LOAN AGREEMENT Between LA MORAGA SAN JOSE L.P… · LOAN AGREEMENT Between LA MORAGA SAN JOSE L.P., a California limited partnership, as Borrower, CITY OF SAN JOSE, ... 7.17 Lead

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LOAN AGREEMENT

Between

LA MORAGA SAN JOSE L.P.,a California limited partnership,

as Borrower,

CITY OF SAN JOSE,as Lender

U.S. BANK NATIONAL ASSOCIATION,a national banking association,as Bondowner Representative

U.S. BANK NATIONAL ASSOCIATION,a national banking association,

as Lead Arranger and Sole Book Runner

_____________________, 2012

DRAFT--Contact the Office of the City Clerk at (408) 535-1260 or [email protected] for final document.

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TABLE OF CONTENTSPage

I. LOAN .............................................................................................................................................. 141.1 Principal......................................................................................................................................................141.2 Application of Payments. ............................................................................................................................141.3 [Intentionally Omitted.]..............................................................................................................................141.4 No Waiver by Bondowner Representative. .................................................................................................14

II. CONDITIONS OF BORROWING ............................................................................................... 142.1 Pre-Closing Requirements...........................................................................................................................152.2 Loan Documents. ........................................................................................................................................172.3 Recordation of Deed of Trust; Title Insurance. ............................................................................................182.4 Opinion of Borrower’s Attorneys. ...............................................................................................................182.5 Building Permits..........................................................................................................................................182.6 General Contract.........................................................................................................................................182.7 [Intentionally Omitted.]..............................................................................................................................192.8 [Intentionally Omitted.]..............................................................................................................................192.9 Conditions for Disbursement. .....................................................................................................................19

III. ADVANCES OF LOAN PROCEEDS .......................................................................................... 193.1 General. ......................................................................................................................................................193.2 Loan In Balance...........................................................................................................................................203.3 Inspections..................................................................................................................................................213.4 Responsibility of Lender and Bondowner Representative...........................................................................223.5 Advances During Property Operation..........................................................................................................223.6 Advance Procedures. ..................................................................................................................................223.7 Additional Conditions to Each Disbursement. .............................................................................................273.8 Disbursements for Developer Fees..............................................................................................................28

IV. REPRESENTATIONS AND WARRANTIES OF BORROWER.............................................. 284.1 Legal Status of Borrower.............................................................................................................................294.2 Title.............................................................................................................................................................294.3 No Breach of Applicable Agreements or Laws.............................................................................................294.4 No Litigation or Defaults. ............................................................................................................................294.5 Financial and Other Information. ................................................................................................................294.6 No Defaults under Loan Documents or Other Agreements. ........................................................................304.7 Boundary Lines; Conformance with Governmental Requirements and Restrictions....................................304.8 Loan in Balance...........................................................................................................................................304.9 Property Costs.............................................................................................................................................304.10 Utilities, Etc. ...........................................................................................................................................304.11 Personal Property...................................................................................................................................304.12 Condemnation........................................................................................................................................314.13 Governmental Regulations.....................................................................................................................314.14 Employee Benefit Plans..........................................................................................................................314.15 Brokers...................................................................................................................................................314.16 Defects and Hazards...............................................................................................................................314.17 Permits...................................................................................................................................................31


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V. COVENANTS OF BORROWER .................................................................................................. 325.1 Completing Construction. ...........................................................................................................................325.2 Changing Costs, Scope or Timing of Work. ..................................................................................................325.3 Balancing the Loan......................................................................................................................................335.4 Paying Costs of Property and Loan..............................................................................................................335.5 Using Loan Proceeds. ..................................................................................................................................345.6 Keeping of Records. ....................................................................................................................................345.7 Providing Financial Information. .................................................................................................................345.8 Providing Operating Budgets and Operating Statements. ...........................................................................345.9 Providing Leasing Information. ...................................................................................................................355.10 Providing Updated Surveys.....................................................................................................................355.11 Providing Evidence of Completion..........................................................................................................355.12 Maintaining Insurance Coverage. ...........................................................................................................355.13 Complying with Other Documents..........................................................................................................355.14 Lease Approval Rights. ...........................................................................................................................355.15 Compliance with Laws............................................................................................................................365.16 Ownership of Personal Property.............................................................................................................365.17 Representations and Warranties............................................................................................................365.18 Trade Names. .........................................................................................................................................375.19 No Distributions. ....................................................................................................................................375.20 Future Development. .............................................................................................................................375.21 Further Assurances.................................................................................................................................375.22 Notice of Litigation, Etc. .........................................................................................................................385.23 Signage...................................................................................................................................................385.24 Maintenance of Existence. .....................................................................................................................385.25 Permits, Approvals and Entitlements. ....................................................................................................385.26 Single Purpose Entity Provisions.............................................................................................................385.27 USA Patriot Act Compliance Covenant....................................................................................................395.28 Compliance Certificates..........................................................................................................................395.29 Tax Covenants. .......................................................................................................................................395.30 Payment of Rebate.................................................................................................................................415.31 Determination of Taxability....................................................................................................................44If the Bondowner Representative or the holder of the Bonds receives notice of a “Determination of Taxability” (as hereinafter defined), the rate of interest on the Note shall be automatically increased, effective as of the “Date of Taxability” (as hereinafter defined), as described in the Note, in which event the Loan Repayments required hereunder by Borrower shall be adjusted in accordance with the increased payments required pursuant to the Note. In such case, Borrower agrees also to pay to the holder of the Bonds forthwith an amount equal to the aggregate difference between (i) the amounts actually paid between the Date of Taxability and the date of receipt of notice of the Determination of Taxability and (ii) the payments due during such period based upon the increased rate, together with the amount of interest and penalties, if any, incurred by the holder of the Bonds as a result of such change in taxable status. For the purpose of this section, a “Determination of Taxability” shall mean the issuance of a statutory notice of deficiency by the Internal Revenue Service, or a ruling of the National Office or any District Office of the Internal Revenue Service, or a final decision of a court of competent jurisdiction which holds that the interest payable on the Note is includable in the gross income of the holder of the Bonds for federal income tax purposes if the period, if any, for contest or appeal of such action, ruling or decision by Borrower or holder of the Bonds has expired without any such contest or appeal having been properly instituted by the holder of the Bonds or the Borrower. The expenses of any such contest shall be paid by the party initiating the contest and neither Borrower nor the holder of the Bonds shall be required to contest or appeal any Determination of Taxability. The “Date of Taxability” shall mean that point in time, as specified in the determination, ruling or decision, that the interest payable on the Note becomes includable in the gross income of the holder of the Bonds for federal income tax purposes.....................................................445.32 Transfers. ...............................................................................................................................................44


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VI. DEFAULTS .................................................................................................................................. 446.1 Events of Default.........................................................................................................................................446.2 Rights and Remedies...................................................................................................................................486.3 Completion of Improvements by Lender.....................................................................................................48

VII. MISCELLANEOUS..................................................................................................................... 497.1 Binding Effect; Waivers; Cumulative Rights and Remedies..........................................................................497.2 Survival. ......................................................................................................................................................497.3 Governing Law; Waiver of Jury Trial............................................................................................................497.4 Counterparts...............................................................................................................................................507.5 Notices........................................................................................................................................................507.6 Bondowner Representative’s Sign...............................................................................................................517.7 No Third Party Reliance...............................................................................................................................527.8 Time of the Essence. ...................................................................................................................................527.9 Entire Agreement; No Oral Modifications. ..................................................................................................527.10 Captions .................................................................................................................................................527.11 Joint and Several Liability. ......................................................................................................................527.12 Borrower’s Relationship with Lender, Bondowner Representative and Bondowners.............................527.13 Borrower 2822 Waiver. ..........................................................................................................................537.14 USA Patriot Act Notice............................................................................................................................537.15 Subordination to Extended Use Agreement............................................................................................537.16 Termination............................................................................................................................................53Upon Conversion, certain terms and provisions contained herein shall be terminated and/or superseded by provisions contained in the ///[Permanent Loan Bond Purchase Agreement]///. After Conversion, in the event of any inconsistency between the terms and provisions contained herein and the terms and provisions of the ///[Permanent Loan Bond Purchase Agreement]///, the terms and provisions of the ///[Permanent Loan Bond Purchase Agreement]/// shall control..................................................................................................................537.17 Lead Arranger and Sole Book Runner. ....................................................................................................54U.S. Bank National Association, in its capacity as lead arranger and sole book runner, shall have no rights or obligations under this Agreement in addition to those rights and obligations granted to, or imposed upon, U.S. Bank National Association in its capacity as Bondowner Representative. ............................................................54


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LIST OF EXHIBITS

EXHIBIT A - Description of Improvements

EXHIBIT B - Legal Description of the LandEXHIBIT C - Permitted Encumbrances

EXHIBIT D - Loan BudgetEXHIBIT E - Title Insurance Requirements

EXHIBIT F - REBD Standard Insurance RequirementsEXHIBIT G - Target Dates

EXHIBIT H - Form of Compliance CertificateEXHIBIT I - Form of Disbursement Request

EXHIBIT J - Net Operating Income Sweep ScheduleEXHIBIT K - Early Release Trades

EXHIBIT L - Form of Project Architect’s Certificate


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LOAN AGREEMENT

THIS LOAN AGREEMENT is made and entered into this __ day of August, 2012, by and between (i) LA MORAGA SAN JOSE L.P., a California limited partnership (“Borrower”), as borrower, (ii) CITY OF SAN JOSE (“Lender”), as lender, (iii) U.S. BANK NATIONAL ASSOCIATION, a national banking association, as agent for the Bondowners (“Bondowner Representative”), and (iv) U.S. BANK NATIONAL ASSOCIATION, a national banking association, as lead arranger and sole book runner.

RECITALS

WHEREAS, Lender has determined to engage in a program of financing the acquisition, construction, rehabilitation and development of multifamily rental housing pursuant to Chapter 7 of Part 5 of Division 31 of the Health and Safety Code of the State of California (the “Act”), and has determined to borrower money for such purpose by the issuance of revenue bonds as authorized by the Act; and

WHEREAS, Lender has determined to issue its City of San Jose Multifamily Housing Revenue Bonds (La Moraga Apartments), Series 2012E in the aggregate principal amount of $52,440,000 (the “Bonds”) pursuant to the Indenture (hereinafter defined) for the purpose of providing funding necessary for the acquisition, construction and equipping by the Borrower of the Project; and

WHEREAS, pursuant to this Loan Agreement, Bondowner Representative has agreed to purchase the Bonds from Lender and Lender has agreed to use the proceeds of the Bonds to make the Loan (hereinafter defined) to Borrower in accordance with the terms and conditions contained herein; and

WHEREAS, Massachusetts Mutual life Insurance Company, a Massachusetts corporation (“MassMutual”), has agreed to purchase the Bonds from Bondowner Representative on the Conversion Date, pursuant to the terms and conditions set forth in the Bond Purchase Agreement (hereinafter defined), and upon such purchase of the Bonds, MassMutual shall become the Bondowner Representative hereunder;

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:

DEFINITIONS

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

Advance: Any portion of the Loan advanced to or for the benefit of Borrower in accordance with the terms hereof.

Advance Date: As defined in Section 3.6(d).


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Affiliate: means, as to any Person, (a) any corporation in which such Person or any partner, shareholder, director, officer, member, or manager of such Person, at any level, directly or indirectly owns or controls more than ten percent (10%) of the beneficial interest, (b) any partnership, joint venture or limited liability company in which such Person or any partner, shareholder, director, officer, member, or manager of such Person, at any level, is a partner, joint venturer or member, (c) any trust in which such Person or any partner, shareholder, director, officer, member or manager of such Person, at any level, or any individual related by birth, adoption or marriage to such Person, is a trustee or beneficiary, (d) any entity of any type which is directly or indirectly owned or controlled by (or is under common control with) such Person or any partner, shareholder, director, officer, member or manager of such Person, at any level, (e) any partner, shareholder, director, officer, member, manager or employee of such Person, or (f) any individual related by birth, adoption or marriage to any partner, shareholder, director, officer, member, manager, or employee of such Person. Controls (which includes the correlative meanings of “controlled by” and “under common control with”) means effective power, directly or indirectly, to direct or cause the direction of the management and policies of such Person.

Agreement: This Loan Agreement, including any amendments hereof and supplements hereto executed by Lender, Borrower and Bondowner Representative.

Assignment of Architectural Agreements: That certain Assignment of Architectural Agreements and Plans and Specifications, and the Architect’s Consent attached thereto, of even date herewith executed by Borrower, and the architect indicated therein, in favor of Lender.

Assignment of Construction Agreements: That certain Assignment of Construction Agreements, and the Contractor’s Consent attached thereto, of even date herewith executed by Borrower and the General Contractor in favor of Lender.

Assignment of Engineering Agreements: That certain Assignment of Engineering Agreements and Plans and Specifications, and the Engineer’s Consent attached thereto, of even date herewith executed by Borrower and the engineer indicated therein, in favor of Lender.

Assignments: Collectively, the Assignment of Architectural Agreements, the Assignment of Engineering Agreements, and the Assignment of Construction Agreements.

Balance: Shall have the meaning given such term in Section 3.2.

Bond Documents: Shall have the meaning given that term in the Indenture.

Bond Trustee: Shall mean Wells Fargo Bank, National Association, a national banking association, as trustee under the Indenture.

Bond Purchase Agreement: That certain Bond Purchase Agreement dated as of the date hereof by and among U.S. Bank National Association and Mechanics Bank, collectively, as the initial “Bondowners”, U.S. Bank National Association, as agent for the “Bondowners”, Massachusetts Mutual Life Insurance Company, as Permanent Lender, and Borrower.


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Bondowner Representative: Prior to the Conversion Date, U. S. Bank National Association, as agent for itself and all existing and future Bondowners, and from and after the Conversion Date, the Permanent Lender.

Bondowners: Shall mean the holder of the Bonds .

Borrower: La Moraga San Jose L.P., a California limited partnership.

Borrower Equity Account: Shall have the meaning given that term in the Indenture.

Business Day: Any day other than a Saturday, a Sunday, or a legal holiday on which Bondowner Representative is not open for business.

Cash: All monetary and non-monetary items belonging to a Person that are treated as cash in accordance with generally accepted accounting principles, consistently applied.

Cash Equivalents: A Person’s Investments in Government Securities due within three years after the date of the making of the Investment (and rated at least AAA by Standard & Poor’s, Inc. and which can be converted to Cash upon no more than three (3) days advance notice from Borrower).

Closing Date: The date upon which all of the conditions set forth in Section 2 are satisfied and the Deed of Trust is recorded in the Official Records.

Co-General Partner: Anton La Moraga, LLC, a California limited liability company.

Code: The Internal Revenue Code of 1986, as amended.

Completion or Complete: All Improvements are substantially completed in accordance with the Plans, as approved by Bondowner Representative, subject only to minor punchlist items and paid for in full except for any such punchlist items, free of all mechanics’, labor, materialmen’s and other similar lien claims (unless Borrower shall have (a) paid and discharged the same or (b) effected the release thereof by delivery to Lender a surety bond complying with applicable Governmental Requirements for such release); (c) said completion has been approved and certified by the Project Architect and by the Inspecting Architect; (d) a certificate of substantial completion for the Improvements has been signed by Borrower, the Project Architect and the General Contractor and delivered to Bondowner Representative; (e) Bondowner Representative has received acceptable evidence that all Governmental Requirements and all private restrictions and covenants relating to the Property have been complied with or satisfied and that temporary certificates of occupancy for all of the Improvements have been issued by all appropriate Governmental Authorities; (f) Borrower has obtained and delivered to Bondowner Representative copies of all licenses and permits needed to operate the Property; (g) evidence that all insurance required hereby is in full force and effect; and (h) no Event of Default exists hereunder.

Completion Date: September 1, 2014.


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Completion Guaranty: That certain Completion Guaranty executed of even date herewith by Guarantor in favor of Lender.

Compliance Certificate: A compliance certificate in the form of Exhibit H attached hereto.

Construction NOI: Shall have the meaning set forth in Section 3.5 hereof.

Consultants: Third party experts retained by Bondowner Representative to assist it in connection with closing, advancing, disbursing or administering the Loan.

Contingency Reserve: A line item in the Loan Budget allocated to pay costs of the Property which are in excess of the amounts thereof anticipated on the date hereof, whether as a result of price increases, changes in the Plans or otherwise, the initial amount of which shall be as set forth in the Loan Budget.

Contractor: Any person, party or entity which has a contract or subcontract under which payment may be required for any work done, material supplied or services furnished in connection with acquiring, constructing, financing, equipping and/or developing the Property.

Conversion Date: Shall mean the date on which all conditions set forth in Section 3.1 and Exhibit C of the Bond Purchase Agreement have been satisfied and Permanent Lender has purchased the Bonds.

Date of Taxability: Shall have the meaning given such term in Section 5.31.

Deed of Trust: That certain Construction to Permanent Deed of Trust (with Assignment of Leases and Rents, Security Agreement and Fixture Filing) of even date herewith executed by Borrower, as trustor, in favor of Lender, as beneficiary, to be recorded in the official records of the county in which the Property is located, creating a first lien on the Land, the Improvements, and all buildings, fixtures and improvements now or hereafter owned or acquired by Borrower and situated on the Land, and all rights and easements appurtenant thereto, and a first lien on and a security interest in the Equipment associated with and appurtenant to the Land, which Deed of Trust shall secure the Note and the other obligations specified therein, including any amendments to such Deed of Trust and supplements thereto executed by Borrower and Bondowner Representative.

Deed of Trust Assignment: Shall mean that certain Assignment of Deed of Trust and Related Documents dated as of even date herewith, by Lender in favor of Bond Trustee.

Default Rate: Shall have the meaning given that term in the Note.

Determination of Taxability: Shall have the meaning given such term in Section 5.31.

Draw Request: A written request by Borrower, in the form of Exhibit I attached hereto and made a part hereof, for an advance of Loan proceeds under this Agreement.


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Environmental Indemnity: That certain Unsecured Environmental Indemnity of even date herewith, executed by Borrower and Guarantor in favor of Lender, setting forth certain indemnification obligations relating to “Hazardous Substances” (as defined therein).

Equipment: All fixtures, equipment and personal property owned by Borrower and located or to be located in or on, and used in connection with the construction, management, maintenance or operation of the Land and the Improvements.

Event of Default: Any event set forth in Section 6.1.

Excluded Taxes: Means, in the case of each Bondowner or applicable Lending Installation and Bondowner Representative, taxes imposed on its overall net income, and franchise taxes imposed on it, by (a) the jurisdiction under the laws of which such Bondowner or Bondowner Representative is incorporated or organized or (b) the jurisdiction in which Bondowner Representative’s or such Bondowner’s principal executive office or such Bondowner’s applicable Lending Installation is located.

GAAP: Generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of any date of determination.

General Contractor: Hurley Construction, Inc., a California corporation.

Governmental Authority: Means any governmental or quasi-governmental entity, including any court, department, commissions, board, bureau, agency, administration, service, district or other instrumentality of any governmental entity having jurisdiction of over the Property.

Governmental Requirements: All laws, statutes, codes, ordinances, and governmental rules, regulations and requirements applicable to Borrower, Bondowner Representative and the Property.

Guaranties: The Completion Guaranty, the Repayment Guaranty and the Permanent Loan Guaranty.

Guarantor: St. Anton Capital, LLC, a California limited liability company, Peter H. Geremia, an individual, and Steven L. Eggert, an individual, collectively and jointly and severally, if more than one.

Hazardous Materials means flammable materials, explosives, radioactive materials, hazardous wastes, toxic substances and similar substances and materials, including all substances and materials defined as hazardous or toxic wastes, substances or materials under any applicable Law, including without limitation the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. §§ 9601, et seq., as amended.


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Improvements: The buildings and improvements described on Exhibit A attached hereto and hereby made a part hereof which are to be placed or constructed upon the Land and all other Improvements to be constructed in accordance with the Plans (including all sitework, utilities, infrastructure, paving, striping, signage, curb and gutter, landscaping and installation of all “common area” improvements required under any covenants encumbering the Property, required by applicable law, or zoning approvals entered into by Borrower).

In Balance: Shall have the meaning given such term in Section 3.2.

Indenture: Means that certain Indenture of Trust dated as of September 1, 2012, among Lender and Bond Trustee, as the same may be amended, modified, extended and renewed from time to time.

Initial Advance: The first advance of Loan proceeds to be made on or about the Closing Date.

Inspecting Architect: Marx Okubo Associates, Inc., and/or any other independent architect, engineer or consultant selected by Bondowner Representative.

Interest Reserve: A line item in the Loan Budget which identifies Loan proceeds allocated for the sole purpose of paying interest on the Loan, the initial amount of which shall be as set forth in the Loan Budget.

Investments: When used in connection with any Person, any investment by or of that Person, whether by means of purchase or other acquisition of stock or other securities or by means of loan, advance, capital contribution, guaranty or other debt or equity participation of interest in any other Person, or otherwise, and includes, without limitation, any partnership and joint venture interests of such Person.

Land: The land legally described on Exhibit B attached hereto and hereby made a part hereof, together with all additions thereto and substitutions therefor agreed to by Lender, Borrower and Bondowner Representative.

Lending Installation: Means, with respect to a Lender or Bondowner Representative, the office, branch, subsidiary or affiliate of such Lender or Bondowner Representative listed on the signature pages hereof (in the case of Bondowner Representative) or on its Administrative Questionnaire (in the case of a Lender) or otherwise selected by such Lender or Bondowner Representative.

Loan: The loan of the proceeds of the Bonds by Lender to Borrower in advances to be made pursuant to the terms of this Agreement.

Loan Budget: The line item budget for the Loan attached as Exhibit D hereto, as may be modified from time to time in accordance with this Agreement.

Loan Documents: The documents described in this Agreement, which evidence and secure the Loan, including, but not limited to, the Note, the Deed of Trust, this Agreement, the Assignments, the Environmental Indemnity, the Guaranties, the Supplemental Agreement and


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including any amendments thereof and supplements thereto executed by Borrower, Guarantor and/or Bondowner Representative.

Note: The Promissory Note dated as of even date herewith, executed and delivered by Borrower to the order of Lender, in the face principal amount of Fifty-Two Million Four Hundred Forty Thousand and No/100th Dollars ($52,440,000), to evidence the Loan, and assigned by Lender to Bond Trustee pursuant to an allonge of even date herewith, as the same may be amended, modified, replaced or substituted from time to time.

Obligations: The obligations of Borrower to Lender described in the Loan Documents and any other obligations of the Borrower to the Lender of any nature whatsoever.

Operating Budget: A detailed listing of all anticipated annual income and expenses from and for managing, maintaining and operating the Property, prepared by Borrower or its agent and in form and substance acceptable to Bondowner Representative.

Operating Statement: A current, detailed statement of income and expenses from and for managing, maintaining and operating the Property, in form and substance acceptable to Bondowner Representative, certified as true, correct and complete by the chief financial officerof Borrower, and expressly showing all variations from the Operating Budget for the period covered thereby.

Other Taxes: Means any present or future stamp or documentary taxes and any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Note or from the execution or delivery of, or otherwise with respect to, this Agreement or the Note.

Outside Conversion Date: February 1, 2015, as such date may be extended in accordance with Section 3(b) of the Note.

Permanent Lender: Shall mean Massachusetts Mutual Life Insurance Company, a Massachusetts corporation, and its successors and/or assigns.

Permanent Loan Guaranty: Shall mean that certain Limited Permanent Loan Guaranty executed by the Permanent Loan Guarantors in favor of Permanent Lender.

Permanent Loan Guarantors: Peter H. Geremia and Steven L. Eggert.

Permitted Encumbrances: The liens, charges and encumbrances on title to the Property listed on Exhibit C hereto, if any.

Person: Any natural person, corporation, limited liability company, partnership (general or limited), limited liability partnership, joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity.

Plans: The final working plans for the Improvements, including drawings, specifications, details and manuals, as approved by Bondowner Representative.


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Principal Balance: Fifty-Two Million Four Hundred Forty Thousand and No/100th

Dollars ($52,440,000) or so much thereof as may have been advanced by Lender to or for the benefit of Borrower and remains unpaid from time to time.

Project: Construction of the Improvements on the Property in accordance with the Plans and all applicable laws.

Project Architect: Architects Orange.

Property: The Land, the Improvements and the Equipment.

Property Management Agreement: That certain ///[Management Agreement]/// dated as of _________________, 20___ by and between Borrower and Property Manager.

Property Manager: St. Anton Management, Inc., a California corporation.

Protective Advances: Any amount advanced or expended by the Lender to preserve or protect the Lender’s rights with respect to the Loan, or the Property or other collateral for the Loan.

Regulatory Agreement: That certain Regulatory Agreement and Declaration of Restrictive Covenants dated as of September 1, 2012 by and among Bond Trustee, Lender and Borrower, as the same may be amended from time to time in accordance with the terms thereof.

Repayment Guaranty: That certain Repayment Guaranty of even date herewith executed by Guarantor in favor of Lender.

Reserves: The Interest Reserve and the Contingency Reserve.

Supplemental Agreement. That certain Permanent Loan Bond Purchase Agreement of even date herewith by and between Borrower and Massachusetts Mutual Life Insurance Company.

Tax Certificate: That certain Certificate as to Arbitrage and that certain Certificate Regarding Use of Proceeds, each dated as of the Closing Date and executed by Borrower.

Taxable Rate: The product of the Contract Rate (as defined in the Note) and ________ basis points.

Taxes: Means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and any and all liabilities with respect to the foregoing, but excluding Excluded Taxes and Other Taxes.

Title Company: First American Title Insurance Company.

Title Policy: A loan policy of title insurance in favor of Lender issued by the Title Company and complying with the requirements of Exhibit E attached hereto and hereby made a part hereof.


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U.S. Bank: U.S. Bank National Association, a national banking association, in its capacity as a Bondowner, and not as Bondowner Representative.

I. LOAN

1.1 Principal.

Subject to the terms, provisions and conditions of this Agreement, Lender agrees to lend to Borrower, and Borrower agrees to borrow from Lender, the proceeds of the Loan, from time to time, in accordance with the terms hereof, for the purpose of constructing the Improvements and otherwise developing the Property. All advances of Loan proceeds evidenced by the Note. In no event shall Lender be obligated hereunder to lend to Borrower more than Borrower has qualified to receive under the terms of Article III hereof.

1.2 Application of Payments.

Unless Bondowner Representative otherwise consents in writing, all proceeds and payments made and received under the Note shall be applied in accordance with the Note; provided, that if an Event of Default exists, Bondowner Representative may apply any payments and proceeds received to the obligations owing under the Loan Documents in such order and manner as Bondowner Representative may elect.

1.3 [Intentionally Omitted.]

1.4 No Waiver by Bondowner Representative.

Bondowner Representative shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies, and no waiver of any kind shall be valid unless in writing and signed by Bondowner Representative. All rights and remedies of Bondowner Representative under the terms of this Agreement, the Note, or any of the other Loan Documents, and under any statutes or rules of law shall be cumulative and may be exercised successively or concurrently. Any provision of this Agreement and the Note which may be unenforceable or invalid under any law shall be ineffective to the extent of such unenforceability or invalidity without affecting the enforceability or validity of any other provision hereof.

II. CONDITIONS OF BORROWING

Lender shall have no right or obligation to make any advance under this Agreement unless Bondowner Representative has consented to the advance in writing and purchased Bonds in an amount equal to the advance to be made to Borrower. Subject to Section 2.5, below, Bondowner Representative shall not be required to consent to any advances hereunder until the pre-closing requirements, conditions and other requirements set forth below and in Article III have been completed and fulfilled to the satisfaction of Bondowner Representative, at Borrower’s sole cost and expense. It is agreed, however, that Bondowner Representative may, in its discretion, cause Lender to make advances prior to completion and fulfillment of any or all of such pre-closing requirements, conditions and requirements, without waiving its right to require such completion and fulfillment before it consents to any additional advances hereunder.


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2.1 Pre-Closing Requirements.

Prior to the closing of the Loan, Borrower shall provide to Bondowner Representative (or its consultant), and Bondowner Representative (or its consultant, as applicable) shall have approved, each of the following.

(a) A commitment for the Title Policy or a preliminary title report from the Title Company, complying with the standard requirements of Bondowner Representative therefor, a copy of which has been delivered to Borrower.

(b) Two (2) complete sets of the Plans. All mechanical, electrical, structural and other specialized drawings shall be signed by licensed engineers of the respective disciplines normally responsible for such drawings, in addition to the Project Architect.

(c) The Project Architect’s agreement and such other contracts and schedules relating to the Property as Bondowner Representative may require.

(d) Four (4) copies of the approved site plan for the Property.

(e) Three (3) copies of a current, certified ALTA/ACSM LAND TITLE SURVEY of the Land, which shall also be prepared in accordance with Bondowner Representative’s standard requirements therefor, a copy of which has been delivered to Borrower.

(f) Soil reports on the Land, showing that the soil will adequately support the Improvements when constructed in accordance with the Plans.

(g) A Phase I Site Assessment prepared by a licensed and registered environmental engineer or other qualified party satisfactory to Lender, in each case stating that no Hazardous Materials are present in, on, under or around the Property, and that no condition or circumstance warranting further investigation now exists.

(h) A current written report or certification from the Project Architect in the form of Exhibit L attached hereto.

(i) The Loan Budget.

(j) Insurance policies (conforming to the requirements (including policy amounts) set forth on Exhibit F) written by insurers satisfactory to Bondowner Representative, prepared in accordance with Bondowner Representative’s standard requirements therefor, a copy of which has been delivered to Borrower.

(k) A flood zone certification indicating that the improvements to be constructed on the Property are not located in a flood plain or any other flood prone area, as designated by any governmental agency; provided however that if the Property is so located, Borrower shall obtain and deliver to Bondowner Representative evidence of flood insurance acceptable to Bondowner Representative.


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(l) Borrower’s estimated schedules for construction of the Improvements and for disbursement of the Loan proceeds.

(m) A schedule of all necessary licenses and permits which must be obtained in order to occupy and operate the Property.

(n) A current letter from an appropriate municipal officer regarding zoning and building code compliance, prepared in accordance with Bondowner Representative’s standard form therefor, a copy of which has been delivered to Borrower.

(o) An Bondowner Representative-commissioned appraisal of the Property, addressed to Bondowner Representative, prepared in substantial conformance with applicable Governmental Requirements, and signed by an M.A.I. appraiser acceptable to Bondowner Representative.

(p) Letters from the suppliers confirming the availability of water, storm and sanitary sewer, gas, electric and telephone utilities for the Property, prepared in accordance with Bondowner Representative’s standard requirements therefor, copies of which have been delivered to Borrower.

(q) UCC chattel lien searches from the office of the Secretary of State of California, covering the name of Borrower.

(r) (i) A copy of Borrower’s limited partnership agreement (certified by the Borrower’s General Partners as being true, correct, complete, unamended and in full force and effect) and a copy of Borrower’s Certificate of Limited Partnership (certified by the appropriate governmental officials in whose offices the same must be filed under applicable law), together with evidence of good standing with the Secretary of State of the State of California, and evidence, satisfactory to Bondowner Representative, that Borrower has complied with the above-mentioned documents in executing the Loan Documents; and (ii) all formation documents for each General Partner and each Guarantor that is not an individual required by Bondowner Representative.

(s) A standard form of lease to be used by Borrower in leasing apartment units within the Property.

(t) A copy of the Property Management Agreement and any other agreement relating to the management, operation or maintenance of the Property which cannot be terminated, without penalty, upon thirty (30) days’ notice. Bondowner Representative hereby approves Property Manager to manage the Property.

(u) The most current available financial statements of Borrower, each General Partner and each Guarantor, as well as financial statements of each of said parties for each of the three (3) full fiscal years of said party immediately preceding the time period covered by said current financial statements, together with copies of all federal income tax returns (with all supporting schedules) of each of said parties for their three (3) most recent fiscal years, all signed and certified as true, correct and complete by the party to which they apply. If any such party is


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not an individual person, said financial statements must also be certified by an independent certified public accountant of recognized standing acceptable to Bondowner Representative.

(v) Evidence satisfactory to Bondowner Representative that, on or before the Closing Date, Borrower has contributed cash equity from its own funds and from funds paid toBorrower by ///[Shea Equity]// in the aggregate amount of at least $7,993,529 toward the costs of the Project.

(w) The construction contract with the General Contractor, the architectural contract with the Project Architect, the applicable engineering contract(s) and all other major contracts pertaining to the Project and requested by Bondowner Representative, each in form and substance acceptable to Bondowner Representative.

(x) All title, zoning and entitlement information and documentation requested by Bondowner Representative.

(y) Other agreements, documents and exhibits, without limitation, which may be required, in Bondowner Representative’s judgment, to assure compliance with the requirements of this Agreement.

2.2 Loan Documents.

On or before the date of closing of the Loan, Borrower shall execute and deliver (or cause to be executed and delivered) to Bondowner Representative the following documents in form and substance acceptable to Bondowner Representative and to its counsel, to evidence and secure the Loan:

(a) The Note.

(b) The Deed of Trust.

(c) A general assignment of all leases of and rents and income from the Property (which may be incorporated within the Deed of Trust).

(d) A first security interest in all Equipment and in all of Borrower’s intangible property relating to the Property, created and evidenced by a security agreement (which may be incorporated within the Deed of Trust) and by appropriate Uniform Commercial Code financing statements.

(e) An assignment of the Plans and of the Project Architect’s agreement pursuant to which the same were prepared, along with written acknowledgment from the Project Architect authorizing Lender and Bondowner Representative to rely on and utilize the Plans, without additional charge other than those sums due per such agreements, and further confirming to Lender and Bondowner Representative that, if an Event of Default has occurred, the Project Architect will cooperate with Lender and Bondowner Representative regarding the Completion of construction of the Improvements.

(f) All other Assignments.


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(g) The Guaranties.

(h) The Supplemental Agreement.

(i) All other Loan Documents.

(j) Such other documents as Bondowner Representative may reasonably require to evidence and secure the Loan.

Bondowner Representative may designate which of the Loan Documents are to be placed of record, the order of recording thereof, and the offices in which the same are to be recorded. Borrower shall pay all documentary, recording and/or registration taxes and/or fees, if any, due upon the Loan Documents.

2.3 Recordation of Deed of Trust; Title Insurance.

The Deed of Trust shall have recorded, and Bondowner Representative shall have received the Title Policy.

2.4 Opinion of Borrower’s Attorneys.

Lender and Bondowner Representative shall have received from outside counsel for Borrower a current written opinion or opinions, in scope, form and substance reasonably acceptable to Bondowner Representative.

2.5 Building Permits.

On or before the Closing Date, Bondowner Representative shall have received, in form and substance satisfactory to Bondowner Representative, a grading permit issued by the City of San Jose. Not later than one hundred twenty (120) days after the Closing Date, Borrower shall have received and delivered to Bondowner Representative, which shall be in a form acceptable to Bondowner Representative, a building permit ready to issue letter issued by the City of San Jose and immediately upon receipt, but in no event more than thirty (30) days after the delivery to Lender of the permits ready to issue letter, copies of all building permits required in connection with the development of the Project. Until Bondowner Representative has received and approved all building permits required to complete construction of the Improvements, Bondowner Representative will not disburse Loan proceeds in excess of $13,425,000. If, and only if, Borrower delivers to Bondowner Representative all building permits, in form and substance satisfactory to Bondowner Representative, within such one hundred twenty (120)-day period, Bondowner Representative will continue to disburse Loan proceeds in excess of $13,425,000 in accordance with the terms and conditions of this Agreement and the other Loan Documents.

2.6 General Contract.

Bondowner Representative shall have received, in form and substance satisfactory to Bondowner Representative, the General Contractor’s construction contract, and an assignment of Borrower’s general construction contract for the Property and an agreement from the General


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Contractor (if so requested by Bondowner Representative) to honor and perform the same for Lender in the event of a default under the Loan Documents.



2.9 Conditions for Disbursement.

Borrower shall have satisfied all conditions for disbursement set forth in Article III (with respect to the initial disbursement of Loan proceeds being requested by Borrower).

III. ADVANCES OF LOAN PROCEEDS

3.1 General.

Subject to the terms and conditions set forth in this Agreement, including, without limitation, Section 2.5 hereof, but only with the prior written consent of Bondowner Representative, Lender shall make advances to Borrower in such amounts as Borrower may request in accordance with the terms of this Agreement. Subject to Section 2.5 hereof, Bondowner Representative shall have no obligation to consent to any advance under this Agreement unless all of the conditions and other requirements to an advance contained in Article II and this Article III have been satisfied. Upon Bondowner Representative’s approval of a Draw Request, Bondowner Representative shall purchase Bonds in the amount of the approved Draw Request and Lender shall use the proceeds from such purchase to fund advances of Loan proceeds to the Borrower. All monies advanced by Lender (including amounts payable to Lender and/or Bondowner Representative and advanced by Lender to itself or Bondowner Representative pursuant to the terms hereof) shall constitute loans made to Borrower under this Agreement, evidenced by the Note and this Agreement and secured by the other Loan Documents, and interest shall be computed thereon, as prescribed by this Agreement and the Note, from the date of the advance. Lender shall not be obligated to advance any amounts to fund the Loan other than those amounts advanced by Bondowners to purchase Bonds as set forth in Sections 2.02, 3.02 and 3.03 of the Indenture.

Borrower may not reallocate items in the Loan Budget without the prior written consent of Bondowner Representative. Upon completion of and disbursement for all matters covered by any line item in the Loan Budget, any remaining undisbursed amounts allocated to that line item shall be reallocated to the “Contingency Reserve” line item in the Loan Budget and thereafter be available for disbursement in accordance with the terms of this Agreement. Bondowner Representative shall have no obligation to consent to any disbursement from funds allocated in the Loan Budget to the “Contingency Reserve” line item, or to consent to any reallocation to any other line item of funds allocated in the Loan Budget to the “ContingencyReserve” line item; provided, however, that Bondowner Representative shall not unreasonably withhold its consent to any reallocation of funds allocated to “Contingency Reserve” in the Loan Budget so long as, immediately following such reallocation, the undisbursed portion of the funds allocated to the “Contingency Reserve” line item, expressed as a percentage of the total funds allocated to the “Contingency Reserve” line item in the original Loan Budget, does not exceed that portion of the Project then remaining to be completed and paid for, expressed as a


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percentage of the total Project to be completed and paid for. Except as otherwise expressly provided above, no amendments to, or reallocations within, the Loan Budget may be made without Bondowner Representative’s prior written consent in its sole discretion.

No advance shall constitute a waiver of any condition precedent to the obligation of the Lender to make, or Bondowner Representative to consent to the making of, any further advance, or preclude Lender or Bondowner Representative from thereafter declaring the failure of Borrower to satisfy any such condition precedent to be an Event of Default. All conditions precedent to the obligation of the Lender to make, or Bondowner Representative to consent to the making of, any advance are imposed hereby solely for the benefit of Lender and Bondowner Representative, and no other party may require satisfaction of any such condition precedent or shall be entitled to assume that Lender will make or refuse to make, or Bondowner Representative will consent, or refuse to consent to the making of, any advance in the absence of strict compliance with such condition precedent.

If all conditions precedent set forth herein have been satisfied (or waived), Lender, at the direction of Bondowner Representative, will advance from the proceeds of the Loan, without further order or request from Borrower, all interest payable to the Lender when due under the terms hereof or of the Note (so long as sufficient funds remain in the Interest Reserve), and shall, if directed to do so by Bondowner Representative, at Bondowner Representative’s option, without any obligation to do so, advance to Lender or Bondowner Representative from the proceeds of the Loan all other sums due or to become due Lender or Bondowner Representative under this Agreement, or under any of the other Loan Documents, including but not limited to their fees, reasonable attorneys’ fees, Inspecting Architect’s fees, Appraisal fees, internal Appraisal review and other fees, administrative fees and expenses, syndication and transfer costs, and all other out-of-pocket expenses incurred by Lender and/or Bondowner Representative in connection with this Agreement and with the Loan. Lender shall, if directed to do so by Bondowner Representative, at its option, advance and directly apply the proceeds of the Loan to the satisfaction of any of Borrower’s other obligations hereunder, or under any of the other Loan Documents. On the terms and subject to the provisions of this Agreement governing advances of Loan proceeds, Lender will make advances from the ________________________________________.

In the event that the total amount of the Loan exceeds the amount needed to fully pay all cost allocations set forth on the Loan Budget approved by Bondowner Representative, Lender shall not be required to advance, and Borrower shall not be entitled to receive, the excess.

In no event shall Bondowner Representative have any obligation to consent to any advance requested by Borrower if the requested advance, plus the sum of all the previous advances, would exceed $52,440,000.

3.2 Loan In Balance.

Bondowner Representative shall not be obligated to consent to any advance of Loan proceeds unless and until Borrower has provided Bondowner Representative with evidence, acceptable to Bondowner Representative, that the Loan is “in Balance.” The Loan is in Balance if all remaining unpaid costs of the Property (including the amounts allocated to the


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Interest Reserve and the Contingency Reserve), as determined by Bondowner Representative, do not exceed the amount of the Loan proceeds not yet advanced by the Lender (together with all cash equity contributed by Borrower and not yet applied toward the payment of Project costs in accordance with the Loan Budget, plus the Construction NOI not yet applied toward the payment of Project costs in accordance with the Loan Budget). The initial amounts of the Reserves have been designated in the Loan Budget. The required amounts of said Reserves shall decline ascosts and payments for which they are maintained are paid therefrom; provided, however, that Borrower shall not permit the amount of any such Reserve to decline below an amount sufficient to pay all costs and payments for which it is maintained which then remain unpaid, as determined by Bondowner Representative. If any Reserve becomes depleted, such depletion shall not limit Borrower’s obligation hereunder to pay all sums which otherwise would have been payable from such Reserve.

Notwithstanding any provision of this Agreement to the contrary, in the event that Bondowner Representative or Borrower determines that the unadvanced balance of Loan proceeds (together with all cash equity contributed by Borrower and not yet applied toward the payment of Project costs in accordance with the Loan Budget, plus the Construction NOI not yet applied toward the payment of Project costs in accordance with the Loan Budget) is insufficient to cover any cost allocation set forth on the Loan Budget, including the Reserves, and/or to complete the Property, and to pay all costs and expenses of Completion and, combined with Property income, to pay all costs to lease-up and operate the Property, and to pay interest on the Loan through the Conversion Date, it shall notify the other parties hereto of such determination, and Borrower shall, within three (3) Business Days, deposit with Bond Trustee, in the Borrower Equity Account, funds equal to said insufficiency in order to bring the Loan back into Balance.

3.3 Inspections.

Lender, Bondowner Representative, the Title Company, the Inspecting Architect, Consultants and their representatives shall have access to the Property at all reasonable times and shall have the right to enter the Property and to conduct such inspections thereof as they shall deem necessary or desirable for the protection of the interests of Lender and Bondowner Representative.

Bondowner Representative may retain the Inspecting Architect, and any other Consultants deemed necessary or desirable by Bondowner Representative, at Borrower’s expense, to make periodic inspections of the Property and to review all change orders relating to the Property. Bondowner Representative may request the Inspecting Architect, before Bondowner Representative consents to any advance of Loan proceeds, to inspect all work and materials for which payment is requested and all other work upon the Property, review the current Draw Request, approve such work and Draw Request and/or submit to Bondowner Representative a progress inspection report. Bondowner Representative may also retain such other Consultants as Bondowner Representative deems necessary or convenient to perform such services as may, from time to time, be required by Bondowner Representative in connection with the Loan, this Agreement, the other Loan Documents or the Property.

Neither Borrower nor any third party shall have the right to use or rely upon the reports of the Inspecting Architect or any other reports generated by Lender, Bondowner


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Representative or their Consultants for any purpose whatsoever, whether made prior to or after commencement of construction. Borrower shall be responsible for making its own inspections of the Property during the course of construction and shall determine to its own satisfaction that the work done and materials supplied are in accordance with applicable contracts with its contractors. By consenting to the advance of funds after any inspection of the Property by Bondowner Representative or the Inspecting Architect, Bondowner Representative and Lender shall not be deemed to waive any Event of Default, waive any right to require construction defects to be corrected, or acknowledge that all construction conforms with the Plans.

Notwithstanding any provision of this Agreement to the contrary, in the event that Bondowner Representative should determine that the actual quality or value of the work performed or the materials furnished does not correspond with the quality or value of the work required by the Plans, Bondowner Representative shall notify Borrower of its objections thereto, and, upon demand, Borrower shall correct the conditions to which Bondowner Representative objects.

3.4 Responsibility of Lender and Bondowner Representative.

It is expressly understood and agreed that neither Lender nor Bondowner Representative assumes any liability or responsibility for the sufficiency of the Loan proceeds to complete the Improvements, for protection of the Property, for the satisfactory Completion of the Property, for inspection during construction, for the adequacy of Reserves, for the adequacy or accuracy of the Loan Budget, for any representations made by Borrower, or for any acts on the part of Borrower or its contractors to be performed in the construction of the Improvements.

3.5 Advances During Property Operation.

Borrower anticipates the Property to generate net operating income at the time and in the amounts set forth on Exhibit J attached hereto and incorporated herein. Commencing on the first day of the first calendar month following completion of the Project, and continuing on the first day of each calendar month thereafter, Borrower shall deposit all net operating income from the Property (“Construction NOI”) into the Borrower Equity Account, up to a maximum amount equal to $2,550,000. All such net operating income from the Property shall be used to pay for certain “soft costs” shown on the Loan Budget and interest on the Loan, before any proceeds of the Loan shall be advanced to pay interest on the Loan. After Borrower has deposited a total of $2,550,000 of net operating income into the Borrower Equity Account (which shall occur no later than February 1, 2015), and not before, all additional net operating income generated by the Property shall be used by Borrower to pay for operating expenses in accordance the Operating Budget for the Property prepared by Borrower and approved by Bondowner Representative. Upon Conversion and the purchase of the Bonds by Permanent Lender, all proceeds of Construction NOI then on deposit in the Borrower Equity Account shall be released to Borrower.

3.6 Advance Procedures.

(a) Borrower shall submit to Bondowner Representative a copy of the Loan Budget for the Property, and, upon the occurrence of a default hereunder, if requested by


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Bondowner Representative, shall advise Bondowner Representative of the names of each Contractor and furnish to Bondowner Representative a copy of each contract with each of the Contractors. Upon the occurrence of a default hereunder, at Bondowner Representative’s request, Borrower shall keep the Bondowner Representative advised at all times of the names of all Contractors, and of the type of work, material or services and of the dollar amount covered by each of their respective contracts with Borrower. It is understood that, upon the occurrence of a default hereunder, if required by Bondowner Representative, only Contractors whose names, contract descriptions and, after a request therefor, contracts have been furnished to Bondowner Representative shall be entitled to receive disbursements of Loan proceeds under this Agreement. Borrower shall also provide or cause to be provided to Bondowner Representative a date down of the Title Policy.

(b) Borrower shall either refrain from commencing construction of, and from accepting delivery of materials for, the Property prior to the recording of the Deed of Trust.

(c) Borrower may obtain advances for disbursement to Contractors on a percentage of a completion basis and only to the extent of the amount of the contract work satisfactorily completed or materials actually incorporated into the Property by each such Contractor in accordance with his contract, less a ten percent (10%) retainage (“Retainage”), and Borrower agrees that all sums requested hereunder for disbursement to each Contractor shall not exceed that amount; provided, however, that the amounts so retained on account of the trades (the “Early Release Trades”) listed on Exhibit K attached hereto and incorporate herein shall be released, on a trade by trade basis, so long as (i) one hundred percent (100%) of the work to be performed by the applicable trade has been completed substantially in accordance with the Plans and all applicable Governmental Requirements, (ii) all such work requiring inspection by an Governmental Authority has been completed and all requisite certificates, approvals and other necessary authorizations shall have been obtained, (iii) all such work has been fully paid for, and (iv) Bondowner Representative shall have received a signed final mechanics’ lien release from the Contractor (and each subcontract) regardless of tier) involved in such work) (conditions solely upon payment of the amount stated in such release). Borrower may not obtain advances for disbursement to Contractors for the cost of materials acquired for the Property but not yet incorporated therein, unless the same does not exceed $10,000, and Bondowner Representative has approved (1) evidence that Borrower has acquired title to the same and that the same are covered by the insurance required by the Deed of Trust; (2) the place of storage therefor on the Land or in a secure or bonded warehouse located in the jurisdiction in which the Land is situated; (3) the protection and security provided therefor; and (4) a schedule for the prompt incorporation thereof into the Property, and unless the Inspecting Architect has verified and approved the cost and acquisition of said materials, their physical presence at the approved storage site, and the security and protection provided therefor. Bondowner Representative shall not be required toconsent to the final advance of the Retainage for the payment of the full amount of each Contractor’s contract until Bondowner Representative is satisfied that the Property has been completed in accordance with the approved Plans, and all requirements set forth in this Agreement have been fully complied with, including, but not limited to, the requirements to evidence Completion, and satisfaction of each of the following requirements:

(i) Evidence satisfactory to Bondowner Representative that the Project is Complete;


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(ii) Receipt by Bondowner Representative of both (a) lien waivers or releases from General Contractor (and upon the occurrence of a default hereunder, if required by Bondowner Representative, lien waivers or releases from subcontractors), and (b) title policy endorsements in form and content satisfactory to Bondowner Representative (including an endorsement insuring lien free completion of the improvements);

(iii) The later of a period of (i) sixty (60) days shall have elapsed after recordation of a valid notice of completion (pursuant to California Civil Code § 8182) or notice or cessation (pursuant to California Civil Code § 8188) or if neither notice has been recorded, and (ii) ninety (90) days shall have elapsed after the date of completion of construction of the Improvements (as defined in California Civil Code § 8180);

(iv) A temporary certificate of occupancy and other evidence acceptable to Bondowner Representative, from official sources, that the construction and its intended use are in compliance with all applicable building and other requirements of public authorities; and

(v) Receipt by Bondowner Representative of G702 and G703 applications for payment executed by Borrower, General Contractor and Project Architect, and, if available, G706 and G706A affidavits.

(d) Whenever Borrower desires to obtain an advance of Loan proceeds, Borrower shall submit a signed Draw Request, in Bondowner Representative’s form, to Bondowner Representative and to the Inspecting Architect at least ten (10) business days prior to the date on which the requested advance is to be made (“Advance Date”). Borrower shall also simultaneously submit to Bondowner Representative the following:

(i) A conditional waiver of mechanic’s lien and/or materialman’s lien, executed by the General Contractor in the amount of the lienable costs of the Property payable from the requested advance, together with, after the occurrence of a default, if required by Bondowner Representative, an unconditional waiver of mechanic’s lien and/or materialman’s lien executed by each other Contractor to which any portion of the immediately preceding advance (“Prior Advance”) of Loan proceeds was paid, covering liens for all work done and materials supplied for which disbursement was made from the Prior Advance, in the form required by Bondowner Representative and, if appropriate, the Title Company; provided, however, that with respect to the final advance of Loan proceeds to be paid to the General Contractor under its contract, such mechanic’s lien and/or materialman’s lien waiver shall be unconditional. Such waivers shall be submitted in each case, unless the Bondowner Representative determines that the Contractor’s claim would not give rise to such a lien.

(e) Upon Completion, Borrower shall furnish to Bondowner Representative and the Title Company three (3) copies of an acceptable survey, showing the exact location of the existing construction and the completed construction. When the foundation for the Improvements is completed, Borrower shall cause the Title Company to issue an endorsement to the Title Policy in form and substance acceptable to Bondowner Representative insuring that all foundations and footings are within the boundaries of the Property and that no buildings are to be constructed within the areas of any easement.


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(f) Invoices and such other supporting evidence as may be requested by the Bondowner Representative to establish the cost or value of the Improvements for which disbursement is to be and has been made.

(g) Borrower shall provide to Bondowner Representative a CLTA 122 endorsement, or any other form of endorsement required by Bondowner Representative, to and continuation of the Title Policy, showing that there have been no mechanics’ or materialmen’s liens filed since the date of the issuance of the Title Policy, and updating the effective date of the Title Policy to the relevant Advance Date, which endorsement shall be provided at Borrower’s expense. If any liens or other matters, which, in Bondowner Representative’s sole judgment, jeopardize Lender’s security interest in the Property, are disclosed by said endorsement and continuation or are in any other manner discovered by the Title Company or Bondowner Representative, no further advances shall be made until such liens or other matters have been waived by Bondowner Representative or satisfied in a manner acceptable to Bondowner Representative. Upon demand of Bondowner Representative, Borrower shall immediately cause any such liens or other matters to be satisfied, of record or bonded, or affirmatively insured over by the Title Company, or shall make other arrangements with respect to the discharge thereof acceptable to Bondowner Representative.

(h) Borrower shall deliver to Bondowner Representative a certificate confirming that no Event of Default (or event that with the giving of notice and/or the passage of time could become an Event of Default) shall have occurred and be continuing. In no event shall Bondowner Representative be required to consent to any advance unless, at the time of the advance, there shall exist no Event of Default hereunder (or event that with the giving of notice and/or the passage of time could become an Event of Default), and all representations and warranties made herein shall be true and correct in all material respects on and as of each Advance Date with the same effect as if made on that date.

(i) The provisions of this Agreement requiring submission of the architect’s certificate and related documents and the required retainage shall not apply with respect to Loan proceeds to be disbursed for the items listed below, which may be disbursed in full upon submission of a Draw Request listing such items signed by Borrower and/or the following special documentation, if any, to Bondowner Representative or as otherwise provided by this Agreement:

ITEM SPECIAL DOCUMENTATION

Lenders’ charges (interest, fees, etc.) NoneAttorneys’ fees (including Bondowner Representative’s counsel) and Inspecting Architect’s fees

Copies of Statements

Real estate taxes on the Property Copies of BillInsurance Premiums Copies of Statements

Accounting, architectural and engineering fees

Copies of Statements


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Other indirect (non-construction) items As specified by Bondowner Representativeand, if appropriate, the Title Company

If Borrower directly pays certain costs of construction, the Bondowner Representative may, at its option, consent to the disbursement of Loan proceeds, advanced for payment of such construction costs, directly to Borrower, as a reimbursement for such payment; provided that all of the other requirements of this Agreement, including, but not limited to, the presentation of waivers of lien with respect thereto, are fulfilled.

Bondowner Representative shall also have the right, but not the obligation, following the occurrence and during the continuation of an Event of Default, to direct Lender to disburse and directly apply the proceeds of any advance to the satisfaction of any of Borrower’s obligations hereunder or under the other Loan Documents. Any such advance by Lender for such purpose shall be part of the Loan and shall be evidenced and secured by the Loan Documents. Borrower hereby authorizes Bondowner Representative, following the occurrence and during the continuation of an Event of Default, to direct Lender to hold, use, disburse and apply the Loan proceeds for payment of costs of construction of the Improvements, expenses incident to the Loan and the Property, and the payment or performance of any obligation of Borrower hereunder, including but not limited to the obligation to pay interest on the Loan. Borrower hereby assigns and pledges the proceeds of the Loan and funds deposited by Borrower pursuant to Section 3.2 hereof to Lender for such purposes. Lender may advance such funds and incur such expenses as Bondowner Representative deems necessary for the completion of construction of the Improvements and to preserve the Property and any security for the Loan, and such expenses, even though in excess of the amount of the Loan, shall be secured by any and all documents securing the Loan and the Note and shall be payable to Lender upon demand.

(j) Bondowner Representative may take such steps as it may deem appropriate, at its option, to verify the application of Loan proceeds to work done and material furnished for the Property, and to vary the disbursement procedures herein set forth, if the same becomes necessary or desirable to assure the proper application of Loan proceeds and/or to preserve the first lien status of the Deed of Trust with respect to disbursements made pursuant hereto, including, but not limited to, making disbursements directly to subcontractors. However, Bondowner Representative shall not be obligated to conduct any such verification or to so vary said procedures.

(k) The Borrower shall keep records showing the names of all Contractors and other payees to whom disbursements of Loan proceeds are made, the date of each disbursement, and the amount of each disbursement, which records may be inspected by Bondowner Representative; provided, however, that Borrower shall not be obligated to provide the names of all Contractors unless and until a default has occurred hereunder.

(l) In the event that the Bondowner Representative shall determine, in its reasonable judgment, that proper documentation to support a given disbursement, as required by this Agreement, has not been furnished, the Bondowner Representative may direct Lender to withhold payment of all or such portion of such disbursement as shall not be so supported by proper documentation and disburse that portion of the Draw Request that has been approved by


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Bondowner Representative. Such funds shall remain available for advancement under this Agreement, if the requirements thereof and hereof with respect thereto are later met.

(m) Borrower shall be responsible for making inspections of the Property during the course of construction, and shall determine to its own satisfaction that the work done or material supplied by the Contractors to whom disbursements are to be made out of each advance has been properly done or supplied in accordance with applicable contracts with such Contractors. The Title Company, Lender and Bondowner Representative shall not be required to conduct any inspections of the Property.

(n) It is expressly understood and agreed that neither Lender nor Bondowner Representative assumes any liability or responsibility for the satisfactory Completion, for the adequacy of funds advanced or disbursed pursuant hereto to complete the Improvements, for inspections during construction, or for any acts on the part of Borrower or the Contractors to be performed in the construction of the Improvements.

(o) [Intentionally Omitted]

(p) Unless otherwise agreed to by Bondowner Representative, Borrower shall not be entitled to more than one (1) disbursement of Loan proceeds per month.

3.7 Additional Conditions to Each Disbursement.

In addition to all other conditions and requirements set forth in this Agreement and any of the other Loan Documents, Bondowner Representative may, as a condition to its consent to any advance, require that each of the following conditions be satisfied with respect to each advance of Loan proceeds:

(a) As of the date of each disbursement, no lawsuit or proceeding at law or in equity, and no investigation or proceeding of any governmental body, has been instituted or, to the knowledge of Borrower, has been threatened, which in either case would substantially, negatively affect the condition or business operations of Borrower or the Property.

(b) As of the date of each disbursement, the representations and warranties set forth in Article IV of this Agreement shall each be true and correct in all material respects.

(c) As of the date of each disbursement, the progress of construction of the Improvements is such that it can be completed on or before the Completion Date specified in this Agreement for the cost set forth in the Loan Budget (subject to Section 5.2 hereof).

(d) The Loan, as of the date of each disbursement, shall be in Balance as required by this Agreement, and the undisbursed proceeds of the Loan (together with all cash equity contributed by Borrower and not yet applied toward the payment of Project costs in accordance with the Loan Budget, plus the Construction NOI not yet applied toward the payment of Project costs in accordance with the Loan Budget), including the advance then requested, shall be adequate and sufficient to pay for all labor, materials, equipment, work, services and supplies necessary for the completion of the Improvements, including the installation of all fixtures and equipment required for the operation of the Improvements.


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(e) As of the date of each disbursement, the labor, materials, equipment, work, services and supplies performed upon or furnished to the Property shall be in full accordance with the Plans, which have not been amended except as expressly permitted by this Agreement.

(f) As of the date of each disbursement, there have been no changes in the costs of the Property from those set forth on the Loan Budget, as amended by any amendment thereto heretofore delivered by Borrower to Bondowner Representative and approved by Bondowner Representative, if such approval is required by this Agreement (subject to Section 5.2 hereof).

(g) As of the date of each disbursement, all bills for labor, materials, equipment, work, services and supplies furnished in connection with the Property, which could give rise to a mechanic’s lien if unpaid, have been paid or will be paid out of the requested advance.

(h) All claims for mechanics’ liens which shall have arisen or could arise for labor, materials, equipment, work, services or supplies furnished in connection with the Property through the last day of the period covered by the requested advance have been effectively waived in writing, or will be effectively waived in writing when payment is made, and such written waivers have been delivered to Bondowner Representative or its disbursing agent (unless Borrower shall have (i) paid and discharged the same or (ii) effected the release thereof by delivering to Bondowner Representative a surety bond complying with the requirements of applicable Governmental Requirements for such release).

(i) All funds advanced under this Agreement to date have been utilized as specified in the Draw Requests pursuant to which the same were advanced, exclusively to pay costs incurred for or in connection with acquiring, constructing and developing the Land and the Property, and no part of the Loan proceeds have been paid for labor, materials, equipment, work, services or supplies incorporated into or employed in connection with any project other than the Property.

3.8 Disbursements for Developer Fees.

$250,000 of the amount allocated to the “Developer Fee” line item in the Loan Budget shall be available for disbursement upon the satisfaction of the conditions precedent set forth in Article II hereof. Subject to the other terms and conditions of this Agreement, an additional $2,250,000 of the amount allocated to the “Developer Fee” line item in the Loan Budget shall be available for disbursement to Borrower on the Conversion Date upon the satisfaction of all conditions to Conversion (as described in the Bond Purchase Agreement).

IV. REPRESENTATIONS AND WARRANTIES OF BORROWER

Borrower represents and warrants to Lender and Bondowner Representative that:


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4.1 Legal Status of Borrower.

Borrower is a limited partnership duly organized, validly existing and in good standing under the laws of the State of California and is duly registered and qualified to transact business in, and is in good standing under the laws of, the State of California, and has all power, authority, permits, consents, authorizations and licenses necessary to carry on its business, to construct, equip, own and operate the Property and to execute, deliver and perform its obligations under this Agreement and the other Loan Documents; all consents of the partners of Borrower necessary to authorize the execution, delivery and performance of this Agreement and of the other Loan Documents which have been or are to be executed by and on behalf of Borrower have been duly obtained and are in full force and effect; this Agreement and such other Loan Documents have been duly authorized, executed and delivered by and on behalf of Borrower, and upon the execution and delivery of the other parties thereto, this Agreement and such other Loan Documents shall be the valid and binding obligations of Borrower, enforceable in accordance with their terms, subject to bankruptcy and creditors’ rights laws.

4.2 Title.

Borrower is the owner, in fee simple, of the Land, subject to no lien, charge, mortgage, deed of trust, restriction or encumbrance, except Permitted Encumbrances.

4.3 No Breach of Applicable Agreements or Laws.

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

4.4 No Litigation or Defaults.

There are no actions, suits or proceedings pending or, to the knowledge of Borrower, threatened in writing against Borrower, any Guarantor or the Property, or involving the validity or enforceability of the Loan Documents or the priority of the lien thereof, at law or in equity; and Borrower and/or Guarantor is not in default under any order, writ, injunction, decree or demand of any court or any administrative body having jurisdiction over Borrower or Guarantor.

4.5 Financial and Other Information.

The financial statements of Borrower and each Guarantor previously or hereafter delivered to Bondowner Representative fairly and accurately present the financial condition of Borrower and each Guarantor as of the dates of such statements, and neither this Agreement nor any document, financial statement, financial or credit information, certificate or statement referred to herein or furnished to Bondowner Representative by Borrower or any such Affiliate contains any untrue statement of a material fact or omits a material fact, or is misleading in any material respect.


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4.6 No Defaults under Loan Documents or Other Agreements.

There is no default or Event of Default on the part of Borrower or any Guarantor under the Loan Documents or under any other document to which Borrower or any such Affiliate is a party and which relates to the ownership, occupancy, use, development, construction or management of the Property; and neither Borrower nor Guarantor is in default in the payment of the principal or interest on any of its indebtedness for borrowed money, and is not in default under any instrument or agreement under and subject to which any indebtedness for borrowed money has been issued or is secured; and no event has occurred which, with the lapse of time or the giving of notice or both, would constitute an Event of Default thereunder.

4.7 Boundary Lines; Conformance with Governmental Requirements and Restrictions.

The exterior lines of the Improvements are within the boundary lines of the Land, and Borrower has examined and is familiar with all applicable covenants, conditions, restrictions and reservations, and with all applicable Governmental Requirements, including but not limited to building codes and zoning, environmental, hazardous substance, energy and pollution control laws, ordinances and regulations affecting the Property, and the Property in all respects conforms to and complies with said covenants, conditions, restrictions, reservations and Governmental Requirements.

4.8 Loan in Balance.

The Loan is in Balance.

4.9 Property Costs.

On a line by line and total basis, the Property costs shown on the Loan Budget are true, correct and complete, and represent the total of all costs, expenses and fees which Borrower expects to pay or may be or become obligated to pay to construct the Improvements, and to lease-up and operate the Property until the Conversion Date.

4.10 Utilities, Etc.

Telephone services, gas, electric power, storm sewers, sanitary sewer and water facilities are available to the boundaries of the Land, adequate to serve the Property and not subject to any conditions (other than normal charges to the utility supplier) which would limit the use of such utilities. All streets and easements necessary for construction and operation of the Property are available to the boundaries of the Property.

4.11 Personal Property.

Borrower is now and shall continue to be the sole owner of the Equipment free from any lien, security interest or adverse claim of any kind whatsoever, except for liens or security interests in favor of Lender, or liens or security interests otherwise approved by Bondowner Representative in Bondowner Representative’s sole discretion.


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4.12 Condemnation.

No condemnation proceeding or moratorium is pending or threatened against the Land which would impair the construction, use, sale or occupancy of the Property (or any portion thereof) in any manner whatsoever.

4.13 Governmental Regulations.

Neither Borrower nor Guarantor is subject to regulation under the Investment Company Act of 1940, the Federal Power Act, the Public Utility Holding Company Act of 1935, the Interstate Commerce Act or any federal or state statute or regulation limiting its ability to incur indebtedness for money borrowed.

4.14 Employee Benefit Plans.

Borrower maintains no pension, retirement or profit sharing employee benefit plan that is subject to any provision of the Employee Retirement Income Security Act of 1974, as amended from time to time.

4.15 Brokers.

There are no brokerage commissions or finders’ fees due or claimed by any party to be due in connection with or with respect to the transaction contemplated hereby.

4.16 Defects and Hazards.

Borrower does not know of any defects, facts or conditions affecting the Land that would make it unsuitable for the use contemplated hereunder or of any abnormal hazards (including earth movement or slippage) affecting the Land.

4.17 Permits.

Borrower has obtained a grading permit (which is the only permit required to perform the grading work for the Project) and will obtain, not later than one hundred twenty (120) days after the Closing Date, a building permit ready to issue letter issued by the City of San Jose (covering the balance of all permits which are necessary for the construction of the Improvements in accordance with the Plans and in accordance with all applicable building, environmental, subdivision, land use and zoning laws, including all permits for the Improvements, annexation agreements, plot plan approvals, subdivision approvals (including the approval and recordation of any required subdivision map), environmental approvals (including a negative declaration or an environmental impact report if required under applicable law), sewer and water permits and zoning and land use entitlements).

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


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V. COVENANTS OF BORROWER

While this Agreement is in effect, and until Lender has been paid in full the principal of and interest on all advances made by Lender hereunder and under the other Loan Documents, Borrower hereby covenants as set forth in this Article V:

5.1 Completing Construction.

Grading of the Project shall commence no later than September 30, 2012.Borrower shall become a party to no contract that obligates Borrower to pay an amount greater than $100,000, including the General Contractor’s construction contract, for the performance of any work on the Property or for the supplying of any labor, materials or services for the construction of the Improvements, except upon such terms and with such parties as shall be approved in writing by Bondowner Representative. No approval by Bondowner Representative of any contract or change order shall make Bondowner Representative and/or Lender responsible for the adequacy, form or content of such contract or change order. Borrower shall expeditiously complete and fully pay for the development of the Property and construction of the Improvements in a good and workmanlike manner and in accordance with the contracts, subcontracts and Plans submitted to and approved by Bondowner Representative, and in compliance with all applicable Governmental Requirements, and any covenants, conditions, restrictions and reservations applicable thereto, so that Completion occurs on or before the Completion Date. Borrower assumes full responsibility for the compliance of the Plans and the Property with all Governmental Requirements and with sound building and engineering practices, and, notwithstanding any approvals by Bondowner Representative, neither Bondowner Representative nor Lender shall have any obligation or responsibility whatsoever for the Plans or any other matter incident to the Property or the construction of the Improvements. Borrower shall correct or cause to be corrected (a) any defect in the Improvements, (b) any departure in the construction of the Improvements from the Plans or Governmental Requirements, and (c) any encroachment by any part of the Improvements or any other structure located on the Land on any building line, easement, property line or restricted area. Borrower shall cause all roads necessary for the utilization of the Property for its intended purposes to be completed and dedicated (if dedication thereof is required by any governmental authority), the bearing capacity of the soil on the Land to be made sufficient to support the Improvements, and sufficient local utilities to be made available to the Property and installed at costs (if any) set out in the Loan Budget, on or before the Completion Date. Promptly following completion of the foundations of the Improvements (and in any event within 15 days of Bondowner Representative’s request after completion of the foundations), Borrower shall provide to Bondowner Representative, at Borrower’s expense, a CLTA 102.5 Endorsement to the Title Policy satisfactory to Bondowner Representative which ensures that there are no Encroachments.

5.2 Changing Costs, Scope or Timing of Work.

Borrower shall deliver to Bondowner Representative revised, sworn statements of estimated costs of the Property, showing changes in or variations from the original Loan Budget, as soon as such changes are known to Borrower. Borrower shall deliver to Bondowner Representative a revised construction schedule, if and when any target date set forth on


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Exhibit G hereto has been delayed by thirty (30) consecutive days or more, or when the aggregate of all such delays equals ninety (90) days or more.

Borrower shall promptly furnish Bondowner Representative with two (2) copies of all changes or modifications in the Plans, and if requested by Bondowner Representative, contracts or subcontracts for the Property, as approved by Bondowner Representative, prior to incorporation of any such change or modification into the Property, whether or not Bondowner Representative’s consent to such change or modification is required hereby. No work may be performed pursuant to any change order or pending change order prior to delivery thereof to Bondowner Representative. Borrower shall not make or consent to any change or modification in such Plans, contracts or subcontracts, and no work shall be performed with respect to any such change or modification, without the prior written consent of Bondowner Representative, if such change or modification would in any material way alter the design or structure of the Property or change the rentable area thereof in any way, or increase or decrease the Property cost by $75,000 or more for any single change or modification, or if the aggregate amount of all changes and modifications exceeds $250,000.

5.3 Balancing the Loan.

If at any time the Loan is not in Balance, Borrower shall pay to Lender, for deposit into the Borrower Equity Account, within three (3) Business Days from Bondowner Representative’s demand, cash equal to the amount necessary to put the Loan back in Balance, which amount shall be disbursed toward the payment of Property costs prior to any further disbursements of Loan funds.

5.4 Paying Costs of Property and Loan.

Borrower shall pay and discharge, when due, all taxes, assessments and other governmental charges upon the Property, as well as all claims for labor and materials which, if unpaid, might become a lien or charge upon the Property; provided, however, that Borrower shall have the right to contest the amount, validity and/or applicability of any of the foregoing in strict accordance with the terms of the Deed of Trust.

Borrower shall also pay all costs and expenses of Lender, Bondowner Representative (and, during periods when a default exists, Bondowners) in connection with the Property, the preparation and review of the Loan Documents and the making, closing, administration and repayment of the Loan, and, reasonable costs incurred in connection with any transfer of the Loan and/or the Bonds, including, but not limited to, the fees of Lender’s attorneys and Bondowner Representative’s attorneys (which, at times when no default exists, shall be limited to reasonable attorneys’ fees), fees of the Inspecting Architect, appraisal fees, environmental fees, survey and title search fees, title insurance costs, disbursement expenses, and all other costs and expenses payable to third parties incurred by Lender and Bondowner Representative (and, during periods when a default exists, the Bondowners), in connection with the Loan. Without limiting the foregoing, Borrower shall pay all reasonable fees, charges and disbursements of outside counsel for Lender and/or Bondowner Representative (determined on the basis of such counsel’s generally applicable rates, which may be higher than the rates such counsel charges Lender or Bondowner Representative in certain matters) and/or the allocated


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costs of in-house counsel incurred from time to time. Such costs and expenses shall be so paid by Borrower whether or not the Loan is fully advanced or disbursed.

5.5 Using Loan Proceeds.

Borrower shall use the Loan proceeds solely to pay, or to reimburse Borrower for paying, costs and expenses shown on the Loan Budget approved by Bondowner Representative and incurred by Borrower in connection with the acquisition and development of the Land, the construction of the Improvements on the Land and the equipping of the Improvements, together with other expenses set forth on the Loan Budget approved by Bondowner Representative and such incidental costs and expenses relating thereto as may be approved from time to time in writing by Bondowner Representative. Borrower shall take all reasonable steps necessary to assure similar use of Loan proceeds by its contractors and subcontractors.

5.6 Keeping of Records.

Borrower shall set up and maintain accurate and complete books, accounts and records pertaining to the Property in a manner reasonably acceptable to Bondowner Representative. Borrower will permit representatives of Lender, Bondowner Representative and the Inspecting Architect to have free access to and to inspect and copy all books, records and contracts of Borrower. Any such inspection by Lender, Bondowner Representative and/or the Inspecting Architect shall be for the sole benefit and protection of Lender, Bondowner Representative and the Bondowners, and none of Lender, Bondowner Representative nor Bondowners shall have any obligation to disclose the results thereof to Borrower or to any third party.

5.7 Providing Financial Information.

Borrower shall furnish to Lender and Bondowner Representative such financial information concerning Borrower any Guarantor and the Property as Bondowner Representative may request, and shall furnish to Lender and Bondowner Representative (a) evidence of payment of real estate taxes assessed against the Property on or before each due date thereof during the term of the Loan, (b) annual financial statements for Borrower and each Guarantor within ninety (90) days after the end of each fiscal year, including balance sheets, income statements, a statement of cash flow and supporting schedules reasonably requested by Bondowner Representative, and (c) copies of the federal income tax returns (with all supporting schedules) of Borrower, each General Partner and each Guarantor due for each year during the term of the Loan within fifteen (15) days after the filing of the same with the Internal Revenue Service. All such financial statements shall be in reasonable detail, shall be prepared for partnerships, limited liability companies and corporations in accordance with GAAP, and for individuals in accordance with accounting principles consistently applied, and shall be certified by the party to which they apply as true, correct and complete.

5.8 Providing Operating Budgets and Operating Statements.

After Completion, Borrower shall deliver to Lender and Bondowner Representative within thirty (30) days after the end of each calendar month, a Borrower prepared Operating Statement and rent roll for the Property for the preceding calendar month, which shall


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specifically note all variations from the current Operating Budget. Borrower shall also deliver to Lender and Bondowner Representative an annual Operating Statement and rent roll for the Property within sixty (60) days following the end of each fiscal year. All such Operating Statements shall be certified as true, correct and complete by Borrower.

5.9 Providing Leasing Information.

Upon the commencement of leasing with respect to the Improvements, Borrower shall provide a leasing status report for the Property within twenty (20) days of the end of each month.

5.10 Providing Updated Surveys.

Upon completion of the foundation of the Improvements, Borrower shall cause the Title Company to issue an endorsement to the Title Policy in form and substance acceptable to Bondowner Representative insuring that all foundations and footings are within the boundaries of the Property and that no buildings are to be constructed within the areas of any easement.

5.11 Providing Evidence of Completion.

Upon Completion, Borrower shall furnish Lender and Bondowner Representative with all items required to evidence Completion, including, but not limited to, (a) temporary occupancy permits; (b) a final, certified Property “as-built” survey (three (3) copies); (c) certification from the Project Architect that the Property has been completed in accordance with the approved Plans; (d) the evidence of insurance required by Section 5.12 hereof; (e) copies of all licenses and permits required for operation of the Property; and (f) a proposed Operating Budget for the Property for its first year of operation.

5.12 Maintaining Insurance Coverage.

Borrower shall, at all times until Lender has been fully repaid all indebtedness evidenced by the Note, maintain, or cause to be maintained, in effect (and shall furnish to Lender and Bondowner Representative copies of), insurance policies, as required under the terms of Exhibit F attached hereto, and shall furnish to Lender and Bondowner Representative on an annual basis with proof of payment of all premiums therefor within thirty (30) days of payment.

5.13 Complying with Other Documents.

Borrower shall comply with and perform all of its agreements and obligations under all other contracts and agreements to which Borrower is a party relating to the ownership, occupancy, use, development, construction or management of the Property, and shall comply with all requests by Bondowner Representative which are consistent with the terms thereof.

5.14 Lease Approval Rights.

Except for leases of individual residential units, garage units and storage units within the Property entered into in compliance with all applicable regulatory agreements and similar requirements, Borrower shall not enter into, amend or modify any lease covering any


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portion of the Property without Bondowner Representative’s prior written consent, in Bondowner Representative’s sole discretion. Borrower shall, upon Bondowner Representative’s request, furnish to Bondowner Representative, upon execution, a fully executed copy of each such lease entered into by Borrower, together with all exhibits and attachments thereto and all amendments and modifications thereof. Bondowner Representative may declare each such lease to be prior or subordinate to the Deed of Trust, at Bondowner Representative’s sole option.

5.15 Compliance with Laws.

Borrower will comply and, to the extent it is able, will cause others to comply with all laws and requirements of governmental authorities having jurisdiction over the processing, approving and recording of any subdivision map, the Land or construction or sale of the Improvements (or any of them). Borrower will comply and, to the extent it is able, will cause others to comply with all restrictive covenants and all obligations created by private contracts and leases which affect ownership, construction, equipping, fixturing, use, occupancy, sale or leasing of the Property (or any portion thereof). The Property and the leasing thereof shall be in compliance with all permits and approvals issued by governmental agencies with respect to the Property, applicable building, zoning and use laws, requirements, regulations and ordinances and such completion and sale will not violate any restrictions of record against the Property. Borrower will deliver to Bondowner Representative, promptly after receipt thereof, copies of all permits and approvals received from governmental authorities relating to the use, construction, or sale of the Improvements.

5.16 Ownership of Personal Property.

Borrower will be the sole owner of all Equipment acquired after the date hereof, free from any adverse lien, security interest or adverse claim of any kind whatsoever, except for security interests and liens in favor of Lender and other liens approved by Bondowner Representative, in Bondowner Representative’s sole discretion. Borrower will not convey or transfer any portion of the Equipment without the prior written consent of Bondowner Representative. In addition, Borrower shall not cause or permit the removal from the Property of any Equipment (other than tools and equipment used in the development of the Project) unless (i) no Event of Default remains uncured and (ii) Borrower promptly substitutes and installs on the Property other items of equal or greater value in the operation of the Property, all of which items shall be free of liens and shall be subject to the liens of the Deed of Trust, and executes and delivers to Bondowner Representative all documents required by Bondowner Representative in connection with the attachment of such liens to such items. Borrower shall keep detailed records of each such removal and shall make such records available to Bondowner Representative upon written request from time to time.

5.17 Representations and Warranties.

Until repayment of the Note and all other obligations secured by the Deed of Trust, Borrower shall ensure that the representations and warranties of Article IV remain true and complete.


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5.18 Trade Names.

Borrower shall immediately notify Bondowner Representative in writing of any change in the jurisdiction of organization or place of business of, or the change in the legal, trade or fictitious business names used by, Borrower, any General Partner or any Guarantor, and Bondowner Representative is hereby authorized to file or record any additional financing statements, amendments and other certificates necessary to reflect any such changes.

5.19 No Distributions.

Prior to the Conversion Date, Borrower shall not, without the prior written consent of Bondowner Representative in its sole discretion, make any distribution of assets to any partner in Borrower, whether or not such a distribution is permitted under the terms of Borrower’s partnership agreement, including repayment of any loans made by a partner in Borrower to Borrower, return of capital contributions, distributions upon termination, liquidation or dissolution of Borrower or any development, property management, accounting or other fees payable to a partner in Borrower (unless any such fee is expressly included in the budget and has been approved by Bondowner Representative, in Bondowner Representative’s sole discretion). Notwithstanding the foregoing, after Borrower has contributed $2,550,000 of Construction NOI into the Borrower Equity Account, Borrower may retain any additional Construction NOI generated by the Property to pay for operating expenses in accordance the Operating Budget for the Property prepared by Borrower and approved by Bondowner Representative.

5.20 Future Development.

Except as contemplated by the Plans and this Agreement, Borrower shall not undertake any on-site construction, demolition or rehabilitation work on the Land without the prior written consent of Bondowner Representative.

5.21 Further Assurances.

Borrower shall execute and deliver from time to time, promptly after any request therefor by Lender and/or Bondowner Representative, any and all instruments, agreements and documents and shall take such other action as may be necessary or desirable in the reasonable opinion of Lender and/or Bondowner Representative to maintain, perfect or insure Lender’s security provided for herein and in the other Loan Documents, including the filing or recording of financing statements and UCC renewal statements or amendments (which Lender and/or Bondowner Representative may do on their own volition), the execution of such amendments to the Deed of Trust and the other Loan Documents and the delivery of such endorsements to the Title Company, all as Lender or Bondowner Representative reasonably requires, and shall pay all fees and expenses (including reasonable attorneys’ fees) related thereto or incurred by Lender and Bondowner Representative in connection therewith; provided, however, that no such instruments, agreements and documents or actions shall increase Borrower’s or Guarantor’s obligations or liability under the Loan Documents.


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5.22 Notice of Litigation, Etc.

Promptly upon receiving notice thereof, Borrower will give, or cause to be given, prompt written notice to Bondowner Representative of (a) any action or proceeding instituted by or against Borrower, any General Partner, any Guarantor or the Property in any federal or state court or before any commission or other regulatory body, Federal, state or local, foreign or domestic involving an amount in excess of $50,000; or (b) any such proceedings that are threatened against Borrower, any General Partner or any Guarantor which, if adversely determined, could have a material and adverse effect upon any of their businesses, operations, properties, assets, managements, natures of ownership or conditions (financial or otherwise); or (c) any dispute between Borrower and any Governmental Authority relating to the Property, the adverse determination of which would materially and adversely affect the Property.

5.23 Signage.

Borrower shall not sell, lease or assign the right to any signage on or about the Property without the prior written consent of Bondowner Representative. Borrower shall not erect any sign on or about the Property without the prior written consent of Bondowner Representative.

5.24 Maintenance of Existence.

Borrower, Guarantor, and each constituent general partner thereof shall maintain and preserve its respective existence and all rights and franchises material to its respective business.

5.25 Permits, Approvals and Entitlements.

Within one hundred twenty (120) days of the Closing Date, Borrower shall satisfy all requirements for obtaining all permits which are necessary for the construction of the Improvements in accordance with the Plans and in accordance with all applicable building, environmental, subdivision, land use and zoning laws, and shall deliver to Bondowner Representative a permit ready to issue letter from the City of San Jose. In addition, within thirty (30) days of delivering the permit ready to issue letter to Bondowner Representative, Borrower shall deliver to Bondowner Representative copies of all building permits required to construct the Improvements. During construction of the Improvements, Borrower shall make available to Bondowner Representative for Bondowner Representative’s review copies of all sign-off cards relating to the Property and, at Bondowner Representative’s request, shall deliver copies of such sign-off cards to Bondowner Representative.

5.26 Single Purpose Entity Provisions.

Borrower’s sole business purpose shall be to own and operate the Property. Borrower (i) shall conduct business only in its own name and under any trade name for the Improvements, (ii) shall not engage in any business or have any assets unrelated to the Property, (iii) shall not have any indebtedness other than as permitted by this Agreement, (iv) shall have its own separate books, records, and accounts (with no commingling of assets), (v) shall hold itself out as being an entity separate and apart from any other person or entity, (vi) shall observe


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limited partnership formalities independent of any other entity, and (vii) shall not change its name, identity, or organizational structure, unless Borrower shall have obtained the prior written consent of Bondowner Representative to such change, and shall have taken all actions necessary or requested by Lender or Bondowner Representative to file or amend any financing statement or continuation statement to assure perfection and continuation of perfection of security interests under the Loan Documents.

5.27 USA Patriot Act Compliance Covenant.

Borrower, Guarantor and their respective Affiliates and agents shall not (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including the making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person; (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224; or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224, the USA Patriot Act of 2001 (Public Law 107-56) (the “USA Patriot Act”) or any other Anti-Terrorism Law. Borrower shall deliver to Lender or Bondowner Representative any certification or other evidence requested from time to time by Lender or Bondowner Representative in their sole discretion, confirming Borrower’s compliance with this Section. For the purposes of this Section, (1) “Blocked Person” shall mean (i) a Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224; (ii) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224; (iii) a Person or entity with which any Bondowner is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; (iv) a Person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224; (v) a Person or entity that is named as a “specially designated national” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list; or (vi) a person or entity who is affiliated or associated with a person or entity listed above and (2) “Anti-Terrorism Laws” shall mean any laws relating to terrorism or money laundering, including Executive Order No. 13224, the USA Patriot Act, the laws comprising or implementing the Bank Secrecy Act, and the Law administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing laws may from time to time be amended, renewed, extended, or replaced).

5.28 Compliance Certificates.

Borrower and Guarantor shall deliver to Bondowner Representative, on or before the date which is ninety (90) days after June 30 and December 31 of each calendar year, a Compliance Certificate as of June 30 and December 31, as applicable.

5.29 Tax Covenants.

Borrower shall comply with the requirements and conditions of the Tax Certificate and the Regulatory Agreement. Without limiting the foregoing and notwithstanding anything to the contrary in this Agreement, Borrower will not take, or permit to be taken on its


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behalf, any action which would cause interest on the Bonds to be included in gross income for federal income tax purposes and will take such reasonable action as may be necessary to continue such exclusion from gross income, including:

(a) Borrower will not use the proceeds of the Bonds, or any other funds which may be deemed to be proceeds of the Bonds pursuant to Section 148 of the Code, in the manner which will cause the Bonds to be “arbitrage bonds” within the meaning of such section, and will comply with the requirements of such Section throughout the term of the Bonds;

(b) Borrower will prepare and file any statements required to be filed by it in order to maintain such exclusion;

(c) not less than ninety-five percent (95%) of the net proceeds of the Bonds (within the meaning of Section 142(a) of the Code) shall be used to pay Qualified Project Costs (as defined in the Regulatory Agreement);

(d) upon completion of the Project (but in no event more than three years after the Closing Date), Borrower shall prepare a final allocation of the proceeds of the Bonds that have been expended to the Qualified Project Costs;

(e) in order to satisfy the requirements set forth in subpart (4) of the definition of “program investment” that appears in Section 1.148 1(b) of the Treasury Regulations (which requirements must be met in order for the Loan to qualify as a program investment within the meaning of that section), neither Borrower nor any related person will purchase Bonds in an amount related to the amount of the Loan;

(f) no changes will be made to the Project, no actions will be taken by Borrower, and Borrower will not omit to take any actions, which will in any way adversely affect the tax exempt status of the interest on the Bonds;

(g) if Borrower becomes aware of any circumstance, event or condition which would result in the interest payable on the Bonds becoming includable in gross income for federal income tax purposes, Borrower will promptly give written notice of such circumstance, event or condition to Bond Trustee, Lender and Bondowner Representative;

(h) the full amount of each disbursement from the Loan will be applied to pay or to reimburse Borrower for the payment of Project Costs and, after taking into account any proposed disbursement, (i) at least ninety-five percent (95%) of the net proceeds of the Bonds (as defined in Section 150 of the Code) will be used to pay Qualified Project Costs to provide a qualified residential rental project (as defined in Section 142(d) of the Code), (ii) less than twenty five percent (25%) of the net proceeds of the Bonds will have been disbursed to pay or to reimburse Borrower for the cost of acquiring land, (iii) not more than two percent (2%) of the proceeds of the Bonds will have been used for Costs of Issuance (as defined in the Indenture), and (iv) none of the proceeds of the Bonds (as defined for purposes of Section 147(g) of the Code) will be disbursed to provide working capital;

(i) Borrower will cause all of the residential units in the Project (with the exception of one manager’s unit) to be rented or available for rental on a basis which satisfies


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the requirements of the Act (as defined in the Regulatory Agreement), the Code and the Regulatory Agreement;

(j) all leases for the Project will comply with all applicable laws and theRegulatory Agreement;

(k) in connection with any lease or grant by Borrower of the use of the Project, Borrower will require that the lessee or user of any portion of the Project not use that portion of the Project in any manner which would violate the covenants set forth in this Agreement or the Regulatory Agreement;

(l) no portion of the proceeds of the portion of the Loan shall be used to provide any airplane, skybox or other private luxury box, health club facility, facility primarily used for gambling, or store the principal business of which is the sale of alcoholic beverages for consumption off premises, and no portion of the proceeds of the Loan shall be used for an office unless (i) the office is located on the premises of the facilities constituting the Project and (ii) not more than a de minimis amount of the functions to be performed at such office is not related to the day-to-day operations of the Project;

(m) no proceeds of the Bonds will be used, for the acquisition of any tangible property or an interest therein, other than land or an interest in land, unless the first use of such property was pursuant to such acquisition; provided, however, that this limitation shall not apply with respect to any building (and the equipment therefor) if rehabilitation expenditures (as defined in the Code) with respect to such building equal or exceed fifteen percent (15%) of the portion of the cost of acquiring such building (and equipment) financed with proceeds of the Bonds; and provided, further, that this limitation shall not apply with respect to any structure other than a building if rehabilitation expenditures with respect to such structure equal or exceed one hundred percent (100%) of the portion of the cost of acquiring such structure financed with the proceeds of the Bonds; and

(n) prior to the issuance of the Bonds, the California Debt Limit Allocation Committee shall have transferred a portion of the State of California’s private activity bond allocation (within the meaning of Section 146 of the Code) at least equal to the original principal amount of the Bonds.

5.30 Payment of Rebate.

(a) Arbitrage Rebate. The Borrower agrees to take all steps necessary to compute and pay any rebatable arbitrage in accordance with Section 148(f) of the Code including:

(i) Delivery of Documents and Money on Computation Dates. The Borrower will deliver to the Servicer, within 55 days after each Computation Date (as such term is defined in Section 1.148 3(e) of the Treasury Regulations):

(A) a statement, signed by the Borrower, stating the Rebate Amount as of such Computation Date;


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(B) if such Computation Date is an Installment Computation Date (which shall be any Computation Date other the first Computation Date and the final Computation Date), an amount that, together with any amount then held for the credit of the Rebate Fund (as defined in the Indenture), is equal to at least 90% of the Rebate Amount as of such Installment Computation Date, less any “previous rebate payments” made to the United States (as that term is used in Section 1.148-3(f)(1) of the Treasury Regulations), or (2) if such Computation Date is the final Computation Date, an amount that, together with any amount then held for the credit of the Rebate Fund, is equal to the Rebate Amount as of such final Computation Date, less any “previous rebate payments” made to the United States (as that term is used in Section 1.148-3(f)(1) of the Treasury Regulations); and

(C) an Internal Revenue Service Form 8038-T properly signed and completed as of such Computation Date.

(ii) Correction of Underpayments. If the Borrower shall discover or be notified as of any date that any payment paid to the United States Treasury pursuant to this Section 5.30 of an amount described in Section 5.30(a)(i)(A) or (B) above shall have failed to satisfy any requirement of Section 1.148-3 of the Treasury Regulations (whether or not such failure shall be due to any default by the Borrower, the Lender, the Bondowner Representative or the Trustee), the Borrower shall (1) pay to the Trustee (for deposit to the Rebate Fund) and causethe Trustee to pay to the United States Treasury from the Rebate Fund the underpayment of the Rebate Amount, together with any penalty and/or interest due, as specified in Section 1.148-3(h) of the Treasury Regulations, within 175 days after any discovery or notice and (2) deliver to the Servicer an Internal Revenue Service Form 8038-T completed as of such date. If such underpayment of the Rebate Amount, together with any penalty and/or interest due, is not paid to the United States Treasury in the amount and manner and by the time specified in the Treasury Regulations, the Borrower shall take such steps as are necessary to prevent the Bonds from becoming arbitrage bonds within the meaning of Section 148 of the Code.

(iii) Records. The Borrower shall retain all of its accounting records relating to the funds established under the Indenture and all calculations made in preparing the statements described in this Section 5.30 for at least six years after the later of the final maturity of the Bonds or the date the Bonds are paid in full.

(iv) Costs. The Borrower agrees to pay all of the fees and expenses of a nationally recognized Bond Counsel and rebate analyst (who shall be a certified public accountant or any other consultant expert in rebate calculations and retained by Borrower in connection with computing the Rebate Amount).

(v) No Diversion of Rebatable Arbitrage. The Borrower will not indirectly pay any amount otherwise payable to the federal government pursuant


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to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds which is not purchased at Fair Market Value or includes terms that the Borrower would not have included if the Bonds were not subject to Section 148(f) of the Code.

(vi) Modification of Requirements. If at any time during the term of this Agreement, the Lender, the Bondowner Representative, the Trustee or the Borrower desires to take any action which would otherwise be prohibited by the terms of this Section 5.30, such Person shall be permitted to take such action if it shall first obtain and provide to the other Persons named herein an opinion of Bond Counsel to the effect that taking such action will not, in and of itself, adversely affect the exclusion from gross income of the holders thereof of the interest on the Bonds for federal income tax purposes.

(vii) Appointment of Rebate Analyst. The Borrower covenants that it will, within 30 days of the date of the Closing Date, engage a qualified person or firm acceptable to the Lender and the Bondowner Representative to perform any rebate calculations that may be required to be made from time to time with respect to the Bonds. The Borrower hereby covenants that it will, within 30 days of the date of the Closing Date, provide evidence to the Lender and the Bondowner Representative of such appointment.

(b) Rebate Fund. The Rebate Fund has been established with the Trusteepursuant to Section 6.07 of the Indenture into which the Borrower shall make payment as provided in said Section 6.07 and this Section 5.30.

(c) The Borrower shall preserve all statements, forms and explanations delivered pursuant to this Section 5.30 and all records of transactions in the Rebate Fund until six years after the retirement of the Bonds.

(d) Moneys and securities held in the Rebate Fund are not pledged or otherwise subject to any security interest in favor of the Lender or the Trustee to secure the Bonds or the Loan.

(e) Notwithstanding anything to the contrary in this Agreement, no payment shall be made to the United States if the Borrower shall furnish to the Lender, the Bondowner Representative and the Trustee an opinion of Bond Counsel to the effect that such payment is not required under Section 148(d) and (f) of the Code in order to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds. In such event, the Borrower shall be entitled to withdraw funds from the Rebate Fund to the extent the Borrower shall provide an opinion of Bond Counsel to the effect that such withdrawal will not, in and of itself, adversely affect the exclusion from gross income of the holders thereof of the interest on the Bonds for federal income tax purposes.

(f) Notwithstanding the foregoing, the computations and payments of rebate amounts referred to in this Section 5.30 need not be made to the extent that neither the Lender


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nor the Borrower will thereby fail to comply with any requirements of Section 148(f) of the Code based on an opinion of Bond Counsel to the effect that such failure to comply will not, in and of itself, adversely affect the exclusion from gross income of the holders thereof of the interest on the Bonds for federal income tax purposes, a copy of which shall be provided to the Bondowner Representative.

5.31 Determination of Taxability.

If the Bondowner Representative or the holder of the Bonds receives notice of a “Determination of Taxability” (as hereinafter defined), the rate of interest on the Note shall be automatically increased, effective as of the “Date of Taxability” (as hereinafter defined), as described in the Note, in which event the Loan Repayments required hereunder by Borrower shall be adjusted in accordance with the increased payments required pursuant to the Note. In such case, Borrower agrees also to pay to the holder of the Bonds forthwith an amount equal to the aggregate difference between (i) the amounts actually paid between the Date of Taxability and the date of receipt of notice of the Determination of Taxability and (ii) the payments due during such period based upon the increased rate, together with the amount of interest and penalties, if any, incurred by the holder of the Bonds as a result of such change in taxable status. For the purpose of this section, a “Determination of Taxability” shall mean the issuance of a statutory notice of deficiency by the Internal Revenue Service, or a ruling of the National Office or any District Office of the Internal Revenue Service, or a final decision of a court of competent jurisdiction which holds that the interest payable on the Note is includable in the gross income of the holder of the Bonds for federal income tax purposes if the period, if any, for contest or appeal of such action, ruling or decision by Borrower or holder of the Bonds has expired without any such contest or appeal having been properly instituted by the holder of the Bonds or the Borrower. The expenses of any such contest shall be paid by the party initiating the contest and neither Borrower nor the holder of the Bonds shall be required to contest or appeal any Determination of Taxability. The “Date of Taxability” shall mean that point in time, as specified in the determination, ruling or decision, that the interest payable on the Note becomes includable in the gross income of the holder of the Bonds for federal income tax purposes.

5.32 Transfers.

Except as expressly permitted under the terms of the Deed of Trust, Borrower shall not “transfer” (as that term is defined in Section 1.12 of the Deed of Trust) the Property or any partnership interest in the Borrower.

VI. DEFAULTS

6.1 Events of Default.

The occurrence or existence of any one or more of the following events shall constitute an “Event of Default “under this Agreement:

(a) Borrower shall default in the payment of principal due according to the terms hereof or of any Note and shall fail to cure such default within three (3) days of the due date.


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(b) Borrower shall default in the payment of interest due according to the terms hereof or of the Note and shall fail to cure such default within three (3) days of the due date, or in the payment of fees or other amounts payable to Lender or Bondowner Representative, under this Agreement, under the Note or under any of the other Loan Documents for more than ten (10) days after receipt of notice thereof.

(c) Borrower shall fail to perform or observe any obligation or covenant (other than those obligations and covenants described in subparagraphs (a) and (b), above, or otherwise set forth in subparagraphs (d) through (m), below, of this Section 6.1) under this Agreement or any other Loan Document within thirty (30) days after receipt of written notice that such obligation was not performed; provided that, if cure cannot reasonably be effected within such thirty (30)-day period, such failure shall not be an event of default hereunder so long as Borrower promptly (in any event, within ten (10) days after receipt of such notice) commences cure, and thereafter diligently (in any event, within forty-five (45) days after receipt of such notice) prosecutes such cure to completion; and provided further, however, that notwithstanding the thirty (30)-day cure period or extended cure period described above in this subparagraph (c), if a different notice or cure period is specified under any Loan Document or under any provision of the Loan Documents as to any such failure or breach, the specific Loan Document or provision shall control, and Borrower shall have no more time to cure the failure or breach than is allowed under the specific Loan Document or provision as to such failure or breach.

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

(e) Borrower shall be in default under the terms of any of the other Loan Documents beyond any applicable cure period specified therein, and such default shall not be waived by Bondowner Representative, or an Event of Default shall exist under the terms of any such instrument.

(f) All or any material portion of the Property is condemned, seized or appropriated by a Governmental Authority.

(g) The Property is materially damaged or destroyed by fire or other casualty, unless the conditions to Lender’s obligation to apply loss proceeds to the restoration of the Property set forth in Section 1.5 of the Deed of Trust have been satisfied and Borrower diligently restores the Property in accordance with the terms thereof.

(h) Any contractor for the Project whose contract exceeds $100,000 in value breaches such contract, and Borrower fails to enter into an agreement with a substitute contractor acceptable to Bondowner Representative within the Loan Budget allocation for such contract, within 30 days after such event.

(i) Work on the Property shall be substantially abandoned, or shall be delayed or discontinued (after work is required to have commenced hereunder) for a period of


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fifteen (15) consecutive days (or an aggregate of twenty (20) days in any thirty (30) day period) for any reason, other than governmental orders, decrees or regulations, acts of God, strikes or other causes beyond Borrower’s reasonable control, provided that the same do not, in the aggregate and in Bondowner Representative’s reasonable judgment, threaten to delay the completion of the Project beyond the required completion date set forth in this Agreement.

(j) Borrower, any General Partner or any Guarantor shall be the subject of an order for relief by a bankruptcy court; or shall apply for, consent to or permit the appointment of a receiver, custodian, trustee or liquidator for it or any of its property or assets; or shall fail to, or admit in writing its inability to, pay its debts as they mature; or shall make a general assignment for the benefit of creditors or shall be adjudicated bankrupt or insolvent; or shall take other similar action for the benefit or protection of its creditors; or shall give notice to any governmental body of insolvency or pending insolvency or suspension of operations; or shall file a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors, or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, rearrangement, dissolution, liquidation or other similar debtor relief law or statute; or shall file an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or statute; or shall be dissolved, liquidated, terminated or merged; or shall effect a plan or other arrangement with creditors; or a trustee, receiver, liquidator or custodian shall be appointed for it or for any of its property or assets and shall not be discharged within ninety (90) days after the date of his appointment; or a petition in involuntary bankruptcy or similar proceedings is filed against it and is not dismissed within ninety (90) days after the date of its filing.

(k) Borrower, any General Partner or any Guarantor is dissolved, liquidated or terminated, or all or substantially all of the assets of Borrower, any General Partner or any Guarantor are sold or otherwise transferred without Bondowner Representative’s prior written consent, or any partner withdraws as a partner of Borrower.

(l) Bondowner Representative determines that the remaining undisbursed Loan proceeds are insufficient to fully pay all of the then unpaid costs of the Property and estimated expenses of Completion and (combined with Property income) the costs of lease-up and operation through the Conversion Date (including the Reserves), and Borrower fails to immediately pay to Lender, for deposit into the Borrower Equity Account, within three (3) Business Days of Bondowner Representative’s demand, sufficient funds to permit Lender to pay said excess costs as the same become payable.

(m) Any of the Guaranties or the Environmental Indemnity, at any time and for any reason ceases to be in full force and effect, or any Guarantors or indemnitor contests or denies the validity or enforceability of any Guaranties or the Environmental Indemnity, or gives notice to Lender or Bondowner Representative to such effect, or otherwise attempts to revoke or repudiate any of the foregoing as to any existing or future obligations.

(n) Any Guarantor dies, unless, within ninety (90) days after such Guarantor’s death, the estate of the deceased Guarantor or another substitute guarantor approved by Bondowner Representative shall have assumed all of such Guarantor’s obligations under such Guarantor’s Guaranties pursuant to a written assumption agreement duly authorized, executed


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and delivered by such assuming guarantor to Bondowner Representative and otherwise in form and substance reasonably acceptable to Lender.

(o) Borrower shall fail to maintain insurance as required by this Agreement or shall fail to furnish to Bondowner Representative proof of payment of all premiums for such insurance.

(p) Borrower is enjoined or otherwise prohibited by any Governmental Authority from constructing and/or occupying the Improvements and such injunction or prohibition continues unstayed for thirty (30) days or more for any reason.

(q) Borrower fails to obtain, in form and substance satisfactory to Bondowner Representative, all building permits required to complete the construction of the Improvement within ninety (90) days of the Closing Date.

(r) Any Bond Document is amended, modified or terminated without Bondowner Representative’s prior written consent; or a default occurs under any Bond Document, and such default is not cured within any applicable cure period set forth therein.

(s) A transfer, encumbrance, lien, change of ownership or other action or occurrence prohibited by Deed of Trust shall occur.

(t) Any material adverse change shall have occurred in the financial condition or in the assets or liabilities of Borrower, any General Partner or Guarantor from those set forth in the latest financial statements for each furnished to Bondowner Representative prior to the Closing Date.

(u) Any Guarantor shall fail to perform, observe or comply with any financial covenant or other covenant or obligations set forth in any Guaranties or in the Environmental Indemnity.

(v) Borrower, any General Partner or any Guarantor defaults in any obligation to Bondowner Representative other than in connection with the Loan, subject to any applicable cure period(s).

(w) Any equity contribution required of Borrower or any partner of Borrower is not made when required under this Agreement or any other Loan Document.

(x) Borrower fails to obtain and maintain a property tax exemption for the portion of the Property eligible for such property tax exemption.

(y) Borrower fails to contribute $2,550,000 of Construction NOI on or before the Conversion Date.

(z) (i) Any “Event of Default” occurs under any other Loan Document, or (ii) any Determination of Taxability occurs.


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6.2 Rights and Remedies.

Upon the occurrence of an Event of Default, unless such Event of Default is subsequently waived in writing by Lender (at the direction of Bondowner Representative), Lender shall be entitled, at the direction of Bondowner Representative, to exercise any or all of the following rights and remedies, consecutively or simultaneously, and in any order:

(a) Lender may make one (1) or more further advances of Loan proceeds, without liability to make any subsequent advances thereof.

(b) Lender may suspend its obligation to make advances under this Agreement, without notice to Borrower.

(c) Lender may terminate its obligation to make advances under this Agreement, and Lender may declare the entire unpaid principal balance of the advances made under this Agreement to be immediately due and payable, together with accrued and unpaid interest on such advances, without notice to or demand on Borrower.

(d) Lender may exercise any or all remedies specified herein and in the other Loan Documents, including (without limiting the generality of the foregoing) the right to foreclose the Deed of Trust, and/or any other remedies which it may have therefor at law, in equity or under statute.

(e) Lender may cure the Event of Default on behalf of Borrower, and, in doing so, may enter upon the Property, and may expend such sums as it may deem desirable, including attorneys’ fees, all of which shall be deemed to be advances hereunder, even though causing the Loan to exceed the face amount of the Note, shall bear interest at the Default Rate and shall be payable by Borrower on demand.

6.3 Completion of Improvements by Lender.

In addition, in case of the occurrence of an Event of Default specified in Section 6.1(f) hereof, or any Event of Default caused by, or which results in, Borrower’s failure, for any reason, to continue with construction of the Improvements on the Property as required by this Agreement, then Lender or Bondowner Representative may (but shall not be obligated to), in addition to, or in concert with, the other remedies referred to above, take over and complete construction of the Improvements in accordance with the Plans, with such changes therein as Lender may, in its discretion, deem appropriate, all at the risk, cost and expense of Borrower. Lender may assume or reject any contracts entered into by Borrower in connection with the Property, may enter into additional or different contracts for work, services, labor and materials required, in the judgment of Lender, to complete the Property, and may pay, compromise and settle all claims in connection with the Property. All sums, including attorneys’ fees, and charges or fees for supervision and inspection of the construction and for any other necessary or desirable purpose in the discretion of Lender or Bondowner Representative expended by Lender and/or Bondowner Representative (and/or the Bondowners) in completing or attempting to complete the Property (whether aggregating more, or less, than the face amount of the Note), shall be deemed advances made by the Lender to Borrower hereunder, and Borrower shall be liable to Lender, on demand, for the repayment of such sums, together with interest on such sums


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from the date of their expenditure at the rates provided herein. Lender may, in its discretion, at any time abandon work on the Property, after having commenced such work, and may recommence such work at any time, it being understood that nothing in this Section shall impose any obligation on Lender either to complete or not to complete the Property. For the purpose of carrying out the provisions of this Section, Borrower irrevocably appoints Lender its attorney-in-fact, with full power of substitution, to execute and deliver all such documents, to pay and receive such funds, and to take such action as may be necessary, in the judgment of Lender, to complete the Property. This power of attorney is coupled with an interest and is irrevocable. Lender, however, shall have no obligation to undertake any of the foregoing, and, if Lender does undertake any of the same, neither Lender nor Bondowner Representative nor Bondowner shall have any liability for the adequacy, sufficiency or completion thereof.

VII. MISCELLANEOUS

7.1 Binding Effect; Waivers; Cumulative Rights and Remedies.

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

7.2 Survival.

All agreements, representations and warranties made in this Agreement shall survive the execution of this Agreement, the making of the advances by Lender, and the execution of the other Loan Documents, and shall continue until Lender receives payment in full of all indebtedness of Borrower incurred under this Agreement and under the other Loan Documents.

7.3 Governing Law; Waiver of Jury Trial.

This Agreement, the rights of the parties hereunder and the interpretation hereof shall be governed by, and construed in accordance with, the laws of the State of California in all respects. To the extent permitted by law, Borrower hereby waives any right to a trial by jury in any action relating to the Loan and/or the Loan Documents.


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7.4 Counterparts.

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

7.5 Notices.

Any notice required or permitted to be given by either party hereto to the other under the terms of this Agreement, or documents related hereto, shall be deemed to have been given on the date the same is deposited in the United States Mail, registered or certified, return receipt requested, postage prepaid, addressed to the party to which the notice is to be given at the address set forth opposite its name below, or at any other address specified in a notice given by such party to the other not less than ten (10) days prior to the effective date of the address change.

If to Lender: City of San JoséFinance Department200 East Santa Clara Street, 13th Floor TowerSan José, California 95113-1905Attention: Debt ManagementFacsimile: (408) 292-6482

With a copy to: City of San JoséDepartment of Housing200 East Santa Clara Street, 12th Floor TowerSan José, California 95113-1905Attention: Director of HousingFacsimile: (408) 998-3183

With a copy to: San José City Attorney’s Office200 E. Santa Clara Street, 16th Floor TowerSan José, California 95113Attention: City AttorneyFacsimile: (408) 998-3131

If to Borrower: La Moraga San Jose L.P.c/o St. Anton Partners1801 I Street, Suite 200Sacramento, California 95811Attention: Steven L. EggertFacsimile: (____) __________________

With a copy to: ________________________________________________________________________________________________Attention: ________________________Facsimile: (____) __________________


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If to Bondowner Representative: U.S. Bank National Association621 Capitol MallSuite 800Sacramento, California 95814Attention: Ms. Lisa Gutierrez, Vice PresidentFacsimile: (____) __________________

With a copy to: U.S. Bank National Association345 California Street6th FloorSan Francisco, California 94104Attention: Loan Administration ManagerFacsimile: (____) __________________

With a copy to: Davis Wright Tremaine LLP865 S. Figueroa StreetSuite 2400Los Angeles, California 90017Attention: Mark L. Nelson, Esq.Facsimile: (213) 633-6899

With a copy to: Massachusetts Mutual Life Insurance Companyc/o Cornerstone Real Estate Advisers LLCOne Financial PlazaHartford, Connecticut 06103Attention: Finance Group Loan ServicingLoan NO. 12504Facsimile: (860) _____________________

With a copy to: Massachusetts Mutual Life Insurance Companyc/o Cornerstone Real Estate Advisers LLCOne Financial PlazaHartford, Connecticut 06103Attention: Vice President, LawFacsimile: (860) _____________________

With a copy to: Holland & Knight LLP10 St. James AvenueBoston, Massachusetts 02116Attention: Suanne C. St. Charles, Esq.Facsimile: (617) _________________

7.6 Bondowner Representative’s Sign.

Bondowner Representative may, if it so desires, place a sign of reasonable size on the Land, indicating that Bondowner Representative and/or Bondowners are providing financing


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for the Property, and/or may otherwise publicize its involvement with the Property, including, but not limited to, issuing press releases.

7.7 No Third Party Reliance.

No third party shall be entitled to rely upon this Agreement or to have any of the benefits of Lender’s, Bondowner Representative’s and Bondowners’ interests hereunder, unless such third party is an express assignee of all or a portion of the interest of Lender, Bondowner Representative and/or any Bondowner hereunder. For purposes of clarification, from and after the Conversion Date, Permanent Lender shall be the Bondowner Representative and, therefore, shall be a direct party hereto (and not be deemed a third party).

7.8 Time of the Essence.

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

7.9 Entire Agreement; No Oral Modifications.

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

7.10 Captions

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

7.11 Joint and Several Liability.

If Borrower consists of more than one (1) individual and/or entity, each of said individuals and/or entities shall be jointly and severally liable for each covenant, agreement, representation and warranty of Borrower hereunder.

7.12 Borrower’s Relationship with Lender, Bondowner Representative and Bondowners.

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


53DWT 19920588v5 0017787-000267

7.13 Borrower 2822 Waiver.

In the event that, at any time, any surety exists that is liable upon only a portion of Borrower’s obligations under the Loan Documents and Borrower provides partial satisfaction of any such obligation(s), Borrower hereby waives any right it would otherwise have under Section 2822 of the California Civil Code or similar law or otherwise to designate the portion of the obligation to be satisfied. The designation of the portion of the obligation to be satisfied shall, to the extent not expressly made by the terms of the Loan Documents, be made by Bondowner Representative rather than by Borrower.

7.14 USA Patriot Act Notice.

The USA Patriot Act of 2001 (Public Law 107-56) and federal regulations issued with respect thereto require all financial institutions to obtain, verify and record certain information that identifies individuals or business entities which open an “account” with such financial institution. Consequently, Lender, Bondowner Representative and/or Bondowners may from time-to-time request, and Borrower shall provide to Lender, Bondowner Representative and/or Bondowners, Borrower’s name, address, tax identification number and/or such other identification information as shall be necessary for, Lender, Bondowner Representative and/or Bondowners to comply with federal law. An “account” for this purpose may include, without limitation, a deposit account, cash management service, a transaction or asset account, a credit account, a loan or other extension of credit, and/or other financial services product.

7.15 Subordination to Extended Use Agreement.

In order to receive an allocation of low income housing tax credits, Borrower will be required to record in the real property records of the county in which the property is located, an “extended low-income housing commitment” (as defined in Code Section 42(h)(6)(B)) (the “Extended Use Agreement”). Bondowner Representative shall, upon Borrower’s written request, execute a subordination agreement (the “Subordination Agreement”), wherein the lien of the Deed of Trust is subordinated to the Extended Use Agreement, provided, however, that the following conditions are met:

(a) under the terms of the Extended Use Agreement and the Subordination Agreement, if Bondowner Representative, or its successors or assigns (collectively, the “REO Owner”) acquire the Property and Improvements by foreclosure (or instrument in lieu of foreclosure), then the “extended use period” (as defined in Code Section 42(h)(6)(D)) shall terminate, except for the obligation of the REO Owner to comply with the limitations on evictions, termination of tenancy and increase in rents for the three year period following the REO Owner’s acquisition of the Property, as set forth in Code Section 42(h)(6)(E)(ii); and

(b) the Subordination Agreement shall otherwise be in a form, and shall contain terms, reasonably acceptable to Bondowner Representative.

7.16 Termination.

Upon Conversion, certain terms and provisions contained herein shall be terminated and/or superseded by provisions contained in the ///[Permanent Loan Bond Purchase


54DWT 19920588v5 0017787-000267

Agreement]///. After Conversion, in the event of any inconsistency between the terms and provisions contained herein and the terms and provisions of the ///[Permanent Loan Bond Purchase Agreement]///, the terms and provisions of the ///[Permanent Loan Bond Purchase Agreement]/// shall control.

7.17 Lead Arranger and Sole Book Runner.

U.S. Bank National Association, in its capacity as lead arranger and sole book runner, shall have no rights or obligations under this Agreement in addition to those rights and obligations granted to, or imposed upon, U.S. Bank National Association in its capacity as Bondowner Representative.

[Signatures on following page]


S-1DWT 19920588v5 0017787-000267

IN WITNESS WHEREOF, intending to be legally bound, the parties have executed and delivered this Agreement as of the date first written above.

BORROWER:

LA MORAGA SAN JOSE L.P.,a California limited partnership

By: PH La Moraga Holdings, LLC,a California limited liability company,its Managing General Partner

By: Pacific Housing, Inc.,a California nonprofit public benefit corporation,its Sole Member and Manager

By: _____________________________Mark A. WiesePresident

By: Anton La Moraga, LLC,a California limited liability companyits Co-General Partner

By: __________________________Steven L. EggertManager


S-2DWT 19920588v5 0017787-000267

BONDOWNER REPRESENTATIVE:

U.S. BANK NATIONAL ASSOCIATION,a national banking association

By: __________________________________Name: __________________________________Title: __________________________________

LEAD ARRANGER AND SOLE BOOK RUNNER:

U.S. BANK NATIONAL ASSOCIATION,a national banking association

By: __________________________________Name: __________________________________Title: __________________________________


S-3DWT 19920588v5 0017787-000267

LENDER:

CITY OF SAN JOSE

By: __________________________________Name: __________________________________Title: __________________________________

____________________________________

By: ________________________________Name: ________________________________Title: ________________________________


Exhibit ADWT 19920588v5 0017787-000267

EXHIBIT A

DESCRIPTION OF IMPROVEMENTS


Exhibit BDWT 19920588v5 0017787-000267

EXHIBIT B

LEGAL DESCRIPTION OF THE LAND


Exhibit CDWT 19920588v5 0017787-000267

EXHIBIT C

PERMITTED ENCUMBRANCES

As set forth in Bondowner Representative’s letter of title instructions to the Title Company setting forth Bondowner Representative’s requirements for the Title Policy.


Exhibit DDWT 19920588v5 0017787-000267

EXHIBIT D

LOAN BUDGET

(BUDGET)

DATE: _________, 20__

LENDER:

AGENT: U.S. Bank National Association

BORROWER: ___________________

GENERAL CONTRACTOR: ___________________

PROJECT ARCHITECT: ___________________

PROJECT: ___________________

The undersigned Borrower hereby represents and declares to Lender and Bondowner Representative that the budget attached to this Loan Budget includes, to the best knowledge of Borrower based on all information available to Borrower, a true, correct and complete listing of all costs for material, supplies, equipment, labor, and other work and services of any kind necessary to achieve Completion (as that term is defined in the Loan Agreement) of the Project.

The undersigned represents and declares to Lender and Bondowner Representative that Borrower will disclose to Bondowner Representative and obtain Bondowner Representative’s approval of any subsequent changes or increases in the total cost of the Project as shown herein, in accordance with the provisions of the Loan Agreement.

______________, a _________ limited liability company


Exhibit DDWT 19920588v5 0017787-000267

EXHIBIT D(Cont’d)

[ATTACH LOAN BUDGET]


Exhibit EDWT 19920588v5 0017787-000267

EXHIBIT E

TITLE INSURANCE REQUIREMENTS

A title insurance policy in the form of an ALTA loan policy – 2006, with ALTA endorsement Form 1 coverage, amended 6/17/06, without further revision or amendment, insuring that on the Closing Date, Borrower owns fee simple title to the Land and that the Deed of Trust is a valid first lien on the Property in the amount of the Note. The Title Insurance Policy must provide affirmative insurance against mechanics liens and contain CLTA Endorsements 100, 103.7, 104.6, 104.7, 111.5, 116, 116.1, 116.4, and such other endorsements as Bondowner Representative requires, in Bondowner Representative’s sole discretion. Except as approved by Bondowner Representative in writing prior to the Closing Date, the Title Insurance Policy must not contain any survey exceptions, exceptions for rights of parties in possession, easements not of record or unpaid installments of special assessments, or any other exceptions to coverage not approved by Bondowner Representative. The Title Insurance Policy must contain such reinsurance agreements and direct access agreements as Bondowner Representative may require. During the term of the Loan, Bondowner Representative may require other endorsements to the Title Insurance Policy, including without limitation CLTA Endorsements 101.2, 102.5 and 122.


Exhibit FDWT 19920588v5 0017787-000267

EXHIBIT F

INSURANCE REQUIREMENTS

I. PROPERTY INSURANCE

A. DURING CONSTRUCTION

An ORIGINAL (or certified copy) Builder's All-Risk, Completed Value, Non-Reporting Form Policy or Acord 28 Certificate of Insurance naming the borrowing entity as an insured, reflecting coverage of 100% of the replacement cost, and written by a carrier approved by Lender with a current A.M. Best's Insurance Guide Rating of at least A- IX (which is authorized to do business in the state in which the property is located) that affirmatively includes the following:

1. Mortgagee Clause naming U.S. Bank National Association as Mortgagee ISAA ATIMA, with a 30-day notice to Lender in the event of cancellation, non-renewal or material change; OR

2. Lender's Loss Payable Endorsement (ISO 1218 or similar) with a 30-day notice to Lender in the event of cancellation, non-renewal or material change

3. Replacement Cost Endorsement4. No Exclusion for Acts of Terrorism (United States Certified Acts of

Terrorism coverage – TRIPRA)5. No Coinsurance Clause

6. Flood Insurance7. Coastal and Other Wind Coverage

8. Collapse and Earthquake Coverage9. Vandalism and Malicious Mischief Coverage

10. Boiler and Machinery Coverage (aka Electrical and Mechanical Breakdown)

11. Demolition, Increased Cost of Construction Coverage12. In-Transit Coverage

13. Partial Occupancy Permitted14. Borrower’s coverage is primary and non-contributory with any

insurance or self-insurance carried by U.S. Bank National Association15. Delay in Completion or Delay in Rents/Startup Coverage

16. Coverage to be effective upon the date of the Notice to Proceed, the date of site mobilization or the start of any shipment of materials,


Exhibit FDWT 19920588v5 0017787-000267

machinery or equipment to the site, whichever is earlier, and to remain in effect until replaced by permanent All Risk Property Insurance described below, or until such other time as may be mutually agreed upon by U.S. Bank National Association and Borrower.

17. Coverage should be non-cancellable through term of project with automatic extension provision of at least 60 days.

B. UPON COMPLETION

An ORIGINAL (or certified copy) All-Risk Hazard Insurance Policy or Acord 28 Certificate of Insurance naming the borrowing entity as an insured, reflecting coverage of 100% of the replacement cost, and written by a carrier approved by Lender with a current A.M. Best's Insurance Guide Rating of at least A- IX (which is authorized to do business in the state in which the property is located) that affirmatively includes the following:

1. Mortgagee Clause naming the U.S. Bank National Association as Mortgagee ISAA ATIMA with a 30-day notice to Lender in the event of cancellation, non-renewal or material change; OR

2. Lender's Loss Payable Endorsement (ISO 1218 or similar) with a 30-day notice to Lender in the event of cancellation, non-renewal or material change

3. Replacement Cost Endorsement

4. No Exclusion for Acts of Terrorism (United States Certified Acts of Terrorism coverage – TRIPRA)

5. No Coinsurance Clause6. Boiler and Machinery Coverage (aka Electrical and Mechanical

Breakdown)7. Sprinkler Leakage Coverage

8. Vandalism and Malicious Mischief Coverage9. Flood Insurance

10. Loss of Rents Insurance in an amount of not less than 100% of one year's Rental Value of the Project. "Rental Value" shall include:

a) The total projected gross rental income from tenant occupancy of the Project as set forth in the Budget,

b) The amount of all charges which are the legal obligation of tenants and which would otherwise be the obligation of Borrower, and

c) The fair rental value of any portion of the Project which is occupied by Borrower.


Exhibit FDWT 19920588v5 0017787-000267

11. One year's business interruption insurance in an amount acceptable to Lender.

12. Collapse and Earthquake Coverage13. Coastal & Other Wind Coverage

14. Extra Expense Coverage15. Borrower’s coverage is primary and non-contributory with any

insurance or self-insurance carried by U.S. Bank National Association16. Demolition and Increased Cost of Construction

II. LIABILITY INSURANCE

An Acord 25 Certificate of Liability Insurance naming the borrowing entity as an insured, providing coverage on an “occurrence” rather than a “claims made” basis and written by a carrier approved by the Lender, with a current A.M. Best's Insurance Guide Rating of at least A- IX. (which is authorized to do business in the state in which the property is located) that affirmatively includes the following:

1. Combined general liability policy limit of at least $5,000,000.00 each occurrence and aggregate applying liability for Bodily Injury, Personal Injury, Property Damage, Contractual, Products and Completed Operations which combined limit may be satisfied by the limit afforded under the Commercial General Liability Policy, or by such Policy in combination with the limits afforded by an Umbrella or Excess Liability Policy (or policies); provided, the coverage afforded under any such Umbrella or Excess Liability Policy is at least as broad in all material respects as that afforded by the underlying Commercial General Liability Policy. Such policies must contain a Separations of Insureds / Severability of Interest clause.

2. No Exclusion for Acts of Terrorism (United States Certified Acts of Terrorism coverage – TRIPRA)

3. Aggregate limit to apply per location4. Borrower’s coverage is primary and non-contributory with any

insurance or self-insurance carried by U.S. Bank National Association5. Additional Insured Endorsement naming U.S. Bank National

Association as an additional insured with a 30-day notice to Lender in the event of cancellation, non-renewal or material change. A Severability of Interests provision should be included.

III. GENERAL REQUIREMENTS

1. All policies of insurance required herein must contain an endorsement or agreement by the insurer that any loss will be payable in accordance with the terms of such policy notwithstanding any act or negligence of Borrower or any party holding


Exhibit FDWT 19920588v5 0017787-000267

under Borrower which might otherwise result in forfeiture of said insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or deductions against Borrower.

2. If Lender consents, Borrower may provide any of the required insurance through blanket policies carried by Borrower and covering more than one location, or by policies procured by a party holding under Borrower; provided, however, all such policies must be in form and substance and issued by companies reasonably satisfactory to Lender.

IV. OTHER COVERAGES

Lender shall have the right from time to time to make changes (including without limitation increases to required liability limits) to the foregoing insurance requirements and/or to require additional coverages not described above. In addition, the above insurance requirements are subject to change or the imposition of additional coverages if required by applicable laws, regulations or policies applicable to Lender or the Project.


Exhibit GDWT 19920588v5 0017787-000267

EXHIBIT G

TARGET DATES


Exhibit HPage 1

DWT 19920588v5 0017787-000267

EXHIBIT H

COMPLIANCE CERTIFICATE

Pursuant to that certain Loan Agreement (the “Agreement”) dated _________________, 2012 between LA MORAGA SAN JOSE L.P., a California limited partnership (“Borrower”), CITY OF SAN JOSE, a municipal corporation (“Lender”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association (“Bondowner Representative”), Borrower and Guarantor hereby certifies to Lender and Bondowner Representative as follows:

(A) All representations and warranties in the Agreement are true and correct in all material respects as of the date of this Certificate.

(B) As of the date of this Certificate, no Event of Default remains uncured, and no event has occurred which, with the giving of notice or the passage of time or both, would constitute an Event of Default.

(C) As of the date of this Certificate, St. Anton Capital, LLC (“St. Anton”) has a Net Worth equal to $_____________. A true, correct and complete calculation of St. Anton’s Net Worth, as of the date of this Certificate, is attached hereto as Schedule 1.

(D) As of the date of this Certificate, St. Anton has Liquid Assets equal to $_____________. A true, correct and complete list of St. Anton’s Liquid Assets, as of the date of this Certificate, is attached hereto as Schedule 2.

(E) As of the date of this Certificate, Peter Geremia (“Geremia”) and Steve Eggert (“Eggert”), collectively, have a Net Worth equal $_____________. A true, correct and complete calculation of Geremia’s and Eggert’s Net Worth, as of the date of this Certificate, is attached hereto as Schedule 3.

(F) As of the date of this Certificate, Geremia and Eggert have Liquid Assets equal to $_____________. A true, correct and complete list of Geremia’s and Eggert’s Liquid Assets, as of the date of this Certificate, is attached hereto as Schedule 4.

Capitalized terms used and not otherwise defined herein shall have the meanings set forth for the in the Agreement.

[Signature Pages on the Following Page]


Exhibit HPage 2

DWT 19920588v5 0017787-000267

Dated: _______________________ BORROWER:

LA MORAGA SAN JOSE L.P.,a California limited partnership

By: PH La Moraga Holdings, LLC,a California limited liability company,its Managing General Partner

By: Pacific Housing, Inc.,a California nonprofit public benefit corporation,its Sole Member and Manager

By: ________________________Mark A. WiesePresident

By: Anton La Moraga, LLC,a California limited liability companyits Co-General Partner

By: __________________________Steven L. EggertManager


Exhibit HPage 3

DWT 19920588v5 0017787-000267

GUARANTOR:

ST. ANTON CAPITAL, LLC,a California limited liability company

By: ________________________________Name: ________________________________Title: ________________________________

______________________________________PETER GEREMIA

______________________________________STEVE EGGERT


Schedule 1 to Exhibit HPage 1

DWT 19920588v5 0017787-000267

Schedule 1

Calculation of St. Anton’s Net Worth



DWT 19920588v5 0017787-000267

Schedule 2

List of St. Anton’s Liquid Assets



DWT 19920588v5 0017787-000267

Schedule 3

Calculation of Geremia’s and Eggert’s Net Worth



DWT 19920588v5 0017787-000267

Schedule 4

List of Geremia’s and Eggert’s Liquid Assets


Exhibit IPage 1

DWT 19920588v5 0017787-000267

EXHIBIT I

DISBURSEMENT REQUEST

Disbursement No. ________________

The undersigned, on behalf of Borrower, hereby requests a Disbursement in the amount, and on the date, set forth below, pursuant to that certain Loan Agreement (the “Agreement”) dated February __, 2012, between FONTANA VALLEY BLVD. III HOUSING PARTNERS, L.P., a California limited partnership (“Borrower”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association (“Lender”). Capitalized terms used and not otherwise defined herein shall have the meanings set forth for them in the Agreement.

REQUESTED AMOUNT:

REQUESTED DATE:

Borrower hereby represents and warrants to Lender that:

1. The requested Disbursement shall be applied to pay Project Costs in accordance with the itemized Payment Request attached hereto.

2. All costs shown in all prior Disbursement Requests (and Payment Requests) have been paid in full, Borrower has received valid lien releases or waivers from all contractors, subcontractors and materialmen with respect to all payments made for work and materials, and Borrower has no knowledge of any mechanic’s lien claims against the Property.

3. The Project is being constructed in accordance with the Plans, all recommendations in the approved soils report, and all applicable governmental requirements, and work on the Project has progressed to the point indicated on the attached Payment Request.

4. The attached Payment Request is an accurate and complete statement of all amounts previously paid or now due and all amounts expected to be incurred in connection with the completion of the Project.

5. All changes in the Plans, if any, have been made in accordance with the Agreement.

6. All representations and warranties in the Agreement are true and correct as of the date of this request, no Event of Default remains uncured, and no event has occurred which, with the giving of notice or the passage of time or both, would constitute an Event of Default.

DATE: _______________ ___________________________________Designated Representative


Exhibit JPage 1

DWT 19920588v5 0017787-000267

EXHIBIT J

NET OPERATING INCOME SWEEP SCHEDULE

MONTH NOI AMOUNT

Certificate of Occupancy – 23 $150,00024 $220,00025 $270,00026 $300,00027 $340,00028 $380,00029 $420,00030 $470,00031 $392,24732 $392,24733 $392,24734 $392,24735 $392,24736 $392,247

TOTAL $4,903,482


Exhibit KPage 1

DWT 19920588v5 0017787-000267

EXHIBIT K

EARLY RELEASE TRADES

1. Wet/Dry Utilities

2. Rough Grading

3. Foundations

4. Framing/Rough Carpentry

5. Appliances


Exhibit LPage 1

DWT 19920588v5 0017787-000267

EXHIBIT L

FORM OF PROJECT ARCHITECT’S CERTIFICATE

U.S. Bank National Association621 Capitol Mall, Suite 800Sacramento, California 95814

Re: Loan Agreement dated September ___, 2012, by and among City of San Jose, as Lender, La Moraga San Jose L.P., as Borrower, and U.S. Bank National Association, as Bondowner Representative

Ladies and Gentlemen:

We understand that you have entered into a Loan Agreement dated September ___, 2012 (the “Loan Agreement”) with City of San Jose (“Lender”) and La Moraga San Jose L.P., a California limited partnership (“Borrower”), pursuant to which you have agreed to purchase the Bonds from Lender and Lender has agreed to use the proceeds of the Bonds to make a loan to Borrower to finance the construction of the “Project” described in the Loan Agreement (such loan to be secured in part by a lien on the real property described in the Loan Agreement as the “Property”).

We also understand that you have required this certificate as a condition to making the Loan and will be relying on this certificate in connection therewith. In consideration of the foregoing, the undersigned hereby certifies, represents and warrants as follows:

1. The undersigned is the architect who prepared (and/or supervised the preparation of) the final plans and specifications for the Project.

2. The undersigned has delivered to you true, correct and complete copies of all such final plans and specifications (and all supplements and modifications thereto, if any) (collectively, the “Plans”). A true, correct and complete description of the Plans is attached hereto as Exhibit A. The Plans cover all on-site and off-site work necessary for the development of the Project and incorporate all of the recommendations contained in that certain soils report dated __________________ and prepared by ________________________________.

3. The Project, when completed in accordance with the Plans (a) will comply with all applicable laws, regulations and other requirements of all governmental and quasi-governmental authorities, including without limitation all applicable zoning, environmental, building, fire and health laws and regulations, the requirements of the applicable board of fire underwriters or similar body, and all applicable Governmental Requirements relating to the accessibility of the Project to disabled, handicapped and physically challenged persons, including, but no limited to, the Americans With Disabilities Act of 1990, and (b) will comply with all applicable covenants, conditions and restrictions of record.

4. All grading permits and other governmental permits, consents, approvals, and authorizations required to be obtained or issued as a condition precedent to the commencement


Exhibit LPage 2

DWT 19920588v5 0017787-000267

of grading of the Project in accordance with the Plans have been obtained and/or issued and are in full force and effect.

5. All utility services necessary for the uninterrupted and orderly operation of the Property will be available to the Property at the boundaries of the Property prior to the completion of the Project. All streets abutting the Property have been dedicated and accepted for maintenance by the City of San Jose. Access to and egress from the Property complies with all applicable government requirements and such access to and egress from the Property are adequate for the operation of the Improvements.

6. The number of paved, striped parking spaces required to be located on the Property (or in the parking garage being constructed below the Property) in order to comply, in all respects, with the minimum parking requirements imposed upon the Property by all applicable laws, rules and regulations, is ___. The Plans provide for at least ___ paved, striped parking spaces to be constructed on the Property (or in the parking garage being constructed below the Property).

7. To the undersigned’s best knowledge, there is no action or proceeding which relates to the Project or the Property pending before any court, agency or official with respect to the validity of any law, regulation or restriction or any permit or approval required in connection with the development and/or operation of the Property.

DATED AS OF SEPTEMBER ___, 2012

ARCHITECTS ORANGE

By: __________________________________Name: __________________________________Title: __________________________________
