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HomeMy WebLinkAbout2011-04-26; City Council; 20515 EXHIBIT 2b; SUBSTITUTE CREDIT FACILITY SANTA FE RANCH APTSEXHIBIT A FORM OF BOND NO. R- $[AMOUNT] UNITED STATES OF AMERICA STATE OF CALIFORNIA COUNTY OF SAN DIEGO CITY OF CARLSBAD, CALIFORNIA VARIABLE RATE DEMAND MULTIFAMILY HOUSING REVENUE BOND SERIES A OF 1993 (SANTA FE RANCH APARTMENTS F/K/A LA COSTA APARTMENTS PROJECT) UNLESS THIS BOND CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. INTEREST RATE MATURITY DATE DATED DATE CUSIP NO. Junel,20_ May _, 2011 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: AND NO/100 DOLLARS The City of Carlsbad, California (the "Issuer"), a municipal corporation of the State of California (the "State"), for value received, hereby promises (but solely from the sources hereinafter described) to pay to the registered owner identified above, or registered assigns, on the maturity date set forth above, unless previously called for redemption, the principal sum as set forth above, together with interest thereon at the rate provided in the hereinafter defined Indenture from the Interest Payment Date (as defined below) next preceding the date of authentication of this Bond to which interest has been paid or duly provided for, unless the date of authentication is an Interest Payment Date to which interest has been paid or duly provided for, in which case from the date of authentication of this Bond, or unless no interest has been paid or duly provided for on this Bond, in which case from the Dated Date set forth above, until the principal amount hereof shall have been A-l DOCSOC/l 480309v4/022062-0029 fully paid, at the rate per annum provided in the Indenture, payable (a) during the Variable Period, on the first (1st) Business Day of each calendar month for the preceding calendar month, commencing June 1, 2011 for the period from and including May 2, 2011 to and including May 31, 2011, (b) during a Reset Period or the Fixed Rate Period, on June 1 and December 1 of each year, (c) on each Reset Adjustment Date, Variable Rate Adjustment Date or the Conversion Date and on the maturity date of this Bond (the "Interest Payment Dates"), calculated as provided in the Indenture (as defined below). Notwithstanding the foregoing, if this Bond is authenticated after a Record Date and before the following Interest Payment Date, this Bond shall bear interest from such Interest Payment Date; provided, however, that if there shall be a default in the payment of interest due on such Interest Payment Date, then this Bond shall bear interest from the next preceding Interest Payment Date to which interest has been paid or duly provided for, or, if no interest has been paid or duly provided for on this Bond, from the Dated Date set forth above. Payment of principal, premium, if any, and interest on this Bond are payable in lawful money of the United States of America and shall be made by check mailed to the registered owner of this Bond as such address shall appear on the registration books for the Bonds (a) during the Variable Period, on the Business Day immediately preceding an Interest Payment Date, and (b) during a Reset Period or the Fixed Rate Period, on the 15th day of the month preceding each Interest Payment Date (a "Record Date") or, upon written request of a registered owner of at least $1,000,000 aggregate principal amount of the Bonds received by U.S. Bank National Association, as trustee (together with any successor trustee appointed in accordance with the terms of the hereinafter defined Indenture, the "Trustee"), at least five (5) days prior to a Record Date, by wire transfer of immediately available funds to an account designated by such owner, less any reasonable wire transfer fees imposed by the Trustee. All capitalized terms not defined herein shall have the meaning set forth in the Second Amended and Restated Indenture of Trust dated as of May 1, 2011 by and between the Issuer and the Trustee (the "Indenture"). This Bond is one of a duly authorized issue of bonds of the Issuer known as its Variable Rate Demand Multifamily Housing Revenue Refunding Bonds Series A of 1993 (Santa Fe Ranch Apartments f/k/a La Costa Apartments Project), issued in the aggregate principal amount of $15,920,000 (the "Bonds") under and pursuant to the Constitution and the laws of the State, and resolutions adopted by the Issuer on May 11, 1993, May 14, 2002 and April 26, 2011 (collectively, the "Resolution"). The Bonds are special, limited obligations of the Issuer payable solely from and secured by the Trust Estate pledged therefor pursuant to the Indenture. The Bonds are issued to provide funds to refinance a multifamily housing development (the "Project") located in Carlsbad, San Diego County, California, owned by Santa Fe Ranch, LLC, a Delaware limited liability company (the "Borrower"). The Bonds are issuable as fully registered bonds in Authorized Denominations of $100,000 or integral multiples of $5,000 in excess of $100,000 during any period the Bonds bear interest at a rate determined weekly (the "Variable Rate"), and $5,000 or integral multiples thereof during any period that the rate of interest on the Bonds is fixed for a period of one (1) year or more or such shorter period as may be approved by the Credit Facility Provider (a "Reset Period") or fixed to the maturity date of the Bonds (the "Fixed Rate Period"). To secure its obligation to make payments on the Bond Mortgage Note in accordance with its terms, the Borrower has caused to be delivered to the Trustee the Bond Mortgage, and, to secure the payment of the principal of and interest on and purchase price of the Bonds, the Borrower has caused the Credit Facility to be delivered to the Trustee. A-2 DOCSOC/1480309v4/022062-0029 Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the trust estate under the Indenture, the nature and extent of the security, the terms and conditions upon which the Bonds are issued and secured and the rights of the holders thereof, to all of the provisions of which Indenture the registered owner of this Bond, by acceptance hereof, assents and agrees. This Bond is equally and ratably secured under the Indenture with all other Bonds issued thereunder. Variable Interest Accrual Period. From the date of issuance of the Bonds to, but excluding, the earlier of (a) the date of adjustment to a Reset Rate (a "Reset Adjustment Date") or the Fixed Rate (a "Conversion Date") or (b) the maturity date specified above, this Bond shall bear interest at the Variable Rate determined by the Remarketing Agent, as provided in the Indenture, for each seven-day period from Thursday of a calendar week for which the Variable Rate is to be determined. Interest on the Bonds during the Variable Period shall be computed on the basis of a 365- or 366-day year, as applicable, for the actual number of days elapsed. Bonds purchased with proceeds made available under the Credit Facility shall bear interest at the rate established pursuant to the Reimbursement Agreement, provided that in no event shall such rate exceed the Maximum Rate of interest which may be charged pursuant to the terms of the Indenture. Reset Period. The Borrower may, upon compliance with certain conditions of the Indenture, cause the interest rate on the Bonds to be adjusted to a Reset Rate, which shall be determined by the Remarketing Agent as provided in the Indenture. During the Reset Period, the Bonds shall bear interest at the Reset Rate, payable on each Interest Payment Date (commencing on the first Interest Payment Date occurring at least 30 days after the Reset Adjustment Date) to and including the next succeeding Reset Adjustment Date. Such interest shall be computed on the basis of a year of three hundred and sixty (360) days of twelve (12) thirty (30) day months. At the conclusion of a Reset Period, the Borrower may, upon compliance with certain conditions of the Indenture, cause the interest rate on the Bonds to be adjusted to a Variable Rate, a new Reset Date or a Fixed Rate, which shall be determined and redetermined by the Remarketing Agent as provided in the Indenture. Fixed Rate Period. The Borrower may, upon compliance with certain conditions of the Indenture, cause the interest rate on the Bonds to be adjusted to a Fixed Rate, which shall be determined by the Remarketing Agent as provided in the Indenture. During the Fixed Rate Period, the Bonds shall bear interest at the Fixed Rate, payable on each Interest Payment Date (commencing on the first Interest Payment Date occurring at least 30 days after the Conversion Date) to and including the maturity of the Bonds. Such interest shall be computed on the basis of a year of three hundred and sixty (360) days of twelve (12) thirty (30) day months. Redemption. The Bonds are subject to optional and mandatory redemption or purchase in lieu of redemption in accordance with the provisions of the Indenture. Purchase in Lieu of Redemption. At any time that Bonds are subject to redemption in whole pursuant to the Indenture the Trustee may purchase such Bonds for the account of the Borrower or the Credit Facility Provider. The Purchase Price of such Bonds, excluding accrued interest, shall not exceed the applicable redemption price of the Bonds that would otherwise have been redeemed. Purchase of Bonds at Option of Registered Owner. During the Variable Period, this Bond shall be purchased by the Trustee as Tender Agent (the "Tender Agent"), on behalf of and as agent A-3 DOCSOC/1480309v4/022062-0029 for the owner of this Bond, on the demand of the beneficial owner the Bond, on any Business Day at a Purchase Price equal to one hundred percent (100%) of the principal amount thereof plus accrued interest, if any, to the date of purchase upon delivery to the Tender Agent, at its Principal Office specified in the Indenture, of a notice as required by the Indenture (a "Tender Notice"). The date stated in the Tender Notice on which such Bond shall be purchased shall be a Business Day not prior to the seventh day next succeeding the date of delivery of such notice to the Tender Agent. Mandatory Tender on Certain Dates. The registered owners of the Bonds shall be required to tender their Bonds to the Tender Agent for purchase by the Trustee on behalf of and as agent for the owner of the Bonds for a Purchase Price equal to one hundred percent (100%) of the principal amount thereof plus accrued interest to the applicable Settlement Date on each Reset Adjustment Date, each Variable Rate Adjustment Date, the Conversion Date, and on the date of any substitution of any Alternate Credit Facility pursuant to the Indenture (even if such Reset Adjustment Date, Variable Rate Adjustment Date, the Conversion Date or any Substitution Date fails to occur). In the event of a redemption of less than all of the Bonds, the Bonds shall be selected by lot. Bonds shall only be redeemed in Authorized Denominations. Unless notice of redemption is not required under this Bond and the terms of the Indenture, notice of redemption of this Bond shall be given by first class mail, postage prepaid, to the registered owner hereof at the address of such owner shown on the registration books maintained by the Trustee, as bond registrar. All such notices shall be given not less than ten (10) days (not less than thirty (30) days in the case of optional or mandatory sinking fund redemptions) nor more than sixty (60) days prior to the date fixed for redemption. Notice shall also be sent by certified mail, overnight delivery service or other secure means, postage prepaid, to the Credit Facility Provider and to certain information services as described in the Indenture. Failure to give notice by mailing to the registered owner of any Bond designated for redemption shall not affect the validity of the proceedings for the redemption of any other Bond if notice shall have been mailed as herein provided. The Trustee may provide a conditional notice of optional redemption upon the direction of the Credit Facility Provider or the Borrower (with the prior written consent of the Credit Facility Provider). The owner of this Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any event of default under the Indenture, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture. Modifications or alterations of the Indenture or of any indenture supplemental thereto may be made only to the extent and in the circumstances permitted by the Indenture. This Bond is transferable by the registered owner hereof in person or by such owner's attorney duly authorized in writing at the principal corporate trust office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer, a new registered Bond or Bonds of the same series, maturity and interest rate and of authorized denomination or denominations for the same aggregate principal amount will be issued to the transferee in exchange therefore. The Bonds are issuable only as fully registered Bonds without coupons. A-4 DOCSOC/1480309v4/022062-0029 The Issuer and the Trustee may deem and treat the registered holder hereof as the absolute owner hereof for the purpose of receiving payment of or on account of principal hereof and interest due hereon and for all other purposes and neither the Issuer nor the Trustee shall be affected by any notice to the contrary. This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until this Bond shall have been authenticated by the certificate of the Trustee endorsed hereon. In the event of a conflict between the terms of this Bond and the Indenture, the terms of the Indenture shall control. It is hereby certified, recited and declared that all acts, conditions and things required to exist, happen and be performed precedent to and in the execution and delivery of the Indenture and the issuance of this Bond do exist, have happened and have been performed in the time, form and manner as required by law; that payment in full for this Bond has been received; and that this Bond and the issue of which it forms a part does not exceed or violate any constitutional or statutory limitation. A-5 DOCSOC/1480309v4/022062-0029 IN WITNESS WHEREOF, the Issuer has caused this Bond to be duly executed by the facsimile signature of its Mayor and attested by the facsimile signature of its Assistant City Clerk. [SEAL] CITY OF CARLSBAD, CALIFORNIA By: Mayor ATTEST: By: City Clerk A-6 DOCSOC/1480309v4/022062-0029 CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds issued under the provisions of and described in the within- mentioned Indenture. Date of Authentication: May , 2011 U.S. BANK NATIONAL ASSOCIATION By: Authorized Officer DOCSOC/1480309v4/022062-0029 A-7 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (Please insert Social Security Number or other identifying number of assignee) (Please print or Typewrite Name and Address of Assignee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises. Dated: . Signature Guaranteed NOTICE: Signature(s) must be guaranteed by an eligible guaranty institution. Signature NOTICE: The Signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatever. A-8 DOCSOC/1480309v4/022062-0029 EXHIBIT B FORM OF TENDER NOTICE City of Carlsbad, California Variable Rate Demand Multifamily Housing Revenue Refunding Bonds Series A of 1993 (Santa Fe Ranch Apartments f/k/a La Costa Apartments Project) TO: U.S. Bank National Association, as Tender Agent Notice is hereby given pursuant to Section 10.01 of the Second Amended and Restated Indenture of Trust dated as of May 1, 2011 (the "Indenture") pursuant to which the above-captioned bonds (the "Bonds") are issued and outstanding, that the undersigned Bondholder demands the purchase of $ in aggregate principal amount of Bonds, on , which date is a Business Day not prior to the seventh (7th) day next succeeding the date of your receipt of this Notice. The demand for purchase is irrevocable. Date: Authorized Signature Copies to: Stern Brothers & Co., Remarketing Agent B-l DOCSOC/1480309v4/022062-0029 Table of Contents ARTICLE I DEFINITIONS Section 1.01. Definitions 5 Section 1.02. Interpretation 17 ARTICLE II THE BONDS Section 2.01. Basic Terms 18 Section 2.02. Determination of Interest Rate and Establishment of Principal Payment Dates 19 Section 2.03. Limited Obligations 24 Section 2.04. Indenture Constitutes Contract 25 Section 2.05. Execution 25 Section 2.06. Authentication 25 Section 2.07. Mutilated, Lost, Stolen or Destroyed 25 Section 2.08. Transfer and Exchange; Persons Treated as Owners 25 Section 2.09. Temporary Bonds 26 Section 2.10. Remarketing of Bonds 26 Section 2.11. Deposit to Cost of Issuance Fund 27 Section 2.12. Book-Entry Only System of Registration 27 Section 2.13. Mandatory Tender of Bonds on Substitution Date 29 ARTICLE III REDEMPTION OF BONDS PRIOR TO MATURITY Section 3.01. Redemption of Bonds Prior to Maturity 30 Section 3.02. Selection of Bonds for Redemption 32 Section 3.03. Notice of Redemption 32 Section 3.04. Cancellation 33 Section 3.05. Effect of Notice of Redemption 33 Section 3.06. Purchase of Bonds in Whole in Lieu of Redemption 34 Section 3.07. Cancellation of Purchased Bonds 34 ARTICLE IV REVENUES AND FUNDS Section 4.01. Pledge of Revenues and Assets 35 Section 4.02. Establishment of Funds 35 Section 4.03. Application of Revenues 35 Section 4.04. Application of Bond Fund 37 DOCSOC/1480309v4/022062-0029 Table of Contents (continued) Page Section 4.05. Application of Redemption Fund 37 Section 4.06. Application of Administration Fund 37 Section 4.07. Investment of Funds 38 Section 4.08. Moneys Held for Particular Bonds; Funds Held in Trust 39 Section 4.09. Accounting Records 39 Section 4.10. Amounts Remaining in Funds 39 Section 4.11. Rebate Fund 40 Section 4.12. Cost of Issuance Fund 41 Section 4.13. Reports From the Trustee 41 Section 4.14. Drawings Under Credit Facility 41 Section 4.15. Notices Under Credit Enhancement Agreement 42 ARTICLE V GENERAL COVENANTS AND REPRESENTATIONS Section 5.01. Payment of Principal and Interest 43 Section 5.02. Performance of Covenants 43 Section 5.03. Instruments of Further Assurance 43 Section 5.04. Inspection of Project Books 43 Section 5.05. No Modification of Security; Additional Indebtedness 43 Section 5.06. Damage, Destruction or Condemnation 43 Section 5.07. Tax Covenants 44 Section 5.08. Representations and Warranties of the Issuer 44 ARTICLE VI DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section 6.01. Events of Default 46 Section 6.02. Acceleration; Other Remedies Upon Event of Default 46 Section 6.03. Rights of Bondholders 48 Section 6.04. Waiver by the Issuer 48 Section 6.05. Application of Moneys After Default 48 Section 6.06. Rights of the Credit Facility Provider 50 Section 6.07. Remedies Vested in Trustee 50 Section 6.08. Remedies of Bondholders 50 Section 6.09. Termination of Proceedings 51 Section 6.10. Waivers of Events of Default 51 Section 6.11. Notice to Bondholders if Default Occurs 51 ARTICLE VII CONCERNING THE TRUSTEE Section 7.01. Standard of Care 53 ii DOCSOC/1480309v4/022062-0029 Table of Contents (continued) Section 7.02. Reliance Upon Documents 54 Section 7.03. Use of Proceeds 56 Section 7.04. Trustee May Hold Bonds 56 Section 7.05. Trust Imposed 56 Section 7.06. Compensation of Trustee 56 Section 7.07. Maintenance of Office 56 Section 7.08. Successor Trustee 57 Section 7.09. Resignation by the Trustee 57 Section 7.10. Removal of the Trustee 57 Section 7.11. Appointment of Successor Trustee 57 Section 7.12. Concerning Any Successor Trustee 58 Section 7.13. Successor Trustee as Trustee, Paying Agent and Bond Registrar 58 Section 7.14. Co-Trustee or Separate Trustee 58 Section 7.15. Compliance of Borrower Under Tax Regulatory Agreement 60 Section 7.16. Limitation on Action by Trustee 60 ARTICLE VIII SUPPLEMENTAL INDENTURES AND AMENDMENTS OF CERTAIN DOCUMENTS Section 8.01. Supplemental Indentures Not Requiring Consent of Bondholders 61 Section 8.02. Supplemental Indentures Requiring Consent of Bondholders 61 Section 8.03. Amendments to Financing Agreement Not Requiring Consent of Bondholders 63 Section 8.04. Amendments to Financing Agreement Requiring Consent of Bondholders 63 Section 8.05. Amendments to the Credit Facility 64 ARTICLE IX SATISFACTION AND DISCHARGE OF INDENTURE Section 9.01. Discharge of Lien 65 Section 9.02. Discharge of Liability 66 Section 9.03. Payment after Discharge of Indenture 66 Section 9.04. Deposit of Money or Securities with Trustee 66 ARTICLE X REMARKETING AND PURCHASE OF BONDS Section \Q.Q\. Demand for and Mandatory Purchase of Bonds 68 Section 10.02. Mandatory Tender of Bonds 69 Section 10.03. Remarketing ofBonds 69 Section 10.04. Purchase of Bonds not Remarketed 70 Section 10.05. Remarketing Agent 71 Section 10.06. Qualifications and Resignation or Removal of Remarketing Agent 72 Section 10.07. Tender Agent 72 DOCSOC/1480309v4/022062-0029 Table of Contents (continued) Section 10.08. Qualifications of Tender Agent 74 Sectionl0.09.Dealing in Bonds 74 Section 10.10. Purchased Bonds 75 ARTICLE XI MISCELLANEOUS Section \\.Ol.Consents and Other Instruments of Bondholders 76 Section \\.Q2.Limitation of Rights 76 Section \\.Q3.Construction of Conflicts; Severability 76 Section \\.M.Notices 77 Section \\.Q5.Trustee as Paying Agent and Bond Registrar 79 Section \\.Q6.PaymentsDue on Non-Business Days 79 Section \\.Ql.Counterparts 79 Section 11.08. Laws Governing Indenture and Administration of Trust 79 Section \\.09.NoRecourse 79 Section 11.10. Successors and Assigns 80 EXHIBIT A - FORM OF BOND EXHIBIT B - FORM OF TENDER NOTICE DOCSOC/1480309v4/022062-0029 RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: ROBERT J. WHALEN, ESQ. STRADLING YOCCA CARLSON & RAUTH 660 Newport Center Drive, Suite 1600 Newport Beach, California 92660 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS By and Among CITY OF CARLSBAD and U.S. BANK NATIONAL ASSOCIATION, as Trustee and SANTA FE RANCH, LLC DATED AS OF MAY 1, 2011 Relating to $15,920,000 CITY OF CARLSBAD, CALIFORNIA VARIABLE RATE DEMAND MULTIFAMILY HOUSING REVENUE REFUNDING BONDS SERIES A OF 1993 (SANTA FE RANCH APARTMENTS f/k/a LA COSTA APARTMENTS PROJECT) DOCSOC/1480076v3/022062-0029 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS (the "First Amendment") is made and entered into as of May 1, 2011, by and among CITY OF CARLSBAD, a municipal corporation organized and existing under the Constitution and laws of the State of California (together with any successor to its rights, duties and obligations, the "City"), U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States authorized to accept and execute trusts of the type contemplated by the Indenture (as hereinafter defined), with a corporate trust office in San Francisco, California, as Trustee, also known as "U.S. Bank, N.A." (the "Trustee"), and SANTA FE RANCH, LLC, a Delaware limited liability company (the "Owner"), and amends, in part, that certain Second Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2002 recorded on May 23, 2002 as Document No. 2002-0437976 in the Official Records of the County of San Diego, California, as amended (the "Regulatory Agreement"). WITNESSETH: WHEREAS, the City has adopted a program to finance the construction of multifamily rental housing pursuant to Chapter 7 of Part 5 of Division 31 of the Health and Safety Code of the State of California (the "Act"); and WHEREAS, the City is a political subdivision within the meaning of that term in the Regulations of the Department of Treasury and the rulings of the Internal Revenue Service prescribed and promulgated pursuant to the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, on March 19, 1985, the City Council of the City adopted a resolution (the "Resolution") authorizing the issuance of revenue bonds in connection with a multifamily rental housing project of La Costa Partners, a California general partnership (the "Original Owner"); and WHEREAS, in furtherance of the purposes of the Act and the Resolution and as a part of the City's plan of financing residential rental housing, the City issued $15,920,000 aggregate principal amount of its revenue bonds designated "City of Carlsbad, California, Multifamily Housing Revenue Bonds, Series A of 1985 (La Costa Apartments Project)" (the "Prior Bonds"), secured by an Indenture of Trust dated as of April 1, 1985, between the City and The Bank of California, N.A. (the "Prior Bonds Trustee") to finance the cost of a 320-unit multifamily residential rental development (the "Project"), for the public purpose of providing decent, safe and sanitary housing, the proceeds of which were loaned to the Original Owner; and WHEREAS, on May 27, 1993, the City issued refunding bonds (the "Bonds") to refund the Prior Bonds and make a mortgage loan (the "Loan") to the Original Owner to refinance the Project; and DOCSOC/1480076v3/022062-0029 WHEREAS, on June 25, 1998, the Original Owner sold the Project to The Northwestern Mutual Life Insurance Company (the "Prior Owner"), who, concurrently with the recordation of the Regulatory Agreement, sold the Project to the Owner; and WHEREAS, on May 23, 2002, the Federal Home Loan Mortgage Corporation ("Freddie Mac") delivered its Credit Enhancement Agreement for the Bonds pursuant to the Indenture; and WHEREAS, the Freddie Mac Credit Enhancement Agreement is expiring on June 6, 2011 and is being replaced by a letter of credit from Wells Fargo Bank, National Association (the "Credit Facility"), which replacement requires that certain amendments be made to the Regulatory Agreement; NOW, THEREFORE, in consideration of the mutual covenants and undertakings set forth herein, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the City, the Trustee and the Owner hereby agree as follows: 1. DEFINITIONS. The definition of "Freddie Mac" in Section 1 of the Regulatory Agreement is deleted. The following terms in Section 1 of the Regulatory Agreement are amended to read as follows, unless the context in which they are used clearly requires otherwise: "Credit Facility Provider" - The Credit Facility Provider then obligated under the Credit Facility in effect under the Indenture. "Intercreditor Agreement" - The Intercreditor Agreement dated as of May 1, 2011 among the City, the Trustee and the Credit Facility Provider, as the same may be amended or supplemented, and any future agreement with a Credit Facility Provider that replaces the Intercreditor Agreement in effect with the previous Credit Facility Provider. "Note" - The Second Amended and Restated Promissory Note from the Owner to the City evidencing the Loan, dated as of May 1, 2011, as amended from time to time. 2. NOTICE ADDRESS FOR CREDIT FACILITY PROVIDER. A copy of any notice delivered to the Owner under the Regulatory Agreement shall also be sent to the Credit Facility Provider. Any notice required to be given under the Regulatory Agreement shall be delivered to the Credit Facility Provider at the following address: Credit Facility Provider: Wells Fargo Bank, National Association 123 N. Wacker Drive, Suite 1900 Chicago, Illinois 60606 Attention: Brett Hill Facsimile: (312)269-4812 Telephone: (312) 782-0969 with a copy to: Wells Fargo Bank, N.A. Minneapolis Loan Center 608 2nd Avenue South, 11th Floor Minneapolis, Minnesota 55402 Attention: Manager DOCSOC/1480076v3/022062-0029 3. ELIMINATION OF EXHIBIT D. Exhibit D to the Regulatory Agreement, and all references in the Regulatory Agreement to Exhibit D, are deleted in their entirety. 4. REGULATORY AGREEMENT REMAINS IN EFFECT. Except as expressly amended by this First Amendment, the Regulatory Agreement remains in full force and effect and has not otherwise been amended. 5. EFFECTIVE DATE. This First Amendment shall take effect on the date of delivery of the Credit Facility. 6. MULTIPLE COUNTERPARTS. This First Amendment may be simultaneously executed in multiple counterparts, all of which shall constitute one and the same instrument, and each of which shall be deemed to be an original. DOCSOC/1480076v3/022062-0029 IN WITNESS WHEREOF, the City, the Trustee and the Owner have executed this Amendment by duly authorized representatives. CITY OF CARLSBAD By: City Manager ATTEST: City Clerk S-l DOCSOC/1480076v3/022062-0029 U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Authorized Officer S-2 DOCSOC/1480076v3/022062-0029 SANTA FE RANCH, LLC, a Delaware limited liability company By: CAS A Partners II, L.P., an Illinois limited partnership, its sole member By: Henderson Global Investors GP, L.L.C., a Delaware limited liability company, its general partner By: Brian Eby Vice President S-3 DOCSOC/1480076v3/022062-0029 CONSENTED TO BY: WELLS FARGO BANK, NATIONAL ASSOCIATION By: Authorized Officer S-4 DOCSOC/1480076v3/022062-0029 STATE OF CALIFORNIA ) ) ss. COUNTY OF ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC DOCSOC/1480076v3/022062-0029 STATE OF CALIFORNIA ) ) ss. COUNTY OF ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC DOCSOC/l 480076v3/022062-0029 STATE OF ILLINOIS ) ) ss. COUNTY OF COOK ) On before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose names(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal SIGNATURE OF NOTARY PUBLIC DOCSOC/1480076v3/022062-0029 EXHIBIT A LEGAL DESCRIPTION Lots 1 through 4 inclusive of Carlsbad Tract No. 84-7 in the City of Carlsbad, County of San Diego, State of California, according to map thereof No. 11391, filed in the Office of the County Recorder of San Diego County, December 17, 1985. Excepting therefrom, all minerals, mineral rights, oil, oil rights, natural gas, natural gas rights, petroleum, petroleum rights, other hydrocarbon substances, geothermal steam, all underground water, and all products derived from any of the foregoing, in or under or which may be produced from the property which underlies a plane parallel to and 500 feet below the present surface of the property together with the perpetual right of drilling, mining, exploring and operating therefor and storing in and removing the same from the property or any other land, including the right to whipstock or directionally drill and mine from lands other than the property, oil, water, or gas wells, tunnels and shafts into, through or across the subsurface of the property, and to bottom such whipstocked or directionally drilled wells, tunnels and shafts under the beneath or beyond the exterior limits thereof, and to redrill, retunnel, equip, maintain, repair, deepen, and operate any such wells or mines, without, however, the right to drill, mine, store, explore, and operate through the surface or the upper five hundred (500) feet of the subsurface of the property; as reserved to Daon Corporation in Grant Deed recorded October 29, 1984, Official Records, File/Page No. 84-407544. A-l DOCSOC/l 480076v3/022062-0029 Table of Contents 1. DEFINITIONS 2 2. NOTICE ADDRESS FOR CREDIT FACILITY PROVIDER 2 3. DELETION OF EXHIBIT D 3 4. REGULATORY AGREEMENT REMAINS IN EFFECT 3 5. EFFECTIVE DATE 3 6. MULTIPLE COUNTERPARTS 3 Exhibit A LEGAL DESCRIPTION DOCSOC/1480076v3/022062-0029 $15,920,000 CITY OF CARLSBAD, CALIFORNIA VARIABLE RATE DEMAND MULTIFAMILY HOUSING REVENUE REFUNDING BONDS SERIES A OF 1993 (SANTA FE RANCH APARTMENTS F/K/A LA COSTA APARTMENTS PROJECT) SECOND AMENDED AND RESTATED PROMISSORY NOTE As of May 1, 2011 $15,920,000 FOR VALUE RECEIVED SANTA FE RANCH, LLC, a Delaware limited liability company (the "Borrower") does hereby promise to pay to the order of the CITY OF CARLSBAD, CALIFORNIA (the "Issuer'), and its assignee, in lawful money of the United States of America, the principal sum of $15,920,000, to pay all other amounts due and owing under the Second Amended and Restated Loan Agreement dated as of May 1, 2011, by and among the Issuer, U.S. BANK NATIONAL ASSOCIATION (the "Trustee") and the Borrower (the "Financing Agreement"), and to make payments with respect to principal of, premium, if any, and interest on this Note, and to prepay the principal balance hereof, in like money, in the amounts and at the times specified in the Second Amended and Restated Indenture of Trust, dated as of May 1, 2011, by and between the Issuer and the Trustee (the "Indenture"), relating to the Issuer's Variable Rate Demand Multifamily Housing Revenue Refunding Bonds Series A of 1993 (Santa Fe Ranch Apartments f/k/a La Costa Apartments Project) (the "Bonds"). All capitalized terms used in this Note and not otherwise defined herein shall have the meanings as set forth in the Indenture. THIS NOTE AMENDS AND RESTATES IN FULL THAT AMENDED AND RESTATED PROMISSORY NOTE DATED AS OF MAY 1, 2002 IN THE AMOUNT OF $15,920,000 EXECUTED BY THE BORROWER IN FAVOR OF THE TRUSTEE. Interest ("Note Interest") shall accrue on the unpaid principal of this Note from, and including, the date hereof until paid in full at an annual rate as follows: (a) Variable Rate. If the interest rate on the Bonds is a Variable Rate, a variable rate of interest which floats and changes with, and is equal to, the Variable Rate; or (b) Reset Rate. If the interest rate on the Bonds is a Reset Rate, the Reset Rate; or (c) Fixed Rate. If the interest rate on the Bonds is a Fixed Rate, the Fixed Rate. On the business day prior to each Interest Payment Date, the Borrower shall pay to the Trustee Note Interest equal to the interest due on the Bonds on the immediately succeeding Interest Payment Date. Note Interest shall automatically and simultaneously change with each corresponding change in the interest rate on the Bonds under the Indenture. Notwithstanding any other provision of this Note to DOCSOC/1480099v3/022062-0029 the contrary, Note Interest shall not exceed the Maximum Rate, as the Maximum Rate may change in accordance with the Indenture. During the Variable Rate Period, Note Interest shall be computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as applicable. During any other period, Note Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months. The Borrower's repayment obligations under the Financing Agreement and this Note shall be reduced from time to time by and to the extent of any amounts drawn under the Credit Facility (as defined in the Indenture) and applied to the payment of debt service on the Bonds, provided that the Borrower has reimbursed the Credit Facility Provider (as defined in the Indenture) fully for such amounts. This Note matures on June 1, 2016, unless prepaid in accordance with the terms hereof and of the Financing Agreement. This Note shall be secured by that Amended and Restated First Deed of Trust and Assignment of Rents and Fixture Filing, dated as of May 1, 2002, as amended by that First Amendment to Amended and Restated First Deed of Trust and Assignment of Rents and Fixture Filing, dated as of May 1, 2011, from the Borrower to the Trustee, as it may be from time to time assigned, supplemented and amended. This Note is subject to all of the terms, conditions, and provisions of the Financing Agreement, including those respecting prepayment and the acceleration of maturity. The outstanding principal hereof is subject to acceleration at the same time or times and under the same terms and conditions, and with the same notice, if any, as provided under the Indenture for the acceleration of payment of the Bonds. Notwithstanding anything to the contrary contained herein or in the Financing Agreement, the payments in respect of the loan evidenced hereby shall be sufficient to pay, when due (whether at stated maturity, upon redemption before maturity, upon acceleration of stated maturity, upon tender and purchase or otherwise), the principal of and premium, if any, and interest on the Bonds at any time outstanding. Any prepayment of the principal of this Note will result in a redemption of a corresponding amount of the Bonds. A redemption premium may be payable in connection with such redemption. If this Note is prepaid by a voluntary prepayment or a mandatory prepayment, the Borrower shall pay, in addition to the other amounts due under this Note, a prepayment premium equal to the premium, if any, due upon redemption of the corresponding Bonds as provided in the Indenture. The Borrower shall pay any prepayment premium with Eligible Funds (as defined in the Indenture) other than from a draw under the Credit Facility. The Borrower acknowledges that the Credit Facility Provider is not credit enhancing the payment of any prepayment premium on the Mortgage Loan or premium on the redemption or purchase in lieu of redemption of any of the Bonds. No payment to be applied as a prepayment (whether voluntary or mandatory) of principal of this Note shall be credited against the unpaid principal of this Note until the date on which Bonds in a like amount are redeemed or defeased pursuant to the Indenture. Until the Borrower's payment is credited as a prepayment, the amount of the intended prepayment shall continue to be unpaid principal of this Note and shall continue to bear interest to the date of prepayment. The Borrower may voluntarily prepay principal of this Note only during the periods or on the dates, as appropriate, that the corresponding principal on the Bonds may be redeemed in accordance with the terms of the Indenture and only upon satisfaction of the conditions to redemption of Bonds stated in the Indenture. DOCSOC/1480099v3/022062-0029 Notwithstanding anything to the contrary in this Note or the Financing Agreement, the obligation of the Borrower and its partners evidenced by this Note shall be subject, in all cases, to the provisions of Section 8.14 of the Financing Agreement. The Borrower hereby acknowledges that, pursuant to the Indenture, the Issuer is assigning to the Trustee all of the Issuer's right, title and interest in and to this Note. This Note is a contract made under and shall be construed in accordance with and governed by the laws of the State of California. DOCSOC/1480099v3/022062-0029 [Borrower's Signature Page to Promissory Note] SANTA FE RANCH, LLC, a Delaware limited liability company By: CASA PARTNERS II, L.P., an Illinois limited partnership, its sole member By: HENDERSON GLOBAL INVESTORS GP, L.L.C., a Delaware limited liability company, its general partner By: Brian Eby Vice President DOCSOC/1480099v3/022062-0029 ENDORSEMENT ENDORSEMENT TO SECOND AMENDED AND RESTATED PROMISSORY NOTE, dated as of May 1, 2011, in the principal amount of $15,920,000, made by SANTA FE RANCH, LLC, a Delaware limited liability company, payable to the order of the CITY OF CARLSBAD, CALIFORNIA. PAY TO THE ORDER OF U.S. BANK NATIONAL ASSOCIATION, as Trustee. CITY OF CARLSBAD, CALIFORNIA By: City Manager U.S. BANK NATIONAL ASSOCIATION, as Trustee By: Its: Authorized Officer [SIGNATURE PAGE TO ENDORSEMENT OF PROMISSORY NOTE] DOCSOC/1480099v3/022062-0029 REMARKETING MEMORANDUM DATED MAY ,2011 REMARKETING - NOT A NEW ISSUE BOOK-ENTRY ONLY RATINGS: S&P: ["AA/A-1+"] (See "RATINGS") On May 27, 1993, In connection with the issuance of the Bonds, Stradling Yocca Carlson & Kaulh, a Professional Corporation, Newport Beach, California, Bond Counsel, delivered its opinion that, based upon an analysis of existing laws, regulations, rulings and court decisions and assuming, among other matters, continuing compliance subsequent to the issuance of the Bonds with applicable provisions of the Internal Revenue Code of 1954, as amended (the "1954 Code "), and the Internal Revenue Code of 1986, as amended (the "1986 Code "), interest on the Bonds is excluded from gross income for federal income tax purposes, except during any period that such Bond is held by a "substantial user " of the facilities refinanced by the Bonds or by a "related person " within the meaning of Section 103(b)(13) of the 1954 Code. Bond Counsel's opinion also stated that interest on the Bonds is exempt from personal income taxation by the State of California. See "TAX EXEMPTION" and Appendix B. In the opinion of Bond Counsel, subject to the receipt of the consents required under the Amended Indenture, the replacement of the Credit Enhancement Agreement securing the Bonds with the Credit Facility and the execution and delivery of the Indenture, the Financing Agreement and the Bond Mortgage Note and amendments to the Tax Regulatory Agreement (i) are authorized and permitted by the Amended Indenture as heretofore in effect, and (ii) will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. See "TAX EXEMPTION" and Appendix C. $15,920,000 City of Carlsbad, California Variable Rate Demand Multifamily Housing Revenue Refunding Bonds Series A of 1993 (Santa Fe Ranch Apartments f/k/a/ LaCosta Apartments Project) Credit Facility Substitution Date: May 2, 2011 Maturity Date: June 1, 2016 The City of Carlsbad, California (the "Issuer") has issued its Variable Rate Demand Multifamily Housing Revenue Refunding Bonds, Series A of 1993 (La Costa Apartments Project) in the principal amount of $15,920,000 (the "Bonds") pursuant to an Indenture of Trust, dated as of May 1, 1993 (the "Original Indenture"), between the City of Carlsbad, California and U.S. Bank National Association, as Trustee (formerly known as U.S. Bank, N.A., successor in interest to First Trust of California, National Association, the "Trustee"). The proceeds of the Bonds were loaned (the "Bond Mortgage Loan") to La Costa Partners, a California general partnership (the "Original Owner"), upon the terms and conditions of a Loan Agreement, dated as of May 1, 1993 (the "Original Loan Agreement"), for the purpose of refinancing a multifamily rental apartment development located in the City of Carlsbad, California (the "Project"). Santa Fe Ranch, LLC, a Delaware limited liability company (the "Borrower"), acquired the Project on May 23, 2002. In connection with the delivery of a direct pay Credit Enhancement Agreement (the "Credit Enhancement Agreement") of Federal Home Loan Mortgage Corporation ("Freddie Mac") on May 23, 2002 to secure the Bonds, the Original Indenture and the Original Loan Agreement were amended and restated by an Amended and Restated Indenture of Trust dated as of May 1, 2002 (the "Amended Indenture"), between the Issuer and the Trustee, and an Amended and Restated Loan Agreement dated as of May 1, 2002 (the "Amended Loan Agreement"), between the Issuer, the Trustee and the Borrower. In connection with the delivery of the below defined Credit Facility, the Amended Indenture and the Amended Loan Agreement will be amended and restated by a Second Amended and Restated Indenture of Trust dated as of May 1, 2011 (the "Indenture"), between the Issuer and the Trustee, and a Second Amended and Restated Loan Agreement dated as of May 1, 2011 (the "Financing Agreement"), among the Issuer, the Trustee and the Borrower. The Credit Enhancement Agreement is to be replaced by an irrevocable direct pay letter of credit (the "Credit Facility") to be issued by Wells Fargo Bank, National Association (the "Credit Facility Provider"). Wells Fargo Bank, National Association The Trustee shall be authorized to draw amounts required to pay the principal of the Bonds when due at maturity or upon redemption or acceleration and to pay up to 34 days' interest on the Bonds when due, and to pay the purchase price of Bonds tendered for purchase pursuant to the Indenture to the extent remarketing proceeds are not available for such purpose. The Credit Facility is initially scheduled to expire on May , [2015][2016], unless terminated earlier pursuant to its terms. The Bonds are subject to mandatory redemption on the last Business Day which is at least 5 days immediately preceding the termination of the Credit Facility (such Business Day being initially May , (2015][2016))[ unless the Credit Facility is extended or an Alternate Credit Facility is delivered pursuant to the Indenture). See "THE BONDS-Mandatory Redemption of the Bonds" and "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS-Alternate Credit Facility." THE BONDS SHALL NOT BE A DEBT, EITHER GENERAL OR SPECIAL, OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF, AND NEITHER THE STATE NOR ANY POLITICAL SUBDIVISION THEREOF SHALL BE LIABLE THEREON. NEITHER THE FAITH, REVENUES, CREDIT NOR TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM (IF ANY), OR INTEREST ON THE BONDS. THE BONDS ARE PAYABLE, AS TO PRINCIPAL, PREMIUM (IF ANY), AND INTEREST, SOLELY OUT OF THE TRUST ESTATE WHICH ARE THE SOLE ASSETS OF THE ISSUER PLEDGED THEREFOR, AND THEN ONLY TO THE EXTENT HEREIN PROVIDED. NEITHER THE MEMBERS OF THE GOVERNING BODY OF THE ISSUER NOR ANY PERSONS EXECUTING THE BONDS SHALL BE LIABLE PERSONALLY ON THE BONDS BY REASON OF THEIR ISSUANCE. The Bonds are to be remarketed as fully registered bonds in denominations of $100,000 or any integral multiple of $5,000 in excess thereof registered in the name of Cede & Co., as nominee of the Depository Trust Company, New York, New York. Individual purchasers will not receive physical delivery of the Bonds. The Bonds will bear interest at a Variable Rate until the earlier of their final maturity or redemption prior to maturity or the occurrence of a Reset Adjustment Date or a Conversion Date. The Bonds are subject to optional and mandatory redemption prior to stated maturity, purchase in lieu of redemption and optional and mandatory tender for purchase as described herein. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture and the Financing Agreement. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors should read this Remarketing Memorandum in its entirety to make an informed investment decision. THIS REMARKETING MEMORANDUM CONTAINS INFORMATION ON THE BONDS ONLY WHILE THE BONDS ARE IN A VARIABLE PERIOD The Bonds are re-offered, when as and if received by the Remarketing Agent. Legal matters incident to the substitution of the Credit Facility for the Credit Enhancement Agreement are subject to the approving opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Bond Counsel. Certain legal matters will be passed on for the Borrower by its counsel, Locke Lord Bissell & Liddell LLP, Dallas, Texas and Los Angeles, California, for the Credit Facility Provider by Sheppard Mullin Richter & Hampton LLP, Los Angeles, California, and for the Remarketing Agent by Gilmore & Bell, PC., Kansas City, Missouri. SternBrothers&Co. Remarketing Agent USE OF INFORMATION IN THIS REMARKETING MEMORANDUM This Remarketing Memorandum, which includes the cover page and the Appendices, does not constitute an offer to sell or the solicitation of an offer to buy any of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation, or sale. No dealer, salesperson, or other person has been authorized to give any information or to make any representations other than those contained in this Remarketing Memorandum in connection with the remarketing of the Bonds, and if given or made, such information or representations must not be relied upon as having been authorized by the Issuer or the Remarketing Agent. The information set forth in this Remarketing Memorandum has been obtained from the Borrower, from the sources referenced throughout this Remarketing Memorandum and from other sources believed to be reliable. No representation or warranty is made, however, as to the accuracy or completeness of information provided from sources other than the Borrower or the Remarketing Agent, and nothing contained herein is or shall be relied upon as a guarantee of the Issuer, the Borrower or the Remarketing Agent. This Remarketing Memorandum contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions, or that they will be realized. The Credit Facility Provider has not provided or approved any information in this Remarketing Memorandum except with respect to the descriptions under the caption "THE CREDIT FACILITY PROVIDER" and takes no responsibility for any other information contained in this Remarketing Memorandum. The Credit Facility Provider makes no representation as to the contents of this Remarketing Memorandum, the suitability of the Bonds for any investor, the feasibility or performance of the Project, or compliance with any securities, tax or other laws or regulations. The Credit Facility Provider's role is limited to issuing the Credit Facility described herein. The information, estimates, and expressions of opinion contained in this Remarketing Memorandum are subject to change without notice, and neither the delivery of this Remarketing Memorandum nor any remarketing of the Bonds shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuer, or in the information, estimates, or opinions set forth herein, since the date of this Remarketing Memorandum. This Remarketing Memorandum has been prepared only in connection with the remarketing of the Bonds on the Credit Facility Substitution Date set forth on the cover of this Remarketing Memorandum and may not be reproduced or used in whole or in part for any other purpose. Prospective investors are referred to the Indenture and the Financing Agreement (both as defined herein) for additional descriptions of the Bonds. The Bonds have not been registered with the Securities and Exchange Commission due to certain exemptions contained in the Securities Act of 1933, as amended. In making an investment decision investors must rely on their own examination of the Issuer, the Bonds, the Credit Enhancement Agreement and the terms of the remarketing, including the merits and risks involved. The Bonds have not been recommended by any federal or state securities commission or regulatory authority, and the foregoing authorities have neither reviewed nor confirmed the accuracy of this document. THIS REMARKETING MEMORANDUM CONTAINS INFORMATION ON THE BONDS ONLY WHILE THE BONDS ARE IN A VARIABLE PERIOD. TABLE OF CONTENTS Page INTRODUCTION 1 Bond Mortgage Loan Payments; Independent THE ISSUER 3 Obligation of Borrower 38 THE BONDS 3 Payment of Certain Fees and Expenses 39 General 3 Prepayment of the Bond Mortgage Loan 39 Variable Rate for the Bonds 4 Borrower's Obligations Upon Redemption or Tender 39 Book-Entry-Only System 4 Alternate Credit Facility 40 Demand for and Mandatory Purchase of the Bonds 7 Tax Compliance 40 Purchase of Bonds Not Remarketed 8 Events of Default and Remedies 40 Mandatory Tender of the Bonds on Substitution Remedies on Default 41 Date 9 Obligations of Borrower Are Non-Recourse 42 Optional Redemption of the Bonds 9 THE TAX REGULATORY AGREEMENT 42 Mandatory Redemption of the Bonds 9 Residential Rental Property 42 Selection of Bonds for Redemption 10 Lower-Income Tenants and Eligible Persons 43 Notice of Redemption 10 Sale, Lease or Transfer of the Project 45 Purchase of Bonds in Whole in Lieu of Redemption.. 11 Enforcement 46 SECURITY AND SOURCES OF PAYMENT FOR SUMMARY OF CERTAIN PROVISIONS OF THE THE BONDS 12 INTERCREDITOR AGREEMENT 46 Limited Obligations 12 TAX EXEMPTION 47 The Credit Facility 13 REMARKETING 48 Alternate Credit Facility 13 RATING 48 THE CREDIT FACILITY PROVIDER 15 APPROVAL OF LEGAL PROCEEDINGS 49 THE CREDIT FACILITY 15 NO CONTINUING DISCLOSURE SUMMARY OF CERTAIN PROVISIONS OF THE UNDERTAKING 49 REIMBURSEMENT AGREEMENT 15 LITIGATION 49 THE BORROWER AND THE PROJECT 21 The Issuer 49 The Borrower 21 The Borrower 49 The Project 21 APPENDIX A- CERTAIN DEFINITIONS Subordinate Financing 22 APPENDIX B-ORIGINAL OPINION OF BOND CERTAIN BONDHOLDERS' RISKS 22 COUNSEL SUMMARY OF THE INDENTURE 24 APPENDIX C-FORM OF OPINION OF BOND Establishment of Funds 24 COUNSEL TO BE DELIVERED Revenue Fund 24 UPON REMARKETING Bond Fund 25 APPENDIX D- FORM OF CREDIT FACILITY Redemption Fund 26 Administration Fund 26 Drawings and Notices Under Credit Facility 27 Investment of Funds 27 Rebate Fund 28 Cost of Issuance Fund 28 Moneys Held in Trust 29 Amounts Remaining in Funds 29 Events of Default; Acceleration; Remedies 29 Rights of Bondholders 31 Application of Moneys After Default 32 Rights of the Credit Facility Provider 33 Waivers of Events of Default 33 Supplemental Indentures 34 The Trustee 35 Satisfaction and Discharge of Indenture 37 SUMMARY OF THE FINANCING AGREEMENT .38 Terms of the Bond Mortgage Loan; Assignment 38 REMARKETING MEMORANDUM $15,920,000 City of Carlsbad, California Variable Rate Demand Multifamily Housing Revenue Refunding Bonds Series A of 1993 (Santa Fe Ranch Apartments f/k/a/ LaCosta Apartments Project) INTRODUCTION This Remarketing Memorandum has been prepared in conjunction with the replacement of the direct pay Credit Enhancement Agreement of Freddie Mac with the Credit Facility of the Credit Facility Provider and the execution and delivery of the Indenture, the Financing Agreement, the Bond Mortgage Note and the Intercreditor Agreement (each as defined and described below). On May 27, 1993, the City of Carlsbad, California issued $15,920,000 in aggregate principal amount of the Variable Rate Demand Multifamily Housing Revenue Refunding Bonds, Series A of 1993 (Santa Fe Ranch Apartments f/k/a LaCosta Apartments Project) pursuant to an Indenture of Trust, dated as of May 1, 1993 (the "Original Indenture"), as amended and restated by an Amended and Restated Indenture of Trust dated as of May 1, 2002 (the "Indenture"), both between the City of Carlsbad, California (the "Issuer") and U.S. Bank National Association, as trustee (formerly known as U.S. Bank, N.A., as successor in interest to First Trust of California, National Association, the "Trustee"). The proceeds of the Bonds were loaned (the "Bond Mortgage Loan") to La Costa Partners, a California general partnership (the "Original Owner") upon the terms and conditions of a Loan Agreement, dated as of May 1, 1993 (the "Original Loan Agreement"), for the purpose of providing financing for a multi- family rental housing development located in the City of Carlsbad, San Diego County, California (the "Project"). The Bonds refinanced bonds issued by the Issuer in 1985, the proceeds of which were used to construct the Project. See "THE BORROWER AND THE PROJECT." The Original Owner, the Issuer, the Trustee and The Northwestern Mutual Life Insurance Company (the "Prior Owner") entered into an Assignment and Assumption Agreement dated as of June 23, 1998, transferring all of the Original Owner's right, title and interest in the Project to the Prior Owner. The Prior Owner transferred all of its right, title and interest in the Project and the Bonds to the Borrower on May 23, 2002 pursuant to an Assignment and Assumption Agreement dated as of May 1, 2002 (the "Assumption Agreement"), among the Prior Owner, the Borrower, the Issuer and the Trustee. In connection with the acquisition of the Project, the Borrower caused the delivery of a direct pay Credit Enhancement Agreement (the "Credit Enhancement Agreement") of the Federal Home Loan Mortgage Corporation ("Freddie Mac") to secure the Bonds and the Original Indenture and the Original Loan Agreement were amended and restated by an Amended and Restated Indenture of Trust dated as of May 1, 2002 (the "Amended Indenture"), between the Issuer and the Trustee, and an Amended and Restated Loan Agreement dated as of May 1, 2002 (the "Amended Loan Agreement"), among the Issuer, the Trustee and the Borrower. In connection with the delivery of the below defined Credit Facility, the Amended Indenture and the Amended Loan Agreement will be amended and restated by a Second Amended and Restated Indenture of Trust dated as of May 1, 2011 (the "Indenture"), between the Issuer and the Trustee, and a Second Amended and Restated Loan Agreement dated as of May 1, 2011 (the "Financing Agreement"), among the Issuer, the Trustee and the Borrower. The Borrower's repayment obligations under the Financing Agreement will be evidenced by a Second Amended and Restated Promissory Note dated as of May 1, 2011 from the Borrower to the Issuer, and subsequently assigned to the Trustee, in the principal amount of $15,920,000 (the "Bond Mortgage Note"), secured by the Amended and Restated First Deed of Trust and Assignment of Rents and Fixture Filing dated as of May 1, 2002 (the "Bond Mortgage"), executed by the Borrower. In connection with the issuance of the Bonds, the Original Owner, the Issuer and the Trustee entered into an Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 1993, which contained covenants of the Original Owner necessary to maintain the exclusion of interest on the Bonds from gross income for federal income tax purposes and maintain compliance with certain policies of the Issuer. Such instrument was amended by the Second Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2002, among the Issuer, the Trustee and the Borrower (the "Amended Tax Regulatory Agreement"). The Amended Tax Regulatory Agreement is being amended by the First Amendment to Second Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2011, among the Issuer, the Trustee and the Borrower (the Amended Tax Regulatory Agreement as amended, the "Tax Regulatory Agreement"), which also contains covenants of the Borrower necessary to maintain the exemption from federal income taxation of interest on the Bonds. See "THE TAX REGULATORY AGREEMENT." Freddie Mac is currently providing credit enhancement on the Bonds pursuant to the Credit Enhancement Agreement. On the Credit Facility Substitution Date set forth on the cover page of this Remarketing Memorandum, the Borrower is causing the delivery of a direct pay Irrevocable Letter of Credit (an "Alternate Credit Facility" within the meaning of the Amended Indenture, the "Credit Facility") by Wells Fargo Bank, National Association (the "Credit Facility Provider"), pursuant to the Reimbursement Agreement dated as of May 1, 2011 (the "Reimbursement Agreement"), between the Borrower and the Credit Facility Provider. See "SUMMARY OF CERTAIN PROVISIONS OF THE REIMBURSEMENT AGREEMENT." The Credit Facility will be in an amount equal to $ , consisting of (i) the aggregate principal amount of the Bonds being remarketed ($15,920,000), plus not less than 34 days' interest thereon, calculated initially at % per annum, based on a year of 365 days ($ ). The Credit Facility will have a stated expiration date of . The form of the Credit Facility is attached as Appendix D. The Credit Facility Provider, upon the execution and delivery of the Credit Facility, will replace Freddie Mac as the provider of the Credit Facility under the Amended Indenture. Freddie Mac will release its security interest in the Project and in all funds held by the Trustee under the Amended Indenture and the Prior Reimbursement Agreement and will assign its interest under the Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated as of May 1, 2002 (the "Reimbursement Mortgage") to the Credit Facility Provider to secure the obligations of the Borrower to the Credit Facility Provider under the Reimbursement Agreement. The Issuer, the Trustee and the Credit Facility Provider are entering into an Intercreditor and Subordination Agreement dated as of May 1, 2011 (the "Intercreditor Agreement"), to set forth the rights and obligations of the Issuer, the Trustee and the Credit Facility Provider with respect to the Financing Agreement, the Bond Mortgage Note, the Bond Mortgage, the Reimbursement Mortgage and certain other related documents. See "BRIEF SUMMARY OF CERTAIN TERMS OF THE INTERCREDITOR AGREEMENT." Brief descriptions of the Reimbursement Agreement and the Intercreditor Agreement are included herein. The descriptions and summaries of the Credit Facility, the Reimbursement Agreement, the Intercreditor Agreement and other documents contained herein do not purport to be comprehensive or definitive and are qualified in their entirety by reference to those documents. Copies of such documents will be available at the corporate trust office of the Trustee. -2- THE ISSUER The City of Carlsbad is a municipal corporation duly organized and existing under the laws of the State of California. The Issuer is authorized, pursuant to the provisions of the Act to engage in certain activities related to the provision of decent, safe and adequate housing for persons residing within the Issuer's boundaries, including the financing of multifamily housing through the issuance of obligations such as the Prior Bonds and the Bonds. Issuance of the Bonds was approved by the Issuer pursuant to the Refunding Law. The Issuer is governed by its City Council. Council members are elected at large to serve four- year terms. The City Manager administers day-to-day affairs and is appointed by the City Council. The Bonds are limited obligations of the Issuer and are payable only from the Trust Estate as described in the Indenture and from no other source. THE BONDS General The Bonds are in fully registered form and are registered in the name of Cede & Co., as registered owner and nominee of The Depository Trust Company, New York, New York ("DTC"). DTC acts as securities depository for the Bonds. Individual purchases are made in book-entry-only form. Purchasers will not receive certificates representing their interest in the Bonds purchased. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Bondholders or registered owners of the Bonds shall mean Cede & Co., as aforesaid, and shall not mean the beneficial owners of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, principal, premium, if any, and interest on the Bonds are payable by the Trustee by wire transfer of New York clearing house or equivalent next-day funds, to Cede & Co., as nominee for DTC. DTC will, in turn, remit such amounts to the DTC Participants (as defined herein) for subsequent disbursement to the beneficial owners. See "THE BONDS-Book-Entry-Only System" herein. The Bonds are in the minimum denomination of $100,000 and any integral multiple of $5,000 in excess thereof. The Bonds will mature on the date set forth on the cover page of this Remarketing Memorandum. The Bonds will bear interest at a Variable Rate of interest until the Conversion Date, if any. See "Variable Rate for the Bonds" below. The Bonds are subject to mandatory purchase by the Trustee on any Reset Adjustment Date, Variable Rate Adjustment Date, the Conversion Date and any Substitution Date, even if such Reset Adjustment Date, Variable Rate Adjustment Date, the Conversion Date or any Substitution Date fails to occur (see "Demand for and Mandatory Purchase of the Bonds" and "Mandatory Tender of Bonds on Substitution Date" below). Interest on the Bonds will be payable on the first Business Day of each month, commencing June 1, 2011 (in each case, an "Interest Payment Date"). So long as the Bonds bear interest at the Variable Rate interest shall be computed on the basis of a 365-day or 366-day year for the actual number of days elapsed. -3- Principal of and premium, if any, and interest on the Bonds will be payable by check mailed on the Interest Payment Date by first-class mail to the person whose name appears on the Bond Register on the Record Date, provided that, upon written request of a registered owner of at least $1,000,000 aggregate principal amount of Bonds received by the Trustee at least five days prior to a Record Date, payment shall be made to such owner by wire transfer pursuant to the provisions of the Indenture. Any Bond may be transferred only upon an assignment duly executed by the registered owner or his or her duly authorized representative in such form as shall be satisfactory to the Bond Registrar and upon surrender of such Bond to the Trustee for cancellation. Any Bond may be exchanged at the Principal Office of the Trustee for a new fully registered Bond or Bonds, of any authorized denomination or denominations, for the aggregate amount of such Bond then Outstanding. In all cases in which Bonds shall be transferred or exchanged, the Trustee may make a charge for any tax, fee or other governmental charge required to be paid with respect to such transfer or exchange. Neither the Issuer nor the Trustee shall be required to transfer or exchange Bonds during the period of fifteen (15) days immediately preceding an Interest Payment Date or during the period of fifteen (15) days immediately preceding the selection of Bonds for redemption and after the giving of notice of redemption. Variable Rate for the Bonds The Bonds will bear interest at a Variable Rate until converted to a Reset Rate or a Fixed Rate as provided in the Indenture. The Variable Rate of interest borne by the Bonds during each Variable Period for each Variable Interest Accrual Period shall be the Variable Rate determined by the Remarketing Agent and reported to the Trustee, the Tender Agent, the Borrower and Freddie Mac as provided in the Indenture on the Variable Interest Computation Date for such Variable Interest Accrual Period. Any Bondholder may obtain information on the Variable Rate by request to the Trustee. The Variable Rate determined by the Remarketing Agent on each Variable Interest Computation Date shall be that rate of interest which, if borne by the Bonds, would, in its reasonable professional judgment, on the basis of prevailing financial market conditions, be the interest rate necessary, but which would not exceed the interest rate necessary, to be borne by the Bonds in order for the market value of the Bonds on such Variable Interest Computation Date to be 100% of the principal amount thereof (disregarding accrued interest) if the Bonds were sold on such Variable Interest Computation Date; provided, however, that in no event shall the Variable Rate at any time exceed the Maximum Rate. If the Remarketing Agent shall fail or refuse to determine the Variable Rate on any Variable Interest Computation Date, then the Variable Rate shall be the SIFMA Index Rate published on each Variable Interest Computation Date (as provided to the Trustee by the Remarketing Agent) until the Remarketing Agent determines the Variable Rate as described above. The determination of the Variable Rate by the Remarketing Agent shall (in the absence of manifest error) be conclusive and binding on the Bondholders, the Issuer, the Borrower, Freddie Mac, the Remarketing Agent, the Tender Agent and the Trustee, and each shall be protected in relying on it. Book-Entry-Only System The Bonds will be available in book-entry form only. Purchasers of the Bonds will not receive certificates from the Issuer or the Trustee representing their interests in the Bonds purchased. The information in this section concerning The Depository Trust Company ("DTC") and DTC's Book-Entry System has been obtained from DTC. None of the Issuer, the Trustee, the Borrower or the Remarketing Agent makes any representation or warranty or takes any responsibility for the accuracy or completeness of such information. -4- The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond (a "Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmation providing details of the transaction, as well as periodic statements of their holdings from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive Bonds representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. -5- Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to Cede & Co. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified by a listing attached to the Omnibus Proxy). Redemption proceeds and distributions on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer to the Trustee on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Beneficial Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant's interest in the Bonds, on DTC's records, to the Trustee. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records and followed by a book-entry credit of tendered Bonds to the Trustee's DTC account. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, certificates are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. THE ABOVE INFORMATION CONCERNING DTC AND DTC'S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE ISSUER AND THE REMARKETING -6- AGENT BELIEVE TO BE RELIABLE, BUT THE ISSUER AND THE REMARKETING AGENT TAKE NO RESPONSIBILITY FOR THE ACCURACY THEREOF. NEITHER THE ISSUER, THE TRUSTEE, NOR THE REMARKETING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, BENEFICIAL OWNERS OR OTHER NOMINEES OF SUCH BENEFICIAL OWNERS FOR (i) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY PARTICIPANT; (ii) THE PAYMENT BY DTC OR BY ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OR REDEMPTION OR PURCHASE PRICE OF, AND INTEREST ON, ANY BONDS; (iii) THE DELIVERY OF ANY NOTICE BY DTC OR ANY PARTICIPANT; (iv) THE SELECTION OF THE PARTICIPANTS OR THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (v) ANY CONSENT GIVEN OR ANY OTHER ACTION TAKEN BY DTC OR ANY PARTICIPANT. So long as Cede & Co. is the registered owner of the Bonds, as nominee for DTC, reference herein to the registered owners of the Bonds shall mean Cede & Co., as aforesaid, and shall not mean the Beneficial Owners of the Bonds. Demand for and Mandatory Purchase of the Bonds Any Bonds (other than Purchased Bonds), or any units of principal amount thereof in Authorized Denominations, will be purchased from the proceeds of remarketing of the Bonds as described in the Indenture or from the sources described in the Indenture, (a) on demand of the owner of such Bond (or, so long as Bonds are in "book-entry- only" form, demand of a DTC Participant, with respect to such Bonds) on any Business Day during a Variable Period, or (b) upon being tendered or deemed tendered pursuant to the Indenture, on any Reset Adjustment Date, Variable Rate Adjustment Date, the Conversion Date and any Substitution Date (even if such Reset Adjustment Date, Variable Rate Adjustment Date, the Conversion Date or any Substitution Date for which notice has been given by the Trustee to the Bondholders fails to occur). The Bonds will be purchased for a Purchase Price equal to the principal amount thereof, or of any units thereof purchased in Authorized Denominations, plus interest accrued thereon, if any, to the Settlement Date. The Bonds will be purchased upon (i) in the case of a purchase upon the demand of an owner or DTC Participant, delivery to the Tender Agent, with a copy to the Trustee and the Remarketing Agent, of a written notice in the form set forth in the Indenture (a "Tender Notice") which states (A) the principal amount of such Bond for which payment is demanded, (B) that such demand is irrevocable and (C) the date on which such Bond or units of principal amount thereof in Authorized Denominations shall be purchased pursuant to the Indenture, which date shall be a Business Day not prior to the seventh day next succeeding the date of the receipt of the Tender Notice by the Tender Agent; and -7- (ii) in all cases, delivery of such Bond (with an appropriate transfer of registration form executed in blank and in form satisfactory to the Tender Agent) to the Tender Agent, at or prior to 9:30 a.m., New York, New York time, on the Settlement Date. In the event that a depository is appointed pursuant to the Indenture and a "book-entry-only" system is in effect with respect to the Bonds, delivery of Bonds for purchase on the Settlement Date may be effected in the manner set forth by such depository. Any Bonds not delivered to the Tender Agent on or prior to 9:30 a.m., New York, New York time, on the Settlement Date shall be deemed tendered and purchased for all purposes of the Indenture and interest shall cease to accrue on such Bonds on the related Settlement Date. Payment of the Purchase Price of any Bond will be made on the Settlement Date by check or by wire transfer (if requested in writing by the Bondholder) or as designated in the Tender Notice with respect to such Bond, but only upon delivery and surrender of such Bond to the Tender Agent. If all of the Bonds shall have been called for redemption during any Variable Period, the Bonds may continue to be remarketed until the redemption date, provided the purchasers of such Bonds are given notice of the call for redemption prior to purchase of any Bonds. Anything in the Indenture to the contrary notwithstanding, no Bonds will be purchased or remarketed pursuant to the Indenture if an Event of Default under the Indenture (other than a failure on the part of the Issuer to observe or perform any of the covenants, agreements or conditions in the Indenture or the Bonds and such default continues for a period of 30 days after written notice to the Issuer from the Trustee or 51% of the Bondholders and upon written direction from the Credit Facility Provider as provided in the Indenture) shall have occurred and be continuing and would not be cured as a result of such tender and remarketing of the Bonds; nor will any Bond be purchased pursuant to the Indenture if such Bond is registered in the name of the Issuer, the Borrower or the Credit Facility Provider, or known by the Trustee (the Trustee shall have no duty to inquire as to any such nominees) to be registered in the name of any manager, sole member or guarantor of the Borrower or any nominee of the Issuer, the Borrower, the Credit Facility Provider, or any such manager, sole member or guarantor unless the Credit Facility will be in full force and effect after such purchase. Purchase of Bonds Not Remarketed In the event that either the Tender Agent has not received notice of successful remarketing of tendered Bonds by the day which is one (1) Business Day prior to the Settlement Date, or the proceeds of remarketing of any tendered Bond have not been received by the Tender Agent on or prior to 10:00 a.m., New York, New York time on the Settlement Date, the Trustee will, within the time required by the terms of the Credit Facility, draw on the Credit Facility in an amount sufficient to enable the Tender Agent to pay the Purchase Price of each such Bond. On each Settlement Date, the Trustee will pay or cause to be paid to the Tender Agent the Purchase Price of any Bonds for which it has received a Tender Notice and which have not been remarketed pursuant to the Indenture, but only from (a) moneys obtained by the Trustee pursuant to the Credit Facility then in effect to enable the Trustee to pay the Purchase Price of such tendered Bonds, which amounts shall be transferred by the Trustee to the Tender Agent at or before 3:00 p.m., New York, New York time, on the Settlement Date; and (b) Eligible Funds from the Borrower to the extent that moneys obtained pursuant to (a) above are insufficient on any date to pay the Purchase Price of tendered Bonds. Upon receipt of such Purchase Price and upon receipt of the Bonds tendered for purchase pursuant to the Indenture, the Tender Agent shall pay such Purchase Price to the registered owners thereof, provided, that if the Purchase Price was theretofore paid from the proceeds of a draw on the Credit Facility, the Tender Agent will pay such amount to the Credit Facility Provider. Any amounts drawn under the Credit Facility to purchase Bonds will be used solely for such purpose. Any Bonds so purchased with amounts drawn under the Credit Facility by the Trustee will be purchased for the account of the Borrower and registered as provided in the Pledge Agreement. Amounts drawn under the Credit Facility which are not used to purchase Bonds pursuant to the Indenture will be remitted by the Trustee or the Tender Agent to the Credit Facility Provider promptly upon payment of the Purchase Price of the Bonds. Mandatory Tender of the Bonds on Substitution Date The Bonds will be subject to mandatory tender for purchase on any proposed Substitution Date from the sources available under the Indenture at a Purchase Price equal to the principal amount thereof plus accrued interest to the proposed Substitution Date even if such Substitution Dated fails to occur. Upon receipt by the Trustee of (i) notice from the Borrower of a planned substitution specifying the Substitution Date (which may occur only on a date specified in the Financing Agreement), (ii) the consent of the Credit Facility Provider, and (iii) the form of Alternate Credit Facility to be in effect on and after the Substitution Date, the written approval of the Issuer of the form and substance of the disclosure document to be used in connection with the remarketing of the Bonds on the Substitution Date and forms of the other documents required pursuant to the Financing Agreement (except the rating letter specified therein), the Trustee will establish the Substitution Date for the mandatory tender and purchase of the Bonds and will give notice to the owners of the Bonds and the Rating Agency, by first-class mail not less than nine (9) days before the Substitution Date specifying: (a) the Substitution Date; and (b) that all Bonds must be surrendered to the Tender Agent for purchase not later than 9:30 a.m., New York, New York time, on the Substitution Date. Any Bond not tendered to the Tender Agent for purchase in accordance with the provisions of the Indenture on the Substitution Date (including any Substitution Date that fails to occur) shall be deemed to have been tendered for purchase on such Substitution Date for all purposes of the Indenture; provided, however, payment on such Bonds shall only be made upon presentation thereof. Optional Redemption of the Bonds With the prior written consent of the Credit Facility Provider, during the Variable Period the Bonds are subject to optional redemption, in whole or in part from payments made under the Credit Facility following an optional prepayment on the Bond Mortgage Loan in accordance with the prepayment restrictions set forth in the Bond Mortgage Note or from Eligible Funds deposited with the Trustee, on any Interest Payment Date, at a redemption price of 100% of the principal amount thereof, plus accrued interest thereon to the redemption date. The Trustee shall effect a redemption of Bonds pursuant to the Indenture not more than 35 days following its receipt of moneys representing an optional prepayment of the Bond Mortgage Loan. Mandatory Redemption of the Bonds The Bonds are subject to mandatory redemption on any date, at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, without premium, at the earliest practicable date from payments made under the Credit Facility or receipt by the Trustee of Eligible Funds upon the occurrence of any of the following: -9- (a) in whole or in part (and if in part, in Authorized Denominations), following receipt by the Trustee of a written direction by the Credit Facility Provider to redeem such Bonds as a result of the payment to the Trustee of Net Proceeds representing casualty insurance proceeds or condemnation awards applied to the prepayment of the Bond Mortgage Loan; or (b) in whole, as a result of an occurrence of a default under any Bond Mortgage Loan Document and receipt by the Trustee of a written direction by the Credit Facility Provider to redeem the Bonds; or (c) in whole, on the last Business Day which is not less than five days before the date of expiration of any Credit Facility unless the Trustee receives a renewal or extension of or replacement for such Credit Facility meeting the applicable requirements of the Financing Agreement or, in the case of a replacement of the Credit Facility in connection with a Reset Adjustment Date or the Conversion Date pursuant to the Indenture, an irrevocable commitment of an entity to issue an Alternate Credit Facility to be in effect upon and after such Reset Adjustment Date or Conversion Date, in each case not less than 30 days before the expiration of the then- existing Credit Facility; or (d) while the Bonds are registered in the name of the Borrower pursuant to the Pledge Agreement (or in such other name as the Credit Facility Provider shall have directed) as a result of a mandatory tender for purchase of the Bonds pursuant to the Indenture, in whole or in part (and if in part, in Authorized Denominations), at a redemption price equal to the principal amount of the Bonds specified by the Credit Facility Provider for redemption, plus accrued interest to the redemption date, without premium; or (e) in whole, upon receipt by the Trustee of notice from the Issuer of a Determination of Taxability, or subject to the provisions of the Intercreditor Agreement, upon acceleration of the Bond Mortgage Loan pursuant to the Financing Agreement following a default by the Borrower under the Financing Agreement or the Tax Regulatory Agreement. Selection of Bonds for Redemption If less than all the Bonds then outstanding shall be called for redemption other than as a result of mandatory sinking fund redemption, the Trustee shall redeem an amount of Bonds so that the resulting decrease in debt service on the Bonds in each semiannual period ending on an Interest Payment Date is proportional, as nearly as practicable, and the Bonds shall be selected by lot without each maturity, the cost of such selection being at the Borrower's expense. Bonds shall be redeemed only in Authorized Denominations. Notice of Redemption Notice of the intended redemption of each Bond shall be given by the Trustee by first-class mail, postage prepaid, to the registered owner at the address of such owner shown on the Bond Register. All such redemption notices shall be given not less than 10 days (not less than 30 days in the case of optional or mandatory sinking fund redemptions) nor more than 60 days prior to the date fixed for redemption. The Trustee may provide a conditional notice of redemption upon the direction of the Credit Facility Provider or the Borrower (with the prior written consent of the Credit Facility Provider). Notices of redemption shall state the redemption date and the redemption price, the place or places where amounts due upon such redemption will be payable, and, if less than all of the Outstanding Bonds are called for redemption, shall state (a) the numbers of the Bonds to be redeemed by giving the -10- individual certificate of each Bond to be redeemed or shall state that all Bonds between two stated certificate numbers, both inclusive, are to be redeemed or that all of the Bonds of one or more maturities have been called for redemption; (b) the CUSIP numbers of all Bonds being redeemed if available; (c) the amount of each Bond being redeemed (in the case of a partial redemption); (d) the date of issue of the Bond as originally issued; (e) the rate of interest borne by each Bond being redeemed; (f) the maturity date of each Bond being redeemed; (g) the possibility of a purchase of Bonds in lieu of redemption, if applicable; (h) the conditions, if any, which must be satisfied in order for the redemption to take place on the scheduled date of redemption, including, in the case of an optional redemption, the receipt of Eligible Funds on the redemption date to pay any redemption premium; and (i) any other descriptive information needed to identify accurately the Bonds being redeemed. Each notice of redemption shall state that further interest on the Bonds will not accrue from and after the redemption date and that payment of the principal amount and premium, if any, will be made upon presentation and surrender of the Bonds endorsed in blank unless the Bonds are then held in a book- entry only system of registration. Notice of such redemption shall also be sent by certified mail, overnight delivery service, facsimile transmission or other secure means, postage prepaid, to the Credit Facility Provider, the Rating Agency, [[all municipal Securities Depositories and at least two of the national information services that disseminate securities redemption notices]], when possible, at least (5) five days prior to the mailing of notices required by the paragraph above, and in any event no later than simultaneously with the mailing of notices required by the paragraph above; provided that neither failure to mail notice pursuant to this paragraph nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the redemption of such Bonds. In addition to providing notice of redemption as set forth above, the Trustee shall send a second notice of redemption within 60 days after the redemption date, by certified mail, overnight delivery service, or other secure means, postage prepaid to the registered owners of any Bonds called for redemption, at their addresses appearing on the Bond Register, who have not surrendered their Bonds for redemption within 30 days following the redemption date. Neither the failure of the registered owner of a Bond to receive a notice of redemption mailed by the Trustee nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the redemption of such Bonds. Failure to give notice by mailing to the registered owner of any Bond designated for redemption or tender or to any depository or information service shall not affect the validity of the proceedings for the redemption of any other Bond if notice of such redemption shall have been mailed as provided in the Indenture. Purchase of Bonds in Whole in Lieu of Redemption Notwithstanding anything in the Indenture to the contrary, at any time the Bonds are subject to redemption in whole pursuant to the provisions of the Indenture, all (but not less than all) of the Bonds to be redeemed may be purchased by the Trustee (for the account of the Borrower or the Credit Facility Provider or their respective designees, as directed by such party) on the date which would be the redemption date at the written direction of the Credit Facility Provider or the Borrower, with the prior written consent of the Credit Facility Provider, who shall give the Trustee at least one Business Day's notice prior to such redemption date, at a purchase price equal to the redemption price which would have been applicable to such Bonds on the redemption date. The Bonds shall be purchased in lieu of redemption only from amounts provided by the Credit Facility Provider or from other Eligible Funds. In the event the Trustee is so directed to purchase Bonds in lieu of redemption, no notice to the Bondholders of the Bonds to be so purchased (other than the notice of redemption otherwise required under the -11- Indenture) shall be required, and the Trustee shall be authorized to apply to such purpose the funds in the Redemption Account which would have been used to pay the redemption price for such Bonds if such Bonds had been redeemed rather than purchased. Such Bonds so purchased for the account of the Borrower shall for all purposes under the Indenture constitute Purchased Bonds held by the Trustee pursuant to the Pledge Agreement and may be remarketed by the Remarketing Agent in accordance with the provisions of the Indenture. Such Purchased Bonds, if not remarketed or transferred as provided in the Indenture, shall be automatically cancelled and deemed extinguished by the Trustee on the date which is not later than five years from the date of purchase, unless an opinion of Bond Counsel is delivered to the Trustee to the effect that not canceling such Purchased Bonds will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. Any purchase of Bonds as described in this paragraph shall not extinguish the indebtedness represented by such Bonds. SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Under the Indenture, the Issuer grants to the Trustee a security interest in the following property described below under "Trust Estate " to secure the Bonds (said property being herein referred to as the "Trust Estate"). The Trust Estate is granted to the Trustee in order to secure, first, the payment of principal of, premium, if any, and interest on the Bonds according to their tenor and effect, and, second, the payment to Freddie Mac of the Freddie Mac Reimbursement Amount and the Freddie Mac Credit Enhancement Fee (or, if an Alternate Credit Facility has been delivered to the Trustee in accordance with the provisions thereof, the payments to the Alternate Credit Facility Provider of its fees and other amounts due it in connection with such Alternate Credit Facility), and the performance and observance by the Issuer of all the covenants expressed or implied in the Indenture and in the Bonds: (a) all right, title and interest of the Issuer in and to all Revenues except for amounts in the Rebate Fund, the Specified Fees Account and the Cost of Issuance Fund; (b) all right, title and interest of the Issuer in and to the Financing Agreement, the Bond Mortgage Note, the Bond Mortgage and the Credit Facility (other than the Reserved Rights), including all extensions and renewals of the terms thereof, if any, including, but without limiting the generality of the foregoing, the present and continuing right to receive, receipt for, collect or make claim for any of the moneys, income, revenues, issues, profits and other amounts payable or receivable thereunder, whether payable under the above-referenced documents or otherwise, to bring actions and proceedings thereunder or for the enforcement thereof, and to do any and all things which the Issuer or any other person is or may become entitled to do under said documents subject in all events to the Issuer's Reserved Rights; and (c) excluding moneys or securities in the Cost of Issuance Fund, the Specified Fees Account, the Rebate Fund and the Bond Purchase Fund, all other funds or accounts established under the Indenture, and all money and securities held therein or investments thereof, and any and all other rights and interests in property whether tangible or intangible from time to time hereafter by delivery or by writing of any kind, conveyed, mortgaged, pledged, assigned or transferred as and for additional security thereunder for the Bonds by the Issuer or by anyone on its behalf or with its written consent to the Trustee. Limited Obligations The Bonds and the interest thereon are limited obligations of the Issuer, payable solely from the Trust Estate under the Indenture, including, without limitation, its interest in payments received under the Bond Mortgage Note and the Credit Facility and give rise to no pecuniary liability of the Issuer. THE -12- BONDS SHALL NOT BE A DEBT, EITHER GENERAL OR SPECIAL, OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF, AND NEITHER THE STATE NOR ANY POLITICAL SUBDIVISION THEREOF SHALL BE LIABLE THEREON. NEITHER THE FAITH, REVENUES, CREDIT NOR TAXING POWER OF THE ISSUER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM (IF ANY), OR INTEREST ON THE BONDS. THE BONDS ARE PAYABLE, AS TO PRINCIPAL, PREMIUM (IF ANY), AND INTEREST, SOLELY OUT OF THE TRUST ESTATE WHICH ARE THE SOLE ASSETS OF THE ISSUER PLEDGED THEREFOR, AND THEN ONLY TO THE EXTENT PROVIDED IN THE INDENTURE. NEITHER THE MEMBERS OF THE CITY COUNCIL OF THE ISSUER NOR ANY PERSONS EXECUTING THE BONDS SHALL BE LIABLE PERSONALLY ON THE BONDS BY REASON OF THEIR ISSUANCE. No agreement or obligation contained in the Indenture shall be deemed to be an agreement or obligation of any councilmember, officer, employee, commissioner, servant or agent of the Issuer in his or her individual capacity, and neither the councilmembers of the Issuer nor any officer thereof executing any Bond shall be liable personally on such Bond or be subject to any personal liability or accountability by reason of the issuance thereof. No councilmember, officer, employee, commissioner, servant or agent of the Issuer shall incur any personal liability with respect to any other action taken by him or her pursuant to the Indenture. The Credit Facility To provide security for the Bonds, the Credit Facility Provider will deliver the Credit Facility to the Trustee. The Credit Facility will be in an amount equal to $ , consisting of (i) the aggregate principal amount of the Bonds being remarketed ($15,920,000), plus not less than 34 days' interest thereon, calculated initially at % per annum, based on a year of 365 days ($ ). The Credit Facility will have a stated expiration date of . The form of the Credit Facility is attached as Appendix D. See "THE CREDIT FACILITY PROVIDER." The Trustee will make drawings under the Credit Facility in accordance with the Indenture. See "SUMMARY OF THE INDIiNTURE- Drawings Under Credit Facility." Alternate Credit Facility Without the consent of Bondholders, the Borrower may, on any date during a Variable Period, on any Reset Adjustment Date, or any Variable Rate Adjustment Date and on the Conversion Date (but no later than 10 days prior to the expiration date of the Credit Facility unless a commitment to extend the existing Credit Facility has been delivered to the Trustee satisfying the requirements of the Indenture, if applicable), and subject to the terms of the existing Credit Facility and Reimbursement Agreement, arrange for the delivery to the Trustee of an Alternate Credit Facility in substitution for the Credit Facility then in effect (referred to in the Financing Agreement as "credit support") and, if applicable, for payment of the Purchase Price of Bonds delivered or deemed delivered in accordance with the Indenture (referred to in the Financing Agreement as "liquidity support"). The foregoing notwithstanding, with the prior written consent of the Credit Facility Provider, a Substitution Date may be selected by the Borrower to occur on a date other than the aforementioned dates, subject to the notice requirements of the Indenture. In addition, without the consent of the Borrower (and without the consent of the Bondholders), the Credit Facility Provider may provide any other form of "credit support" or "liquidity support" (or combination thereof) issued by the Credit Facility Provider in substitution for the Credit Facility if (A) the conditions of the Indenture are satisfied or (B)(i) the Rating Agency confirms in writing that such substitution will not result in a withdrawal, qualification or reduction of the then current rating of the Bonds, (ii) the Credit Facility Provider delivers to the Issuer and the Trustee an Opinion of Counsel satisfying the requirements of the Financing Agreement and (iii) such substitute "credit support" or "liquidity support"(or -13- combination thereof) does not increase the amounts required to be paid by, or other obligations of, the Borrower. Any Alternate Credit Facility shall satisfy the following conditions, as applicable: (a) An Alternate Credit Facility may be issued to provide only credit support or only liquidity support so long as a separate Credit Facility provides, at all times while such Alternate Credit Facility is in effect, complementary credit support or liquidity support, as the case may be, so that at all times while any of the Bonds bear interest at the Variable Rate or the Reset Rate such Bonds shall be entitled to credit support and to the liquidity support required by such mode. During the Fixed Rate Period, the Bonds shall be entitled to credit support only. Notwithstanding the foregoing, prior to the commencement of the Fixed Rate Period, the Issuer may, in its sole discretion, waive the requirement that a Credit Facility be provided during such Fixed Rate Period. (b) The Alternate Credit Facility shall (i) be in an amount equal to the aggregate principal amount of the Bonds Outstanding from time to time plus the Interest Requirement or otherwise provide coverage satisfactory to the Rating Agency; (ii) provide for payment in immediately available funds to the Trustee upon receipt of the Trustee's request for such payment with respect to any Interest Payment Date, purchase date (if applicable) or extraordinary mandatory redemption date pursuant to the Indenture; (iii) if the Alternate Credit Facility is provided to secure Bonds during a Reset Period, provide an expiration date no earlier than the earliest of (l)the day following the Reset Adjustment Date immediately succeeding the Reset Period; (2) 10 days after the Trustee receives notice from the Credit Facility Provider of an Event of Default under the Indenture or a default under and as defined in the Reimbursement Agreement and a direction to redeem all Outstanding Bonds; (3) the date on which all Bonds are paid in full and the Indenture is discharged in accordance with its terms; and (4) the date on which the Bonds become secured by an Alternate Credit Facility in accordance with the terms of the Indenture; (iv) unless waived by the Issuer in its sole discretion, result in the Bonds receiving a long-term rating or short-term rating, or both, as applicable for the mode then in effect, in one of the two highest rating categories of the Rating Agency without regard to pluses or minuses and (v) have a stated expiration or termination date not sooner than one year following its effective date. (c) In connection with the delivery of an Alternate Credit Facility, the Trustee must receive (i) an Opinion of Counsel to the Credit Facility Provider issuing the Alternate Credit Facility, in form and substance satisfactory to the Issuer and the Trustee, relating to the due authorization and issuance of the Alternate Credit Facility, its enforceability, that the statements made relating to the Alternate Credit Facility and Reimbursement Agreement contained in any disclosure document related to the Bonds are true and correct, that the Credit Facility is not required to be registered under the Securities Act of 1933, as amended (unless waived by the Issuer with the consent of the Remarketing Agent) and if applicable, that payments made by the Credit Facility Provider pursuant to the Credit Facility will not be voidable under Section 547 of the Bankruptcy Code and would not be prevented by the automatic stay provisions of Section 362(a) of the Bankruptcy Code, in the context of a case or proceeding by or against the Borrower, a general partner of the Borrower or by the Issuer under the Bankruptcy Code; (ii) an Opinion of Bond Counsel to the effect that the substitution of such Alternate Credit Facility will not adversely affect the exclusion from gross income, for federal income tax purposes, of the interest payable on the Bonds; (iii) the delivery of a continuing disclosure agreement approved by the Issuer if required by the Financing Agreement; and (iv) a rating letter from the Rating Agency establishing a rating on the Bonds permitted under paragraph (b) above. -14- The Trustee shall give notice to the owners of the Bonds, by first-class mail not less than nine (9) days before each proposed Substitution Date specifying: (i) the proposed Substitution Date and (ii) that all Bonds must be surrendered to the Tender Agent for purchase not later than 9:30 a.m., Washington, DC time, on the proposed Substitution Date. THE CREDIT FACILITY PROVIDER The information presented under this caption "has been supplied by Wells Fargo Bank, National Association. None of the Issuer, the Trustee, the Borrower or the Remarketing Agent has independently verified such information, and none assumes responsibility for the accuracy of such information. [to be provided] THE CREDIT FACILITY The following is a brief summary of certain provisions of the Credit Facility. The summary does not purport to be complete and is qualified in its entirety by reference to the full text of the Credit Facility which is on file with the Trustee. The Credit Facility, the form of which is attached as Appendix D, is an irrevocable, direct pay letter of credit issued by the Credit Facility Provider to pay, in immediately available funds, within a specified period of time after timely presentation by the Trustee of specified certificates, an amount equal to $ , consisting of (i) the aggregate principal amount of the Bonds being remarketed ($15,920,000), plus not less than 34 days' interest thereon, calculated initially at 12% per annum, based on a 365-day year ($ ). The Trustee will draw moneys under the Alternate Credit Facility to the extent necessary to make payments of such amounts on the Bonds, including the purchase price of Bonds tendered for purchase. Drawings by the Trustee under the Alternate Credit Facility will reduce the amounts available for subsequent drawings, subject to reinstatement as provided in the Alternate Credit Facility. The Credit Facility is initially scheduled to expire on , unless terminated earlier pursuant to its terms. Prior to its expiration, the Credit Facility may be replaced with an Alternate Credit Facility within the meaning of, and in accordance with the provisions of, the Indenture. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS-Alternate Credit Facility." SUMMARY OF CERTAIN PROVISIONS OF THE REIMBURSEMENT AGREEMENT The following is a brief summary of certain provisions of the Reimbursement Agreement dated as of May 1, 2011 (the "Reimbursement Agreement"), between the Borrower and the Credit Facility Provider. The summary does not purport to be complete and is qualified in its entirety by reference to the full text of the Reimbursement Agreement, which is on file with the Trustee. General Reference is made to the Reimbursement Agreement for the detailed provisions thereof. The Credit Facility is being issued pursuant to the Reimbursement Agreement, under which the Borrower will be obligated, among other things, to reimburse the Credit Facility Provider for the full amount of any drawing to be made under the Credit Facility. To the extent that any reimbursement obligation is not paid, the reimbursement obligation shall bear interest at the rate set forth in the Reimbursement Agreement. The Borrower is also obligated to pay periodically certain amounts to the Credit Facility -15- Provider as fees for the issuance and maintenance of the Credit Facility. The Borrower has made certain affirmative representations, warranties and covenants and certain negative covenants to the Credit Facility Provider to induce the Credit Facility Provider to issue the Credit Facility to the Trustee. These covenants are exclusively for the benefit of the Credit Facility Provider and may be waived, modified or enforced as the Credit Facility Provider may determine. The Credit Facility Provider is not required to enter into any extension or to otherwise amend, modify or supplement the Credit Facility. Without limitation of the absolute discretion of the Credit Facility Provider whether to extend the expiration date, any such extension may be subject to such amendments or modifications to the Reimbursement Agreement and/or any of the Loan Documents as may be required by the Credit Facility Provider. The Reimbursement Agreement, and the terms, conditions and agreements contained therein, are solely for the benefit of the Credit Facility Provider and are not to be relied upon, nor are they enforceable by, the Bondowners or the Trustee. The terms, conditions and agreements in the Reimbursement Agreement (other than the form of the Credit Facility) are subject to change by agreement between the Borrower and the Credit Facility Provider at any time or otherwise as provided in the Reimbursement Agreement without the consent of or notice to the Issuer, the Trustee or the Bondowners. Certain Definitions Terms not otherwise defined under this heading have the respective meanings set forth in Appendix A. In addition, for purposes of the Reimbursement Agreement the following terms have the stated meanings (terms not otherwise defined in Appendix A or below have the respective meanings set forth in the Reimbursement Agreement): "Bank Taxable Loan Documents" means the Promissory Note Secured by Deed of Trust dated as of May 1, 2011, by the Borrower to the order of the Credit Facility Provider, in the original principal amount of $13,300,000, (2) the deed of trust from the Borrower to the Credit Facility Provider (the "Bank Taxable Loan Mortgage"), and (3) related UCC financing statements. "Bond Documents" means (1) the Indenture, (2) the Financing Agreement, (3) the Tax Regulatory Agreement, (4) the Bond Mortgage, (5) the Mortgage Note, (6) the Credit Facility, (7) the Remarketing Agreement, and (8) the Intercreditor Agreement. "Loan Documents" means (1) the Reimbursement Agreement, (2) the Reimbursement Mortgage, (3) UCC financing statements with respect to the Reimbursement Mortgage, (4) the Assignment of Property Management Agreement by the Borrower and certain other parties, for the benefit of the Credit Facility Provider, and (5) certificates of the Borrower's sole member and other parties. Default The occurrence of any of the following constitutes an event of default ("Default") under the Reimbursement Agreement, the other Loan Documents and the Bank Taxable Loan Documents: (1) Monetary, (a) Borrower's failure to pay when due any sum payable under the Reimbursement Agreement, or (b) Borrower's failure to pay when due any other sum under any of the Bond Documents, the Loan Documents, or the Bank Taxable Loan Documents or -16- Borrower's failure to deposit any Borrower's Funds, if such failure under this subclause (b) is not cured within three days after such sum first becomes due and payable; or (2) Performance of Obligations Under Loan Documents or Bank Taxable Loan Documents. Borrower's failure to perform any obligation other than those described in clause (1) above, under any of the Loan Documents, or the Bank Taxable Loan Documents; provided, however, that if a cure period is provided for the remedy of such failure, Borrower's failure to perform will not constitute a Default until such date as the specified cure period expires without such failure having been appropriately remedied; and provided, further, that if no cure period is provided for such failure, then Borrower's failure to perform will not constitute a Default until 30 days after receipt of notice from Credit Facility Provider of such failure; or (3) Performance of Obligations Under Bond Documents. Borrower's failure to perform any obligation other than those described in clause (1) above, under any of the Bond Documents; provided, however, that if a cure period is provided for the remedy of such failure, Borrower's failure to perform will not constitute a Default until such date as the specified cure period expires without such failure having been appropriately remedied; or (4) Use, (i) the leasing or operation of any of the Improvements in accordance with the Bond Documents or Loan Documents is prohibited, enjoined or delayed for a continuous period of more than thirty (30) days; or (ii) utilities or other public services necessary for the full occupancy and utilization of the Property and Improvements are curtailed for a continuous period of more than thirty (30) days; or (5) Liens, Attachment; Condemnation, (i) The recording of any claim of lien against the Property or Improvements or the service on Bank or Bond Trustee of any bonded stop notice relating to the loan of proceeds of the Bonds and the continuance of such claim of lien or bonded stop notice for twenty (20) days without discharge, satisfaction or provision for payment being made by Borrower in a manner satisfactory to Bank; or (ii) the condemnation, seizure or appropriation of, or occurrence of an uninsured casualty with respect to any material portion of the Property or Improvements; or (iii) the sequestration or attachment of, or any levy or execution upon any of, the Property or Improvements, any other collateral provided by Borrower under any of the Bond Documents, the Loan Documents, or the Bank Taxable Loan Documents, any monies in the Account, or any substantial portion of the other assets of Borrower, which sequestration, attachment, levy or execution is not released, expunged or dismissed prior to the earlier of sixty (60) days or the sale of the assets affected thereby; or (6) Representations and Warranties, (i) The failure of any representation or warranty of Borrower in any of the Bond Documents, the Loan Documents, or the Bank Taxable Loan Documents and the continuation of such failure for more than fifteen (15) days after written notice to Borrower from Bank requesting that Borrower cure such failure; or (ii) any material adverse change in the financial condition of Borrower or any other person or entity in any manner obligated to Bank under the Bond Documents, the Loan Documents or the Bank Taxable Loan Documents from the financial condition represented to Bank as of the Effective Date; or (7) Voluntary Bankruptcy; Insolvency; Dissolution, (i) The filing of a petition by Borrower for relief under the Bankruptcy Code, or under any other present or future state or federal law regarding bankruptcy, reorganization or other debtor relief law; (ii) the filing of any pleading or an answer by Borrower in any involuntary proceeding under the Bankruptcy Code or other debtor relief law which admits the jurisdiction of the court or the petition's material allegations regarding Borrower's insolvency; (iii) a general assignment by Borrower for the -17- benefit of creditors; or (iv) Borrower applying for, or the appointment of, a receiver, trustee, custodian or liquidator of Borrower or any of its property; or (8) Involuntary Bankruptcy. The failure of Borrower to effect a full dismissal of any involuntary petition under the Bankruptcy Code or under any other debtor relief law that is filed against Borrower or in any way restrains or limits Borrower or Bank regarding this Agreement or any of the other Loan Documents or the Bank Taxable Loan Documents, the Property or the Improvements, prior to the earlier of the entry of any court order granting relief sought in such involuntary petition, or sixty (60) days after the date of filing of such involuntary petition; or (9) Bankruptcy of Sole Member. General Partner of Sole Member or Guarantor. The occurrence of any of the events specified in (7) and (8) above as to any Sole Member, any General Partner of Sole Member, or any Guarantor; or (10) Dissolution of Guarantor. The dissolution, unwind or termination of the Guarantor; or (11) Change In Management or Control. The occurrence of any material management or organizational change in Borrower or in the members of Borrower (other than as permitted in the Reimbursement Mortgage or the Bank Taxable Loan Mortgage), including, without limitation, any partnership, joint venture or member dispute which Bank determines, in its sole and absolute discretion, is likely to have a material adverse effect on the rights of Bank under this Agreement or any of the other Loan Documents or the Bank Taxable Loan Documents, on the Property and Improvements, or on the ability of Borrower or its partners, venturers or members to perform their obligations under the Bond and Loan Documents and the Bank Taxable Loan Documents; or (12) Loss of Priority. The failure at any time of the Credit Bank Mortgage or the Bank Taxable Loan Mortgage to be a valid lien upon the Property and Improvements or any portion thereof, subject only to the Permitted Exceptions (other than any such failure caused by Bank's execution and delivery of a subordination agreement subordinating the lien of the Credit Bank Mortgage or the Bank Taxable Loan Mortgage to another lien upon the Property); or (13) Hazardous Materials. The discovery of any significant Hazardous Materials (except for those Hazardous Materials permitted under Section 9.2(a)) in, on or about the Property or Improvements subsequent to the Effective Date, unless such Hazardous Materials are removed from the Property and properly transported, treated and disposed of, all in accordance with all applicable Hazardous Materials Laws, within thirty (30) days after written notice from Bank to Borrower of such discovery. Any such Hazardous Materials shall be "significant" for this purpose if said Hazardous Materials, in Bank's sole discretion, have a material adverse impact on the value of the Property and Improvements; or (14) Transfer of Assets. The sale, assignment, pledge, hypothecation, mortgage or transfer of the assets of Borrower or Borrower's members (other than as permitted in Section 5.12 of the Credit Bank Mortgage or Section 5.12 of the Bank Taxable Loan Mortgage) other than in the ordinary course of business of said entity and other than those permitted under the terms of this Agreement; or (15) Bond Document Default. Issuer or Bond Trustee declares any default, which default remains uncured after the expiration of all applicable cure periods, or mandatory redemption in connection with the Bonds or the Bond Documents, which mandatory redemption -18- is not terminated prior to its occurrence, or the obligation to make payment on the debt evidenced by the Mortgage Note or Bonds is accelerated for any reason, which acceleration is not terminated prior to its occurrence; or (16) Failure of Covenants. Subject to any applicable grace period, Borrower fails to perform or observe any term, covenant or agreement contained in any Bond Document or the Regulatory Agreement; or (17) Dissolution. Borrower or any member of Borrower is dissolved, liquidated or terminated, or all or substantially all of the assets of Borrower or any member of Borrower are sold or otherwise transferred without Bank's prior written consent; or (18) Amendments. Any Bond Document is amended, or deemed to have been amended, without Bank's prior written consent; or (19) Guaranty Revocation. Guarantor purports to revoke or terminate, or fails to perform its obligations under, the Repayment Guaranty; or (20) Other Loan Documents. Any "Default" or "Event of Default" (as defined in any other Loan Document) occurs under any other Loan Document or Bank Taxable Loan Document; or (21) Default Under Swap. The occurrence of a default by Borrower or a termination event with respect to Borrower under any swap, derivative, foreign exchange or hedge transaction or arrangement (or similar transaction or arrangement howsoever described or defined) at any time entered into between Borrower and Lender in connection with the Bank Taxable Loan; or (22) Default Under Guaranty or Indemnity. The occurrence of a default under any guaranty or hazardous materials indemnity now or hereafter executed in connection with the Mortgage Loan or the Bank Taxable Loan, including without limitation any guarantor or indemnitor's failure to perform any covenant, condition or obligation thereunder. Remedies Acceleration Upon Default; Remedies. Upon the occurrence of any Default specified above, Bank may, at its sole option, do any or all of the following: (1) Declare the principal of all amounts owing under the Loan Documents or Bank Taxable Loan Documents, and all other indebtedness of Borrower to Bank, together with all accrued interest thereon and all other amounts owing in connection therewith, to be immediately due and payable, regardless of any other specified maturity or due date, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notice or demand of any kind, and without the necessity of prior recourse to any security; provided that any Default described in paragraphs (7) and (8) under "Defaults" above shall automatically, without declaration or other action on Bank's part, cause all such amounts to be immediately due and payable without notice or demand; (2) Give a written direction to the Trustee to redeem the Bonds pursuant to the Indenture by reason of such Default, whereupon Bond Trustee shall draw upon the Letter of Credit in full and cause either a redemption of the Bonds pursuant to the Indenture or, if Bank -19- shall so elect pursuant to the Indenture, a special purchase of the Bonds by Bank in lieu of such redemption. (3) If the Default may be cured by Bank by taking actions or making payments of money, Bank shall have the right (but not the obligation), without waiving any right of foreclosure under the Credit Bank Mortgage, the Bank Taxable Loan Mortgage or other Security Documents which Bank may have by reason of such Default, to take such actions (including the retention of attorneys and the commencement or prosecution of actions on its own behalf or on behalf of Borrower), make such payments and pay for the costs of such actions (including attorneys' fees and court costs) from its own funds; provided that the taking of such actions at Bank's expense or the making of such payments by Bank shall not be deemed to cure such Default, and the same shall not be cured unless and until Borrower shall have reimbursed Bank for such payment, together with interest at the Standard Rate. (4) Without limitation upon any of Bank's other rights or remedies under this Agreement, the other Loan Documents or the Bank Taxable Loan Documents, upon the occurrence of a Default, Borrower shall immediately deposit an amount equal to any amounts then available to be drawn under the Credit Facility in a special non-interest bearing account with Bank from which withdrawals may be made only with the written consent of Bank. To the extent that Borrower fails to deliver such amount, Borrower agrees that such amount shall be includable for all purposes in the amounts owing under this Agreement. Without limitation upon the generality of the foregoing, Borrower agrees that such amounts may be included in credit bids upon foreclosure of the liens of any or all of the Security Documents. Borrower shall grant a security interest to Bank in and to such account and all funds therein, pursuant to a pledge and security agreement in form and content satisfactory to Bank, to secure the Secured Obligations, as long as the Credit Facility remains in effect. Borrower hereby agrees to execute all documents required by Bank in connection with any such deposit in order to create, confirm, perfect, or permit Bank to realize upon, its security interests therein, and hereby irrevocably grants to Bank a power of attorney, coupled with an interest, to execute all such documents. (5) Exercise any and all of its rights under the Loan Documents, the Bank Taxable Loan Documents or the Bond Documents, including foreclosure on any security, and exercise any other rights with respect to any security whether under the Security Documents or any other agreement or as provided by law, all in such order and in such manner as Bank in its sole discretion may determine. See "THE BONDS-Mandatory Redemption of the Bonds" The remedies under the Reimbursement Agreement are to be cumulative and in addition to any other remedy available to the Credit Facility Provider and the exercise of any one or more such remedies shall not preclude the simultaneous or later exercise of any or all such other remedies. The Borrower has agreed to pay all costs, expenses and fees of the Credit Facility Provider, including reasonable attorneys' fees, incurred in enforcing or attempting to enforce or collect any monies owing by the Borrower pursuant to any of the Bond Documents, whether or not litigation be commenced. Security for the Credit Facility Provider The obligations of the Borrower to the Credit Facility Provider are secured by the Loan Documents . Pursuant to the Bond Pledge Agreement, the Borrower pledges to the Credit Facility Provider, as additional collateral, any Bonds purchased with the proceeds of a draw upon the Credit Facility. See "THE BONDS-Purchase of Bonds Not Remarketed." -20- The provisions of the Loan Documents and the Bank Taxable Loan Documents are exclusively for the benefit of the Credit Facility Provider and may be applied, waived, modified or enforced as the Credit Facility Provider may determine. THE BORROWER AND THE PROJECT The following information concerning the Borrower and the Project has been provided by representatives of the Borrower and has not been independently confirmed or verified by any other person. Although the information shown below has been obtained from sources believed to be reliable, no representation is made herein by the Issuer as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. The Borrower Santa Fe Ranch, LLC, a Delaware limited liability company, is acquiring and will operate the Project. The sole member of the Borrower is CASA Partners II, L.P., an Illinois limited partnership (the "Member"). The general partner of the Member is Henderson Global Investors GP, L.L.C., a Delaware limited liability company. The Borrower owns no other properties. The Project General. The Project, known as Santa Fe Ranch Apartments, is a garden-style multifamily development in good condition, completed in 1986. A rehabilitation program completed in 1998 included items such as asphalt paving, wood siding replacements, roof system repairs, painting/stucco, boiler system, tub/showers, kitchen lighting fixtures, ceiling fans, carpet, flooring, and paint/drywall. Construction is wood frame with a stucco exterior and red concrete tile roofs. The total apartment community is situated on approximately 20.5 acres, or 15.61 units per acre. The Project offers a clubhouse, fitness center, business center, three racquetball/handball courts, two lighted tennis courts, two swimming pools and spas, picnic areas, electronically controlled entry gates, and car wash areas. Unit amenities include wood burning fireplaces, built-in bookcases, ceiling fans, breakfast bars, washers/dryers, walk-in closets, linen closets, kitchen appliance package, and outdoor storage areas. Santa Fe Ranch Apartments is situated at the southeast corner of La Costa Avenue and Rancho Santa Fe Road, between 1-5 and 1-15. 1-5 is the primary north-south interstate for San Diego County, which provides transportation throughout Southern California, beginning at the U.S.-Mexico border and extending north to Orange County and Los Angeles County. Santa Fe Ranch is located approximately 25 miles north of downtown San Diego and just minutes from both 1-5 and 1-15. The Project fronts along La Costa Avenue, which is where the ingress/egress to the Project is also located. San Diego County is home to a diverse employment base including San Diego Naval Station, University of California- San Diego, Sharp Healthcare, Pacific Bell, Qualcomm, Kaiser Permanente, and Scientific Applications International Corp. Residents commute to both the San Diego Central Business District and the North County area at major business hubs, including the Palomar Airport Business Center, Sorrento Mesa, Torrey Pines, and Del Mar Heights. Unit Breakdown. The average unit size is 858 square feet and breaks down according to the following chart: -21- Unit Type No. of Units Unit Size (SF) Ibr/lba 64 679 2br/lba 64 841 2br/2ba 192 924 Total 320 858 Occupancy Rates. The following table shows the average occupancy rate of the Project for each calendar year indicated. Calendar Year Occupancy Rate 2008 94.3% 2009 93.9% 2010 95.4% For the first quarter of 2011, the Project had an average occupancy rate of 95.0%. Subordinate Financing At the date of delivery of the Credit Enhancement Agreement, the Borrower obtained a subordinate loan from Freddie Mac in the amount of $13,330,000, of which approximately $8,695,377 remains outstanding as of March 31, 2011. On the Substitution Date the Borrower is prepaying this loan with the proceeds of a subordinate loan from the Credit Facility Provider in the principal amount of $13,300,000 (the "Bank Taxable Loan"). The Bank Taxable Loan will bear interest at a monthly floating rate of the one-month London Interbank Offered Rate plus 2.15% or as otherwise provided in the Borrower's note evidencing the Bank Taxable Loan. The Bank Taxable Loan matures on the same date as the expiration of the Credit Facility. CERTAIN BONDHOLDERS' RISKS Purchase of the Bonds involves certain investment risks. In order to identify risk factors and make an informed investment decision, potential investors should be thoroughly familiar with this entire Official Statement (including the Appendices to this Official Statement) in order to make a judgment as to whether the Bonds are an appropriate investment. Certain of the risks associated with the purchase of the Bonds are described below. Such risks should not affect the payment of principal of and interest on the Bonds if the Credit Facility Provider fulfills the obligations under the Credit Facility. However, upon any inability or refusal of the Credit Facility Provider to fulfill its obligations under the Credit Facility, payment of the principal of and interest on the Bonds would be subject to the various risks described below. The following list of possible factors, while not setting forth all the factors that must be considered, contains some of the factors that should be considered prior to purchasing the Bonds. This discussion of risk factors is not, and is not intended to be, comprehensive or exhaustive. 1. Security for the Bonds. The Bonds are limited obligations of the Issuer payable exclusively out of the loan payments payable under the Financing Agreement and draws on the Credit Facility (and, in certain circumstances, Bond proceeds and income from the temporary investment thereof). The Bonds are secured by a pledge by the Issuer of the Trust Estate to the Trustee in favor of the owners of the Bonds in accordance with the Indenture. A brief description of the Trust Estate is contained under the heading ""SECURITY AND SOURCES OF PAYMENT FOR THE BONDS." -22- THE BONDS SHALL NOT BE A DEBT, EITHER GENERAL OR SPECIAL, OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF, AND NEITHER THE STATE NOR ANY POLITICAL SUBDIVISION THEREOF SHALL BE LIABLE THEREON. NEITHER THE FAITH, REVENUES, CREDIT NOR TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF SHALL BE PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM (IF ANY), OR INTEREST ON THE BONDS. THE BONDS ARE PAYABLE, AS TO PRINCIPAL, PREMIUM (IF ANY), AND INTEREST, SOLELY OUT OF THE TRUST ESTATE WHICH ARE THE SOLE ASSETS OF THE ISSUER PLEDGED THEREFOR, AND THEN ONLY TO THE EXTENT HEREIN PROVIDED. NEITHER THE MEMBERS OF THE GOVERNING BODY OF THE ISSUER NOR ANY PERSONS EXECUTING THE BONDS SHALL BE LIABLE PERSONALLY ON THE BONDS BY REASON OF THEIR ISSUANCE. 2. The Credit Facility. Payment of the Bonds will be made from payments under the Credit Facility or any Alternate Credit Facility. Consequently, the payment of the Bonds while the initial Credit Facility is in force is ultimately dependent on the credit of the Credit Facility Provider. There can be no assurance that the credit of the Credit Facility Provider will continue at its current level. A decline in the credit rating of the Credit Facility Provider could result in a decline in the ratings assigned to the Bonds at the time of their issuance as well as in the market price of the Bonds. See "THE CREDIT FACILITY PROVIDER." 3. Default by the Borrower under the Reimbursement Agreement. No representation or assurance can be made that the Borrower will be able to make the payments required under the Reimbursement Agreement. If the Borrower is unable to make these payments or a Default otherwise occurs under the Reimbursement Agreement, the Credit Facility Provider will have the right to cause the mandatory redemption of the Bonds pursuant to the Indenture. See "THE BONDS-Mandatory Redemption of the Bonds" and "THE REIMBURSEMENT AGREEMENT." 4. Risk of Taxability - Bonds. Failure of the Borrower to have complied with and to continue to comply with certain covenants contained in the Financing Agreement and the Tax Regulatory Agreement and certain other events could result in a Determination of Taxability and in interest on the Bonds being retroactively taxable. Although the Bonds are subject to mandatory tender upon a Determination of Taxability at the principal amount thereof, without premium, plus accrued interest to the Tender Date, Bondowners would not be entitled to receive any amount denoted as "supplemental interest," "additional interest," "penalty interest," "liquidated damages" or otherwise, in addition to the amounts payable to the owners of the Bonds prior to the redemption date. 5. Limitation on Enforcement of Remedies. Enforcement of the remedies under the Indenture, the Financing Agreement, the Bond Mortgage Note, the Tax Regulatory Agreement and the Credit Facility may be limited or restricted by laws relating to bankruptcy and insolvency, and rights of creditors under application of general principles of equity, and may be substantially delayed in the event of litigation or statutory remedy procedures. The various legal opinions to be delivered concurrently with the remarketing of the Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by principles of equity and by bankruptcy, reorganization, insolvency, moratorium and similar laws affecting the rights of creditors generally. 6. Early Redemption or Mandatory Tender. Pursuant to the terms of the Indenture, the Bonds are subject to redemption or mandatory tender for purchase prior to maturity (see "THE BONDS-Optional Redemption of the Bonds," "-Mandatory Redemption of the Bonds" and "-Demand for and Mandatory Purchase of the Bonds"). Under those circumstances, a Bondowner whose Bonds are called for early redemption may not have the opportunity to hold those Bonds for a time period consistent with such Bondowner's original investment intentions. -23- 7. Secondary Markets and Prices. Except with respect to the optional or mandatory tender of the Bonds (see "THE BONDS-Demand for and Mandatory Purchase of the Bonds"), neither the Borrower nor the Credit Facility Provider will be obligated to repurchase any of the Bonds, and no representation is made concerning the existence of any secondary market for the Bonds. No assurance can be given that any secondary market will develop following the completion of the reoffering of the Bonds on the Credit Facility Substitution Date. SUMMARY OF THE INDENTURE The following is a brief summary of certain provisions of the Indenture. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the Indenture, copies of which are on file with the Trustee. Establishment of Funds In addition to the Bond Purchase Fund, the Indenture establishes the following funds: (a) Revenue Fund, and within the Revenue Fund a General Account and a Credit Facility Account; (b) Bond Fund, and within the Bond Fund a Purchased Bonds Account; (c) Redemption Fund; (d) Administration Fund and within the Administration Fund a Specified Fees Account and an Administration Expense Account; (e) Cost of Issuance Fund; and (f) Rebate Fund. Revenue Fund There will be deposited in the Credit Facility Account of the Revenue Fund all amounts received pursuant to draws on the Credit Facility. All Revenues (other than amounts paid under the Credit Facility) will be deposited by the Trustee, promptly upon receipt thereof, to the General Account of the Revenue Fund, except (a) as otherwise specifically described below with respect to certain deposits into the Redemption Fund, (b) the Bond Fee Component will be deposited in the Specified Fees Account, (c) as otherwise specifically provided in the Indenture with respect to deficiencies in the Administration Fund, (d) with respect to investment earnings to the extent required to be retained in the Funds and Accounts to which they are attributable, and (e) with respect to amounts required to be transferred between Funds and Accounts pursuant to applicable provisions of the Indenture. On each Interest Payment Date or any other date on which payment of principal or interest on the Bonds becomes due and payable, the Trustee, out of moneys in the Credit Facility Account and the General Account of the Revenue Fund, will credit the following amounts to the following Funds, but in the order and within the limitations indicated in the Indenture with respect thereto, as follows: FIRST, to the Bond Fund from moneys in the Credit Facility Account of the Revenue Fund, an amount equal to the principal of and interest due on the Bonds on such date (excluding -24- principal or interest on any Purchased Bonds and excluding the principal constituting a mandatory sinking fund payment on any Bonds on such date); and SECOND, to the Bond Fund from moneys in the Credit Facility Account of the Revenue Fund, an amount equal to the principal amount due and payable on the Bonds with respect to mandatory sinking fund redemption (excluding principal of any Purchased Bonds) on such date; and THIRD, to the Redemption Fund from moneys in the Credit Facility Account (i) amounts paid to the Trustee under the Credit Facility to be applied to the mandatory redemption of all or a portion of the Bonds as described herein under the caption "THE BONDS-Mandatory Redemption of the Bonds" (other than a mandatory sinking fund redemption); and (ii) amounts paid to the Trustee pursuant to the Credit Facility to be applied to the optional redemption of all or a portion of the Bonds as described herein under the caption "THE BONDS-Optional Redemption of the Bonds"; and FOURTH, to the Purchased Bonds Account in the Bond Fund from moneys in the General Account, an amount equal to the interest due on the Purchased Bonds on such date. Immediately upon receipt, the Trustee will deposit directly to the Redemption Fund (a) Net Proceeds representing casualty insurance proceeds or condemnation awards paid as a prepayment of the Bond Mortgage Loan, such amount to be applied to reimburse the Credit Facility Provider for a draw under the Credit Facility in such amount to provide for extraordinary mandatory redemption of all or a portion of the Bonds pursuant to the Indenture; and (b) Eligible Funds (other than draws under the Credit Facility) paid to the Trustee to be applied to the optional redemption of all or a portion of the Bonds pursuant to the Indenture; provided, however, any premium paid in connection with an optional redemption of the Bonds shall not be paid from amounts drawn on the Credit Facility. Immediately upon receipt, the Trustee will deposit directly to the Specified Fees Account of the Administration Fund the Bond Fee Component received from the Borrower and to the Administration Expense Account, any additional amounts paid by the Borrower for deposit therein. Should the amount in the Bond Fund or in the Redemption Fund, as applicable, be insufficient to pay the amount due on the Bonds on any given Interest Payment Date or other payment date after the transfers from the Credit Facility Account, the Trustee will credit to the Bond Fund the amount of such deficiency by charging the following Funds and Accounts in the following order of priority: (a) the General Account of the Revenue Fund; (b) the Administration Expense Account; and (c) the Redemption Fund, except no such charge to the Redemption Fund will be made from moneys to be used to effect a redemption for which notice of redemption has been provided for or from moneys which are held for payment of Bonds which are no longer Outstanding under the Indenture. Bond Fund The Trustee will charge the Bond Fund, on each Interest Payment Date, an amount equal to the unpaid interest and principal due on the Bonds on such Interest Payment Date, and will cause the same to be applied to the payment of such interest and principal when due (excluding principal on any Purchased Bond). Any moneys remaining in the Bond Fund on any Interest Payment Date after application as provided in the preceding sentence may, to the extent there shall exist any deficiency in the Redemption Fund to redeem Bonds called for mandatory sinking fund redemption on such Interest Payment Date, be transferred to the Redemption Fund to be applied for such purpose. Any balance remaining in the Bond -25- Fund on the Business Day immediately succeeding an Interest Payment Date will be transferred to the Credit Facility Provider to be applied in accordance with the Reimbursement Agreement. Redemption Fund Any moneys credited to the Redemption Fund and not otherwise restricted will be applied FIRST, to reimburse the Credit Facility Provider to the extent of any draw made under the Credit Facility for redemption of the Bonds as a result of a casualty or condemnation with respect to the Project; SECOND, to pay the redemption price of Bonds called for redemption as a result of an optional or mandatory redemption of the Bonds; and THIRD, to make up any deficiency in the Bond Fund on any Interest Payment Date, to the extent moneys then available in the General Account of the Revenue Fund and the Administration Expense Account are insufficient to make up such deficiency, provided that no moneys to be used to effect a redemption for which a conditional notice of redemption, the conditions of which have been satisfied, or an unconditional notice of redemption has been provided or moneys which are held for payment of Bonds which are no longer Outstanding under the Indenture will be so transferred to the Bond Fund. On or before each Interest Payment Date, the income realized from the investment of moneys in the Redemption Fund will be credited by the Trustee to the General Account of the Revenue Fund. Administration Fund Amounts in the Specified Fees Account shall be withdrawn or maintained, as appropriate, by the Trustee to pay (i) on each June 1, commencing June 1, 2011, to, or at the direction of, the Issuer, the Issuer Fee, (ii) on each June 1, commencing June 1, 2011, to the Trustee amounts due pursuant to subpart (a) of the definition of the Trustee's Fee, (iii) upon receipt, to the Trustee, any amounts due to the Trustee which have not been paid, other than amounts paid in accordance with clause (ii), (iv) upon receipt, to, or at the direction of, the Issuer, any portion of the Issuer Fee due and unpaid, other than amounts paid in accordance with clause (i), and (v) to the Rebate Analyst, the Rebate Analyst Fee. Amounts in the Administration Expense Account will be withdrawn or maintained, as appropriate, by the Trustee and used FIRST, to make up any deficiency in the Bond Fund on any Interest Payment Date, to the extent moneys then available in the General Account of the Revenue Fund are insufficient to make up such deficiency; SECOND, to pay to the Trustee any Extraordinary Trustee's Fees and Expenses due and payable from time to time, as set forth in an invoice submitted to the Borrower, the Issuer and the Credit Facility Provider; THIRD, subject to the limitations in the Indenture, to pay to the Issuer any extraordinary expenses it may incur in connection with the Bonds or the Indenture from time to time, as set forth in an invoice submitted to the Borrower, the Trustee and the Credit Facility Provider; FOURTH, to make up any deficiency in the Redemption Fund on any redemption date of Bonds, to the extent moneys then available in the Redemption Fund are insufficient to redeem 'Bonds called for redemption on such redemption date; FIFTH, to pay to the Rating Agency the annual rating maintenance fee, if any, of the Rating Agency upon presentment of an invoice from the Rating Agency to the Trustee; SFXTH, to pay to the Remarketing Agent and the Rebate Analyst fees and expense due from time to time; and SEVENTH, to transfer any remaining balance after application as aforesaid to the General Account of the Revenue Fund. In the event that the amounts on deposit in the Administration Fund are not equal to the amounts payable from the Administration Fund as described in the preceding paragraph on any date on which such amounts are due and payable, the Trustee will give notice to the Borrower of such deficiency and of the amount of such deficiency and request payment within two Business Days to the Trustee of the amount of such deficiency. Upon payment by the Borrower of such deficiency, the amounts for which such -26- deficiency was requested will be paid. On or before each Interest Payment Date, the income realized from the investment of moneys in the Administration Fund will be credited by the Trustee to the General Account of the Revenue Fund. Drawings and Notices Under Credit Facility The Credit Facility shall be held by the Trustee and drawn upon in accordance with its terms and the provisions of the Indenture. Moneys derived from draws upon the Credit Facility shall be deposited in the Credit Facility Account of the Revenue Fund and applied by the Trustee to pay the principal of and interest on the Bonds and, in the event of a purchase of the Bonds, to pay, to the extent provided in the Credit Facility, the Purchase Price of the Bonds in accordance with the Indenture. The Trustee shall draw moneys under the Credit Facility in accordance with the terms thereof in an amount sufficient to make timely payments of the principal of and interest, but not premium, on the Bonds required to be made from the Bond Fund and the Redemption Fund. While the Bonds bear interest at the Variable Rate, should any Variable Interest Computation Date fall between the date of the draw on the Credit Facility and the next Interest Payment Date on the Bonds, the Trustee shall assume that the Bonds will bear interest at the Maximum Rate from such Variable Interest Computation Date to the next Interest Payment Date and shall draw on the Credit Facility accordingly, hi the event that the Maximum Rate exceeds the actual interest rate during such period, the excess interest shall be returned to the Credit Facility Provider. Should the Credit Facility Provider become the owner of the Project by foreclosure or otherwise, the Trustee shall nevertheless continue to make payments on the Bonds only from draws on the Credit Facility or from Eligible Funds. The Trustee shall send to the Borrower a copy of any documents which are presented to the Credit Facility Provider in connection with a drawing on the Credit Facility concurrently with its submission of those documents to the Credit Facility Provider. The Borrower shall be permitted to provide the Trustee with an Alternate Credit Facility in accordance with the Indenture and the Financing Agreement. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS-Alternate Credit Facility." The Trustee has agreed to provide to the Credit Facility Provider all notices, including any notice of failure to receive a payment, as are required under the Credit Facility, in the manner and within the periods of time provided in the Credit Facility. Certain notices constitute a condition precedent to payment by the Credit Facility Provider under the Credit Facility. Investment of Funds The moneys held by the Trustee shall constitute trust funds for the purposes of the Indenture. Any moneys attributable to each of the funds and accounts under the Indenture shall be invested by the Trustee, at the written direction of the Borrower, with respect to all other Funds and Accounts, in Qualified Investments which mature on the earlier of (i) six months from the date of investment and (ii) the date such moneys are needed; provided, that if the Trustee shall have entered into any investment agreement requiring investment of moneys in any fund or account under the Indenture in accordance with such investment agreement and if such investment agreement constitutes a Qualified Investment, such moneys shall be invested in accordance with such requirements; and, provided, further, that amounts in the Credit Facility Account of the Revenue Fund shall be held uninvested or shall be invested only in Government Obligations or in Qualified Investments of the type described in subparagraph (g) thereof. -27- Such investments may be made through the investment or securities department of the Trustee. All such Qualified Investments purchased with money in any fund or account under the Indenture shall mature, or shall be subject to redemption or withdrawal without discount or penalty at the option of the Trustee, prior to the next succeeding Interest Payment Date. Qualified Investments representing an investment of moneys attributable to any Fund or Account shall be deemed at all times to be a part of said Fund or Account, and, except as otherwise may be provided expressly in the Indenture, the interest thereon and any profit arising on the sale thereof shall be credited to the General Account of the Revenue Fund, and any loss resulting on the sale thereof shall be charged against the General Account of the Revenue Fund. Such investments shall be sold at the best price reasonably obtainable whenever it shall be necessary so to do in order to provide moneys to make any transfer, withdrawal, payment or disbursement from such Fund or Account. In the case of any required transfer of moneys to another such Fund or Account, such investments may be transferred to that Fund or Account in lieu of the required moneys if permitted by the Indenture as an investment of moneys in that Fund or Account. The Trustee will not be liable or responsible for any loss resulting from any investment made in accordance with the Indenture. In computing for any purpose under the Indenture the amount in any Fund or Account on any date, obligations so purchased will be valued at the lower of cost or par exclusive of accrued interest. Rebate Fund The Rebate Fund shall be established by the Trustee and held and applied as provided in the Indenture. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebatable Arbitrage (as defined in the Indenture) and as calculated by the Rebate Analyst, for payment to the United States Government, and neither the Issuer, the Borrower, the Credit Facility Provider nor the Bondholders shall have any rights in or claim to such moneys. The Trustee shall follow the written instructions of the Issuer, Bond Counsel, the Borrower or the Rebate Analyst, with respect to the Rebate Fund, and shall not be required to take any actions under the Indenture or the Tax Certificate in the absence of written instructions from the Borrower, the Issuer, Bond Counsel, the Borrower or the Rebate Analyst. Any funds remaining in the Rebate Fund after redemption and payment of all of the Bonds and payment and satisfaction of any Rebatable Arbitrage, or provision made therefor satisfactory to the Trustee, will be withdrawn and remitted to the Borrower. Notwithstanding the foregoing, the computations and payments of Rebatable Arbitrage need not be made to the extent that neither the Issuer nor the Borrower will thereby fail to comply with any requirements of Section 148(f) of the 1986 Code based on an opinion of Bond Counsel that such failure will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds, a copy of which shall be provided to the Trustee, at the expense of the Borrower. Cost of Issuance Fund The Trustee will use moneys on deposit in the Cost of Issuance Fund to pay on the Credit Facility Substitution Date, or as soon as practicable thereafter, the costs related to effecting the delivery of the Credit Facility in accordance with written instructions to be given to the Trustee by the Borrower, upon delivery to the Trustee of appropriate invoices for such expenses. Amounts remaining on deposit in the -28- Cost of Issuance Fund six months after the Credit Facility Substitution Date will be transferred to the Borrower. Upon such final disbursement, the Trustee will close the Cost of Issuance Fund. Moneys Held in Trust All moneys held by the Trustee, as such, at any time pursuant to the terms of the Indenture shall be and thereby are assigned, transferred and set over unto the Trustee in trust for the purposes and under the terms and conditions of the Indenture. Amounts Remaining in Funds After full payment of the Bonds (or provision for payment thereof having been made in accordance with the Indenture) and full payment of the fees, charges and expenses of the Trustee and other amounts required to be paid under the Indenture or under the any Bond Mortgage Loan Document, the Credit Facility or the Reimbursement Agreement, including fees payable to the Issuer and the Credit Facility Provider, any amounts remaining in any Fund or Account under the Indenture other than the Rebate Fund shall be paid to the Borrower; provided however, that if a default shall have occurred and remain uncured under any Bond Mortgage Loan Document of which the Trustee shall have received written notice from the Credit Facility Provider, then any such amounts remaining in any Fund or Account under the Indenture shall be paid to the Credit Facility Provider to be applied in accordance with the Reimbursement Agreement. Events of Default; Acceleration; Remedies Each of the following constitutes an Event of Default under the Indenture: (a) failure to pay the principal or Purchase Price of, premium, if any, or interest on any Bond (other than Purchased Bonds), when due, whether at the stated maturity thereof, or upon proceedings for redemption thereof, or on the maturity thereof by declaration; or (b) failure by the Credit Facility Provider to make when due a required payment under the Credit Facility; or (c) failure to observe or perform any of the covenants, agreements or conditions on the part of the Issuer in the Indenture or in the Bonds (other than with respect to payment of principal of and interest on the Bonds) and the continuance thereof for a period of 30 days after written notice to the Issuer from the Trustee or the Bondholders of more than 51% of the aggregate principal amount of Bonds then Outstanding at such time specifying such default and requiring the same to be remedied; provided that the Credit Facility Provider shall have directed in writing that the same shall have constituted an Event of Default. The Trustee and the Issuer agree that, notwithstanding the provisions in the Indenture, no default under the terms of the Indenture will be construed as resulting in a default under the Bond Mortgage Note, the Bond Mortgage or any other Bond Mortgage Loan Documents, unless such event also constitutes a default thereunder. Upon the occurrence of an Event of Default as provided in (a) above, the Trustee shall, but so long as no Event of Default has occurred and is then continuing under (b) above, only upon receipt from the Credit Facility Provider of a notice directing such acceleration (which notice may be given in the sole discretion of the Credit Facility Provider), by notice in writing delivered to the Issuer, declare the principal of all Bonds then Outstanding and the interest accrued thereon immediately due and payable, -29- and such principal and interest shall thereupon become and be immediately due and payable and interest shall cease to accrue. Upon the occurrence of an Event of Default as provided in (c) above, the Trustee may, but so long as no Event of Default has occurred and is then continuing under (b) above, only upon receipt of the written consent of the Credit Facility Provider (which consent may be given in the sole discretion of the Credit Facility Provider), by notice in writing delivered to the Issuer, declare the principal of all Bonds then Outstanding and the interest accrued thereon immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable and interest shall cease to accrue. Upon the occurrence of an Event of Default under (b) above, the Trustee may, and upon the written request of the Bondholders of more than 51 % of the Bonds then Outstanding and receipt of indemnity satisfactory to it shall, by notice in writing delivered to the Issuer, declare the principal of all Bonds then Outstanding and the interest accrued thereon immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable and interest shall cease to accrue. The payment of the Bonds resulting from a declaration of acceleration on the Bonds as the result of an Event of Default occurring under (a) or (c) above shall be made from the Credit Facility. If at any time after the Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the money due shall have been obtained or entered, the Issuer, the Borrower or the Credit Facility Provider, as applicable, shall pay to or deposit with the Trustee a sum sufficient to pay all principal of the Bonds then due (other than solely by reason of such declaration) and all unpaid installments of interest, if any, upon all the Bonds then due, with interest at the rate borne by the Bonds on such overdue principal and (to the extent legally enforceable) on such overdue installments of interest, and the reasonable expenses of the Trustee shall have been made good or cured or adequate provision shall have been made therefor, and all outstanding amounts then due and unpaid under the Reimbursement Agreement shall have been paid in full, and all other defaults under the Indenture have been made good or cured or waived in writing by the Credit Facility Provider (or, if an Event of Default under (b) above has occurred and is then continuing, by the Bondholders of more than 51% of the aggregate principal amount of the Bonds then Outstanding), then and in every case, the Trustee on behalf of the Bondholders of all the Outstanding Bonds shall rescind and annul such declaration and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default, nor shall it impair or exhaust any right or power consequent thereon. Upon the happening and continuance of an Event of Default, the Trustee in its own name and as trustee of an express trust, on behalf and for the benefit and protection of the Bondholders of all Bonds with respect to which such an Event of Default has occurred and of the Credit Facility Provider (if no Event of Default has occurred and is continuing under (b) above), may also proceed to protect and enforce any rights of the Trustee and, to the full extent that the Bondholders of such Bonds themselves might do, the rights of such Bondholders under the laws of the State or under the Indenture by such of the following remedies as the Trustee shall deem most effectual to protect and enforce such rights; provided that, so long as no Event of Default has occurred and is then continuing under (b) above, the Trustee may undertake any such remedy only upon the receipt of the prior written consent of the Credit Facility Provider (which consent may be given in the sole discretion of the Credit Facility Provider) or in accordance with the provisions of the Intercreditor Agreement: (a) by mandamus or other suit, action or proceeding at law or in equity, to enforce the payment of the principal of, premium, if any, or interest on the Bonds then Outstanding, or for the specific performance of any covenant or agreement contained in the Indenture or in the Credit Facility, the Financing Agreement or the Tax Regulatory Agreement, or to require the Issuer to carry out any other covenant or agreement with Bondholders and to perform its duties under the Act; -30- (b) by pursuing any available remedies under the Financing Agreement, the Tax Regulatory Agreement or the Credit Facility; (c) by realizing or causing to be realized through sale or otherwise upon the security pledged under the Indenture; and (d) by action or suit in equity, to enjoin any acts or things that may be unlawful or in violation of the rights of the Bondholders and to execute any other papers and documents and do and perform any and all such acts and things as may be necessary or advisable in the opinion of the Trustee in order to have the respective claims of the Bondholders against the Issuer allowed in any bankruptcy or other proceeding. No remedy by the terms of the Indenture conferred upon or reserved to the Trustee or to the Bondholders is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee, the Credit Facility Provider or the Bondholders under the Indenture, the Financing Agreement, the Tax Regulatory Agreement, the Credit Facility or the Reimbursement Agreement, as applicable, 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 Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any Event of Default under the Indenture, whether by the Trustee, the Credit Facility Provider or the Bondholders, shall extend to or shall affect any subsequent default or event of default or shall impair any rights or remedies consequent thereto. Rights of Bondholders If an Event of Default under (b) above shall have occurred and is then continuing, and if requested in writing so to do by the Bondholders of more than 51 % of the aggregate principal amount of the Bonds then Outstanding with respect to which there is a default, and if indemnified to its satisfaction, the Trustee shall, subject to the terms of the Intercreditor Agreement, exercise one or more of the rights and powers conferred by the Indenture as the Trustee, being advised by counsel, shall deem most expedient in the interest of the affected Bondholders. If an Event of Default under (b) above shall have occurred and is then continuing, the Bondholders of more than 51% of the aggregate principal amount of the Bonds then Outstanding with respect to which an Event of Default has occurred shall have the right at any time, subject to the conditions described in the next succeeding paragraph, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture, or for the appointment of a receiver or any other proceedings thereunder, in accordance with the provisions of law and of the Indenture. No Bondholder shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of the Indenture or for the execution of any trust thereunder or for the appointment of a receiver or any other remedy thereunder, unless (a) a default shall have occurred of which the Trustee shall have been notified as provided therein; (b) such default shall have become an event of default under (b) above; (c) the Bondholders of more than 51% of the aggregate principal amount of the Bonds then Outstanding shall have made written request to the Trustee and shall have offered the Trustee reasonable opportunity either to proceed to exercise the powers granted in the Indenture or to institute such action, suit or proceeding in its own name; (d) such Bondholders shall have offered to the Trustee indemnity as provided in the Indenture; and (e) the Trustee shall within 60 days thereafter fail or refuse to exercise such powers or to institute such action, suit or proceeding, it being understood and intended that no one or more Bondholders of the Bonds shall have any right in any manner whatsoever to affect, disturb or -31- prejudice the lien of the Indenture or the rights of any other owners of Bonds or to obtain priority or preference over any other owners of Bonds or to enforce any right under the Indenture, except in the manner provided in the Indenture and for the equal and ratable benefit of all owners of Bonds with respect to which there is a default. Nothing contained in the Indenture shall, however, affect or impair the right of any Bondholder to enforce the payment of the principal of, the premium, if any, and interest on any Bond at the maturity thereof or the obligation of the Issuer to cause to be paid the principal of, premium, if any, and interest on the Bonds to the respective owners thereof at the time, in the place, from the sources and in the manner expressed in the Bonds. Application of Moneys After Default All moneys collected by the Trustee at any time pursuant to this Article shall, except to the extent, if any, otherwise directed by a court of competent jurisdiction, be credited by the Trustee to the General Account of the Revenue Fund. In the event that at any time the moneys credited to the Revenue Fund, the Bond Fund, the Redemption Fund, the Principal Reserve Fund and the Administration Expense Account available for the payment of interest or principal then due with respect to the Bonds shall be insufficient for such payment, such moneys (other than moneys held for the payment or redemption of particular Bonds as provided in the Indenture) shall be applied as follows and in the following order of priority: (a) For payment of costs and expenses of suit or settlement, if any, and the reasonable compensation of the Trustee and the Issuer, their agents, attorneys, experts and advisors actually incurred, and of all proper expenses, liability and advances incurred or made hereunder by the Trustee and of all taxes, assessments or liens superior to the lien of the Indenture. (b) So long as no Event of Default has occurred and is then continuing under paragraph (b) under "Events of Default; Acceleration; Remedies" above, for the payment to the Credit Facility Provider of all amounts then due and unpaid under the Reimbursement Agreement. (c) Unless the principal of all Bonds shall have become or have been declared due and payable: FIRST, to the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available is not sufficient to pay in full any installment, then to the payment thereof ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or preference; and SECOND, to the payment to the persons entitled thereto of the unpaid principal of and premium, if any (which payment of premium shall not be restricted to Eligible Funds), on any Bonds which shall have become due, whether at maturity or by call for redemption, in the order in which they became due and payable, and, if the amount available is not sufficient to pay in full all the principal of and premium, if any, on the Bonds so due on any date, then to the payment of principal ratably, according to the amounts due on such date, to the persons entitled thereto, without any discrimination or preference, and then to the payment of any premium due on the Bonds, ratably, according -32- to the amounts due on such date, to the persons entitled thereto, without any discrimination or preference. (d) If the principal of all of the Bonds shall have become or have been declared due and payable, to the payment of the principal of, premium, if any (which payment of premium shall not be restricted to Eligible Funds), and interest then due and unpaid upon the Bonds without preference or priority of principal over interest or of interest over principal, or of any installment of interest over any other installment of interest, or of any Bond over any other Bond, ratably, according to the amounts due, respectively, for principal, premium and interest, to the persons entitled thereto without any discrimination or preference except as to any differences in the respective rates of interest specified in the Bonds. (e) If an Event of Default has occurred and is then continuing under paragraph (b) under "Events of Default; Acceleration; Remedies" above, for the payment to the Credit Facility Provider of all amounts then due and unpaid under the Reimbursement Agreement to the date of such Event of Default. (f) To the payment of the amounts payable from the Specified Fees Account including, without limitation, the Issuer Fee and all other unpaid fees, costs and expenses incurred by the Trustee and the Issuer or their respective counsel or representatives. Rights of the Credit Facility Provider So long as no Event of Default has occurred and is then continuing as described under paragraph (b) under "Events of Default; Acceleration; Remedies" above, if an Event of Default as described under paragraph (a) or (c) under such caption shall have occurred and upon receipt of the written direction of the Credit Facility Provider (which direction may be given in the sole discretion of the Credit Facility Provider), the Trustee shall be obligated to exercise any right or power conferred by the remedial provisions of the Indenture in the manner set forth in such written direction of the Credit Facility Provider. If such written direction expressly states that the Trustee may exercise one or more of the rights and powers conferred the provision herein described as the Trustee shall deem to be in the interest of the Bondholders and the Credit Facility Provider, the Trustee shall exercise one or more of such rights and powers as the Trustee shall deem to be in the best interests of the Bondholders and the Credit Facility Provider; provided, however, that, in any event, so long as no Event of Default has occurred and is then continuing under paragraph (b) under "Events of Default; Acceleration; Remedies" above, except as provided in the Intercreditor Agreement, the Trustee may not undertake any action to realize, through sale or otherwise, upon the Bond Mortgage Loan without the express written direction of the Credit Facility Provider. So long as no Event of Default has occurred and is then continuing under paragraph (b) above, in the case of an Event of Default under paragraphs (a) or (c) under "Events of Default; Acceleration; Remedies" above, the Credit Facility Provider shall have the right, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee. Waivers of Events of Default So long as no Event of Default has occurred and is then continuing under paragraph (b) under "Events of Default; Acceleration; Remedies" above, the Trustee shall waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal of, premium, if any, -33- and interest on the Bonds upon the written direction of the Credit Facility Provider. If there shall have occurred and is then continuing an Event of Default under paragraph (b) under "Events of Default; Acceleration; Remedies" above, the Trustee shall waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal of, premium, if any, and interest on the Bonds upon the written request of the Bondholders of 100% of the Bonds then Outstanding with respect to which there is a default; provided, however, that there shall not be waived (a) any Event of Default in the payment of the principal of any Bonds (other than Purchased Bonds) at the date of maturity specified therein, or upon proceedings for mandatory redemption or in the Purchase Price of any Bonds (other than Purchased Bonds), (b) any default in the payment when due of the interest or premium on any such Bonds (other than Purchased Bonds), unless prior to such waiver or rescission all arrears of interest, with interest (to the extent permitted by law) at the rate borne by the Bonds in respect of which such default shall have occurred on overdue installments of interest, or all arrears of payments of principal or premium, if any, when due (whether at the stated maturity thereof or upon proceedings for mandatory redemption), as the case may be, and the Issuer Fee then due, and all expenses of the Trustee in connection with such default shall have been paid or provided for, and in case of any such waiver or rescission, or in case any proceeding taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Trustee, the Credit Facility Provider and the Bondholders shall be restored to their former positions and rights hereunder, respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereto. Supplemental Indentures Without the consent of, or notice to, the Bondholders, but with the prior written consent of the Credit Facility Provider, and after written notice to the Rating Agency, the Issuer and the Trustee may enter into supplemental indentures (not inconsistent with the terms of the Indenture or materially adverse to the owners of the Bonds) for any one or more of the following purposes: (a) to cure any ambiguity or formal defect or omission in the Indenture; (b) to grant to or confer upon the Trustee for the benefit of the Bondholders any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Bondholders or the Trustee or either of them; (c) to subject to the lien and pledge of the Indenture additional revenues, properties or collateral; (d) to modify, amend or supplement the Indenture or any indenture supplemental thereto in such manner as to permit the qualification thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect or to permit the qualification of the Bonds for sale under the securities laws of any of the states of the United States; (e) in connection with any other change in the Indenture which will not adversely affect the interest of the Trustee or the Bondholders; (f) to insert such provisions as are, in the opinion of Bond Counsel, necessary to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds; -34- (g) to modify or amend the Indenture as necessary to maintain the then current rating on the Bonds, except no change may be made that will adversely affect the interests of the Bondholders; (h) during a Variable Period, to modify, alter, amend or supplement the Indenture in any other respect, including amendments which would otherwise require Bondholders consent, if notice of the proposed supplemental indenture is given to Bondholders (in the same manner as notices of redemption are given) at least thirty (30) days before the effective date thereof and, on or before such effective date, the Bondholders have the right to demand purchase of their Bonds pursuant to the Indenture; or (i) to modify, alter, amend or supplement the Indenture in connection with the delivery of any Alternate Credit Facility. With the prior written consent of the Credit Facility Provider, the Bondholders of more than 51 % of the aggregate principal amount of the Bonds then Outstanding shall have the right, from time to time, to consent to and approve the execution by the Issuer and the Trustee of supplemental indentures for the purpose of modifying, altering, amending, adding to or rescinding any of the terms or provisions contained in the Indenture or in any supplemental indenture; provided, however, that no such supplemental indenture may permit or be construed to permit (a) an extension of the time for payment of or reduction in the Purchase Price, or an extension of the time for payment of, or an extension of the stated maturity or a reduction in the principal amount, or reduction in the rate of interest on, or an extension of the time of payment of interest on, or a reduction of any premium payable on the redemption of, any Bonds, or a reduction in the Borrower's obligation on the Bond Mortgage Note, without the consent of all of the owners of all of the Bonds then Outstanding; (b) the creation of any lien prior to or on a parity with the lien of the Indenture; (c) a reduction of the aforesaid percentage of the principal amount of Bonds which is required in connection with the giving of consent to any such supplemental indenture, without consent of the Bondholders of all the Bonds then outstanding; (d) a modification of the rights, duties or immunities of the Trustee, without the consent of the Trustee; (e) a privilege or priority of any Bond over any other Bonds; or (f) any action that results in the interest on the Bonds becoming included in gross income for federal income tax purposes. The Trustee The Trustee, prior to an Event of Default under the Indenture and after the curing or waiver of all such events which may have occurred, is required to perform such duties and only such duties as are specifically set forth in the Indenture. In the absence of bad faith on its part, the Tnistee may conclusively rely, as to the truth of statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements, if any, of the Indenture. In case an Event of Default has occurred and is continuing, the Trustee shall exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. No provision of the Indenture shall be construed to relieve the Trustee from liability for its own negligence or willful misconduct in connection with the Trustee's duties thereunder, except to the extent set forth in the Indenture. -35- The Trustee shall be under no obligation to exercise those rights or powers vested in it by the Indenture, unless such Bondholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in the compliance with such request or direction. At all times, regardless of whether or not any such Event of Default shall exist: (i) the Trustee shall not be liable for any error of judgment made in good faith by an officer, agent or employee of the Trustee; and (ii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Credit Facility Provider or the Bondholders of more than 51% of the aggregate principal amount of the Bonds then Outstanding (or such lesser or greater percentage as is specifically required or permitted by the Indenture) relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture. No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties or in the exercise of any of its rights or powers under the Indenture. The Trustee shall be entitled to its Ordinary Trustee's Fees and Expenses in connection with the services rendered by it in the execution of the trusts created under the Indenture and in the exercise and performance of any of the powers and duties thereunder of the Trustee to the extent moneys are available therefor, in accordance with the Indenture, exclusive of Extraordinary Services. The Trustee shall be entitled to Extraordinary Trustee's Fees and Expenses in connection with any Extraordinary Services performed. Any corporation or association into which the Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party shall, ipso facto, be and become successor Trustee under the Indenture and vested with all the title to the whole property or Trust Estate, and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instruments or any further act, deed or conveyance on the part of any of the parties to the Indenture, anything therein to the contrary notwithstanding, and shall also be and become successor Trustee in respect of the beneficial interest of the Trustee in the Bond Mortgage Loan. The Trustee and any successor Trustee may at any time resign from the trusts created under the Indenture by giving written notice to the Issuer, the Borrower, the Tender Agent, the Remarketing Agent and the Credit Facility Provider, and by giving notice by certified mail or overnight delivery service to each Holder of the Bonds then Outstanding. Such notice to the Issuer, the Borrower, the Tender Agent, the Remarketing Agent and the Credit Facility Provider may be served personally or sent by certified mail. The Trustee shall not resign until a successor Trustee has been appointed. If no successor Trustee shall have been appointed and have accepted appointment within 60 days following delivery of all required notices of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. The Trustee may be removed at any time, by an instrument in writing signed by the Issuer with the consent of the Credit Facility Provider (which consent shall not be unreasonably withheld) and delivered to the Trustee, the Borrower, the Tender Agent, the Remarketing Agent and the Credit Facility -36- Provider, and of an Event of Default (other than a failure of the Credit Facility Provider to make a required payment under the Credit Facility) by a written instrument signed by the Credit Facility Provider. If an Event of Default caused by a failure of the Credit Facility Provider to make when due a required payment under the Credit Facility shall have occurred and be continuing, the Trustee may be removed by an instrument or concurrent instruments in writing signed by the Bondholders of more than 51 % of the aggregate principal amount of the Bonds then Outstanding and delivered to the Trustee, the Issuer, the Borrower, the Tender Agent, the Remarketing Agent and the Credit Facility Provider. The Trustee may also be removed for cause, at the direction of the Credit Facility Provider, by an instrument in writing signed by the Issuer consenting to such removal (which consent of the Issuer shall not be unreasonably withheld) and delivered to the Trustee and the Borrower. The Trustee may not be removed until a successor has been appointed. In case the Trustee shall resign or be removed, or be dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting under the Indenture, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor may be appointed by the Issuer with the approval of the Credit Facility Provider, or if the Issuer is then in default under the Indenture, by the Bondholders of more than 51 % of the aggregate principal amount of the Bonds then Outstanding, with the approval of the Credit Facility Provider, by an instrument or concurrent instruments in writing signed by such Bondholders, or by their duly authorized attorneys, delivered to the Issuer, the Borrower, the Credit Facility Provider and such successor Trustee; provided, nevertheless, that in case of vacancy the Issuer may appoint a temporary Trustee to fill such vacancy until a successor Trustee shall be appointed by such Bondholders in the manner above described; and any such temporary Trustee so appointed by the Issuer shall immediately and without further act be superseded by the Trustee so appointed by such Bondholders. Every such Trustee reappointed shall be a trust company or bank organized under the laws of the United States of America or any state thereof and which is in good standing, within or outside the State, having a reported capital and surplus of not less than $50,000,000 and at least $50,000,000 in trust assets under management if there be such an institution willing, qualified and able to accept the trust upon reasonable or customary terms. Such successor Trustee shall agree to be the successor Bond Mortgagee under the Bond Mortgage. Satisfaction and Discharge of Indenture If the Issuer shall pay or cause to be paid to the Bondholders of the Bonds, the principal, interest and premium, if any, to become due thereon at the times and in the manner stipulated in the Indenture, in any one or more of the following ways: (a) by the payment of principal of (including redemption premium, if any) and interest on all Bonds outstanding; or (b) by (i) the deposit or credit to the account of the Trustee, in trust, of money or securities in the necessary amount to pay the principal, redemption price or Purchase Price and interest to the date established for purchase or redemption (calculated at the Maximum Rate to the extent the Bonds then bear interest at a Variable Rate) whether by redemption, purchase or otherwise; and (ii) if the Bonds then bear interest at the Variable Rate, the delivery to the Trustee of a written confirmation by the Rating Agency of the rating then existing on the Bonds as of the date of such deposit or credit will not be withdrawn, qualified or reduced; or (c) by the delivery to the Trustee, for cancellation by it, of all Bonds outstanding; and shall have paid all amounts due and owing to the Credit Facility Provider under the Reimbursement Agreement, and shall have paid all fees and expenses of the Issuer, the Trustee, the Tender Agent, the -37- Remarketing Agent and each Paying Agent, and if the Issuer shall keep, perform and observe all and singular the covenants and promises in the Bonds and in the Indenture expressed as to be kept, performed and observed by it or on its part, then these presents and the estates and rights thereby granted shall cease, determine and be void, and thereupon the Trustee shall cancel and discharge the lien of the Indenture and execute and deliver to the Issuer such instruments in writing as shall be requisite to satisfy the lien thereof, and reconvey to the Issuer the estate thereby conveyed, and assign and deliver to the Issuer any interest in property at the time subject to the lien of the Indenture which may then be in its possession, except amounts held by the Trustee for the payment of principal of, interest and premium, if any, on the Bonds, the payment of any amounts owed to the United States or the payment of any amounts payable to the Credit Facility Provider. Any Outstanding Bond shall prior to the maturity or redemption date thereof be deemed to have been paid within the meaning and with the effect expressed in the immediately preceding paragraph if, under circumstances which do not render interest on the Bond includable in the gross income of the owner thereof for federal income tax purposes, the following conditions shall have been fulfilled: (a) in case such Bond is to be redeemed on any date prior to its maturity, the Trustee shall have given to the Bondholder irrevocable notice of redemption on said date; (b) there shall be on deposit with the Trustee either moneys or direct obligations of the United States of America in an amount, together with anticipated earnings thereon (but not including any reinvestment of such earnings), which will be sufficient to pay when due the principal or redemption price, if applicable, and interest due and to become due on such Bond on the redemption date or maturity date thereof, as the case may be; and (c) the Trustee shall have received an opinion of nationally recognized bankruptcy counsel that payments from such moneys are not subject to recovery under Section 544, 547 or 550 of the United States Bankruptcy Code or any other applicable bankruptcy provisions as a preferential or fraudulent transfer in the event of a bankruptcy by the Borrower. SUMMARY OF THE FINANCING AGREEMENT The following is a brief summary of certain provisions of the Financing Agreement. The summary does not purport to be complete or definitive and is qualified in its entirety by reference to the Financing Agreement, copies of which are on file with the Trustee. Terms of the Bond Mortgage Loan; Assignment The Bond Mortgage Loan (a) is evidenced by the Bond Mortgage Note payable to the Trustee as assignee of the Issuer; (b) is in the principal amount of $15,920,000; (c) bears interest as provided in the Bond Mortgage Note; and (d) is subject to optional and mandatory prepayment at the times, in the manner and on the terms, and has such other terms and provisions, as are set forth in the Bond Mortgage Note. The exercise of rights by the Issuer and the Trustee as its assignee with respect to the Bond Mortgage Loan shall be subject to the terms of the Intercreditor Agreement. Bond Mortgage Loan Payments; Independent Obligation of Borrower The Borrower agrees to repay the Bond Mortgage Loan at the times and in the amounts necessary to enable the Trustee, on behalf of the Issuer, to pay all amounts payable with respect to the Bonds, when due, whether at maturity or upon redemption (with premium, if applicable), acceleration, tender, purchase or otherwise. The obligation of the Borrower to make the payments set forth in the Financing Agreement will be an independent and separate obligation of the Borrower from its obligation to make payments under the Bond Mortgage Note, provided that in all events payments made by the Borrower under and pursuant to the Bond Mortgage Note will be credited against the Borrower's obligations under the -38- Financing Agreement. If for any reasons the Bond Mortgage Note or any provision thereof is held invalid or unenforceable against the Borrower by any court of competent jurisdiction, the Bond Mortgage Note or such provision thereof will be deemed to be the obligation of the Borrower pursuant to the Financing Agreement to the full extent permitted by law and such holding will not invalidate or render unenforceable any of the provisions of the Financing Agreement and will not serve to discharge any of the Borrower's payment obligations under the Financing Agreement. The obligations of the Borrower to repay the Bond Mortgage Loan, to perform all of its obligations under the Bond Mortgage Loan Documents, to provide indemnification pursuant to the Financing Agreement, to pay costs, expenses and charges pursuant to the Financing Agreement and to make any and all other payments required by the Financing Agreement or any other documents contemplated by the Financing Agreement or by the Bond Mortgage Loan Documents will be absolute and unconditional and will not be subject to diminution by set-off, recoupment, counterclaim, abatement or otherwise. Payment of Certain Fees and Expenses In addition to payments of principal, premium, if any, and interest on the Bond Mortgage Note, the Borrower shall pay or cause to be paid the Issuer Fee and the fees and expenses of the Trustee, the fees and expenses of the Remarketing Agent pursuant to the Remarketing Agreement, and the annual rating maintenance fees of the Rating Agency, any Extraordinary Trustee's Fees and Expenses, the Rebate Analyst Fee and any extraordinary expenses of the Issuer not covered by the Issuer's Fee. The Borrower agrees to reimburse the Issuer for advances reasonably made, with interest at the Maximum Rate, to cover expenses, in the enforcement of its rights or remedies against the Borrower under the Financing Agreement, the Indenture, the Tax Regulatory Agreement or other Bond Financing Documents to the extent that it acts without previously obtaining indemnity. All amounts due above shall be payable from moneys on deposit in the Administration Expense Account of the Administration Fund available for such purpose as provided in the Indenture or from other moneys of the Borrower, to the extent that moneys in the Administration Expense Account of the Administration Fund available for such purpose are insufficient for such purposes. Prepayment of the Bond Mortgage Loan The Borrower will have the option to prepay the Bond Mortgage Loan in full or in part prior to the payment and discharge of all the Outstanding Bonds only in accordance with the provisions of the Bond Mortgage Note. The Bonds are subject to redemption in accordance with the terms and conditions set forth in the Indenture. In connection with any prepayment, whether optional or mandatory, in addition to all other payments required under the Bond Mortgage Note, the Borrower will pay, or cause to be paid to the Trustee, an amount sufficient to pay the redemption price of the Bonds to be redeemed, including principal, interest and premium, if any, and further including any interest to accrue with respect to the Bond Mortgage Loan and such Bonds between the prepayment date and the redemption date, together with a sum sufficient to pay all fees, costs and expenses in connection with such redemption and, in the case of redemption in whole, to pay all other amounts payable under the Financing Agreement, the Indenture and the Reimbursement Agreement. Borrower's Obligations Upon Redemption or Tender In the event of any redemption in whole or in part of the Bonds, the Borrower will timely pay, or cause to be paid, to the Trustee an amount equal to the principal amount of such Bonds or portions thereof -39- called for redemption, together with interest accrued to the redemption date and premium, if any. The Borrower will timely pay all fees, costs and expenses associated with any redemption of Bonds. In the event that on any optional tender date or mandatory tender date under and as provided in the Indenture, Bonds are tendered and not remarketed by the Remarketing Agent, and remarketing proceeds are not available for the purpose of paying the purchase price of such Bonds, the Borrower will cause to be paid, under and subject to the terms of the Reimbursement Agreement and the Credit Facility to the Trustee by the applicable times provided in the Indenture an amount equal to the principal amount of such Bonds tendered and not remarketed, together with interest accrued to the mandatory tender date or optional tender date, as the case may be. The Borrower acknowledges that Purchased Bonds will be purchased by the Trustee for and on behalf of, and registered in the name of, the Borrower and will be pledged to the Credit Facility Provider pursuant to the Pledge Agreement. Alternate Credit Facility The Borrower, without the consent of Bondholders, may, on any date during a Variable Period, on any Reset Adjustment Date, or any Variable Rate Adjustment Date and on the Conversion Date (but no later than 10 days prior to the expiration date of the Credit Facility unless a commitment to extend the existing Credit Facility has been delivered to the Trustee satisfying the requirements of the Indenture, if applicable), and subject to the terms of the existing Credit Facility and Reimbursement Agreement, arrange for the delivery to the Trustee of an Alternate Credit Facility in substitution for the Credit Facility then in effect and, if applicable, for payment of the Purchase Price of Bonds delivered or deemed delivered in accordance with the Indenture. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS-Alternate Credit Facility." Tax Compliance In the Financing Agreement, the Borrower has covenanted that is will not knowingly take or permit, or knowingly omit to take or cause to be taken, any action within its control that would adversely affect the exclusion of the interest on the Bonds from gross income for federal income tax purposes. Events of Default and Remedies The following shall be "Events of Default" under the Financing Agreement and the terms "Event of Default" or "default" shall mean, whenever they are used in the Financing Agreement, one or all of the following events: (a) failure by the Borrower to pay any amounts due under the Financing Agreement, the Bond Mortgage Note or the Bond Mortgage at the times and in the amounts required by the Financing Agreement, the Tax Regulatory Agreement, the Bond Mortgage Note or the Bond Mortgage; (b) failure by the Borrower to observe and perform any of its other covenants, conditions or agreements contained in the Financing Agreement, other than as referred to in clause (a) above, for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied is given by the Issuer or the Trustee to the Borrower; provided, however, that if the failure shall be such that it can be corrected but not 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 by the Borrower within such period and diligently pursued until the failure is corrected; or -40- (c) the occurrence of a default under the Reimbursement Agreement shall at the discretion of the Credit Facility Provider constitute an Event of Default under the Financing Agreement. The occurrence of a default under the Financing Agreement shall in the discretion of the Credit Facility Provider constitute a default under the Bond Mortgage Loan Documents and the Reimbursement Agreement. Nothing contained in the Financing Agreement is intended to amend or modify any of the provisions of the Bond Mortgage Loan Documents or the Reimbursement Agreement or to bind the Credit Facility Provider to any notice and cure periods other than as expressly set forth in the Reimbursement Agreement. Remedies on Default Subject to the rights of the Credit Facility Provider under the Intercreditor Agreement, whenever any Event of Default under the Financing Agreement shall have happened and be existing, any one or more of the following remedial steps may be taken; provided that in no event shall the Issuer be obligated to take any step which in its opinion will or might cause it to expend time or money or otherwise incur liability unless and until a satisfactory indemnity bond has been furnished to it: (a) The Issuer shall cooperate with the Trustee as the Trustee acts pursuant to the provisions of the Indenture relating to remedies. (b) In the event any of the Bonds shall at the time be outstanding and not paid and discharged in accordance with the provisions of the Indenture, the Issuer or the Trustee may have access to and inspect, examine and make copies of the books and records and any and all accounts, data and income tax and other tax returns of the Borrower. (c) The Issuer may, without being required to give any notice (other than to the Trustee), except as provided in the Financing Agreement, pursue all remedies of a creditor under the laws of the State, as supplemented and amended, or any other applicable laws. (d) The Issuer or the Trustee may take whatever action at law or in equity may appear necessary or desirable to collect the payments then due and thereafter to become due under the Financing Agreement, or to enforce performance and observance of any obligation, agreement or covenant of the Borrower under the Financing Agreement. (e) At the written request of the Issuer, declare all amounts due under the Financing Agreement and the Bond Mortgage Loan to be immediately due and payable; provided, however, that, in the case of an Event of Default described in (b) above, the amounts due under the Financing Agreement and the Bond Mortgage Loan shall not be accelerated where (i) the Trustee has received an opinion of Bond Counsel that the failure to accelerate the Bond Mortgage Loan under such circumstances will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds, and (ii) the Credit Facility Provider has directed the Trustee not to so declare such amounts due. Any amounts collected pursuant to the Financing Agreement and any other amounts which would be applicable to payment of principal of and interest and any premium on the Bonds collected pursuant to action taken after default shall be applied in accordance with the provisions of the Indenture. The provisions of the Financing Agreement are subject to the further limitation that if, after any Event of Default all amounts which would then be payable thereunder by the Borrower if such Event of -41- Default had not occurred and was not continuing shall have been paid by or on behalf of the Borrower, the Borrower shall have also performed all other obligations in respect of which it is then in default thereunder, and shall have paid the reasonable charges and expenses of the Issuer and the Trustee, including reasonable attorneys' fees paid or incurred in connection with such default, and shall have paid the Issuer Fee, and if there shall then be no Event of Default existing under any of the Bond Financing Documents, then and in every such case such Event of Default under the Financing Agreement shall be waived and annulled, but no such waiver or annulment shall affect any subsequent or other Event of Default or impair any right consequent thereon. Obligations of Borrower Are Non-Recourse Generally, the obligations of the Borrower under the Bond Mortgage Loan Documents are non- recourse obligations, as provided therein. Accordingly, except as described in the Financing Agreement, the obligations of the Borrower under the Financing Agreement (other than the Borrower's indemnification obligations, obligations to pay fees and expenses under the Financing Agreement and to pay rebate to the federal government, if any) are non-recourse obligations of the Borrower to the same extent as provided in the Bond Mortgage Loan Documents. THE TAX REGULATORY AGREEMENT Residential Rental Property The Original Owner acknowledged and agreed in the Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 1993 that the Project is to be owned, managed and operated as a project for "residential rental property" as such term is defined in Section 103(b)(4)(A) of the 1954 Code. The Borrower by its execution of the Second Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2002, among the Borrower, the Issuer and the Trustee (as so amended and restated and as further amended by the First Amendment to Second Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2011, the "Tax Regulatory Agreement"), represents warrants and covenants to ensure compliance during the Qualified Project Period with certain requirements necessary to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds and maintain compliance with certain policies of the Issuer as follows: (a) The Project has been constructed for the purpose of providing multifamily residential rental property, and the Borrower shall own, manage and operate the Project as a project to provide multifamily residential rental property comprised of a building or structure or several interrelated buildings or structures, together with any functionally related and subordinate facilities, and no other facilities. (b) All of the dwelling units in the Project are and will remain similarly constructed units, and each dwelling unit in the Project will contain complete separate and distinct facilities for living, sleeping, eating, cooking and sanitation for a single person or a family, including a sleeping area, bathing and sanitation facilities and cooking facilities equipped with a cooking range, refrigerator and sink. (c) None of the dwelling units in the Project have been or will at any time be utilized on a transient basis, or will ever be used as a hotel, motel, dormitory, fraternity house, sorority house, rooming house, nursing home, hospital, sanitarium, rest home or trailer court or park. -42- (d) No part of the Project has been or will at any time be owned or used as a cooperative housing corporation or a community apartment project or a stock cooperative. Other than obtaining and recording a condominium plan and map on the Project, and obtaining a white report from the California Department of Real Estate, the Borrower shall not take any steps in connection with a conversion to such ownership or uses except with the prior written approving opinion of Bond Counsel acceptable to the Issuer and the Trustee, that the interest on the Bonds will not become taxable thereby. The final subdivision map to be recorded for the Project shall state the restriction against transferring individual condominium ownership interests in the Project during the term of the Tax Regulatory Agreement. (e) All of the dwelling units in the Project have been and will be available for rental on a continuous basis to members of the general public. The Borrower shall not discriminate on the basis of race, creed, color, sex, age or national origin in the lease, use or occupancy of the Project or in connection with the employment or the application for employment of persons for the operation and management of the Project. The Borrower will not give preference to any particular class or group in renting the dwelling units in the Project, except to the extent that dwelling units are required to be leased or rented to Lower-Income Tenants or to be available for occupancy on a priority basis by Very Low Income Tenants as set forth in the Tax Regulatory Agreement. (f) The Lower Income Units will be intermingled with all other dwelling units in the Project and shall be of comparable quality, shall contain similar amenities and offer a range of sizes and number of bedrooms comparable to the other units in the Project. Tenants in the Lower Income Units will continue to have equal access to and enjoyment of all common facilities of the Project. (g) The Project Site consists of a parcel or parcels that are contiguous except for the interposition of a road, street or stream, and all of the Project Facilities comprise a single geographically and functionally integrated project for residential rental property, as evidenced by the ownership, management, accounting and operation of the Project. (h) No unit in any building or structure in the Project which contains fewer than 5 units shall be occupied by the Borrower or any person related to or affiliated with the Borrower, such as a resident manager or maintenance personnel. Lower-Income Tenants and Eligible Persons The definition of "Qualified Project Period" in the Tax Regulatory Agreement is as follows: the period beginning on January 15, 1987 and ending on the latest of (a) the date which is 10 years after the date on which at least 50 percent of the dwelling units in the Project were first occupied (June 3, 1997), (b) the date which is a Qualified Number of Days after the date on which any of the dwelling units in the Project was first occupied, (c) the date on which any assistance provided with respect to the Project under Section 8 of the United States Housing Act of 1937 terminates, (d) June 1, 2007, or (e) the date on which no Bonds remain Outstanding. For purposes of clause (b), the term "Qualified Number of Days" means, 50 percent of the number of days comprising the term from the date of issuance of the Prior Bonds (April 26, 1985) until the final maturity of the Bonds (including any refunding bonds). During the Qualified Project Period: (a) Not less than twenty percent (20%) of the units in the Project shall be continuously occupied by or held available for occupancy by Lower Income Tenants at an -43- Affordable Rent. For this purpose, a unit occupied by a Lower-Income Tenant who at the commencement of the occupancy is a Lower-Income Tenant shall be treated as occupied by such individual or family during their tenancy in such unit, even though they subsequently cease to be a Lower-Income Tenant. Moreover, a unit previously occupied by a Lower-Income Tenant and then vacated shall be considered occupied by a Lower-Income Tenant until reoccupied, other than for a temporary period, at which time the character of the unit shall be redetermined. In no event shall such temporary period exceed thirty-one (31) days. (b) Upon the commencement of the Qualified Project Period, and on the first day of each month thereafter during the term of the Tax Regulatory Agreement, the Borrower shall advise the Issuer, the Trustee, the Credit Facility Provider and the Program Administrator of the status of the occupancy of the Project by delivering to such parties a Certificate of Continuing Program Compliance. (c) The Borrower will obtain and maintain on file an Income Certification from each Lower-Income Tenant, dated immediately prior to the initial occupancy of such Lower-Income Tenant in the Project. The Borrower agrees to provide such additional information as may be required in the future by the State of California, the Issuer, the Program Administrator and by Section 103(b)(4)(A) of the Prior Code and the Regulations, as the same may be amended from time to time, or in such other form and manner as may be required by applicable rules, rulings, policies, procedures or other official statements now or hereafter promulgated, proposed or made by the Department of the Treasury or the Internal Revenue Service with respect to obligations transitioned under Section 1313(a) of the Tax Reform Act of 1986. A copy of each such Income Certification will be attached to the monthly Certificate of Continuing Program Compliance filed with the Program Administrator pursuant to subsection (b). The Borrower shall make a good faith effort to verify that the income provided by an applicant in an Income Certification is accurate by taking one or more of the following steps as a part of the verification process: (i) obtaining a copy of a Lower-Income Tenant's federal income tax return for the tax year immediately prior to the commencement of such Lower-Income Tenant's occupancy, (ii) obtaining an employer's verification of such Lower-Income Tenant's current income, or, (iii) if the Lower-Income Tenant is unemployed or if the tax return is unavailable, obtaining other satisfactory evidence of income for such year. (d) The Borrower will: (i) maintain a list of persons who have notified the Borrower of their desire to rent a unit in the Project and who have Adjusted Incomes which would qualify them as Very Low Income Tenants, and (ii) offer to rent at least half of the Lower-Income Units (subject to the availability thereof at any time) on a priority basis to the persons on such list prior to offering to rent such units to any other persons and in choosing such Very Low Income Tenants shall use selection criteria no more burdensome than shall be applied to other prospective tenants. To fulfill its obligation under this subparagraph (d), the Borrower shall place on its waiting list persons referred by the Carlsbad Housing Agency. The Borrower agrees to make the units coming vacant available on a priority basis, first, to any Very Low Income Tenants who are Section 8 Housing Choice Voucher holders or the recipients of another rent subsidy, second, to Very Low Income Tenants who are on the Section 8 Rental Assistance waiting list of the Carlsbad Housing Agency, and third, to other Very Low Income Tenants. Nothing contained in this provision shall require the Borrower to offer to rent such units to such persons on terms and conditions which are more favorable than the terms and conditions on which such units will be offered to Lower Income Tenants generally. Provided that the Borrower has complied with the foregoing to attract Very Low Income Tenants to the Project, nothing in the Tax Regulatory Agreement shall be construed as requiring the Borrower to keep units vacant for occupancy by Very Low Income Tenants where no Very Low Income Tenants have applied for occupancy. -44- (e) The Borrower will maintain complete and accurate records pertaining to the Lower Income Units, and will permit any duly authorized representative of the Issuer, the Program Administrator, the Trustee, the Credit Facility Provider, the Department of the Treasury or the Internal Revenue Service to inspect the books and records of the Borrower pertaining to the Project, including those records pertaining to the occupancy of the Lower Income Units. (i) The Borrower shall accept as tenants on the same basis as all other prospective tenants persons who are recipients of federal funds for rent subsidies pursuant to the Housing Choice Voucher tenant-based rental assistance program under Section 8 of the United States Housing Act of 1937, or its successor. The Borrower shall not apply selection criteria to Section 8 Housing Choice Voucher holders which are more burdensome than criteria applied to any other prospective tenants. (g) The form of lease to be utilized by the Borrower in renting any units in the Project to any person other than a Section 8 tenant who is intended to qualify as a Lower-Income Tenant shall provide for termination of the lease and consent by such person to immediate eviction for failure to qualify as a Lower-Income Tenant as a result of any material misrepresentation made by such person with respect to the Income Certification. (h) The Borrower shall provide a 60-day notice of intent to increase the rent on any Lower Income Unit and provide a copy of such notice to the Issuer and the Carlsbad Housing Agency. (i) The Borrower shall establish a written policy on the tenant-paid utilities for the Lower Income Units, and provide a copy of said policy to the Issuer and the Carlsbad Housing Agency. Sale, Lease or Transfer of the Project The Borrower covenants and agrees not to sell, transfer or otherwise dispose of the Project, or any portion thereof (other than for individual tenant use as contemplated under the Tax Regulatory Agreement), without obtaining the prior written consent of the Issuer, the Credit Facility Provider and the Trustee, which consent shall be deemed given upon receipt by the Issuer, the Credit Facility Provider and the Trustee of (i) evidence reasonably satisfactory to the Issuer, the Credit Facility Provider and the Trustee that the Owner's purchaser or transferee has assumed in writing the Owner's duties and obligations under the Tax Regulatory Agreement; (ii) an opinion of counsel of the transferee that the transferee has duly assumed the obligations of the Owner under the Tax Regulatory Agreement and that such obligations and the Tax Regulatory Agreement are binding on the transferee; and (iii) an opinion of Bond Counsel that such transfer will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or the Prior Bonds. It is expressly stipulated and agreed that any voluntary sale, transfer or other disposition of the Project in violation of the Tax Regulatory Agreement shall be null, void and without effect, shall cause a reversion of title to the Borrower, and shall be ineffective to relieve the Borrower of its obligations under the Tax Regulatory Agreement. Nothing contained in the Tax Regulatory Agreement shall affect any provision of any other document or instrument between the Owner and the Credit Facility Provider which requires the Owner to obtain the consent of the Credit Facility Provider as a precondition to the voluntary sale, transfer or other disposition of the Project. -45- Enforcement Subject to the provisions of the Intercreditor Agreement, if the Borrower defaults in the performance or observance of any covenant, agreement or obligation of the Borrower set forth in the Tax Regulatory Agreement, and if such default remains uncured for a period of sixty (60) days after notice thereof shall have been given by the Issuer or the Trustee to the Owner and the Credit Facility Provider (provided that said period may be extended if the Borrower has commenced to cure such default and is diligently pursuing such cure and delivers to the Issuer and the Trustee an opinion of Bond Counsel to the effect that such extension will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds), then the Issuer or the Trustee, acting on its own behalf or on behalf of the Issuer, shall declare an "Event of Default" to have occurred under the Tax Regulatory Agreement, and, at its option, take any one or more of the following steps: (i) by mandamus or other suit, action or proceeding at law or in equity, require the Borrower to perform its obligations and covenants under the Tax Regulatory Agreement or enjoin any acts or things which may be unlawful or in violation of the rights of the Issuer or the Trustee under the Tax Regulatory Agreement; (ii) have access to and inspect, examine and make copies of all of the books and records of the Borrower pertaining to the Project; (iii) take such other action at law or in equity as may appear necessary or desirable to enforce the obligations, covenants and agreements of the Borrower under the Tax Regulatory Agreement; or (iv) require the Issuer to declare a default under the Loan and accelerate the indebtedness evidenced by the Bond Mortgage Note, and thereafter exercise all other rights and remedies under the Financing Agreement and proceed to redeem Bonds in accordance with the Indenture. SUMMARY OF CERTAIN PROVISIONS OF THE INTERCREDITOR AGREEMENT The Issuer, the Trustee and the Credit Facility Provider have agreed upon their respective rights arising from an Event of Default under either the Bond Financing Documents or the Bond Mortgage Loan Documents relating to the Bonds in an Intercreditor and Subordination Agreement dated as of May 1, 2011 (the "Intercreditor Agreement"). The following is a brief summary of certain provisions of the Intercreditor Agreement. The summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full text of the Intercreditor Agreement, a copy of which is on file with the Trustee. Under the terms of the Intercreditor Agreement, the Issuer, the Trustee and the Credit Facility Provider have agreed, among other things, that, until either (a) the Credit Facility Provider fails to honor a draw properly presented in accordance with the terms of the Credit Facility or (b) the Credit Facility terminates in accordance with its terms, certain of the rights and remedies of the Issuer and the Trustee, under certain of the Bond Financing Documents, including (without limitation) the rights and remedies of the Mortgagee (as defined in the Bond Mortgage) under the Bond Mortgage may be exercised solely at the direction of the Credit Facility Provider, in its sole discretion, including (without limitation) the right to waive certain terms and conditions of certain of the Bond Financing Documents pertaining to the Borrower. -46- Notwithstanding anything to the contrary contained in the Financing Agreement and pursuant to the Intercreditor Agreement, as long as the Credit Facility Provider is not in default of its obligations under the Credit Facility, neither the Issuer, the Trustee nor any other person shall, upon the occurrence of an Event of Default under the Financing Agreement or upon the occurrence of any event of default under the Bond Financing Documents, take any action to accelerate or otherwise enforce payment or seek other remedies with respect to the Bond Mortgage Loan, except at the direction of the Credit Facility Provider; provided that this prohibition shall not be construed to limit the rights of the Issuer or the Trustee to specifically enforce the Tax Regulatory Agreement in order to provide for operation of the Project in accordance with the 1954 Code, the applicable provisions of the 1986 Code and the Act or to exercise their other rights and remedies thereunder including their right following an event of default thereunder to accelerate the Bond Mortgage Note or cause the mandatory redemption or tender of the Bonds or to foreclose under the Bond Mortgage, taking into account, however, the cure periods contained in the Tax Regulatory Agreement and the Intercreditor Agreement; and provided further that this prohibition shall not be construed to limit the indemnification rights of the Issuer, the Trustee, the Credit Facility Provider or any other indemnified party under the Financing Agreement to enforce its rights against the Borrower under the Financing Agreement by mandamus or other suit, action or proceeding at law or in equity where such suit, action or proceeding does not seek any remedies under or with respect to the Bond Mortgage or cause acceleration of the Bond Mortgage Loan. TAX EXEMPTION The 1954 Code and the 1986 Code contain certain requirements which must be met subsequent to the issuance and delivery of the Bonds for the interest on the Bonds to be and remain excluded from gross income for federal income tax purposes. Failure to comply with such requirements may cause the interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issue of the Bonds. The Issuer has covenanted in the Indenture and the Borrower has covenanted in the Financing Agreement to take, or refrain from taking, such actions as are required under the 1954 Code and the 1986 Code to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds. The 1954 Code, the 1986 Code and Section 1.103-8(b) of the Income Tax Regulations (the "Regulations") require, in part, that at least 20% (15% for projects located in targeted areas) of the completed rental units in the Project must be occupied by lower-income tenants continuously during the Qualified Project Period. In addition, the Regulations require that, once available for occupancy, each rental unit in the Project must be rented or available for rental on a continuous basis during the longer of (i) the remainder of the term during which the Bonds are outstanding, or (ii) the Qualified Project Period. The Regulations provide that failure to satisfy the foregoing requirements on a continuing basis, unless corrected within a reasonable period of not less than 60 days after such noncompliance is first discovered or would have been discovered by the exercise of reasonable diligence, will cause the loss of the exclusion from gross income for federal income tax purposes of interest on the Bonds as of the date of issuance of the Bonds. In order to comply with these requirements, the Issuer has required that the Borrower enter into the Tax Regulatory Agreement, providing, among other things, that the Project be maintained and available for rental for the periods and in the manner described in the foregoing paragraph. The Tax Regulatory Agreement has been filed in the real property records of San Diego County, California, and the requirements thereof are intended as restrictive covenants binding upon and running with title to the Project. The Trustee, the Borrower and the Issuer have agreed to undertake such amendments to the various documents and such additional restrictions or actions as may be necessary to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds. -47- In connection with the issuance of the Bonds on May 27, 1993, Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, delivered its opinion that, based upon an analysis of existing statutes, regulations, rulings and judicial decisions and assuming, among other matters, continuing compliance subsequent to the issuance of the Bonds with applicable provisions of the 1954 Code and the 1986 Code, interest on the Bonds is excluded from gross income tax purposes, except during any period that such Bond is held by a "substantial user" of the facilities financed or refinanced by the Bonds or by a "related person" within the meaning of Section 103(b)(13) of the 1954 Code. Bond Counsel's opinion also stated that interest on the Bonds is exempt from personal income taxation imposed by the State of California. The opinion delivered by Bond Counsel at the time of the issuance of the Bonds is attached hereto as Appendix B. Bond Counsel has not been asked to reconfirm or to update such opinion and expresses no opinion as to whether interest on the Bonds is, as of the date hereof, excludable from gross income for federal income tax purposes or is exempt from personal income taxes of the State of California. In connection with the remarketing of the Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, will render its opinion to the effect that the delivery of the Credit Facility and the execution of the Indenture, the Financing Agreement, the Bond Mortgage Note and the amendment of the Tax Regulatory Agreement will not, in and of themselves, adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes. A copy of Bond Counsel's proposed form of opinion is attached as Appendix C. NO DETERMINATION HAS BEEN MADE SINCE THE DATE OF ISSUANCE OF THE BONDS AS TO WHETHER THE ORIGINAL OWNER, THE PRIOR OWNER, THE BORROWER AND THE PROJECT HAVE COMPLIED WITH THE REQUIREMENTS OF THE 1954 CODE AND THE 1986 CODE FOR THE PURPOSE OF DETERMINING WHETHER THE INTEREST ON THE BONDS REMAINS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. NO REPRESENTATIONS OR LEGAL OPINIONS ARE BEING MADE OR RENDERED BY ANY PARTY OR LAW FIRM REGARDING WHETHER THE INTEREST ON THE BONDS CONTINUES TO BE EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. REMARKETING Stern Brothers & Co. (the "Remarketing Agent") has agreed to use its best efforts to remarket the Bonds from time to time pursuant to the Amended and Restated Remarketing Agreement dated as of May 1, 2011 (the "Remarketing Agreement") between the Remarketing Agent and the Borrower at a price equal to 100% of the principal amount thereof, plus accrued interest. In consideration for its services, the Remarketing Agent will receive an initial fee of $ plus out of pocket expenses, and an ongoing fee as provided in the Remarketing Agreement. RATING The Bonds are expected to be assigned, as of the Credit Facility Substitution Date, the ratings set forth on the cover page by Standard & Poor's Ratings Services, a Standard & Poor's Financial Services LLC business ("S&P"). Such ratings reflect only the views of S&P at the time the ratings are given, and the Issuer makes no representation as to the appropriateness of the ratings. An explanation of the significance of such ratings may be obtained only from S&P. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward, suspended or withdrawn entirely by S&P, if, in its judgment, circumstances so warrant. Any such downward revision, suspension or withdrawal of such ratings may have an adverse effect on the market price or value of the Bonds. -48- APPROVAL OF LEGAL PROCEEDINGS Legal matters incident to the substitution of the Credit Facility for the Credit Enhancement Agreement and the execution and delivery of the Indenture, the Financing Agreement, the Bond Mortgage Note and the amendment of the Tax Regulatory Agreement are subject to the approving opinion of Bond Counsel. A signed copy of Bond Counsel's opinion, dated and premised on facts existing and law in effect as of the effective date of the Credit Facility, will be delivered to the Remarketing Agent on the effective date of the Credit Facility. A form of the opinion is set forth in Appendix C. Certain legal matters will be passed on for the Borrower by its counsel, Locke Lord Bissell & Liddell LLP, Dallas, Texas and Los Angeles, California, for the Credit Facility Provider by Sheppard Mullin Richter & Hampton LLP, Los Angeles, California, and for the Remarketing Agent by Gilmore & Bell, P.C., Kansas City, Missouri. NO CONTINUING DISCLOSURE UNDERTAKING In connection with the remarketing of the Bonds, the Borrower is not making any undertaking to the Bondholders to provide annual financial information or other continuing disclosure notices or reports in reliance upon an exemption from the SEC Rule 15c2-12 continuing disclosure requirements under Rule LITIGATION The Issuer On the Credit Facility Substitution Date, the Issuer will deliver certificates to the effect that, to the knowledge of the Issuer, no litigation is pending or threatened against the Issuer (i) to restrain or enjoin the remarketing of the Bonds, or contesting or questioning the validity of the Bonds or the proceedings and authority under which the Bonds have been authorized and are to be remarketed, or the pledge or application of any money or security provided for the payment of the Bonds or (ii) which questions the validity of any of the Indenture, the Financing Agreement, the Tax Regulatory Agreement or the Bonds. The Borrower There is not now pending or, to the knowledge of the Borrower, threatened any proceeding or litigation against the Borrower affecting the ability of the Borrower to enter into or deliver the Financing Agreement or the Bond Mortgage Note, seeking to restrain or enjoin the Borrower's execution and delivery of the agreements described in this Remarketing Memorandum, or contesting the existence or powers of the Borrower with respect to the transactions described in this Remarketing Memorandum. -49- APPENDIX A DEFINITIONS OF CERTAIN TERMS In addition to the terms defined elsewhere in this Remarketing Memorandum, the following are definitions of certain terms used in this Remarketing Memorandum. Terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Indenture or the Financing Agreement. "Act" means Chapter 7 of Part 5 of Division 31 (commencing with Section 52075) of the Health and Safety Code of the State of California, as amended. "Administration Fund" means the Administration Fund established by the Trustee pursuant to the Indenture. "Administrative Expense Account" means the Administrative Expense Account within the Administration Fund established by the Trustee pursuant to the Indenture. "Affordable Rent" means a monthly rent which does not exceed 30 percent of one-twelfth of the maximum adjusted annual income if the household is deemed to be a "lower income" family in the County of San Diego for purposes of the leased housing program established under Section 8 of the United States Housing Act of 1937, as amended, based upon the following appropriate household sizes for various types of residential units in the Project and assuming 80 percent as the percentage of median gross income which qualifies as "lower income:" Residential Unit Number of Persons in Family One Bedroom 2 Two Bedroom 4 Such amounts shall be further reduced by a reduction for tenant-paid utilities based on the "Utility Allowance Schedule" established for the Carlsbad Housing Agency's Section 8 Tenant-Based Rental Assistance Program. In no event shall the monthly rent exceed 90% of rents charged for units in the Project other than Lower Income Units. "Alternate Credit Facility" means a Credit Facility, including, without limitation, a letter of credit, surety bond, insurance policy, standby purchase agreement, guaranty, mortgage-backed security or other credit facility, collateral purchase agreement or similar agreement issued by a financial institution delivered to replace the Credit Facility which provides security for payment of the principal of and interest on the Bonds and the purchase price of the Bonds, provided in accordance with the Financing Agreement. "Alternate Credit Facility Provider" means the provider of an Alternate Credit Facility, "Amended Indenture " means the Amended and Restated Indenture of Trust dated as of May 1, 2002, between the Issuer and U.S. Bank, N.A., now known as "U.S. Bank National Association." '''Amended Loan Agreement" means the Amended and Restated Loan Agreement dated as of May 1, 2002, among the Issuer, the Trustee and the Borrower. A-l "Authorized Denomination" means (A) with respect to Bonds in a Variable Period, $100,000 principal amount or any integral multiple of $5,000 greater than $100,000, and (B) with respect to Bonds during any Reset Period or the Fixed Rate Period, $5,000 principal amount or any integral multiple thereof. "Authorized Officer" means (A) when used with respect to the Issuer, the Mayor, the City Clerk or the City Manager of the Issuer and such additional person or persons, if any, duly designated by the Issuer in writing to act on its behalf, (B) when used with respect to the Borrower, the managing member of the Borrower and such additional person or persons, if any, duly designated by the Borrower in writing to act on its behalf, (C) when used with respect to the Trustee, any authorized signatory of the Trustee, or any person who is authorized in writing to take the action in question on behalf of the Trustee, (D) when used with respect to the Remarketing Agent, any Vice President of the Remarketing Agent and such additional person or persons, if any, duly designated by the Remarketing Agent in writing to act on its behalf, (E) when used with respect to the Tender Agent, any authorized signatory of the Tender Agent and such additional person or persons, if any, duly designated by the Tender Agent in writing to act on its behalf, and (F) when used with respect to the Credit Facility Provider, any Vice President or any person who is authorized in writing to take the action in question on behalf of the Credit Facility Provider. "Bankruptcy Code " means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor federal statute. "Bond Counsel" means any firm of attorneys appointed by the Issuer experienced in matters relating to the issuance of obligations by states and their political subdivisions who are listed as municipal bond attorneys in The Bond Buyer's Municipal Marketplace and reasonably acceptable to the Credit Facility Provider. "Bond Fee Component" means the regular, ongoing fees from time to time of the Issuer, the Trustee, the Remarketing Agent, Tender Agent, the Custodian, and the Rebate Analyst expressed in terms of a percentage of the principal amount of Outstanding Bonds (including Purchased Bonds) on an annual basis. "Bond Financing Documents" means, collectively, the Indenture, the Bonds, the Financing Agreement, the Remarketing Agreement and the Bond Mortgage Loan Documents. "Bond Fund" means the Bond Fund established by the Trustee pursuant to the Indenture. "Bond Mortgage" means the Amended and Restated First Deed of Trust and Assignment of Rents and Fixture Filing dated as of May 1, 2002, together with all riders and addenda thereto, from the Borrower to the Trustee, securing payment of the Bond Mortgage Loan, as such Bond Mortgage may from time to time be amended, modified or supplemented. "Bond Mortgage Loan " means the mortgage loan in the original amount of $15,920,000 made to the Borrower pursuant to the Financing Agreement and the Bond Mortgage Loan Documents. "Bond Mortgage Loan Documents " means the Bond Mortgage, the Bond Mortgage Note, the Tax Regulatory Agreement, the Reimbursement Agreement, the Intercreditor Agreement, the Pledge Agreement, and any and all other instruments and other documents evidencing, securing, or otherwise relating to the Bond Mortgage Loan or any portion thereof. "Bond Mortgage Note " means the Second Amended and Restated Promissory Note dated as of May 1, 2011, from the Borrower to the Issuer, and subsequently assigned to the Trustee in the principal A-2 amount of $15,920,000, together with all riders and addenda thereto, evidencing the Bond Mortgage Loan, as such Bond Mortgage Note may be amended, supplemented or restated from time to time. "Bond Purchase Fund" means the Bond Purchase Fund established by the Trustee pursuant to the Indenture. "Bond Register" means the books or other records maintained by the Bond Registrar setting forth the registered Bondholders from time to time of the Bonds. "Bond Registrar" means the Trustee acting as such, and any other bond registrar appointed pursuant to the Indenture. "Bond Year" means the period commencing on June 1 of each year and ending on May 31 of the following year, so long as the Bonds are Outstanding. "Bondholder, " "Owner, " or "Holder" means any person who shall be the registered owner of any Outstanding Bond. "Bonds" means the $15,920,000 City of Carlsbad, California Variable Rate Demand Multifamily Housing Revenue Refunding Bonds Series A of 1993 (Santa Fe Ranch Apartments f/k/a La Costa Apartments Project) issued pursuant to the provisions of the Original Indenture, as amended and restated by the Indenture. "Borrower" means Santa Fe Ranch, LLC, a Delaware limited liability company, or any of its successors as owner of the Project. "Business Day " means any day other than (i) a Saturday, (ii) a Sunday, (iii) a day on which the Federal Reserve Bank of New York (or other agent acting as the Credit Facility Provider's fiscal agent identified to the Trustee) is authorized or obligated by law or executive order to remain closed, (iv) a day on which the office of the Credit Facility Provider at which draws on the Credit Facility are presented is closed and (v) a day on which (a) banking institutions in the City of New York or in the city in which the Principal Office of the Trustee, the Tender Agent or the Remarketing Agent is located are closed or (b) the New York Stock Exchange is closed. "Certificate of the Issuer, " "Statement of the Issuer, " "Request of the Issuer" and "Requisition of the Issuer" mean, respectively, a written certificate, statement, request or requisition signed in the name of the Issuer by an Authorized Officer of the Issuer or such other person as may be designated and authorized to sign for the Issuer. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. "Closing Date" means the date on which the Indenture takes effect as an amendment to and restatement of the Amended Indenture. "Conversion" means the establishment of the interest rate on the Bonds at the Fixed Rate, pursuant to the Indenture. "Conversion Date " means the date on which the Fixed Rate for the Bonds becomes effective. "Cost of Issuance Fund" means the Cost of Issuance Fund established by the Trustee pursuant to the Indenture. A-3 "Credit Facility " means the letter of credit from Wells Fargo Bank, National Association, or any Alternate Credit Facility at the time in effect. "Credit Facility Provider" means, so long as the letter of credit provided on the effective date of the Indenture is in effect, Wells Fargo Bank, National Association, or so long as any Alternate Credit Facility is in effect, the Credit Facility Provider then obligated under the Alternate Credit Facility. "Credit Facility Substitution Date " means the date on which the Credit Facility is delivered by Wells Fargo Bank, National Association to the Trustee. "Determination of Taxability" means (l)the failure of the Credit Facility Provider or the Borrower to consent in writing within forty-five (45) days from receipt of the opinion of Bond Counsel described below to any amendment to the Indenture, the Financing Agreement or the Tax Regulatory Agreement which in the written opinion of Bond Counsel addressed to the Issuer, the Trustee and the Credit Facility Provider is necessary to preserve the exclusion from gross income of interest on the Bonds for federal income tax purposes, or (2) enactment of legislation or a final judgment or order of a court of original jurisdiction, a final order of any other court of competent jurisdiction, or a final ruling or decision of the Internal Revenue Service, in any such case to the effect that the interest on any of the Bonds (other than interest on any Bond for any period during which such Bond is held by a "substantial user" of any facility financed with the proceeds of the Bonds or a "related person," as such terms are used in Section 103(b)(13) of the Internal Revenue Code of 1954 and except for any alternative minimum or preference tax) is not excludable for federal income tax purposes from the gross income of the recipients thereof subject to federal income taxes as a result of action or inaction of the Borrower while the Bonds bear interest at a Variable Rate and as a result of any action during a Reset Period or after the Conversion Date. With respect to clause (2) above, a judgment or order of a court or a ruling or decision of the Internal Revenue Service shall be considered final only if no appeal or action for judicial review has been filed and the time for filing such appeal or action has expired. "DTC" means The Depository Trust Company, New York, New York, as securities depository for the Bonds pursuant to the Indenture. "Eligible Funds " means (a) remarketing proceeds received from the Remarketing Agent or any purchaser (other than funds provided by the Borrower, any manager, sole member or guarantor of the Borrower or the Issuer), (b) proceeds received pursuant to the Credit Facility, (c) proceeds of the Bonds received contemporaneously with the issuance and sale of the Bonds, (d) proceeds of an issue of refunding bonds received contemporaneously with the issuance and sale of such refunding bonds, (e) proceeds from the investment or reinvestment of moneys described in clauses (a), (b), (c) and (d) above, or (f) moneys delivered to the Trustee and accompanied by a written opinion of nationally recognized counsel experienced in bankruptcy matters acceptable to the Rating Agency to the effect that if the Borrower, any manager, sole member or guarantor of the Borrower, or the Issuer were to become a debtor in a proceeding under the Bankruptcy Code: (i) payment of such moneys to Bondholders would not constitute a voidable preference under Section 547 of the Bankruptcy Code and (ii) the automatic stay provisions of Section 362(a) of the Bankruptcy Code would not prevent application of such moneys to the payment of the Bonds. "Event of Default" or "event of default" means any of those events specified in and defined by the applicable provisions of the Indenture to constitute an event of default. "Extraordinary Services " means and includes, but not by way of limitation, services, actions and things carried out and all expenses incurred by the Trustee in respect of or to prevent default under the A-4 Indenture, the Financing Agreement and the Bond Mortgage Loan Documents, including any attorneys' fees and other litigation costs that are entitled to reimbursement under the terms of the Financing Agreement, and other actions taken and carried out which are not expressly set forth in the Indenture. "Extraordinary Trustee's Fees and Expenses " means all those fees, expenses and disbursements earned or incurred by the Trustee as described in the Indenture during any Bond Year for Extraordinary Services. "Financing Agreement" means the Second Amended and Restated Loan Agreement dated as of May 1, 2011, among the Borrower, the Issuer and the Trustee, as such Financing Agreement may from time to time be amended or supplemented. "Fixed Rate " means the interest rate borne by the Bonds from and after Conversion and until the maturity date of the Bonds, determined in accordance with the Indenture. "FixedRate Period" means the period during which the Bonds bear interest at the Fixed Rate. "Government Obligations " means Qualified Investments described in (a) and (b) of the definition of "Qualified Investments." "Indenture " means the Second Amended and Restated Indenture of Trust dated as of May 1, 2011, between the Issuer and the Trustee, together with any other indentures supplemental to the Indenture. "Information Services " means any of the following services: Financial Information, Inc. "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302 Attention: Editor; Kenny Information Services, "Called Bond Service," 55 Water Street, 45 Floor, New York, New York 10041; Moody's Investors Service "Municipal and Government," 99 Church Street, 8* Floor, New York, New York 10007, Attention: Municipal News Reports; and EXCITE, INC. Called Bonds Dept, 5 Hanover Square, New York, New York 10004; The Bond Buyer, Muni-Facts Secondary Market, Disclosure Services, Attention: Municipal Redemption Notices, One State Street Plaza, 31st Floor, New York, New York 10004-1549; Bloomberg Financial Markets, Attention: Reporting-Disclosure Documents, 100 Business Park Drive, Skillrnan, New Jersey 08558; or such other services providing information with respect to called bonds as the Issuer may designate in a certificate of the Issuer delivered to the Trustee. "Initial Rate " means, with respect to the Bonds, the interest rate determined by the Remarketing Agent which is in effect as of the Closing Date. "Intercreditor Agreement" means, so long as the letter of credit provided on the effective date of the Indenture is in effect, the Intercreditor and Subordination Agreement dated as of May 1, 2011, among the Issuer, the Trustee and the Credit Facility Provider, as the same may be amended or supplemented, or, so long as any Alternate Credit Facility is in effect, an Intercreditor Agreement among the Issuer, the Trustee and the Credit Facility Provider then obligated under such Alternate Credit Facility. "Interest Payment Date" means (i) for interest accrued during any Variable Period, the first Business Day of each month thereafter for the preceding calendar month, (ii) for interest accrued during any Reset Period, June 1 and December 1 of each year, commencing on the June 1 or December 1 next following the applicable Reset Adjustment Date and (iii) for interest accrued on and after the Conversion Date, June 1 and December 1 of each year, commencing on the June 1 or December 1 next following the Conversion Date and the Maturity Date. A-5 "Interest Requirement" means (a) during the Variable Period, 34 days interest computed at the Maximum Rate and (b) during a Reset Period or the Fixed Rate Period, 189 days' interest computed at the Reset Rate or the Fixed Rate, as applicable or in the case of either (a) or (b), such lesser number of days as is acceptable to the Rating Agency. "Issuer" means the City of Carlsbad, California, a municipal corporation of the State of California, and any successor to its rights, duties and obligations under the indenture. ''Issuer Fee" means the fee owed to the Issuer from the Borrower, accruing from the date of issuance of the Bonds, equal to 23 basis points (.23%) per annum of the aggregate principal amount of Bonds Outstanding as of the date of issue and each June 1 thereafter (prior to any principal reduction on that date), payable annually in advance on each June 1 commencing June 1, 2003; and provided, however, that such fee does not include amounts due, if any, for extraordinary services and expenses of the Issuer, the Trustee, Bond Counsel or the Trustee's counsel to be paid by the Borrower pursuant to the Financing Agreement. "Market Risk Event" means (a)(i) legislation enacted by the Congress or (ii) a final non- appealable decision rendered by a court established under Article III of the Constitution of the United States, or the United States Tax Court, or (iii) an order, ruling or regulation issued by the United States Department of the Treasury or the Internal Revenue Service, with the purpose or effect, directly or indirectly, of causing interest received by any Bondholder to be included in the gross income of such Bondholder for purposes of federal income taxation; or (b) legislation enacted or any action taken by the Securities and Exchange Commission which, in the opinion of counsel to the Remarketing Agent, has the effect of requiring the remarketing of the Bonds to be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any other "security," as defined in the Securities Act, issued in connection with or as part of the remarketing of the Bonds to be so registered or the Indenture to be qualified as an indenture under the Trust Indenture Act of 1939, as amended; or (c) any event shall have occurred or shall exist which, in the reasonable judgment of the Remarketing Agent, makes or has made untrue or incorrect in any material respect any statement or information contained in a reoffering circular or other disclosure document distributed in connection with the Conversion or Reset Adjustment Date or is not or was not reflected in such reoffering circular or other disclosure document but should be or should have been reflected therein in order to make the statements or information contained therein not misleading in any material respect; or (d) in the reasonable judgment of the Remarketing Agent, any event which makes it impractical or inadvisable for the Remarketing Agent to remarket or enforce agreements to remarket Bonds because trading in securities generally shall have been suspended on the New York Stock Exchange, Inc., or a general banking moratorium shall have been established by federal, New York or State authorities. "Maturity Date " means the maturity date of the Bonds set forth in the Indenture and set forth on the cover page of this Remarketing Memorandum. "Maximum Rate " means twelve percent (12%) per annum; provided that the Maximum Rate may be increased to a specified higher Maximum Rate if there shall have been delivered to the Trustee (a) an opinion of Bond Counsel to the effect that such higher Maximum Rate is permitted under applicable law and will not, in itself, cause the interest on the Bonds to be included in the gross income of the Bondholders for federal tax purposes and (b) either (1) the written consent of the Credit Facility Provider to the specified higher Maximum Rate and evidence that the Credit Facility will cover the Interest Requirement at such Maximum Rate, or (2) a new or amended Credit Facility in an amount equal to the sum of (i) the then outstanding principal amount of the Bonds and (ii) the new Interest Requirement A-6 calculated using the new Maximum Rate; provided that the Maximum Rate shall never exceed the maximum rate permitted by law to be paid on the Bonds or to be charged on the Bond Mortgage Loan. "Moody's" means Moody's Investors Service, Inc., its successors and assigns, if such successors and assigns shall continue to perform the functions of a securities rating agency. "Net Proceeds" when used with respect to any insurance or condemnation award, means the gross proceeds from the insurance or condemnation award with respect to which that term is used remaining after payment of all reasonable expenses incurred in the collection of such gross proceeds, including reasonable attorney fees. "7954 Code" means the Internal Revenue Code of 1954, as amended, and the regulations promulgated thereunder, as such 1954 Code shall have been in effect immediately preceding the enactment of the 1986 Code. "1986 Code" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "Original Owner" means La Costa Partners, a California general partnership, and its successors and assigns. "Outstanding" when used with respect to the Bonds, means, as of any date, all Bonds that have been duly authenticated and delivered by the Trustee under the Indenture, except: (a) Bonds surrendered and replaced upon exchange or transfer, or cancelled because of payment or redemption, at or prior to such date; (b) Bonds for the payment, redemption or purchase for cancellation of which sufficient money has been deposited prior to such date with the Trustee (whether upon or prior to the maturity, amortization or redemption date of the same), or which are deemed to have been paid and discharged pursuant to the provisions of the Indenture; provided that if such Bonds are to be redeemed prior to the maturity thereof, other than by scheduled amortization, notice of such redemption shall have been given or arrangements satisfactory to the Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Trustee shall have been filed with the Trustee; (c) Bonds in lieu of which others have been authenticated (or payment, when due, of which is made without replacement) under the Indenture; and also except that; and (d) For the purpose of determining whether the Bondholders of the requisite amount of Bonds Outstanding have made or concurred in any notice, request, demand, direction, consent, approval, order, waiver, acceptance, appointment or other instrument or communication under or pursuant to the Indenture, Purchased Bonds and Bonds owned by or for the account of the Borrower or any Person owned, controlled by, under common control with or controlling the Borrower shall be disregarded and deemed to be not Outstanding unless all Bonds shall be so owned; the term "control" (including the terms "controlling", "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. Beneficial ownership of 5% or more of a class of securities having general voting power to elect a majority of the board of directors of a corporation shall be conclusive evidence of control of such corporation. A-7 "Paying Agent" means the Trustee acting as such, and any other paying agent appointed pursuant to the Indenture. "Person " means an individual, estate, trust, corporation, partnership, limited liability company or any other organization or entity (whether governmental or private). "Pledge Agreement" means, so long as the letter of credit provided on the effective date of the Indenture is in effect, that certain Pledge, Security and Custody Agreement dated as of May 1, 2011, by and among the Credit Facility Provider, the Borrower and the Trustee, as further modified or amended from time to time, or, so long as any Alternate Credit Facility is in effect, a Pledge Agreement among the Issuer, the Trustee and the Credit Facility Provider then obligated under such Alternate Credit Facility. "Principal Office of the Remarketing Agent" means the office of the Remarketing Agent located at 8000 Maryland, Suite 800, St. Louis, Missouri 63105, or such other office or offices as the Remarketing Agent may designate from time to time, or the office of any successor Remarketing Agent where it principally conducts its business of serving as remarketing agent under indentures pursuant to which municipal or governmental obligations are issued. "Principal Office of the Tender Agent" means the office of the Tender Agent located at 633 West Fifth Street, 24th Floor, Los Angeles, California, or such other office or offices as the Tender Agent may designate from time to time, or the office of any successor Tender Agent where it principally conducts its business of serving as tender agent under indentures pursuant to which municipal or governmental obligations are issued. "Principal Office of the Trustee " means the office of the Trustee located at 633 West Fifth Street, 24th Floor, Los Angeles, California, or such other office or offices as the Trustee may designate from time to time, or the office of any successor Trustee where it principally conducts its business of serving as trustee under indentures pursuant to which municipal or governmental obligations are issued. "Prior Owner " means The Northwestern Mutual Life Insurance Company and its successors and assigns. "Project" means the land and 320 residential rental apartment units, and related fixtures, equipment, furnishings and site improvements known as Santa Fe Ranch Apartments (f/k/a La Costa Apartments), located at 3402 Calle Odessa, Carlsbad, California, in San Diego County, California, including the real estate described in the Bond Mortgage. "Purchased Bond" means any Bond during the period from and including the date of its purchase by the Trustee on behalf of and as agent for the Borrower with amounts provided by the Credit Facility Provider under the Credit Facility, to, but excluding, the date on which such Bond is remarketed to any Person other than the Credit Facility Provider, the Borrower, any manager, sole member or guarantor of the Borrower or the Issuer. "Purchase Price, " with respect to any Bond required to be purchased pursuant to the Indenture, means the principal amount of such Bond plus interest accrued thereon to the Settlement Date and with respect to any Bond to be purchased in lieu of redemption pursuant to the Indenture means the principal amount of such Bond plus any redemption premium due thereon plus interest accrued thereon to the Settlement Date. A-8 "Qualified Investments" means any of the following if and to the extent permitted by law: (a) direct and general obligations of the United States of America; (b) obligations of any agency or instrumentality of the United States the payment of the principal of and interest on which are unconditionally guaranteed by the full faith and credit of the United States of America; (c) senior debt obligations of the Federal Home Loan Mortgage Corporation; (d) senior debt obligations of Fannie Mae; (e) demand deposits or time deposits with, or certificates of deposit issued by, the Trustee or its affiliates or any bank organized under the laws of the United States or any state or the District of Columbia which has combined capital, surplus and undivided profits of not less than $50,000,000; provided that the Trustee or such other institution has been rated at least P-l by Moody's, which deposits or certificates are fully insured by the Federal Deposit Insurance Corporation; (f) investment agreements with the Federal Home Loan Mortgage Corporation or a bank or any insurance company or other financial institution which has a rating assigned by Moody's to its outstanding long-term unsecured debt which is the highest rating (as defined below) for long-term unsecured debt obligations assigned by Moody's, and which are approved by the Credit Facility Provider; (g) shares or units in any money market mutual fund (including mutual funds of the Trustee or its affiliates) registered under the Investment Company Act of 1940, as amended, whose investment portfolio consists solely of direct obligations of the United States government, and which fund has been rated Aaa by Moody's; or (h) any other investments that have been previously approved in writing by the Credit Facility Provider. For purposes of this definition, the "highest rating" shall mean a rating of at least P-l for obligations with less than one year maturity; at least Aa2/P-l for obligations with a maturity of one year or greater but less than three years; and at least Aaa for obligations with a maturity of three years or greater. Qualified Investments must be limited to instruments that have a predetermined fixed-dollar amount of principal due at maturity that cannot vary or change and interest, if tied to an index, shall be tied to a single interest rate index plus a single fixed spread, if any, and move proportionately with such index. "Rating Agency" means each national rating agency then maintaining a rating on the Bonds, or any successor or assign thereof. "Rebate Analyst" means a certified public accountant, financial analyst or bond counsel, or any firm of the foregoing or financial institution experienced in making the arbitrage and rebate calculations required pursuant to Section 148 of the 1986 Code and retained to make the computations and give directions required to comply with Section 148 of the 1986 Code. The Borrower shall inform the Issuer and the Trustee, in writing, of the name of the Rebate Analyst. "Rebate Analyst Fee" means the annual fee of the Rebate Analyst, to be paid to or at the direction of the Issuer from the Issuer's Fee. "Refunding Law" means Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, as now in effect and as it may from time to time be amended or supplemented. "Rebate Fund" means the Rebate Fund established by the Trustee pursuant to the Indenture. "Record Date " means during any Variable Period, the Business Day immediately preceding an Interest Payment Date and during any Reset Period or the Fixed Rate Period, the 15th day of the month preceding any Interest Payment Date. "Redemption Fund" means the Redemption Fund established by the Trustee pursuant to the Indenture. A-9 "Reimbursement Agreement" means the Reimbursement Agreement dated as of May 1, 2011, between the Borrower and the Credit Facility Provider, as such Reimbursement Agreement may be amended or supplemented from time to time, and upon the effectiveness of any Alternate Credit Facility, any similar agreement between the Borrower and the Alternate Credit Facility Provider pursuant to which the Borrower agrees to reimburse the Alternate Credit Facility Provider for payments made under the Alternate Credit Facility, as such agreement may be amended or supplemented. "Remarketing Agent" means the remarketing agent appointed pursuant to the Indenture, initially Stern Brothers & Co. "Remarketing Agreement" means the Amended and Restated Remarketing Agreement dated as of May 1, 2011, between the Remarketing Agent and the Borrower, or any similar agreement between the Remarketing Agent and the Borrower, in each case as originally executed or as it may be amended or supplemented from time to time in accordance with its terms. "Remarketing Date " means each date on which the Remarketing Agent is required to notify the Trustee, the Tender Agent, the Borrower and the Credit Facility Provider of the Bonds for which it has found purchasers, as set forth in the Indenture. "Remarketing Memorandum " means this Remarketing Memorandum. "Reserved Rights " means those certain rights of the Issuer under the Bond Financing Documents to indemnification and to payment or reimbursement of fees and expenses of the Issuer, including the Issuer Fee as well as the fees and expenses of counsel, assumption fees and indemnity payments, its right to give and receive notices and to enforce notice and reporting requirements and restrictions on transfer of ownership of the Project, its right to inspect and audit the books, records and premises of the Borrower and of the Project, its right to collect legal fees and related expenses, its right to specifically enforce the terms of the Tax Regulatory Agreement, including the Borrower's covenant to comply with applicable federal tax law and State law (including the Act and the rules and regulations of the Issuer), its right to receive notices under the Bond Financing Documents and its right to receive notices and reports under the Bond Financing Documents and its rights to give or withhold consent to amendments, changes, modifications and alterations to the Bond Financing Documents and to such other matters where, under the Indenture or under the Bond Financing Documents, the Issuer's consent or approval is required. "Reset Adjustment Date " means any date on which the interest rate on the Bonds is adjusted to a Reset Rate or to a different Reset Rate. During a Variable Period, a Reset Adjustment Date may occur only on any Interest Payment Date, or if such Interest Payment Date is not a Business Day, the next succeeding Business Day. "Reset Period" means each period during which the Bonds bear interest at a Reset Rate. "Reset Rate " means the rate of interest borne by the Bonds as determined in accordance with the Indenture.. "Responsible Officer" means any officer of the Trustee employed within or otherwise having regular responsibility in connection with the corporate trust department of the Trustee and who is located at the Principal Office of the Trustee. "Revenue Fund" means the Revenue Fund established by the Trustee pursuant to the Indenture. A-10 "Revenues" means (i) all payments made with respect to the Bond Mortgage Loan pursuant to the Financing Agreement, the Bond Mortgage Note or the Bond Mortgage, including all casualty or other insurance benefits and condemnation awards paid in connection therewith (subject in all events to the interests of the Credit Facility Provider therein under the terms of the Credit Facility and the Reimbursement Agreement), (ii) payments made by the Credit Facility Provider pursuant to the Credit Facility and (iii) all moneys and securities held by the Trustee in the funds and accounts established pursuant to the Indenture (excluding moneys or securities in the Cost of Issuance Fund, the Rebate Fund, the Specified Fees Account, and the Bond Purchase Fund), together with all investment earnings thereon. "S&P" means Standard & Poor's Ratings Services, a Standard & Poor's Financial Services LLC business, and its successors and assigns if such successors and assigns shall continue to perform the functions of a securities rating agency. "Securities Depositories" means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax: (516) 227-4039 or 4190, or such other securities depositories as the Issuer may designate in a certificate of the Issuer delivered to the Trustee and the Credit Facility Provider. "Settlement Date " means any date on which any Bond is purchased pursuant to the Indenture. "SIFMA Index Rate" means, as of any date, (i) the per annum rate published or reported by Municipal Market Data on its SIFMA Municipal Swap Index most recently available, (ii) if the SIFMA Municipal Swap Index is no longer published or reported, the rate per annum published or reported on the S&P Weekly High Grade Index (formerly the JJ. Kenny Index), or (iii), if neither the SIFMA Municipal Swap Index nor the S&P Weekly High Grade Index is published, such alternate interest rate index as the Remarketing Agent shall select as most comparable to the SIFMA Municipal Swap Index. "Specified Fees Account" means the Specified Fees Account within the Administration Fund created under the Indenture. "State" means the State of California. "Substitution Date " means the date established for the mandatory tender and purchase of the Bonds in connection with the delivery to the Trustee of an Alternate Credit Facility pursuant to the Indenture. "Tax Certificate " means that Tax Certificate executed by the Issuer and dated the Closing Date. "Tax Regulatory Agreement" means the Second Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2002 among the Issuer, the Trustee and the Borrower, as amended by the First Amendment to Second Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2011, as the same may be further amended, supplemented or restated from time to time. "Tender Agent" means the Tender Agent appointed in accordance with the Indenture. "Tender Notice" means a notice of demand for purchase of Bonds given by any Bondholder pursuant to the Indenture. "Trustee " means U.S. Bank National Association and its successors in trust under the Indenture. A-ll "Trustee's Fees" means the ongoing compensation and expenses payable to the Trustee as follows: (a) the annual administration fees of the Trustee, as Trustee, Registrar and Paying Agent, for the ordinary services of the Trustee rendered under the Indenture during each twelve month period which shall be $5,310 per annum, payable in advance on each June 1, commencing June 1,2003; (b) the reasonable fees and charges of the Trustee for necessary extraordinary services rendered by it and reasonable extraordinary expenses incurred by it under the Indenture as and when the same become due, including reasonable counsel fees (including fees prior to litigation, at trial or for appellate proceedings); provided, however, that the Trustee shall not be required to undertake any such extraordinary services unless provision for payment of extraordinary expenses satisfactory to the Trustee shall have been made; and (c) for purposes of the Financing Agreement, indemnification of the Trustee by the Borrower. "Trust Estate " means the following property set forth in the granting clauses of the Indenture: (i) except for amounts in the Rebate Fund, the Specified Fees Account and the Cost of Issuance Fund, all right, title and interest of the Issuer in and to all Revenues; (ii) all right, title and interest of the Issuer in and to the Financing Agreement, the Bond Mortgage Note, the Bond Mortgage and the Credit Facility (other than the Reserved Rights), including all extensions and renewals of the terms thereof, if any, including, but without limiting the generality of the foregoing, the present and continuing right to receive, receipt for, collect or make claim for any of the moneys, income, revenues, issues, profits and other amounts payable or receivable thereunder, whether payable under the above-referenced documents or otherwise, to bring actions and proceedings thereunder or for the enforcement thereof, and to do any and all things which the Issuer or any other person is or may become entitled to do under said documents, subject in all events to the Issuer's Reserved Rights; and (iii) excluding moneys or securities in the Cost of Issuance Fund, the Principal Reserve Fund, the Specified Fees Account, the Rebate Fund, and the Bond Purchase Fund, all other funds or accounts established by the Indenture, and all money and securities held therein or investments thereof, and any and all other rights and interests in property whether tangible or intangible from time to time by delivery or by writing of any kind, conveyed, mortgaged, pledged, assigned or transferred as and for additional security hereunder for the Bonds by the Issuer or by anyone on its behalf or with its written consent to the Trustee. "Variable Interest Accrual Period" means, during any Variable Period, a period beginning on the date following any Variable Interest Computation Date and ending on the next succeeding Variable Interest Computation Date, except that the first Variable Interest Accrual Period for any Variable Period shall begin on the first day of such Variable Period and end on the next succeeding Variable Interest Computation Date. "Variable Interest Computation Date" means, with respect to any Variable Interest Accrual Period, each Wednesday during such period, or if any such Wednesday is not a Business Day, the next succeeding Business Day; provided, however, that for the Variable Interest Accrual Period beginning on the Closing Date, the Variable Interest Computation Date shall be the Closing Date. A-12 "Variable Period" means each period during which the Bonds bear interest at a Variable Rate. "Variable Rate" means the variable rate of interest borne by the Bonds as determined in accordance with the Indenture "Variable Rate Adjustment Date " means any date upon which the Bonds begin to bear interest at a Variable Rate for the succeeding Variable Period. A-13 APPENDIX B ORIGINAL OPINION OF BOND COUNSEL The following is a copy of the opinion of Bond Counsel that was executed and delivered on May 27, 1993 in connection with the issuance of the Bonds. May 27, 1993 Honorable City Council City of Carlsbad 1200 Carlsbad Village Drive Carlsbad, California 92008 Re: $15,920,000 City of Carlsbad, California, Variable Rate Demand Multifamily Housing Revenue Refunding Bonds, Series A of 1993 (La Costa Apartments Project) Dear Councilmembers: We have examined certified copies of the proceedings of the City of Carlsbad, California (the "Issuer"), and other information and documents submitted to us relative to the issuance and sale by the Issuer of its Variable Rate Demand Multifamily Housing Revenue Refunding Bonds, Series A of 1993 (La Costa Apartments Project), in the aggregate principal amount of $ 15,920,000 (the "Bonds"). The Bonds have been issued pursuant to a resolution of the City Council of the Issuer adopted on May 11, 1993 (the "Resolution"), Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California (the "Refunding Law") and an indenture of trust dated as of May 1, 1993 (the "Indenture") by and between the Issuer and First Trust of California, National Association, as trustee (the "Trustee"). The repayment of the Bonds is secured by a letter of credit (the "Letter of Credit") issued by Bank of America National Trust and Savings Association (the "Bank"). We express no opinion as to the validity or enforceability of the Letter of Credit. The Bonds are dated the date, mature on the date and bear interest payable on the dates and at the rates per annum to be established from time to time in the manner set forth in the Indenture. The Bonds are issuable only as fully registered Bonds in the form set forth in the Indenture, redeemable in the amounts, at the times and in the manner provided for in the Indenture. In rendering our opinion, we have examined the Refunding Law and originals or certified copies of the Resolution, the Indenture, the Loan Agreement dated as of May 1, 1993 (the "Loan Agreement") by and among the Issuer, the Trustee and La Costa Partners, a California general partnership (the "Owner"), the Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 1993 (the "Regulatory Agreement") by and among the Issuer, the Trustee and the Owner, and such other information and documents as we have deemed necessary to render the opinions set forth herein. As to questions of fact material to the opinions stated herein, we have relied upon representations made by the Issuer and the Owner contained in the Indenture, the Loan Agreement and the Regulatory Agreement and the certified proceedings and certifications of public officials, the Bank and others furnished to us without undertaking to verify through independent investigation the accuracy of the representations and certifications relied upon us. B-l Based upon our examination of all of the foregoing, and in reliance thereon, and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: (1) The Issuer is a municipal corporation, duly organized and validly existing under the Constitution and the laws of the State of California, with full power and authority to adopt the Resolution, to execute, deliver and perform the Bond Purchase Agreement (the "Purchase Agreement") by and among the Issuer, Dean Witter Reynolds Inc. and the Owner, the Indenture, the Loan Agreement and the Regulatory Agreement (collectively, the "Bond Documents"), to loan the proceeds from the sale of the Bonds to the Owner, and to issue, sell and deliver the Bonds. (2) The execution and delivery of the Bond Documents have been duly authorized by the Issuer and, assuming proper authorization, execution and delivery by the respective other parties thereto, are valid and binding obligations of the Issuer enforceable in accordance with their terms, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, insolvency or other laws affecting creditors' rights generally or by the exercise of judicial discretion in accordance with general principles of equity. (3) The Bonds have been duly and validly authorized and executed by the Issuer and are valid and binding special and limited obligations of the Issuer, payable solely out of the revenues and receipts provided therefor in the Indenture, and all conditions precedent to the delivery of the Bonds have been fulfilled. The Bonds are enforceable in accordance with their terms and the terms of the Indenture, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, insolvency or other laws affecting creditors' rights generally or by the exercise of judicial discretion in accordance with general principles of equity. (4) The Indenture creates a valid, express and irrevocable trust under the laws of the State of California of the Trust Estate (as such term is defined in the Indenture) held or set aside under the Indenture, subject to the application thereof to the purposes and on the conditions permitted by the Indenture. (5) Assuming continuing compliance subsequent to the issuance of the Bonds with applicable provisions of the Internal Revenue Code of 1954, as amended (the "1954 Code") and the Internal Revenue Code of 1986, as amended (the "1986 Code"), with respect to the Bonds, under existing statutes, regulations, rulings and judicial decisions, interest on the Bonds is excluded from gross income for federal income tax purposes (except during any period while a Bond is held by a "substantial user," or a "related person," within the meaning of Section 103(b)(13) of the 1954 Code, of the property financed by proceeds of the Bonds) and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations; however, we note that with respect to corporations, interest on the Bonds may be included as an adjustment in the calculation of alternative minimum taxable income which may affect such corporation's alternative minimum tax liability. We express no opinion regarding other federal tax consequences with respect to the Bonds. (6) In our further opinion, interest on the Bonds is exempt from California personal income tax. The opinions expressed herein are based on an analysis of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. B-2 Additionally, our opinion set forth in paragraph (5) above is subject to the condition that the Issuer and the Owner comply with certain covenants and the applicable requirements of the 1954 Code and the 1986 Code that must be satisfied subsequent to the issuance of the Bonds to assure that interest on the Bonds will remain excludable from gross income for federal income tax purposes. Failure to comply with such requirements may cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. Respectively submitted, B-3 APPENDIX C PROPOSED FORM OF BOND COUNSEL OPINION TO BE DELIVERED UPON REMARKETING C-l APPENDIX D FORM OF CREDIT FACILITY (attached) RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: Wells Fargo Bank, N.A. 123 N. Wacker Drive, Suite 1900 Chicago, EL 60606 Attention: Gail L. Duran Loan Number: 1003991 INTERCREDITOR AND SUBORDINATION AGREEMENT among CITY OF CARLSBAD, CALIFORNIA as Issuer U.S. BANK NATIONAL ASSOCIATION, as Trustee and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Credit Facility Provider $15,920,000 City of Carlsbad, California Variable Rate Demand Multifamily Housing Revenue Refunding Bonds Series A of 1993 (Santa Fe Ranch Apartments f/k/a La Costa Apartments Project) Dated as of May 1,2011 W02-WEST:LKY\403414098.3 -1- INTERCREDITOR AND SUBORDINATION AGREEMENT THIS INTERCREDITOR AND SUBORDINATION AGREEMENT (this "Agreement") is dated as of May 1, 2011, and is made among CITY OF CARLSBAD, CALIFORNIA (the "Issuer"), U.S. BANK NATIONAL ASSOCIATION, as Trustee under the Indenture described below (the "Trustee") and WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as Credit Facility Provider ("Credit Facility Provider"). WITNESSETH: WHEREAS, the Issuer has previously issued its Variable Rate Demand Multifamily Housing Revenue Refunding Bonds Series A of 1993 (Santa Fe Ranch Apartments f/k/a La Costa Apartments Project) (the "Bonds") in the principal amount of $15,920,000, the proceeds of which were used to fund a loan pursuant to a Loan Agreement dated as of May 1, 1993 (the "Prior Financing Agreement") (the obligations under which were secured by that Deed of Trust recorded on May 26, 1993 as file no. 1993-0332835 of Official Records of San Diego County, California (the "Official Records"), the "Original Mortgage") between the Issuer and La Costa Partners, a California general partnership (the "Prior Owner") (succeeded in interest by Santa Fe Ranch, LLC, the "Owner") which Prior Financing Agreement was restated by that certain Amended and Restated Loan Agreement dated as of May 1, 2002 (the "Prior Amended Financing Agreement") among the Issuer, the Owner and the Trustee, the obligations of which are secured by that Amended and Restated First Deed of Trust and Assignment of Rents and Fixture Filing dated as of May 1, 2002 and recorded on May 23, 2002 as Instrument No. 2002- 0437977 (the "Bond Mortgage") in the Official Records. The Prior Amended Financing Agreement has been amended and restated by that certain Second Amended and Restated Loan Agreement dated as of May 1, 2011 (the "Financing Agreement") among the Issuer, the Owner and the Trustee, the obligations of which are secured by the Bond Mortgage. Owner's obligations under the Bond Mortgage are evidenced by that certain Second Amended and Restated Promissory Note dated as of May 1, 2011 made by Owner to the order of Issuer in the original principal amount of $15,920,000 (the "Bond Mortgage Note"); and WHEREAS, the Issuer issued the Bonds pursuant to an Indenture of Trust dated as of May 1, 1993 (the "Original Indenture") between the Issuer and First Trust of California, National Association (now succeeded in interest by the Trustee) which Original Indenture was amended and restated by that Amended and Restated Indenture of Trust dated as of May 1, 2002 between the Issuer and the Trustee (the "First Amended Indenture"). The First Amended Indenture has been amended and restated by that certain Second Amended and Restated Indenture of Trust dated as of May 1, 2011 between the Issuer and Trustee; and WHEREAS, to provide for payment when due of the principal of and interest on, and the purchase price of, the Bonds, the Prior Owner has previously caused Bank of America National Trust and Savings Association (the "Bank") to issue to the Trustee for the benefit of Bond owners an Irrevocable Direct Pay Letter of Credit (the "Prior Letter of Credit") pursuant to the terms of a Reimbursement Agreement, dated as of May 1, 1993, between the Prior Owner and the Bank. The Prior Letter of Credit was replaced by a Credit Enhancement Agreement dated as of May 1, 2002 (the "Credit Enhancement Agreement") between Federal Home Loan Mortgage W02-WEST:LKY\403414098.3 -1- Corporation ("Freddie Mac") and the Trustee, which Credit Enhancement Agreement was delivered to the Trusteee on May 23, 2002; and WHEREAS, the Owner has decided to replace the Credit Enhancement Agreement and has caused the Credit Facility Provider to issue to the Trustee for the benefit of Bond owners an Irrevocable Letter of Credit dated as of May , 2011 (the "Letter of Credit") pursuant to the terms of a Reimbursement Agreement dated as of May 1, 2011 between Owner and the Credit Facility Provider, which evidences the Owner's reimbursement obligations to the Credit Facility Provider (the "Reimbursement Agreement"); and WHEREAS, to secure the Prior Owner's obligations under the Financing Agreement, the Bond Mortgage Note and the other Bond Mortgage Documents, the Prior Owner caused to be delivered to the Issuer and assigned to the Trustee the Original Mortgage that was subsequently amended and restated by the Bond Mortgage and an Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 1993 (as amended by (i) that certain Second Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2002 and recorded on May 23, 2002 as Document No. 2002-0437976 in the Official Records and by (ii) that certain First Amendment to Second Amended and Restated Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2011 and to be recorded substantially concurrently herewith, as amended, the "Regulatory Agreement"); and WHEREAS, to secure the Owner's reimbursement obligations to the Credit Facility Provider under the Reimbursement Agreement, the Owner will execute and deliver to the Credit Facility Provider a Deed of Trust With Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing (Credit Bank) dated as of even date herewith (the "Reimbursement Mortgage") with respect to the Project including the real property described on Exhibit A hereto which will be recorded concurrently herewith; and WHEREAS, the lien of the Reimbursement Mortgage is subordinate in priority to the lien of the Bond Mortgage and the Regulatory Agreement; and NOW, THEREFORE, the Issuer, Trustee and the Credit Facility Provider, in consideration of the mutual promises contained herein and in connection with the Credit Facility Provider's issuance of the Letter of Credit to the Trustee and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENTS SECTION 1. Defined Terms. Unless otherwise defined herein, or unless the context clearly indicates otherwise, each term used in this Agreement including in the Recitals set forth above, and which is defined in the Indenture or the Reimbursement Agreement, shall have the meaning given to such term by the Indenture or the Reimbursement Agreement, as applicable,. As used herein, the following terms shall have the meanings set forth below: "Bond Documents" means, the Indenture, the Financing Agreement, the Bond Mortgage, the Bond Mortgage Note, the Regulatory Agreement (and any other agreement W02-WEST:LKY\403414098.3 -2- relating to rental restrictions on the Project), the Remarketing Agreement, any Tender Agent agreement and this Intercreditor Agreement, and any and all other documents, instruments and agreements executed and delivered in connection with the issuance, sale, delivery and/or remarketing of the Bonds as each such agreement or instrument may be or has been amended, modified or supplemented from time to time. "Credit Facility Documents" means, collectively, the Letter of Credit, the Reimbursement Agreement, the Reimbursement Mortgage and any other document evidencing or securing the obligations of the Owner pursuant to the Reimbursement Agreement. "Mortgagee" means the Trustee as beneficiary under the Bond Mortgage. "Wrongful Dishonor" means the failure of the Credit Facility Provider to honor a draw made in accordance with the terms of the Letter of Credit (which draw strictly complies with, and conforms to, the terms and conditions of the Letter of Credit). SECTION 2. Rules of Construction. The words "hereof," "herein," "hereunder," "hereto," and other words of similar import refer to this Agreement in its entirety. The terms "agree" and "agreements" contained herein are intended to include and mean "covenant" and "covenants." References to Articles, Sections, and other subdivisions of this Agreement are to the designated Articles, Sections, and other subdivisions of this Agreement as originally executed. The headings of this Agreement are for convenience only and shall not define or limit the provisions hereof. All references made (a) in the neuter, masculine or feminine gender shall be deemed to have been made in all such genders, and (b) in the singular or plural number shall be deemed to have been made, respectively, in the plural or singular number as well. W02-WEST:LKY\403414098.3 -3- SECTION 3. Exercise of Rights and Remedies by the Credit Facility Provider. (A) Until either (a) a Wrongful Dishonor has occurred and is continuing, or (b) the Letter of Credit expires in accordance with its terms: (i) Except as provided in Sections 3(C) and 3(D), without the prior written consent of the Credit Facility Provider, the Trustee may not exercise any of its rights and remedies as Mortgagee under the Bond Mortgage or as a secured party with respect to the liens and security interests created by the Financing Agreement or take any action to declare the outstanding balance of the Bonds or the Bond Mortgage Note to be due pursuant to the Indenture or the Financing Agreement or to foreclose the lien of the Bond Mortgage, to seek the appointment of a receiver or to collect rents or realize upon any other collateral held as security for the Bonds or file or join in the filing of any judicial proceeding to collect the indebtedness secured by the Bond Mortgage. (ii) Any and all consents and approvals of the Trustee as Mortgagee required under the Bond Mortgage shall be given only with the prior written consent of the Credit Facility Provider, in its sole discretion. (iii) The application of the proceeds of insurance or condemnation ("Insurance/Condemnation Proceeds") shall be solely as directed in writing by the Credit Facility Provider in accordance with the terms of the Reimbursement Mortgage and subject to the requirement that excess proceeds remaining after the use of such Insurance/Condemnation Proceeds as so directed by the Credit Facility Provider for the repair, restoration, rebuilding or alteration of the Project shall be used by the Trustee (if directed by the Credit Facility Provider) for the purpose of redeeming the Bonds in accordance with the terms of the Indenture. (iv) Except as provided in Sections 3(C) and 3(D), any and all demands permitted to be made by the Mortgagee under the terms of the Bond Mortgage shall be made only by or at the written direction of the Credit Facility Provider, in its sole discretion (the Mortgagee may request, however, that the Credit Facility Provider, in its discretion, provide such direction). (v) Except as provided in Sections 3(C) and 3(D), the Credit Facility Provider, in its sole discretion, shall have the sole right to direct the Trustee to waive or forbear any term, condition, covenant or agreement of the Bond Mortgage applicable to the Owner as mortgagor, or any breach thereof, other than a covenant that might adversely impact the tax-exempt status of the Bonds. (vi) Except as provided in Sections 3(C) and 3(D), the Credit Facility Provider shall control all of the Mortgage Rights (as such term is defined below) and the Credit Facility Provider shall have the right, power and authority to direct the Trustee with respect to all decisions in connection with the Bond Mortgage, which pursuant to its terms may be made by the Mortgagee, except that the Credit Facility Provider shall not have the right to direct the Trustee to take or refrain from taking action that would adversely impact the tax-exempt status of the Bonds. The parties hereto agree that the W02-WEST:LKY\403414098.3 -4- Owner has agreed to make monthly Bond Mortgage Loan payments under the Reimbursement Agreement in the manner and at the times set forth in the Reimbursement Agreement. "Mortgage Rights" means, with respect to the Bond Mortgage Loan, all rights of the Issuer, the Trustee and/or the Mortgagee under the Bond Mortgage (other than those rights specifically excluded below) including without limitation, the right to receive any and all Bond Mortgage Loan payments thereunder and all of the rights and interests under the Bond Mortgage, and to vest in its independent contractor, such rights, powers and authority as may be necessary to implement any of the foregoing; "Mortgage Rights" does not mean, and expressly excludes (a) the Issuer's rights under Sections 4.2, 6.1 and 7.4 of the Financing Agreement with respect to payment of fees and expenses and indemnification and includes the Issuer's right to receive notices, reports and other statements and its right to consent to certain matters; (b) [the right to receive payments relating to the redemption premium of a redeemed Bond;] (c) the Issuer's and the Trustee's right to require the Owner to pay rebate, meet continuing disclosure requirements and the right to enforce the Tax Regulatory Agreement; and (d) the Trustee's rights to enforce the Owner's obligations to pay fees and expenses of the Trustee and to provide indemnification to the Trustee pursuant to Sections 4.2, 6.1 and 7.4 of the Financing Agreement; provided, however, that the enforcement of such rights of the Trustee or the Issuer is limited as provided in Sections 3(C) and 3(D) (such rights of the Issuer and Trustee are referred to herein as the "Mortgagee Retained Rights"). (vii) Trustee and the Issuer covenant and agree neither to file nor join in the filing of any involuntary petition involving the Owner under the federal bankruptcy laws or other federal or state reorganization, receivership, insolvency or similar proceeding without the prior written consent of the Credit Facility Provider. (viii) The Trustee shall not acquire by subrogation, contract or otherwise any lien upon or other estate, right or interest in the Project or any rents or revenues therefrom that are not subject to the terms of this Agreement. (ix) Upon the initiation of any liquidation or reorganization of Owner or any of the entities comprising Owner or any of the partners or beneficial owners of such entity (Owner and all such entities, partners and owners hereinafter collectively referred to as the "Owner Parties") in or by the filing of any bankruptcy, insolvency or receivership proceeding or upon the initiation of any involuntary liquidation, dissolution or reorganization proceeding involving an Owner Party, then, in any such case, any payment or distribution, whether in cash, property or securities, to which Trustee or Issuer would be entitled pursuant to the Indenture, Bond Mortgage Note, Financing Agreement or Bond Mortgage, other than payments made with respect to the Mortgagee Retained Rights, shall instead be paid over to the Credit Facility Provider for application as provided in the Reimbursement Agreement until all amounts due to the Credit Facility Provider under the Reimbursement Agreement have been paid in full. (x) Trustee and the Issuer irrevocably authorize the Credit Facility Provider to take any action (but the Credit Facility Provider has no obligation to take any such action, in which case Trustee or Issuer may proceed) with respect to any payment or distribution, other than payments made with respect to the Mortgagee Retained Rights, whether in W02-WEST:LKY\403414098.3 -5- cash or securities, as described in Section (ix) above (in the name of the Credit Facility Provider or in the name of the Trustee or Issuer, or otherwise, as the Credit Facility Provider may deem necessary or advisable for the enforcement of the provisions of this Agreement) to: (1) demand, sue for, collect and receive every such payment or distribution described in Section (ix), (2) file claims and proofs of claims in any statutory or non-statutory proceeding, (3) vote the full amount of the Bond Mortgage Loan in its sole discretion in connection with any resolution, arrangement, plan of reorganization, compromise, settlement or extension, and (4) take all such other action (including, without limitation, the right to participate in any composition of creditors and the right to vote the amount of the Bond Mortgage Loan at creditors' meetings for the election of trustees, acceptances of plans and otherwise), as the Credit Facility Provider may deem necessary or advisable for the enforcement of the provisions of this Agreement. Trustee and Issuer agree, upon the initiation of any liquidation or reorganization of any Owner Party by the filing of any bankruptcy, insolvency or receivership proceeding or upon the initiation of any involuntary liquidation, dissolution or reorganization proceeding involving an Owner Party, and at the sole expense of the Owner or if the Owner fails to pay, at the expense of the Credit Facility Provider, promptly (1) to take such action as may be requested at any time by the Credit Facility Provider to deliver any instruments required to collect the amount of the Bond Mortgage Loan, on demand therefor, and (2) to execute and deliver such powers of attorney, assignments or other instruments as may be requested by the Credit Facility Provider in order to enable the Credit Facility Provider to enforce any and all claims upon or in respect of the Bond Mortgage Loan and to collect and receive any and all payments or distributions which may be payable or deliverable at any time upon or in respect of the Bond Mortgage Loan. Nothing herein contained shall be deemed to preclude Trustee and Issuer from appearing or being heard in any bankruptcy, insolvency, or other similar proceedings affecting an Owner Party, nor from collecting from an Owner Party the full Bond Mortgage Loan amount due to Trustee and Issuer (through subrogation to the rights of the Credit Facility Provider or otherwise) after all amounts due to the Credit Facility Provider under the Reimbursement Agreement and the Reimbursement Mortgage shall have been paid in full, nor from enforcing the Mortgagee Retained Rights in accordance with this Agreement. W02-WEST:LKY\403414098.3 -6- For purposes of this Agreement, the Credit Facility Provider's claim or entitlement in any bankruptcy proceeding for post-petition interest shall be senior to the Bond Mortgage Loan and subject to the rights, benefits, terms and provisions of this Agreement as if it were part of the Reimbursement Agreement obligations, as applicable. Except as to its Mortgagee Retained Rights, Trustee and Issuer hereby agree not to seek adequate protection payments in any Owner or Owner Party bankruptcy proceeding without the prior written consent of the Credit Facility Provider, which may be granted or withheld by the Credit Facility Provider in its sole discretion. Further, at the sole expense of the Owner or if the Owner fails to pay, at the expense of the Credit Facility Provider, Trustee and Issuer agree to join, and not object to, or otherwise contest any request for relief from the automatic stay of 11 U.S.C. § 362 requested by the Credit Facility Provider in any bankruptcy proceeding of Owner, in order to enable the Credit Facility Provider to foreclose or exercise any of its rights or remedies under the Reimbursement Mortgage with respect to the Project. (xi) Upon the occurrence and during the continuation of a default under the Reimbursement Mortgage, all amounts payable (including, but not limited to, any payment pursuant to an assignment of rents) under the Reimbursement Mortgage shall be paid in full before any payment or distribution, whether in cash or in other property, shall be made to Trustee or Issuer for the purpose of making Bond Mortgage Loan payments under the Financing Agreement. During the continuation of any default under the Reimbursement Mortgage, any payment or distribution, whether in cash or other property, which would otherwise (but for the provisions contained in this Agreement) be payable or deliverable under the Bond Mortgage, shall be paid or delivered directly to the Credit Facility Provider in satisfaction of any amounts payable (including, but not limited to, any payment pursuant to an assignment of rents) under the Reimbursement Mortgage, (including any interest thereon accruing after the occurrence of any such default) until all such amounts shall have been paid in full or the default shall have been cured or waived by the Credit Facility Provider. (xii) If any payment of the rents or other revenues arising from an assignment of rents contained in the Bond Mortgage or distribution of security or the proceeds of any of the foregoing is collected or received by Issuer or Trustee in contravention of any term, condition or provision of this Agreement, Issuer or Trustee, as applicable, immediately will deliver the same to the Credit Facility Provider, in precisely the form received (except for the endorsement or the assignment by Issuer or Trustee, as applicable, where necessary), and, until so delivered, the same shall be held in trust by Issuer or Trustee, as applicable. Neither the Issuer nor Trustee shall be required to deliver moneys to the Credit Facility Provider paid by the Owner pursuant to the Mortgagee Retained Rights or any rebate payments due under the Indenture. (xiii) Neither the Trustee nor Issuer shall have any right to contest any of the procedures or actions taken by the Credit Facility Provider to exercise its remedies under the Reimbursement Agreement or the Reimbursement Mortgage so long as the Credit Facility Provider is in compliance with its agreements hereunder. W02-WEST:LKY\403414098.3 -7- (B) Neither the Credit Facility Provider nor any of its respective officers, directors, employees or agents shall be liable to the Trustee for any action taken or omitted to be taken in good faith by the Credit Facility Provider in connection with the Bond Mortgage Loan by reason of the Credit Facility Provider's control of the Bond Mortgage Rights. (C) If the Owner defaults in the performance or observance of any covenant, agreement or obligation of the Owner set forth in the Regulatory Agreement, and if such default remains uncured for a period of 60 days after Owner and the Credit Facility Provider receive written notice from the Trustee or Issuer stating that a default under the Regulatory Agreement, Financing Agreement or Indenture has occurred, and specifying the nature of the default, the Issuer and Trustee shall have the right to seek specific performance of the provisions of the Regulatory Agreement, Indenture or Financing Agreement or to exercise their other rights or remedies thereunder; including the right to accelerate the Bond Mortgage Note or cause the mandatory redemption or tender of the Bonds or to foreclose under the Bond Mortgage. The Trustee and Issuer agree to refrain from the exercise of any such remedies in all events if the Credit Facility Provider cures any such default by the Owner within 60 days after receipt by the Credit Facility Provider of written notice of any such default, if such default is capable of being cured by the payment of money or, in the event of any other default, the Credit Facility Provider commences to cure such default and thereafter diligently proceeds with such cure, provided, that if any default shall last beyond 60 days, there must be delivered to the Trustee and the Issuer an opinion of bond counsel that an extension of the cure period to a date set forth in the opinion will not cause interest on the Bonds to become includable in gross income for federal income tax purposes. (D) If the Owner defaults in the performance of its obligations to the Issuer pursuant to the Mortgagee Retained Rights or the Owner's obligations under the Financing Agreement to make rebate payments or to comply with continuing disclosure requirements or to make payments to the Trustee owed pursuant to Sections 4.2 or 6.1 of the Financing Agreement for fees, expenses or indemnification, the Issuer or the Trustee shall have the right to exercise all its rights and remedies thereunder; provided, however, that so long as the Letter of Credit is in effect and no Wrongful Dishonor has occurred and is continuing, neither the Trustee nor the Issuer shall have the right to accelerate the Bond Mortgage Note or the Bonds or cause mandatory tender or redemption of the Bonds or to foreclose under the Bond Mortgage. So long as the Letter of Credit is in effect and no Wrongful Dishonor has occurred and is continuing, the Trustee and Issuer agree to refrain from the exercise of any such remedies if the Credit Facility Provider cures any such default by the Owner within 60 days after receipt by the Credit Facility Provider of written notice of such default, if such default is capable of being cured by the payment of money or, in the event of any other default, the Credit Facility Provider commences to cure such default and thereafter diligently proceeds with such cure. (E) Trustee acknowledges that the Credit Facility Provider may hold cash or other collateral and reserves to secure the Reimbursement Agreement, which collateral is not available as security for the Bonds. All cash collateral that is held by the Credit Facility Provider that is primarily held as security for the payment of principal and interest on the Bonds or to reimburse the Credit Facility Provider for payments made under the Letter of Credit shall be invested in obligations the interest on which is excludable from gross income for federal income tax W02-WEST:LKY\403414098.3 purposes and not a specific item of tax preference for purposes of federal alternative minimum tax for individuals. (F) Trustee and the Issuer acknowledge that the Credit Facility Provider may make advances to the Owner pursuant to the terms of the Reimbursement Agreement and the Reimbursement Mortgage or any extension, modification, amendment, renewal, consolidation, increase, reinstatement or supplement thereto. Trustee acknowledges that the obligations evidenced by the Reimbursement Agreement and secured by the Reimbursement Mortgage, together with accrued interest thereon, plus fees, advances and expenses due and owing by the Owner thereunder may increase in the future and the agreements of Trustee set forth in this Agreement shall extend to such amounts that are currently, and that may become, due and owing under the Reimbursement Mortgage. SECTION 4. Exercise of Rights and Remedies by Trustee; Transfer of Loan. (A) Upon (a) the occurrence and during the continuation of a Wrongful Dishonor, or (b) upon the termination or replacement of the Letter of Credit in accordance with its terms, and no further obligations of Owner remaining outstanding under the Reimbursement Agreement, the Credit Facility Provider shall not exercise the rights and remedies referred to in Section 3 hereof without the prior written consent of the Trustee and the Issuer, and the actions set forth in Section 3 shall be taken by the Trustee or the Issuer in their sole discretion. (B) Unless a Wrongful Dishonor shall have occurred and be continuing, neither the Trustee nor the Issuer shall, without the prior written consent of the Credit Facility Provider, dispose of the Bond Mortgage Loan, transfer the Financing Agreement, the Bond Mortgage Note, the Bond Mortgage or any other related document or any right or interest in the Bond Mortgage Loan, the Financing Agreement, the Bond Mortgage Note, the Bond Mortgage or any other related document other than, in the case of the Trustee, to a successor Trustee pursuant to the terms of the Indenture. SECTION 5. Application of Moneys Received Upon Exercise of Remedies Under the Bond Mortgage. Any and all amounts received or collected by the Trustee or the Credit Facility Provider in payment of the Bond Mortgage Loan as a result of the exercise of set-off rights, the liquidation of any security interest created by the Bond Documents, the sale (by foreclosure, power of sale or otherwise) of the Project under the Bond Mortgage or the exercise of any remedies under any of the Bond Documents against the Owner or the Project (including rents received from the appointment of a receiver) shall be held by the Trustee or the Credit Facility Provider, as the case may be, for the benefit of the Trustee and the Credit Facility Provider and will be applied as follows: (A) Until either (i) a Wrongful Dishonor has occurred and is continuing, or (ii) the Letter of Credit expires, terminates or is replaced, and the Owner has no further obligations under the Reimbursement Agreement, such moneys held by the Trustee and the Credit Facility Provider shall be applied in such manner and in such order as the Credit Facility Provider, in its sole discretion, determines, subject, however, to the terms of the Reimbursement Mortgage and Reimbursement Agreement; W02-WEST:LKYU03414098.3 -9- (B) Upon and following the occurrence and continuance of an event described in clause (A)(i) or the occurrence of the event described in clause (A)(ii) above, such moneys held by the Trustee and the Credit Facility Provider shall be applied in such manner and in such order (to the extent permitted by the Bond Documents, the Reimbursement Agreement, the Reimbursement Mortgage and applicable law) as the Trustee, in its sole discretion, determines as required under the terms of the Indenture. SECTION 6. Assignment of Rights. Issuer and Trustee each hereby agree that, following a total defeasance of the Bonds, an acceleration of the principal amount of the Bonds or the calling of all Bonds for redemption, when Trustee holds Eligible Funds or proceeds of a draw under the Letter of Credit, under the Indenture or in accordance with written instructions provided by the Credit Facility Provider (whether as a result of a payment by the Credit Facility Provider under the Letter of Credit or otherwise) in an amount which shall be sufficient to pay (A) the principal of all Bonds then Outstanding, and (B) all accrued and unpaid interest on the Bonds then Outstanding to the date of redemption, acceleration or defeasance, such that the obligation of the Credit Facility Provider under the Letter of Credit is deemed to be retired in full in accordance with its terms, then, in such event, the Issuer or the Trustee, as applicable, shall promptly do all of the following: (i) Use all funds drawn under the Letter of Credit as may be necessary to promptly redeem, retire or defease all Outstanding Bonds at their face amount plus any accrued interest, and, in the event any excess funds were paid to the Trustee pursuant to a drawing under the Letter of Credit, return said excess funds to the Credit Facility Provider promptly; (ii) At the option of the Credit Facility Provider, either reconvey, release and cancel, or assign to the Credit Facility Provider, all of their right, title and interest (other than the Mortgagee Retained Rights) under the Bond Documents, other than the Regulatory Agreement, and execute, acknowledge and deliver to the Credit Facility Provider such instruments and documents as may be reasonably necessary in connection with such reconveyance, release, cancellation or assignment; (iii) Deliver to the Credit Facility Provider, in such form and to such place, as the Credit Facility Provider shall designate, all property due the Credit Facility Provider pursuant to the provisions of the Indenture; and (iv) Surrender and return the Letter of Credit to the Credit Facility Provider. SECTION 7. Substitution of Obligor. 7.1 Issuer and Trustee agree that, should the Credit Facility Provider succeed to the interest of Owner in the Project pursuant to a foreclosure sale or otherwise without having implemented the provisions of Section 6 above, then the Credit Facility Provider shall be the successor to Owner for all purposes of the Bond Documents and the Credit Facility Provider W02-WEST:LKY\403414098.3 -10- acknowledges and agrees to be so treated as successor to the Owner; provided, however, that any and all liability of the Credit Facility Provider as successor in interest to the Owner's interest under the Bond Documents shall be limited to the period it owns the Project. 7.2 Following any succession by the Credit Facility Provider to the right, title and interest of the Owner in the Project pursuant to Section 7.1 above, the Credit Facility Provider shall have the right to sell, transfer and/or assign its interest in the Project to any person or entity, provided that the Credit Facility Provider or such transferee delivers or causes to be delivered to Issuer and Trustee concurrently with such transfer: (i) a letter of credit or other credit enhancement facility which complies with all applicable terms of the Indenture, if required pursuant to the terms of the Indenture; (ii) a written instrument assuming and agreeing to perform all obligations of the Owner under the Bond Documents to which the Owner is a party accruing from and after the date of such transfer; (iii) an opinion of counsel to the transferee that such transferee has duly assumed the obligations of the Owner under the Bond Documents to which the Owner is a party and that each of the Bond Documents to which the Owner is a party is a binding obligation of the transferee; and (iv) an opinion of bond counsel that such transfer will not cause interest on the Bonds to be included in gross income for federal income tax purposes. Upon completion of any transfer in accordance with this Section 7.2, the liability of the Credit Facility Provider shall be limited to the period it owned the Project and the Credit Facility Provider shall thereafter be relieved of any further liability for Owner's obligations under the Bond Documents accruing from and after the date of such transfer. Any environmental liability that the Credit Facility Provider may incur as a result of its ownership of the Project following a foreclosure or a deed in lieu of foreclosure shall be expressly limited by the provisions of any federal, state or local environmental statutes, rules, regulations or administrative procedures pertaining to "lender liability." 7.3 Issuer and Trustee agree that a purchaser may succeed to the interest of the Owner in the Project pursuant to a foreclosure sale or otherwise provided that such purchaser delivers or causes the delivery of the documents described in Section 7.2(iii). SECTION 8. Representations, Warranties and Covenants. (A) The Issuer represents, warrants and covenants to the other parties hereto that: (i) The Issuer has not received a notice in writing from the Internal Revenue Service alleging that any event or act has occurred in the operation and management of the Project which would adversely affect the exclusion of the interest on the Bonds from gross income for federal income tax purposes or a notice in writing from the Trustee concerning any event of default under any Bond Document. W02-WEST:LKY\403414098.3 -11- (ii) The Issuer has all necessary power and authority to execute, deliver and perform its obligations under and has duly authorized the execution, delivery and performance of this Agreement. This Agreement is a legal, valid and binding obligation of the Issuer enforceable in accordance with its terms, subject to (a) applicable limitations of bankruptcy or equitable principles affecting the enforcement of creditors' rights, the effect of general principles of equity, including without limitation, concepts of materiality, reasonableness, good faith or fair dealing, and the possibility of the unavailability of specific performance or injunctive relief, (b) the exercise of judicial discretion and (c) the legal remedies against public entities in the State. (iii) The Issuer will not take or permit, or knowingly omit to take or cause to be taken any action within its control that would adversely affect the exclusion of the interest on the Bonds from gross income for federal income tax purposes. (B) The Trustee represents, warrants and covenants to the other parties hereto that: (i) The Trustee has no knowledge of and has no reason to believe that any event or act has occurred which would adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes or of any event of default under any Bond Document. (ii) The Trustee has all necessary power and authority to execute, deliver and perform its obligations under and has duly authorized the execution, delivery and performance of this Agreement. This Agreement is a legal, valid and binding obligation of the Trustee enforceable in accordance with its terms. (iii) The Trustee will not knowingly take or permit, or knowingly omit to take or cause to be taken, any action within its control that would adversely affect the exclusion of the interest on the Bonds from gross income for federal income tax purposes. (iv) The Trustee will comply with the provisions of the Indenture, any other Bond Documents to which it is a party, the Pledge Agreement and this Agreement. (C) The Credit Facility Provider represents, warrants and covenants to the other parties hereto that: (i) The Credit Facility Provider has all necessary power and authority to execute, deliver and perform its obligations under and has duly authorized the execution, delivery and performance of this Agreement. This Agreement is a legal, valid and binding obligation of the Credit Facility Provider enforceable in accordance with its terms. (ii) The Credit Facility Provider will not knowingly take or permit, or knowingly omit to take or cause to be taken any action within its control that would adversely affect the exclusion of the interest on the Bonds from gross income for federal income tax purposes. W02-WEST:LKY\403414098.3 -12- SECTION 9. Subrogation. Issuer and Trustee agree that the Credit Facility Provider shall be subrogated to their rights and remedies under the Bond Documents (except with respect to any Mortgagee Retained Rights) upon and to the extent of the Credit Facility Provider's payment (whether pursuant to the Letter of Credit or otherwise) of the principal of or interest on the Bonds or the payment (whether pursuant to the Letter of Credit or otherwise) or performance of any obligation under the Bond Documents. Issuer and Trustee agree to cooperate with the Credit Facility Provider at the Credit Facility Provider's sole expense and liability in connection with the Credit Facility Provider's enforcement of any of such rights and remedies and, except as permitted under the terms of this Agreement, agree not to take any actions that would prejudice the exercise of such rights of subrogation unless in the opinion of Bond Counsel delivered to Issuer, Trustee and the Credit Facility Provider such action is necessary to preserve the exclusion from gross income for federal income tax purposes of interest on the Bonds. SECTION 10. Counterparts. This Agreement may be executed in any number of counterparts and all of such counterparts shall together constitute one and the same instrument. SECTION 11. Amendment and Waiver. This Agreement and each provision hereof may be amended to the extent and upon the conditions that the Indenture may be amended by an instrument in writing signed by the parties hereto. SECTION 12. Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the law of the State of California. SECTION 13. Notices. All notices, demands, requests, consents, approvals, certificates or other communications ("Communications") required under this Agreement shall be in writing, mailed (registered or certified mail, return receipt requested and postage prepaid), hand-delivered, with signed receipt, or sent by nationally recognized overnight courier and shall be sufficiently given and shall be deemed to have been properly given if given in the manner in which notices are to be given and to the addresses as provided in the Indenture. All communications which the Trustee, Issuer or Owner is required to send to any other person pursuant to the Financing Agreement, Indenture, or any other Bond Document shall also be sent to the Credit Facility Provider. All communications required to be sent to the Credit Facility Provider pursuant to the terms of any Bond Document and any other Borrower Document shall be sent to the following addresses: To the Credit Facility Provider: Wells Fargo Bank, National Association 123 N. Wacker Drive, Suite 1900 Chicago, Illinois 60606 Attention: Brett A. Hill Telephone: (312) 269-4812 Facsimile: (312)782-0969 with a copy to: Wells Fargo Bank, N.A. Minneapolis Loan Center 608 2nd Avenue South, 11th Floor W02-WEST: LKYVW3414098.3 -13- Minneapolis, Minnesota 55402 Attention: Manager The Trustee: U.S. Bank National Association One California Street, Suite 2550 San Francisco, California 94111 Attention: Multifamily Housing Telephone: (415)273-4576 Telecopy: (415) 273-4590 The Issuer: City of Carlsbad, California 2965 Roosevelt Street, Suite B Carlsbad, California 92008-2389 Attn: Housing and Redevelopment Director Telephone: (760)434-2810 Telecopy: (760) 720-2037 SECTION 14. Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of the Issuer, the Trustee and the Credit Facility Provider and their respective successors and assigns. No other party shall be entitled to any benefits hereunder, whether as a third-party beneficiary or otherwise. This Agreement shall be deemed terminated without the necessity for further or confirmatory instruments upon the earlier of (i) the date, if any, upon which an Alternate Credit Facility is delivered to replace the Letter of Credit unless the Alternate Credit Facility Provider replaces the Credit Facility Provider hereunder, (ii) the date the Letter of Credit expires in accordance with its own terms and all of the Owner's obligations to the Credit Facility Provider under the Reimbursement Agreement have been paid in full, or (iii) the date that the Indenture is released and terminated and all of the Owner's obligations to the Credit Facility Provider under the Reimbursement Agreement have been paid in full. SECTION 15. Acknowledgment and Consent. The Issuer and Trustee acknowledge and consent to the granting by the Owner to the Credit Facility Provider of the Reimbursement Mortgage, which shall be a second priority deed of trust. The Issuer and Trustee acknowledge and agree that the Credit Facility Provider is a third party beneficiary of the Financing Agreement, the Bond Mortgage Note and the Bond Mortgage with the right to enforce the provisions of such Financing Agreement, Bond Mortgage Note and Bond Mortgage subject to the terms of this Agreement. The Issuer and Trustee agree and acknowledge that to the extent the Bond Mortgage grants or reserves to the Owner any rights that are not granted or reserved to the Owner under the Reimbursement Mortgage, the Owner must comply with the terms of the Reimbursement Mortgage and a failure to do so shall be an Event of Default under the Reimbursement Agreement. SECTION 16. Trustee. The Trustee accepts the duties imposed upon it by this Agreement and agrees to perform those duties but only upon and subject to the following express terms and conditions: W02-WEST:LKY\403414098.3 -14- (A) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Agreement and no implied covenants or obligations shall be read into this Agreement against the Trustee; (B) as to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceedings, the Trustee shall be entitled to rely in good faith upon a certificate purportedly signed by an authorized signatory of the Credit Facility Provider as sufficient evidence of the facts contained in such certificate; (C) the permissive right of the Trustee to do things enumerated in this Agreement shall not be construed as a duty and the Trustee shall not be answerable for other than its negligence or willful misconduct; (D) none of the provisions contained in this Agreement shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers under this Agreement except for any liability of the Trustee arising from its own negligence or willful misconduct; (E) the Trustee is entering into this Agreement solely in its capacity as Trustee under the Indenture and not in its individual or corporate capacity; and (F) all of the provisions of the Indenture related to the duties, obligations, standard of care, protections and immunities from liability afforded the Trustee under the Indenture shall apply to the Trustee under this Agreement. SECTION 17. Invalidity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity of any other provision and all other provisions shall remain in full force and effect. SECTION 18. Effectiveness. This Agreement shall be effective as of the Closing Date. [Remainder of Page Left Intentionally Blank] W02-WEST:LKY\403414098.3 -15- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective duly authorized officers as of the date first above written. CITY OF CARLSBAD, CALIFORNIA, as Issuer By:. Name:_ Title: " STATE OF CALIFORNIA ) ) COUNTY OF ) On , before me, , a Notary Public, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature [ISSUER'S SIGNATURE PAGE TO SANTA FE RANCH INTERCREDITOR AGREEMENT] W02-WEST:LKY\403414098.3 -1- U.S. BANK NATIONAL ASSOCIATION, as Trustee By: _ Name: Title: STATE OF CALIFORNIA ) ) COUNTY OF ) On , before me, , a Notary Public, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature. [TRUSTEE'S SIGNATURE PAGE TO SANTA FE RANCH INTERCREDITOR AGREEMENT] W02-WEST:LKY\403414098.3 -1- WELLS FARGO BANK, NATIONAL ASSOCIATION, as Credit Facility Provider By:_ Name:_ Title: " [INSERT ILLINOIS NOTARY OR CALIFORNIA NOTARY] [CREDIT FACILITY PROVIDER'S SIGNATURE PAGE TO SANTA FE RANCH INTERCREDITOR AGREEMENT] W02-WEST:LKY\403414098.3 -1- EXHIBIT A LEGAL DESCRIPTION All that certain real property located in the City of Carlsbad, County of San Diego, State of California, described as follows: Lots 1 through 4 inclusive of Carlsbad Tract No. 84-7 in the City of Carlsbad, County of San Diego, State of California, according to map thereof No. 11391, filed in the Office of the County Recorder of San Diego County, December 17, 1985. Excepting therefrom, all minerals, mineral rights, oil, oil rights, natural gas, natural gas rights, petroleum, petroleum rights, other hydrocarbon substances, geothermal steam, all underground water, and all products derived from any of the foregoing, in or under or which may be produced from the property which underlies a plane parallel to and 500 feet below the present surface of the property together with the perpetual right of drilling, mining, exploring and operating therefor and storing in and removing the same from the property or any other land, including the right to whipstock or directionally drill and mine from lands other than the property, oil, water or gas wells, tunnels and shafts into, through or across the subsurface of the property, and to bottom such whipstocked or directionally drilled wells, tunnels and shafts under the beneath or beyond the exterior limits thereof, and to redrill, retunnel, equip, maintain, repair, deepen and operate any such wells or mines, without, however, the right to drill, mine, store, explore and operate through the surface or the upper five hundred (500) feet of the subsurface of the property; as reserved to Daon Corporation in Grant Deed recorded October 29, 1984, Official Records, File/Page No. 84-407544. APN: 223-360-01-00; 223-360-02-00; 223-360-03-00; 223-360-04-00. W02-WEST:LKY\403414098.3 -1-