described under the heading "Prepayment--Amount of Prepayment" herein. (d) The Borrower has also agreed to pay any fees and other costs required to be incurred by the Issuer and/or the Trustee to comply with the provisions of the Indenture relating to the Rebate Fund, including but not limited to any expenses related to computations to determine if moneys are required to be rebated to the United States. The Borrower shall promptly pay the amount required by the Indenture relating to the Rebate Fund to the Trustee to be used as provided in the Indenture. (e) The Borrower has agreed to make a deposit with the Trustee on the Closing Date in immediately available funds in the amount and for the purpose of paying Costs of Issuance. (f) The Borrower has agreed to pay any fees of the Rating Agency to maintain a rating on the Bonds necessary in connection with the remarketing of the Bonds under the Indenture. Unconditional Obligation; Nonrecourse. The obligations of the Borrower to make the payments described under the heading "Loan of Proceeds; Payment Provisions" herein, and to perform and observe the other agreements on its part contained in the Financing Agreement shall be absolute and unconditional, irrespective of any defense or any rights of setoff, recoupment or counterclaim it might otherwise have against the Issuer or the Trustee, and, during the term of the Financing Agreement, the Borrower shall pay absolutely the payments required under the Financing Agreement, free of any deductions and without abatement, diminution or setoff. Until such time as the principal of, premium, if any, and interest on the Bonds shall have been fully paid, or provision for the payment thereof shall have been made as required by the Indenture, the Borrower (a) will not suspend or discontinue any payments described under the heading "Prepayment--Amount of Prepayment" herein; (b) will perform and observe all of its other covenants contained in the Financing Agreement; and (c) except as described under the heading "Prepayment" herein, will not terminate the Financing Agreement for any cause, including, without limitation, the occurrence of any act or circumstances that may constitute failure of consideration, destruction of or damage to the Project, commercial frustration of purpose, any change in the tax or other 01-503376.3 D- 1-2 laws of the United States of America or of the State or any political subdivision of either of these, or any failure of the Issuer or the Trustee to perform and observe any covenant, whether express or implied, or any duty, liability or obligation arising out of or connected with the Financing Agreement or the Indenture, except to the extent permitted by the Financing Agreement. Notwithstanding any provision of the Financing Agreement, the Regulatory Agreement or the Security Instrument (collectively, the "Project Mortgage Loan Documents") to the contrary, the Borrower shall not be personally liable for the amounts owing under the Financing Agreement (other than for indemnity and fees as described below) or under the Project Mortgage Loan Documents, and the Issuer's and the Trustee's remedies in the event of a default under the Financing Agreement or under the Project Mortgage Loan Documents shall be limited to those remedies described under the heading "Events of Default and Remedies--Remedies on Default" herein and under the Regulatory Agreement. In the event of a default under the Financing Agreement or under the Security Instrument, except to the extent provided in the next sentence, neither the Issuer nor the Trustee shall have the right to proceed directly against the Borrower (rather than the Project) or the right to obtain a deficiency judgment after foreclosure. Nothing described under this heading shall preclude the Issuer, the Trustee or the Administrator from proceeding directly against the Borrower in connection with the following: (i) the obligation of the Borrower to indemnify the Issuer, the Trustee and the Administrator under the Financing Agreement or the Regulatory Agreement; (ii) the obligation of the Borrower to make any payment to the Issuer, the Trustee or the Administrator required to be paid by the Borrower pursuant to the provisions of the Financing Agreement, or under the Regulatory Agreement; (iii) the application by the Borrower of any condemnation award or insurance awards attributable to the Project for any purpose other than rebuilding or repairing the Project to repaying the Mortgage Loan in accordance with the Financing Agreement; (iv) the application of rents or security deposits attributable to the Project at any time during which the Borrower is in default under paragraph (a) under the heading "Loan Repayment and Payment of Other Amounts" herein for any purpose other than to pay the operative expenses of the Project or to pay principal and interest on the Mortgage Loan; (v) the Borrower's failure to comply with any Environmental Laws; and (vi) any amounts owing under indemnity provisions that relate to liabilities to third parties resulting from acts or omissions of Borrower and/or from the ownership, occupancy or use of the Property, all of which obligations shall constitute recourse obligations of the Borrower. Credit Facility; Standby Credit Facility; Substitute Credit Facility Credit Facility. There shall be provided and continuously available to thc Trustee, as beneficiary, an irrevocable direct-pay Credit Facility (whether in the form of a letter of credit or any other credit instrument) meeting the requirements described in paragraph (a) below while the Bonds bear interest at a Variable Rate or described in paragraph (b) below while the Bonds bear interest at a Reset Rate; and at all times after Conversion there shall be provided and continuously available to the Trustee an irrevocable direct-pay Credit Facility (whether in the form ora letter of credit or any other credit instrument) meeting the requirements described in paragraph (c) below. Thc Borrower shall have the right at any time, whether or not in connection with Conversion or any Reset Date or the pending expiration of any then outstanding Credit Facility, to provide to the Trustee a substitute Credit Facility which meets the requirements described under this heading, and the Trustee has been directed pursuant to the Indenture to accept any such substitute Credit Facility. (a) The following requirements shall apply to any Credit Facility provided while the Bonds bear interest at a Variable Rate: (i) Any substitute Credit Facility shall be for a term commencing not later than the expiration date of the term of the prior Credit Facility. (ii) Any substitute Credit Facility shall be for a term of not less than one year (or, if shorter, the remaining term of the Bonds), provided that any Credit Facility may provide that it shall terminate prior to its stated expiration date upon a Reset Date or the Conversion Date or upon receipt by the Credit Provider of notice from the Trustee that no Bonds remain outstanding or upon the date of issuance and delivery of a substitute Credit FaciliW. (iii) Each Credit Facility shall be in an amount at any date not less than the sum of the aggregate principal amount of the Bonds then outstanding, plus an amount equal to interest on the Bonds for a period of 39 days (or such greater or lesser period required by the Rating Agency) at the Maximum Interest Rate. (iv) Each Credit Facility shall include provisions permitting drawings thereunder to pay amounts due on the Bonds, whether as principal or interest, on the scheduled dates for payment of such amounts or upon redemption or acceleration and to pay the purchase price of Bonds tendered for purchase as provided in the Indenture, and providing for automatic and irrevocable reinstatement of the amount thereof upon any drawing thereunder to pay interest on the Bonds and shall be in a form acceptable to the Trustee. (v) Each Credit Facility shall be issued by a national banking association organized under the National Banking Act, or any successor law, or a banking corporation organized under the laws of any state of the United States, or a savings association or corporation or savings bank organized under the laws of the United States or any state thereof, or a branch or agency of a foreign banking corporation or association licensed in one of the states of the United States, or an insurance company organized under the laws of any state of the United States, or any other issuer acceptable to the Issuer and the Trustee. (vi) Each substitute Credit Facility delivered to the Trustee must be accompanied by (A) an opinion of Bond Counsel addressed to the Trustee to the effect that delivery of such substitute Credit Facility complies with the provisions of the Financing Agreement and the Indenture and will not cause interest on the Bonds to become includable in gross income for federal income tax purposes and (B) an opinion of counsel for the Credit Provider addressed to the Trustee to the effect that the Credit Facility is a legal, valid and binding obligation of the Credit Provider, enforceable against the Credit Provider in accordance with its terms, except as limited by applicable reorganization, insolvency, liquidation, readjustment of debt, moratorium or other similar laws affecting the enforcement of the rights of creditors generally as such laws may be applied in the event of a reorganization, insolvency, liquidation, readjustment of debt or other similar proceeding of or moratorium applicable to the Credit Provider and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (vii) Each substitute Credit Facility delivered to the Trustee shall be accompanied by a written statement, signed by an officer of each Rating Agency which then maintains a rating on the Bonds, stating the expected rating on the Bonds as a result of such substitution, which rating, in any event, without the Issuer's approval, will not be lower than "AAA," or such lower rating as may be agreed to in writing by the holders of 100% of the Bonds, which lower rating in no event shall be lower than "A." 01-503376.3 D- 1-4 (viii) The commitment to issue a Credit Facility shall be delivered not later than 40 Business Days prior to the expiration or termination of the then existing Credit Facility, the substitute Credit Facility shall be delivered to the Trustee no less than I 1 days before the expiration of the then existing Credit Facility, and shall be effective on or prior to the stated expiration date or termination date of the then existing Credit Facility; provided, however, that the then existing Credit Facility may expire or be terminated any time on or after the effective date of any substitute Credit Facility in the event that all Bonds tendered pursuant to the Indenture have been purchased prior to such expiration or termination. (b) The following requirements shall apply to any Credit Facility provided in connection with a Reset Date or during a Reset Period: (i) The Credit Facility commitment provided in connection with a Reset Date shall be delivered not less than 40 days before the Reset Date; and the Credit Facility shall be delivered to the Trustee not less than 11 days before the Reset Date and shall be effective from no later than the Reset Date; and any substitute Credit Facility shall be delivered to the Trustee not less than 11 days before the expiration of the then existing Credit Facility and shall be for a term commencing not later than the expiration date of the prior Credit Facility. (ii) Each Credit Facility shall be for a term expiring not earlier than the final day of the applicable Reset Period, provided that any Credit Facility may provide that it shall terminate prior to its stated expiration date upon receipt by the Credit Provider of notice from the Trustee that no Bonds remain outstanding or upon the date of issuance and delivery of a substitute Credit Facility. (iii) Each Credit Facility shall be in an amount at any date not less than the sum of the aggregate principal amount of the Bonds then outstanding, plus an amount equal to interest on the Bonds for a period of at least 210 days (or such greater or lesser period required by the Rating Agency). (iv) Each Credit Facility shall contain provisions permitting drawings thereunder to pay principal of or interest on the Bonds on the scheduled dates for payment of such amounts or upon redemption or acceleration and to pay the purchase price of Bonds tendered for purchase as provided in the Indenture, and providing for automatic and irrevocable reinstatement of the amount thereof upon any drawing thereunder to pay interest on the Bonds. (v) Each Credit Facility shall be issued by an entity described in paragraph (a)(v) above. (vi) The commitment to issue the Credit Facility to be delivered to the Trustee in connection with a Reset Date and each subsequent Credit Facility delivered to the Trustee must be accompanied by an opinion of Bond Counsel and an opinion of counsel for the Credit Provider, each addressed to the Trustee, to the effect described in paragraph (a)(vi) above. (vii) The commitment to issue the Credit Facility to be delivered to the Trustee in connection with a Reset Date shall be accompanied by a written statement, signed by an officer of any Rating Agency which then maintains a rating on the Bonds, 01-503376.3 D- 1-5 stating the expected rating on the Bonds, which rating, in any event, without the Issuer's approval, will not be lower than "AAA," or such lower rating as may be agreed to in writing by the holders of 100% of the Bonds, which lower rating in no event shall be lower than "A." (c) The following requirements shall apply to any Credit Facility provided in connection with or after Conversion, as applicable: (i) The Credit Facility commitment provided in connection with Conversion shall be delivered not less than 40 days before the Conversion Date; the Credit Facility shall be delivered to the Trustee not less than 11 days before the Conversion Date and shall be effective from no later than the Conversion Date; and any Credit Facility provided in substitution for any then outstanding Credit Facility shall be delivered to the Trustee no less than 1 l days before the expiration of the then existing Credit Facility and shall be for a term commencing not later than the expiration date of the prior Credit Facility. (ii) Each Credit Facility shall be for a term expiring not earlier than the final maturity date of the Bonds, provided that any Credit Facility may provide that it shall terminate prior to its stated expiration date upon receipt by the Credit Provider of notice from the Trustee that no Bonds remain outstanding or upon the date of issuance and delivery of a substitute Credit Facility. (iii) Each Credit Facility shall be in an amount at any date not less than the sum of the aggregate principal amount of the Bonds then outstanding, plus an amount equal to interest on the Bonds for a period of at least 210 days (or such greater period required by the Rating Agency.) (iv) Each Credit Facility shall contain provisions permitting drawings thereunder to pay principal of and interest on the Bonds on the scheduled dates for payment of such amounts or upon redemption or acceleration, and providing for automatic and irrevocable reinstatement of the amount thereof upon any drawing thereunder to pay interest on the Bonds. (v) The commitment to issue the Credit Facility to be delivered to the Trustee in connection with Conversion and each subsequent Credit Facility delivered to the Trustee must be accompanied by an opinion of Bond Counsel and an opinion of counsel for the Credit Provider, each addressed to the Trustee, to the effect described in paragraph (a)(vi) above. (vi) The commitment to issue the Credit Facility to be delivered to the Trustee in connection with Conversion, as provided in the Indenture, shall be accompanied by a written statement, signed by an officer of each Rating Agency which then maintains a rating on the Bonds, stating the expected long-term rating on the Bonds, which rating, in any event, without the Issuer's approval, will not be lower than "AAA," or such lower rating as may be agreed to in writing by the holders of 100% of the Bonds, which lower rating in no event shall be lower than "A." Standby Credit Facili(v. At all times while the Bonds remain outstanding and a Standby Credit Facility is required by the Rating Agency to maintain the then-existing rating on the Bonds, the Borrower shall provide to the Trustee, as beneficiary, an irrevocable Standby Credit Facility or Substitute Credit Facility meeting the requirements described under this heading or described under the heading "Substitute Credit Facility" below, as the case may be. The initial Credit Facility is initially secured by the Initial Standby Credit Facility issued by the lnitial Standby Credit Provider. The Borrower shall provide or cause to be provided to the Trustee upon the expiration of the Initial Standby Credit Facility, a substitute Standby Credit Facility or Substitute Credit Facility; or, in the alternative, the Credit Provider may provide a substitute Standby Credit Facility or a Substitute Credit Facility resulting in a rating on the Bonds not lower than the rating on the Bonds prior to the expiration of the existing Standby Credit Facility. The Credit Provider may, at any time, provide a substitute Standby Credit Facility. The following requirements shall apply to any Standby Credit Facility provided in connection with the Bonds: (a) The Initial Standby Credit Facility shall be accepted by the Trustee prior to any disbursement by the Trustee of moneys on deposit in the Program Fund. (b) Each Standby Credit Facility (other than the Initial Standby Credit Facility) shall be for a term expiring not earlier than one year after its effective date; provided, however, that such Standby Credit Facility may provide that it shall terminate prior to its stated expiration date upon receipt by the Standby Credit Facility Provider of notice from the Trustee that no Bonds remain Outstanding. (c) Any Standby Credit Facility shall be in an amount at any date not less than the sum of the aggregate principal amount of Bonds then outstanding plus an amount equal to interest on the Bonds for a period of 39 days (or such greater or lesser period required by the Rating Agency) at the Maximum Interest Rate for so long as the Bonds bear interest at the Variable Rate and for a period of 210 days (or such greater or lesser period required by the Rating Agency) for so long as the Bonds bear interest at the Reset Rate or the Fixed Rate. (d) Except for its term, each Standby Credit Facility shall meet the requirements of the Rating Agency then rating the Bonds, including, without limitation, provisions permitting drawings thereunder to pay timely all amounts due on the Bonds, other than any premium due in connection with an optional redemption of Bonds, on the scheduled dates for payment of such amounts or upon redemption or acceleration and to pay the Purchase Price of Bonds tendered for purchase as provided in the Indenture, and shall be in a form acceptable to the Trustee. (e) Each Standby Credit Facility must be accompanied by (i) an opinion of Bond Counsel to the effect that delivery of the Standby Credit Facility complies with the provisions of the Financing Agreement and the Indenture and will not cause interest on the Bonds to become includable in gross income for federal income tax purposes and (ii) an opinion of counsel to the Standby Credit Provider or other counsel to the effect that the Standby Credit Facility is a legal, valid and binding obligation of the Standby Credit Provider, enforceable against the Standby Credit Provider in accordance with its terms, with such exceptions as are acceptable to the Rating Agency, including, but not limited to, an exception to the effect that such enforceability is limited by applicable reorganization, insolvency, liquidation, readjustment of debt, moratorium or other similar laws affecting the enforcement of the rights of creditors generally as such laws may be applied in the event of a reorganization, insolvency, liquidation, readjustment of debt or other similar proceeding of or moratorium applicable to the Standby Credit Provider and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and 01-503376.3 D-l-7 (f) Each Standby Credit Facility (other than the Initial Standby Credit Facility) must be accompanied by (i) a written statement, signed by an officer of each Rating Agency which then maintains a rating on the Bonds, stating the expected long-term rating on the Bonds, which rating, in any event, without the Issuer's approval, will not be lower than "AAA," or such lower rating as may be agreed to in writing by the holders of 100% of the Bonds, which lower rating in no event shall be lower than "A,' and (ii) the Standby Credit Provider's address to which notices required to be given to the Standby Credit Provider under the Financing Agreement and under the Regulatory Agreement, the Indenture and the Remarketing Agreement shall be sent. Substitute Credit Facility. Subject to the terms of any supplemental indenture entered into in accordance with the Indenture and prior to the expiration of the initial Credit Facility, the Credit Provider or the Borrower shall have the right to provide to the Trustee a Substitute Credit Facility, which meets the requirements described in the following paragraph. The Trustee has been directed pursuant to the Indenture to accept any such Substitute Credit Facility. Subject to the terms of any supplemental indenture, the Borrower may deliver a Substitute Credit Facility to the Trustee in substitution for the then existing Credit Facility or Standby Credit Facility, provided that the Substitute Credit Facility is delivered prior to, and shall become effective on or before the stated expiration date of the then existing Credit Facility or Standby Credit Facility. Any Substitute Credit Facility must be accompanied by the opinion of Bond Counsel described in paragraph (e) under the heading "Standby Credit Facility" above and the statements described under paragraph (f) under the heading "Standby Credit Facility" above, together with any other instruments, agreements or other documents set forth in any supplemental indenture for the Bonds or required by the Rating Agency. The Substitute Credit Facility delivered on the date of Loan Conversion shall afford the Bonds a rating of "AAA" which shall be confirmed by a written statement signed by an officer of the Rating Agency which then maintain a rating on the Bonds and delivered to the Trustee on or before the date of the Loan Conversion. Events of Default and Remedies Events of Default. Any one of the following which occurs and continues shall constitute an Event of Default: (a) during any period that the Bonds bear interest at a Fixed Rate or a Reset Rate, the occurrence of an Event of Default described in paragraphs (b), (c) or (d) below or a default under the Regulatory Agreement if such default constitutes a Determination of Taxability (an "Acceleration Default"); (b) subject to the provisions of the Assignment, failure by the Borrower to pay any amounts required to be paid as described under the heading "Loan of Proceeds; Payment Provisions--Loan Repayment and Payment of Other Amounts" herein at the times specified therein; (c) subject to the provisions of the Assignment, failure by the Borrower to observe and perform any covenant, condition or agreement on its part required to be observed or performed by the Financing Agreement or Regulatory Agreement, and which continues for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, given to the Borrower by the Issuer or the Trustee, unless the Issuer and the Trustee shall, with the consent of the Credit Provider, agree in writing to an extension of such time prior to its expiration; provided, however, that, if the failure stated in the notice cannot be corrected within such period, the Issuer and the Trustee will not unreasonably withhold their consent to an 01-503376.3 D- 1-8 extension of such time if corrective action is instituted within such period and diligently pursued until the default is corrected; (d) subject to the provisions of the Assignment, the making of any representation or warranty by the Borrower in the Financing Agreement, in the Issuer Loan Documents or in any document executed in connection with the Financing Agreement which is false or misleading in any material respect when made; or (e) receipt by the Trustee from the Credit Provider of notice of an event of default under the Reimbursement Agreement and a request that it be treated as an Event of Default under the Financing Agreement. The provisions of paragraph (c) above, except with respect to defaults under the Regulatory Agreement or under the Financing Agreement relating to the tax-exempt status of interest on the Bonds, are subject to the limitation that the Borrower shall not be deemed in default if and so long as the Borrower is unable to carry out its agreements under the Financing Agreement by reason of strikes, lockouts or other industrial disturbances; acts of public enemies; orders of any kind of the government of the United States or of the State of California or any of their departments, agencies or officials, or any civil or military authority; insurrections, riots, epidemics, landslides; lightning; earthquake; fire; hurricanes; storms; floods; washouts; droughts; arrests; restraint of government and people; civil disturbances; explosions; breakage or accident to machinery, transmission pipes or canals; partial or entire failure of utilities; or any other cause or event not reasonably within the control of the Borrower; it being agreed that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the Borrower, and the Borrower shall not be required to make settlement of strikes, lockouts and other industrial disturbances by acceding to the demands of the opposing party or parties when such course is, in the judgment of the Borrower, unfavorable to the Borrower. This limitation shall not apply to any default except under paragraph (c) above. Remedies on Default. Whenever any Event of Default shall have occurred and shall continue, after giving notice to the Credit Provider and subject to any right of the Credit Provider to cure any such default, the Issuer and the Trustee may take any one or more of the following remedial steps: (i) The Trustee, upon the occurrence of an Event of Default described under paragraph (a) under the heading "Events of Default" above or at the request or with the consent of the Credit Provider upon the occurrence of any other Event of Default under the Financing Agreement, by written notice to the Borrower, shall immediately declare to be due and payable immediately the unpaid balance of the Mortgage Loan. (ii) The Issuer, the Credit Provider and the Trustee may have access to and may inspect, examine and make copies of the books and records and any and all accounts, data and federal income tax and other tax returns of the Borrower. (iii) The Issuer or the Trustee may take whatever action at law or in equity as may be necessary or desirable to collect the payments and other amounts then due and thereafter to become due or to enforce performance and observance of any obligation, agreement or covenant of the Borrower under the Financing Agreement. (iv) The Trustee may institute any action or proceeding at law or in equity for the collection of any sums due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Borrower and collect in the manner provided by law the moneys adjudged or decreed to be 01-503376.3 D-I-9 payable as limited only as described uoder the heading "Loan of Proceeds; Payment Provisions-- Unconditional Obligation; Nonrecourse" herein. In case the Trustee or the Issuer shall have proceeded to enforce its rights under the Financing Agreement and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Issuer, then, and in every such case, the Borrower, the Trustee, the Credit Provider and the Issuer shall be restored respectively to their several positions and rights under the Financing Agreement, and all rights, remedies and powers of the Borrower, the Trustee, the Credit Provider and the Issuer shall continue as though no such action had been taken. In case proceedings shall be pending for the bankruptcy or for the reorganization of the Borrower under the federal bankruptcy laws or any other applicable law, or in case a receiver or trustee shall have been appointed for the property of the Borrower, or in the case of any other similar judicial proceedings relative to the Borrower, or the creditors or property of the Borrower, then the Trustee shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount owing and unpaid pursuant to the Financing Agreement and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee allowed in such judicial proceedings relative to the Borrower, its creditors or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute such amounts as provided in the Indenture after the deduction of its charges and expenses. Any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized to make such payments to the Trustee, and to pay to the Trustee any reasonable amount due it for compensation and expenses, including expenses and fees of counsel incurred by it up to the date of such distribution. Notwithstanding anything in the Indenture, the Security Instrument or the Financing Agreement to the contrary, the Trustee shall not be required to initiate foreclosure proceedings with respect to the Project, and shall not otherwise be required to acquire possession of or take other action with respect to the Project that could cause it to be considered an "owner" or "operator" within the meaning of CERCLA or any other Environmental Law, unless the Trustee has sufficient comfort, based on previous determinations by experts on which Trustee can rely, including an environmental report, that: (i) the Project is in compliance with all Environmental Laws or, if not, that it would nevertheless be in the best economic interest of the Trustee and the Bondholders to take such actions as are necessary for the Project to comply therewith; (ii) there are no circumstances present at the Project relating to the use, management or disposal of any hazardous substances, hazardous materials, hazardous wastes or petroleum- based materials for which investigation, testing, monitoring, contaminant, cleanup or remedial action could be required under any Environmental Laws or that, if any such materials are present for which such action could be required, it would be nevertheless in the best economic interest of the Trustee and the Bondholders to take such actions with respect to the Project; (iii) if the Trustee has determined that it would be in the best economic interest of the Trustee and the Bondholders, the Trustee must be satisfied that it will suffer no unreimbursed liabilities and will be adequately reimbursed for all liabilities, expenses and costs from available funds in the Trustee's possession and control; and (iv) if the Trustee has determined that it would be in the best economic interest of the Trustee and the Bondholders to take any such action and its aforementioned liabilities, expenses and costs are adequately reimbursed, the Trustee has so notified the Bondholders and has not 01-503376.3 D- 1 - 10 received, within 30 days of such notification, instructions from Owners of 60% or more in principal amount of the then Outstanding Bonds directing it not to take such action. If the foregoing conditions are not satisfied and the Trustee is not willing to waive such conditions and initiate foreclosure proceedings, then the Trustee shall take such actions as are reasonably necessary or appropriate in order to facilitate the appointment of a co-trustee, being a person or entity designated by the Owners of a majority in principal amount of the Bonds then Outstanding and to assign to such person or entity (subject, however, to the trusts created pursuant to the Indenture) the beneficial interest under the Security Instrument which secures the obligations under the Financing Agreement, for the limited purpose of conducting a foreclosure of such Security Instrument and receiving and holding any title to real property obtained as a result of such foreclosure. Persons or entities appointed as co- trustees or agents of the Trustee as described in this paragraph shall not be required to meet the criteria of the Indenture, or any other criteria, in order to serve as such. Prepayment Prepayment of Mortgage Loan. The Mortgage Loan shall not be prepaid except as described under this heading. No prepayment of the Mortgage Loan shall relieve the Borrower of its obligations under the Regulatory Agreement during the Qualified Project Period. The Borrower shall be permitted or required to prepay, or shall be deemed to have prepaid, the Mortgage Loan, in whole or in part, and the principal amount thereof shall be reduced accordingly, in an amount equal to the principal amount of Bonds redeemed and on the date of such redemption, as follows: (a) The Borrower shall be required to prepay the Mortgage Loan in whole or in part from the amount of any Net Proceeds of any insurance or condemnation award which are not used to repair or replace the Project pursuant to the Financing Agreement. (b) The Borrower shall be permitted to prepay the Mortgage Loan in whole or in part (i) at any time while the Bonds bear interest at a Variable Rate and (ii) before any date on which the Bonds are subject to redemption as described in paragraph (d) under the heading "THE BONDS--Redemption Prior to Loan Conversion~ircumstances of Redemption" herein, provided at least 30 days' notice is given to the Trustee of such redemption and the Credit Provider agrees to include in the amount of the Credit Facility or the Borrower provides Available Amounts in the amount of any premium due on such redemption. (c) The Borrower shall be required to prepay the full remaining balance of the Mortgage Loan, upon the occurrence of an Acceleration Default and the acceleration of the Mortgage Loan pursuant to the Financing Agreement, or the Credit Provider's request for, or consent to, the acceleration of the Mortgage Loan following any other Event of Default under the Financing Agreement pursuant to the Financing Agreement. (d) The Borrower shall be required to prepay the Mortgage Loan in whole or in part on the date necessary in order for the Bonds to be redeemed as described in paragraphs (a), (c), (d) and/or (f) under the heading "THE BONDS--Redemption Prior to Loan Conversion-- Circumstances of Redemption" herein. Redemption of Bonds Upon Prepayment. Upon any prepayment of the Mortgage Loan as provided in the Financing Agreement, the Trustee is required by the Indenture to call all or part of the Bonds for redemption and to draw upon the Credit Facility in the respective amounts set forth in the applicable redemption provision of the Indenture. 01-503376.3 D-l-1 1 Amount of Prepayment. In the event of any prepayment pursuant to the Financing Agreement, the amount of the Mortgage Loan deemed to be prepaid shall be equal to the principal amount of Bonds redeemed as described in the Financing Agreement (provided that the Mortgage Loan shall not, in any event, be considered prepaid as a consequence of any "deemed redemption" of the Bonds described under the heading "Default--No Default; Deemed Redemption" in Appendix B-l). In the case of prepayment of the Mortgage Loan in full, the Borrower shall pay to the Trustee an amount sufficient, together with other funds held by the Trustee and available for such purpose, to pay all reasonable and necessary fees and expenses (including attorneys' fees) of the Issuer, the Trustee and any paying agent accrued and to accrue through final payment of the Bonds and all other liabilities of the Borrower accrued and to accrue under the Financing Agreement and shall pay to the Issuer an amount required by the Financing Agreement. In the case of partial prepayment of the Mortgage Loan, the Borrower shall pay or cause to be paid to the Trustee an amount sufficient, together with other funds held by the Trustee and available for such purpose, to pay expenses of redemption of the Bonds to be redeemed upon such prepayment. The Borrower agrees that it will not voluntarily prepay the Mortgage Loan or any part thereof, except in amounts sufficient to redeem Bonds in whole multiples of $100,000 plus any multiple of $5,000 in excess thereof during any Variable Period, or in whole multiples of $5,000 after Conversion or during any Reset Period, and to pay any applicable redemption premium and accrued interest to the redemption date. Control of Borrower, Credit Bank and Standby Credit Bank The Borrower has represented that neither the Credit Bank nor the Standby Credit Bank controls, either directly or indirectly, through one or more intermediaries, the Borrower and that the Borrower does not control, either directly or indirectly, through one or more intermediaries, either the Credit Bank or the Standby Credit Bank. "Control" for this purpose has the meaning given to such term in Section 2(a)(9) of the Investment Company Act of 1940. The Borrower shall give notice to the Trustee and the Remarketing Agent of any transaction that would result in the Borrower controlling or being controlled by the Credit Bank or the Standby Credit Bank at least 45 days prior to the date of consummation of such transaction. The Trustee shall give such notice to the Bondholders within ten days of receipt thereof. 01-503376.3 D- 1 - 12 APPENDIX D-2 SUMMARY OF CERTAIN PROVISIONS OF THE PERMANENT FINANCING AGREEMENT The following summary of the Permanent Financing `4greement relates only to the period beginning with Loan Conversion, if it occurs. Prior to Loan Conversion this description is of no force or effect. .4 summary of the Initial Financing .4greement entered into with respect to the Bonds prior to Loan Conversion is set forth in .4ppendix D-1 hereto. Furthermore, the following summary of the Permanent Financing dgreement is a summary only and does not purport to be a complete statement of the contents thereof Reference is made to the Permanent Financing `4greement for the complete terms' thereof References in this `4ppendix to the Indenture, the Financing .4greemenl, the Reimbursement .4greement and the Credit Provider will be references to the Permanent Indenture, the Permanent Financing .4greement, the Permanent Reimbursement .4greement and the Permanent Credit Provider, respectively. Amount and Source of Mortgage Loan Upon the issuance and delivery of the Bonds, the Issuer will apply the Net Bond Proceeds to fund the Mortgage Loan. The Borrower has accepted the Mortgage Loan from the Issuer on the terms and conditions set forth in the Financing Agreement and in the Mortgage Loan Documents and subject to the terms and conditions of the Indenture and the Regulatory Agreement. The Borrower has agreed to apply the proceeds o£the Mortgage Loan to pay costs of acquiring, constructing and equipping the Project. Obligation To Repay the Mortgage Loan and To Pay the Debt Service on the Bonds In repayment of the Mortgage Loan, the Borrower will make payments on the Mortgage Note, which will, at all times and in all events, be sufficient to repay the Mortgage Loan (including all payments of principal and interest when due) and to timely pay, when due, the principal of, premium, if any, and interest on, the Bonds, plus all (a) Third Party Fees and (b) Set Rate Interest. The Borrower's obligations set forth in the preceding sentence are without exception, and are not diminished by any provision of any Bond Document or any Mortgage Loan Document which may state or imply to the contrary, or by the amount of Investment lncome available to be applied to the payment of the foregoing obligations. Terms The Mortgage Loan will (a) be evidenced by the Mortgage Note, (b) be in a principal amount approved by the Credit Provider, not to exceed the principal amount of the Bonds, (c) bear interest at the Mortgage Note Rate, (d) be payable on the terms provided in the Mortgage Note, (e) be secured by, among other instruments, the Security Instrument and as other~vise provided in the other Mortgage Loan Documents and/or the Financing Agreement and (f) be subject to optional and mandatory prepayment at the times, in the manner and on the terms, and have such other terms and provisions as are, set forth in the Mortgage Loan Documents. The Mortgage Note Rate will be comprised of: (i) a pass-through rate of interest (the "Pass-Through Rate"), which will be a rate sufficient to pay when due the interest on the Bonds and the Third Party Fees (to the extent included in the Mortgage Note Rate); and 01-503376.3 (ii) Set Rate Interest, which shall be equivalent to the sum of (1)the Facility Fee payable to the Credit Provider and (2) the Servicing Fee. Payment of Third Party Fees and Expenses In addition to all fees, costs, expenses and other amounts required to be paid by the Borrower under the Mortgage Note and the Reimbursement Agreement, the Borrower shall pay, without duplication, the following fees and expenses: (i) fees included in the Mortgage Note Rate: (1) the Third Party Fees, provided that such fees may be included in the Mortgage Note Rate only to the extent that they are expressed as a percentage of the outstanding unpaid principal balance of the Mortgage Loan; (2) fees that comprise Set Rate Interest, which shall be received by the Loan Servicer as part of the payments of interest on the Mortgage Note received by the Loan Servicer, deducted by the Loan Servicer from such payments of interest and retained by the Loan Servicer (as to that portion of Set Rate Interest allocable to the Servicing Fee) and remitted by the Loan Servicer to the Credit Provider as to that portion of Set Rate Interest allocable to the Facility Fee; (ii) fees not included in the Mortgage Note Rate and expenses: (1) the fees (other than the Servicing Fee included in Set Rate Interest) and expenses due to the Loan Servicer in connection with the Mortgage Loan; (2) to the extent not previously paid by the Borrower, the fees and expenses required to be paid by the Loan Servicer to the Credit Provider, such fees and expenses to be paid at the times and in the manner required by the Credit Provider, provided that the imposition of such obligation on the Borrower shall not diminish the Loan Servicer's obligation to pay such fees to the Credit Provider; (3) all amounts required to pay to the Issuer (a) the fees of the Issuer (exclusive of that portion of the Issuer's Annual Fee included in the Mortgage Note Rate), and (b) all expenses of the Issuer incurred at any time in connection with the financing of the Project or the Bonds, including, without limitation, counsel fees and expenses incurred in connection with the interpretation, performance, enforcement or amendment of the Bond Documents, the Mortgage Loan Documents or any other documents relating to the Project or the Bonds or in connection with questions or other matters arising under such documents or in connection with any federal or state tax audit; all payments for fees and expenses other than the portion of the Issuer's Annual Fee included in the Mortgage Note Rate shall be made by the Borrower to the Issuer or to any payee designated by the Issuer not later than 30 days after receipt of invoices rendered to the Borrower by the Issuer; (4) the Trustee's acceptance fee, if any, which shall be paid to the Trustee on the Closing Date, and all amounts required from time to time to (a) pay the fees of the Trustee for its duties and services as Trustee in connection with the Bonds (exclusive of that portion of the Trustee's Annual Fee included in the Mortgage Note Rate), and (b) reimburse the Trustee for all advances, out-of-pocket expenses, fees, costs and other 01-503376.3 D-2-2 charges, including counsel fees and expenses, and taxes (excluding income, value added and single business taxes), reasonably and necessarily incurred by the Trustee in performing its duties as Trustee under the Indenture, the Financing Agreement, the Disclosure Agreement, the Credit Facility and the Regulatory Agreement and (c) pay and reimburse the Trustee for any fees and expenses incurred in connection with any default under the Indenture, the Financing Agreement or under the Regulatory Agreement; all payments for fees and expenses other than the portion of the Trustee's Annual Fee included in the Mortgage Note Rate shall be made by the Borrower to the Trustee not later than thirty (30)days after receipt of invoices rendered to the Borrower by the Trustee; (5) all amounts required to pay the fees and expenses of the Rebate Analyst as required by the Financing Agreement, (exclusive of that portion of the Rebate Analyst's Annual Fee included in the Mortgage Note Rate); all payments for fees and expenses other than the portion of the Rebate Analyst's Annual Fee included in the Mortgage Note Rate shall be made by the Borrower not later than 30 days after receipt of invoices rendered to the Borrower by the Rebate Analyst; (6) all Costs of Issuance; (7) all costs of registering, printing, reprinting, preparing and delivering any replacement bonds required under the Indenture and in connection with the registration, printing, reprinting or transfer of Bonds; (8) all fees and expenses of the Credit Provider, the Loan Servicer, their respective counsel, title insurance, survey, recording and other costs related to underwriting, closing and disbursing the Mortgage Loan and of assigning the Mortgage Loan to the Trustee and the Credit Provider, as their interests may appear; (9) all fees, costs and expenses in connection with Conversion, including the fees and expenses of counsel to the Credit Provider and counsel to the Loan Servicer; (10) all fees of the Rating Agency. The Borrower has further agreed to timely honor any demand by the Trustee pursuant to the Indenture for payment on account of any insufficiency in the Fees Account. The Borrower has acknowledged that all fees, costs, expenses and other amounts described under this heading are obligations solely of the Borrower and (a)as to fees described in paragraphs (i) and (ii) above, must be paid by the Borrower in all events, including the insufficiency of the amounts included in the Mortgage Note Rate to pay such fees, and (b) as to fees described in paragraph (ii) above, must be paid by the Borrower separate and apart from payments due under the Mortgage Loan and will not be included in the Mortgage Note Rate. None of the Issuer, the Trustee, the Credit Provider or the Loan Servicer shall have (a) any liability, responsibility or accountability for the payment, remittance or handling of any such fees, costs or expenses or (b) any obligation to pay any such fees, costs or expenses. The payment of all fees and expenses specified in the Financing Agreement that are not included in the Mortgage Note Rate or provided for in the Reimbursement Agreement shall not be secured by the Security Instrument or constitute a lien on the Project in any manner (unless the Loan Servicer or the Credit Provider shall, in its sole discretion, advance such fees and expenses), shall be unsecured obligations of the Borrower and shall be subordinate to the Borrower's obligations under the Mortgage Loan Documents. 01-503376.3 D-2-3 Prepayment Optional Prepayment. The Borrower will have the right to prepay the Mortgage Loan in whole, but not in part, on the terms provided in, and subject to the limitations of, the Mortgage Note and, to the extent applicable, the Security Instrument and the Reimbursement Agreement, provided that the Borrower will comply with the provisions of the Financing Agreement. The Borrower has agreed that the payment of all amounts set forth in the Financing Agreement will be a condition precedent to the effectiveness of any prepayment of the Mortgage Loan. Involuntary Prepayment. The Mortgage Loan will be subject to involuntary prepayment in whole or in part on the terms provided in the Mortgage Note. Nonrecourse Liability Except as otherwise provided in the Mortgage Loan Documents, in any action or proceeding brought with respect to the Mortgage Loan or the Bonds, no deficiency or other money judgment will be enforced against the Borrower or any partner of the Borrower or any successor or assign of the Borrower, and any judgment obtained shall be enforced only against the Project and other property of the Borrower encumbered by the Mortgage Loan Documents and not against the Borrower or any partner of the Borrower or any successor or assign of the Borrower. Notwithstanding the foregoing, anything to the contrary contained in the Financing Agreement, the obligations of the Borrower to the Issuer, the Trustee or any other party (a) under the Financing Agreement and (b) to pay any and all rebate amounts that may be or become owing with respect to the Bonds, will be recourse to the Borrower, but except with respect to obligations owing to the Credit Provider, not to the Project or any other property encumbered by the Mortgage Loan Documents. Borrower's Obligations The Borrower has released the Issuer and the Trustee, and their respective officers, directors, agents, officials, employees (and, as to the Issuer, members of its governing body) and any person who controls the lssuer or the Trustee within the meaning of the Securities Act of 1933, from, and has covenanted and agreed to indemnify, hold harmless and defend the Issuer and the Trustee and their respective officers, directors, employees, agents, members of its governing body, officials and any person who controls such party within the meaning of the Securities Act of 1933 and employees and each of them (each, an "Indemnified Party") from and against, any and all losses, claims, damages, demands, liabilities and expenses (including attorneys' fees and expenses), taxes, causes of action, suits, claims, demands and judgments of any nature, joint or several, by or on behalf of any person arising out of certain events as further described in the Financing Agreement. Events of Default; Remedies Events of Default. Each of the following will constitute an Event of Default under the Financing Agreement: (a) the failure by the Borrower to pay any amounts due under the Financing Agreement at the times and in the amounts required by the Financing Agreement; (b) the failure by the Borrower to observe or perform any covenants, agreements or obligations in the Financing Agreement on its part to be observed or performed (other than as provided in paragraph (a) above) for a period of 30 days after receipt of written notice from the Trustee specifying such failure and requesting that it be remedied; provided, however, that if the 01-503376.3 D-2-4 failure is such that it cannot be corrected within such period, it will not constitute an Event of Default if the failure is correctable without material adverse effect on the validity or enforceability of the Bonds or on the exclusion from gross income, for federal income tax purposes, of the interest payable on the Bonds, and if corrective action is instituted by the Borrower within such period and diligently pursued until the failure is corrected, and provided further that any such failure will have been cured within 90 days of receipt of notice of such failure; (c) any breach of any of the covenants, agreements or obligations of the Borrower under, or the occurrence of a default under, the Regulatory Agreement, including any exhibits to the Regulatory Agreement; (d) the determination by the Issuer, the Trustee, the Loan Servicer or the Credit Provider that any representation or warranty made by the Borrower in the Financing Agreement or in any document delivered by or on behalf of the Borrower to the Issuer, the Trustee, the Loan Servicer or the Credit Provider in connection with the Project, the Mortgage Loan or the Bonds was untrue or misleading in any material respect as of the date made or deemed made; (e) the occurrence of an Event of Default under and as defined in the Indenture or under and as defined in any other Bond Document caused by the Borrower's failure to comply with the terms or conditions of any such Bond Document; (f) the occurrence of any of the following: the Borrower will generally not pay its debts as they become due, or will admit in writing its inability to pay its debts generally, or will make a general assignment for the benefit of creditors or will institute any proceeding or voluntary case seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property; or the Borrower will take any action to authorize any of the actions described above in this paragraph (f), or any proceeding will be instituted against the Borrower seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors, or seeking the entry of an order for relief or the appointment ora receiver, trustee, custodian or other similar official for it or for any substantial part of its property, and, if such proceeding is being contested by the Borrower in good faith, such proceeding will remain undismissed or unstayed for a period of 60 days; (g) the filing or making of any claim against the Trust Estate as a result of any action or proceeding described in the Financing Agreement by, or with respect to, the Issuer; or (h) an Event of Default as a result of a determination by the Credit Provider pursuant to the Financing Agreement. Cross-Default. The occurrence of a default under the Mortgage Loan Documents shall not constitute an Event of Default under the Financing Agreement unless the default is declared by the Credit Provider, in its sole and absolute discretion, to be an Event of Default under the Financing Agreement, such declaration to be made by written notice to the Trustee. The occurrence of an Event of Default under the Financing Agreement will not constitute a default under any Mortgage Loan Document unless 01-503376.3 D-2-5 the Event of Default is declared by the Credit Provider, in its sole and absolute discretion, to be a default under the Mortgage Loan, such declaration to be made by written notice to the Trustee. Remedies Upon an Event of Default General. Subject to the Financing Agreement, whenever any Event of Default will have occurred and be continuing under the Financing Agreement, the Trustee may take any one or more of the following remedial steps: (a) give immediate notice to the Issuer, the Loan Servicer and the Credit Provider, and if the Event of Default is the failure to receive a Required Mortgage Payment (as defined in the Credit Facility), the Trustee will present to the Credit Provider an appropriate certificate for an Advance under the Credit Facility; (b) if the principal and interest accrued on the Bonds will have been declared immediately due and payable pursuant to the Indenture, the Trustee will give notice to the Issuer, the Loan Servicer and the Credit Provider and present an appropriate certificate for an Advance under the Credit Facility; provided, however, that if the Trustee will rescind or annul a declaration of acceleration of Bonds pursuant to the Indenture, the Issuer, the Trustee, the Loan Servicer and the Credit Provider will be restored to their former rights and positions, and all rights, duties and obligations of the parties will continue as if no adverse proceeding had been taken, subject to the limits of any adverse determination; (c) take such action as is permilted by the Mortgage Loan Documents but only with the prior written consent of the Credit Provider; (d) to the extent of any insufficiency in the payment of the Bonds after the Trustee has received an Advance under the Credit Facility, the Trustee may, by any suit, action or proceeding, pursue all remedies now or hereafter existing at law or in equity to collect all amounts then due and thereafter to become due under the Financing Agreement, to enforce the performance of any covenant, obligation or agreement of the Borrower under the Financing Agreement (subject to the nonrecourse provisions of the Financing Agreement and the Regulatory Agreement) or to enjoin acts or things which may be unlawful or in violation of the rights of the Issuer or the Trustee; (e) at the written direction or with the prior written consent of the Credit Provider, apply in any court of competent jurisdiction for specific performance by the Borrower of its covenants, obligations and agreements under the Financing Agreement or for injunctive relief to prevent any violation of the covenants, obligations or agreements on the part of the Borrower to be observed or performed under the Financing Agreement (the Borrower has acknowledged and agreed that money damages alone would not be an adequate remedy at law for a default by the Borrower arising from a failure to comply with the Financing Agreement, and therefore the Borrower has agreed that the remedy of specific performance or injunctive relief will be available to the Trustee in any such case); or (f) at the written direction or with the prior written consent of the Credit Provider, take whatever other action at law or in equity may appear necessary or desirable to enforce any obligation of the Borrower under the Financing Agreement. 01-503376.3 D-2-6 In addition, upon the occurrence of an Event of Default, the Issuer, the Trustee, the Loan Servicer and the Credit Provider will have access to and may inspect, examine, audit and make copies of the books and records and any and all accounts, data and income tax and other tax returns of the Borrower. Enforcement of Reserved Rights. Subject to the terms of the Regulatory Agreement and the Financing Agreement, the Issuer, without the consent of the Trustee, but only after written notice to the Trustee, the Loan Servicer, the Credit Provider and the Borrower, may take whatever action may appear necessary or desirable to specifically enforce the performance and observance of any Reserved Right of the Issuer, provided that the Issuer may not, without the prior written consent of the Trustee and the Credit Provider (a) terminate the Financing Agreement or cause the Mortgage Loan to become due and payable or (b) cause the Trustee to declare the principal of all Bonds then Outstanding and the interest accrued on the Bonds to be immediately due and payable, or cause the Trustee to accelerate, foreclose or take any other action or seek other remedies under the Bond Documents, the Mortgage Loan Documents or any other documents contemplated by the Financing Agreement or by such other documents to obtain such performance or observance. Permitted Cures of an Event of Default. The Trustee may, with the prior written consent of the Credit Provider, or at the written direction of the Credit Provider, permit the Borrower, for a period specified by the Credit Provider, to cure any default under the Mortgage Note and the Security Instrument, but only if (a) the Borrower pays to the Trustee or the Loan Servicer, as the case may be, for proper remittance, all overdue payments of principal and interest on the Mortgage Note, (b) the Borrower cures any nonmonetary defaults under the Mortgage Note, the Security Instrument and the other Mortgage Loan Documents to the satisfaction of the Credit Provider, and (c) the Borrower pays all fees, costs and expenses of the Trustee, the Issuer, the Loan Servicer and the Credit Provider, including, without limitation, Extraordinary Items due to the Trustee and all legal fees and expenses, incurred in connection with the default. The Borrower acknowledges that any cure of any default will not affect any subsequent default under the Mortgage Loan Documents. Waiver and Annulment. If, after any Event of Default (a) all amounts which would then be payable under the Financing Agreement by the Borrower if such Event of Default had not occurred and was not continuing will have been paid by or on behalf of the Borrower, and (b)the Borrower will have also performed all other obligations in respect of which it is then in default under the Financing Agreement and will have paid the reasonable fees and expenses of the Issuer, the Trustee, the Credit Provider and the Loan Servicer, including reasonable attorney fees and expenses paid or incurred in connection with such default, then and in every such case, such Event of Default shall be waived and annulled by the Trustee, but only if so directed by the Credit Provider, in its sole and absolute discretion; no such waiver or annulment will extend to or affect any subsequent Event of Default or impair any right or remedy consequent on such Event of Default. Limitations on Actions. Notwithstanding any other provision of the Financing Agreement or the Regulatory Agreement to the contrary: (i) neither the Issuer, the Trustee nor any person under the control of either will, without the prior written consent of the Credit Provider, exercise any remedies or direct any proceedings under the Bond Documents or the Mortgage Loan Documents other than to (a) enforce rights under the Credit Facility, (b) enforce the tax covenants in the Indenture, the Regulatory Agreement and the Financing Agreement, (c) enforce rights of specific performance under the Regulatory Agreement or (d) enforce the Issuer's Reserved Rights, provided, however, that any enforcement under (b), (c) or (d) above will not include seeking any monetary recovery against the Borrower apart from a monetary recovery associated with Reserved Rights and provided further that (1) any claim of the Issuer for a monetary recovery will be subordinate to 01-503376.3 D-2-7 the payment obligations of the Mortgage Loan and (2) the enforcement of any claim for a monetary recovery will not cause the Borrower to file a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Borrower under any applicable liquidation, insolvency, bankruptcy, rehabilitation, composition, reorganization, conservation or other similar law in effect; and (ii) so long as the Credit Facility remains outstanding and a Wrongful Dishonor has not occurred or, if it has occurred, is not continuing, neither the Issuer, the Trustee, nor any person under their control will: (A) initiate or take any action which may have the effect, directly or indirectly, of impairing the ability of the Borrower to timely pay the principal, interest and other amounts due under the Mortgage Loan; (B) interfere with or attempt to influence the exercise by the Credit Provider of any of its rights under the Mortgage Loan, including, without limitation, its remedial rights under the Mortgage Loan upon the occurrence of an event of default by the Borrower under the Mortgage Loan; or (C) upon the occurrence of an event of default under the Mortgage Loan, take any action to accelerate or otherwise enforce payment or seek other remedies with respect to the Mortgage Loan. Control of Borrower and Credit Provider The Borrower has represented that the Credit Provider does not control, either directly or indirectly, through one or more intermediaries, the Borrower and that the Borrower does not control, either directly or indirectly, through one or more intermediaries, the Credit Provider. "Control" for this purpose has the meaning given to such term in Section 2(a)(9) of the Investment Company Act of 1940. The Borrower shall give notice to the Trustee and the Remarketing Agent of any transaction that would result in the Borrower controlling or being controlled by the Credit Provider at least 45 days prior to the date of consummation of such transaction. The Trustee shall give such notice to the Bondholders within ten days of receipt thereof. 01-5033763 D-2-8 APPENDIX E-1 FORMS OF INITIAL CREDIT FACILITY AND INITIAL STANDBY CREDIT FACILITY The following forms of the Initial Credit Facility and the Initial Standby Credit Facility relate only to the period beginning on the date of issuance of the Bonds and continuing through Loan Conversion, if it occurs'. After Loan Conversion, if it occurs, these forms are of no force or effect..4 form of the Permanent Credit Facility securing the Bonds after Loan Conversion, if it occurs', is set forth in Appendix E-2 hereto. [Remainder of Page Left Blank Intentionally] 01-503376.3 FORM OF INITIAL CREDIT FACILITY TI~e following form of the Initial Credit Facility relates only to the period beginning on the date of issuance of the Bonds and continuing through Loan Conversion, ifil occurs. After Loan Conversion, if il occurs, this form is of no force or effect. A form of the Permanent Credit Facility securing the Bonds after Loan Conversion, if it occurs, is set forth in Appendix E-2 hereto. 01-503376.3 E- 1-2 FORM OF INITIAL STANDBY CREDIT FACILITY The following forrn of the Initial Standby Credit Facility relates only to the period beginning on the date of issuance of the Bonds and continuing through Loan Conversion, if it occurs. After Loan Conversion, if it occurs, this form is of no force or effect. A form of the Permanent Credit Facility securing the Bonds after Loan Conversion, if it occurs, is set forth in Appendix E-2 hereto. 01-503376.3 E- 1-3 APPENDIX E-2 FORM OF PERMANENT CREDIT FACILITY The following form of the Permanent Credit Facility relates only to the period beginning after Loan Conversion, if it occurs. Before Loan Conversion this description is of no force or effect. Forms of the Initial Credit Facility and the Initial Standby Credit Facility securing the Bonds before Loan Conversion are set forth in Appendix E-1 hereto. 01-503376.3 APPENDIX F FORM OF OPINION OF BOND COUNSEL 01-503376.3 APPENDIX G FORM OF CONTINUING DISCLOSURE AGREEMENT $11,686,000 Housing Authority of the City of Chula Vista Multifamily Housing Revenue Bonds (Rancho Vista Apartments) Series 2003A THIS CONTINUING DISCLOSURE AGREEMENT dated as of October 1, 2003 (this "Disclosure Agreement") is executed and delivered by CIC Eastlake, L.P., a California limited partnership (the "Borrower") and Wells Fargo Bank, National Association, in its capacity as Dissemination Agent hereunder (the "Dissemination Agent") and in its capacity as trustee (the "Trustee"), for the holders of the above-captioned bonds (the "Bonds") under the Trust Indenture dated as of October 1, 2003 (the "Indenture") between the Housing Authority of the City of Chula Vista (the "Issuer") and the Trustee. The Borrower, the Dissemination Agent and the Trustee covenant and agree as follows: Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Borrower, the Dissemination Agent and the Trustee for the benefit of the Holders and Beneficial Holders of the Bonds and in order to assist the Participating Underwriter in complying with, and constitutes the written undertaking of the Borrower for the benefit of the Bondholders required by, Section (b)(5)(i) of Securities and Exchange Commission Rule 15c2-12 under the Securities Exchange Act of 1934, as amended (17 C.F.R. § 240.15c2-12) (the "Rule"). The Borrower, as an "obligated person" within the meaning of the Rule, undertakes to provide the following information as provided in this Disclosure Agreement: (a) Annual Financial Information; (b) Audited Financial Statements, if any; and (c) Material Event Notices. Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Financial Information" means, in the case of the Borrower, the financial information or operating data with respect to the Project, provided at least annually, of the type included in Exhibit A hereto, which Annual Financial Information may, but is not required to, include Audited Financial Statements. "Audited Financial Statements" means, in the case of the Borrower, the annual audited financial statements, if any. "Beneficial Holders" means any person which has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds, including persons holding Bonds through nominees or depositories. 01-503376.3 "Dissemination Agent" means Wells Fargo Bank, National Association, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Borrower and which has filed with the Trustee a written acceptance of such designation. "Holders" means either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any applicable participant in its depository system. "Material Event" means any of the following events with respect to the Bonds, if material: (a) Principal and interest payment delinquencies; (b) Non-payment related Events of Default under and as defined in the Indenture; (c) Unscheduled draws on debt service reserves reflecting financial difficulties; (d) Unscheduled draws on credit enhancements reflecting financial difficulties; (e) Substitution of credit or liquidity providers, or their failure to perform; (f) Adverse tax opinions or events affecting the tax-exempt status of the Bonds; (g) Modifications to rights of Bondholders; (h) Bond calls (other than mandatory sinking fund redemptions); (i) Defeasances; (j) Release, substitution, or sale of property securing repayment of the Bonds; and (k) Rating changes. "Material Event Notice" means written or electronic notice of a Material Event. "NRMSIR" means a nationally recognized municipal securities information repository, as recognized from time to time by the Securities and Exchange Commission for the purposes referred to in the Rule; the NRMSIRs as of the date of this Disclosure Agreement being set forth at http://www.sec.gov/info/municipal/nrmsir.gov. "Participating Underwriter; means the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Project" means the project financed with proceeds of the Bonds. 01-503376.3 G-2 "SID" means a state information depository as operated or designated by the State of California as such for the purposes referred to in the Rule. As of the date of this Disclosure Agreement, there is no SID operated or designated by the State of California as such for the purposes referred to in the Rule. Section 3. Provision of Annual Reports. (a) While any Bonds are outstanding with respect to the Project, the Borrower shall, or upon written direction shall cause the Dissemination Agent to, provide the Annual Financial Information on or before June 1 of each year (the "Borrower Report Date"), beginning on or before June 1, 2004 to each then existing NRMSIR and the SID, if any. If the Dissemination Agent is to provide the Annual Financial Information, not later than 15 Business days prior to said date, the Borrower shall provide the Annual Financial Information to the Dissemination Agent. The Borrower shall include with each such submission of Annual Financial Information to the Dissemination Agent a written representation addressed to the Dissemination Agent, upon which the Dissemination Agent may conclusively rely, to the effect that the Annual Financial Information is the Annual Financial Information required to be provided by it pursuant to this Disclosure Agreement and that it complies with the applicable requirements of this Disclosure Agreement. In each case, the Annual Financial Information may be submitted as a single document or as a set of documents, and all or any part of such Annual Financial Information may be provided by specific cross-reference to other documents previously provided to each NRMSIR and the SID, if any, or filed with the Securities and Exchange Commission and, if such a document is a final official statement within the meaning of the Rule, available from the Municipal Securities Rulemaking Board, as provided in the definition of Annual Financial Information. The Audited Financial Statements, if any, may, but are not required to be, provided as a part of the Annual Financial Information. (b) If not provided as part of the Annual Financial Information, the Borrower shall, or, upon furnishing such Audited Financial Statements to the Dissemination Agent shall cause the Dissemination Agent to, provide Audited Financial Statements when and if available while any Bonds are Outstanding with respect to the Project to each then existing NRMSIR and the SID, if any. (c) If by 15 Business days prior to an Borrower Report Date the Dissemination Agent has not received a copy of the Annual Financial Information, the Dissemination Agent shall contact the Borrower to give notice that the Dissemination Agent has not received the Annual Financial Information and that such information must be provided to the NRMSIRS and SID, if any, by the applicable Report Date. (d) The Dissemination Agent shall: (i) determine prior to the Borrower Report Date the name and address of each NRMSIR and each SID, if any; and (ii) to the extent the Borrower has provided the Annual Financial Information to the Dissemination Agent and required such information be sent to each NRMSIR or SID, file a report with the Borrower certifying that the Annual Financial Information has been provided by the Dissemination Agent to each NRMSIR and SID, if any, pursuant to this Disclosure Agreement, stating the date it was provided and listing each then existing NRMSIR and the SID, if any, to which it was provided. 01-503376.3 G-3 (e) If the Dissemination Agent does not receive the Annual Financial Information from the Borrower required by clause (a)of this Section by the applicable Report Date, the Dissemination Agent shall, without further direction or instruction from the Borrower, provide to the Municipal Securities Rulemaking Board and to the SID, if any, notice of any such failure to provide to the Dissemination Agent Annual Financial Information by the applicable Report Date. For the purposes of determining whether information received from the Borrower is Annual Financial Information, the Dissemination Agent shall be entitled conclusively to rely on the written representation made by the Borrower pursuant to this Section. Section 4. Reporting of Significant Events. (a) (i) If a Material Event occurs while any Bonds are Outstanding, the Borrower shall provide a Material Event Notice in a timely manner to the Dissemination Agent and instruct the Dissemination Agent to provide such Material Event Notice in a timely manner to the Municipal Securities Rulemaking Board and the SID, if any. Each Material Event Notice shall be so captioned and shall prominently state the date, title and CUSIP numbers of the Bonds. (ii) The Trustee shall promptly advise the Borrower of the occurrence of any event with respect to the Bonds of which the Trustee has actual knowledge which, if material, would constitute a Material Event. For purposes of this Disclosure Agreement, "actual knowledge" of such event shall mean knowledge by a Responsible Officer of the Trustee at the Corporate Trust Office of the existence of such event. Notwithstanding anything to the contrary herein, the Trustee shall have no duty to determine the materiality of any such event. (b) Whenever the Borrower obtains actual knowledge of the occurrence of an event which, if material, would constitute a Material Event, whether because of a notice from the Trustee pursuant to subsection (a) or otherwise, the Borrower shall as soon as reasonably possible determine if such event would constitute material information for Bondholders and is, therefore, a Material Event. (c) If the Borrower provides to the Dissemination Agent information relating to the Borrower or the Bonds, which information is not designated as a Material Event Notice, and directs the Dissemination Agent to provide such information to NRMS1Rs, the Dissemination Agent shall provide such information in a timely manner to the NRMSIRs or the Municipal Securities Rulemaking Board and the SID, if any. Section 5. Termination of Reporting Obligation. The Borrower's, the Dissemination Agent's and the Trustee's obligations under this Disclosure Agreement shall automatically terminate once the Bonds are no longer outstanding or, with respect to the Trustee or the Dissemination Agent, as appropriate, upon the resignation or removal of the Trustee or the Dissemination Agent. Section 6. Dissemination Agent. The Borrower may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent upon notice to the Dissemination Agent. The Dissemination Agent may resign at any time by providing 30 days' written notice to the Borrower. The initial Dissemination Agent shall be the Dissemination Agent named herein. Section 7. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Borrower, the Dissemination Agent and the Trustee may amend this Disclosure 01-503376.3 G-4 Agreement and any provision of this Disclosure Agreement may be waived by the parties hereto, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws, acceptable to the Borrower and the Trustee, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule, provided that the Borrower shall have provided notice of such delivery and of the amendment to each then existing NRMS1R or the MSRB and the SID, if any, provided that neither the Trustee nor the Dissemination Agent shall be obligated to agree to any amendment that modifies the duties or liabilities of the Dissemination Agent or the Trustee without their respective consent thereto. Any such amendment shall satisfy, unless otherwise permitted by the Rule, the following conditions: (a) The amendment may only be made in connection with a change in circumstances that arises from a change in legal reimbursements, change in law or change in the identity, nature or status of the obligated person or type of business conducted; (b) This Disclosure Agreement, as amended, would have complied with the requirements of the Rule at the time of the primary offering, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment does not materially impair the interests of Beneficial Holders and Holders of any of the Bonds, as determined either by parties unaffiliated with the Borrower (such as counsel expert in federal securities laws), or by approving vote of Bondholders pursuant to the terms of the Indenture at the time of the amendment. The initial Annual Financial information after the amendment shall explain, in narrative form, the reasons for the amendment and the effect of the change, if any, in the type of operating data or financial information being provided. Section 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Borrower from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Financial Information or notice of occurrence of a Material Event, in addition to that which is required by this Disclosure Agreement. If the Borrower chooses to include any information in any Annual Financial Information or notice of occurrence of a Material Event in addition to that which is specifically required by this Disclosure Agreement, the Borrower shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Financial Information or notice of occurrence of a Material Event. Section 9. Default. In the event of a failure of the Borrower, the Dissemination Agent or the Trustee to comply with any provision of this Disclosure Agreement, the Trustee, at the written direction of the Participating Underwriter or the Holders of at least 25% in aggregate principal amount of Outstanding Bonds, shall, but only to the extent the Trustee receives indemnification to its satisfaction, or any Beneficial Holder or Holder of any of the Bonds may, seek mandate or specific performance by court order, to cause the Borrower, the Dissemination Agent or the Trustee, as the case may be, to comply with its obligations under this Disclosure Agreement; provided that none of the Borrower, the Dissemination Agent or the Trustee shall be liable for monetary damages or any other monetary penalty or payment for breach of any of its obligations under this Section or unless, in the case of the Borrower, such breach shall have been willful or reckless. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture or the Financing Agreement, and the rights and remedies provided by the Indenture and the Financing Agreement upon the occurrence of an "Event of Default" shall not apply to any such failure. The sole remedy under this Disclosure Agreement in the event of any failure of the 01-503376.3 G-5 Borrower, the Dissemination Agent or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance. Section 10. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Before Loan Conversion, Article Vlll of the Indenture, and after Loan Conversion, Article 10 of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture and the Dissemination Agent shall be entitled to the benefits, protections and provisions thereof to the same extent as the Trustee. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) and the Trustee shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Borrower agrees to indemnify and save the Dissemination Agent and the Trustee and their officers, directors, employees and agents harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the costs and expenses (including attorneys' fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's or Trustee's respective negligence or willful misconduct. The Dissemination Agent and Trustee shall be paid compensation by the Borrower (on a pro rata basis based on the outstanding principal balance of its Loan) for its services provided hereunder and all expenses, legal fees and advances made or incurred by the Dissemination Agent hereunder. The Dissemination Agent and Trustee shall have no duty or obligation to review any information provided to it by the Borrower hereunder and shall not be deemed to be acting in a fiduciary capacity for the Borrower, the Holders or Beneficial Holders of the Bonds or any other party. The obligations of the Borrower under this Section shall survive resignation or removal of the Dissemination Agent or Trustee and payment of the Bonds. Section 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Borrower, the Trustee, the Dissemination Agent, the Participating Underwriter and the Beneficial Holders and Holders of any Bonds and shall create no rights in any other person or entity. Section 12. Interpretation. It being the intention of the Borrower that there be full and complete compliance with the Rule, this Disclosure Agreement shall be construed in accordance with the written guidance and no-action letters published from time to time by the Securities and Exchange Commission and its staffwith respect to the Rule. Section 13. Governing Law. This Disclosure Agreement shall be governed by the laws of the State of California. Section 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 01-503376.3 G-6 [Borrower's Signature Page to the Continuing Disclosure Agreement] CIC EASTLAKE, L.P., a California Limited Partnership By: PACIFIC SOUTHWEST COMMUNITY DEVELOPMENT CORPORATION, a California non-profit public benefit corporation, its Managing General Partner By Brian F. Biber, Executive Director/President By: SDS EASTLAKE, LLC, a California limited liability company, its Co-General Partner By James J. Schmid, Manager 01-503376.3 G-7 [Trustee and Dissemination Agent's Signature Page to Continuing Disclosure Agreement] WELLS FARGO BANK, NATIONAL ASSOCIATION By Authorized Signatory 01-503376.3 G-8 EXHIBIT A ANNUAL DISCLOSURE REPORT [BOND CAPTION] Report For Period Ending THE PROJECT Name: Address: Occupancy Number of Units Number of Units Occupied as of Report Date Operating History of the Project The following table sets forth a summary of the operating results of the Project for fiscal year ended, as derived from the Borrower's [un]audited financial statements. Revenues Operating Expenses~ Net Operating lndome Debt Service on the Loan2 Net Operating Income/(Loss) After Debt Service tExcludes depreciation and other noncash expenses, includes management fee. 2Interest and scheduled principal payments on the Loan during the period indicated. The average occupancy of the Project for the fiscal year ended [ ] was [ ]%. 01-503376.3 APPENDIX H-1 SUMMARY OF CERTAIN PROVISIONS OF THE INITIAL REIMBURSEMENT AGREEMENT The following summary of the Initial Reimbursement Agreement relates only to the period beginning on the date of issuance of the Bonds and continuing through Loan Conversion, if it occurs. After Loan Conversion, if it occurs, this description is of no force or effect. A summary of the Permanent Reimbursement Agreement entered into with respect to the Bonds after Loan Conversion, if it occurs, is set forth in Appendix H-2 hereto. Furthermore, the following summary of the Initial Reimbursement Agreement is a summary only and does not purport to be a complete statement of the contents thereof Reference is made to the Initial Reimbursement Agreement for the complete terms thereof References in this Appendix to the Indenture, the Financing Agreement, the Reimbursement Agreement and the Credit Provider will be references to the Initial Indenture, the Initial Financing Agreement, the Initial Reimbursement Agreement and the Initial Credit Provider, respectively. The Credit Facility is issued pursuant to the Reimbursement Agreement which obligates the Borrower, among other things, to reimburse Provident Community Development Company ("PCDC") (an affiliate of the Credit Provider) for funds advanced by the Credit Provider under the Credit Facility and to pay various fees and expenses, in each case as provided in the Reimbursement Agreement. The Reimbursement Agreement sets forth various affirmative and negative covenants of the Borrower, some of which are more restrictive with respect to the Borrower than similar covenants in the Financing Agreement. Defined Terms Capitalized terms used in this Appendix and not defined therein or elsewhere in this Official Statement shall have the meanings assigned thereto in the Reimbursement Agreement. Events of Default The occurrence of any one or more of the following events shall constitute an Event of Default under the Reimbursement Agreement: (a) the Borrower fails to pay when due any amount payable by the Borrower under the Reimbursement Agreement, the Financing Agreement, the Security Instrument or any other Borrower Document; or (b) the occurrence of any Event of Default under any Financing Document other than the Reimbursement Agreement beyond any cure period set forth in that Financing Document; or (c) fraud or material misrepresentation or material omission by Borrower, or any of its officers, directors, trustees, general partners or managers, Key Principal or any guarantor: 01-503376.3 (i) contained in the Reimbursement Agreement, the Certificate of Borrower or any other Borrower Document or any certificate delivered by the Borrower to PCDC or to the Loan Servicer pursuant to the Reimbursement Agreement or any other Borrower Document; or (ii) in connection with (i) the application for or creation of the Mortgage Loan or the credit enhancement or liquidity for the Bonds provided by the Letter of Credit, (ii) any financial statement, rent roll, or other report or information provided to PCDC or the Loan Servicer during the term of the Reimbursement Agreement or the Mortgage Loan, or (iii) any request for PCDC's consent to any proposed action, including a request for disbursement of funds under any Collateral Agreement; or (d) the occurrence of any event which results in the interest payable on the Bonds being includable, for federal income tax purposes, in the gross income of the Bondholders, including any violation of any provision of the Regulatory Agreement or any of the other Bond Documents; (e) any failure by the Borrower to perform or observe any of its obligations under the Reimbursement Agreement (other than described in subparagraphs (a) through (d) above), as and when required, which continues for a period of 30 days after notice of such failure by PCDC or the Loan Servicer to the Borrower, but no such notice or grace period shall apply in the case of any such failure which could, in PCDC's or the Loan Servicer's judgment, absent immediate exercise by PCDC of a right or remedy under the Reimbursement Agreement, result in harm to PCDC, impairment of the Reimbursement Agreement, the Security Instrument or any other security given under any other Borrower Document; or (f) PCDC shall have given the Borrower written notice that Purchased Bonds have not been remarketed within 30 days, unless otherwise extended, following purchase by the Trustee on behalf of the Borrower and the Borrower has not reimbursed PCDC for the related Advance and Activity Fee. Remedies. Upon the occurrence of an Event of Default under the Reimbursement Agreement, the Obligations and all amounts owing under the Reimbursement Agreement may be declared by PCDC to become immediately due and payable, without presentment, demand, protest or notice of any kind, including notice of default, notice of intent to accelerate or notice of acceleration. In addition, PCDC shall have the right to take such action at law or in equity, without notice or demand, as it deems advisable to protect and enforce the rights of PCDC against the Borrower and/or in and to the Mortgaged Property, including, but not limited to, any one or more or all of the following actions: (i) deliver to the Trustee written notice that an Event of Default has occurred under the Reimbursement Agreement and direct the Trustee to take such action pursuant to the Financing Documents as PCDC may determine, including a request that the Trustee declare the principal of all or a portion of the Bonds then outstanding and the interest accrued thereon to be immediately due and payable in accordance with the terms and conditions of the Indenture; (ii) demand cash collateral or withdraw the funds in the Bond Proceeds Investment Account and the Collateral Funds Account in the full amount of the obligations under the Bonds whether or not then due and payable by PCDC under the Letter of Credit; and (iii) exercise any rights and remedies available to PCDC under the Financing Documents. Waivers. PCDC shall have the right, in its discretion, to waive any Event of Default under the Reimbursement Agreement. Unless such waiver expressly provides to the contrary, any waiver so 01-503376.3 H-l-2 granted shall extend only to the specific event or occurrence which gave rise to the Event of Default so waived and not to any other similar event or occurrence which occurs subsequent to the date of such waiver. No Remedy Exclusive. Unless otherwise expressly provided, no remedy conferred upon or reserved in the Reimbursement Agreement is intended to be exclusive of any other available remedy, but each remedy shall be cumulative and shall be in addition to other remedies given under the Borrower Documents or existing at law or in equity. No delay or omission to exercise any right or power accruing under any Borrower Document upon the happening of any event described above shall impair any such right or power or shall be construed to be a waiver of such event, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle PCDC to exercise any remedy described under the heading "Remedies; Waivers," it shall not be necessary to give any notice, other than such notice as may be required under the applicable provisions of any of the other Borrower Documents. The rights and remedies of PCDC specified in the Reimbursement Agreement are for the sole and exclusive benefit, use and protection of PCDC, and PCDC is entitled, but shall have no duty or obligation to the Borrower, the Trustee, the Bondholders or otherwise, (a) to exercise or to refrain from exercising any right or remedy reserved to PCDC under the Reimbursement Agreement, or (b) to cause the Trustee or any other party to exercise or to refrain from exercising any right or remedy available to it under any of the Borrower Documents. Amendments, Changes and Modifications The Reimbursement Agreement may be amended, supplemented, restated or terminated only by a written instrument or written instruments signed by the parties to the Reimbursement Agreement. No course of dealing between the Borrower and PCDC, nor any delay in exercising any rights under the Reimbursement Agreement, shall operate as a waiver of any rights of PCDC under the Reimbursement Agreement. Unless otherwise specified in such waiver or consent, a waiver or consent given under the Reimbursement Agreement shall be effective only in the specific instance and for the specific purpose for which given. 01-503376.3 H-l-3 APPENDIX H-2 SUMMARY OF CERTAIN PROVISIONS OF THE PERMANENT REIMBURSMENT AGREEMENT The following summary of the Permanent Reimbursement Agreement relates only to the period beginning with Loan Conversion, if it occurs. Prior lo Loan Conversion this description is of no force or effect. A summary of the Initial Reimbursement Agreement entered into with respect to the Bonds prior to Loan Conversion is set forth in Appendix H-1 hereto. Furthermore, the following summary of the Permanent Reimbursement Agreement is a summary only and does not purport to be a complete statement of the contents thereof Reference is made to the Permanent Reimbursement Agreement for the complete terms thereof References in this ,~ppendix to the Indenture, the Financing Agreement, the Reimbursement ~tgreement and the Credit Provider will be references to the Permanent ]ndenture, the Permanent Financing ,4greement, the Permanent Reimbursement Agreement and the Permanent Credit Provider, respectively. The Credit Facility is issued pursuant to the Reimbursement Agreement which obligates the Borrower, among other things, to reimburse Fannie Mae for funds advanced by Fannie Mae under the Credit Facility and to pay various fees and expenses, in each case as provided in the Reimbursement Agreement. The Reimbursement Agreement sets forth various affirmative and negative covenants of the Borrower, some of which are more restrictive with respect to the Borrower than similar covenants in the Financing Agreement. Defined Terms Capitalized terms used in this Appendix and not defined therein or elsewhere in this Official Statement shall have the meanings assigned thereto in the Reimbursement Agreement. Events of Default The occurrence of any one or more of the following events shall constitute an Event of Default under the Reimbursement Agreement: (a) the Borrower fails to pay when due any amount payable by the Borrower under the Reimbursement Agreement, the Mortgage Note, the Financing Agreement, the Security Instrument or any other Borrower Document; or (b) the occurrence of any Event of Default under any Financing Document other than the Reimbursement Agreement beyond any cure period set forth in that Financing Document; or (c) fraud or material misrepresentation or material omission by Borrower, or any of its officers, directors, trustees, general partners or managers, Key Principal or any guarantor: (i) contained in the Reimbursement Agreement, the Certificate of Borrower or any other Borrower Document or any certificate delivered by the Borrower to Fannie _/s-9 01-503376~3 Mae or to the Loan Servicer pursuant to the Reimbursement Agreement or any other Borrower Document; or (ii) in connection with (i) the application for or creation of the Mortgage Loan or the credit enhancement or liquidity for the Bonds provided by the Credit Facility, (ii) any financial statement, rent roll, or other report or information provided to Fannie Mae or the Loan Servicer during the term of the Reimbursement Agreement or the Mortgage Loan, or (iii) any request for Fannie Mac's consent to any proposed action, including a request for disbursement of funds under any Collateral Agreement; or (d) the occurrence of any event which results in the interest payable on the Bonds being includable, for federal income tax purposes, in the gross income of the Bondholders, including any violation of any provision of the Regulatory Agreement or any of the other Bond Documents; or (e) any failure by the Borrower to perform or observe any of its obligations under the Reimbursement Agreement (other than as described in (a) through (d) above), as and when required, which continues for a period of 30 days after notice of such failure by Fannie Mae or the Loan Servicer to the Borrower, but no such notice or grace period shall apply in the case of any such failure which could, in Fannie Mae's or the Loan Servicer's judgment, absent immediate exercise by Fannie Mae of a right or remedy under the Reimbursement Agreement, result in harm to Fannie Mae, impairment of the Mortgage Note, the Reimbursement Agreement, the Security Instrument or any other security given under any other Borrower Document; Remedies; Waivers Remedies. Upon the occurrence of an Event of Default under the Reimbursement Agreement, the Obligations and all amounts owing under the Reimbursement Agreement may be declared by Fannie Mae to become immediately due and payable, without presentment, demand, protest or notice of any kind, including notice of default, notice of intent to accelerate or notice of acceleration. In addition, Fannie Mae shall have the right to take such action at law or in equity, without notice or demand, as it deems advisable to protect and enforce the rights of Fannie Mae against the Borrower and/or in and to the Project, including, but not limited to, any one or more or all of the following actions: (i) deliver to the Trustee written notice that an Event of Default has occurred under the Reimbursement Agreement and direct the Trustee to take such action pursuant to the Financing Documents as Fannie Mae may determine, including a request that the Trustee declare the principal of all or a portion of the Bonds then outstanding and the interest accrued thereon to be immediately due and payable in accordance with the terms and conditions of the Indenture; (ii) demand cash collateral or Permitted Investments in the full amount of the obligations under the Bonds whether or not then due and payable by Fannie Mae under the Credit Facility; and (iii) exercise any rights and remedies available to Fannie Mae under the Financing Documents. Waivers. Fannie Mae shall have the right, in its discretion, to waive any Event of Default under the Reimbursement Agreement. Unless such waiver expressly provides to the contrary, any waiver so granted will extend only to the specific event or occurrence which gave rise to the Event of Default so 01-503376.3 H-2-2 waived and not to any other similar event or occurrence which occurs subsequent to the date of such waiver. No Remedy Exclusive Unless otherwise expressly provided, no remedy conferred upon or reserved in the Reimbursement Agreement is intended to be exclusive of any other available remedy, but each remedy will be cumulative and will be in addition to other remedies given under the Borrower Documents or existing at law or in equity. No delay or omission to exercise any right or power accruing under any BolTower Document upon the happening of any event set forth in the Reimbursement Agreement will impair any such right or power or will be construed to be a waiver of such event, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle Fannie Mae to exercise any remedy reserved to Fannie Mae in the Reimbursement Agreement, it will not be necessary to give any notice, other than such notice as may be required under the applicable provisions of any of the other Borrower Documents. The rights and remedies of Fannie Mae specified in the Reimbursement Agreement are for the sole and exclusive benefit, use and protection of Fannie Mae, and Fannie Mae is entitled, but shall have no duty or obligation to the Borrower, the Trustee, the Bondholders or otherwise, (a) to exercise or to refrain from exercising any right or remedy reserved to Fannie Mae thereunder, or (b)to cause the Trustee or any other party to exercise or to refrain from exercising any right or remedy available to it under any of the Borrower Documents. Amendments, Changes and Modifications The Reimbursement Agreement may be amended, supplemented, restated or terminated only by a written instrument or written instruments signed by the parties to the Reimbursement Agreement. No course of dealing between the Borrower and Fannie Mae, nor any delay in exercising any rights thereunder, shall operate as a waiver of any rights of Fannie Mae thereunder. Unless otherwise specified in such waiver or consent, a waiver or consent given thereunder shall be effective only in the specific instance and for thc specific purpose for which given. 01-503376.3 H-2-3