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Home My WebLink About2003-05-20; City Council; 17176 Exhibit 2; Multi-Family Housing Revenue Bonds13061-10 JHTADarm Exhibit 2 FINANCING AGREEMENT 5-20-03 Among CITY OF CARLSBAD as Issuer TRUSTEE, as Trustee and CIC CALAVERA, L.P., As Borrower Relating to $ City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series A Dated as of June 1,2003 TABLE OF CONTENTS Section 1.1 Section 1.2 Section 1.3 Section 1.4 Section 1.5 Section 1.6 Section 2.1 Section 2.2 Section 2.2(1) Section 2.2(2) Section 2.2(3) Section 2.2(4) Section 3.1 Section 3.2 Section 3.2(1) Section 3.2(2) Section 3.2(3) Section 4.1 Section 4.2 Section 4.2(1) Section 4.2(2) Section 4.2(3) Section 4.2(4) Section 4.3 Section 4.4 Section 4.5 Section 4.6 Section 4.7 Section 4.8 Section 4.8(1) Section 4.8(2) Section 4.8(3) Section 4.8(4) Section 5.1 Section 5.2 Section 5.3 Section 5.4 ARTICLE 1 DEFINITIONS AND INTERPRETATION Incorporation of Recitals ............................................................................................................. 1 Definitions ...................................................................................................................................... 1 Rules of Construction ................................................................................................................... 3 Interpretation ................................................................................................................................. 3 Effective Date ................................................................................................................................. 3 Content of Certificates and Opinions ........................................................................................ 3 ARTICLE 2 REPRESENTATIONS AND WARRANTIES Representations and Warranties of the Issuer ......................................................................... 3 Representations and Warranties of the Borrower .................................................................. 5 Specific Representations and Warranties ................................................................................. 5 Certificates .................................................................................................................................... 11 Incorporation of Other Representations. Warranties and Covenants .............................. 11 Representations and Warranties Deemed True As of Closing Date ................................. 11 ARTICLE 3 BORROWER'S OBLIGATIONS WITH RESPECT TO THE BONDS General Obligation ..................................................................................................................... 11 Optional Prepayment and Redemption ................................................................................. 11 Borrower's Obligations With Respect to Redemption ........................................................ 11 Mandatory Prepayment and Special Mandatory Redemption .......................................... 12 Payment Procedures .................................................................................................................. 12 ARTICLE 4 THE MORTGAGE LOAN Amount and Source of Mortgage Loan .................................................................................. 13 Terms of the Mortgage Loan; Funding ................................................................................... 13 Obligation to Repay the Mortgage Loan and to Pay the Debt Service on the Bonds 13 Terms 13 Funding ......................................................................................................................................... 14 Timing; Disbursements .............................................................................................................. 14 Notice ............................................................................................................................................ 17 Certain Notices From Trustee .................................................................................................. 17 Modification of Mortgage Loan Documents; Consent at Direction of the Credit Provider ........................................................................................................................................ 17 Optional Prepayment ................................................................................................................. 18 Involuntary Prepayment ........................................................................................................... 18 Notices 18 Limitation on Credit Facility Obligations .............................................................................. 18 Payment of Third Party Fees and Expenses .......................................................................... 14 Mortgage Loan Payments ......................................................................................................... 17 Prepayment .................................................................................................................................. 18 ARTICLE 5 NATURE OF BORROWER'S OBLIGATIONS Obligations of the Borrower Unconditional .......................................................................... 18 Nature of Borrower's Financial Obligations .......................................................................... 19 Subordination .............................................................................................................................. 20 Nonrecourse Liability ................................................................................................................ 19 i Section 6.1 Section 6.2 ARTICLE 6 SERVICING; MONITORING Servicing ....................................................................................................................................... 20 Monitoring ................................................................................................................................... 20 Section 7.1 Section 7.1(1) Section 7.1(2) Section 7.1(3) Section 7.1(4) Section 7.2 Section 7.2(1) Section 7.2(2) Section 7.2(3) Section 7.2(4) Section 7.2(5) Section 7.2(6) ARTICLE 7 COVENANTS Covenants of the Issuer ............................................................................................................. 21 Tax-Exemption ............................................................................................................................ 21 Compliance with Federal Tax Laws ........................................................................................ 21 Notification of Violation of Regulatory Agreement ............................................................. 21 Covenants of the Borrower ....................................................................................................... 21 Maintenance of Mortgaged Property; Insurance; Operation ............................................. 21 Taxes; Other Governmental Charges and Utility Charges ................................................. 22 Remodeling and Improvements .............................................................................................. 22 Compliance With Laws ............................................................................................................. 22 Pledge and Assignment ............................................................................................................. 21 Maintenance of Legal Existence ............................................................................................... 23 Access to Mortgaged Property and Records; Reports ......................................................... 23 Section 7.2(6)(2) Certificates and Reports ............................................................................................................ 23 \I Section 7.2(6)(1) Access to Mortgaged Property ................................................................................................. 23 Section 7.2(7) Section 7.2(8) Section 7.2(9) Section 7.2(10) Section 7.2(11) Section 7.2(12) Section 7.2(13) Section 7.2(14) Section 7.2(15) Section 7.2(16) Section 8.1 Section 8.2 Section 9.1 Section 9.2 Section 9.3 Section 9.4 Section 10.1 Section 10.2 Section 10.3 Section 11.1 Section 11.2 Disposition of Mortgaged Property ........................................................................................ 24 Tax Covenants ............................................................................................................................. 24 Payment of Rebate Amounts .................................................................................................... 26 Agreement Regarding Documents .......................................................................................... 27 Compliance with other Documents ......................................................................................... 27 Disclosure Agreement ................................................................................................................ 27 Notice of Certain Events ............................................................................................................ 28 Warranty of Truth ....................................................................................................................... 28 Operating Statements ................................................................................................................. 28 Control of Borrower and Credit Provider .............................................................................. 28 ARTICLE 8 SECURITY INTEREST; ASSIGNMENT OF CERTAIN RIGHTS Security Interest .......................................................................................................................... 28 Assignment of Certain Rights .................................................................................................. 29 ARTICLE 9 INDEMNIFICATION Borrower's Obligations .............................................................................................................. 29 Borrower's Continuing Obligation .......................................................................................... 31 Limitation with Respect to the Credit Provider .................................................................... 31 Defense of Claims ....................................................................................................................... 31 ARTICLE 10 THE MORTGAGED PROPERTY Regulatory Agreement ............................................................................................................... 31 Right To Enforce Compliance ................................................................................................... 32 Damage. Destruction and Condemnation ............................................................................. 32 ARTICLE 11 TRUSTEE'S INTEREST IN AGREEMENT Issuer Assignment of this Financing Agreement .................................................................. 32 Third-party Beneficiaries ........................................................................................................... 33 11 ARTICLE 12 PERFORMANCE RIGHTS Section 12.1 Section 12.2 Right To Perform Borrower’s Obligations ............................................................................. 33 No Modification of Mortgage Loan Documents ................................................................... 33 Section 13.1 Section 13.1(1) Section 13.1(2) Section 13.1(3) Section 13.2 Section 13.2(1) Section 13.2(2) Section 13.2(3) Section 13.2(4) Section 13.2(5) Section 13.2(6) Section 13.2(7) Section 13.2(8) Section 13.3 Section 13.4 Section 13.5 Section 14.1 Section 14.2 Section 14.3 Section 14.4 Section 14.5 Section 14.6 Section 14.7 Section 14.8 Section 14.9 Section 14.10 ARTICLE 13 EVENTS OF DEFAULT AND REMEDIES Events of Default ......................................................................................................................... 33 Events of Default ......................................................................................................................... 33 Cross Default ............................................................................................................................... 35 Mortgage Loan Documents ...................................................................................................... 35 Remedies Upon an Event of Default ....................................................................................... 35 General 35 Enforcement of Reserved Rights .............................................................................................. 36 Permitted Cures of an Event of Default ................................................................................. 36 Waiver and Annulment ............................................................................................................. 37 Non-Exclusivity of Remedies ................................................................................................... 37 Delay or Omission ...................................................................................................................... 37 Application of Proceeds ............................................................................................................. 37 Limitations on Actions ............................................................................................................... 37 Limitations on Waivers .............................................................................................................. 38 Notice of Default; the Credit Provider’s Right To Cure ...................................................... 38 Rights Cumulative ...................................................................................................................... 39 ARTICLE 14 MISCELLANEOUS Notices .......................................................................................................................................... 39 Amendment ................................................................................................................................. 39 Entire Agreement ........................................................................................................................ 39 Further Assurances and Corrective Instruments .................................................................. 39 Liability of Owners ..................................................................................................................... 40 Binding Effect .............................................................................................................................. 40 Severability ................................................................................................................................... 40 Execution in Counterparts ........................................................................................................ 40 Governing Law ............................................................................................................................ 40 Limited Liability ......................................................................................................................... 40 ARTICLE 15 TERM OF THIS FINANCING AGREEMENT ... 111 FINANCING AGREEMENT This FINANCING AGREEMENT, dated as of June 1, 2003, is among the CITY OF CARLSBAD (the "Issuer"), a municipal corporation organized and existing under the laws of the State of California WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the State of California [(together with its successors and assigns, the "Trustee"), a [TYPE OF ENTITY], not in its individual or corporate capacity, but solely as trustee under the Indenture,] and CIC CALAVERA, L.P., (together with its successors and assip, the "Borrower"), a limited partnership organized and existing under the laws of the State of California. THE MEANING OF CAPITALIZED TEM CAN BE DETERMINED BY REFERENCE TO SECTION 1.2. RECITALS: A. As more fully set forth in the Indenture, the Issuer has determined to issue the Bonds and to lend the Net Bond Proceeds to the Borrower pursuant to and in accordance with the terms and conditions of this Financing Agreement and the Mortgage Loan Documents. B. The parties to this Financing Agreement acknowledge the matters set forth in the Recitals to the Indenture. The parties to this Financing Agreement, in consideration of the premises and the mutual covenants and commitments of the parties set forth in this Financing Agreement, the receipt and sufficiency of which are acknowledged by the parties to this Financing Agreement, agree as follows: ARTICLE 1 DEFINITIONS AND INTERPRETATION Section 1.1 Incorporation of Recitals The Recitals to the Indenture am this Financing Agreement are, by this reference, incorporated into and deemed a part of this Financing Agreement. Section 1.2 Definitions. All capitalized terms used in this Financing Agreement shall have the meanings given to those terms in this Section 1.2 or as elsewhere defined in this Financing Agreement unless the context or use clearly indicates a different meaning. Certain capitalized terms used and not otherwise defined in this Financing Agreement are defined in the Indenture. "Borrower Documents" means the Bond Documents to which the Borrower is a party, the Mortgage Loan Documents to which the Borrower is a party and all other documents to which the Borrower is a party and which are being executed and delivered by the Borrower in connection with the transactions provided for in the Bond Documents and the Mortgage Loan Documents. "Event of Default" means any event of default specified and defined in Section 13.1(1). "Facility Fee" has the meaning given to that term in the Mortgage Note. 1 ”Indemnified Party” has the meaning given to that term in Section 9.1. “Key Principal’’ has the meaning given to that term in the Security Instrument. ”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 this Financing Agreement and the Regulatory Agreement. ”Mortgage Loan Term’’ means the period from the Closing Date to and including the maturity date of the Mortgage Loan. ”Mortgage Note Rate’’ means the per annum rate of interest set forth in the Mortgage Note. “Pass-Through Rate’’ has the meaning given to that term in paragraph (i) of Section 4.2(2). ”Permitted Liens” has the meaning given to that term in the Reimbursement Agreement. ”Project Purposes” means use of the Mortgaged Property as a multifamily residential rental property for persons and families of low and moderate income, or any other use of the Mortgaged Property which will not (a) cause the Mortgaged Property to cease to qualify for financing under the Act or (b) cause the interest on the Bonds to become includable for federal income tax purposes in the gross income of the Bondholders (other than a holder who is a ”substantial user” of the Mortgaged Property or a ”related person” as such terms are used in the Code). ”Qualified Project Costs’’ means costs paid with respect to the Project that meet each of the following requirements: (i) the costs are properly chargeable to capital account (or would be a so chargeable with a proper election by the Borrower or but for a proper election by the Borrower to deduct such costs) in accordance with general Federal income tax principles and in accordance with United States Treasury Regulations §1.103-8(a)(l), provided, however, that only such portion of the interest accrued during rehabilitation or construction of the Project (in the case of rehabilitation, with respect to vacated units only) shall be eligible to be a Qualified Project Cost as bears the same ratio to all such interest at the Qualified Project Costs bear to all costs of the acquisition and construction or rehabilitation of the Project; and provided further that interest accruing after the date of completion of the Project shall not be a Qualified Project Cost; and provided still further that if any portion of the Project is being constructed or rehabilitated by an Affiliate (whether as general contractor or a subcontractor), Qualified Project Costs shall include only (A) the actual out-of-pocket costs incurred by such affiliate in constructing or rehabilitating the Project (or any portion thereof), (B) any reasonable fees for supervisory services actually rendered by such affiliate, and (C) any overhead expenses incurred by such affiliate which 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 rehabilitation or construction of the Project or payments received by such affiliate due to early completion of the Project (or any portion there); (ii) the costs are paid with respect to a qualified residential rental project or projects within the meaning of Section 142(d) of the Code, (iii) the costs are paid after the earlier of 60 days prior to the date of a declaration of ”official intent” to reimburse costs paid 2 with respect to the Project (within the meaning of 91.150-2 of the United States Treasury Regulations) or the date of issue of the Bonds, and (iv) if the costs of the acquisition and construction or rehabilitation of the Project were previously paid and are to be reimbursed with proceeds of the Bonds such costs were (A) costs of issuance of the Bonds, (B) preliminary capital expenditures (within the meaning of United States Treasury Regulations 91.150-2 (F) (2)) with respect to the Project (such a architectural, engineering and soil testing services) incurred before commencement of acquisition and construction or rehabilitation of the Project than do not exceed twenty percent (20%) of the issue price of the Bonds (as defined in United States Treasury Regulations 91.148-1), or (C) were capital expenditures with respect to the Project that are reimbursed no later than eighteen (18) months after the later of the date the expenditure was paid or the date the Project is placed in service (but no later than three (3) years after the expenditures is paid). ”Qualified Project Period ” has the meaning given to that term in the Regulatory Agreement. ”Servicing Fee” means the Servicing Fee payable to the Loan Servicer for servicing the Mortgage Loan for the Credit Provider on and after the Conversion Date. ”Set Rate Interest’’ has the meaning given to that term in the Mortgage Note. Section 1.3 Rules of Construction. The rules of construction set forth in Section 1.3 of the Indenture shall apply to this Financing Agreement in their entirety, except that in applying such rules, the term ”Financing Agreement” shall be substituted for the term ”Indenture”. Section 1.4 Content of Certificates and Opinions. The provisions of Section 1.4 of the Indenture shall apply to this Financing Agreement in their entirety. Section 1.5 Interpretation. The parties to this Financing Agreement acknowledge that each party and its counsel have participated in the drafting, review and revision of this Financing Agreement. Accordingly, the parties agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Financing Agreement or any amendment, modification, supplement or restatement of any of the foregoing or of any exhibit to this Financing Agreement. Section 1.6 Effective Date. The provisions of this Financing Agreement shall be effective on and as of the Closing Date. ARTICLE 2 REPRESENTATIONS AND WARRANTIES Section 2.1 Representations and Warranties of the Issuer. The Issuer represents and warrants that: (i) the Issuer is a municipal corporation, duly organized and existing under the constitution and laws of the State; (ii) the Issuer has complied with the provisions of the Act and the constitution and laws of the State which are prerequisites to the closing of the transactions provided for in the Bond Documents; 3 (iii) the issuance of the Bonds to obtain funds to provide financing for the Mortgaged Property is intended to serve the public interest and will further the purposes of the Act including, among such purposes, the provision of decent, safe and sanitary rental housing units for persons and families of low or moderate income; to accomplish the foregoing, the Issuer intends to issue the Bonds on the terms set forth in the Indenture and to use the proceeds derived from the sale of the Bonds as specified in the Indenture and this Financing Agreement; (iv) the Issuer has the full legal right, power and authority to execute and deliver the Indenture, this Financing Agreement, the Regulatory Agreement, the Assignment, the Tax Certificate and all other agreements, documents and instruments to be executed and delivered by the Issuer in connection with the issuance, sale and delivery of the Bonds and the Mortgage Loan (collectively, the ”Issuer Documents”), and to carry out its obligations under, and to close the transactions provided for in, the Issuer Documents; (v) the issuance of the Bonds, and the execution, delivery and performance of the Issuer Documents, have been duly authorized by the Issuer; (vi) the Bonds have been duly executed and delivered by the Issuer, and upon authentication by the Trustee, will constitute legal, valid and binding special limited obligations of the Issuer, enforceable against the Issuer in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally and general principles of equity; (vii) each Issuer Document has been duly executed and delivered by the Issuer and upon execution and delivery by the other party or parties to the Issuer Document, will be the legal, valid and binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally and general principles of equity; (viii) neither the execution and delivery of the Bonds or any of the Issuer Documents, the closing of the transactions provided for in the Issuer Documents nor the fulfillment of or compliance with the terms, conditions or provisions of the Bonds or the Issuer Documents violates or will violate the constitution or laws of the State or any judgment, order, writ, injunction or decree to which the Issuer is subject, or conflicts or will conflict in any material respect with, or results or will result in a material breach of any of the terms, conditions or provisions of, or constitutes or will constitute a material default under, any agreement or instrument which the Issuer is now a party or by which it is bound; (ix) the Issuer has complied and will comply with all material provisions of the Act applicable to the Bonds and the transactions provided for in the Issuer Documents; (x) the Bonds have been issued under the Indenture, and are secured by the Indenture, pursuant to which the Issuer’s interest in this Financing Agreement (other than the Reserved Rights), and the revenues and receipts to be derived by the Issuer pursuant to this Financing Agreement, are pledged and assigned by the Issuer to the Trustee as security for payment of the principal of, premium, if any, and interest on the Bonds; 4 /7 (xi) the Issuer has not made and will not make any pledge or assignment of or create any encumbrance on the Trust Estate, other than the pledge and assignment to the Trustee under the Indenture; and (xii) no action of any nature is pending against the Issuer (a) seeking to restrain or enjoin the issuance of the Bonds or the execution or delivery of any Issuer Document, (b) questioning the proceedings or authority relating to the Bonds or any Issuer Document or (c) questioning the existence or authority of the Issuer or that of its present or former members or officers; to the best of the Issuer’s knowledge no such action is threatened. Section 2.2 Representations and Warranties of the Borrower. Section 2.20) Specific Representations and Warranties. The Borrower represents and warrants that: (i) the Borrower is a limited partnership, duly organized and validly existing under the laws of State of California and is duly qualified to conduct its business in the State and in every other state in which the nature of its business requires such qualification; (ii) the Borrower has the full legal right, power and authority to (a) own its properties, (b) carry on its business as now being conducted and as the Borrower contemplates it to be conducted with respect to the Mortgaged Property and (c) execute and deliver, carry out its obligations under, and close the transactions provided for in, the Borrower Documents; (iii) each of the Borrower Documents has been duly authorized, executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally and general principles of equity; (iv) no authorization, consent, approval, order, registration, declaration or withholding of objection on the part of, or filing of or with any governmental authority, other than those already obtained, is required for (a) the execution and delivery or approval, as the case may be, by the Borrower of the Borrower Documents or (b) the performance by the Borrower of the terms and provisions of the Borrower Documents; (v) neither the execution and delivery of the Borrower Documents nor the closing of the transactions provided for in the Bond Documents, the Mortgage Loan Documents or the Construction Phase Credit Documents, nor the Borrower’s fulfillment of or compliance with the terms and conditions of the Borrower Documents violates or will violate any law, rule or regulation of any governmental agency or body having jurisdiction over the Borrower or its general partners or any Key Principal or any of their activities or properties, or any judgment, order, writ, injunction or decree to which the Borrower or its general partners or any Key Principal is subject, or any of the organizational or other governing documents of the Borrower or its general partners or any Key Principal, if applicable, or conflicts or will conflict with any agreement, instrument or license to which the Borrower or its general partners or any Key 5 Principal is now a party or by which it or its general partners or any Key Principal or any of their properties or assets is bound or results or will result in a breach of, or constitutes or will constitute a default (with due notice or the passage of time or both) under, any such agreement, instrument or license, or contravenes or will contravene any such law, rule or regulation or any such judgment, order, writ, injunction or decree, or, except as provided in the Mortgage Loan Documents, result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Borrower or its general partners or any Key Principal, except for any lien, charge or encumbrance allowed under the terms of the Mortgage Loan Documents and any other Permitted Lien; (vi) the Borrower has made all filings with and has obtained all approvals, permits, authorizations and consents from all federal, state and local regulatory agencies having jurisdiction to the extent, if any, required by applicable laws and regulations to be made or to be obtained in connection with the () acquisition, construction and equipping of the Mortgaged Property and () execution and delivery by the Borrower of, and performance by the Borrower of its obligations under, the Borrower Documents; (vii) the Borrower is not presently under any cease or desist order or other orders of a similar nature, temporary or permanent, of any federal or state authority which would have the effect of preventing or hindering the performance of the Borrower’s duties under any of the Borrower Documents; nor are there any proceedings presently in progress or to its knowledge contemplated which would, if successful, lead to the issuance of any such order; (viii) no litigation or proceeding is pending or, to the knowledge of the Borrower or the general partners of the Borrower, threatened against the Borrower or the general partners of the Borrower or any Key Principal or with respect to the Mortgaged Property which has a reasonable probability of having a material adverse effect on the financial condition or business of the Borrower, or the transactions provided for in the Bond Documents or the Mortgage Loan Documents, or which in any way seeks to prohibit, restrain or enjoin the issuance, execution, sale or delivery of the Bonds, the funding of the Mortgage Loan, the execution or delivery of the Borrower Documents, or which in any way would adversely affect or call into question the validity or enforceability of the Bonds, the Bond Documents or the Mortgage Loan Documents, or the power or authority of the Borrower to incur, or the ability of the Borrower to perform, its obligations under the Borrower Documents, or which questions the power or authority of the Borrower to carry out the transactions provided for in, or to perform its obligations under, the Borrower Documents or which would affect the power of the Borrower to own, equip or operate the Mortgaged Property, or which questions the exclusion from gross income for federal income tax purposes of the interest payable on the Bonds; (ix) the Borrower is not in default under any document, instrument or commitment to which the Borrower is a party or to which it or any of its property or assets is subject which default would or could affect the ability of the Borrower to carry out its obligations under the Borrower Documents; (x) the financial statements which have been furnished by or on behalf of the Borrower, its general partners and each Key Principal to the Issuer 6 and/or the Loan Servicer were prepared in accordance with generally accepted accounting principles applied on a consistent basis, are complete and accurate in all material respects and present fairly and consistently the financial condition of the Borrower and such other entities or persons as of their respective dates; since the date of the most recent of such financial statements there has not been any material adverse change in the financial condition of the Borrower, its general partners or any Key Principal and there has not been any material transaction entered into by the Borrower its general partners or any Key Principal other than transactions in the ordinary course of business; neither the Borrower or its general partners nor any Key Principal has any material contingent obligations which are not otherwise disclosed in its financial statements; (xi) there (a) is no contemplated, pending or threatened bankruptcy, reorganization, receivership, insolvency or like proceeding, whether voluntary or involuntary, affecting the Mortgaged Property, the Borrower, any general partner of the Borrower or any Key Principal and (b) has been no assertion or exercise of jurisdiction over the Mortgaged Property, the Borrower, any general partner of the Borrower or any Key Principal of the Borrower by any court empowered to exercise bankruptcy powers; (xii) no event has occurred and no condition exists with respect to the Borrower or the Mortgaged Property that would constitute an Event of Default or which, with the lapse of time, if not cured, or with the giving of notice or both, would become an Event of Default; (xiii) the Borrower has not taken any action, or permitted any action that the Borrower can control to be taken, that would impair the exclusion from gross income, for federal income tax purposes, of the interest payable on the Bonds; (xiv) as of the Closing Date, the Borrower is in compliance with all requirements of the Tax Certificate, and the representations set forth in the Tax Certificate of the Borrower executed by the Borrower pertaining to the Borrower and the Mortgaged Property are true and accurate; (xv) no information, statement or report furnished in writing to the Issuer, the Credit Provider, the Loan Servicer or the Trustee by the Borrower in connection with the transactions provided for in the Bond Documents, the Mortgage Loan Documents or the Disclosure Agreement or the closing of the transactions provided for in the Bond Documents or the Mortgage Loan Documents (including, without limitation, any information furnished by the Borrower in connection with the preparation of any materials related to the issuance, delivery or offering of the Bonds) contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained in such written materials or in any offering material, in the light of the circumstances under which they were made, not misleading; the representations and warranties of the Borrower and the statements, information and descriptions contained in the Borrower’s closing certificates, as of the Closing Date, will be true, correct and complete, will not contain any untrue or misleading statement of a material fact, and will not omit to state a material fact required to be stated in such certificates or necessary to make the certifications, representations, warranties, statements, information and descriptions contained in such certificates or in any offering materials, in the light of the circumstances under 7 which they were made, not misleading; the estimates and the assumptions contained in any certificate of the Borrower delivered as of the Closing Date will be reasonable and based on the best information available to the Borrower; (xvi) to the best knowledge of the Borrower, no member, officer, agent or employee of the Issuer has been or is in any manner interested, directly or indirectly, in that person’s own name or in the name of any other person, in the Bonds, the Bond Documents, the Mortgage Loan Documents, the Disclosure Agreement, the Borrower or the Mortgaged Property, in any contract for property or materials to be furnished or used in connection with the Mortgaged Property, or in any aspect of the transactions contemplated by the Bond Documents, the Mortgage Loan Documents or the Disclosure Agreement; (xvii) the Borrower acknowledges that (a) it understands the nature and structure of the transactions relating to the financing of the Mortgaged Property, (b) it is familiar with the provisions of all of the documents and instruments relating to the financing, (c) it understands the risks inherent in such transactions, including without limitation the risk of loss of the Mortgaged Property, and (d) it has not relied on the Issuer, the Trustee, the Credit Provider or the Loan Servicer for any guidance or expertise in analyzing the financial or other consequences of the transactions contemplated by the Bond Documents, the Mortgage Loan Documents or otherwise relied on the Issuer, the Trustee, the Credit Provider or the Loan Servicer in any manner; (xviii) the Borrower and the Mortgaged Property are in compliance with (i) all provisions of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (”CERCLA”), the Resource Conservation and Recovery Act, as amended (”RCRA”), the Toxic Substances Control Act, the Residential Lead-Based Paint Hazard Reduction Act of 1992, as amended, the Asbestos Hazard Emergency Response Act, as amended, the Clean Water Act, and the Clean Air Act, (ii) all environmental laws of the State, (iii) all rules, regulations or administrative orders of any governmental agency promulgated under any of the laws in clauses (i) or (ii), and (iv) with any judgments, decrees or orders of any court of competent jurisdiction with respect to any of the foregoing (all of the foregoing in clauses (i)/ (ii), (iii) and (iv) are, collectively the ”Environmental Laws”); the Borrower has not received any notice of any action, claim or proceeding to determine any potential liability or responsibility under the Environmental Laws, any assessment or notice of potential responsibility under the Environmental Laws, nor any notice seeking to impose civil penalties under the Environmental Laws; nor has the Borrower received notification that any hazardous substances (as defined under CERCLA) that it has disposed of have been found in any site at which any governmental agency is conducting an investigation or other proceeding under any Environmental Law. (xix) the Borrower has not received any notice that it is not in full compliance with ERISA and applicable Department of Labor regulations under ERISA, with the Code and applicable Treasury Regulations under the Code or with the terms of each pension or welfare benefit plan to which the Borrower is a party or makes any employer contributions with respect to its employees, for the current or prior plan years of such plans; (xx) the Bonds are not ”federally guaranteed” as defined in Section 149(b) of the Code; 8 (xxi) in accordance with Section 147(b) of the Code, the weighted average maturity of the Bonds does not exceed 120% of the weighted average reasonably expected economic life of the facilities (comprising the Mortgaged Property) financed with the Net Bond Proceeds, determined as of the later of the date the Bonds are issued or the date the facilities are expected to be placed in service; (xxii) neither the Borrower nor any ”related person” to the Borrower (within the meaning of Section 147(a)(2) of the Code) will purchase Bonds pursuant to any arrangement, formal or informal; (xxiii) the information furnished by the Borrower and used by the Issuer in preparing the certificate pursuant to Section 148 of the Code and information statement pursuant to Section 149(e) of the Code is accurate and complete as of the date of the issuance of the Bonds. (xxiv) the acquisition, construction and equipping of the Mortgaged Property were not commenced prior to the 60th day preceding the adoption of the resolution of the Issuer with respect to the Mortgaged Property on July 9, 2002, and no obligation for which reimbursement will be sought from proceeds of the Bonds relating to the acquisition, construction or equipping of the Mortgaged Property was paid or incurred prior to 60 days prior to such date; (xxv) the Borrower is the sole borrower under the Mortgage Loan and is a single asset entity, the single asset of which is the Mortgaged Property; (xxvi) the Borrower has and will have fee simple title to the Mortgaged Property, subject only to Permitted Liens; (xxvii) the Mortgaged Property is located entirely within the boundaries of the City of Carlsbad, California; (xxviii) the Mortgaged Property, as designed, conforms in all material respects with all applicable zoning, planning, building and environmental laws, ordinances and regulations of governmental authorities having jurisdiction over the Mortgaged Property, including, but not limited to, the Americans with Disabilities Act of 1990 (”ADA”) (as evidenced by an architect’s certificate to such effect); (xxix) all necessary utilities are available to the Mortgaged Property in adequate supply; (xxx) the Borrower will obtain in due course, when needed, all requisite zoning, planning, building and environmental and other permits which may become necessary with respect to the acquisition, construction, equipping, use and occupancy of the Mortgaged Property; (xxxi) the Borrower has obtained all licenses, permits and approvals necessary for the ownership, operation and management of the Mortgaged Property, including compliance with the ADA (as evidenced by an architect’s certificate to such effect), and further including all approvals essential to the 9 transactions contemplated by the Bond Documents and the Mortgage Loan Documents; (xxxii) the Borrower and the Mortgaged Property satisfy all requirements of the Act and the Code applicable to sponsors of, and with respect to, multifamily rental housing; (xxxiii) the Mortgaged Property is, as of the Closing Date, in compliance with all requirements of the Regulatory Agreement to the extent such requirements are applicable on the Closing Date; (xxxiv) the Borrower intends to cause the residential units in the Mortgaged Property to be rented or available for rental on a basis which satisfies the requirements of the Regulatory Agreement, including all applicable requirements of the Act and the Code, and pursuant to leases which comply with all applicable laws; (xxxv) the Borrower intends to hold the Mortgaged Property for its own account and has no current plans, and has not entered into any agreement, to sell the Mortgaged Property or any part of it; (xxxvi) the Borrower intends to occupy the Mortgaged Property or cause the Mortgaged Property to be occupied and to operate it or cause it to be operated at all times during the term of this Financing Agreement for Project Purposes and does not know of any reason why the Mortgaged Property will not be so used by it in the absence of circumstances not now anticipated by it or totally beyond its control; (xxxvii) the factual statements and representations concerning the Borrower and the Mortgaged Property made to the Loan Servicer are true, correct and complete; (xxxviii) the information contained in the Official Statement with respect to the Bonds, insofar as such information relates to the Borrower and the Mortgaged Property, is accurate in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact required to be stated in the Official Statement or necessary to make the statements made in the Official Statement, in light of the circumstances under which they were made, not misleading; and (xxxix) the Borrower has filed or caused to be filed all federal, state and local tax returns which are required to be filed, and has paid or caused to be paid all taxes as shown on those returns or on any assessment received by it, to the extent that such taxes have become due. (xl) the Borrower hereby represents, covenants and warrants that the proceeds of the Bonds shall be used or deemed used exclusively to pay costs which (i) are (A) capital expenditures (as defined in Treasury Regulation Section 1.150-1(a)) and (B) not made for the acquisition of existing property, to the extent prohibited in section 147(d) of the code, and (ii) are made exclusively with respect to a ”qualified residential rental project” within the meaning of Section 142(d) of the Code and that for the greatest number of buildings the proceeds of the Bonds shall be deemed allocated on a pro rata basis to each building in the 10 Project and the land on which it is located so that each building and the land on which it is located will have been financed 50% or more by the proceeds of the Bonds for the purpose of complying with Section 42(h)(4)(B) of the Code; provided, however, the foregoing representation, covenant and warranty is made for the benefit of the Borrower and its partners and neither the Trustee nor the issuer shall have any obligation to enforce this statement nor shall they incur any liability to any person, including without limitation, the Borrower, the partners of the Borrower, any other affiliate of the Borrower or the holders of the Bonds for any failure to meet the intent expressed in the foregoing representation, covenant and warranty. Section 2.2(2) Certificates. Any certificate signed or to be signed by the Managing General Partner of the Borrower and delivered pursuant to any Bond Document or Mortgage Loan Document, when executed and delivered by the Borrower, constitutes a representation and warranty by the Borrower as to the statements contained in the certificate. Section 2.2(3) Incorporation of Other Representations, Warranties and Covenants. The representations, warranties and covenants of the Borrower set forth in the Reimbursement Agreement are incorporated into this Financing Agreement as if restated in this Financing Agreement in full, for the benefit of, and may be relied upon by, the beneficiaries of this Financing Agreement. Section 2.2(4) Representations and Warranties Deemed True As of Closing Date. The representations and warranties of the Borrower in this Financing Agreement are deemed to be made and be true as of the date of this Financing Agreement and as of the Closing Date. ARTICLE 3 BORROWER’S OBLIGATIONS WITH RESPECT TO THE BONDS Section 3.1 General Obligation. The Borrower is unconditionally obligated, anything else to the contrary notwithstanding, to timely pay amounts sufficient to pay, when due, the principal of, premium, if any, and interest on, and the purchase price ofi the Bonds. Section 3.2 Borrower’s Obligations With Respect to Redemption. Section 3.2(1) Optional Prepayment and Redemption. In the event of an optional redemption of Bonds pursuant to Section 3.2 of the Indenture, the Borrower shall timely pay, or cause to be paid, (a) an amount equal to the unpaid principal balance of the Mortgage Loan, (b)interest on the Mortgage Loan to the date of prepayment, (c) interest payable on the Bonds to the Redemption Date, (d) the premium, if any, payable with respect to the Bonds (the premium to be paid with Available Moneys), (e) any other amount (to be paid with Available Moneys) that is part of the End Period Payment, (f) an amount sufficient to pay any fees, costs and expenses in connection with such redemption and (g) all other amounts payable under the Bond Documents and the Mortgage Loan Documents in connection with the prepayment of the Mortgage Loan and the corresponding redemption of the Bonds on the applicable Redemption Date. 11 Section 3.2(2) Mandatory Prepayment and Special Mandatory Redemption. In the event of a mandatory prepayment of the Mortgage Loan in connection with a special mandatory redemption of Bonds: (i) [Reserved]; (ii) in whole or in part, pursuant to Section 3.3(4) of the Indenture, the Borrower shall timely pay or cause to be paid (a) in the event of the involuntary destruction or loss of the Mortgaged Property in its entirety or nearly in its entirety as a result of casualty or condemnation, the unpaid principal balance of the Mortgage Loan and an amount sufficient to effect the corresponding redemption of the Bonds on the applicable Redemption Date or (b) in the event of an involuntary destruction or loss of the Mortgaged Property in part as a result of a casualty or condemnation, a principal amount equal to the insurance or condemnation proceeds received by the Borrower and applied, in accordance with the Mortgage Loan Documents, to the prepayment, in part, of the Mortgage Loan and the corresponding redemption of Bonds on the applicable Redemption Date and, in the case of (a) or (b), (1) interest on the Mortgage Loan to the date of prepayment, (2) interest payable on the Bonds to be redeemed to the Redemption Date, (3) an amount sufficient to pay any fees, costs and expenses in connection with such redemption and (4) all other amounts payable under the Bond Documents and the Mortgage Loan Documents in connection with the prepayment of the Mortgage Loan and the corresponding redemption of the Bonds to be redeemed on the applicable Redemption Date; and (iii) in whole or in part pursuant to Section 3.3(5) of the Indenture, the Borrower shall timely pay, or cause to be paid (a) the principal amount of the Mortgage Loan if the redemption is in whole under Section 3.3(5) of the Indenture, or a principal amount of the Mortgage Loan, as specified by the Credit Provider, corresponding to the principal amount of Bonds, as specified by the Credit Provider, to be redeemed at the written direction or with the prior written consent of the Credit Provider, if the redemption is in part under Section 3.3(5) of the Indenture, (b) interest on the Mortgage Loan to the date of prepayment, (c) interest payable on the Bonds to be redeemed to the Redemption Date, (d) an amount sufficient to pay any fees, costs and expenses in connection with such redemption and (e) all other amounts payable under the Bond Documents and the Mortgage Loan Documents in connection with the prepayment of the Mortgage Loan and the corresponding redemption of the Bonds to be redeemed on the applicable Redemption Date. Section 3.2(3) Payment Procedures. All payments shall be made in accordance with the payment procedures set forth in the Mortgage Note. 12 ARTICLE 4 THE MORTGAGE LOAN Section 4.1 Amount and Source of Mortgage Loan. Upon the issuance and delivery of the Bonds, the Issuer shall apply the Net Bond Proceeds in the amount of $5,300,000 to fund the Mortgage Loan. The Borrower accepts the Mortgage Loan from the Issuer on the terms and conditions set forth in this Financing Agreement and in the Mortgage Loan Documents and subject to the terms and conditions of the Indenture and the Regulatory Agreement. The Borrower agrees to apply the proceeds of the Mortgage Loan to pay costs of acquiring, constructing and equipping the Mortgaged Property. Section 4.2 Terms of the Mortgage Loan; Funding. Section 4.2(1) Obligation to Repay the Mortgage Loan and to Pay the Debt Service on the Bonds. In repayment of the Mortgage Loan, the Borrower shall make payments on the Mortgage Note, which shall, 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 Income available to be applied to the payment of the foregoing obligations. Section 4.2(2) Terms. The Mortgage Loan shall (a) be evidenced by the Mortgage Note, (b) be in a principal amount approved by the Credit Provider, not to exceed $5,300,000, (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 otherwise provided in the other Mortgage Loan Documents and/or this 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 shall be comprised of (i) a pass-through rate of interest (the "Pass-Through Rate"), which shall 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 (ii) Set Rate Interest, which (i) prior to the Conversion Date, shall be equivalent to the Facility Fee payable to the Credit Provider and (ii) on and after the Conversion Date, shall be equivalent to the sum of (1) the Facility Fee payable to the Credit Provider and (2) the Servicing Fee. The Mortgage Note Rate shall be percent (-"/o) per annum from the Accrual Date set forth in the Mortgage Note to, but not including, the Conversion Date; on and after the Conversion Date, the Mortgage Note Rate shall be percent (-YO) per annum to, but not including, the first day of the month immediately preceding the Initial Remarketing Date, and thereafter, if the Bonds Outstanding shall have been remarketed in accordance with the provisions of the Indenture, at a per annum rate equal to the Remarketing Rate in effect from time to time (adjusted, if necessary, to include such additional basis points of interest as shall be necessary to ensure that the monthly payments on 13 the Mortgage Note are sufficient to provide for the payment of the scheduled principal and interest on the Bonds Outstanding when due), adjusted as of the first day of the month immediately preceding the Initial Remarketing Date and each succeeding Remarketing Date, plus (a) an amount sufficient to pay Set Rate Interest and (b) an amount (expressed as a percentage, including, if necessary, additional basis points of interest) sufficient to ensure, and adjusted as necessary to ensure, that the Pass-Through Rate will be sufficient to pay the Third Party Fees to the extent included, in accordance with paragraph (i) of Section 4.3, in the Mortgage Note Rate (collectively, the "Revised Mortgage Note Rate"), all as shown in a then current Cash Flow Projection and Verification Report. The Mortgage Note shall be payable monthly, interest only, in arrears, to and including the Conversion Date, and, thereafter, the Mortgage Note shall be due and payable in consecutive level monthly installments of principal and interest (computed at the Mortgage Note Rate then in effect, as specified above, on the outstanding principal amount of the Mortgage Loan) beginning on the first day of the month following the month in which the Conversion Date occurs (the "Amortization Commencement Date") until the entire indebtedness evidenced by the Mortgage Note is paid in full, provided that any remaining indebtedness, if not sooner paid, shall be due and payable on the anniversary of the Conversion Date, but in any event, not later than provided, further, that if the Bonds Outstanding shall have been remarketed in accordance with the provisions of the Indenture, the outstanding principal amount of the Mortgage Loan shall 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 remaining principal balance of the Mortgage Loan at an interest rate equal to the Revised Mortgage Note Rate over a term equivalent to the number of months of amortization remaining to the maturity date of the Mortgage Loan, with the first such revised payment being due on the first day of the month in which such Remarketing Date occurs, provided further, however, that any remaining indebtedness, if not sooner paid, shall be due and payable on Section 4.2(3) Funding. On or prior to Conversion the Borrower shall deliver to the Trustee (i) $ representing the Initial Debt Service Deposit, which sum shall be deposited by the Trustee into the General Account. It shall be a condition precedent to the obligation of the Issuer to issue the Bonds and to fund the Mortgage Loan that, on or before the scheduled Closing Date, the Borrower shall deliver the deposits required by paragraph (ii) above to the Trustee. Section 4.2(4) Timing; Disbursements. The Mortgage Loan shall be deemed to have been made in full to the Borrower immediately upon the deposit of the Net Bond Proceeds into the Funds and Accounts in accordance with Section 4.2 of the Indenture. Disbursements shall be made from the Mortgage Loan Fund and the Costs of Issuance Fund as provided in the Indenture. Section 4.3 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: 14 (A) 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; (B) fees that comprise Set Rate Interest; on and before the Conversion Date, Set Rate Interest shall be received by the Trustee as part of the payments of interest on the Mortgage Note received by the Trustee and remitted by the Trustee to the Credit Provider in accordance with Section 4.4(3) of the Indenture in payment of the Credit Provider’s Facility Fee; after the Conversion Date, Set Rate Interest 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: (A) 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; (B) 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; (C) 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 Mortgaged Property 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 Mortgaged Property 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 thirty (30) days after receipt of invoices rendered to the Borrower by the Issuer; (D) 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 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, this 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 15 default under the Indenture, this 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; (E) all amounts required to pay the fees and expenses of the Rebate Analyst as required by this 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 thirty (30) days after receipt of invoices rendered to the Borrower by the Rebate Analyst; (F) all Costs of Issuance; (G) 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; (H) 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; (I) 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; (J) all fees of the Rating Agency; and. (k) not later than seven Business Days prior to each Remarketing Date, all Remarketing Expenses expected to be incurred in connection with the remarketing of the Bonds under Section 2.17 of the Indenture on such Remarketing Date, which amounts shall be paid to the Trustee for deposit into the Bond Purchase Fund, and on each Remarketing Date, the amount, if any, by which actual Remarketing Expenses exceed amounts on deposit in the Bond Purchase Fund to pay Remarketing Expenses. The Borrower further agrees to timely honor any demand by the Trustee pursuant to Section 4.7(2) of the Indenture for payment on account of any insufficiency in the Fees Account. The Borrower acknowledges that all fees, costs, expenses and other amounts described in this Section 4.3, including any fees, costs and expenses involved in any remarketing or reoffering of the Bonds, 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. The Borrower further acknowledges and agrees that (a) all fees, costs and expenses involved in any adjustment of the interest rate on the Bonds and, therefore, of the Pass-Through Rate under the Mortgage Note and (b) all fees, costs and expenses involved in any tender, purchase, remarketing or reoffering of Bonds are obligations solely of the Borrower and must be paid by 16 the Borrower separate and apart from payments due under the Mortgage Loan and will not be provided for in any of the Mortgage Loan Documents or reflected in the Mortgage Note Rate. The fees, costs and expenses of any remarketing or reoffering of Bonds other than as provided for in clause (a) above must be paid by the Borrower in advance in accordance with the remarketing agreement or other agreement relating to the reoffering of the Bonds. 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 this 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 Mortgaged Property 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. Section 4.4 Notice. The Borrower shall give written notice to the Credit Provider and the Loan Servicer of the payment of all fees and expenses specified in Section 4.3 that are not included in the Mortgage Note Rate. Section 4.5 Mortgage Loan Payments. All regularly scheduled payments due under the Mortgage Note shall be timely paid by the Borrower, when due, in immediately available funds. All payments of interest, principal and other amounts payable by the Borrower under the Mortgage Note shall be paid to the Loan Servicer (or other entity then servicing the Mortgage Loan for the Credit Provider). Payments received by the Loan Servicer are to be remitted (net of Set Rate Interest) to the Trustee. The Borrower agrees to hold the Issuer, the Trustee, the Loan Servicer and the Credit Provider harmless from any liability on account of any failure of the Borrower to make such payments. Section 4.6 Certain Notices From Trustee. The Trustee shall, in accordance with the terms and conditions of the Credit Facility, timely give all notices required by the Credit Facility, including, without limitation, a notice to the Credit Provider, with copies to the Issuer and the Loan Servicer of the Trustee’s failure to receive any Required Mortgage Payment (as defined in the Credit Facility) when due, which notice shall be given by the Trustee, not later than 4:OO p.m. Eastern Time on the Business Day next succeeding any day on which the Required Mortgage Payment was due. Section 4.7 Modification of Mortgage Loan Documents; Consent at Direction of the Credit Provider. Neither the Issuer, the Trustee nor the Borrower shall: (i) consent or enter into, without the prior written consent of the Credit Provider, or fail to consent or enter into, at the written direction of the Credit Provider, any amendments or modifications to, or adjustments or revisions of, the terms and conditions of any Mortgage Loan Document; (ii) take, without the prior written consent of the Credit Provider, or fail to take at the written direction of the Credit Provider, any action in the event of a default or otherwise under any Mortgage Loan Document, including, without limitation, any action which would cause there to be insufficient money available for the scheduled payment of principal and interest on the Mortgage Loan; or (iii) enter into any contracts or agreements or perform any acts which amend or affect any Mortgage Loan Document. 17 Section 4.8 Prepayment. Section 4.8(1) Optional Prepayment. The Borrower shall 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 shall comply with the provisions of Section 3.2. The Borrower agrees that the payment of all amounts set forth in Section 3.2 shall be a condition precedent to the effectiveness of any prepayment of the Mortgage Loan. Section 4.8(2) Involuntary Prepayment. The Mortgage Loan shall be subject to involuntary prepayment in whole or in part on the terms provided in the Mortgage Note. Section 4.8(3) Notices. In the event any prepayment of principal shall be made on account of the Mortgage Loan, whether optional or mandatory, and regardless of the underlying cause for the prepayment, the Borrower shall provide written notice of the prepayment to the Trustee, the Credit Provider and the Loan Servicer in writing, not less than sixty (60) days (or not less than thirty (30) days in the case of a Pre-Conversion Loan Equalization Payment), or the longest period of time, if any, less than sixty (60) days that is possible in the case of involuntary prepayments, prior to the date on which the Borrower will make the prepayment. Each such notice shall state (a) the amount to be prepaid, (b) the date on which the prepayment will be made by the Borrower to the Trustee or the Loan Servicer, as applicable and (c) the cause for the prepayment, if any. The Loan Servicer (or other entity then servicing the Mortgage Loan), upon receipt of the Borrower’s notice of prepayment, shall provide an additional notice of the voluntary prepayment to the Credit Provider and to the Trustee; such notice shall contain the information provided for in this Section 4.8(3) to the extent such information has been provided by the Borrower to the Loan Servicer. The Loan Servicer’s notice to the Trustee shall also specify the manner in which any prepayment of the Mortgage Loan is to be applied, including the allocation of the prepayment among principal, interest and premium, if any. Section 4.8(4) Limitation on Credit Facility Obligations. Optional prepayment of the Mortgage Loan shall not create any obligation on the part of the Credit Provider to make any payments under the Credit Facility. ARTICLE 5 NATURE OF BORROWER’S OBLIGATIONS Section 5.1 Obligations of the Borrower Unconditional. The obligation of the Borrower to repay the Mortgage Loan, to pay in all events amounts sufficient to timely pay, when due, the principal of, premium, if any, and interest on, the Bonds, to make all payments required by this Financing Agreement, including the payment of rebate amounts pursuant to Section 7.2(9), to provide indemnification pursuant to Article IX, to pay and perform all of its obligations under the Mortgage Loan Documents and to make any and all other payments required by the Bond Documents and the Mortgage Loan Documents, shall be absolute and unconditional and shall not be subject to diminution by set-off, recoupment, counterclaim, abatement or otherwise. Until the Mortgage Loan has been fully paid and the Bonds have been fully paid or provision has been made for payment of the Bonds in accordance with the Indenture or until such later time as is required by the terms of this Financing Agreement or 18 any Mortgage Loan Document, the Borrower (a) shall continue to repay the Mortgage Loan, (b) shall perform and observe all of its other obligations contained in the Borrower Documents and (c) shall not terminate this Financing Agreement for any cause, including, without limiting the generality of the foregoing, any defect in title to the Mortgaged Property, any acts or circumstances that may constitute failure of consideration, destruction of, damage to or condemnation of the Mortgaged Property, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either, or any failure of the Issuer to perform or observe any of its obligations arising out of or connected with this Financing Agreement. It is the intent and expectation of the Borrower that the Borrower’s payments under this Financing Agreement and the Mortgage Note will be sufficient for the payment in full of the Bonds, including (a) the principal and interest, including principal due upon any redemption of Bonds, when due, (b) any premium required to be paid in connection with any redemption of Bonds and (c) the Third Party Fees. In the event of a deficiency in the funds available under the terms of the Indenture for payment of the principal of, premium, if any, or interest on the Bonds or Third Party Fees when due, regardless of the reason for the deficiency, including any deficiency resulting from any shortfall in payments made or to be made by the Borrower under the Mortgage Loan Documents or any shortfall in Investment Income from that included in any Cash Flow Projection, whether occasioned by a default under any Permitted Investment or a change in Investment Agreements or otherwise, the Borrower will, upon notice of the deficiency from the Trustee and demand for payment, including any demand by the Trustee pursuant to Section 4.7(2) of the Indenture for payment of any insufficiency in the Fees Account, immediately pay the amount of the deficiency to the Loan Servicer for remittance to the Trustee, provided that if the Credit Provider shall have advanced funds under the Credit Facility for any of such purposes, the Borrower agrees to immediately pay the amounts owed the Credit Provider in reimbursement of the funds provided by the Credit Provider as provided in the Reimbursement Agreement. No advance made by the Credit Provider under the Credit Facility with respect to the payment of the principal and interest on the Mortgage Loan shall relieve the Borrower of any of its obligations under the Bond Documents, the Mortgage Loan Documents or any other document contemplated by this Financing Agreement or by such other documents. Section 5.2 Nature of Borrower’s Financial Obligations. The Issuer and the Trustee acknowledge that (a) the Mortgaged Property will be encumbered by the Mortgage Loan Documents and (b) all obligations of the Borrower under this Financing Agreement (in contrast to the Borrower’s obligations under the Mortgage Loan Documents) or under the Regulatory Agreement (if any) for the payment of money, including, without limitation, fees, costs and expenses, obligations with respect to Reserved Rights, claims for damages occasioned by the breach or alleged breach by the Borrower of its obligations under this Financing Agreement or the Regulatory Agreement and claims for indemnification, are not secured by, and do not in any manner constitute a lien on, the Mortgaged Property. Section 5.3 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 shall 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 Mortgaged Property 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 this Financing Agreement, the obligations of the Borrower to the Issuer, the Trustee or any other party (a) under Section 4.3 and Article IX and (b) to pay any and all rebate amounts that may be or become owing with respect to the Bonds, shall be recourse to the Borrower, but except with respect to obligations owing to the Credit Provider, 19 not to the Mortgaged Property or any other property encumbered by the Mortgage Loan Documents. Section 5.4 Subordination. This Financing Agreement is subordinate in all respects to the Mortgage Loan Documents. Accordingly, notwithstanding anything to the contrary contained in this Financing Agreement or in the Regulatory Agreement, all obligations under this Financing Agreement or the Regulatory Agreement for the payment of money, if any, and all claims for damages or reimbursement or indemnification against the Borrower occasioned by breach or alleged breach by the Borrower of its obligations under this Financing Agreement or the Regulatory Agreement shall be subordinate and junior in priority, in right of payment and in all other respects to the obligations of the Borrower under or in respect of the Bond Documents and the Mortgage Loan Documents. ARTICLE 6 SERVICING; MONITORING Section 6.1 Servicing. The Issuer, the Trustee and the Borrower acknowledge that on and after the Conversion Date, the Mortgage Loan will be serviced by the Credit Provider or, in the sole discretion of the Credit Provider, the Loan Servicer, pursuant to contractual arrangements between the Credit Provider and the Loan Servicer, or by any other servicer selected by the Credit Provider pursuant to contractual arrangements between the Credit Provider and such servicer. The Issuer, the Trustee and the Borrower acknowledge and agree that (a) the selection of any servicer is in the sole and absolute discretion of the Credit Provider, (b) neither the Issuer nor the Trustee shall terminate or attempt to terminate the Loan Servicer or any successor servicer as the servicer of the Mortgage Loan or appoint or attempt to appoint a substitute servicer for the Mortgage Loan, (c) the servicing arrangements between the Credit Provider and the Loan Servicer are subject to amendment or termination without the consent of the Issuer, the Trustee or the Borrower, (d) none of the Issuer, the Trustee or the Borrower shall have any rights under, or be a third party beneficiary of, any such servicing arrangements and (e) any servicer of the Mortgage Loan shall be entitled to the payment of the Servicing Fee. The Issuer, the Trustee and the Borrower acknowledge the right of the Credit Provider to remove the Loan Servicer and to terminate the Loan Servicer’s right to service the Mortgage Loan. Section 6.2 Monitoring. So long as the Loan Servicer is servicing the Mortgage Loan, the Borrower shall furnish to the Loan Servicer copies of all reports with respect to the Mortgaged Property required to be filed by the Borrower pursuant to this Financing Agreement and/or the Regulatory Agreement. Notwithstanding anything contained in this Financing Agreement to the contrary, neither the Trustee nor the Loan Servicer shall have any duty or obligation to analyze or review any such reports for determining whether or not the Borrower and/or the Mortgaged Property are in compliance with the requirements of the Code for maintaining the excludability from gross income, for federal income tax purposes, of the interest payable on the Bonds. 20 33 ARTICLE 7 COVENANTS Section 7.1 Covenants of the Issuer. Section 7.10) Pledge and Assignment. The Issuer has not pledged or assigned and will not pledge or assign its interest in this Financing Agreement or the revenues and receipts derived pursuant to this Financing Agreement (except for the Issuer’s Reserved Rights) other than as provided in the Indenture. Section 7.1(2) Tax-Exemption. The Issuer will not knowingly take or permit to be taken any action that would adversely affect the excludability from gross income, for federal income tax purposes, of the interest payable on the Bonds, and if it should take or permit to be taken any such action, it will take all lawful actions that it can to rescind such actions promptly upon having knowledge of them. Section 7.1(3) Compliance with Federal Tax Laws. The Issuer will, at the expense of the Borrower, take such action or actions from time to time, including amendment of this Financing Agreement, as may be necessary, as stated in an Opinion of Bond Counsel acceptable to the Issuer, to comply fully with all applicable rules, rulings, policies, procedures, regulations or other official statements promulgated or proposed by the Department of the Treasury or the Internal Revenue Service from time to time pertaining to (a) obligations on which the interest is tax-exempt under Section 103 of the Code and (b) the provisions, therefore, of Section 142(d) of the Code. The Issuer will not take, or permit to be taken on its behalf, any action that would cause the interest payable on the Bonds to cease to be excludable, for federal income purposes under Section 103 of the Code from the gross incomes of the owners of the Bonds, and it will take, at the sole cost and expense of the Borrower, such action as may be necessary in the Opinion of Bond Counsel to continue such exclusion from gross income. Section 7.1(4) Notification of Violation of Regulatory Agreement. Upon the discovery by the Issuer or the Trustee of any noncompliance by the Borrower with the Regulatory Agreement, the Issuer (if discovered by the Issuer) will notify the Trustee, and the Trustee (if notified by the Issuer or if discovered by the Trustee) will notify the Issuer, the Loan Servicer, the Credit Provider and, so long as the Letter of Credit is in effect, the Construction Lender), of such noncompliance and, subject to the provisions of Article XIII, the Issuer (if discovered by the Issuer) will direct the Trustee to, or the Trustee itself will, promptly institute action, or cause the Borrower to institute action, to correct such noncompliance. The Issuer will diligently pursue or direct the Trustee to diligently pursue such action, all strictly in accordance with the terms and conditions of this Financing Agreement and the Regulatory Agreement, as the case may be, provided that no such action shall be taken which would adversely affect the interests of the Bondholders or the Credit Provider. Section 7.2 Covenants of the Borrower. The covenants contained in this Financing Agreement are not intended to modify or limit any provisions of the Mortgage Loan Documents. Section 7.20) Maintenance of Mortgaged Property; Insurance; Operation. The Borrower will (a) own and operate the Mortgaged Property (1) in accordance with the requirements of this Financing Agreement, the Regulatory Agreement, the Mortgage Loan Documents, the Act and with all other applicable federal, state and local laws, 21 ordinances, orders, rules and regulations, including, without limitation, those relating to zoning, building, safety and environmental quality, and (2) strictly for Project Purposes, (b) keep and maintain the Mortgaged Property, including all appurtenances to it and any personal property in or on the Mortgaged Property (other than property of tenants), in good repair and good operating condition and (c) insure the Mortgaged Property as required by the Mortgage Loan Documents. Section 7.2(2) Taxes; Other Governmental Charges and Utility Charges. The Borrower will pay, or cause to be paid, promptly as the same become due and payable, every obligation of every kind and nature, foreseen or unforeseen, for the payment of which the Issuer, the Trustee or the Credit Provider, or any other party, is or may become liable by reason of its or their estate or interest in the Mortgaged Property, by reason of any right or interest of the Issuer, the Trustee or the Credit Provider in or under this Financing Agreement, or by reason of or in any manner connected with or arising out of the possession, operation, maintenance, alteration, repair, rebuilding, use or occupancy of the Mortgaged Property or any portion of it, including, without limitation, all taxes, assessments, whether general or special, and governmental charges of any kind that may at any time be lawfully assessed or levied against or with respect to the Mortgaged Property or any machinery, equipment or other property installed or brought by the Borrower in or on the Mortgaged Property; provided that any amounts payable under this Financing Agreement that are also required to be paid by the terms of the Security Instrument shall be paid on the terms provided in the Security Instrument. Upon request, the Borrower will furnish to the Issuer, the Trustee, the Loan Servicer and the Credit Provider proof of the payment of any such tax, assessment or other governmental or similar charge, or any other charge payable by the Borrower. Section 7.2(3) Remodeling and Improvements. Subject to the terms of the Mortgage Loan Documents, the Borrower may remodel the Mortgaged Property or make modifications or improvements on or to the Mortgaged Property from time to time as it, in its discretion, may deem to be desirable for its uses and purposes, provided that such remodeling, modifications or improvements (a) do not materially alter the scope or character or diminish the value of the Mortgaged Property, (b) are permitted under the Act and the Code and (c) are approved by the Loan Servicer and the Credit Provider. The cost of such remodeling, modifications or improvements shall be paid by the Borrower. Section 7.2(4) Compliance With Laws. The Borrower will, throughout the term of this Financing Agreement, promptly comply or cause compliance with all laws, ordinances, rules, regulations and requirements of duly constituted public authorities which may be applicable to the Mortgaged Property or to the construction, repair and alteration of the Mortgaged Property, or to the use or manner of use of the Mortgaged Property, including, but not limited to, the Act, the ADA, Environmental Laws and all federal, State and local labor, health and safety laws, rules and regulations. Subject to the provisions of the Mortgage Loan Documents, the Borrower may, at its expense and in its own name, provided it is not in default under any Mortgage Loan Document or any Bond Document, in good faith contest compliance with any such legal requirement and, in the event of any such contest, upon notice to the Issuer, the Trustee, the Loan Servicer and the Credit Provider, may permit the legal requirement so contested to remain in noncompliance during the pendency of such contest and any appeal from it, unless the Issuer, the Trustee, the Loan Servicer or the Credit Provider shall notify the Borrower that, in the opinion of counsel to the Issuer, the Trustee, the Loan Servicer or the Credit Provider, noncompliance with any such legal requirement may subject the Mortgaged Property or any part of it to foreclosure or forfeiture, in which event the legal 22 35 requirement must be complied with. Nothing contained in this Section 7.2(4) is intended to modify or limit any provisions of the Regulatory Agreement or any Mortgage Loan Document. Section 7.2(5) Maintenance of Legal Existence. During the term of this Financing Agreement, the Borrower will maintain its existence and good standing in order to continue the accuracy of the representation set forth in paragraph (i) of Section 2.2(1), and will not terminate, dissolve, or dispose of all or substantially all of its assets, provided, however, that the Borrower may, with the prior written consent of the Credit Provider, consolidate with or merge into another entity or permit one or more other entities to consolidate with or merge into it, or transfer all or substantially all of its assets to another entity, but only on the conditions that (a) the assignee entity or the entity resulting from or surviving a merger or consolidation (if other than the Borrower), or the entity to which a transfer shall be made, is duly organized and existing and in good standing under the laws of a state of the United States of America, is qualified to do business in and is in good standing under the laws of the State and will remain so continuously during the term of this Financing Agreement, and expressly assumes in writing and agrees to perform all of the Borrower’s obligations under the Borrower Documents, (b) the Borrower delivers an Opinion of Bond Counsel to the Issuer, the Trustee, the Credit Provider and the Loan Servicer to the effect that the consolidation or merger will not cause the interest payable on the Bonds to be included in gross income for federal income tax purposes and (c) any transfer of the Mortgaged Property is effected in accordance with the terms of the Regulatory Agreement and the Mortgage Loan Documents. Nothing in this Section 7.2(5) shall be deemed to relieve the Borrower of its obligations to comply with the provisions of the Mortgage Loan Documents. Section 7.2(6) Access to Mortgaged Property and Records; Reports. Section 7.2(6)(1) Access to Mortgaged Property. Subject to reasonable notice, the Issuer, the Trustee, the Credit Provider and the Loan Servicer, and the respective duly authorized agents of each, shall have the right at all reasonable times during normal business hours to enter the Mortgaged Property and any other location containing records relating to the Borrower, the Mortgaged Property, the Bond Documents and the Mortgage Loan Documents and to inspect and audit and make copies of any and all of the Borrower’s records or accounts pertaining to the Borrower, the Mortgaged Property, the Bond Documents and the Mortgage Loan Documents, and the Borrower’s compliance with the terms and conditions of the Bond Documents and the Mortgage Loan Documents, and shall have the right to require the Borrower, at the Borrower’s sole expense, to furnish such documents to the Issuer, the Trustee, the Loan Servicer and the Credit Provider, as the Issuer, the Trustee, the Loan Servicer or the Credit Provider from time to time deems necessary in order to determine that the Borrower is in compliance with the provisions of this Financing Agreement and the Mortgage Loan Documents and to make copies of any records that the Issuer, the Trustee, the Loan Servicer or the Credit Provider, or their respective duly authorized agents, may reasonably require. The Borrower will make available to the Issuer, the Trustee, the Loan Servicer and the Credit Provider such other information concerning the Borrower, the Mortgaged Property, the Bond Documents and the Mortgage Loan Documents as any of them may reasonably request. Section 7.2(6)(2) Certificates and Reports. The Borrower will file such certificates and other reports with the Issuer, the Trustee, the Loan Servicer and 23 36 the Credit Provider as are required by the Regulatory Agreement, including but not limited to the filing with the Issuer and the Trustee of true copies of each 1% Form 8703 - "Annual Certification of a Residential Rental Project" (or any successor form thereto) as completed and filed with the Internal Revenue Service for each calendar year during the Qualified Project Period. The Borrower will provide to the Issuer all information necessary to enable the Issuer to complete and file all forms and reports required by the laws of the State and the Code in connection with the Mortgaged Property and the Bonds. The Borrower will file with the Loan Servicer and, if requested in writing by the Issuer or the Trustee, to the Issuer and the Trustee, copies of all reports and notices required by the Mortgage Loan Documents. Section 7.2(7) Disposition of Mortgaged Property. The Borrower will not sell, transfer or otherwise dispose of the Mortgaged Property except as permitted by the Regulatory Agreement and the Security Instrument. The Borrower agrees that any sale, transfer or other disposition of the Mortgaged Property in violation of this Section 7.2(7) shall be null, void and without effect and shall be ineffective to relieve the Borrower of its obligations under this Financing Agreement, provided that this Section 7.2(7) shall not be construed to prohibit (a) the granting by the Borrower of (1) the Security Instrument or (2) the instrument securing the obligations of the Borrower to the Construction Lender or (3) any other subordinate instrument or instruments approved by the Credit Provider (each, in this clause (a)(3), a "Subordinate Security Instrument"), provided that each Subordinate Security Instrument shall be subject to a subordination agreement (the "Subordination Agreement") in form and substance acceptable to the Credit Provider, or (b) the (1) foreclosure of the Security Instrument, acceptance of a deed-in-lieu of foreclosure or comparable conversion of the Mortgage Loan, or (2) foreclosure of the instrument securing the Construction Lender or (3) the foreclosure of any Subordinate Security Instrument by the holder of the Mortgage Note or the beneficiary of the Subordinate Security Instrument subject, in all cases, to the terms and conditions of the applicable Subordination Agreement. Section 7.203) Tax Covenants. The Borrower covenants that: (i) it will at all times comply with the terms of the Tax Certificate and the Regulatory Agreement; (ii) it will not take, or permit to be taken on its behalf, any action which would cause the interest payable on the Bonds to be included in gross income, for federal income tax purposes, and will take such action as may be necessary in the Opinion of Bond Counsel to continue such exclusion from gross income, including, without limitation the following: (A) the preparation and filing of all statements required to be filed by it in order to maintain the exclusion (including, but not limited to, the filing of all reports and certifications required by the Regulatory Agreement); (B) the timely payment to the United States of America of any rebate amount required to be paid by the Issuer or the Borrower pursuant to Section 148(f) of the Code and the Treasury Regulations under Section 148; and 24 37 (C) the use or deemed used of not less than 95% of the net proceeds of the Bonds (within the meaning of Section 142(a) of the Code) for Qualified Project Costs; (iii) in order to satisfy the requirements set forth in subpart (4) of the definition of "program investment" that appears in Section 1.148-l(b) of the Treasury Regulations (which requirements must be met in order for the Mortgage Loan to qualify as a program investment within the meaning of that section, neither the Borrower nor any related person (within the meaning of "program investment") will purchase Bonds in an amount related to the amount of the Mortgage Loan; (iv) no changes will be made to the Mortgaged Property, no actions will be taken by the Borrower and the Borrower will not omit to take any actions, which will in any way adversely affect the tax-exempt status of the Bonds; (v) will comply with the requirements of Section 148 and the Treasury Regulations issued under Section 148 throughout the term of the Bonds and will not make any use of the proceeds of the Bonds, or of any other funds which may be deemed to be proceeds of the Bonds under the Treasury Regulations, which would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 and the Treasury Regulations; (vi) if the Borrower becomes aware of any circumstance, event or condition which would result in the interest payable on the Bonds becoming includable in gross income, for federal income tax purposes, the Borrower will promptly give written notice of such circumstance, event or condition to the Issuer, the Trustee, the Loan Servicer and the Credit Provider; (vii) the full amount of each disbursement from the Mortgage Loan Fund will be applied to pay or to reimburse the Borrower for the payment of Costs of the Mortgaged Property and, after taking into account any proposed disbursement, (a) at least 95% of the net proceeds of the Bonds (as defined in Section 150 of the Code) will be used or deemed used to provide a qualified residential rental project (as defined in Section 142(d) of the Code) and (b) less than 25% of the net proceeds of the Bonds will have been disbursed to pay or to reimburse the Borrower for the cost of acquiring land; none of the proceeds of the Bonds (as defined for purposes of Section 147(g) of the Code) will be disbursed to provide working capital; (viii) the Borrower will cause all of the residential units in the Mortgaged Property to be rented or available for rental on a basis which satisfies the requirements of the Act, the Code and the Regulatory Agreement; (ix) all leases will comply with all applicable laws and the Regulatory Agreement; and (x) in connection with any lease or grant by the Borrower of the use of the Mortgaged Property, the Borrower will require that the lessee or user of any portion of the Mortgaged Property not use that portion of the Mortgaged Property in any manner which would violate the covenants set forth in this Financing Agreement or the Regulatory Agreement. 25 (xi) that no proceeds of the Bonds will be used, for the acquisition of any tangible property or an interest therein, other than land or an interest in land, unless the first use of such property was pursuant to such acquisition; provided, however, that this limitation shall not apply with respect to any building (and the equipment therefor) if rehabilitation expenditures (as defined in the Code) with respect to such building equal or exceed fifteen percent (15%) of the portion of the cost of acquiring such building (and equipment) financed with proceeds of the Bonds; and provided, further, that this limitation shall not apply with respect to any structure other than a building if rehabilitation expenditures with respect to such structure equal or exceed 100 percent of the portion of the cost of acquiring such structure financed with the proceeds of the Bonds. The Borrower irrevocably authorizes and directs the Issuer, the Trustee and any other agent designated by the Issuer to make payment of such amounts from funds of the Borrower, if any, held by the Issuer, the Trustee, or any agent of the Issuer or the Trustee. The Borrower further covenants and agrees that, pursuant to the requirements of Treasury Regulation Section 1.148-1(b), it (or any related person contemplated by such regulations) will not purchase Bonds in an amount related to the amount of the Loan. (xii) it shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be ”federally guaranteed” within the meaning of Section 149(b) of the Code. (xiii) the Bonds upon issuance and delivery shall be considered ”private activity bonds” within the meaning of the Code with respect to which the California Debt Limit Allocation Committee has transferred a portion of the State of California’s private activity bond allocation (within the meaning of Section 146 of the Code) equal to the principal amount of the Bonds. (xiv) from the proceeds of the Bonds (within the meaning of the Code) and investment earnings thereon, it will not use an amount in excess of two percent (2%) of the proceeds of the Bonds for costs of issuance of the Bonds, all within the meaning of Section 147(g)(l) of the Code. For this purpose, if the fees of the Original Purchaser are retained as a discount on the purchase of the Bonds, such retention shall be deemed to be an expenditure of proceeds of the Bonds (within the meaning of the Code) for said fees. (xv) no proceeds of the Bonds (within the meaning of the Code) shall be used directly or indirectly to provide any airplane, skybox or other private luxury box, health club facility, facility used for gambling or store the principal business of which is the sale of alcoholic beverages for consumption off premises. Section 7.2(9) Payment of Rebate Amounts. The Borrower will engage a Rebate Analyst to calculate the rebate amount, as required by the Indenture and will provide a copy of each rebate report to the Issuer and the Trustee. The Borrower will promptly pay, or cause to be paid, when due to the United States of America all rebate amounts that may be or become owing with respect to the Bonds (which payment may be made out of any available amounts on deposit in the various Funds and Accounts established under the Indenture or, in the absence of such available amounts, must be paid by the Borrower or a general partner of the Borrower out of its own funds). For purposes of this Section, ”available amounts”, when used with respect to any Fund or Account established under the Indenture, means moneys on deposit in the Fund or Account in excess of the amounts required to be on deposit in the Fund or Account from 26 34 time to time for the payment of interest, principal or premium, if any, due with respect to the Bonds and Third Party Fees. In the event that the Trustee receives written notice from the Borrower, the Loan Servicer, the Issuer or the Credit Provider, that the Borrower has failed to engage a Rebate Analyst, the Trustee in consultation with, and with the approval of, the Credit Provider and the Issuer, will use its best efforts to engage a Rebate Analyst to calculate rebate, provided that a Rebate Analyst can be engaged for amounts which do not exceed on an annual basis, the moneys that are and will be then available under the Indenture to pay the Rebate Analyst’s Annual Fee, or from other moneys furnished to the Trustee; in no event shall the Trustee be required to risk or expend its own moneys to employ a Rebate Analyst. Section 7.2(10) Agreement Regarding Documents. The Indenture and the Credit Facility have been submitted to the Borrower for its examination, and the Borrower acknowledges, by execution of this Financing Agreement, that it has participated in the preparation and review of the Indenture and the Credit Facility, that it has reviewed, approved and agreed to each of the provisions of the Indenture and the Credit Facility and that it is bound by, will adhere to the provisions of, and will have the rights set forth by the terms and conditions of, the Indenture and covenants and agrees to perform all obligations required of the Borrower pursuant to the terms of the Indenture and the Credit Facility as if, in the case of the Indenture, the Borrower were a party to the Indenture. The Borrower acknowledges that it has no rights under, and is not, and is not intended to be, a third party beneficiary of, the Credit Facility. Section 7.201) Compliance with other Documents. The Borrower agrees to, assumes, and acknowledges and agrees to abide by, the terms and conditions of, and will make all payments and will observe and perform all covenants, conditions and agreements required to be paid, observed or performed by the Borrower under, the Borrower Documents, and the Construction Phase Credit Documents applicable to the Borrower, any Credit Facility Agreement and all other documents, instruments or agreements which are at any time, or from time to time, entered into by the Borrower with respect to the ownership, operation, occupancy, use or financing of the Mortgaged Property. The Borrower acknowledges that the Borrower’s failure to comply with the terms and conditions of any Credit Facility Agreement will constitute an Event of Default under the Mortgage Loan, and, at the option of the Credit Provider (as set forth in Section 13.1(2)), an Event of Default under this Financing Agreement, entitling the Trustee, but only at the direction of the Credit Provider, to exercise all available remedies set forth in this Financing Agreement. Section 7.2(12) Disclosure Agreement. The Borrower acknowledges and agrees that the Issuer is not an ”obligated person” (as defined in the Disclosure Agreement) with respect to the Bonds and represents that the Borrower is the only obligated person with respect to the Bonds. The Issuer acknowledges the entry by the Borrower and the Trustee into the Disclosure Agreement under which the Trustee has assumed certain obligations, in addition to those assumed under the Indenture, for the benefit of the Bondholders. The Borrower agrees to perform its obligations under the Disclosure Agreement, including without limitation, the payment of compensation to the Trustee and payment or reimbursement of expenses, disbursements and advances incurred or made by the Trustee, all in accordance with the provisions of the Disclosure Agreement. Notwithstanding any other provision of this Financing Agreement, any failure by the Borrower to comply with any provision of the Disclosure Agreement shall not be a failure or a default, or an Event of Default, under this Financing Agreement or the Indenture. 27 Section 7.2(13) Notice of Certain Events. The Borrower will advise the Issuer, the Trustee, the Loan Servicer and the Credit Provider immediately in writing of (a) any misrepresentation or breach of warranty by the Borrower in, or the occurrence of any default by the Borrower in the performance or observance of any covenant, agreement, representation, warranty or obligation of the Borrower set forth in, any Borrower Document and (b) any event which, with the passage of time or service of notice, or both, would constitute a default under any Borrower Document, specifying the nature and period of existence of such event and the actions being taken or proposed to be taken with respect to such event (the Borrower’s notice shall be given promptly, and in no event more than ten (10) Business Days after the Borrower receives notice or has knowledge of the occurrence of any such event). The Borrower will give prompt written notice to the Trustee and the Loan Servicer if insurance proceeds or condemnation awards are received with respect to the Mortgaged Property and are not used to repair or replace the Mortgaged Property, which notice shall state the amount of such proceeds or award. Section 7.204) Warranty of Truth. No information, certificate, statement in writing or report required to be delivered by the Borrower to the Issuer or the Trustee or both will contain any untrue statement of a material fact or omit a material fact necessary to make such information, certificate, statement or report not misleading. Section 7.2(15) Operating Statements. The Borrower will prepare and submit to the Issuer and the Loan Servicer, annually within ninety (90) days after the close of the Borrower’s fiscal year, a Mortgaged Property operating statement and balance sheet which have been audited by an independent certified public accountant or firm of independent certified public accountants, acceptable to the Loan Servicer and the Credit Provider in their discretion. The Borrower further agrees to prepare and submit to the Issuer and the Loan Servicer quarterly, within thirty (30) days after the close of each fiscal quarter (a) a statement showing, separately, the percentage of occupied and unoccupied units in the Mortgaged Property, (b) an unaudited Mortgaged Property operating statement certified by the Borrower as being true, correct and complete and (c) a current rent roll for the most recent date available which has been certified by the Borrower as being true, correct and complete in all material respects. Section 7.206) Control of Borrower and Credit Provider. The Borrower represents 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. ARTICLE 8 SECURITY INTEREST; ASSIGNMENT OF CERTAIN RIGHTS Section 8.1 Security Interest. In order to secure its obligations under this Financing Agreement and the Mortgage Loan Documents, the Borrower grants to the Issuer and the 28 Credit Provider a security interest in all of the Borrower’s rights in and to all Funds and Accounts created or established under the Indenture. Section 8.2 Assignment of Certain Rights. The Borrower acknowledges that the Issuer has, pursuant to the Assignment, assigned certain of its rights in the Mortgage Note and the Security Instrument to the Credit Provider and the Trustee, as their interests may appear. ARTICLE 9 INDEMNIFICATION Section 9.1 Borrower‘s Obligations. The Borrower releases 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 Issuer or the Trustee within the meaning of the Securities Act of 1933, from, and covenants and agrees 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 attorney’s 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 (i) Loan Documents; the transactions provided for in the Bond Documents or the Mortgage (ii) the execution and delivery or amendment of any document entered into in connection with the transactions provided for in the Bond Documents or the Mortgage Loan Documents, including any certifications or representations made by any person other than the party seeking indemnification; (iii) the approval of the financing for the Mortgaged Property; (iv) the Mortgage Loan; (v) any and all claims arising in connection with the interpretation, performance, enforcement, breach, default or amendment of the Bond Documents, the Mortgage Loan Documents or any other documents relating to the Mortgaged Property or the Bonds or in connection with any other matters relating to the Bonds or the Mortgaged Property, including, but not limited to, any federal or state tax audit, or any questions or other matters arising under such documents; (vi) the Trustee’s acceptance or administration of the trusts created by the Indenture or the exercise of its powers or duties under the Indenture, this Financing Agreement, the Regulatory Agreement or any other agreements to which it is a party or otherwise in connection with the transactions provided for in the Bond Documents or the Mortgage Loan Documents; (vii) any and all claims arising in connection with (a) the issuance, sale or remarketing of any Bonds or any certifications or representations made by any person other than the party seeking indemnification, including, but not limited to, any (1) statement or information made by the Borrower with respect to the Borrower or the 29 Mortgaged Property in any offering document or materials regarding the Bonds, the Mortgaged Property or the Borrower or in the Tax Certificate of the Borrower or in any other certificate executed by the Borrower which, at the time made, is misleading, untrue or incorrect in any material respect, (2) untrue statement or alleged untrue statement of a material fact relating to the Borrower or the Mortgaged Property contained in any offering material relating to the sale of the Bonds, as from time to time amended or supplemented, or arising out of or based upon the omission or alleged omission to state in such offering material a material fact relating to the Borrower or the Mortgaged Property required to be stated in such offering material or necessary in order to make the statements in such offering material not misleading, (3) failure to properly register or otherwise qualify the sale of the Bonds or failure to comply with any licensing or other law or regulation which would affect the manner in which or to whom the Bonds could be sold and (b) the carrying out by the Borrower of any of the transactions provided for in the Bond Documents and the Mortgage Loan Documents; (viii) the Borrower’s failure to comply with any requirement of this Financing Agreement or the Regulatory Agreement; and (ix) any act or omission of the Borrower or any of its agents, servants, employees or licensees in connection with the Mortgage Loan or the Mortgaged Property, including violation of any law, ordinance, court order or regulation affecting the Mortgaged Property or any part of it or the ownership, occupancy or use of it; (x) any damage or injury, actual or claimed, of whatsoever kind, cause or character, to property (including loss of use of property) or persons, occurring or allegedly occurring in, on or about the Mortgaged Property or arising out of any action or inaction of the Borrower, whether or not related to the Mortgaged Property, or resulting from or in any way connected with the acquisition, construction or management of the Mortgaged Property, the issuance of the Bonds or otherwise in connection with transactions provided for in the Bond Documents and the Mortgage Loan Documents or otherwise in connection with the Mortgaged Property, the Bonds or the execution or amendment of any document relating to the Mortgaged Property or the Bonds; (xi) any violation of any Environmental Law applicable to, or the release of any toxic substance from, the Mortgaged Property; and (xii) any and all claims arising in connection with the operation of the Mortgaged Property, or the conditions, environmental or otherwise, occupancy, use, possession, conduct or supervision of work done in or about, or from the planning, design, acquisition, construction, repair or equipping of, the Mortgaged Property or any part of it, including, but not limited to, the ADA (as evidenced by an architect’s certificate to such effect). This indemnification shall extend to and include, without limitation, all reasonable costs, counsel fees, expenses or liabilities incurred in connection with any such claim, or proceeding brought with respect to such claim, except (a) in the case of the foregoing indemnification of the Trustee or any of its Indemnified Parties, to the extent such damages are caused by the negligence or willful misconduct of such Person, and (b) in the case of the foregoing indemnification of the Issuer or any of its Indemnified Parties, to the extent such damages are caused by the willful misconduct of such Person. 30 LJ3 Section 9.2 Defense of Claims. In the event that any action or proceeding is brought against any Indemnified Party with respect to which indemnity may be sought under this Financing Agreement, the Borrower, upon written notice from the Indemnified Party, shall assume the investigation and defense of the action or proceeding, including the engagement of counsel selected by the Borrower, subject to the approval of the Indemnified Party in such party’s sole discretion, and shall assume the payment of all expenses related to the action or proceeding, with full power to litigate, compromise or settle the same in its sole discretion, provided that the Issuer and the Trustee, as appropriate, shall have the right to review and approve or disapprove any such compromise or settlement. Each Indemnified Party shall have the right to engage separate counsel in any such action or proceeding and participate in the investigation and defense of the action or proceeding and the Borrower shall be obligated to pay the reasonable fees and expenses of such separate counsel if (a) the Indemnified Party determines that a conflict of interest exists between the interests of the Indemnified Party and the interests of the Borrower or (b) such separate counsel is engaged with the approval of the Borrower, which approval shall not be unreasonably withheld, conditioned or delayed. Section 9.3 Borrower’s Continuing Obligation. Notwithstanding any transfer of the Mortgaged Property to another owner, the Borrower shall remain obligated to indemnify each Indemnified Party pursuant to this Article IX for all matters arising prior to the date of such transfer, and, as a condition to the release of the transferor on and after the transfer date, the transferee must assume the obligations of the Borrower under the Bond Documents and the Mortgage Loan Documents on and after such transfer date and indemnify each Indemnified Party pursuant to this Article IX for all matters arising on and after the date of such transfer. The Indemnified Party’s rights under this Article IX shall survive the termination of this Financing Agreement, the payment of the Mortgage Loan and the payment or defeasance of the Bonds. Section 9.4 Limitation with Respect to the Credit Provider. Notwithstanding anything in this Financing Agreement to the contrary, in the event that the Credit Provider shall become the owner of the Mortgaged Property as a result of a foreclosure or a deed in lieu of foreclosure or comparable conversion of the Mortgage Loan the Credit Provider shall not be liable for any breach of or default of any prior owner of the Mortgaged Property under this Financing Agreement and shall only be responsible for defaults and obligations incurred during the period that the Credit Provider is the owner of the Mortgaged Property. Accordingly, during any period that the Credit Provider owns the Mortgaged Property and that this Article IX is applicable to the Credit Provider, the Credit Provider’s obligations under this Article IX shall be limited to acts and omissions of the Credit Provider occurring during the period of the Credit Provider’s ownership of the Mortgaged Property. ARTICLE 10 THE MORTGAGED PROPERTY Section 10.1 Regulatory Agreement. The covenants of the Borrower in the Regulatory Agreement shall be deemed to constitute covenants of the Borrower running with the land and an equitable servitude for the benefit of the owners of the Bonds and shall be binding upon any owner of the Mortgaged Property until (a) such time as such restrictions expire under their own terms, or (b) the Issuer (in its sole and absolute discretion) and the Trustee consent to the release of such restrictions, or (c) the Regulatory Agreement is otherwise terminated by its terms. The Borrower covenants to file of record the Regulatory Agreement and such other documents and take such other steps as are necessary in order to assure that the restrictions contained in the Regulatory Agreement will, subject to the terms of the Regulatory Agreement, be binding upon 31 all owners of the Mortgaged Property. The Borrower covenants to include such restrictions or a reference to such restrictions in any documents transferring any interest in the Mortgaged Property to another to the end that such transferee has notice of, and is bound by, such restrictions. Subject to the provisions of Article XIII, the Issuer and the Trustee shall have the right to seek specific performance of or injunctive relief to enforce the requirements of any covenants of the Borrower contained in the Regulatory Agreement or this Financing Agreement. Section 10.2 Right To Enforce Compliance. The Issuer, the Trustee, the Loan Servicer and the Credit Provider shall each have the right, but not the obligation, to enforce compliance by the Borrower and its successors as subsequent owners of the Mortgaged Property with the requirements of this Financing Agreement and the Regulatory Agreement. Notwithstanding the foregoing, the Trustee agrees that it will, subject to the provisions of the Indenture and Article XIII, at the direction of the Issuer, take such action as may be required to achieve compliance by the Borrower with the terms and provisions of this Financing Agreement and the Regulatory Agreement. Section 10.3 Damage, Destruction and Condemnation. If prior to full payment of the Bonds (or provision for payment of the Bonds in accordance with the provisions of the Indenture) the Mortgaged Property or any portion of it is destroyed (in whole or in part) or is damaged by fire or other casualty, or title to, or the temporary use of, the Mortgaged Property or any portion of it shall be taken under the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority, or shall be transferred pursuant to an agreement or settlement in lieu of eminent domain proceedings, the Borrower shall nevertheless be obligated to continue to pay the amounts specified in this Financing Agreement and in the Mortgage Note to the extent the Mortgage Loan is not prepaid in accordance with the terms of the Mortgage Loan Documents. ARTICLE 11 TRUSTEE’S INTEREST IN AGREEMENT Section 11.1 Issuer Assignment of this Financing Agreement. Pursuant to the Indenture, the Issuer shall pledge, assign and transfer all of its right, title and interest in and to this Financing Agreement (other than the Reserved Rights of the Issuer), and the revenues, receipts and collections under this Financing Agreement, to the Trustee, for the benefit of the Bondholders and the Credit Provider, as security for the payment of the principal of, premium, if any, and interest on the Bonds, as security for the reimbursement of amounts owing to the Credit Provider under this Financing Agreement and the Reimbursement Agreement, and as security for the payment of amounts due under the Mortgage Loan Documents. The parties to this Financing Agreement acknowledge that the covenants and agreements contained in this Financing Agreement and in the Indenture are for the benefit of the Bondholders from time to time and the Credit Provider and may be enforced on their behalf by the Trustee. The Issuer shall, at the expense of the Borrower, execute and deliver from time to time, in addition to the instruments of assignment specifically provided for in this Financing Agreement, such other and further instruments and documents as may be reasonably requested by the Trustee or the Credit Provider from time to time to further evidence, effect or perfect such pledge and assignment for the purposes stated in the Indenture. The Borrower acknowledges and consents to the assignment and pledge of the Trust Estate (subject to the reservation by the Issuer of its Reserved Rights) by the Issuer to the Trustee, for the benefit of the Bondholders and the Credit Provider, as security for the payment of the Bonds and as security for the payment of amounts owing under this Financing Agreement and the Mortgage Loan Documents, including as part of 32 45 the Trust Estate (a) the moneys deposited to the various Funds and Accounts under the Indenture (excluding the Rebate Fund, the Costs of Issuance Fund and the Fees Account), including Investment Income (other than Investment Income with respect to the Rebate Fund and certain Investment Income with respect to the Costs of Issuance Fund), and (b) all of the Issuer’s rights and interests under this Financing Agreement (but excluding the Issuer’s Reserved Rights) and the reserves, receipts and collections under this Financing Agreement and the right and interest to enforce, either jointly or separately, the performance of the obligations of the Borrower under this Financing Agreement. The Borrower further acknowledges and consents to the right of the Trustee to enforce all rights of the Issuer and the Bondholders assigned under the Indenture. Section 11.2 Third-party Beneficiaries. The Bondholders, the Loan Servicer and the Credit Provider are intended to be, and shall be, third-party beneficiaries of this Financing Agreement, and the Credit Provider shall have the right (but not the obligation) to enforce the terms of this Financing Agreement insofar as this Financing Agreement sets forth obligations of the Borrower under this Financing Agreement. ARTICLE 12 PERFORMANCE RIGHTS Section 12.1 Right To Perform Borrower’s Obligations. In the event the Borrower fails to perform any of its obligations under this Financing Agreement, the Issuer, the Trustee, the Credit Provider and/or the Loan Servicer, may, but shall not be obligated to, perform such obligation and pay all costs related to such performance; all such costs so advanced by the Issuer, the Trustee, the Credit Provider or the Loan Servicer shall become an additional obligation of the Borrower under this Financing Agreement, payable on demand, with interest on such obligation at the maximum rate permitted by law. In the event of an advance made due to the Borrower’s default, the interest on the advance shall be at the default rate of interest payable under the Mortgage Note. Section 12.2 No Modification of Mortgage Loan Documents. Nothing contained in Section 12.1 is intended to modify or limit any provisions of the Mortgage Loan Documents which provide for sums advanced by the Loan Servicer or the Credit Provider to be added to the principal balance of the Mortgage Loan and to be secured by the Security Instrument. ARTICLE 13 EVENTS OF DEFAULT AND REMEDIES Section 13.1 Events of Default. Section 13.1(1) Events of Default. Each of the following shall constitute an Event of Default under this Financing Agreement: (i) the failure by the Borrower to pay any amounts due under this Financing Agreement at the times and in the amounts required by this Financing Agreement; or (ii) the failure by the Borrower to observe or perform any covenants, agreements or obligations in this Financing Agreement on its part to be observed 33 or performed (other than as provided in paragraph (i) above) for a period of thirty (30) days after receipt of written notice from the Trustee specifying such failure and requesting that it be remedied, provided, however, that if the failure is such that it cannot be corrected within such period, it shall 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 shall have been cured within 90 days of receipt of notice of such failure; or (iii) 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; or (iv) the determination by the Issuer, the Trustee, the Loan Servicer or the Credit Provider that any representation or warranty made by the Borrower in this 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 Mortgaged Property, the Mortgage Loan or the Bonds was untrue or misleading in any material respect as of the date made or deemed made; or (v) 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; or (vi) the occurrence of any of the following: the Borrower shall generally not pay its debts as they become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors or shall 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 shall take any action to authorize any of the actions described above in this paragraph (vi), or any proceeding shall 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 of a 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 shall remain undismissed or unstayed for a period of 60 days; (vii) the filing or making of any claim against the Trust Estate as a result of any action or proceeding described in paragraph (vi) of this Section 13.1 by, or with respect to, the Issuer; or 34 47 (viii) an Event of Default as a result of a determination by the Credit Provider pursuant to Section 13.1(2). The provisions of this Article XI11 are subject to the provisions of Section 9.1(3) of the Indenture. Section 13.10) Cross Default. The occurrence of a default under the Mortgage Loan Documents, shall not constitute an Event of Default under this Financing Agreement unless the default is declared by the Credit Provider, in its sole and absolute discretion, to be an Event of Default under this Financing Agreement, such declaration to be made by written notice to the Trustee. The occurrence of an Event of Default under this Financing Agreement shall not constitute a default under any Mortgage Loan Document unless 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. Section 13.1(3) Mortgage Loan Documents. Nothing contained in this Section 13.1 is intended to amend or modify any of the provisions of the Mortgage Loan Documents nor to bind the Loan Servicer or the Credit Provider to any notice and cure periods other than as expressly set forth in the Mortgage Loan Documents. Section 13.2 Remedies Upon an Event of Default. Section 13.2(1) General. Subject to Section 13.2(8), whenever any Event of Default shall have occurred and be continuing under this Financing Agreement, the Trustee may take any one or more of the following remedial steps: (i) 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 shall present to the Credit Provider an appropriate certificate for an Advance under the Credit Facility; or (ii) if the principal and interest accrued on the Bonds shall have been declared immediately due and payable pursuant to Section 9.2(1) of the Indenture, the Trustee shall give notice to the Issuer, the Loan Servicer and present an appropriate certificate for an Advance under the Credit Facility, provided, however, that if the Trustee shall rescind or annul a declaration of acceleration of Bonds pursuant to the Indenture, the Issuer, the Trustee, the Loan Servicer and the Credit Provider shall be restored to their former rights and positions, and all rights, duties and obligations of the parties shall continue as if no adverse proceeding had been taken, subject to the limits of any adverse determination; or (iii) take such action as is permitted by the Mortgage Loan Documents but only with the prior written consent of the Credit Provider; (iv) to the extent of any insufficiency in the payment of the Bonds after the Trustee shall have 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 this Financing Agreement, to enforce the performance of any covenant, obligation or agreement of the Borrower under this Financing 35 Agreement (subject to the nonrecourse provisions of this 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; (v) 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 this 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 this Financing Agreement (the Borrower acknowledges and agrees 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 this Financing Agreement, and therefore the Borrower agrees that the remedy of specific performance or injunctive relief shall be available to the Trustee in any such case); or (vi) 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 this Financing Agreement. In addition, upon the occurrence of an Event of Default, the Issuer, the Trustee, the Loan Servicer, the Credit Provider and the Construction Lender (so long as the Letter of Credit is in effect) shall 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. Section 13.2(2) Enforcement of Reserved Rights. Subject to the terms of the Regulatory Agreement and Section 13.2(8), the Issuer, without the consent of the Trustee, but only after written notice to the Trustee, the Loan Servicer, the Credit Provider, the Construction Lender (so long as the Letter of Credit is in effect) 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 this 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 this Financing Agreement or by such other documents to obtain such performance or observance. Section 13.2(3) 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 36 connection with the default. The Borrower acknowledges that any cure of any default will not affect any subsequent default under the Mortgage Loan Documents. Section 13.2(4) Waiver and Annulment. If, after any Event of Default (a) all amounts which would then be payable under this Financing Agreement by the Borrower if such Event of Default had not occurred and was not continuing shall have been paid by or on behalf of the Borrower, and (b) the Borrower shall have also performed all other obligations in respect of which it is then in default under this Financing Agreement and shall 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 shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent on such Event of Default. Section 13.2(5) Non-Exclusivity of Remedies. No remedy conferred in this Financing Agreement upon or reserved to the Issuer or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy now or hereafter existing pursuant to any other agreement at law or in equity or by statute. Section 13.2(6) Delay or Omission. No delay or omission to exercise any right or power occurring upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of such Event of Default, but any such right and power may be exercised from time to time and as often as may be deemed appropriate. The Issuer and the Trustee agree to give only such notices as may be expressly required by this Financing Agreement. Section 13.2(7) Application of Proceeds. Except as required to be deposited in the Rebate Fund pursuant to the Indenture and the Tax Certificate, any amounts collected pursuant to action taken under this Section 13.2 shall, after the payment of the fees and expenses of the proceedings resulting in the collection of such moneys and of the expenses, liabilities and advances incurred or made by the Issuer, the Trustee or the Credit Provider and their respective counsel, be paid into the General Account, and applied in accordance with the provisions of the Indenture, provided, however, there shall be no deduction for fees and expenses associated with the Trustee’s collection of funds payable under the Credit Facility. No action taken pursuant to this Section 13.2(7) shall relieve the Borrower from the Borrower’s obligations under Article IX. Section 13.2(8) Limitations on Actions. Notwithstanding any other provision of this Financing Agreement or the Regulatory Agreement to the contrary: (i) neither the Issuer, the Trustee nor any person under the control of either shall, 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 this 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 shall 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 37 of the Issuer for a monetary recovery shall be subordinate to the payment obligations of the Mortgage Loan and (2) the enforcement of any claim for a monetary recovery shall 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 now or hereafter 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 shall (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. Section 13.3 Limitations on Waivers. In the event any covenant, agreement or condition contained in this Financing Agreement shall be breached by a party and thereafter waived by another party, such waiver shall not bind any party which has not waived the breach and shall be limited to the particular breach so waived and shall not be deemed to waive any other breach under this Financing Agreement nor be a waiver of the same breach on a future occasion. By reason of the assignment and pledge of certain of the Issuer’s rights and interests in this Financing Agreement to the Trustee, the Issuer shall have no power to waive or release the Borrower from any Event of Default or the performance or observance of any obligation or condition of the Borrower under this Financing Agreement without first requesting and receiving the prior written consent of the Trustee and the Credit Provider, but shall do so if requested by the Trustee and the Credit Provider, provided that the Issuer shall not be required to grant such waiver or release unless it shall have been provided with (a) an Opinion of Counsel that such action will not result in any pecuniary liability to it and an Opinion of Bond Counsel that such waiver shall not cause interest on the Bonds to be included in the gross income, for federal income tax purposes, of the holders of the Bonds, (b) such indemnification as the Issuer shall deem necessary and (c) written notice from the Trustee and the Credit Provider of the request for such waiver or release. Section 13.4 Notice of Default; the Credit Provider’s Right To Cure. The Issuer and the Trustee shall each give notice to the other and to the Loan Servicer and the Credit Provider of the occurrence of any Event of Default by the Borrower under this Financing Agreement of which it has actual knowledge. The Loan Servicer and the Credit Provider shall each have the right, but not the obligation, to cure any default by the Borrower, and upon performance by the Loan Servicer or the Credit Provider of the covenant, agreement or obligation of the Borrower with respect to which an Event of Default has occurred, the parties to this Financing Agreement shall be restored to their former respective positions, it being agreed that the Loan Servicer and the Credit Provider shall have right to reimbursement from the Borrower of moneys so expended and any other appropriate redress for actions taken to cure any default by the Borrower. 38 Section 13.5 Rights Cumulative. All rights and remedies provided in this Financing Agreement are cumulative, nonexclusive and in addition to any and all rights and remedies that the Issuer, the Trustee and the Credit Provider may have or may be given by reason of any law, statute, ordinance or otherwise. ARTICLE 14 MISCELLANEOUS Section 14.1 Notices. All notices, certificates or other communications provided for in this Financing Agreement shall be given in writing to the Issuer, the Trustee, the Loan Servicer, the Credit Provider, the Construction Lender (so long as the Letter of Credit is in effect) and the Borrower, and shall be sufficiently given and shall be deemed given if given in the manner provided in Section 12.4 of the Indenture. Copies of each notice, certificate or other communication given under this Financing Agreement by any party to this Financing Agreement shall be given to each of the other parties to this Financing Agreement. By notice given under this Financing Agreement, any party may designate further or different addresses to which subsequent notices, certificates or other communications are to be sent. A duplicate copy of each notice, certificate, request or other communication given under this Financing Agreement to the Issuer, the Trustee, the Loan Servicer or the Borrower shall be given to the Credit Provider. Section 14.2 Amendment. This Financing Agreement and all other documents contemplated by this Financing Agreement to which the Issuer is a party may be amended or terminated only as permitted by Section 11 of the Indenture, provided that no amendment to this Financing Agreement shall be binding upon any party to this Financing Agreement until such amendment is reduced to writing and executed by the parties to this Financing Agreement, provided further that no amendment, supplement or other modification to this Financing Agreement or any other Bond Document shall be effective without the prior written consent of the Credit Provider. Section 14.3 Entire Agreement. Except as provided in the other Bond Documents and the Mortgage Loan Documents, this Financing Agreement contains all agreements among the parties to this Financing Agreement, and there are no other representations, warranties, promises, agreements or understandings, oral, written or implied, among the parties to this Financing Agreement, unless reference is made to them in this Financing Agreement or the Indenture. Section 14.4 Further Assurances and Corrective Instruments. The parties to this Financing Agreement agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such amendments and supplements to this Financing Agreement and to the other documents contemplated by this Financing Agreement, the Regulatory Agreement and the Mortgage Loan Documents as may reasonably be required to carry out the intention of, or to facilitate the performance of, this Financing Agreement, the Regulatory Agreement and the Mortgage Loan Documents (if deemed necessary by the Credit Provider), and to execute and deliver such additional instruments and to perform such additional acts as may be necessary, in the opinion of the Issuer or the Credit Provider, to carry out the intent of the Indenture, this Financing Agreement, the Regulatory Agreement and the Mortgage Loan Documents or to perfect or give further assurances of any of the rights granted or provided for in the Indenture, this Financing Agreement, the Regulatory Agreement and the Mortgage Loan Documents. The Borrower, the Issuer and the Trustee each 39 agree that they will not, without the consent of the Loan Servicer and the Credit Provider, enter into any contracts or agreements or perform any acts or request any other party to this Financing Agreement to enter into any contracts or agreements or perform any acts, which may adversely affect the Borrower’s ability to perform under the Mortgage Loan Documents. Section 14.5 Liability of Owners. No subsequent owner of the Mortgaged Property shall be liable or obligated for the breach or default of any obligation of any prior owner under this Financing Agreement, including, but not limited to, any payment or indemnification obligation, provided that any subsequent owner shall be bound by the terms of this Financing Agreement, including, but not limited to, the obligations to cause the use and occupancy of the Mortgaged Property to satisfy the terms and requirements of this Financing Agreement. Such obligations are personal to the Person who was the owner of the Mortgaged Property 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. Section 14.6 Binding Effect. This Financing Agreement shall be binding upon the Issuer, the Borrower, the Loan Servicer and the Trustee and their respective successors and assigns. This Financing Agreement shall inure to the benefit of the Issuer, the Credit Provider, the Borrower and the Trustee and their respective successors and assigns. Section 14.7 Severability. If any provision of this Financing Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining portions shall not in any way be affected or impaired. In case any covenant, stipulation, obligation or agreement of the Issuer, [the Trustee,] the Loan Servicer or the Borrower contained in this Financing Agreement shall for any reason be held to be in violation of law, then such covenant, stipulation, obligation or agreement shall be deemed to be the covenant, stipulation, obligation or agreement of the Issuer, [the Trustee,] the Loan Servicer or the Borrower, as the case may be, to the full extent permitted by law. Section 14.8 Execution in Counterparts. This Financing 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. Section 14.9 Governing Law. This Financing Agreement shall be governed by and interpreted in accordance with the internal laws of the State without regard to conflicts of laws principles. Section 14.10 Limited Liability. All obligations of the Issuer incurred under this Financing Agreement, the Regulatory Agreement and the Indenture shall be limited obligations of the Issuer. The Bonds shall be payable solely from the Revenues and other funds and property pledged under the Indenture for the payment of the Bonds, and no owner or owners of any of the Bonds shall ever have the right to compel any exercise of the taxing power of the Issuer, the State or any political subdivision or other public body of the State, nor to enforce the payment of the Bonds against any property of Issuer, the State or any such political subdivision or other public body, except as provided in the Indenture. No member, officer, agent, director, employee, attorney or member of the governing body of the Issuer, including any person executing this Financing Agreement on behalf of the Issuer, shall be liable personally under this Financing Agreement or for any reason relating to the issuance of the Bonds. No recourse shall be had for the payment of the principal of, premium, if any, or the interest on the Bonds, or for any claim based on the Bonds, or otherwise in respect of the Bonds, or based on or in respect of this Financing Agreement or any amendment to this Financing Agreement, against any member, officer, employee, director, agent, attorney or member of the governing body of the 40 53 Issuer, as such, of the Issuer or any successor whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance of this Financing Agreement and as part of the consideration for the issuance of the Bonds, expressly waived and released. ARTICLE 15 TERM OF THIS FINANCING AGREEMENT This Financing Agreement shall be in full force and effect from its date to and including such date as all of the Bonds shall have been fully paid or retired (or provision for such payment shall have been made as provided in the Indenture) and all amounts, including fees, costs and expenses, owing to the Issuer, the Trustee, the Loan Servicer and the Credit Provider under this Financing Agreement or under the Reimbursement Agreement, as applicable, shall have been paid; provided, however, that the provisions of Sections 2.2, 7.2(8), 7.2(9) and Articles V and IX shall survive the termination of this Financing Agreement. 41 The parties to this Financing Agreement have caused this Financing Agreement to be executed by their duly authorized representatives as of the date set forth above. CITY OF CARLSBAD, as Issuer By: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: Authorized Signatory CIC CALAVERA, L.P., a California limited partnership By: Pacific Southwest Community Development Corporation, a California nonprofit public benefit corporation Its: Managing General Partner Michael T. Walsh Executive Director/President By:CIC Calavera Hills 11, LLC, a Its: Co- General Partner California limited liability company By: James J. Schmid Manager 42 1 13061-1 0 JHTADarm pa 17,176 5- 20 -03 5/2/03D FINANCING AGREEMENT Among CITY OF CARLSBAD, as Issuer WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee and CIC CALAVERA, L.P., as Borrower Dated as of June 1,2003 Relating to: $ - - - - - - - - City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series A and $--------- City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series B TABLE OF CONTENTS Section 1.1. Section 1.2. Section 2.1. Section 2.2. Section 2.3. Section 3.1. Section 3.2. Section 3.3. Section 4.1. Section 4.2. Section 4.3. Section 4.4. Section 4.5. Section 5.1. Section 5.2. Section 5.3. Section 5.4. Section 5.5. Section 5.6. Section 5.7. Section 5.8. Section 5.9. Section 5.10. Section 5.11. Section 5.12. Section 5.13. Section 5.14. Section 5.15. Section 5.16. Section 5.17. Section 6.1. Section 6.2. ARTICLE I DEFINITIONS AND CONSTRUCTION Definition of Terms .............................................................................................. 2 Rules of Construction ............................................................................................ 2 ARTICLE 11 GENERAL REPRESENTATIONS AND AGREEMENTS Representations and Agreements of the Issuer ....................................................... 3 Representations and Agreements of the Trustee ..................................................... 3 Representations and Agreements of the Borrower .................................................. 4 ARTICLE 111 FINANCING OF THE PROJECT; ISSUANCE OF THE BONDS Agreement To Issue Bonds; Application of Bond Proceeds ....................................... 9 Disbursement From the Program Fund ................................................................... 9 Investment of Moneys; Arbitrage .......................................................................... 9 ARTICLE IV LOAN OF PROCEEDS; PAYMENT PROVISIONS Loan of Bond Proceeds ........................................................................................ 10 Loan Repayment and Payment of Other Amounts ................................................ 10 Unconditional Obligation; Nonrecourse .............................................................. 11 Assignment of Issuer’s Rights ............................................................................. 12 Amounts Remaining inBond Fund ....................................................................... 12 ARTICLE V SPECIAL COVENANTS AND AGREEMENTS Right of Access to the Project and Records ........................................................... 13 Maintenance of Existence; Assignments ............................................................... 13 Statement of Compliance; Notice of Certain Events ............................................ 14 Insurance; Maintenance and Repair .................................................................... 14 Additional Instruments ...................................................................................... 14 Tax-exempt Status of Bonds ............................................................................... 14 Letter of Credit ................................................................................................. 16 Standby Letter of Credit .................................................................................... 19 Title to the Project ............................................................................................. 21 Design and Completion of the Project .................................................................. 21 No Untrue Statements ........................................................................................ 21 Indenture ........................................................................................................... 21 Completion of the Project ................................................................................... 21 Deed of Trust ..................................................................................................... 21 Control of Borrower, Credit Bank and Standby Credit Bank ................................ 21 Regulatory Agreement ....................................................................................... 15 Substitute Credit Facility .................................................................................. 20 ARTICLE VI DAMAGE. DESTRUCTION AND CONDEMNATION; USE OF PROCEEDS Obligation To Continue Payments ....................................................................... 23 Application of Net Proceeds .............................................................................. 23 1 57 Section 6.3. Insufficiency of Net Proceeds .............................................................................. 23 Section 7.1. Section 7.2. Section 7.3. Section 7.4. Section 7.5. Section 7.6. Section 8.1. Section 8.2. Section 8.3. Section 9.1. Section 9.2. Section 9.3. Section 10.1. Section 10.2. Section 10.3. Section 10.4. Section 10.5. Section 10.6. Section 10.7. Section 10.8. Section 10.9. Section 10.10. Section 10.11. EXHIBIT A EXHIBIT B ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Events of Default ............................................................................................... 24 Remedies on Default .......................................................................................... 24 Agreement To Pay Attorneys' Fees and Expenses ................................................. 26 No Remedy Exclusive ........................................................................................ 26 No Additional Waiver Implied by One Waiver ................................................. 27 Notice of Certain Events .................................................................................... 27 ARTICLE VIII PREPAYMENT Prepayment of Loan ........................................................................................... 28 Redemption of Bonds Upon Prepayment .............................................................. 28 Amount of Prepayment ....................................................................................... 28 ARTICLE IX LIMITATION ON LIABILITY OF ISSUER; EXPENSES; INDEMNIFICATION Limitation on Liability of Issuer ........................................................................ 30 Expenses ............................................................................................................ 30 Indemnification ................................................................................................. 31 ARTICLE X MISCELLANEOUS Notices ............................................................................................................. 33 Severability ..................................................................................................... 33 Execution of Counterparts ................................................................................... 33 Amendments. Changes and Modifications ........................................................... 33 Authorized Representatives .............................................................................. 33 Term of the Agreement ....................................................................................... 33 Binding Effect; Third-party Beneficiary ............................................................ 34 Role of Trustee ................................................................................................... 34 References to the Credit Bank; Other Documents ................................................ 34 Replacement Financing Agreement ..................................................................... 34 Governing Law .................................................................................................. 33 FORM OF FUNDING REQUISITION FORM OF PERMANENT PHASE FINANCING AGREEMENT ii FINANCING AGREEMENT THIS FINANCING AGREEMENT, dated as of June 1, 2003 (this "Financing Agreement"), is by and among the CITY OF CARLSBAD, a municipal corporation duly organized and existing under the laws of the State of California (the "Issuer"), WELLS FARGO BANK, NATIONAL ASSOCIATION (the "Trustee"), as trustee under the Trust Indenture, dated the date hereof, between the Issuer and the Trustee (the "Indenture"), and CIC CALAVERA, L.P., a California limited partnership (the "Borrower"). WITNESSETH: RECITALS WHEREAS, the Issuer is authorized to issue revenue bonds pursuant to Chapter 7 of Part 5 of Division 31 of the California Health and Safety Code (the "Housing Law") for the purpose of financing, among other things, the acquisition, construction and development of multifamily rental housing and capital improvements in connection therewith; and WHEREAS, the Borrower has requested the assistance of the Issuer in financing the acquisition and construction of a multifamily rental housing development known as Mariposa Apartments located in the City of Carlsbad, California (the "Project"), and as a condition to such financial assistance the Borrower has agreed to enter into a Regulatory Agreement and Declaration of Restrictive Covenants dated as of June 1, 2003 (the "Regulatory Agreement"), setting forth certain restrictions with respect to the Project; and WHEREAS, the Issuer has determined to assist in the financing of the Project by issuing the City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series A (the "Series A Bonds"), in the principal amount of $ , and the City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series B, in the principal amount of $ (the "Series B Bonds," and together with the Series A Bonds, the "Bonds")and making a loan to the Borrower of such principal amounts (the "Loan") upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the respective representations and covenants herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND CONSTRUCTION Section 1.1. Definition of Terms. Unless the context otherwise requires, the capitalized terms used in this Financing Agreement shall have the meanings specified in Section 1.01 of the Indenture, as such Indenture is originally executed or as it may from time to time be supplemented or amended as provided therein. Section 1.2. Rules of Construction. (a) The singular form of any word used herein, including the terms defined in Section 1.01 of the Indenture, shall include the plural, and vice versa. The use herein of a word of any gender shall include correlative words of all genders. Unless otherwise specified, references to articles, sections and other subdivisions of this Financing Agreement are to the designated articles, sections and other subdivisions of this Financing Agreement as originally executed. The words "hereof," "herein," "hereunder" and words of similar import refer to this Financing Agreement as a whole. (b) (c) The headings or titles of the several articles and sections, and the table of contents appended to copies hereof, shall be solely for convenience of reference and shall not affect the meaning, construction or effect of the provisions hereof. (d) The parties hereto acknowledge that each such party and its respective counsel have participated in the drafting and revision of this Financing Agreement and the Indenture. Accordingly, the parties agree that any rule of construction which disfavors the drafting party shall not apply in the interpretation of this Financing Agreement or the Indenture or any amendment or supplement or exhibit hereto or thereto. 2 do ARTICLE I1 GENERAL REPRESENTATIONS AND AGREEMENTS Section 2.1. Representations and Agreements of the Issuer. The Issuer makes the following representations and agreements as the basis for its undertakings herein contained: (a) The Issuer is a municipal corporation, duly organized and existing under the laws of the State. Under the provisions of the Act, the Issuer has the power to enter into the transactions on its part contemplated by this Financing Agreement, the Indenture, the Regulatory Agreement and the Tax Certificate (collectively, the ”Issuer Documents”) and to carry out its obligations hereunder and thereunder. The financing of the Project constitutes and will constitute a permissible public purpose under the Housing Law. By proper action, the Issuer has authorized the execution, delivery and due performance of the Issuer Documents. (b) Neither the execution and delivery of the Bonds, the Issuer Documents, nor the Issuer’s compliance with the terms, conditions or provisions on the part of the Issuer in the Bonds and the Issuer Documents, to the knowledge of the Issuer, conflicts in any material respect with or results in a material breach of any of the terms, conditions or provisions of any constitution or statute of the State, or of any agreement, instrument, judgment, order or decree to which the Issuer is now a party or by which it is bound or constitutes a material default by the Issuer under any of the foregoing. (c) Except as otherwise provided in the Indenture, the Issuer has not created and will not create any debt, lien or charge upon the Revenues, and has not made and will not make any pledge or assignment of or create any encumbrance thereon, other than the pledge and assignment thereof under the Indenture. (d) The Issuer has complied and will comply with all material provisions of the Act and the Housing Law to be complied with by the Issuer applicable to the Bonds and the transactions contemplated by the Issuer Documents. (e) The Bonds are being issued under the Indenture, and are secured by the Indenture, pursuant to which the Issuer’s interest in this Financing Agreement (other than its Reserved Rights) is pledged and assigned to the Trustee. The Issuer covenants that it has not pledged and will not pledge or assign its interest in this Financing Agreement other than to the Trustee under the Indenture. (f) To the best knowledge of the Issuer, no litigation or administrative action of any nature has been served on it and is now pending (i) seeking to restrain or enjoin the execution and delivery of the Indenture, this Financing Agreement or the Regulatory Agreement, or in any manner questioning the proceedings or authority relating thereto or otherwise affecting the validity of the Bonds, or (ii) as to the existence or authority of the Issuer or that of its present or former members or officers and, to the knowledge of the Issuer, none of the foregoing are threatened. Section 2.2. Representations and Agreements of the Trustee. The Trustee makes the following representations and agreements as the basis for its undertakings herein contained: (a) The Trustee has been duly organized and is validly existing as a national banking association in good standing under the laws of the United States with full corporate power to own its properties and conduct its business. 3 (b) To the best knowledge of the Trustee, all corporate proceedings legally required to be taken by the Trustee in connection with the authorization and execution of this Financing Agreement and the consummation of the transactions contemplated hereby and related hereto by the Trustee, and all such approvals, authorizations, consents, licenses or other orders of state or federal regulatory agencies, public boards or bodies with respect to the regulation of banking or trust activities, if any, as may be legally required to be obtained by the Trustee prior to the date of this Financing Agreement with respect to all or any of such matters, have been taken or obtained. (c) This Financing Agreement has been duly authorized, executed and delivered by the Trustee. (d) The Trustee has full authority to engage in the activities covered by this Financing Agreement, and the execution and delivery of this Financing Agreement and compliance with its terms, conditions and provisions will not conflict with or result in a breach of any of the terms, conditions or provisions of the articles of association or bylaws of the Trustee or to the best of its knowledge any agreement or instrument to which it is a party or by which it is bound or any law or regulation or any administrative decree or order to which it is subject or constitute a default thereunder. (e) To the best knowledge of the Trustee, the Trustee is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default will impair its ability to perform its obligations under this Financing Agreement. (f) To the best knowledge of the Trustee, the Trustee is not a party to or bound by any agreement or instrument or subject to any charter or any other corporate restriction of any judgment, order, writ, injunction, decree, law or regulation which now or in the future may materially and adversely affect the ability of the Trustee to perform its obligations under this Financing Agreement or which requires the consent of any third party to the execution of this Financing Agreement or the consummation of the transactions contemplated hereby by the Trustee. (8) To the best knowledge of the Trustee, no litigation is pending or threatened against the Trustee with respect to this Financing Agreement or the consummation of the transactions contemplated hereby. Section 2.3. Representations and Agreements of the Borrower. The Borrower makes the following representations and agreements as the basis for its undertakings herein contained: (a) The Borrower is a California limited partnership and is organized to do business in the State. The Borrower has full power and authority to own its properties and to carry on its business as now being conducted and as contemplated to be conducted with respect to the Project, and to enter into, and to perfom and carry out the transactions provided for in this Financing Agreement, the Regulatory Agreement, the Deed of Trust and the Credit Agreement (herein, the ”Borrower Documents”). The Borrower Documents and all other documents to which the Borrower is a party and contemplated hereby or thereby have been duly authorized, executed and delivered by the Borrower and constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally and general equitable principles. Neither the execution and delivery of the Borrower Documents or any other documents contemplated hereby or thereby, the consummation of the transactions (b) 4 contemplated hereby or thereby, nor the fulfillment of or compliance with the terms and conditions of the Borrower Documents or any other documents contemplated hereby or thereby will violate any provision of law, any order of any court or other agency of government, or any of the organizational or other goveming documents of the Borrower, or any indenture, agreement or other instrument to which the Borrower is now a party or by which it or any of its properties or assets is bound, or be in conflict with, result in a breach of or constitute a default (with due notice or the passage of time or both) under any such indenture, agreement or other instrument or any license, judgment, decree, law, statute, order, rule or regulation of any governmental agency or body having jurisdiction over the Borrower or any of its activities or properties, or, except as provided hereunder, result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Borrower, except as permitted by this Financing Agreement and the Deed of Trust. (c) The Borrower, as of the date of disbursement of any amounts from the Program Fund, and thereafter so long as the Bonds or the Loan is outstanding, will have a fee simple interest in the Project. The Borrower is the sole Borrower under the Loan. (d) No litigation or proceeding is pending or, to the knowledge of the Borrower or any managing member of the Borrower, threatened against the Borrower or any of its or any general partner or with respect to the Project, which has a reasonable probability of having a material adverse effect on its financial condition or business, or the transactions contemplated by the Borrower Documents, or which in any way would adversely affect the validity or enforceability of the Bonds, the Indenture or the Borrower Documents, or the ability of the Borrower to perfom its obligations under the Borrower Documents. (e) Upon completion, the Project will conform in all material respects with all applicable zoning, planning, building and environmental laws, ordinances and regulations of governmental authorities having jurisdiction over the Project, all necessary utilities are (or, when necessary, will be) available to the Project, and the Borrower will obtain all requisite zoning, planning, building and environmental and other permits which may become necessary with respect to the Project. The Borrower has (or, when necessary, will have) obtained all licenses, permits and approvals necessary for the ownership, operation and management of the Project, including all approvals essential to the transactions contemplated by the Borrower Documents and any other documents contemplated hereby or thereby. There (i)is no completed, pending or, to the knowledge of the Borrower, threatened bankruptcy, reorganization, receivership, insolvency or like proceeding, whether voluntary or involuntary, affecting the Project, the Borrower or any general partner of the Borrower, and (ii) has been no assertion or exercise of jurisdiction over the Project, the Borrower or any general partner of the Borrower by any court empowered to exercise bankruptcy powers. (f) (8) To the knowledge of the Borrower, no event has occurred and no condition exists with respect to the Borrower or the Project that would constitute an Event of Default or which, with the lapse of time, if not cured, or with the giving of notice, or both, would become an Event of Default. The Borrower is in compliance with the terms of the Regulatory Agreement. The Borrower is not presently in default under any document, instrument or commitment to which the Borrower is a party or to which it or any of its property is subject which default would or could affect the ability of the Borrower to carry out its obligations under the Borrower Documents. (h) The Indenture has been submitted to the Borrower for its examination, and the Borrower acknowledges, by execution of this Financing Agreement, that it has reviewed the Indenture and that it accepts each of its obligations expressed or implied thereunder. The Borrower hereby approves the initial appointment of the Trustee under the Indenture. 5 63 (i) The Project shall be, in compliance with all requirements of the Regulatory Agreement, including all applicable requirements of the Act, the Housing Law and the Code. The Borrower intends to cause the residential units in the Project to be rented or available for rental on a basis which satisfies the requirements of the Regulatory Agreement, including all applicable requirements of the Act, the Housing Law and the Code. All leases will comply with all applicable laws and the Regulatory Agreement. The Project, when constructed, will meet the requirements of this Financing Agreement, the Regulatory Agreement, the Act, the Housing Law and the Code with respect to multifamily rental housing. (j) No information, statement or report furnished in writing to the Issuer by the Borrower in connection with this Financing Agreement, or the consummation by the Borrower of the transactions contemplated hereby (including, without limitation, any written information furnished by the Borrower in connection with the preparation of the official statement for the Bonds and of any other written materials furnished by the Borrower related to the issuance, delivery or offering of the Bonds on the Closing Date), contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading; and the representations and warranties of the Borrower and the statements, information and descriptions contained m the Borrower’s closing certificates, as of the Closing Date, are true, correct and complete, do not contain any untrue statement or misleading statement of a material fact, and do not omit to state a material fact required to be stated therein or necessary to make the certifications, representations, warranties, statements, inforrnation and descriptions contained therein, in the light of the circumstances under which they were made, not misleading; and any estimates or the assumptions contained in any certificate of the Borrower delivered as of the Closing Date are reasonable and based on the best inforrnation available to the Borrower. (k) To the best knowledge of the Borrower, no member, officer, agent or employee of the Issuer has been or is in any manner interested, directly or indirectly, in that person’s own name or in the name of any other person, in the Bonds, the Regulatory Agreement, the Deed of Trust, the Credit Agreement, the Borrower or the Project, in any contract for property or materials to be furnished or used in connection with the Project, or in any aspect of the transactions contemplated by the Borrower Documents. (1) No authorization, consent, approval, order, registration declaration or withholding of objection on the part of or filing of or with any governmental authority not already obtained or made (or to the extent not yet obtained or made the Borrower has no reason to believe that such authorizations, consents, approvals, orders, registrations or declarations will not be obtained or made in a timely fashion) is required for the execution and delivery or approval, as the case may be, of the Borrower Documents, or any other documents contemplated by this Financing Agreement or such other documents, or the performance of the terms and provisions hereof or thereof by the Borrower. (m) The Borrower is not presently under any cease or desist order or other orders of a similar nature, temporary or permanent, of any federal or state authority which would have the effect of preventing or hindering performance of its duties hereunder, nor are there any proceedings presently in progress or to its knowledge contemplated which would, if successful, lead to the issuance of any such order. (n) The Borrower acknowledges, represents and warrants that it understands the nature and structure of the transactions relating to the financing of the Project; that it is familiar with the provisions of all of the documents and instruments relating to such financing to which it or the Issuer is a party or of which it is a beneficiary; that it understands the risks inherent in such transactions, including, without limitation, the risk of loss of the Project; and that it has 6 not relied on the Issuer for any guidance or expertise in analyzing the financial or other consequences of the transactions contemplated by this Financing Agreement and the Indenture or otherwise relied on the Issuer in any manner. (0) The Borrower has not received any notice that it is not in compliance with all provisions of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA); the Resource Conservation and Recovery Act; the Superfund Amendments and Reauthorization Act of 1986; the Toxic Substances Control Act and all environmental laws of the State (the "Environmental Laws"), or with any rules, regulations and administrative orders of any governmental agency, or with any judgments, decrees or orders of any court of competent jurisdiction with respect thereto; and the Borrower has not received any assessment, notice (primary or secondary) of liability or financial responsibility, and no notice of any action, claim or proceeding to determine such liability or responsibility, or the amount thereof, or to impose civil penalties with respect to a site listed on any federal or state listing of sites containing or believed to contain "hazardous materials" (as defined in the Environmental Laws), nor has the Borrower received notification that any hazardous substances (as defined under CERCLA) that it has disposed of have been found in any site at which any governmental agency is conducting an investigation or other proceeding under any Environmental Law. (p) The Borrower intends to hold the Project for its own account and has no current plans to sell and has not entered into any agreement to sell all or any portion of the Project. (9) In the event the Loan proceeds are not sufficient to complete the financing of the Project and the payment of all costs of issuing the Bonds, the Borrower will fumish any additional moneys necessary to complete the financing of the Project. (r) (s) The Project is located wholly within the City of Carlsbad, California. All of the proceeds of the Loan shall be used to finance the acquisition and construction of the Project. (t) The Borrower shall make no changes to the Project or to the operation thereof that would affect the qualification of the Project under the Housing Law or impair the exclusion from gross income for federal income tax purposes of the interest on the Bonds. The Borrower intends to utilize the Project as required by the Regulatory Agreement. (u) The Borrower will cause the Project to be operated in accordance with all applicable federal, state and local laws or ordinances (including rules and regulations) relating to zoning, building, safety and environmental quality. The Borrower has filed or caused to be filed or obtained extensions for all federal, state and local income tax returns which are required to be filed by it with respect to the Borrower, and has paid or caused to be paid all taxes due and payable prior to delinquency as shown on said returns, and has paid all other taxes and assessments to the extent that such taxes or assessments have become due and payable prior to delinquency and relate to the Project. (v) (w) The Borrower has contacted all "related persons" thereof (within the meaning of Section 147(a) of the Code), and neither it nor any of them shall, at any time, pursuant to any arrangement, formal or informal, acquire any Bond, except as required under the Credit Agreement. (x) The Borrower hereby represents, covenants and warrants that the proceeds of the Bonds shall be used or deemed used exclusively to pay costs which (i) are (A) capital 7 expenditures (as defined in Treasury Regulation Section 1.150-1(a)) and (B) not made for the acquisition of existing property, to the extent prohibited in section 147(d) of the code, and (ii) are made exclusively with respect to a ”qualified residential rental project” within the meaning of Section 142(d) of the Code and that for the greatest number of buildings the proceeds of the Bonds shall be deemed allocated on a pro rata basis to each building in the Project and the land on whichit is located so that each building and the land on which it is located will have been financed 50% or more by the proceeds of the Bonds for the purpose of complying with Section 42(h)(4)(B) of the Code; provided, however, the foregoing representation, covenant and warranty is made for the benefit of the Borrower and its partners and neither the Trustee nor the Issuer shall have any obligation to enforce this statement nor shall they incur any liability to any person, including without limitation, the Borrower, the partners of the Borrower, any other affiliate of the Borrower or the holders of the Bonds for any failure to meet the intent expressed in the foregoing representation, covenant and warranty. 8 ARTICLE I11 FINANCING OF THE PROJECT; ISSUANCE OF THE BONDS Section 3.1. Agreement To Issue Bonds; Application of Bond Proceeds. To provide funds to finance the acquisition and construction of the Project, the Issuer agrees that it will issue under the Indenture, sell and cause to be delivered to the purchasers thereof, the Bonds, bearing interest at the rates and payable as to principal and interest at the times as set forth m the Indenture. The Issuer will, upon issuance and delivery of the Bonds, deposit the proceeds received from the sale of the Bonds with the Trustee as provided in the Indenture. Section 3.2. Disbursement From the Program Fund. The Issuer has authorized and directed the Trustee to disburse from the Program Fund created pursuant to the Indenture, as appropriate, to pay or to reimburse the Borrower for Project Costs for the acquisition and construction of the Project, but only if the Trustee shall have received a Funding Requisition, substantially in the form of Exhibit A hereto, executed by an Authorized Borrower Representative and approved by an Authorized Bank Representative, with respect to each requested disbursement or advance. Each Funding Requisition shall state (a) the requisition number, (b) the amount or amounts to be disbursed, (c) that each obligation mentioned therein is a Project Cost, has been properly incurred, is a proper charge against the Program Fund and has not been the basis of any previous disbursement, (d) that the expenditure of any such disbursement when added to all previous disbursements from the Program Fund will result m not less than 95% of all disbursements from the Program Fund having been used or deemed used to pay or reimburse the Borrower for Qualified Project Costs and not more than 25% of all disbursements from the Program Fund having been used or deemed used to pay for the acquisition of land or any interest therein, and (e) that the Regulatory Agreement and the Deed of Trust are in full force and effect. Notwithstanding the foregoing, no more than four Funding Requisitions may be satisfied in any month, and each Funding Requisition shall be for an amount at least equal to $5,000 and otherwise in accordance with any restrictions on disbursements under any investment agreement pertaining to the investment of amounts in the Program Fund. It is the intention of the Issuer and the Borrower that the disbursement method for "Qualified Project Costs" will constitute an allocation of the Bond proceeds to finance the "eligble basis" (as defined in the Code) of the buildings in accordance with temporary Treasury Regulation Section 1.42-1T(f)( 1) (ii). Upon receipt of a properly signed Funding Requisition, the Trustee is authorized to act thereon without further inquiry and, except for the negligence or willful misconduct of the Trustee, the Borrower shall hold the Trustee harmless against any and all losses, claims or liability incurred in connection with the Trustee directly making such disbursements from the Program Fund. Neither the Trustee nor the Issuer shall be responsible for the application by the Credit Bank or the Borrower of moneys disbursed in accordance with this Section. Section 3.3. Investment of Moneys; Arbitrage. Upon written direction of the Borrower, approved in writing by the Credit Bank, any moneys in any fund or account held by the Trustee shall be invested or reinvested by the Trustee in Investment Securities as provided in the Indenture, and the Borrower hereby approves such provisions of the Indenture and directs the Trustee to make such investments, subject to the covenants of subsection 5.6(b) hereof. 9 ARTICLE IV LOAN OF PROCEEDS; PAYMENT PROVISIONS Section 4.1. Loan of Bond Proceeds. The Issuer agrees, upon the terms and conditions in this Financing Agreement, to make the Loan to the Borrower in an amount equal to the aggregate principal amount of the Bonds for the purpose of fjnancing the acquisition and construction of the Project. Pursuant to such agreement, the Issuer will issue the Bonds upon the terms and conditions contained in this Financing Agreement and the Indenture and will cause the proceeds of the Bonds to be applied by the Trustee as provided in Article III of the Indenture and Section 3.2 hereof. Section 4.2. Loan Repayment and Payment of Other Amounts. (a) The Borrower hereby acknowledges its indebtedness to the Issuer and agrees to repay the 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 hereby agrees that the Borrower's repayment obligations hereunder shall be reduced from time to time by any amounts drawn under the Letter of Credit and applied to the payment of debt service on the Bonds. The Borrower hereby agrees to cause the Letter of Credit and the Standby Letter of Credit to be delivered to the Trustee in accordance with Sections 5.8 and 5.9, respectively, this Financing Agreement. (b) The Borrower agrees (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 Section 9.3 hereof, to indemnify the Trustee and the Tender Agent for, and hold each harmless against, any loss, liability or expense incurred without negligence, 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 Section 8.06 of the Indenture. The rights of the Trustee to compensation and indemnification hereunder shall survive removal or resignation of the Trustee and discharge of the Indenture. (c) The Borrower also agrees 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 this 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 10 (ii)notwithstanding any prepayment of the Loan and a discharge of the Indenture, to the Trustee for remittance to the Issuer, an annual Issuer Fee equal to $ [.125% of the original Principal Amount of Bonds], payable in equal semiannual installments, in advance, on June 1 and December 1 of each year, commencing on the Closing Date 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 Loan pursuant to Section 8.1 during the Qualified Project Period, the Borrower also agrees to pay amounts due and payable pursuant to Section 8.3 hereof. (d) The Borrower also agrees to pay any fees and other costs required to be incurred by the Issuer and/or the Trustee to comply with the provisions of Section 6.06 of the Indenture, 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 Section 6.06 of the Indenture to the Trustee to be used as provided in Section 6.06 of the Indenture. (e) The Borrower agrees to make a deposit with the Trustee on the Closing Date in immediately available funds in the amount and for the purposes set forth in subsection [3.02(b)] of the Indenture. (f) The Borrower agrees 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. Section 4.3. Unconditional Obligation; Nonrecourse. The obligations of the Borrower to make the payments required by Section 4.2 hereof and to perform and observe the other agreements on its part contained herein 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 this Financing Agreement, the Borrower shall pay absolutely the payments required hereunder, 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 provided for in Section 4.2 hereof; (b) will perform and observe all of its other covenants contained in this Financing Agreement; and (c) except as provided in Article VI11 hereof, will not terminate this 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 laws of the United States of America or of the State of California 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 this Financing Agreement or the Indenture, except to the extent permitted by this Financing Agreement. Notwithstanding any provision of this Financing Agreement, the Regulatory Agreement or the Deed of Trust (collectively, the ”Project Loan Documents”) to the contrary, the Borrower shall not be personally liable for the amounts owing hereunder (other than for indemnity and fees as provided below) or under the Project Loan Documents, and the Issuer’s and the Trustee’s remedies in the event of a default hereunder or under the Project Loan Documents shall be limited to those remedies set forth in Section 7.2 and under the Regulatory Agreement. In the event of a default hereunder or under the Deed of Trust, except to the extent provided in the next sentence, neither the Issuer nor the Trustee shall have the ri&t to proceed directly against the Borrower (rather than the Project) or the right to obtain a deficiency judgment after foreclosure. Nothing in this Section4.3 shall preclude the Issuer, the Trustee or the Administrator from proceeding directly against the Borrower in connection with the following: 11 (i) the obligation of the Borrower to indemrufy the Issuer, the Trustee and the Administrator under Section 9.3 hereof or Section 9 of 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 subsection 4.2(b), (c) or (d) or Section 7.3 or 9.2 hereof, or under Section 9 of 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 Loan in accordance with Section 6.2 of this Agreement; (iv) the application of rents or security deposits attributable to the Project at any time during which the Borrower is in default under Section 4.2(a) for any purpose other than to pay the operative expenses of the Project or to pay principal and interest on the 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. Section 4.4. Assignment of Issuet‘s Rights. As security for the payment of the Bonds, the Issuer assigns in the Indenture certain of the Issuer’s rights under this Financing Agreement and the Issuer Loan Documents to the Trustee, including the right to receive payments hereunder (except for the Reserved Right of the Issuer), and the Issuer hereby directs the Borrower to make the payments required hereunder (except such payments for Issuer expenses and indemnification) directly to the Trustee. The Borrower hereby assents to such assignment and agrees to make payments directly to the Trustee without defense or setoff by reason of any dispute between the Borrower and the Issuer or the Trustee. By virtue of such assignment, the parties hereto understand that the Trustee shall have the right to enforce the obligations of the Borrower hereunder. In consideration for the undertaking by the Borrower to reimburse the Credit Bank for amounts drawn under the Letter of Credit to purchase Bonds that are tendered for purchase and for which the Credit Bank has not been reimbursed from the proceeds of the remarketing of the Bonds, the Issuer hereby assigns to the Credit Bank, all of the Issuer’s right, title and interest in and to any and all proceeds of any subsequent remarketing of any such Bonds so purchased and hereby agrees to direct the Remarketing Agent to pay any such proceeds to the Credit Bank. Section 4.5. Amounts Remaining in Bond Fund. It is agreed by the parties hereto that, after (a) payment in full of the Bonds, or provision for such payment having been made as provided in the Indenture, (b) payment of all fees, charges and expenses of the Trustee and any paying agents in accordance with the terms of the Indenture, and (c)payment of all other amounts required to be paid under this Financing Agreement, the Regulatory Agreement and the Indenture, any amounts remaining in the Bond Fund held by the Trustee under the Indenture, subject to the application of amounts in the Bond Fund to the payment of particular Bonds, shall be paid by the Trustee to the Credit Bank to the extent any amounts are due and payable to the Credit Bank under the Credit Agreement or the Credit Bank remains obligated on the Letter of Credit or under the Credit Agreement, or to the Borrower, if no such amounts are due and payable under the Credit Agreement and if the obligations of the Credit Bank under the Letter of Credit and the Credit Agreement have been discharged and fully terminated, as provided in Section 5.05 of the Indenture, and the Issuer shall have no claim to such amounts. 12 ARTICLE V SPECIAL COVENANTS AND AGREEMENTS Section 5.1. Right of Access to the Project and Records. The Borrower agrees that, during the term of this Financing Agreement, the Issuer, the Credit Bank, the Trustee and the duly authorized agents of any of them shall have the right (but not the duty) at all reasonable times and upon reasonable notice during normal business hours to enter upon the site of the Project to examine and inspect the Project and to have access to the books and records of the Borrower with respect to the Project. Section 5.2. Maintenance of Existence; Assignments. (a) The Borrower agrees that during the term of this Financing Agreement it will remain in good standing and authorized to do business in the State and will maintain its existence as a limited partnership, will not dissolve or otherwise dispose of all or substantially all of its assets and will not combine or consolidate with or merge into another entity or permit one or more other entities to consolidate with or merge into it; provided, however, that the Borrower may so combine, consolidate with or merge into another entity existing under the laws of one of the states of the United States, or permit one or more other entities to consolidate with or merge into it, or sell or otherwise transfer to another entity all or substantially all of its assets as an entirety and thereafter dissolve upon compliance with the applicable requirements of the Regulatory Agreement, provided that the surviving, resulting or transferee entity, as the case may be, (i) assumes and agrees in writing to pay and perform all of the obligations of the Borrower hereunder and (ii) qualifies to do business in the State; and provided, further, that the Borrower shall have obtained the written approval of the Credit Bank and the Issuer. (b) The rights and obligations of the Borrower under this Financing Agreement and the Issuer Loan Documents may be assigned by the Borrower to any person in whole or in part, in connection with and in proportion to, any conveyance of all or part of the Project permitted by Section 10 of the Regulatory Agreement, provided that (i) the assignee shall assume in writing the obligations of the Borrower hereunder and under the Issuer Loan Documents, to the extent of the interest assigned, and a copy of such instrument of assumption shall be delivered to the Issuer and the Trustee within 10 days after the execution thereof; (ii) the Borrower shall have obtained the written consent of the Credit Bank and the Issuer; and (iii) the Borrower shall remain liable for its obligations hereunder to the extent of any interest not so assigned. (c) The rights and obligations of the Borrower under this Financing Agreement may also be assigned by the Borrower to any person in whole or in part, subject, however, to each of the following conditions: (i) No assignment other than pursuant to subsection (a) or (b) shall relieve the Borrower from primary liability for any of its obligations hereunder, and in the event of any assignment not pursuant to subsection 5.2(a) or (b) the Borrower shall continue to remain primarily liable for the payments specified in Section 4.2 hereof and for performance and observance of the other agreements on its part herein provided to be performed and observed by it. Any assignment from the Borrower shall retain for the Borrower, to the extent necessary, such rights and interests as will permit it to perform its obligations under this Financing Agreement, the Issuer Loan Documents and the Regulatory Agreement, and any assignee from the Borrower shall assume the obligations of the (ii) 13 7\ Borrower hereunder and under the Regulatory Agreement and the Issuer Loan Documents to the extent of the interest assigned. (iii) The Borrower shall, within 30 days after delivery thereof, furnish or cause to be furnished to the Issuer and the Trustee a true and complete copy of each such assignment, together with an instrument of assumption and the written consent of the Credit Bank and the Issuer to such assignment. Section 5.3. Statement of Compliance; Notice of Certain Events. (a) The Borrower will deliver to the Issuer (upon its request), the Credit Bank and the Trustee, within 120 days after the end of each calendar year, a written statement signed by an Authorized Borrower Representative stating, as to the signer thereof, that (i) a review of the activities of the Borrower during such year and of performance under this Financing Agreement and under the Regulatory Agreement has been made under such Representative’s supervision and (ii) to the best of the knowledge of such Representative, based on such review, the Borrower has fulfilled all its obligations under such documents throughout such year or, if there has been a default in the fulfillment of any such obligation, specdying each such default known to such Representative and the nature and status thereof. (b) The Borrower hereby covenants to notify the Issuer, the Credit Bank and the Trustee in writing of the occurrence of any Event of Default hereunder or any event which, with the passage of time or service of notice, or both, would constitute an Event of Default hereunder, to which the Borrower has knowledge or has caused, specrfylng the nature and period of existence of such event and the actions being taken or proposed to be taken with respect thereto. Such notice shall be given promptly and in no event less than ten (10) Business Days after the Borrower receives notice or has actual or implied knowledge or either knows or should have known of the occurrence of any such event. The Borrower further agrees that it will give prompt written notice to the Trustee and the Credit Bank if insurance proceeds or condemnation awards are received with respect to the Project and are not used to repair or replace the Project, which notice shall state the amount of such proceeds or award. Section 5.4. Insurance; Maintenance and Repair. The Borrower agrees to insure the Project or cause the Project to be insured during the term of this Financing Agreement for such amounts and for such occurrences as are ordinarily required by institutional lenders. The Borrower further agrees to provide the Issuer and the Credit Bank with evidence of such insurance. The Borrower further agrees to maintain the Project, or cause the Project to be maintained, during the term of this Financing Agreement (i) in a reasonably safe condition and (ii) in good repair and in good operating condition, ordinary wear and tear excepted, making from time to time all necessary repairs thereto and renewals and replacements thereof. Section 5.5. Additional Instruments. The Borrower hereby covenants to execute and deliver such additional instruments and to perform such additional acts as may reasonably be necessary, in the opinion of the Issuer, to carry out the intent hereof or to perfect or give further assurances of any of the rights granted or provided for herein or contemplated hereby. Section 5.6. Tax-exempt Status of Bonds. (a) It is the intention of the Issuer and the Borrower that interest on the Bonds shall be and remain excluded from gross income for federal income tax purposes, and, to that end, the covenants and agreements of the Borrower and the Issuer in this Section and in Sections 2.1, 14 2.3, 3.2 and 3.3 and subsection 4.2(d) are for the benefit of the Trustee on behalf of and for each and every owner of the Bonds. (b) The Borrower covenants and agrees that it will not knowingly and willingly use or permit the use of any of the funds provided by the Issuer hereunder or any other funds of the Borrower, directly or indirectly, or direct the Trustee to invest any funds held by it hereunder or under the Indenture, in such manner as would, or enter into, or allow any "related person" (as defined in Section 147(a)(2) of the Code) to enter into, any arrangement, formal or informal, for the purchase of the Bonds that would, or take or omit to take any other action that would cause any Bond to be an "arbitrage bond" within the meaning of Section 148 of the Code or "federally guaranteed" within the meaning of Section 149(b) of the Code and applicable regulations promulgated from time to time thereunder. (c) In the event that at any time the Borrower is of the opinion or is otherwise aware that for purposes of this Section 5.6 or Section 6.06 of the Indenture it is necessary to restrict or to limit the yield on the investment of any moneys held by the Trustee under the Indenture, the Borrower shall determine, or cause to be determined, the limitations and so instruct the Trustee in writing and cause the Trustee to comply with those limitations under the Indenture. The Borrower will take such action or actions as may be reasonably necessary in the opinion of Bond Counsel, or of which it otherwise becomes aware, to fully comply with Section 148 of the Code. (d) Notwithstanding any provisions of this Section 5.6, if the Borrower shall provide to the Trustee an opinion of Bond Counsel that any specified action required under this Section 5.6 or Sections 6.06 through Section 6.13 of the Indenture is no longer required or that some further or different action is required to maintain the exclusion from gross income under federal tax law of interest on the Bonds, the Trustee, the Issuer and the Borrower may conclusively rely on such opinion in complying with the requirements of this Section and Sections 6.06 through Section 6.13 of the Indenture and be protected in so doing, and the covenants hereunder shall be deemed to be modified to that extent. (e) The Borrower further agrees that it shall not discriminate on the basis of race, creed, color, sexual orientation, gender, source of income (e.g. TANF, SSI), physical disability, 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 rehabilitation, operation and management of the Project. (f) The Borrower further warrants and covenants that it has not executed and will not execute any other agreement, or any amendment or supplement to any other agreement, with provisions contradictory to, or in opposition to, the provisions hereof, of the Indenture and of the Regulatory Agreement and that the requirements of this Agreement and the Regulatory Agreement are paramount and controlling as to the rights and obligations herein set forth and supersede any other requirements in conflict herewith and therewith. (g) The Borrower shall not, and shall use its best efforts to ensure that any general partner, general partner of a general partner or guarantor of the Borrower shall not, pursuant to an arrangement, formal or informal, purchase any Bonds, except as may be required under the Credit Agreement. Section 5.7. Regulatory Agreement. In order to maintain the exclusion from gross income under federal tax law of interest on the Bonds and to assure compliance with the laws of the State of California, the Housing Law and certain additional requirements of the Issuer, the Borrower hereby agrees that it shall, concurrently with or before the execution and delivery of 15 -?3 the Bonds, execute and deliver and, prior to disbursement of any Bond proceeds, cause to be recorded the Regulatory Agreement and comply with the provisions thereof. The Borrower hereby acknowledges that in the event of a default under the Regulatory Agreement which is not cured within the period set forth in the Regulatory Agreement, the Loan may be accelerated. The Borrower agrees to cause any amendments to the Regulatory Agreement to be recorded in the appropriate official public records. The books and records of the Borrower pertaining to the incomes of Very Low-Income Tenants (as defined in the Regulatory Agreement) residing in the Project shall be open to inspection by any authorized representative of the Issuer, the Program Administrator and the Trustee. In any event, however, the Trustee may rely, without further investigation or review, upon such books and records and all certificates and statements in connection therewith. The Trustee and the Credit Bank shall not be responsible for monitoring the Borrower's compliance with the Regulatory Agreement. Section 5.8. Letter of Credit. There shall be provided and continuously available to the Trustee, as beneficiary, an irrevocable direct-pay Letter of Credit (whether in the form of a letter of credit or any other credit instrument) meeting the requirements of subsection 5.8(a) while the Bonds bear interest at a Variable Rate or subsection 5.8(b) 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 Letter of Credit (whether in the form of a letter of credit or any other credit instrument) meeting the requirements of subsection 5.8(c). The 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 Letter of Credit, to provide to the Trustee a substitute Letter of Credit which meets the requirements of this Section, and the Trustee has been directed pursuant to Section 5.05 of the Indenture to accept any such substitute Letter of Credit. (a) The following requirements shall apply to any Letter of Credit provided while the Bonds bear interest at a Variable Rate: (i) Any substitute Letter of Credit shall be for a term commencing not later than the expiration date of the term of the prior Letter of Credit. (ii) Any substitute Letter of Credit shall be for a term of not less than one year (or, if shorter, the remaining term of the Bonds), provided that any Letter of Credit 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 Bank of notice from the Trustee that no Bonds remain outstanding or upon the date of issuance and delivery of a substitute Letter of Credit. (iii) Each Letter of Credit 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 Letter of Credit 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 Section 2.03 of 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. 16 (v) Each Letter of Credit 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. Each substitute Letter of Credit 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 Letter of Credit complies with the provisions of this 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 Bank addressed to the Trustee to the effect that the Letter of Credit is a legal, valid and binding obligation of the Credit Bank, enforceable against the Credit Bank 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 Bank and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (vi) (vii) Each substitute Letter of Credit 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 “A.” (viii) The commitment to issue a Letter of Credit shall be delivered not later than 40 Business Days prior to the expiration or termination of the then existing Letter of Credit, the substitute Letter of Credit shall be delivered to the Trustee no less than 11 days before the expiration of the then existing Letter of Credit, and shall be effective on or prior to the stated expiration date or termination date of the then existing Letter of Credit; provided, however, that the then existing Letter of Credit may expire or be terminated any time on or after the effective date of any substitute Letter of Credit m the event that all Bonds tendered pursuant to Section 2.03 of the Indenture have been purchased prior to such expiration or termination. (b) The following requirements shall apply to any Letter of Credit provided in connection with a Reset Date or during a Reset Period: (i) The Letter of Credit commitment provided in connection with a Reset Date shall be delivered not less than 40 days before the Reset Date; and the Letter of Credit 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 Letter of Credit shall be delivered to the Trustee not less than 11 days before the expiration of the then existing Letter of Credit and shall be for a term commencing not later than the expiration date of the prior Letter of Credit; provided, however, the initial Letter of Credit with respect to the Series B Bonds shall be delivered on the Closing Date. 17 75 (ii) Each Letter of Credit shall be for a term expiring not earlier than the final day of the applicable Reset Period, provided that any Letter of Credit may provide that it shall terminate prior to its stated expiration date upon receipt by the Credit Bank of notice from the Trustee that no Bonds remain outstanding or upon the date of issuance and delivery of a substitute Letter of Credit. (iii) Each Letter of Credit 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). Each Letter of Credit 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 Sections 2.02 and 2.03 of the Indenture, and providing for automatic and irrevocable reinstatement of the amount thereof upon any drawing thereunder to pay interest on the Bonds. Section 5.8( a) (v) . (iv) (v) Each Letter of Credit shall be issued by an entity described in (vi) The coxnmitment to issue the Letter of Credit to be delivered to the Trustee in connection with a Reset Date and each subsequent Letter of Credit delivered to the Trustee must be accompanied by an opinion of Bond Counsel and an opinion of counsel for the Credit Bank, each addressed to the Trustee, to the effect set forth in Section 5.8( a)( vi). (vii) The commitment to issue the Letter of Credit 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, stating the expected rating on the Bonds, which rating, in any event, without the Issuer’s approval, will not be lower than ”A.” (c) The following requirements shall apply to any Letter of Credit provided in connection with or after Conversion, as applicable: (i) The Letter of Credit commitment provided in connection with Conversion shall be delivered not less than 40 days before the Conversion Date; the Letter of Credit 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 Letter of Credit provided in substitution for any then outstanding Letter of Credit shall be delivered to the Trustee no less than 11 days before the expiration of the then existing Letter of Credit and shall be for a term commencing not later than the expiration date of the prior Letter of Credit; provided, however, the initial Letter of Credit with respect to the Series A Bonds shall be delivered on the Closing Date. (ii) Each Letter of Credit shall be for a term expiring not earlier than the final maturity date of the Bonds, provided that any Letter of Credit may provide that it shall terminate prior to its stated expiration date upon receipt by the Credit Bank of notice from the Trustee that no Bonds remain outstanding or upon the date of issuance and delivery of a substitute Letter of Credit. (iii) Each Letter of Credit 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 18 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 Letter of Credit 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) Each Letter of Credit except the initial Letter of Credit with respect to the Series A Bonds shall be issued by an entity described in Section 5.8(a)(v). (vi) The commitment to issue the Letter of Credit to be delivered to the Trustee in connection with Conversion and each subsequent Letter of Credit delivered to the Trustee must be accompanied by an opinion of Bond Counsel and an opinion of counsel for the Credit Bank, each addressed to the Trustee, to the effect set forth in Section 5.8( a) (vi). (vii) The commitment to issue the Letter of Credit to be delivered to the Trustee in connection with Conversion, as provided in subsection 2.02(d) of 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 “A.” Section 5.9. Standby Letter of Credit. At all times while the Bonds remain outstanding and a Standby Letter of Credit 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 Letter of Credit or Substitute Credit Facility meeting the requirements of this Section or Section 5.10, as the case may be. The initial Letter of Credit is initially secured by the Standby Letter of Credit issued by the Standby Credit Bank. The initial Standby Letter of Credit with respect to the Series A Bonds shall have an initial term of - years and the initial Standby Letter of Credit with respect to the Series B Bonds shall have an initial term of two years. The Borrower shall provide or cause to be provided to the Trustee upon the expiration of the Standby Letter of Credit, a substitute Standby Letter of Credit or Substitute Credit Facility; or, in the alternative, the Credit Bank may provide a substitute Standby Letter of Credit 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 Letter of Credit. The Credit Bank may, at any time, provide a substitute Standby Letter of Credit. The following requirements shall apply to any Standby Letter of Credit provided in connection with the Bonds: (a) The initial Standby Letter of Credit shall be accepted by the Trustee prior to any disbursement by the Trustee of moneys on deposit in the Program Fund. Each Standby Letter of Credit (other than the initial Standby Letter of Credit) shall be for a term expiring not earlier than one year after its effective date; provided, however, that such Standby Letter of Credit may provide that it shall terminate prior to its stated expiration date upon receipt by the Standby Letter of Credit Bank of notice from the Trustee that no Bonds remain Outstanding. (b) (c) Any Standby Letter of Credit 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 19 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. Except for its term, each Standby Letter of Credit 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 Section 2.03 of the Indenture, and shall be in a form acceptable to the Trustee. Each Standby Letter of Credit must be accompanied by (i) an opinion of Bond Counsel to the effect that delivery of the Standby Letter of Credit complies with the provisions of this 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 Bank or other counsel to the effect that the Standby Letter of Credit is a legal, valid and binding obligation of the Standby Credit Bank, enforceable against the Standby Credit Bank 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 Bank and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and Each Standby Letter of Credit (other than the initial Standby Letter of Credit) 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 ”A”, and (ii) the Standby Credit Bank’s address to which notices required to be g~ven to the Standby Credit Bank hereunder and under the Regulatory Agreement, the Indenture and the Remarketing Agreement shall be sent. (d) (e) (f) Section 5.10. Substitute Credit Facility. (a) Subject to the terms of any supplemental indenture entered into in accordance with Article D( of the Indenture and prior to the expiration of the initial Letter of Credit, the Credit Bank or the Borrower shall have the right to provide to the Trustee a Substitute Credit Facility, which meets the requirements set forth in subsection (b) of this Section. The Trustee has been directed pursuant to Section 5.06 of the Indenture to accept any such Substitute Credit Facility. (b) 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 Letter of Credit or Standby Letter of Credit, 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 Letter of Credit or Standby Letter of Credit. Any Substitute Credit Facility must be accompanied by the opinion of Bond Counsel described in subsection 5.9(e) and the statements required in subsection 5.9(f) 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. 20 7% Section 5.11. Title to the Project. The Borrower shall possess a fee simple interest in the Project, free and clear of any lien or encumbrance, except for liens for nondelinquent assessments and taxes not yet due or which are being contested in good faith by appropriate proceedings and any other encumbrances approved by the Credit Bank. Section 5.12. Design and Completion of the Project. To the current actual knowledge of the Borrower, the design, construction and operation of the Project as described herein and in the Regulatory Agreement will not conflict with any zoning, water or air pollution or other resolution, order, law or regulation applicable thereto; the Project will be designed and constructed in accordance with all the applicable federal state and local laws or resolutions (including rules and regulations) relating to zoning, building, safety and environmental quality in effect at the time of construction thereof; and the Borrower has not failed, or will not fail, to obtain and maintain in effect any licenses, permits, franchises or other governmental authorizations necessary for the rehabilitation, operation and conduct of the Project. Section 5.13. No Untrue Statements. Neither this Financing Agreement nor any other document, certificate or written statement furnished to the Trustee, the Credit Bank or the Issuer by the Borrower or any Authorized Borrower Representative contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading or incomplete as of the date of submittal thereof, as of the date of execution hereof and as of the Closing Date. It is specifically understood by the Borrower that all such statements, representations and warranties shall be deemed to have been relied upon by the Issuer as an inducement to make the Loan and that, if any such statements, representations and warranties were materially incorrect at the time they were made or as of the Closing Date, the Issuer may consider any such misrepresentation or breach an Event of Default. Section 5.14. Indenture. The Borrower hereby agrees to all of the terms and provisions of the Indenture and accepts each of its obligations expressed or implied thereunder. The Borrower hereby approves the initial appointment under the Indenture of the Trustee, the Remarketing Agent and the Tender Agent for the Bonds. The Borrower hereby agrees that it will not, and will not permit any general partner or any guarantor of the Borrower to, purchase any Bonds from the Remarketing Agent; provided, however, Bonds tendered for purchase pursuant to Section 2.03 of the Indenture and registered for the account of the Borrower pursuant to Section 8.15 of the Indenture shall not breach the covenant contained in this sentence. Section 5.15. The Borrower covenants to complete the construction of the Project with due diligence and in any event not later than the Completion Date. Upon completion of the acquisition and construction of the Project, the Borrower promptly will provide the Issuer and the Trustee with a Completion Certificate. Completion of the Project. Section 5.16. Deed of Trust. In order to provide additional security for the Bonds, the Borrower shall, concurrently with or before the execution and delivery of the Bonds, execute and deliver the Deed of Trust. The Borrower shall comply with the provisions of the Deed of Trust. The Borrower hereby acknowledges that, in the event of a default under the Deed of Trust that is not cured, such default will constitute a breach of this covenant and if such breach is not cured the Loan may be accelerated. The Borrower represents 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) or the Investment Company Act of 1940. The Borrower shall give notice to the 5.17. Control of Borrower, Credit Bank and Standby Credit Bank. 21 79 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. 22 ARTICLE VI DAMAGE, DESTRUCTION AND CONDEMNATION; USE OF PROCEEDS Section 6.1. Obligation To Continue Payments. If prior to full payment of the Bonds (or provision for payment thereof in accordance with the provisions of the Indenture) the Project or any portion thereof is destroyed (in whole or in part) or is damaged by fire or other casualty, or title to, or the temporary use of, the Project or any portion thereof shall be taken under the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority, the Borrower shall nevertheless be obligated to continue to pay the amounts specified in Article N hereof, to the extent not prepaid in accordance with Article VIII hereof. Section 6.2. Application of Net Proceeds The Net Proceeds, if any, of any insurance or condemnation awards resulting from the damage, destruction or condemnation of the Project or any portion thereof shall be applied in one or more of the following ways at the election of the Borrower by written notice to Issuer, the Credit Bank and the Trustee, such election to be subject to the consent of the Credit Bank as set forth in the Credit Agreement and to any conditions set forth in the Intercreditor Agreement: (a) The prompt repair, restoration, relocation, modification or improvement of the damaged, destroyed or condemned portion of the Project to enable such portion of the Project to accomplish at least the same function as such portion of the Project was designed to accomplish prior to such damage or destruction or exercise of such power of eminent domain. Prepayment of all or a portion of the Loan, subject to and in accordance with Article VI11 hereof, and redemption of Bonds, provided that no part of the Net Proceeds may be applied for such purpose unless (i) the entire amount of the Loan is so prepaid and all of the outstanding Bonds are to be redeemed in accordance with the Indenture or (ii) in the event that only a portion of the Loan is so prepaid, the Borrower shall furnish to the Issuer and the Trustee a certificate of the Authorized Borrower Representative acceptable to the Issuer stating (A) that the property forming part of the portion of the Project that was damaged or destroyed by such casualty or was taken by such condemnation proceedings is not essential to the Borrower’s use or possession of such portion of the Project or (B) that such part of the portion of the Project theretofore completed has been repaired, replaced, restored, relocated, modified or improved to enable such portion of the Project to accomplish at least the same function as such portion of the Project was designed to accomplish prior to such damage or destruction or the taking by such condemnation proceedings. (b) Section 6.3. Insufficiency of Net Proceeds. If the Project or a portion thereof is to be repaired, restored, relocated, modified or improved pursuant to Section 6.2 hereof, and if the Net Proceeds are insufficient to pay in full the cost of such repair, restoration, relocation, modification or improvement, the Borrower will nonetheless complete the work or cause the work to be completed and will pay or cause to be paid any cost in excess of the amount of the Net Proceeds. 23 ARTICLE VI1 EVENTS OF DEFAULT AND REMEDIES Section 7.1. 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 subsection 7.l(b), (c) or (d) hereof 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 Intercreditor Agreement, failure by the Borrower to pay any amounts required to be paid under Section 4.2 hereof at the times specified therein; (c) subject to the provisions of the Intercreditor Agreement, failure by the Borrower to observe and perfom any covenant, condition or agreement on its part required to be observed or performed by this Financing Agreement or Regulatory Agreement, and which continues for a period of 60 days after written notice, specdying 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 Bank, 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 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 Intercreditor Agreement, the making of any representation or warranty by the Borrower in this Financing Agreement, in the Issuer Loan Documents or in any document executed in connection with this Financing Agreement which is false or misleading in any material respect when made; or (e) receipt by the Trustee from the Credit Bank of notice of an event of default under the Credit Agreement and a request that it be treated as an Event of Default hereunder. The provisions of subsection 7.l(c), except with respect to defaults under the Regulatory Agreement or under Section 5.6 hereof, 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 hereunder 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 subsection 7.l(c). Section 7.2. Remedies on Default. (a) Whenever any Event of Default shall have occurred and shall continue, after giving notice to the Credit Bank and subject to any right of the 24 Credit Bank 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 under Section 7.l(a) or at the request or with the consent of the Credit Bank upon the occurrence of any other Event of Default hereunder, by written notice to the Borrower, shall immediately declare to be due and payable immediately the unpaid balance of the Loan. (ii) The Issuer, the Credit Bank 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 this 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 payable as limited only by the provisions of Section 4.3 hereof. (b) In case the Trustee or the Issuer shall have proceeded to enforce its rights under this 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 Bank and the Issuer shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Borrower, the Trustee, the Credit Bank and the Issuer shall continue as though no such action had been taken. (c) 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 this 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 Deed of Trust or this 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 (d) 25 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; 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 (iii) (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 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 Deed of Trust which secures the obligations under this Financing Agreement, for the limited purpose of conducting a foreclosure of such Deed of Trust 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 pursuant to this subsection 7.2(d) shall not be required to meet the criteria of Section 8.07 of the Indenture, or any other criteria, in order to serve as such. Section 7.3. Agreement To Pay Attorneys’ Fees and Expenses. In the event the Borrower should default under any of the provisions of this Financing Agreement and the Issuer or the Trustee should employ attorneys or incur other expenses for the collection of the payments due under this Financing Agreement or the enforcement of performance or observance of any obligation or agreement on the part of the Borrower herein contained, the Borrower agrees to pay to the Issuer or the Trustee the reasonable fees of such attorneys and such other expenses so incurred by the Issuer or the Trustee; provided that California Civil Code Section 1717 relating to prevailing parties shall apply. Section 7.4. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Issuer or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Financing Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right 26 and power may be exercised from time to time and as often as may be deemed expedient. h order to entitle the Issuer or the Trustee to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be herein expressly required or required by law to be given. Such rights and remedies as are given the Issuer hereunder shall also extend to the Trustee, and the Trustee and the holders of the Bonds shall be deemed third-party beneficiaries of all covenants and agreements herein contained. Section 7.5. No Additional Waiver Implied by One Waiver. In the event any agreement or covenant contained in this Financing Agreement should be breached by the Borrower and thereafter waived by the Issuer or the Trustee with the consent of the Credit Bank, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 7.6. Notice of Certain Events. The Borrower hereby covenants to advise the Issuer, the Credit Bank and the Trustee promptly in writing of the occurrence of any Event of Default hereunder or any event which, with the passage of time or service of notice, or both, would constitute an Event of Default hereunder, speclfylng the nature and period of existence of such event and the actions being taken or proposed to be taken with respect thereto. In addition, the Borrower hereby covenants to advise the Issuer, the Credit Bank and the Trustee promptly in writing of the occurrence of any default under the Loan or of the occurrence of an Act of Bankruptcy. 27 ARTICLE VI11 PREPAYMENT Section 8.1. Prepayment of Loan. The Loan shall not be prepaid except as provided in this Section. No prepayment of the 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 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 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 Section 6.2 hereof. (b) The Borrower shall be permitted to prepay the 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 pursuant to subsection 4.01(d) of the Indenture, provided at least 30 days’ notice is given to the Trustee of such redemption and the Credit Bank agrees to include in the amount of the Letter of Credit 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 Loan, upon the occurrence of an Acceleration Default and the acceleration of the Loan pursuant to Section 7.2 hereof, or the Credit Bank’s request for, or consent to, the acceleration of the Loan following any other Event of Default hereunder pursuant to said Section 7.2. (d) The Borrower shall be required to prepay the Loan in whole or in part on the date necessary in order for the Bonds to be redeemed as provided in subsections 4.01(a), (c), (d), (f) and/or (g) of the Indenture. Section 8.2. Redemption of Bonds Upon Prepayment. Upon any prepayment of the Loan as provided in Section 8.1, the Trustee is required by the Indenture to call all or part of the Bonds for redemption and to draw upon the Letter of Credit in the respective amounts set forth in the applicable paragraph of Section 4.01 of the Indenture. Section 8.3. Amount of Prepayment. In the event of any prepayment pursuant to Section 8.1, the amount of the Loan deemed to be prepaid shall be equal to the principal amount of Bonds redeemed as described in Section 8.2 (provided that the Loan shall not, in any event, be considered prepaid as a consequence of any ”deemed redemption” of the Bonds described in Section 7.12 of the Indenture). In the case of prepayment of the 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 this Financing Agreement and shall pay to the Issuer an amount required by subsection 4.2(c). In the case of partial prepayment of the 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 Loan or any part thereof, except in amounts sufficient to redeem Bonds in whole multiples of $100,000 plus any multiple 28 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. In addition, if the Borrower shall prepay the Loan in whole during the Qualified Project Period, as defined in the Regulatory Agreement, the Borrower shall continue to pay the fees and expenses of the Issuer as set forth in the Regulatory Agreement or shall, in lieu thereof, pay to the Issuer, on the date of such prepayment, an amount equal to the present value, as of the date of such prepayment, of the annual fees of the Issuer which would have been payable as provided in subsection 4.2(c) for the remaining term of the Qualified Project Period (such present value calculated based upon the interest rate on a tax-exempt municipal bond with a maturity date equal to the number of years remaining to the original maturity date of the Bonds immediately prior to such prepayment), or such lesser amount as is necessary, in the opinion of Bond Counsel, to preserve the tax-exempt status of interest on the Bonds. 29 ARTICLE IX LIMITATION ON LIABILITY OF ISSUER; EXPENSES; INDEMNIFICATION Section 9.1. Limitation on Liability of Issuer. The Issuer shall not be obligated to pay the principal of, or premium, if any, or interest on the Bonds, except from Revenues. The Borrower hereby acknowledges that the Issuer’s sole source of moneys to repay the Bonds and to pay expenses related thereto will be provided by the payments made by the Borrower pursuant to this Financing Agreement, together with other Revenues, including any drawings under the Letter of Credit and the Standby Letter of Credit or investment income on certain funds and accounts held by the Trustee under the Indenture, and hereby confirms that amounts available pursuant to this Financing Agreement or under the Letter of Credit to pay all principal of, and premium, if any, and interest on the Bonds, as the same shall become due (whether by maturity, mandatory redemption or acceleration), have been calculated to be at all times sufficient for such purpose. Any obligation or liability of the Issuer created by or arising out of this Financing Agreement (including, without limitation, any liability created by or arising out of the representations, warranties or covenants set forth herein or otherwise) shall not impose a debt or pecuniary liability upon the Issuer or a charge upon its general credit, but shall be payable solely out of the Revenues. Neither the issuance of the Bonds nor the delivery of this Financing Agreement shall, directly or indirectly or contingently, obligate the Issuer to make any appropriation for their payment. Nothing in the Bonds or in the Indenture or this Financing Agreement or the proceedings of the Issuer authorizing the Bonds or in the Act or in any other related document shall be construed to authorize the Issuer to create a debt of the Issuer within the meaning of any constitutional or statutory provision of the State of California. No breach of any pledge, obligation or agreement of the Issuer hereunder may impose any pecuniary liability upon the Issuer or any charge upon its general credit. No member, officer, agent, employee or attorney of the Issuer, including any person executing this Financing Agreement, shall be liable personally hereunder or for any reason relating to the issuance of the Bonds. No recourse shall be had for the payment of the principal of or the interest on the Bonds, or for any claim based therein, or otherwise in respect thereof, or based on or in respect of this Financing Agreement or any amendment hereto, against any member, officer, employee or agent, as such, of the Issuer or any successor, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue of the Bonds, expressly waived and released. Section 9.2. Expenses. The Borrower covenants and agrees to pay and to indemrufy the Issuer and the Trustee against all costs and charges, including reasonable fees and disbursements of attorneys, accountants, consultants and other experts, incurred in good faith in connection with this Financing Agreement, the Regulatory Agreement, the Bonds or the Indenture. In the event that the Issuer or the Trustee shall employ any party in connection with this Financing Agreement, the Regulatory Agreement, the Bonds or the Indenture, other than the parties now set forth therein, the Issuer or the Trustee, as applicable, will noti@ the Borrower of such employment. Notwithstanding any transfer of the Project to another owner in accordance with the provisions hereof and of the Regulatory Agreement, the Borrower shall remain obligated to indenuufy each indemnified party pursuant to this Section for its acts and omissions occurring prior to the date of such transfer, if such subsequent owner fails to indenuufy any party entitled 30 88 to be indemnified hereunder, unless such indemnified party has consented to such transfer and to the assignment of the rights and obligations of the Borrower hereunder. In addition thereto, the Borrower will pay upon demand all of the fees and expenses paid or incurred by the Issuer, the Administrator or the Trustee in enforcing the provisions hereof. The provisions of this Section and Section 2.4 and subsections 4.2(b), (c) and (d) shall survive the resignation or removal of the Trustee, the repayment of the Loan and the retirement of the Bonds. Nothing contained herein shall in any way be construed to impose any duties upon the Trustee beyond those contained in the Indenture. All immunities, indemnities, exceptions from liability and other provisions of the Indenture insofar as they relate to the Trustee or the Issuer shall apply to this Financing Agreement. The immunities of the Trustee and the Issuer also extend to their respective directors, officials, employees, agents and representatives. Section 9.3. Indemnification. To the fullest extent permitted by law, the Borrower agrees to indemrufy, hold harmless and defend the Issuer, the Trustee and the Tender Agent, and each of their respective officers, governing members, directors, officials, employees, attorneys and agents, (collectively, the ”Indemnified Parties”), against any and all losses, damages, claims, actions, liabilities, costs and expenses of any conceivable nature, kind or character (including, without limitation, reasonable attorneys’ fees, litigation and court costs, amounts paid in settlement and amounts paid to discharge judgments) to which the Indemnified Parties, or any of them, may become subject under federal or state securities laws or any other statutory law or at common law or otherwise, arising out of or based upon or in any way relating to: with transactions contemplated thereby, including the sale, resale or remarketing of the Bonds; (i) the Issuer Documents or the execution or amendment thereof or in connection (ii) any act or omission of the Borrower or any of its agents, contractors, servants, employees or licensees in connection with the Loan or the Project, the operation of the Project, or the condition, environmental or otherwise, occupancy, use, possession, conduct or management of work done in or about, or from the planning, design, acquisition, construction or development of, the Project or any part thereof; (iii) any lien or charge upon payments by the Borrower to the Issuer and the Trustee hereunder, or any taxes (including, without limitation, all ad valorem taxes and sales taxes), assessments, impositions and other charges imposed on the Issuer or the Trustee in respect of any portion of the Project; (iv) any violation of any environmental law, rule or regulation with respect to, or the the defeasance and/or redemption, in whole or in part, of the Bonds; release of any toxic substance from, the Project or any part thereof; (v) (vi) any declaration of taxability of interest on the Bonds, or allegations or regulatory inquiry that interest on the Bonds is taxable, for federal tax purposes. (vii) any untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of a material fact furnished in writing by the Borrower contained in any offering statement or document for the Bonds or any of the documents relating to the Bonds to which the Borrower is a party, or any omission or alleged omission from any offering 31 statement or document for the Bonds of any material fact necessary to be stated therein in order to make the statements made therein by the Borrower, in the light of the circumstances under which they were made, not misleading; (viii) the Trustee’s acceptance or administration of the trust of the Indenture, or the exercise or performance of any of its powers or duties thereunder or under any of the documents relating to the Bonds to which it is a party; except (a) in the case of the foregoing indemnification of the Trustee or the Tender Agent or any of their respective officers, members, directors, officials, employees, attorneys and agents, to the extent such damages are caused by the negligence or willful misconduct of such Indemnified Party; or (b) in the case of the foregoing indemnification of the Issuer or any of its officers, members, directors, officials, employees, attorneys and agents, to the extent such damages are caused by the willful misconduct of such Indemnified Party. 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 by the Indemnified Party, and 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 the Indemnified Party shall have the right to review and approve or disapprove any such compromise or settlement. Each Indemnified Party shall have the right 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; provided, however, that such Indemnified Party may only employ separate counsel at the expense of the Borrower if in its judgment a conflict of interest exists by reason of common representation or if all parties commonly represented do not agree as to the action (or inaction) of counsel. (ix) The rights of any persons to indemnity hereunder and rights to payment of fees and reimbursement of expenses pursuant to Sections 4.2, 7.3 and 9.2 hereof shall survive the final payment or defeasance of the Bonds and in the case of the Trustee any resignation or removal. The provisions of this Section shall survive the termination of this Agreement. 32 ARTICLE X MISCELLANEOUS Section 10.1. Notices. All notices, certificates or other communications shall be deemed sufficiently given on the earlier of the date of receipt thereof or the third day following the day on which the same have been mailed by first-class mail, postage prepaid, hand-delivery, express mail service or telecommunicated, addressed to the Issuer, the Borrower, the Trustee or the Credit Bank at the respective addresses set forth in Section 11.06 of the Indenture. A duplicate copy of each notice, certificate or other communication given hereunder by either the Issuer or the Borrower to the other shall also be given to the Trustee and the Credit Bank. Failure to provide any such duplicate notice pursuant to the foregoing sentence, or any defect in any such duplicate notice so provided, shall not be treated as a failure to give the primary notice or affect the validity thereof or the effectiveness of any action taken pursuant thereto. The Issuer, the Borrower, the Trustee and the Credit Bank may, by notice given hereunder, designate any different addresses to which subsequent notices, certificates or other communications shall be sent. Section 10.2. Severability. If any provision of this Financing Agreement shall be held or deemed to be, or shall in fact be, illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative or unenforceable to any extent whatever. Section 10.3. Execution of Counterparts. This Financing 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; provided, however, that, for purposes of perfecting a security interest in this Financing Agreement by the Trustee under Article 9 of the California Uniform Commercial Code, only the counterpart delivered, pledged and assigned to the Trustee shall be deemed the original. Section 10.4. Amendments, Changes and Modifications. Except as otherwise provided in this Financing Agreement or the Indenture, subsequent to the initial issuance of Bonds and prior to their payment in full, or provision for such payment having been made as provided in the Indenture, this Financing Agreement may be effectively amended, changed, modified, altered or terminated only by written instrument executed by the parties hereto and only with the written consent of the Credit Bank. Section 10.5. Governing Law. This Financing Agreement shall be governed exclusively by and construed in accordance with the applicable laws of the State of California. Section 10.6. Authorized Representatives. Whenever under the provisions of this Financing Agreement the approval of the Borrower or the Issuer or the Credit Bank is required for any action, and whenever the Borrower or the Issuer or the Credit Bank is required to deliver any notice or other writing, such approval or such notice or other writing shall be given, respectively, on behalf of the Borrower by the Authorized Borrower Representative and on behalf of the Issuer by the Authorized Issuer Representative and on behalf of the Credit Bank by the Authorized Bank Representative, and the Issuer, the Trustee, the Credit Bank and the Borrower shall be authorized to act on any such approval or notice or other writing and none of the parties hereto nor the Credit Bank shall have any complaint against the other or against the Trustee as a result of any such action taken. Section 10.7. Term of the Agreement. This Financing Agreement shall be in full force and effect from the date hereof and shall continue in effect as long as any of the Bonds are 33 outstanding or the Trustee holds any moneys under the Indenture, whichever is later. The provisions of Section 9.3 and all representations, certifications and covenants by the Borrower as to all matters affecting the tax-exempt status of the Bonds shall survive the termination of this Financing Agreement. Section 10.8. Binding Effect; Third-party Beneficiary. This Financing Agreement shall inure to the benefit of and shall be binding upon the Issuer, the Trustee, the Borrower and their respective successors and assigns, subject, however, to the limitations contained in Section 5.2 hereof. The Credit Bank and the Standby Credit Bank are intended to be third-party beneficiaries of this Financing Agreement to the extent the provisions hereof make reference to the Credit Bank or the Standby Credit Bank. Role of Trustee. The Trustee is entering into this Financing Agreement solely in its capacity as Trustee, and all provisions of the Indenture relating to the rights, privileges, powers and protections of the Trustee, including without limitation those set forth in Article VI11 of the Indenture, shall apply with equal force and effect to all actions taken by the Trustee in connection with this Financing Agreement. Section 10.9. Section 10.10. References to the Credit Bank; Other Documents. All provisions hereof regarding consents, approvals, directions, waivers, appointments, requests or other actions by the Credit Bank shall be deemed not to require or permit such consents, approvals, directions, waivers, appointments, requests or other actions and shall be read as if the Credit Bank, was not mentioned therein (a) during any period that a payment default under the Letter of Credit exists, or (b) after the Standby Letter of Credit shall at any time for any reason cease to be valid and binding on the Credit Bank or shall be declared to be null and void by final judgment of a court of competent jurisdiction, or after the Standby Credit Bank has rescinded, repudiated or terminated the Standby Letter of Credit in writing; provided, however, that the payment of amounts due (including without limitation all indemnity payments) to the Credit Bank pursuant to the terms hereof shall continue in full force and effect. The foregoing shall not affect any other rights of the Credit Bank. All provisions herein relating to the rights of the Credit Bank or the Standby Credit Bank shall be of no force and effect if there is no Letter of Credit or Standby Letter of Credit in effect and all amounts owing to the Credit Bank under the Credit Agreement have been paid. lit such event, all references to the Credit Bank shall have no force or effect. The Credit Bank shall be entitled to enforce its rights hereunder as a third party beneficiary hereof; provided that the Issuer shall be under no obligation to enforce any of such rights. Nothing contained herein or in any other document, including without limitation the Credit Agreement or any other document to which the Credit Bank is a party, shall be construed to impose on the Issuer any obligation to enforce or to assist any other party in enforcing any provision of any document to which the Issuer is not a party. Section 10.11. Replacement Financing Agreement. Notwithstanding the provisions of the Indenture, upon Loan Conversion and the Financing Agreement executed and delivered by the Issuer and the Trustee on the Closing Date in the form attached here to as Exhibit C, shall become effective on the date of Loan Conversion and the terms and provisions of this Financing Agreement executed and delivered on the original date of issuance and delivery of the Bonds shall be of no further affect and shall be null and void. 34 IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to be executed by their duly authorized representatives as of the date of execution set forth below. CITY OF CARLSBAD By: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: Authorized Officer CIC CALAVERA, L.P., a California limited partnership By: Pacific Southwest Community Development Corporation, a California nonprofit public benefit corporation Its: Managing General Partner Michael T. Walsh Executive Director/President By: CIC Calavera Hills II, LLC, a California limited liability company Its: Co- General Partner By: James J. Schmid Manager 35 93 EXHIBIT A FORM OF FUNDING REQUISITION CITY OF CARLSBAD VARIABLE RATE DEMAND MULTIFAMILY HOUSING REVENUE BONDS (MARIPOSA APARTMENTS) Program Fund Requisition No. To: , as Trustee We hereby request that the sum of $ to be disbursed from the Series ___ Account of the Program Fund for the items described on Exhibit A Hereto, to be paid to the persons or entities as described on said Exhibit A. The undersigned hereby represents that: each obligation to which the amount specified above relates is a Project Cost, has been properly incurred, is a proper charge against the Program Fund and has not been the basis of any previous disbursement; the expenditure of such disbursement, when added to all previous disbursements from the Program Fund, will result in not less than 95% of all disbursements from the Program Fund having been used or deemed used to pay or reimburse the Borrower for Qualified Project Costs and not more than 25% of all disbursements from the Program Fund having been used or deemed used to pay for the acquisition of land or any interest therein]; and the Regulatory Agreement and the Deed of Trust are in full force and effect and no event of default has occurred and is continuing under either such document. Dated: CIC CALAVERA, L.P., a California limited partnership By: Pacific Southwest Community Development Corporation, a California nonprofit public benefit corporation Its: Managing General Partner By: Michael T. Walsh Executive Director/President By: CIC Calavera Hills 11, LLC, a California limited liability company Its: Co- General Partner By: James J. Schmid Manager 2 DISBURSEMENTS CONSENTED TO BY: , as Credit Bank Authorized Bank Representative BY A-1