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1995-0919_SJC HOUSING INVESTORS, L.P._Owner Participation AgreementOWNER PARTICIPATION AGREEMENT Between SAN JUAN CAPISTRANO REDEVELOPMENT AGENCY and SAN JUAN CAPISTRANO HOUSING INVESTORS, L.P. SJCOPA.KB 091995 TABLE OF CONTENTS ARTICLE 1. DEFINITIONS ................................... 2 ARTICLE 2. PERMITTED USE AND DEVELOPMENT OF THE PROPERTY .... 8 ARTICLE 3. FINANCING THE PROJECT .......................... 15 ARTICLE 4. RESTRICTED UNITS AND TAX CREDIT PROGRAM ......... 23 ARTICLE 5. CONDITIONS OF DEVELOPER OBLIGATIONS ............. 25 ARTICLE 6. INSURANCE; INDEMNIFICATION .............. I ...... 25 ARTICLE 7. INSPECTION ................................... 28 ARTICLE 8. FORCED DELAY; EXTENSION OF TIME . I ............... 28 ARTICLE 9. REPRESENTATIONS AND WARRANTIES ................ 28 ARTICLE 10. MORTGAGEE PROTECTION ......................... 29 ARTICLE 11. CERTIFICATE OF COMPLETION ...................... 33 ARTICLE 12. DISCRIMINATION ................................ 33 ARTICLE 13. [PURPOSELY LEFT BLANK] ......................... 34 ARTICLE 14. DEFAULTS, REMEDIES, AND TERMINATION ............. 34 ARTICLE 15. INDEMNIFICATION ............................... 36 ARTICLE 16. EFFECT OF COVENANTS .......................... 36 ARTICLE 17. TERM; RECORDATION; BINDING EFFECT ............... 36 ARTICLE 18. GENERAL PROVISIONS ............................ 36 Exhibits A. Agency Note B. Agency Deed of Trust C. Agency Assignment of Leases D. Project Budget E. Legal Description of Property F. Restrictive Covenants G. Schedule of Performance H. Promissory Note - Seller Financing Loan I. Agency Loan Funding Schedule J. Fannie Mae Subordination Agreement K. Certificate of Completion SJCOPA.KB 091995 OWNER PARTICIPATION AGREEMENT THIS OWNER PARTICIPATION AGREEMENT ("Agreement") is entered into as of this 19th day of , 1995 ("Effective Date"), by and between the SAN JUAN CAPISTRANO REDEVELOPMENT AGENCY, a public body ("Agency") and SAN JUAN CAPISTRANO HOUSING INVESTORS, L.P., a California limited partnership ("Developer"), pertaining to that certain real property ("Property") in the City of San Juan Capistrano, County of Orange, State of California as more particularly described herein. RECITALS A. The Agency is a public body, corporate and politic, exercising governmental functions and powers and organized and existing under the Community Redevelopment Law of the State of California (Health and Safety Code Section 33000, et seg.). B. Agency has established the San Juan Capistrano Central Redevelopment Project Area subject to and as set forth in the Redevelopment Plan adopted by Ordinance No. 488 of the City Council of the City of San Juan Capistrano, amended by Ordinance Nos. 509, 547 and 582. C. Developer is the owner of the Property, or has the right to acquire ownership of the Property pursuant to an option agreement. D. Pursuant to Ordinance No. 766, Developer has applied for and the City of San Juan Capistrano ("City") has determined to issue a Density Bonus Permit ("Density Bonus Permit") to Developer, which Density Bonus Permit grants a density bonus and other concessions or incentives to Developer for the development of the Property. E. The Agency desires to meet its affordable housing requirements pursuant to the California Community Redevelopment Law (Health and Safety Code Section 33000, et sea.) by assisting in the development of an affordable rental housing project ("Project") on the Property. F. By approving and executing this Agreement, the Agency finds that the Project is of direct benefit to the redevelopment area under the jurisdiction of the Agency. G. The obligations of Developer under this Agreement, in addition to the provisions hereof, are expressly conditioned upon and subject to: (i) the issuance of the Density Bonus Permit to Developer pursuant to the application by Developer or on terms and conditions otherwise approved in writing by Developer, and (ii) the SJCOPA.KB 091995 acquisition of fee title to the Property by Developer pursuant to the option agreement held by Developer or such terms and conditions otherwise agreed in writing by Developer. COVENANTS Based upon the foregoing Recitals and for good and valuable consideration, receipt and sufficiency of which is acknowledged by the parties, Agency and Developer hereby agree as follows: ARTICLE 1. DEFINITIONS The following terms as used in this Agreement shall have the meanings given unless expressly provided to the contrary: 1.1 "Affordable Rent" means the lesser of rents permissible pursuant to the Low -Income Housing Tax Credit Program or affordable rent as defined in California Health and Safety Code Section 50053 as exists on the Effective Date or as hereafter amended. As of the Effective Date, Affordable Rent pursuant to Section 50053 shall not exceed (a) the product of 30 percent times 60 percent of the area median income adjusted for family size appropriate for the unit, with respect to Qualified Lower Income Households whose gross incomes do not exceed 60 percent of the area median income adjusted for family size, and (b) the product of 30 percent times 50 percent of the area median income adjusted for family size appropriate for the unit, with respect to Very Low Income Households whose gross incomes do not exceed 50 percent of the area median income adjusted for family size. 1.2 "Agency" means the San Juan Capistrano Redevelopment Agency, a public body, corporate and politic, having its offices in San Juan Capistrano, California. The term "Agency" as used herein also includes any assignee of, or successor to, the rights, powers, and responsibilities of the San Juan Capistrano Redevelopment Agency. 1.3 "Agency Loan" shall mean the loan described in Paragraph 3.8 of this Agreement. 1.4 "Agency Note" means the nonrecourse promissory note evidencing the Agency Loan which note shall be in a form identical to Exhibit A attached hereto and incorporated herein by reference. 1.5 "Agency Security Documents" means the deed of trust and assignment of leases securing the Agency Note which shall be in forms identical to Exhibits B and C attached hereto and incorporated herein by reference. SJCOPA.KB 091995 K 1.6 "Bridge Loan" means the loan obtained by Developer from K&B, which Developer anticipates that it will have to obtain to pay the portion of Developer's Project Cost. The Bridge Loan shall be secured by a Lien on the Project. 1.7 "Capital Improvement Loan" means any Loan made to finance capital improvements to the Project after the Certificate of Completion has been issued which Loan or Loans may be secured by a Lien on the Project. 1.8 "Certificate of Completion" means the Certificate of Completion provided for in Article 11 hereof. 1.9 "City" means the City of San Juan Capistrano, a California general law municipal corporation, and its successors and assigns having jurisdiction. 1.10 "Construction Loan" means a loan or loans obtained by Developer in accordance with Paragraph 3.4 herein from an institutional lender or other lender making such loans the normal course of its business to finance a part of the Developer's Project Cost which loan or loans shall be secured by a first Lien on the Project. 1.11 "Debt Service" means the total of the payments actually made by Developer during the applicable calendar year or partial calendar year in question for the payment or repayment by Developer of (i) the First Mortgage Financing and (ii) subject to the limitations set forth in Paragraph 3.7 hereof, any Loan refinancing the First Mortgage Financing. Debt Service, Gross Income, Negative Cash Flow, Net Proceeds, Operating Expenses and Rent shall for the purposes of this Agreement be determined on a cash basis. 1.12 "Developer" means San Juan Capistrano Housing Investors, L.P., a California limited partnership, its successors, assigns, transferees, or other persons or entities acquiring title to or an ownership interest in the Property or Project. 1.13 "Developer Loan" means the loan obtained by Developer from K&B to facilitate refinancing of the Construction Loan and the Bridge Loan. The Developer Loan shall be secured by a Lien on the Project. 1.14 "Effective Date" is set forth in the opening paragraph on Page 1 of this Agreement. 1.15 "First Mortgage Financing" means any of the following: (i) the Construction Loan; (ii) the Permanent Loan; or (iii) any Loan refinancing any Permanent Loan. 1.16 "Gross Income" means all revenues or income collected by the Developer, or its successor or assign from the Project. Gross Income shall be SJCOPA.KB 091995 3 determined on a cash basis during any pertinent or applicable period, but shall not include security deposits until and unless such security deposits have been forfeited by tenants. Gross Income shall not, except for loss of rent insurance proceeds which shall be included, include insurance or condemnation proceeds, or the proceeds from any sale or refinancing of the Project or any part thereof, provided however insurance proceeds and payments from any reserve funds established pursuant to Section 1.26 hereof for a casualty loss to the extent that said proceeds are expended on any item that would qualify as a repair or maintenance item pursuant to the definition of Operating Expenses shall be included in Project Income. 1.17 "K&B" means Kaufman and Broad Multi -Housing Group, Inc. or any affiliate thereof. 1.18 "Lender" means any Mortgagee. 1.19 "Lien" means any security instrument encumbering the Project or any part thereof securing any Loan. 1.20 "Loan" means any loan made by a Mortgagee secured by a Lien. 1.21 "Low -Income Housing Tax Credit Program" shall have the meaning ascribed in Paragraph 4.1 of this Agreement. 1.22 "Mortgagee" means a mortgagee of a mortgage or a beneficiary under a deed of trust encumbering title to the Project, or any part thereof. 1.23 "Negative Cash Flow" means for any period the amount by which (i) Operating Expenses and (ii) Debt Service for such period exceeds the Gross Income for said period. 1.24 "Negative Cash Flow Loan" means any Loan made to fund Negative Cash Flow secured by a Lien on the Project. 1.25 "Net Cash Flow" means for any calendar year or partial calendar year the amount of Gross Income for such period less Operating Expenses and Debt Service for such period. 1.26 "Net Proceeds" means the proceeds of any Loan secured by the Project, less the repayment of any Loan made prior in time to said Loan and less any fees or charges paid out of the gross proceeds related to such Loan, including without limitation reasonable and customary broker's commissions and fees, Loan commitment fees or other charges assessed by the Lender for making the Loan, normal closing costs, title insurance premiums, and attorney's fees. SJCOPA. KB 091995 H 1.27 "Operating Expenses" means for any calendar year or partial calendar year the sum of the following expenses incurred and actually paid during such period: (i) all expenses actually and reasonably incurred by Developer in owning, operating, maintaining, repairing, and replacing the Project (excluding payment of insurance proceeds and any costs or expenses paid or reimbursed by third parties), including without limitation taxes, insurance, and improvement expenses for the Project, accounting and legal fees, leasing commissions, advertising expenses, supplies, license and permit fees, capital expenditures (to the extent such expenses exceed reserves), utility charges and such other matters and in such amounts as Developer in its reasonable discretion deems reasonable, (ii) such reserves as Developer or any Mortgagee may require to be set aside for the Project (but excluding the payment of funds from the reserve once set aside), (iii) a property management fee which shall not exceed six percent (6%) of Gross Income; (iv) expenses of all on-site employees, which employees shall be employees of the Project and not the property manager; and (v) Twenty -Five Thousand Dollars ($25,000) per year to be paid as designated by the general partner of Developer as an administration fee, and Ten Thousand Dollars ( $10,000) per year to be paid to K & B as an asset management fee, and with such fees permitted to increase commencing with the second full calendar year after the issuance of the Certificate of Completion by a percentage not to exceed the authorized percentage increase in the maximum rents for the Restricted Units in the Project. Developer shall be deemed to be required to pay Operating Expense for materials and services upon receipt thereof, and to the extent services are not billed on a monthly basis, the bill for such services shall be prorated over the period during which such services were received. Real estate taxes and insurance premiums shall be prorated on a monthly basis based on the latest information available. If the actual cost of real estate taxes or insurance premiums are different from the information used to make such prorations, then an adjustment in the next month's Operating Expenses shall be made based upon the correct information. Operating Expenses shall not include: (i) payments made from insurance proceeds for any loss to the Project, or (ii) depreciation of buildings or improvements, or (iii) funds expended from reserves to the extent such reserves have already been included as an Operating Expense. Developer shall count an Operating Expense only one time in one category and under no circumstances shall an Operating Expense be counted more than once. 1.28 "Party" means any party to this Agreement. 1.29 "Permanent Loan" means any loan, the Net Proceeds of which are used in part to pay any Construction Loan or any previous Permanent Loan. 1.30 "Project" means the Property and the proposed development of the Property with an up to one hundred twelve (112) unit apartment project in conformance with the Final Plans provided for in Paragraph 2.1e. 1.31 "Project Approvals" means the Density Bonus Permit, site specific plans, maps, permits and other entitlements, discretionary or ministerial, required by the City SJCOPA.KB 091995 �i or other governmental entity in connection with the development of the Project on the Property. 1.32 "Project Budget" means the budget attached as Exhibit D and incorporated herein by reference to this Agreement which identifies the parties' estimates as of the Effective Date of the Project Cost, the categories or components of Project Costs (the "Categories") and the sources and uses of funds applicable thereto, provided however that the Project Budget is Parties' best estimate of Project Cost based upon the information available to them as of the Effective Date. There is no assurance that the actual Project Cost will be limited to the Project Budget and there is a possibility for substantial increases in costs from those shown on the Project Budget. 1.33 "Project Cost(s)" means the sum of Developer's total cost to acquire the Property and construct the Project, including but not limited to, all of the following: (i) the total cost of market studies, consulting fees, soils tests, closing costs and attorneys' fees related to the -acquisition of the Property and the economic feasibility of constructing and operating the Project; (ii) the cost of obtaining the Bridge Loan, the Developer Loan, the Construction Loan and the Permanent Loan to finance the Project Cost, including but not limited to, reasonable and customary loan brokerage fees, finder's fees, loan commitment fees, points, closing costs, attorneys' fees, title insurance premiums and interest on all such financing through the funding of the Permanent Loan; (iii) appraisal fees, architectural fees, engineering fees, attorney's fees and other consulting fees and costs; (iv) the cost of fees and permits payable to any governmental agency having jurisdiction relating to the construction and operation of the Project; (v) on site and off site construction costs, including general contractor fees at 10% of the total construction cost for off-site and on-site improvements, base construction, exterior common area and customary indirect costs, including without limitation, trailer, temporary utilities, insurance and on-site supervision; (vi) costs of construction supervision; (vii) credit enhancement fees; (viii) developer fees of One Million Eight Thousand and No/100 Dollars ($1,008,000) payable to K&B; (ix) all costs incurred by Developer in constructing the Project which are not identified in the Categories, but which qualify as Eligible Basis under Section 42(d)(1) of the Internal Revenue Code of 1986 as amended; (x) all fees and expenses in obtaining an allocation of Tax Credits for the Project; (xi) reserves for the operation of the Project in such amounts as Developer or as a Lender may require; (xii) the amount of any Negative Cash Flow until Project Stabilization; and (xiii) such amounts properly expended in any Category not accounted for hereinabove. 1.34 "Project Stabilization" means the first date on which Gross Income equals or exceeds the total of: (i) Operating Expenses, and (ii) Debt Service, for six (6) consecutive calendar months. SJCOPA.KB 091995 A 1.35 "Property" is the subject real property located in the City of San Juan Capistrano, County of Orange, State of California, and more particularly described in Exhibit E attached hereto and incorporated herein by reference. 1.36 "Qualified Lower Income Households" means households whose gross annual income does not exceed 60 percent of the area median income, adjusted for family size in accordance with adjustment factors adopted by the United States Department of Housing and Urban Development pursuant to Section 8 of the United States Housing Act of 1937 as amended. Qualified Lower Income Households satisfy the income eligibility criteria for Lower Income Households within the meaning of California Health and Safety Code Section 50079.5. 1.37 "Redevelopment Plan" means the Redevelopment Plan for the San Juan Capistrano Central Redevelopment Project Area adopted by Ordinance No. 488, amended by Ordinance Nos. 509, 547 and 582. 1.38 "Regulatory Agreement" means any regulatory agreement required by 4 California Code of Regulations § 10340(c) as required for Developer to obtain the Tax Credits. 1.39 "Restricted Units" means the 92 one bedroom units in the Project. 1.40 "Restrictive Covenants" means the agreement referred to in Paragraph 4.2 of this Agreement regarding the Restricted Units, which Restrictive Covenants shall be in the form of the Restrictive Covenants Affecting Real Property as set forth in Exhibit F attached hereto. 1.41 "Senior Citizen" means a person 62 years of age or older. 1.42 "Schedule of Performance" means that certain Schedule of Performance attached hereto as Exhibit G and incorporated herein by reference. 1.43 "Seller Financing Loan" means the portion of the purchase price for the Property payable by Developer to the seller of the Property pursuant to a purchase promissory note secured by a deed of trust on the Property and other instruments encumbering the Property as a second priority lien after the First Mortgage Financing. The principal amount of the Seller Financing Loan is anticipated to be in the amount of $500,000, earning interest at the rate of eight percent (8%) per annum, and to be payable from fifty percent (50°x6) of the Net Cash Flow after deduction of Debt Service and to the extent not theretofore paid the Seller Financing Loan shall be all due and payable fifteen (15) years after the making of the loan by the Seller. A copy of the promissory note evidencing the Seller Financing Loan is attached hereto as Exhibit H and incorporated herein by reference. SJCOPA.KB 091995 7 1.44 "Tax Credits" means low-income housing tax credits allowable to the Developer with respect to the Project under Section 42 of the Internal Revenue Code of 1986, as amended. 1.45 "Tax Credit Sale Proceeds" means the total net proceeds to be obtained by Developer from the sale of limited partnership interests in Developer to persons who will qualify as limited partners of Developer for Internal Revenue Code Section 42 tax credits, less the cost of said sales, including without limitation syndication costs, including but not limited to a syndication fee equal to two percent (2%) of the gross sale proceeds of the Tax Credits by the Developer, attorney and accountant fees, filing fees with governmental agencies having jurisdiction over the syndication, brokerage or finder's fees, and consulting fees. The parties estimate as of the Effective Date of this Agreement that the Tax _ Credit Sale Proceeds will be approximately to 56 cents for every dollar of Tax Credits available to the Developer, provided, however, that it is understood that the actual amount of the Tax Credit Sale Proceeds may be greater or lesser than said amount. 1.46 "Very Low Income Household" means very low income households within the meaning of California Health & Safety Code Section 50105 whose gross annual income does not exceed 50 percent of the area median income adjusted for family size in accordance with the adjustment factors adopted by the United States Department of Housing and Union Redevelopment pursuant to Section 8 of the United States Housing Act of 1937 as amended. "Debt Service", "Gross Income", "Negative Cash Flow" Net Cash Flow", and "Operating Expenses" all shall be determined as a cash basis. ARTICLE 2. PERMITTED USE AND DEVELOPMENT OF THE PROPERTY. 2.1 Permitted Use and Development of the Property. The Developer shall during construction and thereafter throughout the term of this Agreement have the right and the obligation to use, develop, operate and maintain the Property in accordance with the Redevelopment Plan, the provisions of this Agreement and the Project Approvals. a. Developer's Obligation to Develop Project. Developer will use best efforts to develop the Project in accordance with the terms and conditions of this Agreement, and with the conditions established in the Project Approvals. Developer's Schedule of Performance for development of the Project is set forth in Exhibit G hereof. b. Scope of Development. The Project shall consist of the development of multiple buildings for up to one hundred twelve (1 12) senior citizen rental units and related interior and exterior improvements, including but not limited to, uncovered parking areas, landscaping, and common recreation areas. Developer SJCOPA.KB 091995 0 shall obtain the City's approval of a conceptual development for the Project within the time set forth in the Schedule of Performance and Developer shall develop the Project in conformity with the Project Approvals pursuant to this Agreement, subject to the provisions of Article 8 below. C. Development Protect/Architectural Plans. Developer shall within the time set forth in the Schedule of Performance, prepare and submit to the City for review and approval the preliminary architectural plans and related documents for the Project. The preliminary architectural plans shall include the sizes, heights, and locations of all buildings; building elevations; construction materials; construction colors; site plan configuration/dimensions; parking; conceptual landscape plan; conceptual sprinkler plan; and lighting concept. d. Exterior Treatment Conceit. Developer shall within the time set forth in the Schedule of Performance, prepare and submit to the City for review and approval an exterior treatment concept for the Property. The exterior treatment concept shall include a color and materials board; a signage program; a landscape plan; and a sprinkler plan. e. Final Construction Drawings. Developer shall within the time set forth in the Schedule of Performance, submit final construction drawings to the City for a finding of conformity with the approved preliminary architectural plans ("Final Plans") and exterior treatment concept. If the City does not make such a finding, Developer shall modify and resubmit the final construction drawings and obtain City approval prior to the issuance of building permits for the Project. f. Other City and Governmental Agency Permits. Before commencement of construction of the Project, Developer shall at its own expense secure or cause to be secured any and all permits and approvals which may be required by the City or any other governmental agency having jurisdiction over the Property. Execution of this Agreement does not constitute the granting of a commitment by the Agency to obtain or to assist in obtaining any Project Approvals. g. Cost of Development. Developer shall be responsible for all costs of developing the Project, including but not limited to pre -development costs incurred for items such as planning, design, engineering, and environmental remediation; all development and building fees; the cost incurred to demolish and clear any and all existing improvements, furnishings, fixtures, and equipment from the Property; costs for insurance and bonds (as required); costs for financing; all on-site construction costs; and costs for any necessary public improvements, including curb cuts, utility connections, street repair, and similar items of work that may be necessary in the street rights-of-way adjacent to the Property, provided however that Developer shall have no obligation to construct any off-site improvements except those required by the City in accordance with the normal development review and entitlement process. SJCOPA.KB 091995 7 h. Schedule of Performance; Progress_ Retorts. (i1 Developer shall begin and complete all construction and development within the times specified in the Schedule of Performance, subject to the provisions of Article 8 hereof. Once construction is commenced, it shall be continuously and diligently pursued to completion, and stall not be abandoned for more than sixty (60) consecutive business days, except when due to causes beyond the control of Developer, as set forth in Article 8 hereof. The Schedule of Performance is subject to revision from time to time as may be mutually agreed upon in writing between Developer and the Agency. (ii) During the course of construction, and prior to the Agency's issuance of its Certificate of Completion for the Project, Developer shall upon written request from the Agency keep the Agency informed of the progress of construction on a monthly basis, which progress reports shall be in writing. i. Entry by the Agency. Developer shall permit the Agency, through its officers, agents, or employees, at all reasonable times to enter into the Property and inspect the work during the construction of the Project on the Property to determine that the same is in conformity with the Construction Plans. and all the requirements hereof. Developer acknowledges that the Agency is under no obligation to supervise, inspect, or inform Developer of the progress of construction, and Developer shall not rely upon the Agency therefor. Any inspection by the Agency is entirely for its purposes in determining whether Developer is in default under this Agreement and is not for the purpose of determining or informing Developer of the quality or suitability of construction. Developer shall rely entirely upon its own supervision and inspection in determining the quality and suitability of the materials and work, and the performance of architects, subcontractors, and material suppliers. j. Compliance with Laws. The Developer shall comply with all federal, state and local statutes, ordinances, regulations and laws with respect to the Developer's ownership and development of the Property and the operation of the Project. 2.2 Condition of the Pro grt . a. Environmental Condition Prior to Agency Loan Disbursement. The Developer represents to the Agency that it is not aware of, to the best of its actual and/or constructive knowledge, and it has not received any notice or communication from any governmental agency having jurisdiction over the Property, the owner of the Property, or any other person or entity, notifying it of the presence of Hazardous Materials or Hazardous Materials Contamination in, on, or under the Property, or any portion thereof. Developer knows of no circumstances, conditions or events that may, now or with the passage of time, give rise to any Environmental Claim against or affecting the Property. True and correct copies of all of Developer's internal SJCOPA.KB 091995 10 inspection reports with respect to the Property, environmental audits, reports and studies received by Developer which concern the Property, and inspection reports from applicable regulatory authorities with respect to the Property, if any, have been delivered to Agency. As soon as possible following the execution of this Agreement, the Developer shall cause the environmental condition of the Property to be investigated, with the cost of such investigation to be borne by the Developer. Such investigation shall include such activities as the Developer's environmental expert or consultant (the "Environmental Consultant") deems necessary or appropriate to determine the environmental condition of the Property, but, in any case, including preparation of at least a "Phase 1 " report for the Property which shall identify in reasonable detail the remedial actions, if any, required for the Property. The Agency shall, at least five (5) days prior to the close of escrow for the acquisition of the Property, be provided a copy of all reports and test results produced by the Environmental Consultant. As a condition precedent to the disbursement of any portion of the Agency Loan, the Developer shall cause the Property to be remediated in accordance with the remedial actions identified in the Environmental Consultant's report, and in accordance with all Governmental Requirements. b. Develo er's Obligation to Investigate and Remediate the Property After Agency Loan Disbursement. After the disbursement of all or any portion of the Agency Loan, and notwithstanding the obligation of Developer to indemnify Agency pursuant to subparagraph (c) of this Paragraph 2.2 or any other obligations of the Developer pursuant to this Agreement, Developer shall, at its sole cost and expense, promptly take (i) all actions required by any federal, state or local governmental agency or political subdivision or any Governmental Requirements with respect to the Property, and (ii) all actions necessary to make full economic use of the Property for the purposes described in this Agreement, which actions, requirements or necessity arise from the presence upon, about or beneath the Property of any Hazardous Materials or Hazardous Materials Contamination regardless of when such Hazardous Materials or Hazardous Materials Contamination were introduced to the Property and regardless of who is responsible for introducing such Hazardous Materials or Hazardous Materials Contamination to the Property, or portion thereof (the "Remediation"). The Remediation shall include, but not be limited to, an initial investigation of the environmental condition of the Property, the preparation of any feasibility studies or reports and the performance of any cleanup, remedial, removal or restoration work required. The Developer shall take all actions necessary to promptly restore the Property to an environmentally sound condition for uses contemplated by this Agreement, notwithstanding any lesser standard of remediation allowable under applicable Governmental Requirements. The Developer's obligations under this subparagraph (b) of this Paragraph 2.2 shall survive the issuance of the Certificate of Completion. SJCOPA.KB 091995 11 C. Indemnification. Developer shall save, protect, pay for, defend, indemnify and hold harmless the Agency and its officers, employees, representatives and agents, from and against any and all liabilities, suits, actions, claims, demands, penalties, damages (including, without limitation, penalties, fines and monetary sanctions), losses, costs or expenses (including, without limitation, consultants' fees, investigation and laboratory fees, attorneys' fees and remedial and response costs) (the foregoing are hereinafter collectively referred to as "Liabilities") which may now or in the future be incurred or suffered by the Agency or its officers, employees, representatives or agents by reason of, resulting from, in connection with or arising in any manner whatsoever as a direct or indirect result of (i) the ownership of all or any part of the Property, (ii) any act or omission on the part of Developer, or their agents, employees, representatives, agents, contractors or invitees, (iii) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission or release from the Property of any Hazardous Materials or Hazardous Materials Contamination, (iv) the environmental condition of the Property, and (v) any Liabilities incurred under any Governmental Requirements relating to Hazardous Materials. Developer's obligations under this Paragraph 2.2 shall survive after the issuance of the Certificate of Completion, and shall be a covenant running with the land in perpetuity, binding on all successors and assigns of Developer's interest in either this Agreement or the Property. Developer may assign its obligations under this Paragraph 2.2 to the successor or assign of Developer's interest in this Agreement or the Property for those events or conditions related to the requirements in this Paragraph 2.2 which may occur subsequent to such Developer conveyance, provided that the Developer shall remain liable for all of its obligations hereunder. Notwithstanding the foregoing, Developer shall not have any obligation to indemnify Agency where the Liabilities have arisen as a result of the gross negligence or willful misconduct of Agency, its officers, employees, representatives and agents. d. Release. The Developer hereby waives, releases and discharges forever the Agency, and its employees, officers, agents and representatives, from all present and future claims, demands, suits, legal and administrative proceedings and from all liability for damages, losses, costs, liabilities, fees and expenses, present and future, arising out of or in any way connected with the Agency's or the Developer's use, maintenance, ownership or operation of the Property, any Hazardous Materials on the Property, or the existence of Hazardous Materials Contamination in any state on the Property, however they came to be emplaced there. The Developer acknowledges that it is aware of and familiar with the provisions of Section 1542 of the California Civil Code which provides as follows: SJCOPA. KB 091995 "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." 12 As such relates to this Paragraph 2.2, the Developer hereby waives and relinquishes all rights and benefits which it may have under Section 1542 of the California Civil Code. Notwithstanding the foregoing, this Release shall not be effective in the event the presence or release of Hazardous Materials on the Property occur as a result of the gross negligence or willful misconduct of Agency, its officers, employees, representatives and agents. e. Duty to Prevent Hazardous Material Contamination. Upon the execution of this Agreement, the Developer shall take such actions as necessary or prudent to prevent the release of any Hazardous Materials into the environment on or under the Property. Such precautions shall include reasonable means to prevent or discourage dumping or other releases of Hazardous Materials on the Property by third parties and trespassers, including without limitation the erection of a fence surrounding the Property if warranted. In the event any Remediation is required on the Property prior to the disbursement of the Agency Loan, such Remediation shall be conducted in accordance with subparagraph (a) of this Paragraph 2.2. During the Rehabilitation of the Property, the Developer shall take all necessary precautions to prevent the release of any Hazardous Materials into the environment on or under the Property. Such precautions shall include compliance with all Governmental Requirements with respect to Hazardous Materials. In addition, the Developer shall install and utilize such equipment and implement and adhere to such procedures as are consistent with the then prevailing standards as respects the disclosure, storage, use, removal and disposal of Hazardous Materials. f. Environmental Inquiries. The Developer shall notify the Agency, and provide to the Agency a copy or copies, of the following environmental permits, disclosures, applications, entitlements or inquiries relating to the Property: notices of violation, notices to comply, citations, inquiries, clean-up or abatement orders, cease and desist orders, reports filed pursuant to self -reporting requirements and reports filed or applications made pursuant to any Governmental Requirement relating to Hazardous Materials and underground tanks, and the Developer shall report to the Agency, as soon as possible after each incident, any unusual, potentially important incidents, including but not limited to, the following: (i) All required reports of releases of Hazardous Materials, including notices of any release of Hazardous Materials as required by any Governmental Requirement; (ii) All notices of suspension of any permits; (iii) All notices of violation from Federal, State or local environmental authorities; SJCOPA.KB 091995 13 (iv) All orders under the State Hazardous Waste Control Act and the State Hazardous Substance Account Act and corresponding federal statutes, concerning investigation, compliance schedules, clean up, or other remedial actions; (v) All orders under the Porter -Cologne Act, including corrective action orders, cease and desist orders, and clean-up and abatement orders; (vi) Any notices of violation from OSHA or Cal -OSHA concerning employees' exposure to Hazardous Materials; (vii) All complaints and_ other pleadings filed against the Developer and/or the Agency relating to the Developer's storage, use, transportation, handling or disposal of Hazardous Materials on the Property. In the event of a release of any Hazardous Materials into the environment, the Developer shall, as soon as possible after the release, furnish to the Agency a copy of any and all reports relating thereto and copies of all correspondence with governmental agencies .relating to the release. Upon request of the Agency, the Developer shall furnish to the Agency a copy or copies of any and all other environmental entitlements or inquiries relating to or affecting the Property including, but not limited to, all permit applications, permits and reports including, without limitation, those reports and other matters which may be characterized as confidential. g. Definitions. For the purposes of this Paragraph 2.2, the following terms shall have the meanings herein specified: (i) The term "Hazardous Materials" shall mean (1) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), as amended from time to time, and regulations promulgated thereunder; (2) any "hazardous substance" as defined by the Carpenter -Presley -Tanner Hazardous Substance Account Act (California Health and Safety Code Sections 25300 et seq. ), as amended from time to time, and regulations promulgatedthereunder;(3) asbestos;(4) polychlorinatedbiphenyls; (5) petroleum, oil, gasoline (refined and unrefined) and their respective by-products and constituents; and (6) any other substance, whether in the form of a solid, liquid, gas or any other form whatsoever, which by any "Governmental Requirements" (as defined in subparagraph g (iii) of this Paragraph 2.2) either requires special handling in its use, transportation, generation, collection, storage, handling, treatment or disposal, or is defined as "hazardous" or harmful to the environment. SJCOPA.KB 091995 14 (ii) The term "Hazardous Materials Contamination" shall mean the contamination (whether presently existing or hereafter occurring) of the improvements, facilities, soil, groundwater, air or other elements on, in or of the Property by Hazardous Materials, or the contamination of the buildings, facilities, soil, groundwater, air or other elements on, in or of any other property as a result of Hazardous Materials at any time (whether before or after the date of this Agreement) emanating from the Property. (iii) The term "Governmental Requirements" shall mean all laws, ordinances, statutes, codes, rules, regulations, orders and decrees of the United States, the state, the county, the city, or any other political subdivision in which the Property is located, and of any other political subdivision, agency or instrumentality exercising jurisdiction over the Agency, the Developer or the Property. (iv) The term "Environmental Claim" shall mean (1) any judicial or administrative enforcement actions, proceedings, claims, orders (including consent orders and decrees), directives, notices (including notices of inspection, notices of abatement, notices of non-compliance or violation and notices to comply), requests for information or investigation instituted or threatened by any governmental authority pursuant to any Governmental Requirement; or, (2) any suits, arbitrations, legal proceedings, actions or claims instituted, made or threatened that relate to any damage, contribution, cost recovery, compensation, loss or injury resulting from the release or threatened release (whether sudden or non -sudden or accidental or non-accidental), of, or exposure to, any Hazardous Materials, or the violation or alleged violation of any Governmental Requirement, or the general, manufacture, use, storage, transportation, treatment, or disposal of Hazardous Materials. ARTICLE 3. FINANCING THE PROJECT. 3.1 Sources and Uses of Funds. The anticipated sources and uses of funds for acquisition of the Property, development and construction of the Project are set forth in the Project Budget. The Project Budget is Developer's best estimate based upon the information available to it as of the Effective Date as to what the total Project Cost will be. There is no assurance that the actual Project Cost will be limited to the Project Budget and there is a possibility for substantial increases or decreases in costs from these shown in the Project Budget. 3.2 Seller Financing Loan. Developer will finance a part of the acquisition purchase price of the Property by the Seller Financing Loan which shall be secured by a Lien on the Project subject and subordinate only to the First Mortgage Financing. 3.3 Bridge Loan and Develoger Loan. SJCOPA.KB 091995 15 a. Necessity for Bridge Loan. In the event that any Project Cost is due and payable before the initial funding of a Construction Loan, or if the funding of the Construction Loan is insufficient to pay said costs as they come due, or if Project Costs exceed the amount of the Seller Financing Loan and the Construction Loan, Developer may obtain the Bridge Loan from K&B. b. Amount of Bride Loan. The Bridge Loan shall not exceed the Project Cost, and shall be reduced by the Net Proceeds of the Permanent Loan and the Tax Credit Sale Proceeds. C. Determination of Project Cost. Within ninety (90) days after the later of (i) the initial funding of the Permanent Loan, or (ii) the date the State of California completes its audit of the Project Cost pursuant to the applicable regulations of the California Tax Credit Allocation Committee, Developer shall notify the Agency of the Bridge Loan amount and the Project Cost as calculated by Developer and shall provide to the Agency a complete accounting of all actual sources of funds and uses of funds (as reflected in the line items shown on the Project Budget) in order to enable the Agency to verify the accuracy of Developer's statement with respect to the Project Cost and the amount of the Bridge Loan. d. Bridge Loan_ Terms. The unpaid principal balance of the Bridge Loan during its term shall bear interest at the rate of ten percent (10%) per annum (exclusive of late charges, penalties or fees in case of default) from the date of initial funding of the Bridge Loan, provided that in no event shall additional interest be earned on unpaid interest which has accrued. Developer shall be entitled to repay the entire Bridge Loan or such part thereof as Developer elects, including accrued interest thereon, as a priority payment out of funds available from any or all of the following: (i) the Net Proceeds of the Construction or Permanent Loan; (ii) the Net Proceeds of the Agency Loan; (iii) the net Tax Credit Sale Proceeds; and/or (iv) from twenty five percent (25%) of Net Cash Flow after payment of Debt Service and after payment of debt service of the Capital Improvement Loan and Negative Cash Flow Loan. From and after the date the Seller Financing Loan is paid off in full or otherwise satisfied, one-half 0 /2) of the fifty percent (50%) of the Net Cash Flow after payment of Debt Service that otherwise would have been used to make payment on the Seller Financing Loan shall instead be paid to K&B on the Bridge Loan after payment of debt service of the Capital Improvement Loan and Negative Cash Flow Loan. The Bridge Loan shall be secured by the Project by security documents in form and substance satisfactory to K&B, which security documents shall be a Lien on the Project, subject and subordinate only to: (i) the Construction or Permanent Loans when funded, (ii) the Seller Financing Loan, (iii) the Agency Loan, (iv) the Restrictive Covenants provided for by this Agreement and (v) such Regulatory Agreements as are required to obtain the Tax Credits. The Bridge Loan, plus accrued and unpaid interest thereon shall be all due and payable not more than fifteen (15) years from the initial funding of the Bridge Loan. Payments on the Bridge Loan shall first be applied to accrued interest and the remainder to principal. The security documents for the Bridge Loan shall be SJCOPA. KB 091995 16 subordinate to the Agency Security Documents. e. Purpose of 'Developer Loan. The Developer Loan is to facilitate refinancing of the Construction Loan and Bridge Loan to the extent Net Proceeds of the Permanent Loan and Tax Credit Sale Proceeds are insufficient to pay in full the Construction Loan and the Bridge Loan. The Developer may obtain the Developer Loan from K&B upon funding of the Permanent Loan and Tax Credit Sale Proceeds. f. Amount of Developer Loan. The Developer Loan shall not exceed the amount of the Construction Loan and the Bridge Loan, and shall be reduced by the Net Proceeds of the Permanent Loan and Tax Credit Sale Proceeds. g. Developer Loan Terms. The Developer Loan shall bear the same ten percent 0 0%) interest rate and have the same payment provisions from Net Cash Flow, after payment of Debt Service, the Seller Financing Loan, Capital Improvement Loan and Negative Cash Flow Loan, as the Bridge Loan which it replaces, with payments on the Developer Loan to first be applied to interest and then to principal, provided that in no event shall additional interest be earned on unpaid interest which has accrued. The term 'of the Developer Loan shall be fifteen 0 5) years from initial funding, or if longer, the shortest term permitted by the Lender making the.Permanent Loan. The Developer Loan shall be secured by the Project by security documents in form and substance satisfactory to K&B, which security documents shall be a Lien on the Project and shall be subject and subordinate only to (i) the Permanent Loan, (ii) the Seller Financing Loan, (iii) the Agency Loan, (iv) the Restrictive Covenants provided by this Agreement, and (v) such Regulatory Agreements as are required to obtain the Tax Credits. 3.4 Construction Loan. Developer shall at anytime have the right to obtain a Construction Loan for the Project which Construction Loan shall have the following terms: SJCOPA.KB 091995 (i) the original principal amount (not including interest that may accrue thereon) shall not exceed 90% of Project Cost; (ii) the interest on the unpaid principal amount shall not exceed the Lender's prime rate of interest, or the equivalent thereof, plus three points (exclusive of late charges, penalties and fees in case of default); (iii) the term of the Construction Loan shall be for at least fourteen (14) months (exclusive of the Lender's right to accelerate the maturity in the event of a default); (iv) the Construction Loan shall be secured by a first Lien on the 17 Project, which first Lien shall be in the form and substance as required by the Construction Loan Lender; and (v) the Construction Loan shall have such other terms and conditions as are required by Lender making the Construction Loan. 3.5 Permanent Loan. Developer shall at any time have the right to obtain a Permanent Loan, the Net Proceeds of which shall first be used to pay the Construction Loan in full. The Permanent Loan shall have the following terms: (i) the original principal balance (exclusive of any interest accrued thereon) shall be not more than 90% of the fair market value of the Project as determined by the Lender making the Permanent Loan; (ii) the unpaid principal balance shall earn interest at a rate not to exceed ten percent (10%) per annum (exclusive of late charges, penalties or fees if in default); (iii) the net operating income of the Project, as defined by the Lender making the Permanent Loan, will be equal to at least 1.1 times the scheduled debt service of the Permanent Loan; (iv) the term of the Permanent Loan shall be for at least one hundred eighty (180) months (exclusive of the Lender's right to accelerate the maturity in the event of a default); (v) the Permanent Loan shall be amortized over a period of not less than fifteen (15) years, provided however that the term of the Permanent Loan may expire prior to the full amortization of the Permanent Loan with a lump sum payment for the unpaid principal balance due at its maturity; NO the Permanent Loan shall be secured by a first Lien on the Project, which first Lien shall be in the form and substance as required by the Permanent Loan Lender; and (vii) the Permanent Loan shall have such additional terms and conditions as are required by the Lender making the Permanent Loan. 3.6 Loans for Negative Cash Flow and Future Capital Improvements. Developer shall at any time after issuance of the Certificate of Completion have the right to obtain a Loan or Loans to finance Negative Cash Flow or capital improvements to be made to the Project. Said Loans shall have the following terms: SJCOPA.KB 091995 18 a. The Loans may be secured by a Lien prior in right to the Lien securing the Agency Loan; b. The Loans may be in such amounts as are required to finance any Negative Cash Flow or to make such capital improvements; c. The Loans shall bear interest and contain such terms as the Lender may require; d. The maximum debt service on said Loans shall be as the Lender making such Loan requires; e. The principal amount of said Loans shall not exceed a maximum of $100,000 per calendar year; and f. Funds may not be drawn on said Loans until the reserves set aside for the Project by Developer have first been expended (excluding any reserves required to be maintained by any existing Mortgagee). 3.7 Refinancing of Loans. Developer shall have the right to refinance any of the Loans hereinabove provided for on such terms and conditions, including but not limited to amounts of the Loans, as it deems in the best interests of the Project, including increasing the amounts of any such Loans, provided that, except for the refinancing of a Mature Loan as hereinafter provided for, (i) the principal amount of a refinancing Loan shall not exceed the outstanding balance of the Loan(s) to be refinanced, plus costs and expenses of refinancing (including but not limited to reasonable and customary brokerage and loan fees, prepayment fees, title and escrow fees, recording fees and attorney fees), and (ii) the aggregate debt service on all outstanding Loans secured by the Project and prior in right to the Agency Loan may not exceed the maximum debt service ("Permitted Debt Service") on all aggregate of the Loans permitted pursuant to Paragraphs 3.2, 3.4 or 3.5 and 3.6. The determination of the Permitted Debt Service shall be based on the maximum debt service on the Loans as provided in Paragraphs 3.4 or 3.5 and 3.6, inclusive, rather than as the actual debt service on such Loans in place, and the actual debt service of the Loan specified in Paragraph 3.2 at the time of refinancing; provided, however, that in no event shall the net operating income of the Project as defined by the Lender refinancing the Loan specified in Paragraph 3.5 or other Loan(s) to which the Agency Loan is subordinate, be less than 1.1 times the scheduled debt service of such refinancing loan. Notwithstanding anything contained herein to the contrary, in the event that any Loan is due and payable (a "Mature Loan"), Developer shall have the right to refinance the Mature Loan, without regard to the foregoing limitations, with a new Loan ("Replacement Loan") on the best terms and conditions available to Developer (without Developer's having any personal liability for the repayment thereof) in the market place existing as of a period from one hundred twenty (120) to sixty (60) days prior to the Mature Loan's maturity (as said maturity may be accelerated by SJCOPA. KB 091995 19 a default thereon) and the debt service on said Loan shall be included in Debt Service. As used herein "best terms and conditions available" shall mean the lowest interest rate available and the longest amortization schedule available. If there is a conflict between the lowest interest rate and the longest amortization schedule, Developer shall select the combination of interest rate and amortization schedule so as to yield the lowest annual debt service on the Replacement Loan (not including any balloon payment due at maturity). The maximum principal amount of the Replacement Loan shall not without Agency's prior written consent exceed the amount required to pay the Mature Loan in full and the costs and expenses to obtain the Replacement Loan, including, but not limited to, reasonable and customary commitment fees, points, attorneys' fees, brokers' fees, finders' fees, closing costs, title insurance fees and fees and charges assessed by the Lender making the Replacement Loan for making the Replacement Loan. 3.8 Agency Financial Assistance for the Promect. a. Agency Loan. Subject to the terms and conditions set forth herein, Agency shall loan to Developer the amount of One Million Five Hundred Fifty Thousand Dollars ($1,550,000). The funding of the Agency Loan by the Agency shall be One Hundred Fifty Five Thousand Dollars ($155,000) upon commencement of construction of the Project (including grading), with the remainder to be disbursed in accordance with the schedule (the "Funding Schedule") attached hereto an Exhibit I and incorporated herein by reference. b. Closing Agency Loan. On or before commencement of construction of the Project, Developer shall execute the Agency Note and the Agency Security Documents, and deposit said documents with Commonwealth Land Title Company ("Title Company") at 888 W. 6th Street, Fourth Floor, Los Angeles, California 90071, as escrow agent, with instructions to deliver the Agency Note to the Agency and record said Agency Security Documents in the official records of the County where the Property is located after the recordation of the Lien's securing the Construction Loan and the Seller Financing Loan. Immediately upon making said deposits into escrow, Developer shall so notify the Agency. Developer and the Agency shall cooperate and execute such escrow instructions consistent with this Agreement as may be required by the Title Company, the escrow agent, to accomplish the foregoing. Developer shall pay the costs of the escrow. C. Terms of Agency Loan. The unpaid principal balance of the Agency Loan shall bear interest at the rate of five percent (5%) per annum, and be payable out of twenty five percent (25%) of the Net Cash Flow after payment of Debt Service and after payment of debt service of the Capital Improvement Loan and Negative Cash Flow Loan, with payments thereon first applied to interest accrued and the remainder to principal. Said payments shall be made on a calendar year basis with the first payment due at the end of the first calendar year in which there is Net Cash Flow after payment of Debt Service. From and after the date the Seller Financing SJCOPA.KB 091995 20 Loan is paid off in full or otherwise satisfied, one-half (1 /2) of the fifty percent (50%) of the Net Cash Flow after payment of Debt Service that otherwise would have been used to make payment on the Seller Financing Loan shall instead be paid to the Agency on the Agency Loan after payment of debt service of the Capital Improvement Loan and Negative Cash Flow Loan. The Agency Loan may be prepaid at anytime without premium or penalty and neither the Developer nor any partner, successor or assign shall have any personal liability for the repayment of the Agency Loan. If not sooner paid, the unpaid principal and accrued interest of the Agency Loan shall be due and payable three hundred sixty (360) months from the date of funding the Agency Loan and recording of the Agency Security Documents, or if longer, the shortest term permitted by the Lender making the original Permanent Loan. The remaining terms of the Agency Loan are set forth in the Agency Note and the Agency Security Documents the forms of which are attached hereto -as Exhibits A, B and C. d. Subordination of Agency Loan. The Agency Security Documents shall be subject and subordinate to: (i) Liens securing the Construction Loan, Permanent Loan, the Seller Financing Loan, Capital Improvement Loans, Negative Cash Flow Loans and the Loans refinancing any of said Loans, (ii) the Restrictive Covenants provided by this Agreement, and (iii) such Regulatory Agreements as may be required to obtain the Tax Credits. Agency agrees from time to time upon written request of Developer to execute and acknowledge such documents and instruments in form and substance reasonably required by any Lender making any Loans to cause the subordination of the Agency Loan to any such Loan, including without limitation the subordination provisions required by this Agreement and Exhibit J hereto. The Title Company shall issue to the Agency a standard ALTA lender's policy of title insurance insuring the priority of the Agency Security Documents subject to the Liens herein provided for, with coverage in the principal amount of the Agency Note and Developer shall pay the premium for the title insurance policy upon the funding of the Agency Loan. In the event that the Agency shall fail to fund any portion of the Agency Loan in accordance with this Agreement and the Funding Schedule, the restrictions set forth in Paragraph 4.2 hereto shall automatically terminate. e. No Federafly Subsidized Financing. The Agency represents and warrants to Developer that none of the funds constituting the Agency Loan shall directly or indirectly be federally subsidized, including but not limited to being obtained by the Agency through the sale of tax exempt bonds or have an ultimate source from tax-exempt bond proceeds or a federal loan with a below-market interest rate, within the meaning of the provisions and limitations of the Internal Revenue Code Section 42 and the rules and regulations thereof. f. Agency Acknowledgement. The Agency acknowledges and agrees that the Project will be operated subject to and in compliance with the requirements of Subparagraphs 4.1 and 4.2 hereof and Section 42 of the Internal Revenue Code of 1986, as amended and the rules and regulations promulgated thereunder, with substantially restricted rents, which will have a substantial adverse effect on the Net SJCOPA.KB 091995 21 Cash Flow and the repayment of the Agency loan. The Agency agrees to make the Agency Loan notwithstanding the probability of such an adverse impact on the repayment of the Agency Loan. g. Conditions Precedent to Disbursement of Agency Loan Proceeds. The Agency shall disburse the required portions of the Agency Loan proceeds in the amounts set forth in Paragraph 3.8a and in accordance with the Funding Schedule (Exhibit 1) and, subject to the requirements of this Paragraph 3.8g. No disbursement of the Agency Loan shall be made until all of the following conditions precedent are satisfied to the satisfaction of the Agency: (i) Execution ,and Delivery of Documents. Developer shall have executed and delivered into escrow the Agency Note, the Agency Security Documents, the Restrictive Covenants, and any other documents and instruments required to be executed and delivered, all in form and substance satisfactory to the Agency. (ii) Insurance. Developer shall have furnished the Agency with proper evidence of the insurance coverage required in accordance with Article 6 of this Agreement: (iii) Title to Land. The Agency is reasonably satisfied that upon the close of escrow Developer shall have good and marketable fee title to the Property and there will exist thereon or with respect thereto no mortgage, lien, pledge or other encumbrance of any character whatsoever other than liens for current real property taxes and assessments not yet due and payable, the deeds of trust approved by the Agency and any other matters approved in writing by the Agency. In furtherance of this provision, upon issuance of a preliminary title report and the title insurance policy pursuant hereto, Developer shall submit copies thereof to the Agency. (iv) Project Approvals. Except for the initial disbursement, the Developer shall have obtained any and all Project Approvals for the development of the Project on the Property. (v) Title Insurance. The Title Company is prepared at the close of escrow to issue or cause the issuance to the Agency the American Land Title Association policy of lender's title insurance required in accordance with subparagraph 3.8(d) with mechanic's lien coverage, together with such endorsements as the Agency may require, which shall insure the Agency Security Documents as a lien upon the Property subject only to the items specified in subparagraph 3.8(c) above. NO Priority of Restrictive Covenants. The Restrictive Covenants have been executed and the escrow agent is prepared to record the Restrictive Covenants at the close of escrow, and such Restrictive Covenants shall be subordinate to the lien of the Construction Loan, the Permanent Loan, the Seller Financing Loan and the SJCOPA.KB 091995 22 Regulatory Agreement and shall be prior and superior to all other liens and encumbrances of record with respect to the Property. (vii) Environmental Report. Developer shall have provided the Agency with a "Phase 1 " Environmental Report as required by Paragraph 2.2 hereof, and has completed any remediation of the Property as required by that Paragraph. (viii) Plans and Specifications. Except for the initial disbursement, Developer shall have submitted to the Agency and the Agency shall have approved the Construction Plans for the Construction of the Project. Such approval of Agency shall not relieve Developer's obligation to obtain any and all permits and approvals required by the Agency or other governmental agency for the Construction of the Project, including without limitation, building permits, plans and specifications. As used in this Agreement, "Construction Plans" shall mean all construction documentation upon which the Developer and Contractor shall rely in undertaking the Construction of the Project (including landscaping, parking and common areas) and shall include without limitation final architectural drawings, landscaping plans and specifications, final elevations, building plans and specifications (also known as "working drawings") and a time schedule for Construction of the Project. (ix) No Default. There shall exist no condition, event or act which would constitute a default (as defined in Paragraph 14.1) hereunder or which, upon the giving of notice or the passage of time, or both, would constitute a default. (x) Environmental Compliance. All federal, state and local environmental requirements applicable to the Project, including without limitation, the California Environmental Quality Act California Public Resources Code Section 21000 et seq. have been satisfied. (xi) representations and Warranties. All representations and warranties of Developer herein contained shall be true and correct. 3.9 'Limitation on Financing -Restrictions. The foregoing restrictions and limitations on financing set forth in Paragraphs 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7 of this Article and the definitions relating thereto shall only apply so long as the Agency Loan remains outstanding. Notwithstanding anything contained in this Agreement to the contrary, no restrictions shall apply to any Loan which is subordinate to the Agency Loan. ARTICLE 4. RESTRICTED UNITS AND TAX CREDIT PROGRAM 4.1 Low -Income Housing Tax Credit Program. a. Qualification for Tax Credits. Developer proposes to qualify the Project for and participate in the low-income housing tax credit program authorized SJCOPA. KB 091995 23 pursuant to Internal Revenue Code of 1986, as amended Section 42, California Health and Safety Code Sections 50199.6-50199.19, California Revenue and Taxation Code Sections 17057.5, 17058, 23610.4, and 23610.5, and applicable federal and State regulations such as 4 California Code of Regulations Sections 1 0300-1 0340 (collectively, the "Low -Income Housing Tax Credit Program"). Developer agrees to submit to the Agency all of the following documents upon receipt by Developer: (i) A copy of the Regulatory Agreement, if required, between the Tax Credit Allocation Committee and Developer (4 California Code of Regulations §10340(c)). Copies of all correspondence or transmittals from the Tax Allocation Credit Committee or other jurisdiction (such as the Internal Revenue Service) containing any notification regarding the Project's noncompliance with applicable provisions of the Low -Income Housing Tax Credit Program. 4.2 Restricted Units. The Restricted Units shall be restricted with respect to occupancy and rents as herein provided, and as more particularly described in the Restrictive Covenants Affecting Real Property in the form attached as Exhibit F hereto, which Restrictive Covenants shall be recorded against the Property within the time set forth in the Schedule of Performance. a. Very Low Income Households. Eighteen (18) of the Restricted Units shall be held for occupancy at Affordable Rents for Senior Citizens who are Very Low Income Households. For purposes of this Subparagraph, a Restricted Unit occupied by a Very Low Income Household who at the commencement of the term of occupancy is a Very Low Income Household shall be treated as occupied by such household as provided in the Restrictive Covenants. Moreover, a Restricted Unit previously occupied by a Very Low Income Household and then vacated shall be considered occupied by a Very Low Income Household until reoccupied, at which time the character of the Restricted Unit shall be redetermined. b. Qualified Low Income Households. The remaining seventy four (74) Restricted Units shall be held for occupancy at Affordable Rents for Senior Citizens who are Qualified Lower Income Households (exclusive of one unit for on-site management and maintenance personnel). For purposes of this Subparagraph, a Restricted Unit occupied by a Qualified Lower Income Household who at the commencement of the term of occupancy is a Qualified Lower Income Household shall be treated as occupied by such household as provided in the Restrictive Covenants. Moreover, a Restricted Unit previously occupied by a Qualified Lower Income Household and then vacated shall be considered occupied by a Qualified Lower Income Household until reoccupied, at which time the character of the Restricted Unit shall be redetermined. SJCOPA.KB 091995 24 C. Determination of Income Eligibilit . Prior to renting a Restricted Unit, Developer shall obtain and maintain on file an income certification from each tenant household for such unit. In determining income eligibility for a particular Restricted Unit, Developer shall be entitled to rely upon the documentation provided by the prospective tenant as required pursuant to the Low -Income Housing Tax Credit Program procedures for determining household income eligibility. Developer shall not be required to do further investigations into the household income than are required pursuant to the Low -Income Housing Tax Credit Program requirements. The Developer shall provide to the Agency such additional tenant income certification or additional tenant income information as the Agency may reasonable require. d. Compliance with Regulatory Agreement Records and Repo Requirements. Developer agrees to perform all of Developer's obligations under the Regulatory Agreement between the California Tax Credit Allocation Committee and Developer (4 California Code of Regulations §10340(c)). e. Term of Restricted Units. The obligations of Developer under this Subparagraph 4.2 shall terminate fifty seven (57) years from the issuance of the Certificate of Completion. 4.3 Tax Credit Sale. Developer shall use its best efforts to sell Tax Credits available to it with the right to retain up to one percent (1 %) of the Tax Credits for its general partner. Developer shall use the Tax Credit Sale Proceeds in the following order: (i) first, to pay the Construction Loan to the extent not paid by the Permanent Loan, (ii) second, to establish such reserves as the Developer in its sole discretion deems prudent or required, (iii) third, to payoff the Bridge Loan to the extent that funds are available, (iv) fourth, the pay off or reduce the Seller Financing Loan to the extent that funds are available, and (v) fifth, use such remaining funds as it, in its sole discretion, may elect that funds are available. Developer shall have the right to reverse the order of priorities of items (iii) and (iv) above at its sole discretion. ARTICLE 5. CONDITIONS OF DEVELOPER OBLIGATIONS 5.1 Developer Conditions. The obligations of Developer under this Agreement, in addition to the provisions hereof, are expressly conditioned upon and subject to the following: (a) the issuance of the Density Bonus Permit to Developer pursuant to the application by Developer or on terms and conditions otherwise approved in writing by Developer, and (b) the acquisition of fee title to the Property by Developer pursuant to the option agreement held by Developer or such terms and conditions otherwise agreed in writing by Developer. ARTICLE 6. INSURANCE; INDEMNIFICATION 6.1 Commercial. General Liability, Workers' Compensation, and Builders Risk Insurance. SJCOPA.KB 091995 25 a. Liability Insurance. Prior to commencing construction of the Project, Developer shall furnish or cause to be furnished to the Agency evidence, reasonably satisfactory to the Agency of commercial general liability insurance coverage for the Property and the Project and Developer's activities thereon, including products, completed operations, contractual, bodily injury, personal injury, and property damage in the amount of at least One Million Dollars ($1,000,000) combined single limits, and naming the Agency as an additional insured with respect to the Property and the Project except as caused by the acts or omissions of the Agency. In addition, all such insurance: (i) shall be primary insurance for the Property and the Project and not contributory with any other insurance which the Agency, may have other than for their own acts and omissions; (ii) shall be "per occurrence" rather than "claims made" insurance; (iii) shall provide that the policy will not be cancelled or limited in scope by the insurer unless there is a minimum of thirty (30) days prior written notice by certified mail, return receipt requested to the Agency; and (iv) shall be written by a California licensed insurer with a Best rating of not less than B+, Class X. b. Worker's Compensation Insurance. Developer shall also furnish or cause to be furnished prior to commencement of construction work on the Project to the Agency evidence reasonably satisfactory to the Agency that Developer and any contractor with whom Developer has contracted for the performance of work on and around the Property have current Workers' Compensation insurance as required by the State of California Labor Code as well as Employer's Liability Coverage of not less than One Million Dollars ($1,000,000) per accident. Such insurance shall be endorsed to include a waiver of subrogation rights against the Agency. C. Hazard Insurance. Prior to commencement of any construction work on the Project, Developer shall furnish to the Agency evidence reasonably satisfactory to the Agency property damage insurance which shall be maintained in force throughout the course of development of the Project on the Property. Such coverage shall include limits sufficient to cover 100% of the replacement cost of improvements and betterments and shall include the Agency as a loss payee under a mortgagee endorsement subject to the rights of any Mortgagees prior in right to the Agency. Furthermore, such coverage shall provide that the policy cannot be cancelled without a minimum of thirty (30) days prior written notice by certified mail, return receipt requested to the Agency. Such policy shall be written by a California licensed SJCOPA.KB 091995 26 insurer with a Best rating of not less than B+, Class X. The foregoing obligations shall remain in effect until the Agency Loan is paid in full. Developer shall have the right at all times to obtain insurance, as a Project Cost or Operating Expense, which is more extensive than set forth above, including obtaining earthquake insurance for the Project in the sole discretion of Developer. d. Additional Remedies. In addition to any other remedies Agency may have if Developer fails to provide or maintain any insurance policies or policy endorsements to the extent and within the time herein required, Agency may, at its sole option: (1) Obtain such insurance and deduct and retain the amount of the premiums for such insurance from the Agency Loan. (2) Withhold any disbursement of the Agency Loan until Developer demonstrates compliance with the requirements hereof. (3) In the event Developer has failed to commence curing such default within ten (10) days of notice from the Agency or thereafter fails to diligently pursue such cure, declare the Developer to be in default, terminate this Agreement and declare the Agency Note due and payable. Exercise of any of the above remedies, however, is an alternative to other remedies Agency may have and is not the exclusive remedy for Developer's failure to maintain insurance or secure appropriate endorsements. Nothing herein contained shall be construed as limiting in any way the extent to which Developer may be held responsible for payments of damages to persons or property resulting from Developer's performance of the work covered under this Agreement. 6.2 Indemnification for Construction Activities. Developer agrees to and shall indemnify, defend, and hold harmless the Agency from and against all liability, loss, damage, costs, and expenses (including reasonable attorney's fees and litigation and defense costs) arising from or as a result of the death or injury of any person or any accident, injury, loss, or damage (whether or not covered by insurance) caused to any person or to the property of any person which is caused or alleged to have been caused by the (1) actions or operations of or any errors or omissions of Developer or any of its agents, servants, employees, or contractors in developing the Project, whether or not such liability, loss, damage, costs, or expenses are covered by insurance or (2) approval and implementation of this Agreement provided however that such indemnification shall not extend to the negligence or malfeasance of the Agency or its representatives. SJCOPA.KB 091995 27 ARTICLE 7. INSPECTION For the purpose of assuring compliance with this Agreement, representatives of the Agency shall have the reasonable right of access to the Project and the books and records of Developer pertaining to the Project, upon at least twenty-four (24) hours prior notice to Developer, during normal business hours during the term of this Agreement, including but not limited to the inspection of the work being performed by Developer in constructing the Project and the books and records for determining the Project Cost and the Net Cash Flow. Such representatives of the Agency shall be those who are so identified in writing to Developer by the Agency. The Agency shall indemnify, defend, and hold harmless Developer and Developer's partners, officers, employees, and agents from any damage caused or liability arising out of the negligence or willful acts or omissions of the Agency; its officers, officials, employees, volunteers, agents, or representatives in their exercise of this right of access and inspection; provided that it is understood that the Agency does not by this Article assume any responsibility or liability for a negligent inspection or failure to inspect. ARTICLE 8. FORCED DELAY; EXTENSION OF TIME In addition to specific provisions of this Agreement, performance by Developer hereunder shall not be deemed to be in default and Developer shall be entitled to an extension of time to perform its obligations hereunder where delays in performance are due to causes beyond the control and without the fault of Developer, including as applicable: war; insurrection; strikes; lockouts; riots; floods; earthquakes; fires; casualties; supernatural causes; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; lack of transportation; governmental restrictions or priority; litigation; unusually severe weather; inability to secure necessary labor, materials or tools; delays of any contractor, subcontractor or supplies; acts or omissions of the other party or any third party; acts or the failure to act of the Agency or any other public or governmental agency or entity (except that any act or failure to act by the Agency shall not excuse performance by the Agency). ARTICLE 9. REPRESENTATIONS AND WARRANTIES Developer and each person executing this Agreement on behalf of Developer represents and warrants that: (i) Developer is a limited partnership organized and existing under the laws of the State of California, in good standing, and authorized to do business and doing. business in the State of California; (ii) Developer has all requisite power and authority to carry out its business as now and whenever conducted and to enter into and perform its obligations under this Agreement; (iii) by proper action of Developer, Developer's signatories have been duly authorized to execute and deliver this Agreement; (iv) the execution of this Agreement by Developer does not violate any provision of any other agreement to which Developer is a party; and (v) except as may be specifically set forth in this Agreement, no approvals or consents not heretofore obtained by Developer are necessary in connection with the SJCOPA.KB 091995 28 execution of this Agreement by Developer or with the performance by Developer of its obligations hereunder. ARTICLE 10. MORTGAGEE PROTECTION 10.1 Developer's Right to Encumber the Prolect. Subject to the limitations in Article 3, the parties hereto agree that this Agreement shall not prevent or limit Developer in any manner, at Developer's sole discretion, from encumbering the Project or any part thereof by any Lien securing financing with respect to the Property. The Agency acknowledges that the Mortgagees providing such financing may require certain interpretations and modifications of this Agreement, and the Agency agrees upon written request, from time to time, to meet with Developer and representatives of such Mortgagees to negotiate in good faith any such request for interpretation or modification. The Agency will not unreasonably withhold its consent to any such requested interpretation or modification provided such interpretation or modification is consistent with the intent and purposes of this Agreement. Any Mortgagee of the Property now and hereafter shall be entitled to the following rights and privileges: a. Preservation of Liens. Neither entering into this Agreement nor a violation or breach of this Agreement shall defeat, render invalid, diminish or impair any Lien thereof made in good faith and for value. b. No Assumption of Obligations by Mortgagee. Any Mortgagee who comes into possession of the Project, or any part thereof, pursuant to foreclosure of Lien, or deed in lieu of such foreclosure, shall take the Project, or part thereof, subject to the terms of this Agreement; provided, however, in no event shall such Mortgagee be liable for any defaults or monetary obligations of Developer arising prior to acquisition of title to the Project by such Mortgagee and provided further in no event shall any such Mortgagee or its successors or assigns be entitled to a building permit or occupancy certificate until any default under this Agreement has been cured. 10.2 Notice of Default. Before the Agency may resort to any remedy provided for in Article 14 hereof, the Agency must give (i) written notice of the default or breach (the "Initial Default Notice") and (ii) written notice of the failure of the Developer to cure the default or breach (the "Second Default Notice") to each Mortgagee concurrent with transmittal of such notices to Developer and afford each Mortgagee the opportunity after service of such Second Default Notice to: a. Monetary Default. Cure the breach or default within thirty (30) days after service on each Mortgagee of the Second Default Notice where the default can be cured by the payment of money to the Agency or some other person; b. Non Monetary Default. Commence to cure the breach or default within sixty (60) days after service on each Mortgagee of the Second Default Notice where the breach or default must be cured by something other than the payment of SJCOPA.KB 091995 W money and can be cured within that time; or C. Extended Richt to Cure Non Monetary Default. Cure the breach or default in such reasonable time as may be required where something other than the payment of money is required to cure the breach or default and cannot be reasonably performed within sixty (60) days after service on each Mortgagee of the Second Default Notice provided that acts to cure the breach or default are commenced within that time period after service of the Second Default Notice on each Mortgagee by the Agency and are thereafter diligently continued by such Mortgagee. 10.3 Foreclosure in Lieu of Curing Default. Notwithstanding any other provision of this Agreement, a Mortgagee may forestall any remedy of the Agency for a default under or breach of this Agreement by Developer by commencing proceedings to foreclose any Lien. The proceedings so commenced may be for foreclosure of any such Lien by order of court or for foreclosure of any such Lien under a power of sale contained in the Lien. The proceedings shall not, however, forestall the Agency's right to execute any remedy or right under this Agreement for the default or breach by Developer unless: (i) they are commenced within sixty (60) days after service on each Mortgagee of the Second Default Notice; and (ii) they are, after having been commenced, diligently pursued in the manner provided by law. 10.4 Assignment Without Consent on Foreclosure. The consent of the Agency shall not be required for transfer of Developer's right, title and interest in the Project or this Agreement to: a. any purchaser, which includes a Mortgagee, at a foreclosure sale of the Lien, whether the foreclosure is conducted pursuant to court order or pursuant to a power of sale in the instrument creating the Lien; or b. A purchaser from a Mortgagee after foreclosure where a Mortgagee was the purchaser of Developer's interest at the foreclosure sale of the Lien, or acquired Developer's interest by transfer in lieu of foreclosure. 10.5 Mortgagee as Including Subsequent _Security Holders. The term "Mortgagee" as used in this Article shall mean not only the person, persons or entity that loaned money to Developer and is named as beneficiary, mortgagee, secured party or security holder in the instrument creating any Lien, but also all subsequent assignees and holders of the instrument and interest secured by such instrument who give written notice to the Agency setting forth the name and address of the transferee. 10.6 Estoppel Certificates. The Agency shall provide to any Mortgagee, on request, an estoppel certificate certifying to such matters as to the continuation of this Agreement as being in full force and effect, the satisfaction of the terms and conditions of this Agreement and the existence of any defaults hereunder, if any. SJCOPA.KB 091995 30 10.7 Amendments. The Agency shall cooperate in including in this Agreement by suitable amendment from time to time any provision which may reasonably be requested by any proposed or existing Mortgagee for the purpose of implementing the mortgagee -protection provisions contained in this Article and allowing such Mortgagee reasonable means to protect or preserve any Lien on the occurrence of a default under the terms of this Agreement. The Agency agrees to execute and deliver (and to acknowledge, if necessary, for recording purposes) any agreement necessary to effect any such amendment consistent with the terms and conditions of this Agreement and the parties' interest in entering into this Agreement. Any modification or amendment of this Agreement shall require the prior written consent of each Mortgagee. 10.8 Special Provisions for Permanent Loan Affecting the Restrictive Covenants and this Agreement and for Subordination of Agency Loan to Permanent Loan. The Agency agrees that, in addition to all the Mortgagee protection provisions hereinabove, the following additional provisions shall be applicable to any Permanent Loan or refinancing thereof which is funded to Developer on or after completion of construction of the Project and issuance of the Certificate of Completion by the Agency, and which provisions shall apply in favor of the Lender, Mortgagee or other holder of the Permanent Loan or refinancing thereof, and their successors and assigns in interest (the "Permanent Lender"), including without limitation the Federal National Mortgage Association ("Fannie Mae"): a. Indemnification. Neither the Permanent Lender nor any successor in interest to the Permanent Lender will assume or take subject to any liability for the indemnification obligations of the Developer under the Restrictive Covenants or this Agreement for acts or omissions of the Developer prior to any transfer of title to the Project to the Permanent Lender, whether by foreclosure, deed in lieu of foreclosure or conversion of the Permanent Loan, and further the Developer must remain liable under the indemnification provisions of the Restrictive Covenants and this Agreement for its actions and omissions prior to any transfer of title to the Permanent Lender. The Permanent Lender will agree to indemnify the Agency but only for acts and omissions of the Permanent Lender which occur following acquisition of the Project by the Permanent Lender and occurring during the period of the Permanent Lender's ownership and operation of the Project, whether such acquisition is by foreclosure, deed in lieu of foreclosure or comparable conversion of the Permanent Loan. b. Sale or Transfer. No restrictions on sale or transfer of the Project shall apply to any transfer of title to the Project to the Permanent Lender by foreclosure, deed in lieu of foreclosure or comparable conversion of the Permanent Loan. No transfer of the Project may operate to release the Developer from its obligations under the Restrictive Covenants or this Agreement arising prior to such transfer. Nothing contained in the Restrictive Covenants or this Agreement may affect any provision of the Permanent Loan or any Permanent Loan document which requires the Developer to obtain the consent of the holder of the Permanent Loan as a precondition to sale, transfer or other disposition of the Project. SJCOPA.KB 091995 31 C. Termination. The Permanent Lender shall have the right to terminate the Restrictive Covenants and this Agreement (if applicable) in the event of an involuntary noncompliance with the provisions of the Restrictive Covenants or this Agreement caused by foreclosure of the lien of the Permanent Loan, delivery of a deed in lieu of foreclosure or comparable conversion of the Permanent Loan, fire, seizure, requisition, change in a federal law, or an action of a federal agency which prevents the Agency from enforcing the provisions of the Restrictive Covenants or this Agreement, or condemnation or a similar event, but only if (i) within a reasonable period thereafter the bonds ("Bonds") issued in connection with the Permanent Loan, in an aggregate principal amount equal to the Permanent Loan are paid in full and retired, and further that -the Restrictive Covenants and this Agreement (if applicable) shall be reinstated if, at any time subsequent to the termination of the Restrictive Covenants and this Agreement as the result of the foreclosure of the lien of the Permanent Loan, the delivery of a deed in lieu of foreclosure or comparable conversion of the Permanent Loan, the Developer or any related person (within the meaning of Section 1.103-10(e) of the Treasury Regulations) obtains an interest in the Project which constitutes an ownership interest for federal income tax purposes, or (ii) an opinion of bond counsel is delivered to the issuer of the Bonds to the effect that such termination will not adversely affect the exclusion from gross income for federal income tax purposes of the interest payable on the Bonds. d. Enforcement. Upon any default by the Developer under the Restrictive Covenants or this Agreement, the Agency may seek specific performance of the Restrictive Covenants or this Agreement or enjoin acts which may be unlawful or in violation of the Restrictive Covenants or this Agreement, but the Agency may not seek to recover damages from the Developer apart from any claim of indemnification thereunder. The obligations of the Developer under the Restrictive Covenants or this Agreement for the payment of its indemnification obligations may not be secured by or in any manner constitute a lien on the Project, and no person may have the right to enforce such indemnification obligations other than directly against the Developer. No subsequent owner of the Project may be liable or obligated for the breach or default of any obligation of any prior owner under the Restrictive Covenants or this Agreement, including, but not limited to, any payment or indemnification obligation. In addition, promptly upon determining that a violation of the Restrictive Covenants or this Agreement has occurred, the Agency must, by notice in writing to the Permanent Lender inform the Permanent Lender that such violation has occurred, the nature of the violation and that the violation has been cured or has not been cured, but is curable within a reasonable period of time, or is incurable. e. Subordination of Agency Loan. Upon request, the Agency shall execute and deliver to the Permanent Lender for recordation, a subordination agreement in the form of the Fannie Mae Subordination Agreement attached as Exhibit SJCOPA. KB 091995 32 J hereto or as may otherwise be required by Fannie Mae, for the subordination of the Agency Loan to the Permanent Loan. ARTICLE 11. CERTIFICATE OF COMPLETION 11.1 Certificate of Completion. Upon the satisfactory completion of construction of the Project, the Agency shall furnish Developer with a final Certificate of Completion for such work in such form as Exhibit K hereto or as may reasonably be accepted to Developer upon written request therefor by Developer. Construction of the Project shall be deemed to have been completed when it has been constructed in accordance with the Final Plans, as the Final Plans may be amended by agreement between Developer and the Agency. Such Certificate of Completion shall be in a form so as to permit recordation in the Office of the Recorder of the County where the Property is located. The Certificate of Completion shall be, and shall so state, a conclusive determination of satisfactory completion of Developer's development obligations under this Agreement, and of full compliance with the terms of this Agreement relating to construction of the Project on the Property. Except for the obligation to develop the Property, the issuance and recordation of the Certificate of Completion shall not limit the continued enforceability of Developer's obligations relating to the maintenance, operation and use of the Property or any other obligations in compliance with the terms of this Agreement and the Restrictive Covenants. The Agency shall not unreasonably withhold issuance of the Certificate of Completion. If the Agency refuses or fails to furnish the Certificate of Completion after written request from Developer, the Agency shall, within ten (10) days after such written request, provide Developer with a written statement of the reasons the Agency refused or failed to furnish the Certificate of Completion. The statement shall also contain the Agency's opinion of the action Developer must take to obtain the Certificate of Completion. If the reason for such refusal is confined to the immediate availability of specific items or materials for landscaping, the Agency shall issue its Certificate of Completion upon the Developer posting a cash deposit with the Agency in one hundred percent (100%) of an amount representing the fair cost of the work not yet completed. The Certificate of Completion shall not constitute evidence of compliance with or satisfaction of any obligation of Developer to any holder of a mortgage or any insurer of a mortgage on or with respect to the Property. The Certificate of Completion is not a notice of completion as referred to in California Civil Code Section 3093. ARTICLE 12. DISCRIMINATION There shall be no discrimination against, or segregation of, any persons, or group of persons, on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the enjoyment of the Property, nor shall Developer itself, SJCOPA.KB 091995 33 or any person claiming under or through it, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy of tenants, lessees, subtenants, sublessees, or vendees of the Property or any portion thereof. The foregoing covenants shall run with the land and shall be included in the Restrictive Covenants, as set forth in Exhibit F hereto. ARTICLE 13. [PURPOSELY LEFT BLANK] ARTICLE 14. DEFAULTS, REMEDIES, AND TERMINATION 14.1 Defaults -General. Subject to the extensions of time set forth in Article 8 hereof, failure or delay by any Developer to perform any term or provision of this Agreement constitutes a default under this Agreement; provided, however, Developer shall not be deemed to be in default if (i) Developer cures, correct or remedies such default within thirty (30) days after receipt of a notice of default, from the party specifying the default, where the default can be cured by the payment of money to the Agency or some other person, or (ii) Developer cures, corrects, or remedies such default within sixty (60) days after receipt of a notice from the party specifying such failure or delay, where the default must be cured by something other than the payment of money and can be cured within that time, or (iii) for defaults where something other than the payment of money is required to cure the default and the default cannot reasonably be cured, corrected, or remedied within such sixty (60) day period, if Developer commences to cure, correct, or remedy such failure or delay within such sixty (60) day period after receipt of a notice from the Party giving notice of said default specifying such failure or delay, and diligently prosecutes such cure, correction or remedy to completion. The Agency claiming a default (the "Notifying Party") shall give written notice of default to Developer, specifying the default complained of by the Notifying Party. Copies of any notice of default given to Developer shall also be given to each Mortgagee. Except as required to protect against further damages, the Notifying Party may not institute proceedings against Developer in default until the time for cure, correction, or remedy of a default has expired. Upon the expiration of time to cure the default of Developer, the Notifying Party shall give written notice to Developer and each Mortgagee of Developer's failure to cure the default or breach ("Second Default Notice"). Except as otherwise expressly provided in this Agreement, any failure or delay by a Party in giving a notice of default or in asserting any of its rights and remedies as to any default shall not constitute a waiver of any future default. 14.2 Termination by Agency. Subject to the provisions of Articles 8 and 10 hereof, and provided that the Agency is not in default under this Agreement, the Agency shall have the right to terminate this Agreement upon written notice to SJCOPA.KB 091995 34 Developer if: (i) Developer shall have failed to obtain any of the Project Approvals required for construction of the Project as required by this Agreement within the applicable time set forth in the Schedule of Performance, or (ii) Developer shall have failed to commence construction of the Project pursuant to a valid building permit or permits and has not diligently completed such construction as required under this Agreement within the applicable time set forth in the Schedule of Performance, or (iii) if Developer shall after the expiration of any applicable grace period herein provided for be in default under the terms of this Agreement. If such termination occurs after the Agency has made the Agency Loan, the Agency shall be entitled to an immediate reimbursement of such funds, together with any interest accrued thereon. 14.3 Legal Actions. a. Institution of Legal Actions. In addition to any other rights or remedies, any party may institute legal action to cure, correct, or remedy any default, to recover damages for any default, or to obtain any other remedy consistent with the purposes of this Agreement. Such legal actions must be instituted and maintained in the Superior Court of the County of Orange, State of California, or in any other appropriate court in that county. b. Applicable Law. The laws of the State of California shall govern the interpretation and enforcement of this Agreement. 14.4 Rights and Remedies are Cumulative. Except as otherwise expressly stated in this Agreement, the rights and remedies of the parties are cumulative, and the exercise by either party of one or more of its rights or remedies shall not preclude the exercise by it, at the same or different times, of any other rights or remedies for the same default or any other default by the other Party. 14.5 Attorney's l=ees. If any Party to this Agreement is required to initiate or defend litigation in any way connected with this Agreement, the prevailing Party in such litigation, in addition to any other relief which may be granted, whether legal or equitable, shall be entitled to reasonable attorney's fees. If any Party to this Agreement is required to initiate or defend litigation with a third party because of the violation of any term or provision of this Agreement by the other party, then the Party so litigating shall be entitled to reasonable attorney's fees from the other Parties to this Agreement. Attorney's fees shall include attorney's fees on any appeal, and in addition a Party entitled to attorney's fees shall be entitled to all other reasonable costs for investigating such action, retaining expert witnesses, taking depositions and discovery, and all other necessary costs incurred with respect to such litigation. All such fees shall be deemed to have accrued on commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment. SJCOPA. KB 091995 35 ARTICLE 15. INDEMNIFICATION Developer agrees to indemnify, defend, and hold harmless the Agency and its respective officers, employees, and agents (collectively, the "Indemnitee") from and against any and all claims, causes of action, liabilities, and damages arising out of any acts or omissions of Developer or Developer's partners, officers, employees, and agents, and arising out of Developer's performance under this Agreement or with respect to the Property, provided this indemnity shall not extend to any negligence or willful acts or omissions on the part of any Indemnitee. The Indemnitee shall promptly notify Developer of the filing of any such action and cooperate with Developer in the defense thereof (at no cost to Indemnitee). So long as Developer is not in default under this Paragraph, the Indemnitee shall not compromise the defense of such action or permit a default judgment to be taken against the Indemnitee without the prior written approval of Developer, or its successors in interest. ARTICLE 16. EFFECT OF COVENANTS The Agency is deemed beneficiary of the terms and provisions of this Agreement and of the restrictions and covenants running with the land for and in its own rights and for the purposes of protecting the interests of the community and other parties, public or private, in whose favor and for whose benefit the covenants running with the land have been provided. The covenants in favor of the Agency shall run without regard to whether the Agency has been, remains, or is an owner of any land or interest therein in the Property. ARTICLE 17. TERM; RECORDATION; BINDING EFFECT 17.1 Term. The term of the Restrictive Covenants provided for by this Agreement shall be fifty seven (57) years from the issuance of the Certificate of Completion, unless extended or earlier terminated. 17.2 Recordation of Restrictive Covenants. Within the time provided in the Schedule of Performance, the Developer shall cause the Restrictive Covenants provided for by this Agreement to be recorded in the Official Records of the County where the Property is located. 17.3 Binding Effect. This Agreement, and the terms and conditions hereof, shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and assigns, as provided herein. ARTICLE 18. GENERAL PROVISIONS. 18.1 Notices and Demands Between the Parties. All notices and demands between the Agency and Developer shall be in writing and shall be given either by (i) SJCOPA.KB 091995 36 personal service, (ii) delivery by reputable document delivery service such as Federal Express that provides a receipt showing date and time of delivery, or (iii) mailing in the United States mail, certified mail, postage prepaid, return receipt requested, addressed to: To Agency: San Juan Capistrano Redevelopment Agency 32400 Paseo Adelanto San Juan Capistrano, California 92675 Attn: Executive Director with a copy to: Stradling, Yocca, Carlson & Rauth 600 Newport Center Drive, Suite 1600 Newport Beach, California 92660 Attn: Thomas P. Clark, Jr. To Developer: San Juan Capistrano Housing Investors, L.P. c/o- Kaufman and Broad Multi -Housing Group, Inc. 10990 Wilshire Boulevard 7th Floor Los Angeles, California 90024 Attn: Michael Costa with a copy to: John Bertero Kaufman and Broad 5000 Hopyard, Suite 190 Pleasanton, California 94588 Notices personally delivered or delivered by document delivery service shall be deemed effective upon receipt. Notices mailed shall be deemed effective on the fifth business day following deposit in the United States mail. Such written notices and demands shall be sent in the same manner to such other addresses as either party may from time to time designate by mail. 18.2 Nonliability of Aqencv Officials and Employees; Conflicts of Interest. No member, official, employee, or contractor of the Agency shall be personally liable to Developer in the event of any default or breach by the Agency or for any amount which may become due to Developer or on any obligations under the terms of this Agreement. No member, official, employee, or agent of the Agency shall have any direct or indirect interest in this Agreement nor participate in any decision relating to this Agreement which is prohibited by law. 18.3 No Agency or Partnership. The parties acknowledge that, in entering into and performing this Agreement, each is acting as an independent entity and not as an agent of the other in any respect. Nothing contained in this Agreement or in any SJCOPA.KB 091995 37 document executed in connection herewith shall be construed as making the City or the Agency joint venturers or partners with the Developer. 18.4 Inter retation. The terms of this Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against either party by reason of the authorship of this Agreement or any other rule of construction which might otherwise apply. 18.5 Captions Recitals and Exhibits. The Article, Section and paragraph captions and headings are for purposes of convenience only, and shall not be construed to limit or extend the meaning of this Agreement, the text of which shall control. The Recitals of and the Exhibits to this Agreement are hereby incorporated into this Agreement. 18.6 Entire Agreement, Waivers and Amendments. This Agreement integrates all of the terms and conditions mentioned herein, or incidental hereto, and supersedes all negotiations and previous agreements between the parties with respect to all or any part of the subject matter hereof. All references herein to this Agreement shall mean and include the Exhibits hereto unless the context otherwise requires. All waivers of the provisions of this Agreement must be in writing and signed by the appropriate authorities of the party to be charged, and all amendments and modifications hereto must be in writing and signed by the appropriate authorities of the Agency and Developer. 18.7 Severability. If any term, provision, covenant, or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of this Agreement shall not be affected thereby to the extent such remaining provisions are not rendered impractical to perform taking into consideration the purposes of this Agreement. In the event that all or any portion of this Agreement is found to be unenforceable, this Agreement or that portion which is found to be unenforceable shall be deemed to be a statement of intention by the parties; and the parties further agree that in such..event, and to the maximum extent permitted by law, they shall take all steps necessary to comply with such procedures or requirements as may be necessary in order to make valid this Agreement or that portion which is found to be unenforceable. 18.8 Authority of Signators to Bind Principals. The persons executing this Agreement on behalf of their respective principals represent that they have been authorized to do so and that they thereby bind the principals to the terms and conditions of this Agreement. 18.9 Assignment and Transfer. a. Prohibition. The identity and qualifications of the Developer are of particular concern to the Agency. It is because of this identity and these SJCOPA.KB 091995 38 qualifications that the Agency has entered into this Agreement with the Developer. Except as provided in Articles 3 and 10 of this Agreement, during the term of this Agreement, no voluntary or involuntary successor in interest of the Developer shall acquire any rights or powers under this Agreement by assignment or otherwise, nor shall Developer make any total or partial sale, transfer, conveyance, encumbrance to secure financing, assignment or lease of the whole or any part of the Property without the prior written approval of the Agency, except as expressly set forth herein. Any purported transfer, voluntary or by operation of law, in violation of this Paragraph 18.9 shall constitute a default hereunder and shall be void. b. Permitted Transfers. Notwithstanding any other provision of this Agreement to the contrary, Agency approval of an assignment of this Agreement or conveyance of the Property or any part thereof, shall not be required in connection with any of the following: (i) The conveyance or dedication of any portion of the Property to the City, the Agency or other appropriate governmental agencies, or the granting of easements or permits to public utilities to facilitate the construction of the Project on the Property, or (ii) Subject to the restrictions set forth in the Restrictive Covenants (Exhibit F), the rental of units in the Project, including the rental of the Restricted Units to Qualified Lower Income and Very Low Income Households, and the rental of units to Senior Citizens as provided in the Restrictive Covenants, or (iii) The encumbering of the Project by Liens and Mortgages as provided in this Agreement, or (iv) The transfers described in Article 10 of this Agreement for Mortgagee protection, or (v) The replacement of personal property or fixtures. C. Agency Consideration of Requested Transfer. The Agency agrees that it will not unreasonably withhold approval of a request made pursuant to this Paragraph 18.9, provided the Developer delivers written notice to the Agency requesting such approval. Such notice shall be accompanied by evidence regarding the proposed assignee's or purchaser's development, operation and management qualifications and experience and its financial commitments and resources sufficient to enable the Agency to evaluate the proposed assignee or purchaser pursuant to the criteria set forth in this Paragraph 18.9 and other criteria as reasonably determined by the Agency. Within thirty (30) days after the receipt of the Developer's written notice requesting Agency approval of an assignment or transfer pursuant to this Paragraph SJCOPA.KB 091995 39 18.9, the Agency shall respond in writing by stating what further information, if any, the Agency requires in order to determine the request complete and determine whether or not to grant the requested approval. Upon receipt of such a response, the Developer shall promptly furnish to the Agency such further information as may be requested. An assignment approved by the Agency pursuant to this subdivision (c) shall not be effective unless and until the proposed assignee executes and delivers to the Agency an agreement in form reasonably satisfactory to Agency's legal counsel assuming the obligations of Developer which have been assigned. Thereafter, the assigner shall remain responsible to the Agency for performance of the obligations assumed by the assignee unless the Agency releases the assigner in writing. d. Successors and Assigns. All of the terms, covenants and conditions of this Agreement shall be binding upon the Developer and the permitted successors and assigns of the Developer. Whenever the term "Developer" is used in this Agreement, such term shall include any other permitted successors and assigns as herein provided. e. Changes in Partners. Notwithstanding anything contained to the contrary in this Agreement, Developer shall have the right to: (i) Admit additional limited or general partners, (ii) Permit the initial limited partner to withdraw from the Developer, and (iii) Replace the general partner of Developer for cause with another general partner who, or the principals of which, have substantial experience in owning or operating apartment projects similar to the Project. 18.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and such counterparts shall constitute one and the same instrument. 18.11 Developer's Affiliates. Nothing in this Agreement shall prevent Developer from having the right to obtain goods or services for acquisition and transfer of the Property and for development, operation, and transfer of the Project thereon from K&B, any subsidiary of Kaufman and Broad Home Corporation, or any affiliates of any of them, so long as such goods or services are provided at rates which do not exceed the amounts collectively provided therefor in the Project Budget or as authorized as an Operating Expense, and to the extent that such goods or services are not identified in the Project Budget, Project Costs or in Operating Expenses, such fees shall be at competitive rates based at least 3 bids, provided that SJCOPA.KB 091995 40 one such bid may be from an affiliate of K&B. 18.12 This Agreement shall be null and void if Developer has not acquired title to the Property on or before December 31, 1995. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date specified herein. Date: October 17, 1995 AGENCY: SAN JUAN CAPISTRANO REDEVELOPMENT AGENCY, a public bo corporate doli p rr' By: Name: David Swerdiin Title: Chairman APPROVED AS TO FORM: By: Juan Capistrano Agency DEVELOPER: SAN JUAN CAPISTRANO HOUSING INVESTORS, L.P., a California limited partnership By: LINC Housing Corporation, a California nonprofit corporation, General a er Date: p ? By: Name• f2,J. 16("f' t, Title: �� ip C--� �-- SJCOPA.KB 091995 41