FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-20737
AMERICA FIRST APARTMENT INVESTORS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 47-0797793
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates representing assignments of limited
partnership interests in America First Apartment Investors, L.P. (the
"BUCs")
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of the chapter) is not contained
herein, and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the BUCs on March 3, 1997, based upon the
final sales price per BUC reported in The Wall Street Journal on March 4,
1997, was $52,752,941.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> - i -
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 2
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 4
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 17
SIGNATURES 39
<PAGE> - ii -
PART I
Item 1. Business. America First Apartment Investors, L.P. (the
Registrant or the Partnership) was formed on March 7, 1996, under the Delaware
Revised Uniform Limited Partnership Act for the purpose of acquiring, holding,
operating, selling and otherwise dealing with multifamily real estate and
other types of commercial real estate and interests therein. The Partnership
will pursue its purpose in order to (i) preserve investors' capital and (ii)
provide regular cash distributions to investors.
The Partnership commenced operations on August 20, 1996, when it merged
with America First Tax Exempt Mortgage Fund 2 Limited Partnership (the Prior
Partnership). Under the terms of the merger agreement, the Partnership was
the surviving partnership and effectively took over the operations of the
Prior Partnership. As of the record date established for the Merger, a total
of 5,212,167 Beneficial Unit Certificates (BUCs) representing assigned limited
partnership interests in the Prior Partnership were outstanding. BUC holders
of the Prior Partnership received one BUC in the Partnership for each BUC of
the Prior Partnership outstanding as of the record date.
After completion of the offering of its BUCs in 1986, the Prior
Partnership acquired nine tax-exempt mortgage bonds with an aggregate
principal amount of $90,765,000. These tax-exempt bonds were issued by
various state and local authorities to provide construction and permanent
financing of eight multifamily housing properties and one commercial property
located in eight states. The Prior Partnership subsequently acquired five of
the properties through foreclosure or deed in lieu of foreclosure or through
the acquisition of an indirect ownership interest. The Prior Partnership also
acquired an additional multifamily property which is adjacent to one of the
foreclosed properties that was originally intended to be part of a
consolidated property. These properties, along with three mortgage bonds,
were acquired by the Partnership in connection with the Merger. The other
mortgage bond was repaid by the borrower in 1988. The Partnership acquired
one additional multifamily housing property in 1996 and two additional
multifamily housing properties in 1997. In addition, in 1997, the Partnership
also acquired a property through a deed in lieu of foreclosure on one of its
tax-exempt mortgage bonds. As of December 31, 1997, these properties had a
depreciated cost of $64,267,471. A description of the real estate acquired by
the Registrant appears in Note 6 of the Notes to the Financial Statements
filed in response to Item 8 hereof. For further information regarding these
properties, see Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Of the three mortgage bonds acquired by the Partnership in connection
with the Merger, one property was deeded to the Partnership in lieu of
foreclosure on the mortgage bond and one mortgage bond was prepaid to the
Partnership in 1997. The one remaining mortgage bond had a carrying value (at
estimated fair value) of $13,006,526 as of December 31, 1997. Under the terms
of the bond, the principal amount does not amortize over its terms. The
mortgage bond provides for the payment of base interest to the Registrant and
for the payment of contingent interest based on the level of net cash flow and
net realized capital appreciation generated by the underlying property. A
description of the tax-exempt mortgage bond held by the Registrant at December
31, 1997 (and the property collateralizing such bond) appears in Note 5 of the
Notes to the Financial Statements filed in response to Item 8 hereof. For
further information regarding this property, see Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
The amount of cash received by the Registrant from tax-exempt mortgage
bonds and the real estate is a function of the net rental revenues generated
by the properties financed or owned by the Partnership. Net rental revenues
from a multifamily apartment complex depend on the rental and occupancy rates
of the property and on the level of operating expenses. Occupancy rates and
rents are directly affected by the supply of, and demand for, apartments in
the market areas in which a property is located. This, in turn, is affected
by several factors such as local or national economic conditions, the amount
of new apartment construction and interest rates on single-family mortgage
loans. In addition, factors such as government regulation (such as zoning
laws), inflation, real estate and other taxes, labor problems and natural
disasters can affect the economic operations of a property.
<PAGE> - 1 -
In each city in which the properties financed or owned by the Registrant
are located, such properties compete with a substantial number of other
apartment complexes. Apartment complexes also compete with single-family
housing that is either owned or leased by potential tenants. The principal
method of competition is to offer competitive rental rates. Such properties
also compete by emphasizing regular maintenance and property amenities.
The Registrant believes that each of the properties it has financed or
owns is in compliance in all material respects with federal, state and local
regulations regarding hazardous waste and other environmental matters and the
Registrant is not aware of any environmental contamination at any of such
properties that would require any material capital expenditure by the
Registrant for the remediation thereof.
The Registrant is engaged solely in the business of providing financing
for the acquisition and improvement of real estate and the operation of real
estate acquired. Accordingly, the presentation of information about industry
segments is not applicable and would not be material to an understanding of
the Registrant's business taken as a whole.
The Registrant has no employees. Certain services are provided to the
Registrant by employees of America First Companies L.L.C. which is the general
partner of the general partner of the Registrant, and the Registrant
reimburses America First Companies L.L.C. for such services at cost. The
Registrant is not charged, and does not reimburse, for the services performed
by managers and officers of America First Companies L.L.C..
Item 2. Properties. The Prior Partnership had invested in eight
mortgage bonds collateralized by first mortgages on multifamily housing
properties and one mortgage bond collateralized by a first mortgage on a
commercial property. Foreclosure proceedings and other actions were
instituted with respect to six of the properties which has resulted in the
Registrant owning or indirectly owning six of these properties at December 31,
1997. The Prior Partnership also acquired an additional multifamily property
which is adjacent to one of the foreclosed properties that was originally
intended to be part of a consolidated property. In addition, the Partnership
acquired one additional multifamily housing property in 1996 and two
additional multifamily housing properties in 1997. One mortgage bond was
prepaid by the borrower each in 1988 and 1997. Properties owned by the
Registrant or collateralizing mortgage bonds held by the Registrant are
described in the following table:
<TABLE>
<CAPTION>
Average
Number Square Feet Federal
Property Name Location of Units Per Unit Tax Basis
- - -------------------------- ------------------- -------- ----------- ---------------
<S> <C> <C> <C> <C>
Avalon Ridge Renton, WA 356 1,076 (1)
Covey at Fox Valley(3) Aurora, IL 216 948 $ 9,698,717
The Park at Fifty Eight(3) Chattanooga, TN 196 876 3,657,715
Shelby Heights(3) Bristol, TN 100 980 2,671,009
Coral Point(2) Mesa, AZ 336 780 9,956,509
Park at Countryside(3) Port Orange, FL 120 720 3,168,507
The Retreat (4) Atlanta, GA 226 855 8,927,245
Jackson Park Place(3) Fresno, CA 296 822 11,868,922
Park Trace Apartments(3) Norcross, GA 260 806 13,948,633
-------- ---------------
2,106 63,897,257
========
The Exchange at Palm Bay Palm Bay, FL 72,002(5) 4,336,631
======== ---------------
$ 68,233,888
===============
</TABLE>
(1) Property collateralizes a mortgage loan owned by the Partnership. Since
the Partnership does not own the property, the federal tax basis is not
applicable.
(2) Property serves as collateral on borrowings against the line of credit as
described in Note 8 to the Financial Statements filed in response to Item
8 hereof.
(3) Property serves as collateral for multifamily housing refunding bonds as
described in Note 7 to the Financial Statements filed in response to Item
8 hereof.
<PAGE> - 2 -
(4) Property serves as collateral for multifamily housing refunding bonds as
described in Note 5 to the Financial Statements filed in response to Item
8 hereof.
(5) Represents square feet.
Depreciation is taken on each property acquired on a straight-line basis
over the estimated useful life of the properties (27-1/2 years on multifamily
residential apartments and 31-1/2 years on The Exchange at Palm Bay).
The average annual occupancy rate and average effective rental rate per
unit or per square foot for each of the properties for each of the last five
years are listed in the following table. Information with respect to The
Retreat for periods prior to April 10, 1997, Park Trace Apartments prior to
October 24, 1997, and Park at Countryside for periods prior to December 30,
1996, the dates the properties were acquired by the Registrant, is not
available to the Registrant and accordingly is not presented in the table.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Property Collateralizing Mortgage Bonds
- - -----------------------------------------
AVALON RIDGE
Average Occupancy Rate 95% 84% 84% 84% 86%
Average Effective Annual Rental Per Unit $7,089 $5,264 $5,835 $6,343 $6,195
Real Estate Acquired
- - --------------------
COVEY AT FOX VALLEY
Average Occupancy Rate 94% 95% 94% 95% 96%
Average Effective Annual Rental Per Unit $8,691 $8,574 $8,057 $7,782 $7,568
THE PARK AT FIFTY EIGHT
Average Occupancy Rate 97% 96% 97% 96% 93%
Average Effective Annual Rental Per Unit $4,880 $4,774 $4,937 $4,768 $4,372
SHELBY HEIGHTS
Average Occupancy Rate 92% 92% 95% 97% 96%
Average Effective Annual Rental Per Unit $5,649 $5,653 $5,611 $5,601 $5,377
CORAL POINT
Average Occupancy Rate 94% 96% 96% 97% 92%
Average Effective Annual Rental Per Unit $5,966 $5,825 $5,537 $5,183 $4,740
THE EXCHANGE AT PALM BAY
Average Occupancy Rate 65% 56% 43% 39% 38%
Average Effective Annual Rental Per Square Foot $ 5.85 $ 4.89 $ 3.52 $ 3.27 $ 3.16
PARK AT COUNTRYSIDE
Average Occupancy Rate 97% N/A N/A N/A N/A
Average Effective Annual Rental Per Unit $6,086 N/A N/A N/A N/A
JACKSON PARK PLACE
Average Occupancy Rate 93% 93% 96% 95% 86%
Average Effective Annual Rental Per Unit $5,631 $5,703 $5,773 $5,585 $5,046
THE RETREAT
Average Occupancy Rate 94% N/A N/A N/A N/A
Average Effective Annual Rental Per Unit $6,403 N/A N/A N/A N/A
PARK TRACE APARTMENTS
Average Occupancy Rate 86% N/A N/A N/A N/A
Average Effective Annual Rental Per Unit $6,717 N/A N/A N/A N/A
</TABLE>
In the opinion of the Partnership's management, each of the properties
owned by the Partnership is adequately covered by insurance. For additional
information concerning the properties, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes 5 and 6
to the Partnership's Financial Statements. A discussion of general
competitive conditions to which these properties are subject is included in
Item 1 hereof.
<PAGE> - 3 -
Item 3. Legal Proceedings. There are no material pending legal
proceedings to which the Registrant is a party or to which any of its property
is subject.
Item 4. Submission of Matters to a Vote of Security Holders. No matter
was submitted during the fourth quarter of the fiscal year ended December 31,
1997, to a vote of the Registrant's security holders.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
(a) Market Information. The BUCs trade on the NASDAQ Stock Market under
the trading symbol "APROZ". Prior to August 20, 1996, the BUCs of the Prior
Partnership traded under the trading symbol "ATAXZ". The following table sets
forth the high and low final sale prices for the BUCs for each quarterly
period from January 1, 1996, through December 31, 1997.
<TABLE>
<CAPTION>
1996(1) High Low
----------- --------- ---------
<S> <C> <C>
1st Quarter $ 9-3/4 $ 8-1/2
2nd Quarter $ 9-3/4 $ 8-3/4
3rd Quarter $ 9-1/2 $ 7-3/4
4th Quarter $ 9-3/8 $ 8-3/8
1997 High Low
----------- --------- ---------
1st Quarter $ 9-1/2 $ 8-5/8
2nd Quarter $ 9-3/8 $ 8-3/4
3rd Quarter $ 9-7/8 $ 8-7/8
4th Quarter $10-1/2 $ 9-3/8
</TABLE>
(1) The market price per share information includes that of America First
Apartment Investors L.P. from August 20, 1996 (the Merger Date), through
December 31, 1996, and America First Tax Exempt Fund 2 Limited Partnership
for periods prior to the Merger Date.
(b) BUC Holders. The approximate number of BUC holders on December 31,
1997, was 3,118.
(c) Distributions. Cash distributions are being made on a monthly
basis. Total cash distributions paid or accrued to BUC Holders during the
fiscal years ended December 31, 1997, and December 31, 1996, equaled
$3,909,126 and $3,921,671, respectively. The cash distributions paid per BUC
during the fiscal years ended December 31, 1997, and December 31, 1996, were
as follows:
<TABLE>
<CAPTION>
Per BUC
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Income $ - $ .5272
Return of Capital .7500 .2228
----------------- -----------------
Total $ .7500 $ .7500
================= =================
</TABLE>
See Item 7, Management Discussion and Analysis of Financial Condition
and Results of Operations, for information regarding the sources of funds used
for cash distributions and for a discussion of factors, if any, which may
adversely affect the Registrant's ability to make cash distributions at the
same levels in 1998 and thereafter.
<PAGE> - 4 -
Item 6. Selected Financial Data. Set forth below is selected financial
data for the Partnership which includes the financial data of America First
Apartment Investors, L.P. from August 20, 1996 (the Merger Date), through
December 31, 1997, and America First Tax Exempt Fund 2 Limited Partnership for
periods prior to the Merger Date. The information set forth below should be
read in conjunction with the consolidated and combined Financial Statements
and Notes thereto filed in response to Item 8 hereof.
<TABLE>
<CAPTION>
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Mortgage bond investment income $ 1,611,956 $ 2,107,486 $ 2,234,610 $ 2,452,200 $ 2,327,505
Contingent interest 290,520 - - - -
Rental income 9,511,041 5,763,648 5,116,073 4,949,664 4,566,703
Interest income on temporary cash investments 35,532 51,557 55,720 37,303 43,507
General and administrative expenses (1,263,054) (1,146,709) (792,300) (689,987) (719,720)
Real estate operating expenses (4,514,450) (3,047,804) (2,359,827) (2,397,067) (2,268,252)
Depreciation (1,897,586) (1,165,059) (1,197,490) (1,183,588) (1,172,244)
Interest expense (1,132,494) (118,382) - - -
Realized loss on disposition of mortgage bond (3,000,000) - - - -
------------- ------------- ------------- ------------- -------------
Net income (loss) $ (358,535) $ 2,444,737 $ 3,056,786 $ 3,168,525 $ 2,777,499
============= ============= ============= ============= =============
Net income (loss), basic and diluted, per
Beneficial Unit Certificate (BUC) $ (.08) $ .46 $ .57 $ .60 $ .52
============= ============= ============= ============= =============
Total cash distributions paid or accrued per BUC $ .7500 $ .7500 $ .7500 $ .7500 $ .7500
============= ============= ============= ============= =============
Investment in tax-exempt mortgage bonds $ 13,006,526 $ 31,566,526 $ 31,566,526 $ 31,566,526 $ 31,566,526
============= ============= ============= ============= =============
Investment in real estate, net of accumulated
depreciation (and valuation allowance for
years 1995 and prior) $ 64,267,471 $ 30,199,846 $ 25,890,570 $ 26,770,652 $ 27,925,464
============= ============= ============= ============= =============
Total assets $ 87,123,522 $ 64,923,401 $ 59,630,449 $ 60,520,431 $ 61,328,763
============= ============= ============= ============= =============
Bonds payable $ 27,035,000 $ 2,750,000 $ - $ - $ -
============= ============= ============= ============= =============
</TABLE>
<PAGE> - 5 -
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
America First Tax Exempt Mortgage Fund 2 (the Prior Partnership) originally
acquired nine tax-exempt mortgage bonds, the proceeds of which were used to
provide construction and/or permanent financing for eight multifamily housing
properties and one commercial property. The Prior Partnership subsequently
acquired five of the properties through foreclosure or deed in lieu of
foreclosure and one tax-exempt mortgage bond was prepaid in full. During
1996, the Prior Partnership acquired an additional multifamily property which
is adjacent to one of the foreclosed properties that was originally intended
to be part of a consolidated property.
On August 20, 1996, the Prior Partnership merged with America First Apartment
Investors, L.P. (the Partnership). Under the terms of the merger agreement,
the Partnership was the surviving partnership and effectively took over the
operations of the Prior Partnership. Unit holders of the Prior Partnership
received one Beneficial Unit Certificate (BUC) of the New Partnership for each
BUC they held in the Prior Partnership as of the record date. The Prior
Partnership was terminated under the provisions of the Prior Partnership's
Partnership Agreement.
During 1996, the Partnership acquired The Park at Fifty-Eight Phase I and Park
at Countryside and during 1997 the Partnership acquired The Retreat and Park
Trace Apartments. In addition, Jackson Park Place was conveyed to the
Partnership during 1997 through a deed in lieu of foreclosure. At December 31
1997, the Partnership continued to hold one tax-exempt mortgage bond with a
carrying value, at estimated fair value, of $13,006,526 and eight real estate
properties with a total depreciated cost of $64,267,471.
The following table shows the various occupancy levels of the properties
owned or financed by the Partnership at December 31, 1997:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- - ------------------------------- ----------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Jackson Park Place Fresno, CA 296 280 95%
Avalon Ridge(1) Renton, WA 356 339 95%
Covey at Fox Valley Aurora, IL 216 199 92%
The Park at Fifty Eight Chattanooga, TN 196 181 92%
Shelby Heights Bristol, TN 100 85 85%
Coral Point Mesa, AZ 336 314 93%
Park at Countryside Port Orange, FL 120 115 96%
The Retreat Atlanta, GA 226 211 93%
Park Trace Apartments Norcross, GA 260 217 83%
---------- ---------- -----------
2,106 1,941 92%
========== ========== ===========
The Exchange at Palm Bay Palm Bay, FL 72,002(2) 60,900(2) 85%
========== ========== ===========
</TABLE>
(1) Property securing tax-exempt mortgage bond held by the Partnership.
(2) Represents square feet.
Net rental income earned on the properties owned by the Partnership represents
its principal source of income and distributable cash. In addition, the
partnership continues to earn interest income on its remaining tax-exempt
mortgage bond and on temporary cash investments. The principal amount of the
tax-exempt mortgage bond does not amortize over its term. The tax-exempt
mortgage bond provides for the payment of base interest at a fixed rate. In
addition, the Partnership may earn contingent interest based on a
participation in the net cash flow and net sale or refinancing proceeds from
the real estate collateralizing the tax-exempt mortgage bond. During 1997,
the Partnership received contingent interest of $290,520 on its Jackson Park
Place mortgage bond. However, this mortgage was prepaid during 1997. The
Partnership did not receive any other contingent interest on its mortgage
bonds during 1997 and does not expect to earn any on its remaining mortgage
bond during 1998. The Partnership may draw on reserves to pay operating
expenses or to supplement cash distributions to Beneficial Unit Certificate
(BUC) Holders.
<PAGE> - 6 -
The Partnership has a $15 million revolving loan credit agreement (the Line of
Credit) with the First National Bank of Boston (the Bank) that is used by the
Partnership to provide interim financing for the acquisition of multifamily
residential properties. The Line of Credit expires on December 19, 1998. The
Line of Credit bears interest at 1/2% above the Bank's base rate (which base
rate was 9% as of December 31, 1997). The maximum amount available for
borrowings under the Line of Credit was $10,290,000 at December 31, 1997. The
Partnership did not have any borrowings against the Line of Credit at December
31, 1997. The Line of Credit contains covenants which include, among others,
restrictions on the amount of indebtedness the Partnership may incur and
minimum debt service coverage requirements. The Partnership intends to repay
any borrowings under the Line of Credit through the refunding of existing
tax-exempt bonds that are associated with certain properties owned by the
Partnership.
On April 2, 1998, the Partnership expects to receive proceeds of $13,090,000
through the offering of multifamily housing revenue refunding bonds on Coral
Point. The bonds were rated "A" by Standard and Poor's Corporation, bear
interest at an effective rate of 4.96% and have a 10-year maturity. Proceeds
from the offering will be utilized to acquire additional multifamily housing
properties.
In accordance with the terms of the Loan Agreement underlying the $8,760,000
in tax-exempt mortgage bonds collateralized by Jackson Park Place (Jackson),
the Partnership exercised its option to require the owner of Jackson to prepay
the tax-exempt mortgage bonds. The Partnership entered into a Settlement
Agreement with the owner of Jackson that provided for the Partnership to
acquire Jackson at appraised value on May 7, 1997. In accordance with the
terms of the Loan Agreement, the following disbursements were made: (i)
$2,100,000 to America First Participating/Preferred Equity Mortgage Fund
(PREP), an affiliated fund, representing payment of the outstanding balance of
its Participating Loan on Jackson; (ii) $69,480 to PREP representing
contingent interest income on its Participating Loan; (iii) $371,220 to
America First Capital Associates Limited Partnership Four (AFCA 4) and $88,780
to the general partner of PREP representing due and unpaid administrative
fees; (iv) $290,520 to the Partnership representing contingent interest income
on the tax-exempt mortgage bonds; and (v) $360,000 to the owner of Jackson.
These disbursements were funded with borrowings on the Partnership's Line of
Credit. The Partnership also incurred costs of $18,096 in conjunction with
the acquisition.
On July 30,1997, the limited partnership which owns Jefferson Place
(Jefferson Place L.P.) received proceeds of $12,200,000 from the offering of
multifamily housing revenue refunding bonds collateralized by Jefferson Place
and The Retreat. The Partnership, in turn, received $12,200,000 from
Jefferson Place L.P. representing full payment of its $12,800,000 in
tax-exempt mortgage bonds on Jefferson Place. In addition to receiving
$12,200,000 in cash which resulted in a liability to Jefferson Place L.P. of
$2,400,000, the Partnership also received a $3,500,000 subordinate note
representing past due interest on the $12,800,000 tax-exempt mortgage bonds.
The Partnership did not record this past due interest as management considered
its collectability to be doubtful. Interest on the subordinate note, at the
rate of 8.5%, is payable monthly solely out of excess cash flow generated by
Jefferson Place. Final payment of all outstanding principle and interest is
due July 1, 2023. All payments due under the $3,500,000 note are subordinate
to payments due under the $12,200,000 in tax-exempt mortgage bonds. The
Partnership has not recorded the subordinate note on its balance sheet due to
it doubtful collectability. Any interest and principle payments received
under the terms of the subordinate note will be recorded as income when
received. As a result of this refinancing, the Partnership realized a loss of
$3,000,000. Concurrently, the unrealized holding losses related to the
investment in tax-exempt mortgage bonds, which is a separate component of
partners' capital, was reduced by $3,000,000. Proceeds from the offering were
utilized by the Partnership primarily to pay down the Line of Credit.
Excluding proceeds received from the payoff of the Jefferson Place Apartments
tax-exempt mortgage bonds, the Partnership received proceeds of $24,365,000
during 1997 through the offering of tax-exempt multifamily housing revenue
refunding bonds on three properties it acquired through foreclosure. Proceeds
of $3,450,000 were received in March related to Shelby Heights and proceeds of
$12,410,000 and $8,505,000 were received in December relating to Covey at Fox
Valley and Jackson Park Place, respectively. Proceeds from the bond issuances
are being utilized to provide permanent financing for property acquisitions.
<PAGE> - 7 -
In addition to acquiring Jackson Park Place, the Partnership also acquired two
additional multifamily properties during 1997, The Retreat and Park Trace
Apartments. The Retreat, a 226-unit property, was acquired in April for
$9,115,697 and Park Trace Apartments, a 260-unit property, was acquired in
October for $14,038,016. Permanent financing for these acquisitions was
provided by proceeds the Partnership received through the offering of
tax-exempt multifamily housing revenue refunding bonds as described above.
During the year ended December 31, 1997, $299,919 of undistributed income was
placed in reserves. The total amount held in reserves at December 31, 1997,
was $6,696,977. Future distributions to BUC Holders will depend upon the
amount of net rental income and interest income the Partnership receives, the
size of reserves established by the Partnership and the extent to which
withdrawals are made from reserves.
The Partnership believes that cash provided by operating activities, its Line
of Credit, proceeds from the issuance of tax-exempt mortgage bonds and, if
necessary, withdrawals from the Partnership's reserves will be adequate to
meet its short-term and long-term liquidity requirements, including the
payments of distributions to BUC Holders. Under the terms of the Partnership
Agreement, the Partnership has the authority to enter into short-term and
long-term debt financing arrangements. The Partnership is not authorized to
issue additional BUCs to meet short-term and long-term liquidity requirements.
AFCA 4 has conducted a review of its computer systems to identify those areas
that could be affected by the "Year 2000" issue and has developed a plan to
resolve the issue. AFCA 4 believes the Year 2000 problem can be resolved
without significant operational difficulties. The Partnership does not
maintain its own computer systems and does not reimburse AFCA 4 for any
capital expenses associated with computer systems. Therefore, no material
effect to the Partnership's results of operations, financial position or cash
flows is anticipated from the "Year 2000" issue or its resolution.
Distributions
Cash distributions paid or accrued per BUC were as follows:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Regular monthly distributions
Income $ - $ .5272 $ .5217
Return of capital .7500 .2228 .2283
--------------- --------------- ---------------
$ .7500 $ .7500 $ .7500
=============== =============== ===============
Distributions
Paid out of current and prior undistributed cash flow $ .7500 $ .7500 $ .7500
=============== =============== ===============
</TABLE>
Asset Quality
It is the policy of the Partnership to make a periodic review of its real
estate, including the property collateralizing the Partnership's remaining
mortgage bond and adjust, when necessary, the carrying value of such real
estate or the mortgage bond. Each real estate property held by the
Partnership is recorded at the lower of cost or net realizable value. The
Partnership's mortgage bond is classified as available-for-sale and is,
therefore, carried at the estimated fair value of the underlying real
property.
<PAGE> - 8 -
The fair value of all real estate owned or financed by the Partnership is
based on management's best estimate of the net realizable value of the
properties which may vary from the ultimate value realized from these
properties. The net realizable value of the properties is determined based on
the discounted estimated future cash flows from the properties, including
estimated sales proceeds. The calculation of discounted estimated future cash
flows includes certain variables such as the assumed inflation rates for rents
and expenses, capitalization rates and discount rates. These variables are
supplied to the Partnership by an independent real estate appraisal firm based
upon local market conditions for each property. In certain cases, additional
factors such as the replacement value of the property or comparable sales of
similar properties are also taken into consideration. The carrying value of
each real estate property owned by the Partnership is adjusted when there are
significant declines in the estimated net realizable value. The carrying
value of the mortgage bond is periodically reviewed and adjustments are made
when there are significant changes in the estimated net realizable value of
the underlying collateral for the bond.
Based on the foregoing methodology, valuation and reviews performed during
1997 indicated that the carrying value of the Partnership's real estate and
mortgage bond recorded on the balance sheet at December 31, 1997, required no
adjustment.
The following sets forth certain information regarding the real estate owned
by the Partnership and the remaining tax-exempt mortgage bond held by the
Partnership:
REAL ESTATE OWNED
Jackson Park Place
Jackson Park Place Apartments, located in Fresno, California, had an average
occupancy rate of 93% during 1997 and 1996. The Partnership earned interest
of $248,700 on the mortgage bond through May 7, 1997, the date on which
Jackson Park Place was acquired by the Partnership. This interest represented
the full amount of base interest due for such period. In addition, the
Partnership received contingent interest of $290,520. Subsequent to its
acquisition, Jackson Park Place generated net cash flow of approximately
$505,000. Tax-exempt refunding bonds collateralized by this property were
issued in December 1997 and bear interest at an effective rate of 5.8%. Debt
service payments were not required on the bonds during 1997. The bonds had a
principal balance of $8,505,000 at December 31, 1997. The last principal
payment is due on December 1, 2027. The Partnership earned interest of
$744,600 on the mortgage bond in 1996 representing the full amount of base
interest due for the year. No contingent interest was earned in 1996.
Covey at Fox Valley
Covey at Fox Valley Apartments, located in Aurora, Illinois, had an average
occupancy rate of 94% during 1997 compared to 95% during 1996. This property
generated net cash flow of $1,246,000 in 1997 compared to $978,000 in 1996.
This increase is principally due to a decrease in real estate taxes and
property operating expenses. Tax-exempt refunding bonds collateralized by
this property and Park Trace Apartments were issued in December 1997 and bear
interest at an effective rate of 5.3%. Debt service payments were not
required on the bonds during 1997. The bonds had a principal balance of
$12,410,000 at December 31, 1997. The bonds have a mandatory redemption date
of November 1, 2007.
The Park at Fifty Eight
The Park at Fifty Eight Apartments, located in Chattanooga, Tennessee, had an
average occupancy rate of 97% during 1997 compared to 96% during 1996. This
property generated net cash flow, excluding debt service, of $420,000 in 1997
compared to $234,000 in 1996. This increase is attributable primarily to the
acquisition of Phase I of this apartment complex in May 1996. In May 1996,
tax-exempt refunding bonds, with a total principal balance of $2,750,000 and
collateralized by this property were issued. The bonds bear interest at an
effective rate of 6.65%. Debt service on these bonds totaled $237,281 in
1997. At December 31, 1997, the remaining principal balance of the bonds was
$2,670,000. The final principal payment is due on March 1, 2021.
<PAGE> - 9 -
Shelby Heights
Shelby Heights Apartments, located in Bristol, Tennessee, had an average
occupancy rate of 92% during 1997 and 1996. This property generated net cash
flow, excluding debt service, of approximately $313,000 in 1997 compared to
$331,000 in 1996. This decrease is attributable to slightly higher real
estate operating expenses, primarily real estate taxes and insurance.
Tax-exempt refunding bonds collateralized by this property and Park at
Countryside were issued in March 1997 and bear interest at an effective rate
of 6.1%. Debt service on the bonds totaled $222,451 in 1997. The bonds had a
remaining principal balance of $3,450,000 at December 31, 1997. The final
principal payment is due on March 1, 2022.
Coral Point
Coral Point, located in Mesa, Arizona, had an average occupancy rate of 94%
during 1997 compared to 96% during 1996. This property generated net cash
flow of $1,103,000 in 1997 compared with $1,124,000 in 1996. This decrease
is attributable to a $67,000 increase in real estate operating expenses,
primarily capital improvements. The increase in operating expenses was
partially offset by a $46,000 increase in rental revenues during the year that
was a result of increased rental rates.
Park at Countryside
Park at Countryside, located in Port Orange, Florida was acquired by the
Partnership on December 30, 1996. It had an average occupancy of rate of 97%
in 1997. The property generated net cash flow, excluding debt service, of
$257,000 in 1997. Tax-exempt refunding bonds collateralized by this property
and Shelby Heights were issued in March 1997 and bear interest at an effective
rate of 6.1%. Debt service on the bonds totaled $222,451 in 1997. The bonds
had a remaining principal balance of $3,450,000 at December 31, 1997. The
final principal payment is due on March 1, 2022.
The Retreat
The Retreat, located in Atlanta, Georgia, was acquired by the Partnership on
April 10, 1997. From the date of acquisition through December 31, 1997, the
property had an average occupancy of 94% and generated net cash flow of
$630,000. This property collateralizes certain tax-exempt refunding bonds
that were issued July 30, 1997 by Jefferson Place, L.P..
Park Trace Apartments
Park Trace Apartments, located in Norcross, Georgia, was acquired by the
Partnership on October 24, 1997. From the date of acquisition through December
31, 1997, the property had an average occupancy of 86% and generated net cash
flow of $194,000. Tax-exempt refunding bonds, collateralized by this property
and Covey at Fox Valley, were issued in December 1997 and bear interest at an
effective rate of 5.3%. Debt service payments were not required on the bonds
during 1997. The bonds had a principal balance of $12,410,000 at December 31,
1997. The bonds have a mandatory redemption date of November 1, 2007.
The Exchange at Palm Bay
The Exchange at Palm Bay, located in Palm Bay, Florida, is an office/warehouse
facility. This property continues to experience low occupancy due to the
large amount of similar commercial real estate in the surrounding area. The
property's average leased space was 65% in 1997 compared to 56% in 1996. The
property generated operating cash flow of approximately $244,000 in 1997
compared to $40,000 in 1996. The increase in cash flow is due to a decrease
in real estate operating expenses of $134,000 and an increase in rental
revenue of $70,000 due to the increase in average occupancy. The decrease of
$134,000 in real estate operating expenses is due primarily to decreases in
administrative and capital improvements.
<PAGE> - 10 -
TAX EXEMPT BOND
Avalon Ridge
Avalon Ridge Apartments, located in Renton, Washington, had an average
occupancy rate of 95% during 1997 compared to 84% during 1996. Interest is
recognized as income on this mortgage bond on a cash basis. Interest earned
in 1997 was $838,182 compared to $443,169 in 1996 and was approximately
$756,000 less than the amount needed to pay the base interest in 1997. Net
cash flow generated by the property, excluding interest, increased
approximately $440,000 from 1996 to 1997 due to a 37% increase in rental
income resulting from an increase in average occupancy and rental rate
increases.
At December 31, 1997, the Partnership's tax-exempt mortgage bond was
classified as nonperforming. The bond will continue to be classified as
nonperforming until such time that the property collateralizing the mortgage
bond generates sufficient net cash flow to bring the mortgage bond fully
current as to interest payments. The Partnership's management is closely
monitoring this property in an effort to maximize cash flow generated. In
addition, an affiliate of the Partnership's general partner provides property
management services for this property. As such, the Partnership is able to
influence certain aspects of the operations of the property which should
better position the property to increase long-term cash flow from operations.
Results of Operations
The tables below compare the results of operations for each year shown. The
results of operations for 1996 include the combined accounts of the
Partnership from August 20, 1996 (the Merger Date), through December 31, 1996,
and the accounts of the Prior Partnership from January 1, 1996, until the
Merger Date. Results of operations for 1995 include the accounts of the Prior
Partnership.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage bond investment income $ 1,611,956 $ 2,107,486 $ 2,234,610
Contingent interest 290,520 - -
Rental income 9,511,041 5,763,648 5,116,073
Interest income on temporary cash investments 35,532 51,557 55,720
--------------- --------------- ---------------
11,449,049 7,922,691 7,406,403
--------------- --------------- ---------------
General and administrative expenses 1,263,054 1,146,709 792,300
Real estate operating expenses 4,514,450 3,047,804 2,359,827
Depreciation 1,897,586 1,165,059 1,197,490
Interest expense 1,132,494 118,382 -
Realized loss on disposition of mortgage bond 3,000,000 - -
--------------- --------------- ---------------
11,807,584 5,477,954 4,349,617
--------------- --------------- ---------------
Net income (loss) $ (358,535) $ 2,444,737 $ 3,056,786
=============== =============== ===============
</TABLE>
<PAGE> - 11 -
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
From 1996 From 1995
--------------- ---------------
<S> <C> <C>
Mortgage bond investment income $ (495,530) $ (127,124)
Contingent interest 290,520 -
Rental income 3,747,393 647,575
Interest income on temporary cash investments (16,025) (4,163)
--------------- ---------------
3,526,358 516,288
--------------- ---------------
General and administrative expenses 116,345 354,409
Real estate operating expenses 1,466,646 687,977
Depreciation 732,527 (32,431)
Interest expense 1,014,112 118,382
Realized loss on disposition of mortgage bond 3,000,000 -
--------------- ---------------
6,329,630 1,128,337
--------------- ---------------
Net income (loss) $ (2,803,272) $ (612,049)
=============== ===============
</TABLE>
Mortgage bond investment income decreased $495,530 from 1996 to 1997. The
decrease is primarily attributable to: (i) a $496,000 decrease resulting from
the acquisition of Jackson Park Place in settlement of the mortgage bond for
real estate in May 1997; and (ii) a $395,000 decrease resulting primarily from
the disposition of the Jefferson Place mortgage bond in July 1997. These
decreases in investment income were partially offset by a $395,000 increase in
cash flow received from the tax-exempt bond secured by Avalon Ridge which pays
interest on a modified cash basis. The increase in net cash flow received
from Avalon Ridge is due primarily to an increase in average occupancy and
rental rate increases from 1996 to 1997.
Mortgage bond investment income decreased $127,124 from 1995 to 1996 as a
result of a decrease in cash flow from Avalon Ridge of $173,147 which was
partially offset by an increase in the cash flow received from Jefferson Place
of $46,023. Interest on the tax-exempt bonds on both of these properties was
recognized on a modified cash basis during the year. The decrease in cash
flow received from Avalon Ridge is due to a decrease in rental rates which was
partially offset by lower real estate operating expenses, primarily
administrative expenses. The increase in cash flow received from Jefferson
Place is due to an increase in rental revenue which was partially offset by
higher real estate operating expenses, primarily property taxes. Rental
income generated by this property increased due to a slight increase in
average occupancy and rental rate increases.
Rental income increased $3,747,393 from 1996 to 1997. This increase was
primarily attributable to: (i) a $1,166,000 increase resulting from the
acquisition of Jackson Park Place in the settlement of the mortgage bond
secured by this property in May 1997; (ii) a $1,128,000 increase resulting
from the acquisition of The Retreat in April 1997; (iii) a $743,000 increase
resulting from the acquisition of Park at Countryside in December 1996; (iv) a
$347,000 increase resulting from the acquisition of Park Trace Apartments in
October 1997; (v) a $182,000 increase resulting primarily from increased
rental rates on Covey at Fox Valley, Shelby Heights and Coral Point and
increased average occupancy at The Exchange at Palm Bay; and (vi) a $181,000
increase resulting primarily from the acquisition of Phase I of The Park at
Fifty-Eight in May 1996.
Rental income increased $647,575 from 1995 to 1996, primarily due to: (i) a
$330,000 increase resulting primarily from the acquisition of Phase I of The
Park at Fifty-Eight in May 1996; (ii) a $207,000 increase from Covey at
Fox Valley and Coral Point due primarily to rental rate increases and (iii) a
$98,000 increase from The Exchange at Palm Bay due to an increase in leased
space during 1996.
<PAGE> - 12 -
Excluding property tax refunds of approximately $180,000 received by Covey at
Fox Valley in 1997, real estate operating expenses increased $1,646,713 from
1996 to 1997. This increase is attributable to: (i) a $599,000 increase
resulting from the acquisition of Jackson Park Place in the settlement of the
mortgage bond secured by this property in May 1997; (ii) a $547,000 increase
resulting from the acquisition of The Retreat in April 1997; (iii) a $489,000
increase resulting from the acquisition of Park at Countryside in December
1996; (iv) a $141,000 increase resulting from the acquisition of Park Trace
Apartments in October 1997; and (v) a $72,000 increase in property
improvements and advertising expenses at Shelby Heights and Coral Point.
These increases were partially offset by (i) a $134,000 decrease in
administrative expenses and property improvements at The Exchange at Palm Bay;
and (ii) a $67,000 decrease in real estate taxes and labor expenses at Covey
at Fox Valley and The Park at Fifty-Eight.
Excluding property tax refunds of approximately $252,000 received by Covey at
Fox Valley in 1995, real estate operating expenses increased $435,977 from
1995 to 1996. This increase is attributable to: (i) a $311,000 increase from
The Park at Fifty Eight resulting from the acquisition of Phase I of this
apartment complex in May 1996 and from various property improvements; (ii) a
$102,000 increase in repairs and maintenance expenses and property
improvements at Covey at Fox Valley and The Exchange at Palm Bay; (iii)
leasing commissions of approximately $85,000 incurred by The Exchange at Palm
Bay in connection with leasing additional space to tenants; and (iv) a $31,000
increase in real estate operating expenses at certain properties acquired by
the Partnership in foreclosure. These increases were partially offset by a
$93,000 decrease in repairs and maintenance expenses at Coral Point.
Depreciation expense increased $732,527 from 1996 to 1997 and is primarily
attributable to: (i) a $258,000 increase resulting from the acquisition of
Jackson Park Place in the settlement of the mortgage bond secured by this
property in May 1997; (ii) a $200,000 increase resulting from the acquisition
of The Retreat in April 1997; (iii) a $174,000 increase resulting from the
acquisition of Park at Countryside in December 1996; (iv) a $71,000 increase
resulting from the acquisition of Park Trace Apartments in October 1997; and
(v) a $30,000 increase resulting primarily from the acquisition of Phase I of
The Park at Fifty-Eight in May 1996.
Depreciation expense decreased $32,431 from 1995 to 1996 due to the adoption
of Statement of Financial Accounting Standards No. 121 (FAS 121) on January 1,
1996. This decrease was partially offset by an increase in depreciation
expense of approximately $51,000 due to the acquisition of Phase I of the Park
at Fifty Eight in May 1996. FAS 121 requires that depreciation be calculated
on the adjusted carrying value of the properties.
Interest expense increased $1,014,112 from 1996 to 1997 and is primarily
attributable to (i) approximately $776,000 on the Partnership's Line of Credit
used to acquire new properties; (ii) approximately $172,000 on bonds payable
of $3,450,000 which were issued in March 1997; and (iii) a $67,000 increase on
bonds payable of $2,750,000 which were issued in May 1996. Interest expense of
$118,382 was incurred in 1996 on the $2,750,000 of bonds payable which were
issued in May 1996.
Interest income on temporary cash investments decreased $16,025 from 1996 to
1997 due primarily to a decrease in the average reserve balance attributable
to withdrawals made from Partnership reserves during 1997 to acquire
additional apartment complexes. Interest income on temporary cash investments
decreased $4,163 from 1995 to 1996 due primarily to a decrease in the average
reserve balance attributable to withdrawals made from Partnership reserves
during 1996 to supplement distributions to BUC Holders.
General and administrative expenses increased $116,345 from 1996 to 1997.
This increases is primarily due to: (i) an increase of approximately $171,000
in salaries and related expenses; (ii) an increase of approximately $126,000
in administrative fees on the newly acquired properties; and (iii) net
increases of approximately $6,000 in other general and administrative
expenses. These increases were partially offset by a decrease of
approximately $186,000 of costs incurred in conjunction with the Merger.
<PAGE> - 13 -
General and administrative expenses increased $354,409 from 1995 to 1996.
This increase is primarily due to (i) approximately $186,000 of costs incurred
in conjunction with the Merger; (ii) an increase of approximately $98,000 in
salaries and related expenses; (iii) an increase of approximately $32,000 in
professional fees; (iv) an increase of approximately $12,000 in servicing
fees; and (v) net increases of approximately $26,000 in other general and
administrative expenses.
The table below segregates the results of operations for the Partnership's
real estate operations and tax-exempt mortgage bond investments activities for
each year shown.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Real estate operations:
Rental income $ 9,511,041 $ 5,763,648 $ 5,116,073
Operating expenses (4,514,450) (3,047,804) (2,359,827)
Depreciation (1,897,586) (1,165,059) (1,197,490)
--------------- --------------- ---------------
3,099,005 1,550,785 1,558,756
--------------- --------------- ---------------
Tax-exempt mortgage bonds investments:
Mortgage bond investment income $ 1,611,956 2,107,486 2,234,610
Contingent interest 290,520 - -
Realized loss on disposition of mortgage bond (3,000,000) - -
--------------- --------------- ---------------
(1,097,524) 2,107,486 2,234,610
--------------- --------------- ---------------
Interest income on temporary cash investments 35,532 51,557 55,720
General and administrative expenses (1,263,054) (1,146,709) (792,300)
Interest expense (1,132,494) (118,382) -
--------------- --------------- ---------------
Net income (loss) $ (358,535) $ 2,444,737 $ 3,056,786
=============== =============== ===============
</TABLE>
This report contains forward looking statements that reflect
management's current beliefs and estimates of future economic circumstances,
industry conditions, the Partnership's performance and financial results. All
statements, trend analysis and other information concerning possible or
assumed future results of operations of the Partnership and the real estate
investments it has made (including, but not limited to, the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations"), constitute forward-looking statements. BUC holders
and others should understand that these forward looking statements are subject
to numerous risks and uncertainties and a number of factors could affect the
future results of the Partnership and could cause those results to differ
materially from those expressed in the forward looking statements contained
herein.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The requirements of Item 7A of Form 10-K are not applicable to the Partnership
prior to its Annual Report on Form 10-K for the year ended December 31, 1998.
Item 8. Financial Statements and Supplementary Data. The Financial
Statements and supporting schedules of the Registrant are set forth in Item 14
hereof and are incorporated herein by reference. In addition, the Financial
Statements of Jefferson Place, L.P. and Sunpointe Associates Limited
Partnership (Avalon Ridge) are set forth in Item 14 hereof and are
incorporated by reference. The financial statements of Jefferson Place, L.P.
and Sunpointe Associates Limited Partnership are included pursuant to SAB
Topic 1I.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. There were no disagreements with the Registrant's
independent accountants on accounting principles and practices or financial
disclosure during the fiscal years ended December 31, 1997 and 1996.
<PAGE> - 14 -
PART III
Item 10. Directors and Executive Officers of the Registrant. The
Registrant has no directors or officers. Management of the Registrant
consists of the general partner of the Registrant, America First Capital
Associates Limited Partnership Four ("AFCA"), and its general partner, America
First Companies L.L.C. The following individuals are managers and officers of
America First Companies L.L.C., and each serves for a term of one year:
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- - ----------------------- -------------------------- -----------------------
<S> <C> <C>
Michael B. Yanney Chairman of the Board, 1987
President, Chief Executive
Officer and Manager
Michael Thesing Vice President, Secretary, 1987
Treasurer and Manager
William S. Carter, M.D. Manager 1994
George Kubat Manager 1994
Martin A. Massengale Manager 1994
Alan Baer Manager 1994
Gail Walling Yanney Manager 1996
Mariann Byerwalter Manager 1997
</TABLE>
Michael B. Yanney, 64, has served as the Chairman, President and Chief
Executive Officer of America First Companies L.L.C. and its predecessors since
1984. From 1977 until the organization of the first such fund in 1984, Mr.
Yanney was principally engaged in the ownership and management of commercial
banks. Mr. Yanney also has investments in private corporations engaged in a
variety of businesses. From 1961 to 1977, Mr. Yanney was employed by Omaha
National Bank and Omaha National Corporation (now part of U.S. Bank), where he
held various positions, including the position of Executive Vice President and
Treasurer of the holding company. Mr. Yanney also serves as a member of the
boards of directors of Burlington Northern Santa Fe Corporation, Forest Oil
Corporation, Lozier Corporation, Freedom Communications, Inc., Magnum
Resources, RCN Corporation, Rio Grande Medical Technologies, Inc., Mid-America
Apartment Communities, Inc. and PKS Information Services, Inc..
Michael Thesing, 43, has been Vice President and Chief Financial Officer
of affiliates of America First Companies L.L.C. since July 1984. From January
1984 until July 1984 he was employed by various companies controlled by Mr.
Yanney. He was a certified public accountant with Coopers & Lybrand from 1977
through 1983.
William S. Carter, M.D., 71, is a retired physician. Dr. Carter
practiced medicine for 30 years in Omaha, Nebraska, specializing in
otolaryngology (disorders of the ears, nose and throat).
George Kubat, 52, is the President and Chief Executive Officer of
Phillips Manufacturing Co., an Omaha, Nebraska, based manufacturer of drywall
metals and construction materials. Prior to assuming that position in
November 1992, Mr. Kubat was a certified public accountant with Coopers &
Lybrand in Omaha, Nebraska, from 1969. He was the tax partner in charge of
the Omaha office from 1981 to 1992. Mr. Kubat currently serves on the board
of directors of Sitel Corporation and American Business Information, Inc..
Martin A. Massengale, 64, is President Emeritus of the University of
Nebraska, Director of the Center for Grassland Studies and Foundation
Distinguished Professor. Prior to becoming President in 1991, he served as
Interim President from 1989, as Chancellor of the University of Nebraska
Lincoln from 1981 until 1990 and as Vice Chancellor for Agriculture and
Natural Resources from 1976 to 1981. Prior to that time, he was a professor
and associate dean of the College of Agriculture at the University of
Arizona. Dr. Massengale currently serves on the board of directors of Woodmen
Accident & Life Insurance Company and IBP, Inc. and is a member of the Board
of Trustees of the Great Plains Funds, Inc.
<PAGE> - 15 -
Alan Baer, 75, is presently Chairman of Alan Baer & Associates, Inc., a
management company located in Omaha, Nebraska. He is also Chairman of Lancer
Hockey, Inc., Baer Travel Services, Wessan Telemarketing, Total Security
Systems, Inc. and several other businesses. Mr. Baer is the former Chairman
and Chief Executive Officer of the Brandeis Department Store chain which,
before its acquisition, was one of the larger retailers in the Midwest. Mr.
Baer has also owned and served on the board of directors of several banks in
Nebraska and Illinois.
Gail Walling Yanney, 61, is a retired physician. Dr. Walling practiced
anesthesia and was most recently the Executive Director of the Clarkson
Foundation until October of 1995. In addition, she was a director of FirsTier
Bank, N.A., Omaha prior to its merger with First Bank, N.A.. Ms. Yanney is
the wife of Michael B. Yanney.
Mariann Byerwalter, 37, is Vice President of Business Affairs and Chief
Financial Officer of Stanford University. Ms. Byerwalter was Executive Vice
President of America First Eureka Holdings, Inc. ("AFEH") and EurekaBank from
1988 to January 1996. Ms. Byerwalter was Chief Financial Officer and Chief
Operating Officer of AFEH, and Chief Financial Officer of EurekaBank from 1993
to January 1996. She was an officer of BankAmerica Corporation and its
venture capital subsidiary from 1984 to 1987. She served as Vice President
and Executive Assistant to the President of Bank of America and was a Vice
President in the bank's Corporate Planning and Development Department.
Item 11. Executive Compensation. Neither the Registrant nor AFCA has
any managers or officers. None of the managers or executive officers of
America First Companies L.L.C. (the general partner of AFCA) receive
compensation from the Registrant and AFCA receives no reimbursement from the
Registrant for any portion of their salaries. Remuneration paid by the
Registrant to AFCA pursuant to the terms of its limited partnership agreement
during the year ended December 31, 1997, is described in Note 9 of the Notes
to the Financial Statements filed in response to Item 8 hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person is known by the Registrant to own beneficially more than 5%
of the Registrant's BUCs.
(b) William S. Carter, M.D. owns 2,000 BUCs. No other manager or officer
of America First Companies L.L.C. and no partner of AFCA owns any BUCs.
(c) There are no arrangements known to the Registrant, the operation of
which may at any subsequent date result in a change in control of the
Registrant.
Item 13. Certain Relationships and Related Transactions. The general
partner of the Fund is AFCA and the sole general partner of AFCA is America
First Companies L.L.C.
Except as described herein, the Registrant is not a party to any
transaction or proposed transaction with AFCA, America First Companies, L.L.C.
or with any person who is: (i) a manager or executive officer of America
First Companies L.L.C. or any general partner of AFCA; (ii) a nominee for
election as a manager of America First Companies L.L.C.; (iii) an owner of
more than 5% of the BUCs; or, (iv) a member of the immediate family of any of
the foregoing persons.
During 1997, the Registrant paid or reimbursed AFCA or America First
Companies L.L.C. $2,148,734 for certain costs and expenses incurred in
connection with the operation of the Registrant. These costs and expenses
included legal and accounting fees and investor communication costs, such as
printing and mailing charges, and costs incurred in connection with the
offering of multifamily housing refunding bonds and the acquisition of real
estate. See Note 9 to Notes to Financial Statements filed in response to Item
8 hereof for a description of these costs and expenses.
Pursuant to the Limited Partnership Agreement, AFCA is entitled to an
administrative fee from the Partnership based on the original amount of the
mortgage bonds which were foreclosed on and the purchase price of any
additional properties acquired by the Partnership. The amount of such fees
paid to AFCA 4 was $352,190 in 1997.
<PAGE> - 16 -
During 1997, AFCA 4 received administrative fees of $371,220 from the
owner of Jackson Park Place in conjunction with the Settlement Agreement
described in Item 7. Since these fees are not Partnership expenses, they have
not been reflected in the accompanying financial statements.
AFCA is entitled to receive a property acquisition fee from the
Registrant in connection with the identification, evaluation and acquisition
of additional properties and the financing thereof. The Registrant paid
acquisition fees of $325,184 to AFCA during 1997.
The general partner of the property partnership which owned Jefferson
Place was principally owned by an employee of America First Companies L.L.C.
through July 30, 1997. Such employee has a nominal interest in America First
Companies L.L.C.. AFCA and an affiliated mortgage fund also own small
interests in the general partner. The general partner has a nominal interest
in the property partnership's profits, losses and cash flow which is
subordinate to the interest of the Registrant and the mortgage bond. The
general partner did not receive cash distributions from the property
partnership in 1997. On July 30, 1997, the Partnership acquired the general
partnership interest in the property partnership.
America First Properties Management Company, L.L.C. (the "Manager") has
been retained to provide property management services with respect to the
day-to-day operation of Covey at Fox Valley, The Park at Fifty Eight, Shelby
Heights, Coral Point, Jefferson Place, Avalon Ridge, Park at Countryside
(beginning in January 1997), the Retreat (beginning in April 1997), Jackson
Park Place (beginning in May 1997) and Park Trace Apartments (beginning in
October 1997). The property management agreements provide that the Manager is
entitled to receive a management fee equal to a stated percentage of the gross
revenues generated by the property under management. Management fees payable
to the Manager range from 4.5% to 5% of gross revenues. Because the Manager
is an affiliate of AFCA, the management fees payable by the Registrant to the
Manager may not exceed the lesser of (i) the rates that the Registrant would
pay an unaffiliated manager for similar services in the same geographic
location or (ii) the Manager's actual cost for providing such services.
During the year ended December 31, 1997, the Registrant paid the Manager
property management fees of $617,079.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K. (a) The following documents are filed as part of this report:
1A. Financial Statements of the Registrant. The following
financial statements of the Registrant are included in response to Item 8
of this report:
Independent Accountants' Report.
Balance Sheets of the Registrant as of December 31, 1997, and
December 31, 1996.
Statements of Income of the Registrant for the years ended
December 31, 1997, December 31, 1996, and December 31, 1995.
Statements of Partners' Capital of the Registrant for the years
ended December 31, 1997, December 31, 1996, and December 31, 1995.
Statements of Cash Flows of the Registrant for the years ended
December 31, 1997, December 31, 1996, and December 31, 1995.
Notes to Financial Statements of the Registrant.
Schedule III--Real Estate and Accumulated Depreciation for the
years ended December 31, 1997 and December 31, 1996.
<PAGE> - 17 -
B. Financial Statements of Sunpointe Associates Limited
Partnership ("Sunpointe"). The following financial statements of
Sunpointe are included in response to Item 8 of this report:
Independent Auditors' Report.
Balance Sheets of Sunpointe as of December 31, 1997 and December
31, 1996.
Statements of Income of Sunpointe for the years ended December
31, 1997, December 31, 1996 and December 31, 1995.
Statements of Changes in Partners' Equity (Deficit) of Sunpointe
for the years ended December 31, 1997, December 31, 1996 and
December 31, 1995.
Statements of Cash Flows of Sunpointe for the years ended
December 31, 1997, December 31, 1996 and December 31, 1995.
Notes to Financial Statements of Sunpointe.
C. Financial Statements of Jefferson Place L.P. ("Jefferson").
The following financial statements of Jefferson are included in response
to Item 8 of this report:
Independent Auditors' Report.
Balance Sheets of Jefferson as of December 31, 1996 and
December 31, 1995.
Statements of Income of Jefferson for the years ended
December 31, 1996 and December 31, 1995.
Statements of Changes in Partners' Equity (Deficit) of
Jefferson for the years ended December 31, 1996 and December
31, 1995.
Statements of Cash Flows of Jefferson for the years ended
December 31, 1996 and December 31, 1995.
Notes to Financial Statements of Jefferson.
2. Financial Statement Schedules. The information required to be
set forth in the financial statement schedule is included in the Financial
Statements filed in response to Item 8 hereof.
3. Exhibits. The following exhibits were filed as required by
Item 14(c) of this report. Exhibit numbers refer to the paragraph numbers
under Item 601 of Regulation S-K:
3. Articles of Incorporation and Bylaws of America First
Fiduciary Corporation Number Eight (incorporated by reference to
Form S-11 Registration Statement filed May 8, 1986, with the
Securities and Exchange Commission by America First Tax Exempt
Mortgage Fund 2 Limited Partnership (Commission File No. 33-5521)).
4(a) Form of Certificate of Beneficial Unit Certificate
incorporated by reference to Exhibit 4.1 to Registration Statement
on Form S-4 (Commission File No. 333-2920) filed by the Registrant
on March 29, 1996).
4(b) Agreement of Limited Partnership of the Registrant
(incorporated by reference to Exhibit 4(b) to Form 8-K (Commission
File No. 0-20737) filed by the Registrant on August 23, 1996).
4(c) Agreement of Merger, dated March 28, 1996, between the
Registrant and America First Tax Exempt Mortgage Fund 2 Limited
Partnership (incorporated by reference to Exhibit 4.3 to Amendment
No. 1 to Registration Statement on Form S-4 (Commission File No.
333-2920) filed by the Registrant on May 17, 1996).
<PAGE> - 18 -
10(a). $18,755,000 Washington State Housing Finance Commission
Multifamily Housing Mortgage Revenue Note (Sunpointe Apartments
Projects) Series 1987 (incorporated herein by reference to Form
10-K dated December 31, 1987, filed pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 by America First Tax Exempt
Mortgage Fund 2 Limited Partnership (Commission File No. 0-15329)).
10(b). Lender Loan Agreement and Indenture of Trust among
Washington State Housing Finance Commission, the Registrant and
FirsTier Bank, National Association, dated September 1, 1987,
(incorporated herein by reference to Form 10-K dated December 31,
1987, filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 by America First Tax Exempt Mortgage Fund 2
Limited Partnership (Commission File No. 0-15329)).
10(c). Construction Loan Agreement between the Registrant and
Sunpointe Associates Limited Partnership, dated September 1, 1987,
(incorporated herein by reference to Form 10-K dated December 31,
1987, filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 by America First Tax Exempt Mortgage Fund 2
Limited Partnership (Commission File No. 0-15329)).
10(d). Settlement Agreement among the Registrant and Jackson
Park Place, Artel Farms, Inc., and David A. Dyck dated April 11,
1997 (incorporated herein by reference to Form 10-Q dated June 30,
1997 filed pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 by America First Apartment Investors, L.P.
(Commission File No. 0-20737)).
10(e). $12,410,000 Promissory Note, dated December 11, 1997,
from Park Trace Apartments Limited Partnership to the City of
Aurora, Illinois (The Covey at Fox Valley Apartment Project)
Series 1997.
10(f). Loan Agreement, dated December 1, 1997, between Park
Trace Apartments Limited Partnership and City of Aurora, Illinois
(The Covey at Fox Valley Apartment Project) Series 1997.
10(g). Indenture of Trust, dated December 1, 1997, between City
of Aurora, Illinois and UMB Bank, National Association (The Covey
at Fox Valley Apartment Project) Series 1997.
10(h). Revolving Credit Loan Agreement, dated December 19,
1996, between America First Apartment Investors, L.P. and The
First National Bank of Boston.
24. Power of Attorney.
(b) The Registrant filed the following reports on Form 8-K during the
last quarter of the period covered by this report.
Item Reported Financial Statements Date of Report
Filed
2. Acquisition or No November 10, 1997
Disposition of
Assets
2. Acquisition or No October 24, 1997
Disposition of
Assets
<PAGE> - 19 -
INDEPENDENT ACCOUNTANTS' REPORT
To the Partners
America First Apartment Investors L.P.:
We have audited the accompanying balance sheets of America First Apartment
Investors L.P. (formerly America First Tax Exempt Mortgage Fund 2 Limited
Partnership) as of December 31, 1997 and 1996, and the related statements of
income (loss), partners' capital and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America First Apartment
Investors L.P. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Omaha, Nebraska
March 26, 1998 /s/Coopers & Lybrand L.L.P.
To the Partners
America First Apartment Investors L.P.:
Our report on the financial statements of America First Apartment Investors
L.P. (formerly Tax Exempt Mortgage Fund 2 Limited Partnership) is included in
this Form 10-K. In connection with our audits of such financial statements,
we have also audited the related financial statement schedule listed in Item
14.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material aspects, the information required to be
included therein.
Omaha, Nebraska
March 26, 1998 /s/Coopers & Lybrand L.L.P.
<PAGE> - 20 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1997 Dec. 31, 1996
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 7,879,934 $ 2,021,860
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 5) 13,006,526 31,566,526
Investment in real estate, net of accumulated depreciation (Note 6) 64,267,471 30,199,846
Interest receivable 108,623 186,320
Other assets 1,860,968 948,849
-------------- --------------
$ 87,123,522 $ 64,923,401
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 9) $ 1,861,162 $ 1,454,694
Bonds payable (Note 7) 27,035,000 2,750,000
Line of credit (Note 8) - 3,584,200
Due to Jefferson Place L.P. 2,400,000 -
Distribution payable (Note 3) 329,051 329,051
-------------- --------------
31,625,213 8,117,945
-------------- --------------
Partners' Capital
General Partner 7,037 4,038
Beneficial Unit Certificate Holders
($10.65 per BUC in 1997 and $10.90 in 1996) 55,491,272 56,801,418
-------------- --------------
55,498,309 56,805,456
-------------- --------------
$ 87,123,522 $ 64,923,401
============== ==============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 21 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
(Combined)
-------------- -------------- --------------
<S> <C> <C> <C>
Income
Mortgage bond investment income (Note 5) $ 1,611,956 $ 2,107,486 $ 2,234,610
Contingent interest (Note 5) 290,520 - -
Rental income 9,511,041 5,763,648 5,116,073
Interest income on temporary cash investments 35,532 51,557 55,720
-------------- -------------- --------------
11,449,049 7,922,691 7,406,403
-------------- -------------- --------------
Expenses
General and administrative expenses (Note 9) 1,263,054 1,146,709 792,300
Real estate operating expenses 4,514,450 3,047,804 2,359,827
Depreciation 1,897,586 1,165,059 1,197,490
Interest expense 1,132,494 118,382 -
Realized loss on disposition of mortgage bond 3,000,000 - -
-------------- -------------- --------------
11,807,584 5,477,954 4,349,617
-------------- -------------- --------------
Net income (loss) $ (358,535) $ 2,444,737 $ 3,056,786
============== ============== ==============
Net income (loss) allocated to:
General Partner $ 42,485 $ 36,098 $ 42,543
BUC Holders (401,020) 2,408,639 3,014,243
-------------- -------------- --------------
$ (358,535) $ 2,444,737 $ 3,056,786
============== ============== ==============
Net income (loss), basic and diluted, per BUC $ (.08) $ .46 $ .57
============== ============== ==============
Weighted average number of BUCs outstanding 5,212,167 5,228,895 5,245,623
============== ============== ==============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 22 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FROM DECEMBER 31, 1994, TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
Beneficial Unit
Certificate Holders
General
Partner # of BUCs Amount Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Partners' Capital (excluding net unrealized
holding losses):
Balance at December 31, 1994 $ 4,750 5,245,623 $ 68,277,168 $ 68,281,918
Net income 42,543 - 3,014,243 3,056,786
Cash distributions paid or accrued (Note 3)
Income (39,740) - (2,736,727) (2,776,467)
Return of capital - - (1,197,490) (1,197,490)
--------------- --------------- --------------- ---------------
Balance at December 31, 1995 7,553 5,245,623 67,357,194 67,364,747
Net income 36,098 - 2,408,639 2,444,737
Cash distributions paid or accrued (Note 3)
Income (39,613) - (2,756,612) (2,796,225)
Return of capital - - (1,165,059) (1,165,059)
Purchase of units - (33,456) (294,270) (294,270)
--------------- --------------- --------------- ---------------
Balance at December 31, 1996 4,038 5,212,167 65,549,892 65,553,930
Net income (loss) 42,485 - (401,020) (358,535)
Cash distributions paid or accrued (Note 3)
Income (39,486) - (2,011,594) (2,051,080)
Return of capital - - (1,897,532) (1,897,532)
Purchase of units - - - -
--------------- --------------- --------------- ---------------
Balance at December 31, 1997 7,037 5,212,167 61,239,746 61,246,783
--------------- --------------- --------------- ---------------
Net unrealized holding losses:
Balance at December 31, 1995 and 1996 - - (8,748,474) (8,748,474)
Net change (realized loss) - - (3,000,000) (3,000,000)
--------------- --------------- --------------- ---------------
- - (5,748,474) (5,748,474)
--------------- --------------- --------------- ---------------
Balance at December 31, 1997 $ 7,037 5,212,167 $ 55,491,272 $ 55,498,309
=============== =============== =============== ===============
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 23 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
(Combined)
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (358,535) $ 2,444,737 $ 3,056,786
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 1,897,586 1,165,059 1,197,490
Amortization 165,536 4,526 -
Realized loss on disposition of mortgage bond 3,000,000 - -
Decrease (increase) in interest receivable 77,697 10,281 (7,435)
Decrease (increase) in other assets 191,581 (492,459) (40,080)
Increase in accounts payable 406,468 771,681 27,189
--------------- --------------- ---------------
Net cash provided by operating activities 5,380,333 3,903,825 4,233,950
--------------- --------------- ---------------
Cash flows from investing activities
Real estate capital improvements (680,889) (168,599) (317,408)
Acquisition of real estate (26,524,322) (5,305,736) -
Proceeds from disposition of mortgage bond 12,200,000 - -
--------------- --------------- ---------------
Net cash used in investing activities (15,005,211) (5,474,335) (317,408)
--------------- --------------- ---------------
Cash flows from financing activities
Distributions paid (3,948,612) (3,963,396) (3,973,957)
Net borrowing (repayments) on line of credit (3,584,200) 3,584,200 -
Proceeds from issuance of bonds payable 24,365,000 2,750,000 -
Bond issuance and line of credit costs paid (1,269,236) (396,724) -
Principal payments on bonds payable (80,000) - -
Purchase of units - (294,270) -
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 15,482,952 1,679,810 (3,973,957)
--------------- --------------- ---------------
Net increase (decrease) in cash and temporary cash investments 5,858,074 109,300 (57,415)
Cash and temporary cash investments at beginning of year 2,021,860 1,912,560 1,969,975
--------------- --------------- ---------------
Cash and temporary cash investments at end of year $ 7,879,934 $ 2,021,860 $ 1,912,560
=============== =============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 898,046 $ 53,133 $ -
=============== =============== ===============
Supplemental schedule of non-cash investing and financing activities:
Settlement of mortgage bond for real estate $ 8,760,000 $ - $ -
Due to Jefferson Place L.P. 2,400,000 - -
The accompanying notes are an integral part of the consolidated and combined financial statements.
</TABLE>
<PAGE> - 24 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Organization
America First Apartment Investors, L.P. (the Partnership) was formed on March
7, 1996, under the Delaware Revised Uniform Limited Partnership Act for the
purpose of acquiring, holding, operating, selling or otherwise dealing with
multifamily residential properties and other types of commercial real estate
and interests therein. The Partnership commenced operations on August 20,
1996, when it merged with America First Tax Exempt Mortgage Fund 2 Limited
Partnership (the Prior Partnership). Under the terms of the merger agreement,
the Partnership was the surviving partnership and effectively took over the
operations of the Prior Partnership. Unit holders of the Prior Partnership
received one Beneficial Unit Certificate (BUC) of the Partnership for each BUC
they held in the Prior Partnership as of the record date. The Prior
Partnership was terminated under the provisions of the Prior Partnership's
Partnership Agreement. The Partnership will terminate on December 31, 2016,
unless terminated earlier under the provisions of its Partnership Agreement.
The General Partner of the Partnership is America First Capital Associates
Limited Partnership Four (AFCA 4).
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
The consolidated financial statements include the accounts of the
Partnership and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
The accompanying 1996 consolidated financial statements include the
combined accounts of the Partnership from August 20, 1996 (the Merger
Date), through December 31, 1996, and the accounts of the Prior
Partnership from January 1, 1996, until the Merger Date. Financial
Statements for 1995 include the accounts of the Prior Partnership.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B) Investment in Tax-Exempt Mortgage Bonds
Investment securities are classified as held-to-maturity, available-
for-sale, or trading. Investments classified as available-for-sale are
reported at fair value with any unrealized gains or losses excluded from
earnings and reflected as a separate component of partners' capital.
Subsequent increases and decreases in the net unrealized gain/loss on the
available-for-sale securities are reflected as adjustments to the carrying
value of the portfolio and adjustments to the component of partners'
capital. The Partnership does not have investment securities classified
as held-to-maturity or trading.
The carrying value of tax-exempt mortgage bonds is periodically reviewed
and adjusted when there are significant changes in the fair value of the
underlying collateral (see Note 2D).
Accrual of mortgage bond investment income is excluded from income when,
in the opinion of management, collection of related interest is doubtful.
This interest is recognized as income when it is received.
C) Investment in Real Estate
The Partnership's investment in real estate consists of property acquired
through foreclosure or deed in lieu of foreclosure and other real estate
acquired. Each real estate property acquired is recorded at the lower of
cost or estimated net realizable value. The carrying value of each
property is periodically reviewed and adjusted when there are significant
declines in the estimated net realizable value (see Note 2D).
<PAGE> - 25 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Depreciation of real estate is based on the estimated useful life of the
property (27-1/2 years on multifamily residential apartments and 31-1/2
years on The Exchange at Palm Bay) using the straight-line method.
Depreciation of real estate improvements on The Exchange at Palm Bay is
based on the term of the related tenant lease using the straight-line
method.
D) Fair Value of Real Estate
The fair value of the real estate (including real estate which
collateralizes the Partnership's remaining tax-exempt bond) is based on
management's best estimate of the net realizable value of the properties
which may differ from the ultimate values realized from these properties.
The net realizable value of the properties is determined based on the
discounted estimated future cash flows from the properties, including
estimated sales proceeds. The calculation of discounted estimated future
cash flows includes certain variables such as the assumed inflation rates
for rents and expenses, capitalization rates and discount rates. These
variables are supplied to the Partnership by an independent real estate
appraisal firm based upon local market conditions for each property. In
certain cases, additional factors such as the replacement value of the
property or comparable sales of similar properties are also taken into
consideration.
E) Income Taxes
No provision has been made for income taxes since Beneficial Unit
Certificate (BUC) Holders are required to report their share of the
Partnership's taxable income for federal and state income tax purposes.
The tax basis of the Partnership's assets and liabilities exceeded the
reported amounts by $11,240,910 and $11,746,353 at December 31, 1997, and
December 31, 1996, respectively.
F) Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with an original maturity of three months or less.
G) Net Income per BUC
Net income per BUC has been calculated based on the weighted average
number of BUCs outstanding during each year presented.
H) New Accounting Pronouncement
The Financial Accounting Standards Board has issued Financial Accounting
Standards No. 128 "Earnings Per Share" (FAS 128). FAS 128, which is
effective for periods ending after December 15, 1997, did not
have an impact on the Partnership's computation, presentation or
disclosure of earnings per BUC as no dilutive common share equivalents
existed at December 31, 1997.
3. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for the distribution of Net
Operating Income, Net Sale Proceeds and Liquidation Proceeds and for the
allocation of income and expenses for tax purposes among AFCA 4 and BUC
Holders. Income and expenses will be allocated to each BUC Holder on a
monthly basis based on the number of BUCs held by each BUC Holder as of the
last day of the month for which such allocation is to be made. Distributions
of Net Operating Income and Net Sale Proceeds will be made to each BUC Holder
of record on the last day of each distribution period based on the number of
BUCs held by each BUC Holder as of such date.
Net Operating Income, as defined in the Limited Partnership Agreement, in each
distribution period will be distributed 99% to the BUC Holders and 1% to
AFCA 4.
The portion of Net Sale Proceeds, as defined in the Limited Partnership
Agreement, will be distributed 100% to the BUC Holders.
<PAGE> - 26 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Liquidation Proceeds, as defined in the Limited Partnership Agreement,
remaining after repayment of any debts or obligations of the Partnership
(including loans from AFCA 4) and after the establishment of any reserve AFCA
4 deems necessary, will be distributed to AFCA 4 and BUC Holders to the extent
of positive balances in their capital accounts. Any remaining Liquidation
Proceeds will be distributed in the same manner as the Net Sale Proceeds.
Cash distributions are presently made on a monthly basis but may be made
quarterly or semiannually if AFCA 4 so elects. Cash distributions included in
the financial statements represent the actual cash distributions made during
each year and the cash distributions accrued at the end of each year.
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $6,696,981 at
December 31, 1997. The reserve account was established to maintain working
capital for the Partnership and is available to supplement distributions to
investors or for any other contingencies related to the ownership of the
mortgage bonds, real estate acquired and the operation of the Partnership,
including the acquisition of additional properties.
On July 10, 1996, management announced its intent to utilize a portion of the
reserve account to purchase up to a total of 50,000 BUCs of the Partnership in
open market transactions. Through December 31, 1997, 33,456 BUCs had been
acquired at a cost of $294,270 (none during 1997).
5. Investment in Tax-Exempt Mortgage Bonds
The tax-exempt mortgage bonds consisted of three such bonds issued by various
state and local governments, agencies or authorities to finance the
construction and/or permanent financing of apartment projects. During 1997,
two of the tax-exempt mortgage bonds were repaid. The remaining bond was
issued to finance Avalon Ridge Apartments in Renton, Washington. However,
this mortgage bond does not constitute an obligation of such housing
authority, nor is the taxing power of any state or local government pledged to
the payment of principal or interest on the mortgage bond. The mortgage bond
is a nonrecourse obligation of the owner of Avalon Ridge Apartments and the
sole source of funds to pay principal and interest on the mortgage bond is the
net cash flow or the sale or refinancing proceeds generated by this property.
The mortgage bond is collateralized by a first mortgage on Avalon Ridge
Apartments and all related personal property and an assignment of rents.
Each of the mortgage bonds provided for the payment of base interest and for
the payment of additional contingent interest out of a portion of the net cash
flow of the properties, and out of a portion of the sale or refinancing
proceeds from a property, subject to various priority payments. The principal
of the remaining mortgage bond does not amortize during the term thereof, but
will be required to be repaid in a lump sum payment at the expiration of its
term. Principal and accrued interest on the remaining mortgage bond will
become due and payable upon the sale of the financed property. Accordingly,
the Partnership has classified such bond as available-for-sale. The
Partnership may waive compliance with any of the terms of the mortgage bond.
<PAGE> - 27 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Descriptions of the tax-exempt mortgage bonds owned by the Partnership during
1997 are as follows:
<TABLE>
<CAPTION>
Base Income
Number Maturity Interest Carrying Earned
Property Name Location of Units Date Rate(1) Amount in 1997
----------------------------- --------------- -------- ------------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Performing:
Jackson Park Place Fresno, CA 296 09/01/11 8.5% $ - (3) $ 248,700
----------------- ------------
Nonperforming:(2)
Jefferson Place Olathe, KS 352 12/01/10 8.5% - (4) 525,073
Avalon Ridge Renton, WA 356 09/01/11 8.5% 18,755,000 838,183
----------------- ------------
18,755,000 1,363,256
----------------- ------------
$ 1,611,956
Unrealized holding losses (5,748,474) ============
-----------------
Balance at December 31, 1997 (at estimated fair value) $ 13,006,526
=================
</TABLE>
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Reconciliation of the carrying amounts of the
mortgage bonds is as follows:
Balance at beginning of year $ 40,315,000 $ 40,315,000 $ 40,315,000
Settlement of mortgage bond for real estate (3) (8,760,000) - -
Disposition of mortgage bond (4) (12,800,000) - -
--------------- --------------- ---------------
Balance at end of year 18,755,000 40,315,000 40,315,000
=============== =============== ===============
The following summarizes the activity in the
unrealized holding losses:
Balance at beginning of year $ 8,748,474 $ 8,748,474 $ 8,748,474
Change in unrealized holding losses (realized loss) (3,000,000) - -
--------------- --------------- ---------------
Balance at end of year $ 5,748,474 $ 8,748,474 $ 8,748,474
=============== =============== ===============
</TABLE>
(1) In addition to the base interest rate shown, the bonds bear additional
contingent interest as defined in each revenue note which, when combined
with the interest shown, is limited to a cumulative, noncompounded amount
not greater than 13% per annum. The Partnership received contingent
interest of $290,520 in 1997 (See (3)). The Partnership did not receive
any additional contingent interest in 1996 or 1995.
(2) Nonperforming bonds are bonds which are not fully current as to interest
payments. The amount of foregone interest on nonperforming bonds was
$865,586 for 1997, $1,319,289 for 1996 and $1,192,165 for 1995.
<PAGE> - 28 -
(3) In accordance with the terms of the Loan Agreement underlying the
$8,670,00 in tax-exempt mortgage bonds collateralized by Jackson Park
Place (Jackson), the Partnership exercised its option to require the owner
of Jackson to prepay the tax-exempt mortgage bonds. The Partnership
entered into a Settlement Agreement with the owner of Jackson that
provided for the Partnership to acquire Jackson at appraised value on May
7, 1997. In accordance with the terms of the Loan Agreement, the
following disbursements were made: (i) $2,100,000 to America First
Participating/Preferred Equity Mortgage Fund (PREP), an affiliated fund,
representing payment of the outstanding balance of its Participating Loan
on Jackson; (ii) $69,480 to PREP representing contingent interest income
on its Participating Loan; (iii) $371,220 to AFCA 4 and $88,780 to the
general partner of PREP representing due and unpaid administrative fees;
(iv) $290,520 to the Partnership representing contingent interest income
on the tax-exempt mortgage bonds; and (v) $360,000 to the owner of
Jackson. These disbursements were funded with borrowings on the
Partnership's Line of Credit. The Partnership also incurred costs of
$18,096 in conjunction with the acquisition.
(4) On July 30, 1997, the limited partnership which owns Jefferson Place
(Jefferson L.P.) received proceeds of $12,200,000 from the offering of
multifamily housing revenue refunding bonds collateralized by Jefferson
Place and The Retreat. The Partnership, in turn, received $12,200,000
from Jefferson Place L.P. representing full payment of its $12,800,000 in
tax-exempt mortgage bonds on Jefferson Place. As a result, the
Partnership realized a loss of $3,000,000. Concurrently, the unrealized
holding losses related to the investment in tax-exempt mortgage bonds,
which is a separate component of partners' capital, was reduced by
$3,000,000. In addition to receiving $12,200,000 in cash which resulted
in a liability to Jefferson Place L.P. of $2,400,000, the Partnership also
received a $3,500,000 subordinate note representing past due interest on
the $12,800,000 tax-exempt mortgage bonds. The Partnership did not record
this past due interest as management considered its collectability to be
doubtful. Interest on the subordinate note, at the rate of 8.5%, is
payable monthly solely out of excess cash flow generated by Jefferson
Place. Final payment of all outstanding principal and interest is due
July 1, 2023. All payments due under the $3,500,000 note are subordinate
to payments due under the $12,200,000 in tax-exempt mortgage bonds. The
Partnership has not recorded the subordinate note on its balance sheet due
to its doubtful collectability. Any interest and principal payments
received under the terms of the subordinate note will be recorded as
income when received.
Unaudited combined condensed financial information of the properties
collateralizing the Partnership's investment in tax-exempt mortgage bonds is
as follows:
<TABLE>
<CAPTION>
Dec. 31, 1997 Dec. 31, 1996
--------------- ---------------
<S> <C> <C>
Assets
Real estate $ 11,637,996 $ 25,235,016
Restricted deposits and funded reserves 106,977 319,314
Other assets 166,531 319,593
--------------- ---------------
11,911,504 $ 25,873,923
=============== ===============
Liabilities and Partners' Capital
Liabilities
Mortgage and notes payable $ 20,000,000 $ 43,660,000
Accrued interest payable 6,484,223 11,407,628
Other liabilities 1,258,536 2,673,311
Partners' Capital (Deficit) (15,831,255) (31,867,016)
--------------- ---------------
11,911,504 $ 25,873,923
=============== ===============
Rental income $ 3,934,455 $ 5,575,983
=============== ===============
Net loss $ (945,757) $ (3,274,784)
=============== ===============
</TABLE>
<PAGE> - 29 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
6. Investment in Real Estate
During 1997, the Partnership acquired three multifamily properties, The
Retreat, Jackson Park Place and Park Trace Apartments. Interim financing for
The Retreat and Park Trace Apartments was primarily provided from proceeds
from the Partnership's line of credit and subsequently permanently financed
through the reissuance of tax-exempt refunding bonds (see Note 7). Jackson
Park Place was conveyed to the Partnership through a deed in lieu of
foreclosure (see Note 5).
The Partnership's investment in real estate is comprised of the following:
<TABLE>
<CAPTION>
Building Carrying Carrying
Number and Value at Value at
Property Name Location of Units Land Improvements Dec. 31, 1997 Dec. 31, 1996
-------------------------- ----------------- -------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley(1) Aurora, IL 216 $ 1,320,000 $ 10,028,338 $ 11,348,338 $ 11,348,338
The Exchange at Palm Bay Palm Bay, FL 72,002(2) 1,296,002 3,989,949 5,285,951 4,605,062
The Park at Fifty Eight(1),(3)Chattanooga, TN 196 231,113 4,122,226 4,353,339 4,353,339
Shelby Heights(1) Bristol, TN 100 175,000 2,952,847 3,127,847 3,127,847
Coral Point(1) Mesa, AZ 336 2,240,000 8,960,000 11,200,000 11,200,000
Park at Countryside(1) Port Orange, FL 120 647,000 2,616,648 3,263,648 3,245,454
The Retreat (4) Atlanta, GA 226 1,800,000 7,315,697 9,115,697 -
Jackson Park Place Fresno, CA 296 1,400,000 10,712,415 12,112,415 -
Park Trace Apartments (1) Norcross, GA 260 2,246,000 11,792,016 14,038,016 -
-------------- --------------
73,845,251 37,880,040
Less accumulated depreciation (9,577,780) (7,680,194)
-------------- --------------
Balance at end of year $ 64,267,471 $ 30,199,846
============== ==============
</TABLE>
(1) Property is encumbered as described in Note 7.
(2) Represents square feet.
(3) Property consists of Phase II (96 units acquired through foreclosure) and
Phase I (100 units purchased on May 16, 1996).
(4) Property serves as collateral for $12,200,000 of multifamily revenue
refunding bonds issued on Jefferson Place as described in Note 5.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Reconciliation of the carrying values of the
real estate held is as follows:
Balance at beginning of year $ 30,199,846 $ 29,390,570 $ 30,270,652
Capital improvements 680,889 168,599 317,408
Acquisition of real estate 26,524,322 5,305,736 -
Settlement of mortgage bond for real estate 8,760,000 - -
Depreciation (1,897,586) (1,165,059) (1,197,490)
Write-down of impaired real estate - (3,500,000) -
--------------- --------------- ---------------
Balance at end of year $ 64,267,471 $ 30,199,846 $ 29,390,570
=============== =============== ===============
The following summarizes the activity in the
valuation allowance:
Balance at beginning of year $ - $ 3,500,000 $ 3,500,000
Write-down of impaired real estate - (3,500,000) -
---------------- ---------------- ---------------
Balance at end of year $ - $ - $ 3,500,000
================ ================ ===============
</TABLE>
<PAGE> - 30 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
7. Bonds Payable
Bonds payable were originated by the Partnership through the issuance of
tax-exempt refunding bonds. Bonds payable at December 31, 1997, consists of
the following:
<TABLE>
<CAPTION>
Effective Final
Interest Maturity Annual Carrying
Collateral Rate Date Payment Schedule Payments Amount
- - ----------------------- --------- -------- ----------------------------------- --------------------- -------------
<S> <C> <C> <C> <C> <C>
The Park at Fifty Eight 6.65% 3/1/2021 semiannual payments of range from $224,000 $ 2,670,000
principal and/or interest to $228,000
are due each March 1 and September 1
Shelby Heights and 6.10% 3/1/2022 semiannual payments of range from $266,000 3,450,000
Park at Countryside principal and/or interest to $276,000
are due each March 1 and September 1
Covey at Fox Valley 5.30% 11/1/2007 semiannual payments of $586,000 in 1998, 12,410,000
and Park Trace Apartments interest are due each May 1 $658,000 thereafter
and November 1
Jackson Park Place 5.80% 12/1/2027 monthly payment of $611,901 8,505,000
principal and interest
are due the 1st of each month
-------------
Balance at December 31, 1997 $ 27,035,000
=============
</TABLE>
Principal maturities on the bonds payable are as follows:
Year Amount
---------------- ----------------
1998 $ 228,402
1999 234,859
2000 251,701
2001 268,950
2002 281,631
Thereafter 25,769,457
----------------
$ 27,035,000
================
8. Line of Credit
The Partnership has a $15 million revolving loan credit agreement (the Line of
Credit) with The First National Bank of Boston (the Bank). The Line of Credit
provides interim financing for the acquisition of multifamily residential
properties. It expires on December 19, 1998. The Line of Credit bears
interest, which is payable monthly, at 1/2% above the Bank's base rate (which
base rate was 9% as of December 31, 1997). In addition, the Partnership pays
a facility fee of 1/4 of 1% on the unused portion of the line which is payable
quarterly in arrears. The Line of Credit is collateralized by Coral Point;
however, the Partnership may substitute other real estate owned as collateral,
subject to the approval of the Bank. The maximum amount available for
borrowings under the Line of Credit was $10,290,000 at December 31, 1997. The
Partnership did not have any borrowings against the Line of Credit at December
31, 1997. The Line of Credit contains convenants which include, among others,
restrictions on the amount of indebtedness the Partnership may incur and
minimum debt service coverage requirements.
<PAGE> - 31 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
9. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses and
certain costs capitalized by the Partnership are paid by AFCA 4 or an
affiliate and reimbursed by the Partnership. The capitalized costs were
incurred in connection with the offering of multifamily housing revenue
refunding bonds and the acquisition of real estate. The amount of such
expenses reimbursed to AFCA 4 or an affiliate are shown below. The reimbursed
expenses are presented on a cash basis and do not reflect accruals made at the
end of each year.
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Costs capitalized by the Partnership $ 735,971 $ 199,060 $ -
Interest on line of credit 621,148 - -
Reimbursable salaries and benefits 528,916 482,635 370,211
Professional fees and expenses 71,722 56,325 40,360
Other expenses 51,324 33,564 27,088
Investor services and custodial fees 36,488 60,199 51,664
Registration fees 32,296 24,466 18,037
Report preparation and distribution 22,431 16,017 16,854
Insurance 22,133 23,030 19,136
Consulting and travel expenses 16,008 9,970 3,936
Telephone 10,297 8,363 8,729
Restructuring costs - 186,385 -
Stock certificates - 1,952 -
--------------- --------------- ---------------
$ 2,148,734 $ 1,101,966 $ 556,015
=============== =============== ===============
</TABLE>
Pursuant to the Limited Partnership Agreement, AFCA 4 is entitled to an
administrative fee from the Partnership based on the original amount of the
mortgage bonds which were foreclosed on and the purchase price of any
additional properties acquired by the Partnership. The amount of such fees
paid to AFCA 4 was $352,190 in 1997, $226,200 in 1996, and $226,200 in 1995.
During 1997, AFCA 4 received administrative fees of $371,220 from the owner of
Jackson Park Place in conjunction with the Settlement Agreement.
AFCA 4 did not receive any administrative fees from property owners in 1997.
AFCA 4 received from property owners administrative fees of $26,280 in 1996
and $8,066 in 1995. Since these fees are not Partnership expenses, they have
not been reflected in the accompanying financial statements.
Pursuant to the terms of the Limited Partnership Agreement, AFCA 4 is entitled
to receive a property acquisition fee from the Partnership in connection with
the identification, evaluation and acquisition of additional properties and
the financing thereof. The Partnership paid acquisition fees of $325,184 and
$39,863 to AFCA 4 during 1997 and 1996, respectively. No such fees were paid
to AFCA 4 during 1995.
The general partner of the property partnership which owned Jefferson Place
was principally owned by an employee of an affiliate of AFCA 4 through July
30, 1997. Such employee has a nominal interest in the affiliate. AFCA 4 and
an affiliated mortgage fund also own small interests in the general partner.
The general partner has a nominal interest in the property partnership's
profits, losses and cash flow which is subordinate to the interest of the
Partnership and the mortgage bond. The general partner did not receive cash
distributions from the partnership in 1997, 1996, or 1995. On July 30, 1997,
the Partnership acquired the general partnership interest in the property
partnership.
<PAGE> - 32 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
An affiliate of AFCA 4 was retained to provide property management services
for Covey at Fox Valley, The Park at Fifty Eight, Shelby Heights, Coral Point,
Jefferson Place, Avalon Ridge, Park at Countryside (beginning in January
1997), the Retreat (beginning in April 1997), Jackson Park Place (beginning in
May 1997) and Park Trace Apartments (beginning October 1997). The fees for
services provided represent the lower of (i) costs incurred in providing
management of the property, or (ii) customary fees for such services
determined on a competitive basis and amounted to $611,079 in 1997, $431,730
in 1996, and $382,143 in 1995.
10. Fair Value of Financial Instruments
The following methods and assumptions were used by the Partnership in
estimating the fair value of its financial instruments:
Cash and temporary cash investments: Fair value approximates the carrying
value of such assets.
Investment in tax-exempt mortgage bonds: Fair value is based on
management's best estimate of the net realizable value of the underlying
collateral of the bonds. See Note 2D.
Bonds payable: Fair value is based on estimated future cash flows
discounted using the quoted market rate, from an independent source, of
similar obligations.
Line of Credit: Given the short-term nature of the Line of Credit as well
as its variable rate of interest, fair value approximates carrying value.
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
----------------------------------- -----------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash and temporary cash investments $ 7,879,934 $ 7,879,934 $ 2,021,860 $ 2,021,860
Investment in tax-exempt mortgage bonds 13,006,526 13,006,526 31,566,526 31,566,526
Bonds payable 27,035,000 27,737,000 2,750,000 2,812,869
Line of Credit - - 3,584,200 3,584,200
</TABLE>
11. Summary of Unaudited Quarterly Results of Operations
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1997 to December 31, 1997 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 2,331,310 $ 3,066,182 $ 2,891,992 $ 3,159,565
Total expenses (1,434,255) (2,267,619) (5,425,977)(1) (2,679,733)
--------------- --------------- --------------- ---------------
Net income (loss) $ 897,055 $ 798,563 $ (2,533,985) $ 479,832
=============== =============== =============== ===============
Net income (loss), basic and diluted, per BUC $ .17 $ .15 $ (.49) $ .09
=============== =============== =============== ===============
Market Price per BUC
High sale 9-1/2 9-3/8 9-7/8 10-1/2
Low sale 8-5/8 8-3/4 8-7/8 9-3/8
=============== =============== =============== ===============
</TABLE>
(1) During the third quarter of 1997, the Partnership realized a loss of
$3,000,000 on the disposition of its tax-exempt mortgage bond on Jefferson
Place.
<PAGE> - 33 -
AMERICA FIRST APARTMENT INVESTORS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
First Second Third Fourth
From January 1, 1996 to December 31, 1996 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 1,903,369 $ 1,957,324 $ 1,978,146 $ 2,083,852
Total expenses (1,254,579) (1,362,323) (1,463,702) (1,397,350)
--------------- --------------- --------------- ---------------
Net income $ 648,790 $ 595,001 $ 514,444 $ 686,502
=============== =============== =============== ===============
Net income per BUC $ .12 $ .11 $ .10 $ .13
=============== =============== =============== ===============
Market Price per BUC(1)
High sale 9-3/4 9-3/4 9-1/2 9-3/8
Low sale 8-1/2 8-3/4 7-3/4 8-3/8
=============== =============== =============== ===============
</TABLE>
(1) The market price per share information includes that of America First
Apartment Investors L.P. from August 20, 1996 (the Merger Date), through
December 31, 1997, and America First Tax Exempt Fund 2 Limited Partnership
for periods prior to the Merger Date.
The BUCs are quoted on the NASDAQ Stock Market under the symbol APROZ. Prior
to the Merger Date, the BUCs were quoted under the symbol ATAXZ. The high and
low quarterly prices of the BUCs shown represent the final sales prices and
were compiled from the Monthly Statistical Reports provided to the Partnership
by the National Association of Securities Dealers, Inc.
12. Unaudited Pro Forma Statements of Operations
The unaudited pro forma statements of operations are presented as if the
acquisitions of Park Trace Apartments, Jackson Park Place, and The Retreat had
occurred at the beginning of the year preceding the acquisition. The
unaudited pro forma statements of operations are not necessarily indicative of
what the actual results of operations would have been had transactions been
consummated as of the beginning of each period presented.
<TABLE>
<CAPTION>
1997 1996
----------------------------------- -----------------------------------
Historical Pro Forma Historical Pro Forma
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income $ 11,449,049 $ 13,678,754 $ 7,922,691 $ 12,579,266
Expenses 11,807,584 14,668,475 5,477,954 10,711,184
--------------- --------------- --------------- ---------------
Net income (loss) $ (358,535) $ (989,721) $ 2,444,737 $ 1,868,082
=============== =============== =============== ===============
Net income (loss), basic and diluted, per BUC $ (.08) $ (.20) $ .46 $ .35
=============== =============== =============== ===============
</TABLE>
<PAGE> - 34 -
Schedule III
AMERICA FIRST APARTMENT INVESTORS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
Description to Partnership to Acquisition
- - --------------------------------------------------------------------- ------------------------- ------------------------
Building Building
and and Carrying
Property Location # of Units Encumbrances Land Improvements Improvements Costs
- - ------------------------ --------------- ------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 (a) $1,320,000 $11,090,000 $ - $ -
The Exchange at Palm Bay Palm Bay, FL 72,002 sq ft (b) 1,296,002(d) 4,349,682 825,830 -
The Park at Fifty Eight Chattanooga, TN 196 (c) 231,113(e) 2,553,474 1,818,485 -
Shelby Heights Bristol, TN 100 (b) 175,000 3,275,000 - -
Coral Point Mesa, AZ 336 (a) 2,240,000 8,960,000 - -
Park at Countryside Port Orange, FL 120 (b) 647,000 2,598,454 - -
----------- ------------ ------------ ------------
$5,909,115 $32,826,610 $ 2,644,315 $ -
=========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at December 31, 1996
-----------------------------------------
Building Accumulated Which
and Total Depreciation Date of Date Depreciation
Property Land Improvements (f),(g) (h) Construction Acquired is Computed
- - ------------------------ ----------- ------------ ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley $1,320,000 $10,028,338 $11,348,338 $ 3,174,388 1989 1989 27.5 years
The Exchange at Palm Bay 1,296,002 3,309,060 4,605,062 1,540,765 1988 1990(d) 31.5 years
The Park at Fifty Eight 231,113 4,122,226 4,353,339 566,028 1987 1991(e) 27.5 years
Shelby Heights 175,000 2,952,847 3,127,847 645,930 1987 1991 27.5 years
Coral Point 2,240,000 8,960,000 11,200,000 1,753,083 1987 1991 27.5 years
Park at Countryside 647,000 2,598,454 3,245,454 - 1983 1996 27.5 years
----------- ------------ ------------ ------------
$5,909,115 $31,970,925 $37,880,040 $ 7,680,194
=========== ============ ============ ============
</TABLE>
(a) The encumbrance represents the borrowing on a line of credit with The
First National Bank of Boston which is collateralized by these
properties. The line of credit bears interest at 1/2% above of The First
National Bank of Boston's Base Rate (8.75% at December 31, 1996) and
expires on December 19, 1997.
(b) The Partnership has no encumbrances against these properties.
(c) The encumbrance represents bonds payable originated by the Partnership
through the issuance of tax-exempt refunding bonds of $2,750,000
collateralized by this property. The bonds bear interest at an effective
rate of 6.65%. The final payment of principal is due on March 1, 2021.
(d) Land with a cost of $1,150,318 and $145,684 was acquired in 1990 and 1996,
respectively.
(e) Land with a cost of $135,000 and $96,113 was acquired in 1991 and 1996,
respectively.
<PAGE> - 35 -
(f) Reconciliation of Real Estate:
<TABLE>
<CAPTION>
1996
---------------
<S> <C>
Balance - beginning of year $ 35,905,705
Acquisitions 5,305,736
Improvements 168,599
Write-down of impaired real estate(1) (3,500,000)
---------------
Balance - end of year $ 37,880,040
===============
</TABLE>
(1) On January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (FAS 121). As a
result of adopting FAS 121, the Partnership wrote down the carrying value
of each impaired property to estimated net realizable value thus
eliminating the valuation allowance on real estate acquired.
(g) As of December 31, 1996, the aggregate cost of the Partnership's
investment in real estate for federal income tax purposes amounted to
$34,071,705.
(h) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
1996
---------------
<S> <C>
Balance - beginning of year $ 6,515,135
Depreciation expense 1,165,059
---------------
Balance - end of year $ 7,680,194
===============
</TABLE>
<PAGE> - 36 -
Schedule III
AMERICA FIRST APARTMENT INVESTORS, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
Description to Partnership to Acquisition
- - --------------------------------------------------------------------- -------------------------- ------------------------
Building Building
and and Carrying
Property Location # of Units Encumbrances Land Improvements Improvements Costs
- - ------------------------ --------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 (c) $ 1,320,000 $11,090,000 $ - $ -
The Exchange at Palm Bay Palm Bay, FL 72,002 sq ft (b) 1,296,002(d) 4,349,682 1,506,719 -
The Park at Fifty Eight Chattanooga, TN 196 (c) 231,113(e) 2,553,474 1,818,485 -
Shelby Heights Bristol, TN 100 (c) 175,000 3,275,000 - -
Coral Point Mesa, AZ 336 (a) 2,240,000 8,960,000 - -
Park at Countryside Port Orange, FL 120 (c) 647,000 2,598,454 18,194 -
The Retreat Atlanta, GA 226 (f) 1,800,000 7,315,697 - -
Jackson Park Place Fresno, CA 296 (c) 1,400,000 10,712,415 - -
Park Trace Apartments Norcross, GA 260 (c) 2,246,000 11,792,016 - -
------------ ------------ ------------ ------------
$11,355,115 $62,646,738 $ 3,343,398 $ -
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at December 31, 1997
------------------------------------------
Building Accumulated Which
and Total Depreciation Date of Date Depreciation
Property Land Improvements (f),(g) (h) Construction Acquired is Computed
- - ------------------------ ------------ ------------ ------------ ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Covey at Fox Valley $ 1,320,000 $10,028,338 $11,348,338 $ 3,525,872 1989 1989 27.5 years
The Exchange at Palm Bay 1,296,002 3,989,949 5,285,951 1,868,339 1988 1990(d) 31.5 years
The Park at Fifty Eight 231,113 4,122,226 4,353,339 729,218 1987 1991(e) 27.5 years
Shelby Heights 175,000 2,952,847 3,127,847 750,989 1987 1991 27.5 years
Coral Point 2,240,000 8,960,000 11,200,000 2,078,901 1987 1991 27.5 years
Park at Countryside 647,000 2,616,648 3,263,648 95,117 1983 1996 27.5 years
The Retreat 1,800,000 7,315,697 9,115,697 199,507 1997 27.5 years
Jackson Park Place 1,400,000 10,712,415 12,112,415 258,369 1997 27.5 years
Park Trace Apartments 2,246,000 11,792,016 14,038,016 71,468 1997 27.5 years
------------ ------------ ------------ ------------
$11,355,115 $62,490,136 $73,845,251 $ 9,577,780
============ ============ ============ ============
</TABLE>
(a) The encumbrance represents the borrowing on a line of credit with The
First National Bank of Boston which is collateralized by this
property. The line of credit bears interest at 1/2% above of The First
National Bank of Boston's Base Rate (which base rate was 9% at December
31, 1997) and expires on December 19, 1998.
(b) The Partnership has no encumbrances against these properties.
(c) The encumbrance represents bonds payable originated by the Partnership
through the issuance of tax-exempt refunding bonds of totaling $27,035,000
at December 31, 1997. (See Note 7 to the accompanying Financial
Statements).
(d) Land with a cost of $1,150,318 and $145,684 was acquired in 1990 and 1996,
respectively.
(e) Land with a cost of $135,000 and $96,113 was acquired in 1991 and 1996,
respectively.
(f) The encumbrance represents $12,200,000 of multifamily revenue refunding
bonds issued on Jefferson Place. (See Note 5 to the accompanying
Financial Statements).
<PAGE> - 37 -
(f) Reconciliation of Real Estate:
<TABLE>
<CAPTION>
1997
---------------
<S> <C>
Balance - beginning of year $ 37,880,040
Acquisitions 35,284,322
Improvements 680,889
---------------
Balance - end of year $ 73,845,251
===============
</TABLE>
(g) As of December 31, 1996, the aggregate cost of the Partnership's
investment in real estate for federal income tax purposes amounted to
$68,233,888.
(h) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
1997
---------------
<S> <C>
Balance - beginning of year $ 7,680,194
Depreciation expense 1,897,586
---------------
Balance - end of year $ 9,577,780
===============
</TABLE>
<PAGE> - 38 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 AND FOR THE YEARS
ENDED DECEMBER 31, 1997, 1996 AND 1995
TABLE OF CONTENTS
PAGE
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS ON
THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
BALANCE SHEETS 2
STATEMENTS OF INCOME 3
STATEMENTS OF CHANGES IN PARTNERS'(DEFICIT) 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-8
To the Partners
Sunpointe Associates Limited Partnership
Omaha, Nebraska
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Sunpointe Associates
Limited Partnership, (a Washington Limited Partnership) (the "Partnership"),
as of December 31, 1997 and 1996, and the related statements of income,
changes in partners' deficit and cash flows for the years ended December 31,
1997, 1996 and 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sunpointe Associates Limited
Partnership as of December 31, 1997 and 1996, and the results of its
operations, changes in partners' deficit and cash flows for the years ended
December 31, 1997, 1996 and 1995, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 9 to the
financial statements, the Partnership has experienced recurring losses from
operations and has a working and net capital deficiency that raise substantial
doubt about the Partnership's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
St. Louis, MO /s/Mueller, Prost, Purk & Willbrand, P.C.
January 27, 1998 Certified Public Accountants
<PAGE> - 1 -
FINANCIAL STATEMENTS
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 24,611 $ 38,867
Tenant accounts receivable, less allowance for doubtful
accounts of $41,107 and $23,194 16,700 11,010
Prepaid expenses 25,888 12,930
Other receivables 32,180 -
--------------- ---------------
Total Current Assets 99,379 62,807
--------------- ---------------
Funded Deposits Held in Trust
Security deposits 67,152 67,551
--------------- ---------------
Restricted Deposits and Funded Reserves
Taxes and insurance escrow 106,977 120,628
--------------- ---------------
Property and Equipment
Land 3,261,280 3,261,280
Land improvements 439,162 439,162
Buildings 13,132,765 13,132,765
Equipment 601,082 601,082
--------------- ---------------
Total Property and Equipment 17,434,289 17,434,289
Less: Accumulated depreciation (5,796,293) (5,267,020)
--------------- ---------------
Net Property and Equipment 11,637,996 12,167,269
--------------- ---------------
Total Assets $ 11,911,504 $ 12,418,255
=============== ===============
LIABILITIES AND PARTNERS' (DEFICIT)
Current Liabilities
Accounts payable $ 37,468 $ 9,405
Prepaid rents 29,862 17,908
Accrued expenses 27,025 27,500
Accrued interest payable 6,484,223 5,637,084
--------------- ---------------
Total Current Liabilities 6,578,578 5,691,897
--------------- ---------------
Deposit Liabilities
Security deposits 100,681 81,487
--------------- ---------------
Long-Term Liabilities
Mortgage payable 20,000,000 20,000,000
Due to limited partner 90,000 90,000
Accrued administrative fees 973,500 856,612
--------------- ---------------
Total Long-Term Liabilities 21,063,500 20,946,612
--------------- ---------------
Total Liabilities 27,742,759 26,719,996
--------------- ---------------
PARTNERS' (DEFICIT)
Partners' (Deficit) (15,831,255) (14,301,741)
--------------- ---------------
Total Liabilities and Partners' (Deficit) $ 11,911,504 $ 12,418,255
=============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 2 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Income
Rental income $ 2,534,829 $ 1,888,209 $ 2,068,885
Interest income 7,991 8,804 7,341
Income from forfeited security deposits 18,905 23,212 38,021
Other income 141,300 88,320 98,087
--------------- --------------- ---------------
Total Income 2,703,025 2,008,545 2,212,334
--------------- --------------- ---------------
Expenses
Operating Expenses
Utilities 323,720 276,804 279,381
Salaries and wages 321,429 234,465 238,349
Real estate taxes 213,505 216,528 211,014
Advertising 77,316 67,239 68,107
Professional fees 64,691 52,940 72,453
Insurance 30,102 22,044 27,518
Personal property taxes - - 1,862
--------------- --------------- ---------------
Total Operating Expenses 1,030,763 870,020 898,684
--------------- --------------- ---------------
Maintenance Expenses
Repairs and maintenance 457,398 387,251 359,904
Security 50,886 66,725 85,726
Supplies 51,546 32,712 68,543
Cleaning 28,779 12,105 22,023
--------------- -------------- ---------------
Total Maintenance Expenses 588,609 498,793 536,196
--------------- -------------- ---------------
Management Expenses
Management fees 83,164 74,870 74,072
Administrative and office 71,848 56,342 59,685
Consulting fee 20,112 - -
--------------- -------------- ---------------
Total Management Expenses 175,124 131,212 133,757
--------------- -------------- ---------------
Mortgage Interest 1,718,675 1,718,675 1,718,675
--------------- -------------- ---------------
Other Expenses
Depreciation 529,273 529,273 529,273
Administrative fees 172,182 162,670 157,255
Bad debt expense 17,913 23,194 -
--------------- -------------- ---------------
Total Other Expenses 719,368 715,137 686,528
--------------- -------------- ---------------
Total Expenses 4,232,539 3,933,837 3,973,840
--------------- -------------- ---------------
Net Loss $ (1,529,514) $ (1,925,292) $ (1,761,506)
=============== ============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 3 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
General
Partner Limited Partners
--------------- ----------------------------------------------------
Sunset Shelter
Terrace Corporation Shelter The Total
Investments, of Canada American Axelrod Partners'
Inc. Limited Holding, Inc. Company Deficit
--------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ (1,083,375) $ (1,700,023) $ (5,293,142) $ (2,538,403) $ (10,614,943)
Prior Period Adjustment
(see Note 8) 1,067,240 1,697,582 (3,396) (2,761,426) -
Net Loss for the Year (1,761) (440) (879,432) (879,873) (1,761,506)
--------------- ---------------- --------------- --------------- ---------------
Balance, December 31, 1995 (17,896) (2,881) (6,175,970) (6,179,702) (12,376,449)
Net Loss for the Year (1,926) (480) (961,203) (961,683) (1,925,292)
--------------- ---------------- --------------- --------------- ---------------
Balance, December 31, 1996 (19,822) (3,361) (7,137,173) (7,141,385) (14,301,741)
Net Loss for the Year (1,530) (306) (763,686) (763,992) (1,529,514)
--------------- ---------------- --------------- --------------- ---------------
Balance, December 31, 1997 $ (21,352) $ (3,667) $ (7,900,859) $ (7,905,377) $ (15,831,255)
=============== ================ =============== =============== ===============
Profit/Loss Ratio 0.1% 0.025% 49.925% 49.95% 100%
=============== ================ =============== =============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 4 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $ (1,529,514) $ (1,925,292) $ (1,761,506)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities
Depreciation 529,273 529,273 529,273
Change in assets - (increase) decrease
Tenant accounts receivable (5,690) 4,738 (15,748)
Prepaid expenses (12,958) 20,893 (20,067)
Other receivables (32,180) 537 (505)
Change in liabilities - increase (decrease)
Accounts payable 28,063 1,655 (2,085)
Prepaid rents 11,954 5,833 12,075
Accrued expenses (475) 21,000 (215)
Accrued interest payable 847,139 1,229,418 1,060,009
Security deposits 19,593 18,084 (4,572)
Accrued administrative fees 116,888 116,888 116,888
--------------- ---------------- ---------------
Total Adjustments 1,501,607 1,948,319 1,675,053
--------------- ---------------- ---------------
Net Cash Provided (Used) by Operating Activities (27,907) 23,027 (86,453)
--------------- ---------------- ---------------
Cash Flows from Financing Activities
Net deposit and withdrawals in restricted deposits
and funded reserves 13,651 3,820 11,580
--------------- ---------------- ---------------
Net Cash Provided by Financing Activities 13,651 3,820 11,580
--------------- ---------------- ---------------
Net Increase (Decrease) in Cash (14,256) 26,847 (74,873)
Cash - Beginning of Year 38,867 12,020 86,893
--------------- ---------------- ---------------
Cash - End of Year $ 24,611 $ 38,867 $ 12,020
=============== ================ ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 5 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
Sunpointe Associates Limited Partnership, a Washington Limited Partnership,
(the "Partnership"), was formed on September 3, 1987, pursuant to the terms of
an Agreement of Limited Partnership for the purpose of acquiring and operating
the Avalon Ridge Apartments complex, a 356-unit apartment complex located in
Renton, Washington (the "Project"). The Partnership will dissolve on December
31, 2037, unless sooner dissolved pursuant to any provision of the Partnership
Agreement.
The Agreement of Limited Partnership which was amended on June 30, 1991, and
December 31, 1991, admitted a new general partner and changed the profit and
loss allocation percentages to the partners. The general partner of the
Partnership is Sunset Terrace Investments, Inc. (the "General Partner"), a
California corporation. The limited partners of the Partnership are Shelter
Corporation of Canada Limited, a Canadian corporation, Shelter American
Holding, Inc., a Delaware corporation, and the Axelrod Company, a Washington
corporation.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting. The Partnership also reports its operating results for income
tax purposes on the accrual basis. No provision for income taxes is made
because any liability for income taxes is that of the individual partners and
not that of the Partnership.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from estimated amounts.
Security Deposits
The security deposit liability exceeds the security deposit cash account in
1997 and 1996 by $33,529 and $13,936, respectively. Management has stated
that both of these deficiencies are included in the operating account for each
respective year and can be transferred to the security deposit account as
necessary.
Tenant Accounts Receivable
The Partnership provides an allowance for doubtful accounts equal to the
estimated collection loss that will be incurred in the collection of
receivables. Bad debt expense of $17,913, $23,194 and $0 was recorded for
the periods ended December 31, 1997, 1996 and 1995, respectively.
Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements
are capitalized to the property accounts while replacements, maintenance and
repairs which do not improve or extend the useful life of the respective
assets are expensed currently.
Depreciation is calculated using the straight-line method over estimated
useful lives ranging from 7 to 27.5 years. The total depreciation expensed
for the years ending December 31, 1997, 1996 and 1995 was $529,273 each year.
Concentration of Credit Risk
The Project maintains the majority of its cash balances in one financial
institution. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1997 and 1996, the Project's
uninsured cash balances totaled $0 and $16,586, respectively.
<PAGE> - 6 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred. Advertising expense was $77,316, $67,239 and $68,107 for the
years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 3 STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Partnership considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Cash paid during the years for:
<TABLE>
<CAPTION> 1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest $ 871,536 $ 489,257 $ 658,666
</TABLE>
NOTE 4 RESTRICTED DEPOSITS AND FUNDED RESERVES
Taxes and insurance escrow reserves, consisting of money market funds, are
maintained under the control of the mortgage note holder for the benefit of
the Partnership and in an interest-bearing account with a federally insured
financial institution. Disbursements from the escrow are for real estate
taxes and insurance premiums. Interest earned on the funds is transferred to
operating cash quarterly.
NOTE 5 MORTGAGE PAYABLE
The Partnership entered into a $1,245,000 mortgage payable agreement with
America First Participating/Preferred Equity Mortgage Fund on September 1,
1987, maturing September 1, 1999. The note bears base interest at the rate of
10%, due on the fifteenth day of each month. Maximum construction period
deferred interest at the rate of 3% per annum is due during the first interest
period, which extends from the date of inception to August 17, 1989. It shall
be paid, to the extent possible, from 50% of the net sale or refinancing
proceeds. Contingent interest and deferred interest, also at 3% per annum, is
due during the second interest period, which extends from August 18, 1989, to
the date of full payment. They shall be paid from 50% of the net cash flow.
Pursuant to a promissory note dated September 1, 1987, the Partnership owes
Washington Mortgage Corporation $18,755,000 plus interest. The interest of
Washington Mortgage Corporation was purchased and assigned to Washington State
Housing Finance Commission (the "Commission") under the Assignment of
Developer Documents dated September 1, 1987. Part of the interest of the
Commission has been assigned to FirsTier Bank, National Association, as
Trustee under the Lender Loan Agreement and Indenture of Trust dated September
1, 1987. The note bears base interest at the rates of 9.5% per annum and 8.5%
per annum during the first and second interest periods, respectively. The
note bears deferred contingent interest in amounts equal to 3.5% per annum and
4.5% per annum during the first and second interest periods, respectively.
During the third interest period, the note bears contingent interest at an
annual rate of 4.5% on the outstanding principal amount. The note matures on
September 1, 2011.
NOTE 6 MANAGEMENT FEE TRANSACTIONS
Management Fees
On August 20, 1994, America First Properties Management Company, LLC, an
affiliate of the general partner, took over management of the Partnership.
Their fee is 3.75% of gross receipts when net operating income is less than
$103,000 and 4.5% when net operating income is greater than $103,000.
Management fees for the years ending December 31, 1997, 1996 and 1995 were
$83,164, $74,870 and $74,072, respectively. At December 31, 1997 and 1996,
the Partnership owed America First Properties Management Company, LLC, $9,087
and $6,848, respectively.
<PAGE> - 7 -
SUNPOINTE ASSOCIATES LIMITED PARTNERSHIP
(A Washington Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7 RELATED PARTY TRANSACTIONS
Due to Limited Partner
The Partnership has outstanding operating deficit loans borrowed from the
limited partner at December 31, 1997 and 1996, of $90,000 each year.
NOTE 8 PRIOR-PERIOD ADJUSTMENT
Partners' deficit as of December 31, 1994 has been adjusted to correct an
error due to ownership transfers of partner accounts not made from 1989 to
1991. The error had no effect on net loss for the years ended December 31,
1997, 1996 and 1995.
NOTE 9 GOING CONCERN CONSIDERATIONS
The Partnership's operations have produced a cumulative deficit of $15,831,255
since commencement of rental operations in 1987, as well as recurring
operating losses. The considerations raise substantial doubt about the
Partnership's ability to continue as a going concern. Management has
addressed this concern by implementing an operating plan designed to
reposition the Project and substantially increase long-term cash flow from
operations. This plan includes: (1) investment of a significant portion of
property cash flow in upgrading and improving the condition and appearance of
the Project; and (2) implementation of stringent resident qualification
standards designed to improve the resident profile and, ultimately, property
operations. In addition, management is also considering reissuance of the
bonds at lower interest rates so that the Project can support monthly interest
payments.
<PAGE> - 8 -
JEFFERSON PLACE, L.P.
(A Missouri Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
T A B L E O F C O N T E N T S
PAGE
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS ON
THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
BALANCE SHEETS 2
STATEMENTS OF INCOME 3
STATEMENTS OF CHANGES IN PARTNERS'
EQUITY (DEFICIT) 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-9
To the Partners
Jefferson Place, L.P.
Omaha, Nebraska
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Jefferson Place, L.P., (a
Missouri Limited Partnership) (the "Partnership"), as of December 31, 1996 and
1995, and the related statements of income, changes in partners' equity
(deficit) and cash flows for the years then ended. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jefferson Place, L.P., as of
December 31, 1996 and 1995, and the results of its operations and the changes
in partners' equity (deficit) and cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 10 to the
financial statements, the Partnership has experienced recurring losses from
operations and has a working capital deficiency and a net capital deficiency
that raise substantial doubt about the Partnership's ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
January 31, 1997 /s/Mueller, Prost, Purk & Willbrand, P.C.
Certified Public Accountants
<PAGE> - 1 -
FINANCIAL STATEMENTS
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 121,353 $ 108,614
Tenant accounts receivable 14,315 3,042
Prepaid expenses 22,402 22,293
-------------- ---------------
Total Current Assets 158,070 133,949
-------------- ---------------
Funded Deposits Held in Trust
Security deposits 27,211 16,438
-------------- ---------------
Restricted Deposits and Funded Reserves
Taxes and insurance escrow 39,407 34,214
-------------- ---------------
Property and Equipment
Land 339,063 339,063
Buildings 10,894,462 10,894,462
Equipment 398,521 398,521
-------------- ---------------
Total Property and Equipment 11,632,046 11,632,046
Less: Accumulated depreciation (6,099,164) (5,521,434)
-------------- ---------------
Net Property and Equipment 5,532,882 6,110,612
-------------- ---------------
Other Assets
Utility Deposits 2,250 2,250
-------------- ---------------
Total Assets $ 5,759,820 $ 6,297,463
============== ===============
LIABILITIES
Current Liabilities
Accounts payable $ 36,622 $ -
Other accrued expenses 14,406 12,623
Prepaid rent 7,918 17,943
Accrued real estate taxes 61,250 58,222
Accrued interest payable 3,493,114 3,116,962
--------------- ---------------
Total Current Liabilities 3,613,310 3,205,750
--------------- ---------------
Deposit Liabilities
Security deposits 64,623 53,872
--------------- ---------------
Long-Term Liabilities
Mortgage payable 12,800,000 12,800,000
Accrued administrative fees 755,019 679,219
--------------- ---------------
Total Long-Term Liabilities 13,555,019 13,479,219
--------------- ---------------
Total Liabilities 17,232,952 16,738,841
--------------- ---------------
PARTNERS' EQUITY (DEFICIT)
General partner (73,727) (63,409)
Limited partners (11,399,405) (10,377,969)
--------------- ---------------
Total Partners' Equity (Deficit) (11,473,132) (10,441,378)
--------------- ---------------
Total Liabilities and
Partners' Equity (Deficit) $ 5,759,820 $ 6,297,463
=============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 2 -
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Income
Rental income $ 1,669,087 $ 1,603,103
Interest income 11,360 10,903
Other income 99,162 95,944
Income from forfeited security deposits 16,883 15,567
--------------- ---------------
Total Income 1,796,492 1,725,517
--------------- ---------------
Expenses
Operating Expenses
Salaries and wages 195,447 186,022
Real estate taxes 122,499 116,444
Insurance 27,734 27,007
Utilities 152,644 144,925
Professional fees 9,736 11,052
Advertising and promotional fees 29,618 34,090
--------------- ---------------
Total Operating Expenses 537,678 519,540
--------------- ---------------
Maintenance Expenses
Repairs and maintenance 180,241 184,491
Security 5,880 5,824
Cleaning 9,417 8,603
Supplies 20,748 23,816
--------------- ---------------
Total Maintenance Expenses 216,286 222,734
--------------- ---------------
Management Expenses
Administrative and office 23,772 24,358
Management fees 89,436 83,866
--------------- ---------------
Total Management Expenses 113,208 108,224
--------------- ---------------
Mortgage Interest Expense 1,294,544 1,276,370
--------------- ---------------
Other Expenses
Administrative fees 88,800 88,800
Depreciation 577,730 578,958
--------------- ---------------
Total Other Expenses 666,530 667,758
--------------- ---------------
Total Expenses 2,828,246 2,794,626
--------------- ---------------
Net Loss $ (1,031,754) $ (1,069,109)
=============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 3 -
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Limited Partners
--------------------------------------------------------------------------------------
Special Class A
General Limited Limited
Partner Partner Partner Class B Limited Partners
----------- ---------- -------------- ----------------------------------------------
Liberty Liberty Chase Total
JHC Associates Tax Credit DRI Equity Mark D. Susan L. Properties, Limited
Corporation IV, L.P. Plus III, L.P. Corporation Rose Rose Inc. Partners
----------- ---------- -------------- ----------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ (52,718) $ (52,718) $ (3,781,735) $ 78,470 $(280,988) $(280,988) $(5,001,592) $ (9,319,551)
Net Loss for the year (10,691) (10,691) (908,743) (1,390) (6,949) (6,949) (123,696) (1,058,418)
----------- ---------- -------------- ----------- ---------- ---------- ------------ -------------
Balance, December 31, 1995 (63,409) (63,409) (4,690,478) 77,080 (287,937) (287,937) (5,125,288) (10,377,969)
Net Loss for the year (10,318) (10,318) (876,991) (1,341) (6,706) (6,706) (119,374) (1,021,436)
----------- ---------- -------------- ----------- ---------- ---------- ------------ -------------
Balance, December 31, 1996 $ (73,727) $ (73,727) $ (5,567,469) $ 75,739 $(294,643) $(294,643) $(5,244,662) $(11,399,405)
=========== ========== ============== =========== ========== ========== ============ =============
Partners' Percentage of
Partnership Losses 1.00% 1.00% 85.00% 0.13% 0.65% 0.65% 11.57% 99.00%
=========== ========== ============== =========== ========== ========== ============ =============
</TABLE>
<TABLE>
<CAPTION>
Total
Partners'
Deficit
--------------
<S> <C>
Balance, December 31, 1994 $ (9,372,269)
Net Loss for the year (1,069,109)
--------------
Balance, December 31, 1995 (10,441,378)
Net Loss for the year (1,031,754)
--------------
Balance, December 31, 1996 $ (11,473,132)
==============
Partners' Percentage of
Partnership Losses 100.00%
==============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 4 -
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (1,031,754) $ (1,069,109)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation 577,730 578,958
Change in assets - (increase) decrease
Tenant accounts receivable (11,273) (1,932)
Property tax refund receivable - 8,139
Prepaid expenses (109) (352)
Change in liabilities - increase (decrease)
Accounts payable 36,622 -
Other accrued expenses 1,783 (5,979)
Prepaid rent (10,025) 13,605
Accrued real estate taxes 3,028 10,897
Accrued interest payable 376,152 412,612
Security deposits 10,751 5,186
Accrued administrative fees 75,800 77,800
--------------- ---------------
Total Adjustments 1,060,459 1,098,934
--------------- ---------------
Net Cash Provided by Operating Activities 28,705 29,825
--------------- ---------------
Cash Flows from Financing Activities
Net deposit and withdrawals in restricted deposits and
funded reserves (15,966) (3,155)
--------------- ---------------
Net Cash Used by Financing Activities (15,966) (3,155)
--------------- ---------------
Net Increase in Cash 12,739 26,670
Cash - Beginning of Year 108,614 81,944
--------------- ---------------
Cash - End of Year $ 121,353 $ 108,614
=============== ===============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE> - 5 -
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
Jefferson Place, L.P., a Missouri Limited Partnership, (the "Partnership"),
was formed on April 18, 1985, pursuant to the terms of an Agreement of Limited
Partnership for the purpose of acquiring and operating the Jefferson Place
Apartments complex (the "Project"), a 352-unit apartment complex located in
Olathe, Kansas. The Partnership will dissolve on December 31, 2033, unless
sooner dissolved pursuant to any provision of the Partnership agreement.
On October 1, 1990, pursuant to the Second Amended and Restated Agreement of
Limited Partnership, DRI Equity Corporation withdrew from the Partnership as
general partner and became a Class B limited partner with a .13% interest.
DRI assigned its interest to JHC Corporation as the general partner with a 1%
interest. Liberty Associates IV L.P. is the Partnership's special limited
partner with a 1% interest and has the authority, among other things, to
remove the general partner under certain circumstances and to consent to the
sale of the Partnership's assets. The Partnership has three other Class B
limited partners, Mark D. Rose (.65%), Susan L. Rose (.65%), and Chase
Properties, Inc., a Missouri corporation (11.57%), as well as a Class A
limited partner, Liberty Tax Credit Plus III L.P., a Delaware limited
partnership who owns an 85% interest.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting. The Partnership also reports its operating results for income
tax purposes on the accrual basis. No provision for income taxes is made
because any liability for income taxes is that of the individual partners and
not that of the Project.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from estimated amounts.
Security Deposits
The security deposit liability exceeds the security deposit cash account by
$37,412 and $37,434 as of December 31, 1996 and 1995, respectively.
Management has stated that this deficiency will be funded from the operating
cash account as cash flow becomes available.
Bad Debts
The Partnership records bad debts using the direct write off method which is
not materially different from the allowance method. No bad debt expense was
recorded for the years ended December 31, 1996 and 1995.
Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements
are capitalized to the property accounts while replacements, maintenance and
repairs which do not improve or extend the useful life of the respective
assets are expensed currently.
Depreciation is calculated using the straight-line method over estimated
useful lives ranging from 5 to 19 years. The total depreciation expensed for
1996 and 1995 was $577,730 and $578,958, respectively.
Concentration of Credit Risk
The Partnership maintains the majority of its cash balances in one financial
institution. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1996 and 1995, the Partnership's
uninsured cash balances totaled $20,992 and $16,585, respectively.
<PAGE> - 6 -
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3 STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Partnership considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. Cash includes cash and security deposits.
Cash paid during the years for: 1996 1995
----------- -----------
Interest $ 918,392 $ 863,758
NOTE 4 RESTRICTED DEPOSITS AND FUNDED RESERVES
Taxes and insurance escrow reserves, consisting of money market funds, are
maintained under the control of the mortgage note holder for the benefit of
the Partnership and in an interest-bearing account with a federally insured
financial institution.
Disbursements from the escrow are for real estate taxes and insurance
premiums. Interest earned on the funds is transferred to the operating cash
account quarterly.
NOTE 5 MORTGAGE PAYABLE
The Partnership financed the construction of the Project with Multi-Family
Housing Revenue Notes ("Notes") issued by the City of Olathe, Kansas ("City")
in the face amount of $12,800,000. On December 1, 1986, the Notes were
purchased by America First Tax-Exempt Mortgage Fund 2 Limited Partnership
("America First"). The Notes are nonrecourse obligations of the owners of the
Partnership. The Notes are not an obligation to the City, nor is the taxing
power of the City pledged to the payment of principal and interest on the
Notes. The net cash flow of the Partnership and the proceeds from the sale or
refinancing of the Partnership are the sole source of funds to pay principal
and interest on the Notes. The Notes are collateralized by all real and
personal property of the Partnership and an assignment of rents. The
principal balance of the Notes is due in a lump sum on December 1, 2010. Base
interest on the Notes accrues at 8.5% per annum.
In connection with the reorganization of the Partnership on October 1, 1990,
the terms of the Notes were amended pursuant to a mortgage modification
agreement. The mortgage modification agreement was to induce America First to
waive defaults under the original Note and to induce the new limited partners
to infuse additional capital. The mortgage modification agreement provides,
among other provisions, for the following:
1) America First agrees not to declare a default under the Notes, mortgage and
related documents during the term of the modification agreement, which
expires December 31, 2002.
2) America First agrees to accept the monthly cash flow from the Partnership
as partial payment of base interest. If the monthly cash flow is less than
the amount of base interest due for each month, the unpaid base interest
accrues and will be paid from excess cash flow in future months. The
difference between the base interest on the Notes and the payments to
America First from available monthly cash flow will bear interest at 8.5%
per annum until paid. For the years ended December 31, 1996 and 1995,
mortgage interest expense included additional interest on accrued base
interest of $206,542 and $188,370, respectively.
3) The mortgage modification agreement also specifies
the allocation of sale or refinancing proceeds of the Partnership among the
partners and payment of accrued interest to America First.
<PAGE> - 7 -
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6 ACCRUED INTEREST PAYABLE
Accrued interest payable as of December 31, 1996 and 1995, consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Accrued interest payable on bond $ 2,503,804 $ 2,334,194
Accrued interest on unpaid interest 989,310 782,768
------------- -------------
Total Accrued Interest Payable $ 3,493,114 $ 3,116,962
============= =============
</TABLE>
NOTE 7 CONTINGENT INTEREST
In addition to base interest, the Notes provide for the payment of additional
contingent interest that is payable only to the extent the Partnership
generates excess net cash flows or from the sale or refinancing proceeds of
the Partnership, subject to various priority payments. Contingent interest
during the construction period (December 1, 1986 through August 31, 1987) at
3.5% per annum totaled $118,890. Contingent interest at 4.5% per annum,
excluding contingent construction period interest, totaled $4,800,000 through
December 31, 1996 and 1995, respectively. Contingent interest amounts have not
been accrued in the accompanying financial statements.
NOTE 8 RELATED PARTY TRANSACTIONS
Management Fees
On May 1, 1993, America First Properties Management, Inc., an affiliate of the
general partner, took over management of the Partnership. Their fee is 5% of
collected receipts, effective July, 1995. Management fees for 1996 and 1995
were $89,436 and $83,866, respectively. The Partnership owed America First
Properties Management, Inc. $7,666 and $4,564 at December 31, 1996 and 1995,
respectively.
Administrative Fees
Under the terms of the Notes, the Partnership accrues administrative fees of
$6,400 per month to an affiliate of America First. Under the terms of the
Second Amended and Restated Agreement of Limited Partnership, the Partnership
accrues additional administrative fees of $1,000 per month to Liberty
Associates IV, L.P. Administrative fees totaled $88,800 for each year.
Accrued and unpaid administrative fees totaled $755,019 and $679,219 at
December 31, 1996 and 1995, respectively.
Administrative fees payable to America First are to be paid solely from the
proceeds of a sale or refinancing. Administrative fees payable to Liberty
Associates IV, L.P. are paid from excess cash flow after the payment of all
operating expenses except interest.
NOTE 9 CONTINGENCIES
Pursuant to a Tax Credit Guaranty Agreement signed on October 1, 1990, the
Partnership and America First guarantee Liberty Tax Credit Plus III, L.P.
("Liberty") specified minimum amounts of tax credits to be generated by the
Partnership through the rental of apartments to qualified tenants. If the
Partnership fails to generate tax credits of approximately $131,000 annually
for years 1991 through 1997 for the benefit of Liberty, America First and the
Partnership will be required to pay Liberty an amount equal to $.633 for each
$1 of credits below the specified minimum amounts.
Tax credits generated by the Partnership in 1996 and 1995 were in excess of
the minimum amount of such credits specified in the Tax Credit Guaranty
Agreement.
<PAGE> - 8 -
JEFFERSON PLACE, L.P.
(a Missouri Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 10 GOING CONCERN CONSIDERATIONS
The Partnership's operations have produced a cumulative deficit of $11,473,132
and $10,441,378 for the years ended December 31, 1996 and 1995, respectively,
since commencement of rental operations in 1985, as well as recurring
operating losses. The considerations raise substantial doubt about the
Partnership's ability to continue as a going concern. Management has
addressed this concern by implementing an operating plan designed to
reposition the Project and substantially increase long-term cash flow from
operations. This plan includes: (1) investment of a significant portion of
property cash flow in upgrading and improving the condition and appearance of
the Project; and (2) implementation of stringent resident qualification
standards designed to improve the resident profile and, ultimately, property
operations. In addition, management is also considering reissuance of the
bonds at lower interest rates so that the Project can support monthly interest
payments.
<PAGE> - 9 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 10, 1998 AMERICA FIRST APARTMENT INVESTORS, L.P.
By America First Capital
Associates Limited
Partnership Four, General
Partner of the Registrant
By America First Companies L.L.C.,
General Partner of America First Capital
Associates Limited Partnership Four
By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary,
Treasurer and Chief Financial
Officer (Vice President and Principal
Financial Officer of Registrant)
<PAGE> - 39 -
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: June 10, 1998 By /s/ Michael B. Yanney*
Michael B. Yanney
Chairman of the Board, President,
Chief Executive Officer and Manager
Date: June 10, 1998 By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary, Treasurer
and Manager (Chief Financial and
Accounting Officer)
Date: June 10, 1998 By /s/ William S. Carter, M.D.*
William S. Carter, M.D.
Manager
Date: June 10, 1998 By /s/George Kubat*
George Kubat
Manager
Date: June 10, 1998 By /s/ Martin A. Massengale*
Martin A. Massengale
Manager
Date: June 10, 1998 By /s/ Alan Baer*
Alan Baer
Manager
Date: June 10, 1998 By /s/ Gail Walling Yanney*
Gail Walling Yanney
Manager
Date: June 10, 1998 By /s/ Mariann Byerwalter*
Mariann Byerwalter
Manager
*By Michael Thesing Attorney in Fact
/s/ Michael Thesing
Michael Thesing
<PAGE> - 40 -
AFTER THE ENDORSEMENT AS HEREON PROVIDED AND PLEDGE OF THIS NOTE, THIS NOTE
MAY NOT BE ASSIGNED, PLEDGED, ENDORSED OR OTHERWISE TRANSFERRED EXCEPT TO AN
ASSIGNEE OF THE CITY OF AURORA, ILLINOIS.
PROMISSORY NOTE
$12,410,000.00 Dated December 11, 1997
FOR VALUE RECEIVED, PARK TRACE APARTMENTS LIMITED PARTNERSHIP, a Georgia
limited partnership (the "Borrower"), by this promissory note (this "Note")
hereby promises to pay to the order of the CITY OF AURORA, ILLINOIS (the
"Issuer") the principal sum of Twelve Million Four Hundred Ten Thousand
Dollars ($12,410,000) and to pay interest on the unpaid principal amount of
the Bonds (as defined in the Agreement hereinafter mentioned), from the date
hereof at the interest rate from time to time as provided in the hereinafter
referred to Indenture. Terms not otherwise defined in this Note have the
respective meanings set forth in the Indenture.
The principal and interest on this Note shall be payable on the dates and
in the amounts as provided in Section 4.2 of the Loan Agreement dated as of
December 1, 1997 (the "Agreement"), between the Borrower and the Issuer, with
the final payment of all outstanding principal and interest on this Note to be
paid on November 1, 2027. Both principal and interest under this Note shall
be made in funds that are immediately available on the due date of such
payments and in lawful money of the United States of America at the principal
office of UMB Bank, N.A., Kansas City, Missouri (the "Trustee") in accordance
with the Agreement and the Indenture of Trust dated as of December 1, 1997
(the "Indenture") between the Issuer and the Trustee. The Borrower may make
optional prepayments upon this Note as provided in the Agreement, with such
prepayments being first applied to interest and next to principal. The
Borrower will prepay this Note in whole on the date which is 180 days after
the cancellation of a mandatory tender of the Bonds on the Rate Adjustment
Date in accordance with the Indenture as provided in Section 8.2 of the
Agreement.
This Note is made pursuant to the Agreement wherein, among other things,
the Issuer has agreed to loan to the Borrower and the Borrower has agreed to
take a loan in the principal amount above, being the proceeds from the sale of
the Issuer's Multifamily Housing Revenue Refunding Bonds (The Covey at Fox
Valley Apartments Project) Series 1997 (the "Bonds"), the proceeds to be
disbursed in accordance with the provisions of Section 3.3(1) of the
Agreement. The Bonds are being issued by the Issuer pursuant to the Indenture.
The obligations of the Borrower to perform and observe the agreements on
its part contained herein and in the Agreement shall be absolute and
unconditional and payment of the Basic Payments and the Additional Charges and
all other payments required of the Borrower under this Note and the Agreement
shall be paid without notice or demand and without setoff, counterclaim, or
defense for any reason and without abatement or deduction or defense (except
for a defense based on prepayment pursuant to Section 8.1 of the Agreement).
The Borrower will not suspend or discontinue any such payments for any cause,
including but not limited to any acts or circumstances that may constitute
failure of consideration, destruction or damage to the Project or the
Borrower's business, the taking of the Project or the Borrower's business by
Condemnation or otherwise, the lawful prohibition of the Borrower's use of the
Project or the Borrower's business, the interference with such use by any
private person or corporation, the invalidity or unenforceability or lack of
due authorization or other infirmity of this Note and the Agreement, the lack
of right, power or authority of the Issuer to enter into the Agreement,
eviction by paramount title, commercial frustration of purpose, bankruptcy or
insolvency of the Issuer or the Trustee, change in the tax or other laws or
administrative rulings or actions of the United States of America or of the
State or any political subdivision thereof, or failure of the Issuer to
perform and observe any agreement, whether express or implied, or any duty,
liability or obligation arising out of or connected with the Agreement, or for
any other cause whether similar or dissimilar to the foregoing, any present or
future law to the contrary notwithstanding, it being the intention of the
parties hereto that the payment of Basic Payments and other amounts payable by
the Borrower under this Note and the Agreement shall be paid in full when due
without any delay or diminution whatever.
<PAGE> - 1 -
If this Note shall be placed in the hands of an attorney or attorneys for
collection, the Borrower agrees to pay, in addition to the amount due hereon,
the reasonable costs and expenses of collection, including reasonable
attorneys' fees. All parties to this Note, whether principal, surety,
guarantor or endorser, hereby waive presentment for payment, demand, protest,
notice or protest and notice of dishonor.
PARK TRACE APARTMENTS LIMITED
PARTNERSHIP, a Georgia limited partnership
By: Park Trace Operating
Company, a Georgia corporation, its
General Partner
By /s/ Michael Thesing
Its Vice President
<PAGE> - 2 -
ENDORSEMENT
Pay to the order of UMB Bank, N.A., without recourse, as Trustee of the
Bonds referred to in the within mentioned Agreement, as security for said
Bonds. This endorsement is given without any warranty as to the authority or
genuineness of the signatures of the maker of the Note.
CITY OF AURORA, ILLINOIS
By /s/
Mayor
<PAGE> - 3 -
____________________________
LOAN AGREEMENT
____________________________
between
CITY OF AURORA, ILLINOIS
as Issuer
and
PARK TRACE APARTMENTS
LIMITED PARTNERSHIP
as Borrower
_________________________________
Relating to
$12,410,000
Multifamily Housing Revenue Refunding Bonds
(The Covey at Fox Valley Apartments Project)
Series 1997
of the
City of Aurora, Illinois
_____________________________
Dated as of December 1, 1997
_____________________________
The interests of the Issuer in this Agreement, excluding certain rights
retained by the Issuer pursuant to Section 4.6 hereof, have been assigned to
UMB Bank, N.A., Kansas City, Missouri, as Trustee, pursuant to an Indenture of
Trust dated as of December 1, 1997, between the City of Aurora, Illinois and
UMB Bank, N.A.
<PAGE> - i -
TABLE OF CONTENTS
(This Table of Contents is not a part of the Loan Agreement, but is included
only for convenience of reference.)
Page
ARTICLE I
DEFINITIONS, EXHIBITS AND RULES OF INTERPRETATION
Section 1.1. Definitions 2
Section 1.2. Schedule and Exhibit 2
Section 1.3. Rules of Interpretation 2
ARTICLE II
REPRESENTATIONS OF ISSUER AND BORROWER
Section 2.1. Representations of the Issuer 3
Section 2.2. Representations of the Borrower 4
Section 2.3. General Tax Representations,
Warranties and Covenants of Borrower 7
Section 2.4. Residential Rental Project 9
Section 2.5. Tax Exemption; Regulatory Agreement 9
Section 2.6. Representations of Borrower as Single Purpose Entity 9
ARTICLE III
ISSUANCE OF BONDS; PAYMENT OF COSTS
Section 3.1. Issuance of Bonds 13
Section 3.2. No Warranty by Issuer 13
Section 3.3. Disbursements From the Bond Proceeds Fund and the Costs
of Issuance Fund 13
Section 3.4. Payment of Issuance Costs by Borrower 13
Section 3.5. Title Insurance 14
Section 3.6. Establishment of Rate Period for the Bonds 15
ARTICLE IV
THE LOAN, LOAN REPAYMENT AND ADDITIONAL CHARGES
Section 4.1. The Loan 15
Section 4.2. Loan Repayment 15
Section 4.3. Additional Charges 16
Section 4.4. Borrower's Obligations Unconditional 17
Section 4.5. Borrower's Remedies 17
Section 4.6. Assignment of Issuer's Rights 18
ARTICLE V
PROJECT COVENANTS
Section 5.1. Project, Title, Operation and Maintenance 18
Section 5.2. Sale, Transfer or Disposition
of Borrower's Interest in Project 19
Section 5.3. Advances 19
Section 5.4. Alterations to the Project and Removal of Equipment 19
Section 5.5. Insurance 20
Section 5.6. Taxes, Assessments and Other Governmental Charges 20
Section 5.7. Utilities 20
ARTICLE VI
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 6.1. Damage and Destruction 20
Section 6.2. Condemnation 20
Section 6.3. Parties To Give Notice 20
<PAGE> - ii -
ARTICLE VII
BORROWER'S COVENANTS
Section 7.1. Covenant for the Benefit of the Bondholders 21
Section 7.2. Inspection and Access 21
Section 7.3. Annual Statement, Annual Budget, Certificate of
Compliance and Other Reports and Continuing
Disclosure 21
Section 7.4. Indemnity by Borrower 22
Section 7.5. Status of Borrower 24
Section 7.6. Filing of Financing Statements 24
Section 7.7. Proceedings Relating to a Determination of Taxability 24
ARTICLE VIII
BORROWER'S OPTIONS; TERMINATION OF AGREEMENT
Section 8.1. Optional Prepayment 25
Section 8.2. Mandatory Prepayment 25
Section 8.3. Direction of Investments 25
Section 8.4. Termination of Agreement 25
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1. Events of Default 26
Section 9.2. Remedies 27
Section 9.3. Disposition of Funds 28
Section 9.4. Nonexclusive Remedies 28
Section 9.5. Attorneys' Fees and Expenses 28
Section 9.6. Effect of Waiver 28
Section 9.7. Issuer and Trustee May File Proofs of Claim 28
Section 9.8. Restoration of Positions 28
Section 9.9. Suits To Protect the Project 29
Section 9.10. Performance by Third Parties 29
Section 9.11. Nonrecourse Obligation 29
Section 9.12. Trustee's Exercise of the Issuer's Remedies 30
ARTICLE X
GENERAL PROVISIONS
Section 10.1. Amounts Remaining in Funds 30
Section 10.2. Notices 30
Section 10.3. Binding Effect 31
Section 10.4. Severability 31
Section 10.5. Amendments, Changes and Modifications 32
Section 10.6. Execution in Counterparts 32
Section 10.7. Required Approvals 32
Section 10.8. Limitation on Issuer's Liability 32
Section 10.9. Representations of Borrower 33
Schedule 1-Legal Descriptions
Exhibit A-Form of Promissory Note
<PAGE> - iii -
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made and entered into as of
December 1, 1997 by and between the CITY OF AURORA, ILLINOIS, a municipal
corporation and home rule unit of local government under the Constitution of
the State of Illinois (the "Issuer"), and PARK TRACE APARTMENTS LIMITED
PARTNERSHIP, a Georgia limited partnership (the "Borrower").
RECITALS:
1. The Issuer is authorized under the provisions of Ordinance No. 4519,
approved March 23, 1976, as from time to time amended, and codified as
Division 4 of Article V of Chapter 2 of the City of Aurora Code of Ordinances,
and Section 6(a) of Article VII of the Constitution of the State
(collectively, the "Act"), to issue economic development revenue bonds for the
purpose of financing economic development projects, which authorization
includes projects for use as multifamily residential rental facilities, and to
refund its outstanding bonds by the issuance of its refunding bonds.
2. Pursuant to the Act the Issuer has financed the acquisition and
construction of a multifamily residential rental facility consisting of the
216-unit project known as The Covey at Fox Valley (the "Covey Project")
located at 2160 Walcott Road within the incorporated limits of the Issuer, and
constituting a "project" within the meaning of the Act, for Pebco-Fox Valley,
Ltd., an Illinois limited partnership (the "Original Owner"), by the issuance
of the Issuer's Multi-Family Housing Revenue Bonds (Pebco-Fox Valley, Ltd.
Project) Series 1985 (the "Series 1985 Bonds") in the original principal
amount of $12,500,000.
3. The Issuer issued its City of Aurora Multifamily Housing Mortgage
Revenue Note (Covey at Fox Valley Project) Series 1986 in the original
principal amount of $12,410,000 (the "Prior Note"), the proceeds of which were
applied to refund and redeem the Series 1985 Bonds.
4. All of the right title and interest of the Original Owner in the Covey
Project has been transferred to America First Apartment Investors, L.P.
("America First"), an affiliate of the Borrower, and the owner of the Prior
Note.
5. Prior to the issuance of the Bonds, the Borrower will acquire all
right, title and interest in the Covey Project and a 260-unit multifamily
housing project known as Park Trace Apartments, located at 3450 Jones Mill
Road in the City of Norcross, Gwinnett County, Georgia (the "Park Trace
Project," and together with the Covey Project, the "Project").
6. The Borrower has requested that the Issuer issue bonds the proceeds of
which will be used to refund and redeem the Prior Note.
7. The Issuer deems it desirable and in keeping with its purposes to
issue its Multifamily Housing Revenue Refunding Bonds (The Covey at Fox Valley
Apartments Project) Series 1997 in the original principal amount of
$12,410,000 (the "Bonds"), for the purposes of providing proceeds for the
making of a mortgage refinancing loan (the "Loan") to the Borrower, the
proceeds of which will be used to refund and redeem the Prior Note and thereby
refinance the Covey Project for the Borrower, under the terms and conditions
contained in this Agreement and the Indenture of Trust dated as of December 1,
1997 (the "Indenture"), between the Issuer and UMB Bank, N.A., as trustee (the
"Trustee").
8. Under the terms of this Agreement, the Borrower has agreed to the
repayment of the sums borrowed under this Agreement, the Borrower has executed
the Note (defined below) to evidence its obligation to repay the amounts due
under this Agreement, the Borrower has executed, or caused to be executed, the
Mortgage and the Assignment (as such terms are defined in the Indenture) to
secure, among other things, the Borrower's payment and other obligations under
this Agreement.
9. The execution and delivery of this Agreement and the issuance of the
Bonds have been in all respects duly and validly authorized by the Issuer.
<PAGE> - 1 -
AGREEMENT:
ARTICLE I
DEFINITIONS, EXHIBITS AND RULES OF INTERPRETATION
Section 1.1. Definitions. In this Agreement, all capitalized terms used
herein and not defined herein shall have the meanings ascribed thereto in
Section 1.1 of the Indenture.
Section 1.2. Schedule and Exhibit. The following Schedule and Exhibit
are attached to and by reference made a part of this Agreement:
(1) Schedule 1: Legal Descriptions; and
(2) Exhibit A: Form of Promissory Note.
Section 1.3. Rules of Interpretation.
(1) This Agreement shall be governed by and construed in accordance with
the laws and judicial decisions of the State of Illinois (the "State"), except
as they may be preempted by federal rules, regulations and laws applicable to
the Issuer. The Issuer and the Borrower expressly acknowledge and agree that
any judicial action to enforce any rights of the Issuer under this Agreement
shall be brought and maintained at the option of the Issuer in Kane County,
Illinois, in the United States District Court for the Northern District of
Illinois, or in any United States Bankruptcy Court in any case involving or
having jurisdiction over the Borrower, over the Covey Project or over the Park
Trace Project.
(2) The words "herein," "hereof" and "hereunder" and words of similar
import, without reference to any particular section or subdivision, refer to
this Agreement as a whole rather than to any particular section or subdivision
of this Agreement.
(3) References in this Agreement to any particular article, section or
subdivision hereof are to the designated article, section or subdivision of
this Agreement as originally executed.
(4) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with tax basis accounting principles; and all
computations provided for herein shall be made in accordance with tax basis
accounting principles consistently applied and applied on the same basis as in
prior years.
(5) The Table of Contents and titles of articles and sections herein are
for convenience of reference only and are not a part of this Agreement, and
shall not define or limit the provisions hereof.
(6) Unless the context hereof clearly requires otherwise, the singular
shall include the plural and vice versa and the masculine shall include the
feminine and vice versa.
(7) Articles, sections, subsections and clauses mentioned by number only
are those so numbered which are contained in this Agreement.
(8) For purposes of this Agreement and the Indenture, a Petition in
Bankruptcy shall be deemed dismissed only if the petition is dismissed by
order of a court of competent jurisdiction and no further appeal rights exist
from such order.
(9) Any opinion of counsel required hereunder shall be a written opinion
of such counsel.
(10) References to the Bonds as "tax exempt" or to the "tax exempt status
of the Bonds" are to the exclusion of interest on the Bonds from gross income
for federal income tax purposes pursuant to Section 103(a) of the Code,
irrespective of such forms of taxation as the alternative minimum tax,
environmental tax or branch profits tax on foreign corporations, as is
consistent with the approach taken in Section 59(i) of the Code.
<PAGE> - 2 -
ARTICLE II
REPRESENTATIONS OF ISSUER AND BORROWER
Section 2.1. Representations of the Issuer. The Issuer makes the
following representations and warranties as the basis for its covenants herein:
(1) The Issuer is a municipal corporation and home rule unit of
government under the Constitution of the State.
(2) The Issuer has lawful power and authority under the Act to enter
into this Agreement and the Indenture and to carry out its obligations
hereunder and under the Indenture. By proper action of its governing
body, the Issuer has been duly authorized to execute and deliver this
Agreement, acting by and through its duly authorized officers. The
Indenture, the Regulatory Agreement and this Agreement have been duly
executed and delivered by the Issuer and each constitutes a valid, legal,
binding and enforceable obligation of the Issuer (subject to bankruptcy,
insolvency or creditors rights laws generally and principles of equity
generally) without offset, defense or counterclaim. The execution,
delivery and performance of the Indenture and this Agreement by the
Issuer will not violate any law, regulation, order or decree of any
governmental authority and all consents, approvals, authorizations,
orders or filings of or with any court or governmental agency or body, if
any, required for the execution, delivery and performance of such
documents by the Issuer have been obtained or made.
(3) There is no pending action, suit or proceeding, arbitration or
governmental investigation against such entity, an adverse outcome of
which would materially affect performance under the Indenture and this
Agreement by the Issuer.
(4) The Covey Project constitutes a "project" within the meaning of
the Act, and the lending of the proceeds of the Bonds to the Borrower for
the purposes specified in this Agreement will further the public purposes
of the Act.
(5) To refinance the costs of the Covey Project, the Issuer is
issuing the Bonds in the aggregate principal amount of $12,410,000. The
Bonds will bear interest and be scheduled to mature and will be subject
to tender, purchase and redemption prior to maturity in accordance with
the provisions of the Indenture. The Bonds are to be issued under and
secured by the Indenture, pursuant to which the payments, revenues and
receipts derived by the Issuer pursuant to this Agreement, other than
certain Unassigned Issuer Rights (as defined in Section 4.6), will be
pledged and assigned to the Bondholders as security for payment of the
principal of, premium, if any, and interest on the Bonds.
(6) To its knowledge, no member of the governing body of the Issuer
or any other officer or employee of the Issuer has any significant or
conflicting interest, financial, employment or otherwise, in the
Borrower, the Covey Project or in the transactions contemplated hereby.
(7) Under the provisions of the Indenture, the Issuer's interest in
this Agreement and certain payments due under this Agreement are pledged
and assigned to the Trustee for the benefit of Bondholders as security
for the payment of the principal and purchase price of, and interest and
premium, if any, on the Bonds and the Issuer will not otherwise or
further assign its interest in this Agreement.
(8) To the extent within its reasonable control, the Issuer will not
knowingly engage in any activity which might result in the income of the
Issuer to be received hereunder becoming taxable to it or interest on the
Bonds becoming taxable to the Holders thereof under federal income tax
laws.
(9) The execution, delivery and performance of the Indenture and
this Agreement by the Issuer will not cause or constitute a default under
or conflict with its organizational documents or other agreements to
which it is a party or otherwise materially adversely affect performance
of the duties of the Issuer under such organizational documents or other
agreements.
<PAGE> - 3 -
Section 2.2. Representations of the Borrower. The Borrower makes the
following representations and warranties as the basis for its covenants herein:
(1) The Borrower is a limited partnership duly formed and validly
existing under the laws of the State of Georgia, is in good standing
under the laws of the State of Georgia and of the State, and is duly
authorized to conduct its business in the State and all other states
where its activities require such authorization, has power and authority
to enter into this Agreement and the other Related Documents to which the
Borrower is a party, and to use the Covey Project and for the purpose set
forth in this Agreement, and by proper corporate action has authorized
the execution and delivery of this Agreement and the other Related
Documents to which the Borrower is a party, and has approved the
Indenture.
(2) This Agreement and the other Related Documents to which the
Borrower is a party have been duly executed and delivered by the
Borrower; such documents constitute valid, legal, binding and enforceable
obligations of the Borrower (subject to bankruptcy, insolvency or
creditors rights generally and principles of equity generally), without
offset, defense or counterclaim; the execution, delivery and performance
of such documents by the Borrower will not violate any law, regulation,
order or decree of any governmental authority; and all consents,
approvals, authorizations, orders or filings of or with any court or
governmental agency or body, if any, required for the execution, delivery
and performance of such documents by the Borrower have been obtained or
made.
(3) The execution and delivery of this Agreement and the other
Related Documents to which the Borrower is a party, the consummation of
the transactions contemplated thereby, and the fulfillment of the terms
and conditions thereof do not and will not conflict with or result in a
breach of any of the terms or conditions of the Borrower's Limited
Partnership Agreement, any restriction or any agreement or instrument to
which the Borrower is now a party or by which it is bound or to which any
property of the Borrower is subject, and do not and will not constitute a
default under any of the foregoing, or, to the best of the Borrower's
knowledge, cause the Borrower to be in violation of any order, decree,
statute, rule or regulation of any court or any state or federal
regulatory body having jurisdiction over the Borrower or the Project and
do not and will not result in the creation or imposition of any lien,
charge or encumbrance of any nature upon any of the property or assets of
the Borrower contrary to the terms of any instrument or agreement to
which the Borrower is a party or by which it is bound.
(4) The use of the Project, as it is being operated, complies with
all presently applicable zoning, development, pollution control, water
conservation, environmental and other laws, regulations, rules and
ordinances of the federal government and the State and the State of
Georgia, as applicable, the respective agencies thereof and the Issuer;
the Borrower has obtained all necessary approvals of and licenses,
permits, consents and franchises from federal, state, county, municipal
or other governmental authorities having jurisdiction over the Project to
operate the Project and to enter into, execute and perform its
obligations under this Agreement and the other Related Documents to which
the Borrower is a party.
(5) In addition to the Bonds, no other obligations have been or are
expected to be issued before or after the Bonds by or on behalf of any
state, territory or possession of the United States, or any political
subdivision of any of the foregoing, or the District of Columbia under
Section 103 of the Code and regulations, (a) the proceeds of which will
be used primarily with respect to facilities, the principal user or users
of which will be the Borrower or "related persons" (as defined in Section
147(a)(2) of the Code) thereto, and (b) which will be (i) sold (or in the
case of variable rate obligations, issued) less than fifteen (15) days
apart, (ii) sold (or in the case of variable rate obligations, issued)
pursuant to the same plan of financing, and (iii) payable from the same
source of funds, determined without regard to guarantees from unrelated
parties.
<PAGE> - 4 -
(6) The Borrower is not in the trade or business of selling
properties such as the Covey Project and has acquired the Covey Project
for investment purposes only or otherwise for use by the Borrower in its
trade or business, and therefore the Borrower has no present intention to
voluntarily sell, surrender or otherwise transfer, in whole or part, its
interest in the Covey Project in the foreseeable future.
(7) There are no actions, suits, proceedings or inquiries or
investigations at law or in equity pending or, to the knowledge of the
Borrower, threatened against the Borrower or any property of the Borrower
in any court or before any federal, state, municipal or other
governmental agency, which, if decided adversely to the Borrower, would
have a material adverse effect upon the Borrower or upon the business or
properties of the Borrower or upon its power, authority and right to
enter into this Agreement and the other Related Documents to which the
Borrower is a party; and the Borrower is not in default with respect to
any order of any court or governmental agency.
(8) The Borrower has not incurred, and will not incur, any
indebtedness for borrowed money other than under this Agreement and the
Related Documents.
(9) The Borrower has filed all federal and state income tax returns,
if any, which, to the knowledge of the Borrower, are required to be filed
and has paid all taxes shown on said returns and all assessments and
governmental charges received by it to the extent that they have become
due.
(10) The Borrower has reviewed and approved the provisions of the
Indenture.
(11) To the best of the Borrower's knowledge, no member of the
governing body of the Issuer or any other officer of the Issuer has any
significant or conflicting interest, financial, employment or otherwise,
in the Borrower, the Covey Project or the transactions contemplated
hereby.
(12) There has been no material adverse change in the financial
condition, prospects or business affairs of the Borrower or the
feasibility or physical condition of the Project since November 26, 1997.
(13) The covenants, representations and warranties of the Borrower
in the Regulatory Agreement are true and correct and are incorporated
herein by reference and made a part of this Agreement.
(14) The Borrower has made and shall continue to make all required
contributions to all employee benefit plans, if any, and the Borrower has
no knowledge of any material liability which has been incurred by the
Borrower which remains unsatisfied for any taxes or penalties with
respect to any employee benefit plan or any multi-employer plan, and each
such plan as been administered in compliance with its terms and the
applicable provisions of ERISA and any other federal or State law.
(15) The Borrower (a) has not entered into the transaction or any
Related Document with the actual intent to hinder, delay or defraud any
creditor, and (b) received reasonably equivalent value in exchange for
its obligations hereunder and under the Related Documents. Giving effect
to the transactions contemplated by the Related Documents, the fair
salable value of the Borrower's assets exceeds and will, immediately
following the execution and delivery of the Related Documents, exceed the
Borrower's total liabilities, including, without limitation,
subordinated, unliquidated, disputed or contingent liabilities. The fair
salable value of the Borrower's assets is and, immediately following the
execution and delivery of the Related Documents, will be greater than the
Borrower's probable liabilities, including the maximum amount of its
contingent liabilities or its debts as such debts become absolute and
matured. The Borrower's assets do not and, immediately following the
execution and delivery of the Related Documents will not, constitute
unreasonably small capital to carry out its business as conducted or as
proposed to be conducted. The Borrower does not intend to, and does not
believe that it will, incur debts and liabilities (including, without
limitation, contingent liabilities and other commitments) beyond its
ability to pay such debts as they mature (taking into account the timing
and amounts to be payable on or in respect of obligations of the
Borrower).
<PAGE> - 5 -
(16) The Borrower has no known material contingent liabilities.
(17) The Borrower has no material financial obligation under any
indenture, mortgage, deed of trust, loan or lease agreement or other
agreement or instrument to which the Borrower is a party or by which the
Borrower or the Project are otherwise bound, other than obligations
incurred in the ordinary course of business and other than this Agreement
and the other Related Documents to which the Borrower is a party.
(18) The Borrower has not borrowed or received other debt financing
that has not been heretofore repaid in full.
(19) The Borrower is not (a) an "investment company" or a company
"controlled by an investment company" within the meaning of the
Investment Company Act of 1940, as amended; (b) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended; or (c) subject to
any other federal or state law or regulation which purports to restrict
its ability to borrow money.
(20) Except as disclosed in the Title Policy, there are no pending
or, to the knowledge of the Borrower, proposed special or other
assessments for public improvements affecting the Project, nor, to the
knowledge of the Borrower, are there any contemplated improvements to the
Project that may result in such special or other assessments.
(21) No statement of fact made herein or in the Related Documents to
which the Borrower is a party made by the Borrower contains any untrue
statement of a material fact or omits to state any material fact
necessary to make statements made herein or therein by the Borrower not
misleading. There is no fact presently known to the Borrower which has
not been disclosed which adversely affects nor as far as the Borrower can
foresee would adversely affect the business, operations or conditions
(financial or otherwise) of the Borrower.
(22) The Project has adequate rights of access to public ways and is
served by adequate water, sanitary sewer and storm drainage facilities.
All public utilities necessary to the continued use and enjoyment of the
Project as presently used and enjoyed are located in the public
right-of-way abutting the Project and all such utilities are connected so
as to serve the Project without passing over other property. All roads
necessary for the full utilization of the Project for its current purpose
have been completed and dedicated to public use and accepted by all
governmental authorities or are the subject of access easements for the
benefit of the Project.
(23) The Project is not located in a flood hazard area as defined by
the Federal Insurance Administration.
Section 2.3. General Tax Representations, Warranties and Covenants of
Borrower. The Borrower further represents, warrants and covenants as follows:
(1) The Borrower presently intends to use or operate the Covey
Project in a manner consistent with the Regulatory Agreement and
presently intends to use or operate, and will use and operate, the Covey
Project in accordance with the terms of the Regulatory Agreement during
the period set forth therein, and knows of no reason why the Covey
Project will not be so operated. If in the future there is a cessation
of that operation, the Borrower will use its best efforts to resume that
operation or accomplish an alternate use by the Borrower or others which
will be consistent with the Act and the tax-exempt status of the Bonds.
The Borrower is not now in default under the Regulatory Agreement and
specifically agrees to continue to meet their requirements.
(2) The Borrower will assist the Issuer in filing all appropriate
returns, reports and attachments to income tax returns as of now or
hereafter required by the provisions of the Code, including without
limitation the Information Return for Private Activity Bond Issues (Form
8038, Rev. March, 1995) required under the Code.
(3) The weighted average maturity of the Bonds, calculated in
accordance with the requirements of Section 147(b) of the Code, is less
than 120% of the remaining average reasonably expected economic life of
the Covey Project.
<PAGE> - 6 -
(4) No proceeds of the Bonds shall be invested in federally insured
deposits or accounts except as part of a bona fide debt service fund or a
reasonably required reserve fund.
(5) The Borrower covenants and agrees that it will not use or permit
the use of any of the funds provided by the Issuer hereunder or any other
funds of the Borrower, directly or indirectly, in such manner as would,
or enter into, or allow any "related person" (as defined in Section
147(a)(2) of the Code) to enter into, any arrangement, formal or
informal, for the purchase of the Bonds that would, or take or omit to
take any other action that would, to the knowledge of the Borrower, cause
the Bonds to be an "arbitrage bond" within the meaning of Section 148 of
the Code or "federally guaranteed" within the meaning of Section 149(b)
of the Code and applicable regulations promulgated from time to time
thereunder.
(6) In the event that at any time the Borrower is of the opinion or
is otherwise aware that for purposes of this Section 2.3 or Section 5.7
of the Indenture it is necessary to restrict or to limit the yield on the
investment of any moneys held by, or on behalf of, the Issuer under the
Indenture, the Borrower shall obtain an opinion of Bond Counsel, which
shall determine the limitations and so instruct and direct in writing the
Issuer to take such actions as the Borrower believes are necessary in
order to comply with these limitations under the Indenture.
(7) The Borrower covenants to comply with the covenants and
procedures set forth in Section 5.7 of the Indenture and the
Non-Arbitrage Certificate and to deposit in the Rebate Fund such amounts
as may be necessary to maintain the amount on deposit in the Rebate Fund
at the Rebate Requirement.
(8) Notwithstanding any provisions of this Section 2.3, if the
Borrower shall provide to the Issuer and the Trustee an opinion of Bond
Counsel that any specified action required under this Section 2.3 or
Section 5.7 of the Indenture is no longer required or that some further
or different action is required to maintain the exclusion from federal
income tax of interest on the Bonds, the Issuer, the Trustee and the
Borrower may conclusively rely on such opinion in complying with the
requirements of this Section 2.3 and Section 5.7 of the Indenture and be
protected in so doing, and the covenants hereunder shall be deemed to be
modified to that extent.
(9) The Borrower further agrees that it shall not discriminate on
the basis of race, creed, color, sex, handicap, familial status or
national origin in the lease, use or occupancy of the Covey Project or in
connection with the employment or application for employment of persons
for the construction, operation and management of the Covey Project.
(10) The Borrower further warrants and covenants that it has not
executed and will not execute any other agreement, or any amendment or
supplement to any other agreement, with provisions contradictory to, or
in opposition to, the provisions hereof, of the Indenture, of this
Agreement, of the Regulatory Agreement, and that in any event, the
requirements of this Agreement and the Regulatory Agreement are paramount
and controlling as to the rights and obligations herein set forth and
supersede any other requirements in conflict herewith and therewith.
(11) No Event of Default has occurred and is continuing under the
Prior Regulatory Agreement (as defined in the Regulatory Agreement).
Section 2.4. Residential Rental Project. The Borrower covenants and
agrees to own, operate and manage the Covey Project as a "residential rental
project" (as such phrase is utilized in Section 103(b)(4)(A) of the Prior
Code) in accordance with the Regulatory Agreement.
Section 2.5. Tax Exemption; Regulatory Agreement. The Borrower hereby
covenants, represents and agrees as follows:
(1) The Borrower will not take or omit to take any action with
respect to this Agreement or the Covey Project that would adversely
affect the exclusion of the interest on the Bonds from gross income for
federal income tax purposes.
<PAGE> - 7 -
(2) The Borrower will take such action or actions, including
amendment of the Regulatory Agreement, as may be necessary in the opinion
of Bond Counsel, to preserve or perfect the exclusion of interest on the
Bonds from gross income for federal income tax purposes.
(3) The Borrower will file of record such documents and take such
other steps as are necessary in order to insure that the requirements and
restrictions of the Regulatory Agreement will be binding upon all owners
of the Covey Project, including, but not limited to, the execution and
recordation of the Regulatory Agreement in the real property records of
Kane County and DuPage County, Illinois.
(4) The Borrower will include the requirements and restrictions
contained in the Regulatory Agreement in any deed or other document
transferring any interest in the Covey Project to another person to the
end that such transferee has notice of, and is bound by such
restrictions, and to obtain the agreement from any transferee so to abide.
(5) The Borrower will provide to the Issuer and the Trustee notice
of any action (other than actions in its ordinary course of business)
which impacts the Issuer's rights hereunder or under the Regulatory
Agreement.
Section 2.6. Representations of Borrower as Single Purpose Entity.
(1) The Borrower covenants and agrees that it shall not:
(a) (i) incur, create or assume any indebtedness except (A)
indebtedness in an amount not to exceed $150,000 incurred in the ordinary
course of business and payable within 60 days of the date the
indebtedness was incurred, represented by an invoice, statement of
account, check, work request, purchase order or other similar document
representing expenses relating to activities of the Borrower undertaken
in accordance with its charter, or (B) indebtedness which will not result
in a downgrade, withdrawal or qualification of the rating on the Bonds as
confirmed in writing by the Rating Agency, or (ii) transfer or lease the
Project or any interest therein, except as permitted under the Mortgage;
(b) engage, directly or indirectly, in any business other than that
arising out of or entering into this Agreement and the other Related
Documents to which the Borrower is a party and the ownership, management,
leasing, construction, development, operation and maintenance of the
Project;
(c) commingle its assets with the assets of any other entity;
(d) partition the Project;
(e) without the unanimous consent of its partners (including the
vote of the Independent Director (as hereinafter defined) of the general
partner), voluntarily file or consent to the filing of a petition for
bankruptcy, reorganization, assignment for the benefit of creditors or
similar proceeding under any federal or state bankruptcy, insolvency,
reorganization or other similar law;
(f) while the Bonds are outstanding, the Borrower or its general
partner shall not (i) dissolve, liquidate, consolidate, merge or sell
substantially all of its assets; or (ii) engage in any business other
than the ownership and operation of the Project; or
(g) amend the Limited Partnership Agreement without written
confirmation from the Rating Agency that the rating on the Bonds shall
not be downgraded, withdrawn or qualified as a result thereof.
The Borrower represents and warrants that as of the date hereof it does
not have any indebtedness or obligations which would cause it to be in
violation of the foregoing covenants.
<PAGE> - 8 -
Further, the Borrower covenants that it will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
will not engage in, seek or consent to any dissolution, winding up,
liquidation, consolidation, merger or asset sale, and will maintain adequate
capitalization (taking into account, among other things, the market value of
its assets) for its business purposes; will pay all expenses of the Project
from assets of the Borrower; will maintain separate books and records and bank
accounts and will maintain a separate business office (which may be a
management office at the Project); will at all times hold itself out to the
public as a separate and distinct legal entity (including in its leasing
activities, in entering into any contract and in preparing its financial
statements) and will observe partnership formalities in conducting its
business; will file its own tax returns and other financial statements or, if
part of a consolidated group, will join in the consolidated tax return of such
group as a separate member thereof; and will cause its management to meet
regularly to carry on its business.
(2) The Borrower shall do all things necessary to preserve and keep in
full force and effect its existence, rights and privileges under the laws of
the State of Georgia and its right to own and operate the Project under the
terms of this Agreement and otherwise transact business in the State and the
State of Georgia. The Borrower hereby represents and warrants that the
Borrower (i) is a duly organized and validly existing limited partnership
under the laws of the State of Georgia and is duly authorized to conduct its
business in the State and all other states where its activities require such
authorization, (ii) has the power and authority to own its properties and to
carry on its business as now being conducted and as proposed to be conducted,
and (iii) has the power to execute, deliver and perform its obligations under
this Agreement and all of the other Related Documents. The execution and
delivery by the Borrower of this Agreement and each of the other Related
Documents to be executed by the Borrower, the Borrower's performance of its
respective obligations hereunder and thereunder and the creation of the
security interest and liens provided for in the Mortgage and the other Related
Documents, to which the Borrower is a party, have been duly authorized by all
requisite action on the part of the Borrower, and will not violate any legal
requirement, any order of any court or other governmental authority, the
Limited Partnership Agreement of the Borrower or any material indenture,
agreement or other instrument to which the Borrower is a party, or by which
the Borrower is bound, or be in conflict with, result in a breach of,
constitute (with due notice or lapse of time or both) a default under any of
the foregoing or result in the creation or imposition of any Lien, of any
nature whatsoever, upon any of the property or assets of the Borrower except
the Liens created under the Mortgage and under the other Related Documents to
which the Borrower is a party. The Borrower is not required to obtain any
consent, approval or authorization from, or to file any declaration or
statement with, any governmental authority in connection with or as a
condition to the execution, delivery or performance of this Agreement or the
other Related Documents by the Borrower. The Borrower further represents and
warrants that it is, and, so long as this Agreement shall remain in effect,
shall do all things necessary to continue to be, an entity which is formed or
organized solely for the purpose of holding, directly, an ownership interest
in the Project, does not engage in any business unrelated to the Project and
the financing thereof, does not have any assets other than those related to
its interest in the Project or the financing thereof or any indebtedness other
than as permitted by the Mortgage or the other Related Documents to which the
Borrower is a party, has its own separate books and records and its own
accounts, in each case which are separate and apart from the books and records
and accounts of any other entity and will maintain the same as official
records, holds itself out as being an entity, separate and apart from any
other entity and will conduct its business in its own name.
(3) At least one general partner of the Borrower is a corporation meeting
the Single Purpose Entity requirements of the Rating Agency and has at least
one duly appointed member of its board of directors who shall not have been,
at the time of such appointment or at any time in the preceding five years, a
direct or indirect legal or beneficial owner in the general partner of the
Borrower or the Borrower or of the affiliates of either, a creditor, supplier,
employee, director, manager or contractor (or member of the immediate family
of any of the foregoing) of the general partner of the Borrower or the
Borrower or any of the affiliates of either or a person who controls the
general partner of the Borrower or the Borrower or the affiliates of either
(an "Independent Director"). Each general partner of the Borrower will not
cause or allow, and will not cause or allow the general partner's board of
directors to take any action requiring the unanimous affirmative vote of 100%
of the members of its board of directors unless an Independent Director shall
have participated in such vote.
<PAGE> - 9 -
(4) The Borrower's Limited Partnership Agreement shall provide that, so
long as the Bonds are Outstanding, the Borrower will only dissolve upon the
bankruptcy of the general partner.
(5) The Borrower will not fail to correct any known misunderstanding
regarding the separate identity of the Borrower.
(6) The Borrower will not assume or guarantee or become obligated for the
debts of any other entity or hold out its credit as being available to satisfy
the obligations of any other entity; will allocate fairly and reasonably any
overhead for shared office space; will not pledge its assets for the benefit
of any other person or entity; will not make loans to any person or entity;
will not identify its affiliates as a division or part of the Borrower and
will not enter into or be a party to any transaction with its affiliates
except in the ordinary course of business and on terms which are intrinsically
fair and are no less favorable to it than would be obtained in a comparable
arm's-length transaction with an unrelated third party.
(7) Financial and operational services, including, without limitation,
maintenance of the Borrower's books and records, have been and will be
performed on behalf of the Borrower by its general partner or by independent
contractors engaged by its General Partner. The Borrower has and will make
payments to its general partner or such independent contractors for services
rendered and expenses incurred on its behalf in an amount equal to the fair
value of such services and expenses. To the extent the Borrower leases
premises from the Manager, the Borrower has paid and will pay compensation or
rental that is intrinsically fair and not less favorable to the Borrower than
would be obtained in a transaction with an unrelated third party.
(8) All distributions of the Borrower to the Manager have been and will
be declared and paid by the Borrower in accordance with applicable law. There
are no agreements with respect to the Manager, written or otherwise, between
the Borrower and any third party, including the Manager, pursuant to which the
Borrower or such third party has agreed to extend credit or make payment to or
for, or guaranty the performance of, the other.
(9) The Borrower shall comply with the provisions of the Borrower's
Limited Partnership Agreement and the uniform limited partnership law of the
State of Georgia.
(10) There are no agreements between or among the Borrower and the
Manager other than the (i) with respect to the Covey Project, the Property
Management Agreement dated August 1, 1992, as amended by the Addendum to
Property Management Agreement dated as of July 1, 1995, each between America
First Apartment Investors, L.P. and the Manager, assigned to the Borrower
pursuant to the Assignment of Property Management Agreement dated as of
December 11, 1997, and (ii) with respect to the Park Trace Project, the
Property Management Agreement dated as of November 1, 1997, between the
Borrower and the Manager. There are no agreements, written or oral, with any
party or course of prior dealing that would supplement, qualify, define, amend
or otherwise modify the terms of the Borrower's Limited Partnership Agreement.
(11) The Borrower will not acquire obligations or securities of its
partners or of the partners, members or shareholders of its partners.
(12) Correspondence on behalf of the Borrower shall be sent on its own
letterhead (if any) or on the letterhead of the Manager.
Any limited partnership which can make the representations and warranties
and satisfy the covenants set forth in this Section 2.6 shall constitute a
"Single Purpose Entity."
ARTICLE III
ISSUANCE OF BONDS; PAYMENT OF COSTS
Section 3.1. Issuance of Bonds. The Issuer has contracted for the sale
of the Bonds authorized by the Indenture, and the Borrower has approved and
does approve the terms of the Indenture. Forthwith upon execution of this
Agreement, the other Related Documents and the Indenture, or as soon
thereafter as practicable, the Issuer will execute the Bonds and deliver the
Bonds to the Underwriter or to its order upon payment of the purchase price
and filing with the Trustee of the opinion of Bond Counsel as to the legality
of the Bonds and the furnishing of all other documents required to be
furnished before such delivery. The proceeds of the Bonds will be deposited
with the Trustee and disbursed in accordance with Section 5.2 of the Indenture.
<PAGE> - 10 -
Section 3.2. No Warranty by Issuer. The Borrower recognizes that,
because the components of the Project have been and are to be designated and
selected by it, THE ISSUER HAS NOT MADE AN INSPECTION OF THE PROJECT OR OF ANY
FIXTURE OR OTHER ITEM CONSTITUTING A PORTION THEREOF, AND THE ISSUER MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED OR OTHERWISE, WITH RESPECT TO
THE SAME OR THE LOCATION, USE, DESCRIPTION, DESIGN, MERCHANTABILITY, FITNESS
FOR USE FOR ANY PARTICULAR PURPOSE, CONDITION OR DURABILITY THEREOF, OR AS TO
THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, IT BEING AGREED THAT ALL
RISKS INCIDENT THERETO ARE TO BE BORNE BY THE BORROWER. IN THE EVENT OF ANY
DEFECT OR DEFICIENCY OF ANY NATURE IN THE PROJECT OR ANY FIXTURE OR OTHER ITEM
CONSTITUTING A PORTION THEREOF, WHETHER PATENT OR LATENT, THE ISSUER SHALL
HAVE NO RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF
THIS SECTION 3.2 HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE
EXCLUSION AND NEGATION OF ANY WARRANTIES OR REPRESENTATIONS BY THE ISSUER,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PROJECT OR ANY FIXTURE OR OTHER ITEM
CONSTITUTING A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UNIFORM
COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT.
Section 3.3. Disbursements From the Bond Proceeds Fund and the Costs of
Issuance Fund.
(1) Pursuant to Section 5.2 of the Indenture, the Issuer has authorized
and directed the Trustee to deposit the proceeds of the Bonds (other than
accrued interest on the Bonds) into the Bond Proceeds Fund and to immediately
transfer the balance in the Bond Proceeds Fund to the Prior Note Holder (as
defined in Exhibit A to the Indenture) to be applied solely to the redemption
of the Prior Note.
(2) The Issuer has authorized and directed the Trustee to make payments
from the Costs of Issuance Fund to pay the costs of issuing the Bonds, and to
reimburse the Borrower for any of the foregoing paid or incurred by the
Borrower before or after the execution and delivery of this Agreement and the
issuance and delivery of the Bonds in accordance with the requirements of
Section 5.10 of the Indenture.
Section 3.4. Payment of Issuance Costs by Borrower. The Borrower agrees
that it will provide any and all funds required for the prompt and full
payment of all costs of issuance of the Bonds, including, but not limited to,
the following items:
(1) all legal (including Bond Counsel and counsel to the Borrower,
the Underwriter and the Trustee), abstractors', financial and accounting
fees and expenses, administrative fees, Rating Agency fees, printing and
engraving costs and other expenses incurred and to be incurred on or
before or in connection with issuance of the Bonds;
(2) premiums on all insurance required to be taken out and
maintained until this Agreement is terminated pursuant to Section 8.3
hereof;
(3) all mortgage registry taxes and recording fees and other taxes,
charges, assessments, license or registration fees of every nature
whatsoever incurred and to be incurred in connection with this financing;
(4) all initial fees and expenses of the Trustee, the Paying Agent
and the Issuer;
(5) all fees and expenses for title insurance, survey and related
matters; and
(6) other costs of issuance.
Section 3.5. Title Insurance.
(1) The Borrower agrees to furnish to the Issuer and the Trustee a
mortgagee's policy or policies of title insurance issued by the Title Company,
in Standard ALTA form, dated the Dated Date concerning the Project (the "Title
Policy"), in form and substance reasonably satisfactory to the Issuer, naming
the Issuer and the Trustee as insureds, in an amount not less than the
original principal amount of the Bonds, insuring:
(a) that fee title to the Premises is in the Borrower;
(b) that the Mortgage is a valid first lien upon the Premises,
subject only to Permitted Encumbrances defined in the Mortgage;
<PAGE> - 11 -
(c) that the Project and its use does not violate any zoning or
other use restrictions covering the Premises and that coverage provided
includes the standard ALTA "Form 9" endorsement, if available, or, if not
available, an endorsement which, in the opinion of Independent Counsel,
is comparable;
(d) that the following standard exceptions be waived and insured:
(i) facts which would be disclosed by a comprehensive survey of the
Premises, (ii) mechanic's, contractors' or materialmen's liens and lien
claims, (iii) rights of parties in possession other than residential
tenants under leases with a term of one year or less and (iv) all other
exceptions noted in Schedule B, Section 1 of the Title Policy; and
(e) such other matters as the Issuer or the Trustee may reasonably
request.
(2) At such time or times as provided in Section 5.8 of the Indenture,
the Borrower agrees to furnish to the Issuer and the Trustee, at the
Borrower's expense, a title search certificate addressed to the Issuer and the
Trustee evidencing, in conjunction with any lien waivers, lien-free completion
of the repair or restoration of the Project.
(3) The Borrower hereby represents that the Permitted Encumbrances do not
and will not materially adversely affect (a) the ability of the Borrower to
pay the Basic Payments in a timely manner or (b) the use or operation of the
Project for the use currently being made thereof or the value of the Project.
(4) The Borrower has good and marketable fee simple title to the Project,
and good title to the personal property, subject to no liens, charges or
encumbrances other than the Permitted Encumbrances.
(5) Upon the execution by the Borrower and the recording of the Mortgage,
and upon the execution and filing of UCC-1 financing statements, the Trustee
will have a valid first lien on the Project and a valid security interest in
the personal property subject to no liens, charges or encumbrances other than
the Permitted Encumbrances.
Section 3.6. Establishment of Rate Period for the Bonds. Not less than
60 days prior to the Rate Adjustment Date, commencing 60 days prior to the
Initial Rate Adjustment Date, the Borrower will give written notice to the
Trustee, the Tender Agent, the Rating Agency and the Remarketing Agent of the
Rate Period to be in effect for the Bonds commencing with the Initial Rate
Adjustment Date and any subsequent Rate Adjustment Date and the Rating
Agency's expected rating on the Bonds effective on the Rate Adjustment Date
(which rating must be no lower than "A-" on the Rate Adjustment Date).
ARTICLE IV
THE LOAN, LOAN REPAYMENT AND ADDITIONAL CHARGES
Section 4.1. The Loan.
(1) The Issuer agrees, upon the terms and conditions specified in this
Agreement, to lend to the Borrower the proceeds received by the Issuer from
the sale of the Bonds, excluding any accrued interest, by causing the proceeds
to be deposited with the Trustee for disposition as provided in this Agreement
and in the Indenture. The obligation of the Issuer to make the Loan shall be
deemed fully discharged upon the deposit of the proceeds of the Bonds with the
Trustee. The Loan shall be evidenced by the Note, in the form attached as
Exhibit A. Contemporaneously with the issuance of the Bonds, the Issuer will
endorse the Note without recourse to the order of and will pledge the Note to
the Trustee, as the assignee of the Issuer. The Borrower will repay the Loan
in accordance with the provisions of the Note and this Agreement.
(2) Notwithstanding anything to the contrary contained herein, the
Borrower covenants that it shall make payments, at such times and in such
amount to assure that payment of the principal of and premium, if any, and
interest on the Bonds shall be made when due, whether at maturity, by call for
redemption, by declaration or otherwise.
<PAGE> - 12 -
Section 4.2. Loan Repayment.
(1) Subject to the Borrower's right of prepayment granted in Article
VIII, the Borrower acknowledges its indebtedness to the Issuer and agrees to
repay the Loan, and to pay interest on the amount of the Loan outstanding from
time to time, in the amounts and at the times necessary to enable the Trustee,
on behalf of the Issuer, to pay all amounts payable with respect to the Bonds
when due, whether as principal, premium, interest or otherwise, and whether at
maturity or by redemption or acceleration of maturity or otherwise ("Basic
Payments"). To provide for the payment of the Basic Payments, the Borrower
covenants to pay or cause to be paid to the Trustee and hereby assigns to the
Trustee all Project Revenues and Extraordinary Revenues. Amounts in the
Surplus Fund in excess of $5,000 shall be distributed to the Borrower promptly
as provided in Section 5.4(2) of the Indenture upon the Trustee's receipt of a
certificate of the Borrower that no accounts payable by the Borrower are more
than 60 days past due, except those which are being contested in good faith by
the Borrower. The Borrower hereby agrees that all Project Revenues received
by the Borrower shall be transferred to the Trustee within one Business Day of
receipt. The Borrower and the Manager are solely responsible for the
collection of rentals paid by tenants of the Project. The Borrower will
deposit Project Revenues in a depository account established in the name of
the Borrower with a federal depository institution or state-chartered
depository institution subject to regulations regarding fiduciary funds on
deposit similar to Title 12 of the Code of Federal Regulations Section 9.10(b)
solely for that purpose, which account will be invested in Permitted
Investments. The aggregate amount of all accounts maintained by the Borrower
at any one such depository shall not exceed $100,000. The Trustee is under no
obligation to monitor receipt of rents paid by tenants. The Borrower may
retain in its depository account a balance of up to $10,000 from the Project
Revenues to cover insufficient funds checks from tenants. The Borrower
further agrees that all Proceeds shall be held, disbursed and utilized as
provided in Section 3.14 of the Covey Project Mortgage and Section 3.13 of the
Park Trace Project Mortgage, as applicable.
(2) The Borrower hereby appoints the Trustee as the general depository to
receive any moneys derived from the Project and tenant rentals during all
times when the Bonds shall be Outstanding, and to hold such moneys in trust
pursuant hereto.
Section 4.3. Additional Charges. The Borrower agrees to pay, when due,
all costs and expenses incurred in connection with the issuance of the Bonds
(in the aggregate, the "Additional Charges"), including without limitation,
the expenses listed in Section 3.4, the Ordinary Fees and Expenses, and each
and all of the following:
(1) upon the occurrence of an Event of Default under the Indenture,
or otherwise with the prior written consent of the Borrower, to or upon
the order of the Trustee, when due, all fees of the Trustee for services
rendered under the Indenture and as agent of the Borrower under the
Continuing Disclosure Agreement and any other amounts due under Section
7.4 which are not included in Ordinary Fees and Expenses, and all fees
and charges of any registrars, legal counsel, accountants, engineers,
public agencies and others incurred in the performance, on request of the
Issuer, of services required under the Indenture for which such persons
are entitled to payment or reimbursement, provided that the Borrower may,
upon notice to the Issuer and without creating a default hereunder,
contest in good faith the necessity or reasonableness of any such
services, fees or expenses other than Ordinary Fees and Expenses, as set
forth in the Indenture, any fees or charges of public agencies and any
fees or expenses resulting directly or indirectly from a default by the
Borrower;
(2)(a) all indemnity payments required to be made under Section 7.4
(such indemnity payments being due to the Issuer upon written demand
therefor and accruing interest at the Default Rate following 60 days
after notice of demand therefor); (b) all reasonable expenses (including
reasonable legal fees under Section 9.5) and expenses incurred by the
Issuer to exercise its rights under this Agreement following an Event of
Default; and (c) all other expenses incurred by the Issuer in relation to
the Project which are not otherwise required to be paid by the Borrower
under the terms of this Agreement or any separate fee agreement,
including costs incurred as a result of a request by the Borrower;
(3) interest, at the Default Rate, on all payments not made by the
Borrower under Section 4.2 and under this Section 4.3 when due, to the
parties entitled thereto; and
<PAGE> - 13 -
(4) (i) to pay to the Trustee and the Tender Agent from time to time
reasonable compensation for all services rendered by it (including the
reasonable compensation, expenses and disbursements of its agents and
counsel) under the Indenture and any other agreements relating to the
Bonds to which the Trustee is a party; (ii) except as otherwise expressly
provided in the Indenture, this Agreement or such other agreements
related to the Bonds or the Project, to reimburse the Trustee and the
Tender Agent upon its request for all reasonable fees, expenses,
disbursements and advances (including reasonable counsel fees) incurred
or made by the Trustee and the Tender Agent (provided that the Trustee or
the Tender Agent shall not be required to make advances) in accordance
with any provision of the Indenture or other agreements to which the
Trustee or the Tender Agent is a party (including, but not limited to,
the reasonable compensation and the expenses and disbursements of their
agents and counsel and the cost of printing Bonds), except any such
expense, disbursement or advance (provided that the Trustee or the Tender
Agent shall not be required to make advances) as may be attributable to
its negligence or willful misconduct, (iii) to the Trustee for deposit to
the Rebate Fund, arbitrage rebate as calculated by the Arbitrage
Consultant in accordance with the Non-Arbitrage Certificate, and (iv) to
pay to the Arbitrage Consultant reasonable compensation for all services
rendered by it.
Section 4.4. Borrower's Obligations Unconditional. The obligations of
the Borrower to perform and observe the other agreements on its part contained
herein shall be absolute and unconditional and payment of the Basic Payments
and the Additional Charges and all other payments required of the Borrower
under this Agreement shall be paid without notice or demand and without
setoff, counterclaim, or defense for any reason and without abatement or
deduction or defense (except for a defense based on prepayment pursuant to
Section 8.1). The Borrower will not suspend or discontinue any such payments,
and will perform and observe all of its other agreements in this Agreement,
and, except as expressly permitted in Section 8.4, will not terminate this
Agreement for any cause, including but not limited to any acts or
circumstances that may constitute failure of consideration, destruction or
damage to the Project or the Borrower's business, the taking of the Project or
the Borrower's business by Condemnation or otherwise, the lawful prohibition
of the Borrower's use of the Project or the Borrower's business, the
interference with such use by any private person or corporation, the
invalidity or unenforceability or lack of due authorization or other infirmity
of this Agreement, the lack of right, power or authority of the Issuer to
enter into this Agreement, eviction by paramount title, commercial frustration
of purpose, bankruptcy or insolvency of the Issuer or the Trustee, change in
the tax or other laws or administrative rulings or actions of the United
States of America or of the State or any political subdivision thereof, or
failure of the Issuer to perform and observe any agreement, whether express or
implied, or any duty, liability or obligation arising out of or connected with
this Agreement, or for any other cause whether similar or dissimilar to the
foregoing, any present or future law to the contrary notwithstanding, it being
the intention of the parties hereto that the payment of Basic Payments and
other amounts payable by the Borrower under this Agreement and the Note shall
be paid in full when due without any delay or diminution whatever.
Section 4.5. Borrower's Remedies. Nothing contained in this Article
shall be construed to release the Issuer from the performance of any of its
agreements herein, and if the Issuer should fail to perform any such
agreements, the Borrower may (subject to the limitations of Section 10.8)
institute such action against the Issuer as the Borrower may deem necessary to
compel such performance so long as such action shall not violate the
Borrower's agreements in Section 4.4 or diminish or delay the amounts required
to be paid by the Borrower pursuant to Sections 4.2 and 4.3. The Borrower,
however, acknowledges and agrees that any pecuniary obligation of the Issuer
created by or arising out of this Agreement shall be payable solely out of the
proceeds derived from this Agreement, the sale of the Bonds, any insurance and
Condemnation awards, or amounts received upon the sale or other disposition of
the Project upon a default by the Borrower or otherwise.
<PAGE> - 14 -
Section 4.6. Assignment of Issuer's Rights. As security for the payment
of the Bonds, the Issuer will pledge the amounts payable hereunder and assign,
without recourse or liability, to the Trustee, the Issuer's rights under this
Agreement, including the right to receive payments hereunder (but excluding
the Unassigned Issuer's Rights, and hereby directs the Borrower to make said
payments directly to the Trustee, or otherwise upon the order of the Trustee.
The Borrower herewith assents to such assignment and will make payments under
this Agreement directly to the Trustee, or otherwise upon the order of the
Trustee without defense or setoff by reason of any dispute between the
Borrower and the Issuer, the Bondholders or the Trustee.
ARTICLE V
PROJECT COVENANTS
Section 5.1. Project, Title, Operation and Maintenance.
(1) The Issuer shall not be under any obligation to operate, maintain or
repair the Premises. The Borrower agrees that until this Agreement is
terminated pursuant to Section 8.4, it will, at its own expense, (a) keep the
Project in safe repair and in such operating condition as is needed for its
operations; (b) make all necessary repairs and replacements to the Premises
(whether ordinary or extraordinary, structural or nonstructural); (c) operate
the Project in a sound and economic manner in accordance with usual business
practice; and (d) operate the Project in compliance with all applicable
environmental laws, zoning laws, the Americans with Disabilities Act of 1990
and laws regulating construction, occupancy or maintenance of property of a
character included in the Project.
(2) The Borrower shall pay all expenses of the operation and maintenance
of the Project including, but without limitation, adequate insurance thereon
and insurance against all liability for injury to persons or property arising
from the operation thereof, and all taxes and special assessments levied upon
or with respect to the Project and payable during the Term of this Agreement,
all in conformance with and subject to any good faith contest provisions
provided in the Mortgage.
(3) In the event the Borrower shall fail to maintain, or cause to be
maintained, the full insurance coverage required by this Agreement or shall
fail to keep the Project in as reasonably safe condition as its operating
conditions will permit, or shall fail to keep the Project in good repair and
good operating condition and make all necessary repairs and replacements to
the Project, the Issuer or the Trustee may (but shall be under no obligation
to) contract for the required policies of insurance and pay the premiums on
the same or make any required repairs, renewals and replacements; and the
Borrower agrees to reimburse the Issuer or the Trustee to the extent of the
amounts so advanced, and in addition shall pay interest on any such amount at
the Default Rate from the date such amount was due until the date such amount
was paid or reimbursed by the Borrower.
(4) The Borrower shall obtain or cause to be obtained all necessary
permits and approvals for the operation and maintenance of the Project and
shall comply with all lawful requirements of any governmental body regarding
the use or condition of the Project, whether existing or later enacted or
whether involving any change in governmental policy or requiring structural or
other changes to part or all of the Project and irrespective of the cost of
making the same.
(5) Notwithstanding the provisions of this Section 5.1, the Borrower may
in good faith contest the validity or the applicability of any law, ordinance,
rule or regulation provided that during the period of such contest and any
appeal therefrom, (i) such failure to comply with such requirement or
requirements will not adversely affect the lien of the Mortgage or the
Assignment or materially endanger such liens or the Project or any part
thereof, (ii) will not subject the Project or any part thereof to loss or
forfeiture and (iii) the Borrower will post with the Trustee, for the benefit
of the Bondholders, cash or a bond in an amount equal to 125% of the disputed
amount.
(6) The Borrower agrees not to permit or suffer others to commit a
nuisance in or about the Premises or themselves commit a nuisance in
connection with their use or occupancy of the Premises.
<PAGE> - 15 -
Section 5.2. Sale, Transfer or Disposition of Borrower's Interest in
Project. Except as otherwise provided in Section 2.3 of the Mortgage and,
with respect to the Covey Project, Section 10 of the Regulatory Agreement, the
Borrower will not sell, transfer or otherwise dispose of its interest in the
Project under this Agreement, or any portion thereof, except to a purchaser
which qualifies as a Single Purpose Entity (as such term is defined in Section
2.6). Upon the satisfaction of the conditions set forth therein, the assignor
shall be relieved of all further liability occurring on and after the
effective date of the sale, transfer or disposition.
Section 5.3. Advances. The Borrower acknowledges and agrees that under
this Agreement and certain of the other Related Documents, the Bondholders
may, but shall be under no obligation to, take certain action and make certain
advances relating to the Project from certain funds held under the Indenture
or otherwise, or to certain other matters as expressly provided therein, and
the Borrower shall be obligated to repay all such advances on demand with
interest from the date such payment was originally due until paid, at the
Default Rate.
Section 5.4. Alterations to the Project and Removal of Equipment.
(1) The Borrower shall not, except as provided in the Mortgage, remodel
or make any additions, modifications, alterations, improvements or changes
(collectively referred to as "alterations") in or to the Project or remove any
equipment therefrom other than in the ordinary course of business in the
operation of the Project. Notwithstanding the provisions of the Covey Project
Mortgage, no such alteration or removal will be made if to do so would impair
the character of the Covey Project as a "project" within the meaning of the
Act, or impair the exclusion of interest on the Bonds from gross income for
federal income tax purposes.
(2) The Borrower shall be entitled to use funds held by the Trustee in
the Repair and Replacement Subaccount under the Indenture to pay for capital
improvements, replacements and maintenance, including, but not limited to,
appliances, air conditioners, furnaces, hot water heaters, roofs, carpeting,
floor vinyl, decks, pool equipment replacement, concrete replacement, tie
walls, gutters, downspouts, window replacement, blinds and similar items, and
for the costs of alterations or replacements.
Section 5.5. Insurance. The Borrower shall procure and maintain, or
cause to be procured or maintained, continuously in effect during the term of
this Agreement, policies of insurance, including specifically contractual
liability insurance (with respect to the indemnifications made by the Borrower
in the Indenture and in the Related Documents), with respect to the Project
insuring against such risks and in such amounts as are required by the
Mortgage.
Section 5.6. Taxes, Assessments and Other Governmental Charges. The
Borrower shall promptly pay and discharge, prior to the same becoming
delinquent, all taxes and assessments, general and special, and other
governmental charges of any kind whatsoever that may be lawfully taxed,
charged, levied, assessed or imposed upon or against or be payable for or in
respect of the Project, or any part thereof or interest therein or any
buildings, improvements, machinery and equipment at any time installed thereon
by the Borrower, or the income therefrom or Basic Payments and other amounts
payable under this Agreement, including any new taxes and assessments not of
the kind enumerated above to the extent that the same are lawfully made,
levied or assessed in lieu of or in addition to taxes or assessments now
customarily levied against real or personal property, and further including
all utility charges, assessments and other general governmental charges and
impositions whatsoever, foreseen or unforeseen, which if not paid when due
would impair the security of the Bonds or encumber the Borrower's title to the
Project; provided that with respect to any special assessments or other
governmental charges that are lawfully levied and assessed which may be paid
in installments, the Borrower shall be obligated to pay only such installments
thereof as become due and payable during the Loan Term.
Section 5.7. Utilities. All utilities and utility services used by the
Borrower in, on or about the Project shall be paid for by the Borrower and
shall be contracted for by the Borrower in the Borrower's own name, and the
Borrower shall, at its sole cost and expense, procure any and all permits,
licenses or authorizations necessary in connection therewith.
<PAGE> - 16 -
ARTICLE VI
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 6.1. Damage and Destruction. If there are Outstanding Bonds
when the Project is damaged or destroyed by fire or other casualty, the
Borrower shall restore the Project, prepay the Loan in whole or in part or
take such other action, as is required or permitted by the Mortgage and the
other Related Documents.
Section 6.2. Condemnation. If there are Outstanding Bonds when the
Project or any part thereof is taken by Condemnation, the Borrower shall
restore the Project, prepay the Loan in whole or in part or take such other
action, as is required or permitted by the Mortgage and the other Related
Documents.
Section 6.3. Parties To Give Notice. In the case of material damage to
or destruction of all or any part of the Project, the Borrower shall give
prompt notice thereof to the Issuer (in the case of the Covey Project only),
the Trustee and the Rating Agency in the manner prescribed by Section 10.2.
In the case of a taking or proposed taking of all or any part of the Project
by Condemnation, the party hereto upon which notice of such taking or proposed
taking is served shall give prompt notice thereof to the Issuer (in the case
of the Covey Project only), the Trustee and the Rating Agency in the manner
prescribed by Section 10.2. Any such notice shall describe generally the
nature and extent of such damage, destruction, taking or proposed taking.
ARTICLE VII
BORROWER'S COVENANTS
Section 7.1. Covenant for the Benefit of the Bondholders. The Borrower
recognizes the authority of the Issuer to assign its interest in and pledge
moneys receivable under this Agreement (other than the Unassigned Issuer's
Rights) to the Trustee as security for the payment of the principal of and
interest and redemption premiums, if any, on the Bonds, and the payment of all
Additional Charges. The Borrower hereby agrees to be bound by, and joins with
the Issuer in the grant of, a security interest to the Trustee in any right
and interest the Borrower may have in sums held in the Funds described in
Article 5 of the Indenture, pursuant to the terms and conditions thereof, to
secure payment of the Bonds and payments made under the Related Documents.
Each of the terms and provisions of this Agreement is a covenant for the use
and benefit of the Bondholders, so long as the Bonds shall remain Outstanding;
but upon payment in full of the Bonds in accordance with Article 7 of the
Indenture and of all fees, expenses and charges of the Paying Agent and the
Trustee, all references in this Agreement to the Bonds and the Bondholders
thereof shall be ineffective, and the Bondholders shall thereafter have no
rights hereunder, save and except those that shall have theretofore vested or
that arise from provisions hereunder which survive termination of this
Agreement.
Section 7.2. Inspection and Access.
(1) The Borrower agrees that the Issuer, the Trustee and their duly
authorized agents, shall have the right to examine and inspect during normal
business hours, and for that purpose to enter upon, the Premises, and shall
also have such right of access thereto at reasonable times and under
reasonable conditions and subject to the rights of tenants in possession as
may be reasonably necessary to cause the Project to be properly maintained in
accordance with Article 5 and in accordance with the applicable provisions of
the other Related Documents.
(2) The Borrower hereby covenants to execute, acknowledge and deliver all
such further documents, and do all such other acts and things as may be
necessary in order to grant to the Issuer and the Trustee the rights of access
and entry described herein and agrees that such rights of access and entry
shall not be terminated, curtailed or otherwise limited by any assignment,
lease or other transfer of the Premises by the Borrower to any other person
and subject to the rights of tenants in possession at reasonable times and
under reasonable conditions.
<PAGE> - 17 -
Section 7.3. Annual Statement, Annual Budget, Certificate of Compliance
and Other Reports and Continuing Disclosure.
(1) The Borrower covenants and agrees with the Issuer, as long as any
amount owed by the Borrower under this Agreement remains unpaid, at the
Borrower's sole cost and expense, to furnish the Rating Agency, the Trustee
and any beneficial owner of the lesser of $1,000,000 principal amount of the
Bonds or 25% of the principal amount of the Bonds then Outstanding (which has
filed a written request with the Borrower) with annual audited operating
statements, which shall be prepared by, or with respect to, the Borrower.
(2) At the time the Borrower causes to be furnished any annual financial
statements required by subparagraph (1) above, the Borrower shall also furnish
to the Rating Agency and the Trustee a certificate, executed by a Borrower
Representative, declaring that during the same fiscal year covered by such
statements and continuing to the date of execution of the certificate, the
Borrower has fully complied with the terms and conditions of this Agreement
and the other Related Documents.
(3) The Borrower shall deliver or cause the Manager to deliver to the
Trustee, not later than the thirtieth day preceding each Fiscal Year, the
Annual Budget for such Fiscal Year (for the Fiscal Year commencing January 1,
1998, not later than January 7, 1998), which shall include all proposed
Current Expenses with respect to the Project, together with rents and other
income projected to be produced by the Project. The Annual Budget may be
amended from time to time by the Borrower, with the written consent of the
Manager, or the Manager, with the written consent of the Borrower, as
applicable. A copy of any amended Annual Budget shall be promptly provided to
the Trustee.
(4) The Borrower will, at the request of the Underwriter, but at the
Borrower's sole expense, furnish to the Underwriter at such times and in such
form as the Underwriter may reasonably require (a) a copy of such other
reports containing such information as is necessary to comply with any lawful
reporting or continuing registration requirements imposed by any agency of the
State under the Act, any other applicable State law or blue sky laws as the
same now exist or may hereafter be amended or by any agency of any other state
in which the Bonds have been sold, or (b) such information as is necessary to
comply with federal securities law; provided in either case that the Borrower
shall not be required to file a general consent to the service of process in
any jurisdiction.
(5) The Borrower hereby covenants and agrees that it will comply with and
carry out all of the provisions of the Continuing Disclosure Agreement.
Notwithstanding any other provision of this Agreement, failure of the Borrower
to comply with the Continuing Disclosure Agreement shall not be considered an
Event of Default; however, any Bondholder or Beneficial Owner may take such
actions as may be necessary and appropriate, including seeking specific
performance by court order, to cause the Borrower to comply with its
obligations under this Section 7.3. For purposes of this Section, "Beneficial
Owner" means any person which (a) has the power, directly or indirectly, to
vote or consent with respect to, or to dispose of ownership of, any Bonds
(including persons holding Bonds through nominees, depositories or other
intermediaries), or (b) is treated as the owner of any Bonds for federal
income tax purposes.
Section 7.4. Indemnity by Borrower.
(1) The Borrower will pay, defend, and will protect, indemnify, and save
the Trustee, its officers, agents and employees, the Issuer, its officers and
employees and any person who controls the Issuer within the meaning of the
Securities Act of 1933 (the "Indemnified Parties") from and against all
liabilities, losses, damages, costs, expenses (including attorneys' fees),
causes of action (whether in contract, tort, or otherwise), suits, claims,
demands and judgments of every kind, character and nature whatsoever
(collectively referred to herein as the "Liabilities") directly or indirectly
arising from or relating to the Bonds, this Agreement, the Loan, the Project,
the Mortgage, the Assignment, the Indenture or any document related to the
issuance and sale of the Bonds, including, but not limited to, the following:
(a) any injury to or death of any person or damage to property in or
upon the Project or growing out of or connected with the use, non-use,
condition or occupancy of the Project or any part thereof;
<PAGE> - 18 -
(b) violation of any agreement or condition of this Agreement or any
other Related Document;
(c) violation by the Borrower of any contract, agreement, or
restriction relating to the Project;
(d) violation of any law, ordinance, or regulation affecting the
Project, or any part thereof or the ownership, occupancy, or use thereof;
(e) the issuance and sale of the Bonds or any of them; and
(f) any statement, information, or certificate furnished by the
Borrower to the Issuer which is misleading, untrue, or incorrect in any
respect.
(2) The Borrower also agrees to indemnify and hold harmless each of the
Indemnified Parties from and against the Liabilities directly or indirectly
arising from or relating to (i) any errors or omissions of any nature
whatsoever contained in any legal proceedings or other official representation
or inducement made by the Issuer pertaining to the Bonds, provided, however,
nothing in this subsection shall be deemed to provide the Issuer with
indemnification for the Issuer's omissions or misstatements contained in any
disclosure document relating to the Bonds with respect to the Issuer or any
unrelated litigation in connection with the Issuer and (ii) any fraud or
misrepresentations or omissions occurring during any proceedings of the Issuer
relating to the issuance of the Bonds or pertaining to the financial condition
of the Borrower which, if known to the Underwriter and the Bondholders
purchasing the Bonds, might be considered a factor in its decision to purchase
the Bonds.
(3) Nothing in Sections 7.4(1) and 7.4(2) shall be deemed to provide
indemnification to an Indemnified Party with respect to Liabilities arising
from the fraud, gross negligence (with respect to the Issuer), negligence
(with respect to the Trustee), or willful misconduct of such Indemnified Party.
(4) Promptly after receipt by an Indemnified Party of notice of the
commencement of any action or proceeding with respect to which indemnification
is being sought hereunder, such Indemnified Party will notify the Borrower of
the commencement of such proceeding. Such notification shall be a necessary
condition precedent to indemnification hereunder, but failure to so notify the
Borrower will not relieve it from any liability to an Indemnified Party which
the Borrower may have otherwise. If the Borrower so elects, it may assume the
defense of such action or proceeding, including the employment of counsel
reasonably satisfactory to the Indemnified Party and will pay the fees and
disbursements of such counsel. No Indemnified Party shall settle any
complaint, claim, action, suit or other proceeding for which indemnification
is being sought hereunder, without the prior consent of the Borrower.
However, notwithstanding the foregoing, (i) if counsel for such Indemnified
Person and counsel for the Borrower agree that (A) having common counsel to
represent both the Borrower and the Indemnified Party would present a conflict
of interest or (B) defenses are available to such Indemnified Party which are
not available to the Borrower or (i) if the Borrower fails to assume the
defense of the action or proceeding in a timely manner, then such Indemnified
Person may employ separate counsel to represent or defend it in any such
action or proceeding and the Borrower will pay the reasonable fees and
disbursements of such counsel. However, in no event shall the Borrower be
liable for more than one counsel (in addition to any local counsel) separate
from its own counsel for the Indemnified Parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. In any action
or proceeding the defense of which the Borrower assumes, the Indemnified Party
will have the right to participate in such litigation and to retain its own
counsel at such Indemnified Party's own expense.
(5) The Indemnified Parties, other than the Issuer, shall be considered
to be third party beneficiaries of this agreement for purposes of Section
7.4(1)-(4).
<PAGE> - 19 -
Section 7.5. Status of Borrower.
(1) Throughout the term of this Agreement, the Borrower will maintain its
existence as a limited partnership organized under the laws of the State of
Georgia, in good standing in the State of Georgia and qualified to transact
business in the State and the State of Georgia and will not wind up or
otherwise dispose of all or substantially all of its assets except as provided
in the Mortgage and Section 5.2 of this Agreement.
(2) Notwithstanding the provisions of the Covey Project Mortgage, the
Borrower shall not effect a merger, consolidation or transfer if the result
thereof would cause the interest on the Bonds (in the hands of any person who
is not a "substantial user" of the Covey Project or a "related person") to
become includable in gross income for federal income tax purposes.
(3) Upon any change in the status of the Borrower, by way of
substitution, sale or otherwise of the Borrower, the Issuer shall be promptly
informed and, if requested, the Borrower as newly constituted shall deliver to
the Issuer and the Trustee an instrument in form satisfactory to each of them
affirming the liability of the Borrower hereunder, subject in all events to
the terms and conditions of Section 9.11.
Section 7.6. Filing of Financing Statements. The Borrower agrees that
it will, at its sole expense, file or cause to be filed, any financing
statements or continuation statements required or requested by the Issuer to
perfect and preserve the security interest of the Issuer and the Trustee in
this Agreement and the payments to be made hereunder, as granted in the
Indenture. The Borrower further agrees that it will, at its sole expense,
furnish to the Issuer and the Trustee the opinions and take such actions as
are required by Section 4.4 of the Indenture in the form and at such times as
required by Section 4.4 of the Indenture.
Section 7.7. Proceedings Relating to a Determination of Taxability. If
any action or proceeding is commenced which questions the exclusion of
interest on the Bonds from gross income under Section 103(a) of the Code or
which might result in a Determination of Taxability, the Borrower, the Issuer,
the Trustee or the Bondholders may contest such action or possible
Determination of Taxability. All costs of such contest shall be borne by the
Borrower. No such action or proceeding shall be settled without the consent
of the Trustee and the Holders of all Outstanding Bonds.
ARTICLE VIII
BORROWER'S OPTIONS; TERMINATION OF AGREEMENT
Section 8.1. Optional Prepayment. Except during the continuance of an
Event of Default, the Borrower may at any time transmit funds directly to the
Trustee for deposit in the Bond Fund, in addition to amounts, if any,
otherwise required at that time pursuant to this Agreement, and direct that
said money, once it has become Protected Funds, be utilized by the Trustee, in
accordance with the Indenture, to:
(1) redeem the Bonds which are then or will be redeemable in
accordance with the terms of the Indenture on a date specified by the
Borrower, provided that redemption shall not be completed until and
unless the moneys deposited in the Bond Fund have become Protected Funds;
or
(2) provide for the discharge of the Bonds prior to their maturity
or redemption date as provided in Section 7.1 of the Indenture on a
Discharge Date.
Section 8.2. Mandatory Prepayment. The Borrower shall prepay the Loan
in whole (i) on the date which is 180 days after the cancellation of a
mandatory tender of the Bonds on the Rate Adjustment Date in accordance with
Section 3A.1(3) of the Indenture, or (ii) 90 days after a Determination of
Taxability.
Section 8.3. Direction of Investments. Except during the continuance of
an Event of Default, the Borrower shall have the right during the Lease Term
to direct the Trustee to invest or reinvest all money held for the credit of
Funds established by Article 5 of the Indenture in accordance with Article 6
of the Indenture.
<PAGE> - 20 -
Section 8.4. Termination of Agreement.
(1) Except during the continuance of an Event of Default, the Borrower
shall have the option to terminate this Agreement if (i) the Bonds have been
paid in full or if provision is otherwise made for payment of the Bonds in
such manner that the Indenture will be discharged under Article 7 thereof on
or before the date of termination, (ii) such prepayment and termination is
allowed by the Mortgage, (iii) the Borrower provides the Trustee and the
Issuer with an opinion of Bond Counsel to the effect that all such conditions
have been satisfied and (iv) written notice has been provided to the Rating
Agency, provided that this Agreement may not be terminated unless and until
(a) all of the Borrower's obligations under the Related Documents have been
satisfied and (b) all of the Borrower's obligations with respect to the
Issuer's fees and any rebate obligation have been satisfied and the Borrower
has so certified to the Issuer and the Trustee. All obligations of the
Borrower under Sections 4.3 and 7.4 shall survive termination of this
Agreement.
(2) Notwithstanding the foregoing, the Borrower may not terminate this
Agreement unless and until the Trustee has on deposit an amount equal to the
sum of the following:
(a) Protected Funds on deposit in any of the Funds established under
Article 5 of the Indenture and available for that purpose which are
sufficient to discharge the Indenture in accordance with Article 7
thereof; plus
(b) to the extent not paid under subsection (a) above, an amount
equal to the Trustee's fees, expenses and charges under the Indenture and
any other amounts due under Section 7.4 hereof, accrued and, to the
extent determinable, to accrue until the Bonds are fully paid and
redeemed and all other advances, fees, costs and expenses reasonably
incurred and to be incurred on or before the termination date by the
Trustee under the Indenture and by the Issuer and the Trustee under this
Agreement and/or the other Related Documents; provided that in any event,
in order to effect prepayment or discharge of the Outstanding Bonds the
Borrower shall, prior to the termination date, satisfy the requirements
of Section 8.1, including the requirement that all funds used to redeem
the Bonds be Protected Funds.
(3) On the termination date, a closing shall be held at any office
mutually agreed upon among the Issuer, the Borrower and the Trustee (which
closing may be conducted by first-class mail or recognized overnight delivery
service). At the closing the Issuer and the Trustee shall, upon
acknowledgment of receipt of the sum set forth in subsection (2) above,
execute and deliver to the Borrower such release and other instruments as the
Borrower reasonably determines is necessary to terminate this Agreement. All
further obligations of the Borrower under this Agreement (except as
specifically provided in Sections 4.3 and 7.4) shall thereupon terminate,
provided, however, that the Borrower shall also remain obligated to pay or
reimburse the Issuer, and the Trustee for the payment of all other fees, costs
and expenses unaccounted for in the sum paid in accordance with subsection (2)
above and reasonably incurred before or subsequent to such closing in
connection with the Bonds and to pay arbitrage rebate.
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1. Events of Default. Any one or more of the following events
is an Event of Default under this Agreement, and the term "Event of Default,"
wherever used herein, means any one of the following events, whatever the
reason for such default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body:
(a) if the Borrower shall fail to pay on the due date thereof (i)
any Basic Payment due under Section 4.2 on the date such payment is due;
(ii) any Additional Charge when due and such failure shall continue for 5
days after receipt by the Borrower of a notice to the Borrower by the
Issuer or the Trustee stating that such Additional Charges were not
received on the due date; or (iii) the full amount of the Loan on the
date specified in Section 8.2;
<PAGE> - 21 -
(b) if the Borrower shall fail in any respect to observe and perform
or shall breach in any respect any other covenant, condition or agreement
on its part under this Agreement and shall fail to remedy such default or
breach within thirty days after mailing of a notice to it by the Issuer
or the Trustee, specifying such default or breach and requesting that it
be remedied, or such longer period of time (up to an additional 30 days)
as may be necessary to remedy such default or breach provided that (i)
the Borrower has commenced action during the 30 days necessary to remedy
such default or breach; and (ii) the Borrower is proceeding with
reasonable diligence to remedy the default or breach;
(c) if an Act of Bankruptcy shall occur with respect to the Borrower
or its general partner;
(d) if the Borrower or its general partner shall be dissolved,
liquidated or cease doing business (other than when a new entity assumes
the obligations of the Borrower under the conditions permitting such
action contained in Section 5.2 and Section 2.3 of the Mortgage);
(e) if a default should occur under the Indenture, the Regulatory
Agreement or any Related Document and any applicable period for remedying
such default has expired;
(f) abandonment by the Borrower of the Project prior to payment in
full of the Bonds when due or pursuant to the provisions of Article 7 of
the Indenture, provided that actions taken by the Borrower in accordance
with the provisions of this Agreement shall not be a default under this
paragraph (f); or
(g) if any representation or warranty made by the Borrower in this
Agreement, or in any document or certificate furnished to the Issuer, the
Trustee, the Bondholders or the Underwriter, in connection herewith or
therewith or pursuant hereto or thereto shall prove at any time to be, in
any material respect, incorrect or misleading as of the date made.
Section 9.2. Remedies.
(1) Whenever any Event of Default shall have occurred and be continuing,
the Trustee may declare all Basic Payments payable for the remainder of the
Term of this Agreement (in an amount equal to that necessary to pay in full
the Bonds and the interest thereon, assuming acceleration of the Bonds under
the Indenture and to pay all other indebtedness due under the Related
Documents and under this Agreement and the Related Documents) to be
immediately due and payable, whereupon the same shall become immediately due
and payable by the Borrower.
(2) Subject in all events to the provisions of Section 9.11, whenever any
Event of Default shall have occurred and be continuing, any one or more of the
following remedial steps may also be taken to the extent permitted by law:
(a) the Trustee, as assignee of the Issuer, subject to paragraph (b)
below, may take whatever action at law or in equity may appear necessary
or appropriate to collect all sums then due and thereafter to become due,
or to enforce performance and observance of any obligation, agreement,
covenant, representation or warranty of the Borrower, under this
Agreement or any Related Document; or to otherwise compensate the Issuer
or the Trustee for any damages on account of such Event of Default;
(b) the Trustee, as assignee of the Issuer, will proceed to exercise
its remedies under the Mortgage if the Loan has not been paid in full on
the date specified in Section 8.2; and
(c) the Issuer (without the prior written consent of the Trustee if
the Trustee is not enforcing the Issuer's rights in a manner to protect
the Issuer or is otherwise taking action that brings adverse consequences
to the Issuer), may take whatever action at law or in equity may appear
necessary or appropriate to enforce its rights of indemnification under
Section 7.4 and to collect all sums then due and thereafter to become due
to the Issuer under Sections 4.3(2), 7.4 and 9.5 of this Agreement;
provided that the Issuer will not take any action which would prejudice
the rights of the Trustee or the Bondholders.
<PAGE> - 22 -
Section 9.3. Disposition of Funds. Any amounts collected pursuant to
action taken under Section 9.2 (other than sums collected for the Issuer on
account of its rights to indemnification and certain direct payments to be
made to the Issuer under Sections 4.3(2), 7.4 and 9.5 which sums shall be paid
directly to the Issuer) shall be applied in accordance with the provisions of
the Indenture.
Section 9.4. Nonexclusive Remedies. No remedy herein conferred upon or
reserved to the Issuer or the Trustee is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or by statute. No
delay or omission to exercise any right or power accruing upon any Event of
Default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to
time and as often as may be deemed expedient. In order to entitle the Issuer
or the Trustee to exercise any remedy reserved to it in this Article, it shall
not be necessary to give any notice, other than such notice as may be herein
expressly required or as may be required by law.
Section 9.5. Attorneys' Fees and Expenses. If an Event of Default shall
exist under this Agreement and the Issuer or the Trustee employ attorneys or
incur other expenses for the collection of any amounts due hereunder, or for
the enforcement of performance of any obligation or agreement on the part of
the Borrower, the Borrower shall upon demand pay to the Issuer or the Trustee,
as the case may be, the reasonable fees of such attorneys and such other
expenses so incurred.
Section 9.6. Effect of Waiver. In the event any agreement contained in
this Agreement is breached by either party and thereafter such breach is
waived by the other party, such waiver shall be limited to the particular
breach so waived and shall not be deemed to waive any other breach hereunder.
Section 9.7. Issuer and Trustee May File Proofs of Claim. In case of
the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Borrower or the property of the Borrower, the
Trustee or the Issuer (with the prior consent of the Trustee), shall be
entitled and empowered, by intervention in such proceeding or otherwise:
(1) to file and prove a claim and to file such other papers or
documents as may be necessary or advisable in order to have the claims of
the Issuer and the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Issuer and
Trustee, their agents and counsel) allowed in such judicial proceeding;
and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute the same.
Section 9.8. Restoration of Positions. If the Issuer or the Trustee has
instituted any proceeding to enforce any right or remedy under this Agreement,
and such proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to the Issuer or the Trustee, then and in every such
case the Borrower, the Trustee and the Issuer shall, subject to any
determination in the proceeding, be restored to the positions they held prior
to commencement of such proceedings, and thereafter all rights and remedies of
the Issuer and the Trustee shall continue as though no such proceeding had
been instituted.
Section 9.9. Suits To Protect the Project. If the Borrower shall fail
to do so after 30 days prior written notice from the Trustee, the Trustee
shall have power to institute and to maintain such proceedings as either of
them may deem expedient to prevent any impairment of the Project or any
portion thereof, by any acts which may be unlawful or in violation of this
Agreement, and such suits and proceedings as the Trustee may deem expedient to
protect its interests in the Project or any portion thereof, including power
to institute and maintain proceedings to restrain the enforcement of or
compliance with any governmental enactment, rule or order that may be
unconstitutional or otherwise invalid, if the enforcement of, or compliance
with, such enactment, rule or order would impair or adversely affect the
Project or be prejudicial to the interests of the Trustee.
<PAGE> - 23 -
Section 9.10. Performance by Third Parties. The Trustee may permit
third parties to perform any and all acts or take such action as may be
necessary for and on behalf of the Borrower to cure any Event of Default
hereunder. The acceptance by the Trustee of any such performance by third
parties shall not in any way diminish or absolve the Borrower of primary
liability hereunder.
Section 9.11. Nonrecourse Obligation. Except as otherwise provided in
the Mortgage or as otherwise set forth below, the liability of the Borrower
under this Agreement shall be limited to the Project and any other collateral
securing this Agreement, the Indenture or the Bonds. Notwithstanding the
foregoing, (i) the Borrower shall be liable under this Agreement for payments
or expenditures due or to be made under this Agreement to the extent of any
funds or property of the Project coming into the hands of the Borrower or any
affiliate of the Borrower which the Borrower has distributed at a time when
amounts were due and payable by the Borrower hereunder which were not paid or
at a time when the Borrower was in default hereunder, which default was not
subsequently cured and (ii) the Borrower shall not be exonerated or exculpated
and shall be liable for any loss or deficiency suffered or sustained by the
Issuer or the Trustee as a result of:
(a) any fraud or false representations by the Borrower with regard
to any matter relating to the financing evidenced and secured by the
Bonds, the Indenture and the Related Documents;
(b) misapplication of insurance or condemnation proceeds;
(c) collection of rents for more than one month in advance and/or
failure to apply rents while an Event of Default exists under this
Agreement to the payment of current maintenance, repairs, taxes or other
bona fide operating expenses to independent third parties for goods
purchased or services rendered at arms length prices and terms all of
which are recognized as such under generally accepted accounting
principles and thereafter to Basic Payments due under Section 4.2 and
Additional Charges;
(d) failure to deliver security deposits of tenants, together with
all interest which is required by law to be paid to such tenants, to the
Issuer or the Trustee following an Event of Default and demand therefor
by the Issuer or the Trustee;
(e) permitting or suffering to occur any intentional or negligent
waste of all or any portion of the Project;
(f) failure to comply with any law, governmental standard or
regulation applicable to the Borrower or the Project with respect to
Environmental Laws or Hazardous Materials (as such terms are defined in
the Mortgage) or a misrepresentation of the Borrower with respect to the
same;
(g) any willful misconduct or gross negligence of the Borrower or
any intentional tort created or suffered by the Borrower and resulting in
loss or damage to the Project;
(h) failure to make timely payments of required taxes for the
current and any prior years affecting the Project; provided that so long
as the Borrower has made all required deposits for the payment of such
taxes with the Trustee pursuant to the terms of this Agreement and the
Mortgage, the Borrower shall not be liable hereunder;
(i) failure by the Borrower to pay Additional Charges under
paragraphs (1), (3) and (4) of Section 4.3 of this Agreement or to
indemnify the Issuer and the Trustee in accordance with Section 7.4 of
this Agreement;
(j) liability of the Borrower under Section 8.14 of the Covey
Project Mortgage and Section 8.15 of the Park Trace Project Mortgage; or
(k) willful failure to observe the covenants set forth in Sections
2.2, 2.3, 2.4, 2.5 and 2.6 of this Agreement.
<PAGE> - 24-
Section 9.12. Trustee's Exercise of the Issuer's Remedies. Whenever any
Event of Default has occurred and is continuing, the Trustee may, but except
as otherwise provided in the Indenture shall not be obligated to, exercise any
or all of the rights of the Issuer under this Article, upon notice as required
of the Issuer. In addition, the Trustee shall have available to it all of the
remedies prescribed by the Indenture.
ARTICLE X
GENERAL PROVISIONS
Section 10.1. Amounts Remaining in Funds. Except during the continuance
of an Event of Default, any amounts remaining in the Funds created under
Article 5 of the Indenture upon expiration or earlier termination of this
Agreement, as provided herein shall be distributed as provided in Section 5.12
of the Indenture.
Section 10.2. Notices. All notices, certificates or other
communications hereunder shall be given to all parties identified below, shall
be in writing (except as otherwise expressly provided herein) and shall be
sufficiently given and shall be deemed given when delivered by hand delivery,
telegram or facsimile or served by depositing the same with the United States
Postal Service, or any official successor thereto, designated as Registered or
Certified Mail, Return Receipt Requested, bearing adequate postage, or
delivery by reputable private courier such as Federal Express, Airborne, DHL
or similar overnight delivery service, and addressed as hereinafter provided.
Notices, except to the Trustee, shall be deemed given when mailed as provided
herein. Notices to the Trustee shall be deemed given only when received by
the Trustee. All parties identified below may, by written notice given by
each to the others, designate any address or addresses to which notices,
certificates or other communications to them shall be sent when required as
contemplated by this Agreement. Any notice, certificate, report, financial
statement or other communication properly provided by legal counsel on behalf
of any party hereunder shall be deemed properly provided by the party
represented by such counsel. Until otherwise provided by the respective
parties, all notices, certificates and communications to each of them shall be
addressed as follows: To the Issuer: City of Aurora, Illinois 44 East
Downer Place Aurora, Illinois 60507 Attention: City Clerk
To the Borrower: Park Trace Apartments Limited Partnership
c/o America First Companies
19th Floor
399 Park Avenue
New York, New York 10022
Attention: Joseph Grego
With a copy to: America First Companies
Suite 400
1004 Farnam Street
Omaha, Nebraska 68102
Attention: Lynn Muse
To the Trustee: UMB Bank, N.A.
928 Grand Avenue, 13th Floor
Kansas City, Missouri 64106
Attention: Corporate Trust Department
To the Underwriter: Stern Brothers & Co.
8000 Maryland Avenue, Suite 1020
St. Louis, Missouri 63105-3752
Attention: Senior Vice President
Section 10.3. Binding Effect. This Agreement shall inure to the benefit
of and shall be binding upon the Issuer and Borrower and their respective
successors and assigns. Insofar as this Agreement provides for rights of the
Trustee, this Agreement shall also inure to the benefit of the Trustee.
<PAGE> - 25 -
Section 10.4. Severability.
(1) If any provision of this Agreement shall be held or deemed to be or
shall, in fact, be inoperative or unenforceable as applied in any particular
case in any jurisdiction or jurisdictions or in all jurisdictions or in all
cases because it conflicts with any provisions of any constitution or statute
or rule of public policy, or for any other reason, such circumstances shall
not have the effect of rendering the provision in question inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provisions herein contained invalid, inoperative or unenforceable to any
extent whatever.
(2) The invalidity of any one or more phrases, sentences, clauses or
paragraphs contained in this Agreement shall not affect the remaining portions
of this Agreement or any part thereof.
Section 10.5. Amendments, Changes and Modifications. Except as
otherwise provided in this Agreement or in the Indenture, subsequent to the
issuance of the Bonds and before the lien of the Indenture is satisfied and
discharged in accordance with its terms, this Agreement may not be effectively
amended, changed, modified, altered or terminated prior to receipt by the
Trustee of the written consent of the holders of all of the Bonds then
outstanding (such consent to be obtained as provided in Article 11 of the
Indenture) and the Issuer to the extent any proposed amendment, change or
modification relates to the Unassigned Issuer Rights.
Section 10.6. Execution in Counterparts. This Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
Section 10.7. Required Approvals. Consents and approvals required by
this Agreement to be obtained from the Borrower, the Issuer or the Trustee
shall be in writing and shall not be unreasonably withheld or delayed.
Consents of Bondholders shall be in writing.
Section 10.8. Limitation on Issuer's Liability.
(1) No covenant, agreement or obligation contained herein shall be deemed
to be a covenant, agreement or obligation of any present or future officer or
employee of the Issuer in his individual capacity, and neither the officers
nor employees of the Issuer executing the Bonds shall be liable personally on
the Bonds or be subject to any personal liability or accountability by reason
of the issuance thereof. No officer or employee of the Issuer shall incur any
personal liability with respect to any other action taken by him pursuant to
this Agreement or the Act, provided such officer or employee acts in good
faith. No agreements or provisions contained in this Agreement nor any
agreement, covenant or undertaking by the Issuer contained in any document
executed by the Issuer in connection with the Project or the issuance, sale
and delivery of the Bonds shall give rise to any pecuniary liability of the
Issuer or a charge against its general credit or taxing powers, or shall
obligate the Issuer financially in any way except with respect to the Project
and the application of revenues therefrom pursuant to this Agreement and the
proceeds of the Bonds. No failure of the Issuer to comply with any term,
condition, covenant or agreement herein shall subject the Issuer to liability
for any claim for damages, costs or other financial or pecuniary charge except
to the extent that the same can be paid or recovered from the Project or
revenues therefrom or from proceeds of the Bonds; and no execution of any
claim, demand, cause of action or judgment shall be levied upon or collected
from the general credit or funds of the Issuer. Nothing herein shall preclude
a proper party in interest from seeking and obtaining specific performance
against the Issuer for any failure to comply with any term, condition,
covenant or agreement herein; provided, that no costs, expenses or other
monetary relief shall be recoverable from the Issuer except as may be payable
from the Project or Project Revenues.
(2) No recourse shall be had for the payment of the principal of or
premium or interest on the Bonds or for any claim based thereon or upon any
obligation, covenant or agreement contained in this Agreement against any
past, present or future officer or employee of the Issuer, or of any successor
public corporation, as such either directly or through the Issuer or any
successor public corporation, under any rule of law or equity, statute or
constitution or by the enforcement of any assessment or penalty or otherwise,
and all such liability of any such officers or employees as such is hereby
expressly waived and released as a condition of, and consideration for, the
execution of this Agreement and the issuance of the Bonds.
<PAGE> - 26 -
(3) Anything in this Agreement to the contrary notwithstanding, it is
expressly understood and agreed by the parties hereto that (i) the Issuer may
rely conclusively on the truth and accuracy of any certificate, opinion,
notice or other instrument furnished to the Issuer by the Borrower as to the
existence of any fact or state of affairs required hereunder to be noticed by
the Issuer; (ii) the Issuer shall not be under any obligation hereunder to
perform any record keeping or to provide any legal services, and (iii) none of
the provisions of this Agreement shall require the Issuer to expend or risk
its own funds or otherwise incur financial liability in the performance of any
of its duties or in the exercise of any of its rights or powers hereunder,
unless it shall first have been adequately indemnified to its satisfaction
against the cost, expenses, and liability which may be incurred thereby.
(4) Neither the officers nor employees of the Issuer nor any person
executing the Bonds shall be liable personally on the Bonds by reason of the
issuance thereof. The Bonds and the interest thereon shall be special
obligations of the Issuer payable solely out of the payments, revenues and
receipts derived by the Issuer from the Project pursuant to this Agreement and
not from any other fund or source of the Issuer, and are secured by a pledge
and assignment of the Trust Estate to the Trustee in favor of the Bondholders,
as provided in the Indenture. The Bonds and the interest thereon shall not be
deemed to constitute a debt or liability of the Issuer, the State, or any
political subdivision thereof, and the issuance thereof shall not, directly or
indirectly or contingently, obligate the Issuer, the State, or any political
subdivision thereof, to levy any form of taxation or penalty therefor or to
make any appropriation for its payment. Nothing in the Bonds or the
proceedings of the Issuer authorizing the issuance of the Bonds or in the
Indenture or this Agreement shall be construed to authorize the Issuer to
create a debt or liability of the Issuer, the State, or any political
subdivision thereof within the meaning of any constitutional or statutory.
Section 10.9. Representations of Borrower. All representations made in
this Agreement by the Borrower are based on the Borrower's independent
investigation of the facts and law, and accordingly no such representations
are made in reliance upon any representations made or legal advice given by
the Issuer, its Bond Counsel, the Trustee or any of their agents, officers or
employees.
IN WITNESS WHEREOF, the Issuer and the Borrower have caused this
Agreement to be executed by their duly authorized officers.
CITY OF AURORA, ILLINOIS
By /s/
Mayor
ATTEST:
/s/ Cheryl M. Vonhoff
City Clerk
PARK TRACE APARTMENTS LIMITED
PARTNERSHIP, a Georgia limited partnership
By: Park Trace Operating Company,
a Georgia corporation, its General Partner
By /s/ Michael Thesing
Its Vice President
<PAGE> - 27 -
SCHEDULE 1
LEGAL DESCRIPTIONS
The Covey Project:
Lots 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20,
21, 22, 23, 24, 25, 26, 27, 28, 29, 30 and 33 of Fox Valley Village, Unit 28,
in the City of Aurora, Kane and DuPage Counties, Illinois.
Park Trace Project:
<PAGE> - 28 -
EXHIBIT A
FORM OF PROMISSORY NOTE
AFTER THE ENDORSEMENT AS HEREON PROVIDED AND PLEDGE OF THIS NOTE, THIS NOTE
MAY NOT BE ASSIGNED, PLEDGED, ENDORSED OR OTHERWISE TRANSFERRED EXCEPT TO AN
ASSIGNEE OF THE CITY OF AURORA, ILLINOIS.
PROMISSORY NOTE
$12,410,000.00 Dated December __, 1997
FOR VALUE RECEIVED, PARK TRACE APARTMENTS LIMITED PARTNERSHIP, a Georgia
limited partnership (the "Borrower"), by this promissory note (this "Note")
hereby promises to pay to the order of the CITY OF AURORA, ILLINOIS (the
"Issuer") the principal sum of Twelve Million Four Hundred Ten Thousand
Dollars ($12,410,000) and to pay interest on the unpaid principal amount of
the Bonds (as defined in the Agreement hereinafter mentioned), from the date
hereof at the interest rate from time to time as provided in the hereinafter
referred to Indenture. Terms not otherwise defined in this Note have the
respective meanings set forth in the Indenture.
The principal and interest on this Note shall be payable on the dates and
in the amounts as provided in Section 4.2 of the Loan Agreement dated as of
December 1, 1997 (the "Agreement"), between the Borrower and the Issuer, with
the final payment of all outstanding principal and interest on this Note to be
paid on November 1, 2027. Both principal and interest under this Note shall
be made in funds that are immediately available on the due date of such
payments and in lawful money of the United States of America at the principal
office of UMB Bank, N.A., Kansas City, Missouri (the "Trustee") in accordance
with the Agreement and the Indenture of Trust dated as of December 1, 1997
(the "Indenture") between the Issuer and the Trustee. The Borrower may make
optional prepayments upon this Note as provided in the Agreement, with such
prepayments being first applied to interest and next to principal. The
Borrower will prepay this Note in whole on the date which is 180 days after
the cancellation of a mandatory tender of the Bonds on the Rate Adjustment
Date in accordance with the Indenture as provided in Section 8.2 of the
Agreement.
This Note is made pursuant to the Agreement wherein, among other things,
the Issuer has agreed to loan to the Borrower and the Borrower has agreed to
take a loan in the principal amount above, being the proceeds from the sale of
the Issuer's Multifamily Housing Revenue Refunding Bonds (The Covey at Fox
Valley Apartments Project) Series 1997 (the "Bonds"), the proceeds to be
disbursed in accordance with the provisions of Section 3.3(1) of the
Agreement. The Bonds are being issued by the Issuer pursuant to the Indenture.
The obligations of the Borrower to perform and observe the agreements on
its part contained herein and in the Agreement shall be absolute and
unconditional and payment of the Basic Payments and the Additional Charges and
all other payments required of the Borrower under this Note and the Agreement
shall be paid without notice or demand and without setoff, counterclaim, or
defense for any reason and without abatement or deduction or defense (except
for a defense based on prepayment pursuant to Section 8.1 of the Agreement).
The Borrower will not suspend or discontinue any such payments for any cause,
including but not limited to any acts or circumstances that may constitute
failure of consideration, destruction or damage to the Project or the
Borrower's business, the taking of the Project or the Borrower's business by
Condemnation or otherwise, the lawful prohibition of the Borrower's use of the
Project or the Borrower's business, the interference with such use by any
private person or corporation, the invalidity or unenforceability or lack of
due authorization or other infirmity of this Note and the Agreement, the lack
of right, power or authority of the Issuer to enter into the Agreement,
eviction by paramount title, commercial frustration of purpose, bankruptcy or
insolvency of the Issuer or the Trustee, change in the tax or other laws or
administrative rulings or actions of the United States of America or of the
State or any political subdivision thereof, or failure of the Issuer to
perform and observe any agreement, whether express or implied, or any duty,
liability or obligation arising out of or connected with the Agreement, or for
any other cause whether similar or dissimilar to the foregoing, any present or
future law to the contrary notwithstanding, it being the intention of the
parties hereto that the payment of Basic Payments and other amounts payable by
the Borrower under this Note and the Agreement shall be paid in full when due
without any delay or diminution whatever.
<PAGE> - 29 -
If this Note shall be placed in the hands of an attorney or attorneys for
collection, the Borrower agrees to pay, in addition to the amount due hereon,
the reasonable costs and expenses of collection, including reasonable
attorneys' fees. All parties to this Note, whether principal, surety,
guarantor or endorser, hereby waive presentment for payment, demand, protest,
notice or protest and notice of dishonor.
PARK TRACE APARTMENTS LIMITED
PARTNERSHIP, a Georgia limited partnership
By: Park Trace Operating Company,
a Georgia corporation, its General Partner
By
Its Vice President
ENDORSEMENT
Pay to the order of UMB Bank, N.A., without recourse, as Trustee of the
Bonds referred to in the within mentioned Agreement, as security for said
Bonds. This endorsement is given without any warranty as to the authority or
genuineness of the signatures of the maker of the Note.
CITY OF AURORA, ILLINOIS
By
Mayor
<PAGE> - 30 -
CITY OF AURORA, ILLINOIS
as
ISSUER
and
UMB BANK, N.A.
as
TRUSTEE
INDENTURE OF TRUST
Dated as of December 1, 1997
Relating to
City of Aurora, Illinois
$12,410,000
Multifamily Housing Revenue Refunding Bonds
(The Covey at Fox Valley Apartments Project)
Series 1997
<PAGE> - i -
TABLE OF CONTENTS
(This Table of Contents is included for convenience of reference only,
and is not a part of the Indenture of Trust)
Page
ARTICLE 1
DEFINITIONS, EXHIBITS AND GENERAL PROVISIONS
Section 1.1. Definitions 4
Section 1.2. Rules of Interpretation 17
ARTICLE 2
THE BONDS
Section 2.1. Authorized Amount and Form of Bonds 18
Section 2.2. Initial Issue 19
Section 2.3. Execution 20
Section 2.4. Authentication 21
Section 2.5. Conditions Precedent to the Delivery of Bonds 21
Section 2.6. Additional Bonds 22
Section 2.7. Mutilated, Lost or Destroyed Bonds 23
Section 2.8. Registration and Exchange of Bonds;
Book-Entry System of Bonds 24
Section 2.9. Ownership of Bonds 25
Section 2.10. Preparation of Definitive Bonds; Temporary Bonds 25
Section 2.11. Registration, Transfer and Exchange
of Registered Bonds 25
Section 2.12. Nonpresentment of Bonds 27
Section 2.13. Interest Rights Preserved 27
Section 2.14. Destruction of Bonds 27
ARTICLE 3
REDEMPTION OR PURCHASE OF BONDS BEFORE MATURITY
Section 3.1. Redemption or Purchase 27
Section 3.2. Notice of Redemption or Purchase 29
Section 3.3. Cancellation 30
Section 3.4. Method of Redemption or Purchase 30
ARTICLE 3A
TENDER AND PURCHASE OF BONDS
Section 3A.1. Mandatory Tender of Bonds and Notices to Bondholders 27
Section 3A.2. Irrevocability of Notices; Return
of Improperly Completed Documents 29
Section 3A.3. Notice of Principal Amount of Bonds Tendered 30
Section 3A.4. Remarketing of Tendered Bonds 30
Section 3A.5. Notice of Principal Amount of Bonds Remarketed 30
Section 3A.6. Purchase of Tendered Bonds 30
Section 3A.7. Purchase Fund 30
Section 3A.8. No Sales After Event of Default 30
Section 3A.9. Remarketing Agent 30
Section 3A.10. Qualifications of Remarketing Agent 30
ARTICLE 4
GENERAL COVENANTS
Section 4.1. Payment of Principal, Premium and Interest 35
Section 4.2. Performance of Covenants 35
Section 4.3. Instruments of Further Assurance 36
Section 4.4. Recording and Filing 36
Section 4.5. Books and Records 36
Section 4.6. Bondholders' Access to Bond Register 36
Section 4.7. Rights Under Loan Agreement 37
Section 4.8. Rights Under Mortgage and Assignment 37
Section 4.9. Continuing Disclosure 37
<PAGE> - ii -
ARTICLE 5
FUNDS AND ACCOUNTS
Section 5.1. Trust Funds Pledged and Assigned to the Trustee 37
Section 5.2. Bond Proceeds Fund; Disbursement of Bond Proceeds 38
Section 5.3. Revenue Fund and Bond Fund 38
Section 5.4. Surplus Fund 39
Section 5.5. Purchase of Bonds at Request of Borrower 40
Section 5.6. Deposit of Funds With Paying Agent 40
Section 5.7. Rebate Fund 41
Section 5.8. Mortgage Recovery Fund 41
Section 5.9. Servicing Fund 44
Section 5.10. Costs of Issuance Fund 45
Section 5.11. Interest Earned on Funds 45
Section 5.12. Final Balances 45
ARTICLE 6
INVESTMENTS
Section 6.1. Investments by Trustee 46
Section 6.2. Computation of Balances in Funds 46
Section 6.3. Downgrade of Rating 46
ARTICLE 7
DISCHARGE OF LIEN
Section 7.1. Payment of Bonds; Satisfaction, Defeasance and
Discharge of Bonds and Obligation to Bondholders 47
Section 7.2. Cancellation of Surrendered Bonds 49
Section 7.3. Payment of Bonds 49
Section 7.4. Application of Deposited Money 49
Section 7.5. Survival of Certain Provisions 49
ARTICLE 8
DEFAULT PROVISIONS AND REMEDIES
Section 8.1. Events of Default 49
Section 8.2. Acceleration 50
Section 8.3. Remedies 51
Section 8.4. Direction of Proceedings by Bondholders 51
Section 8.5. Waiver of Stay or Extension Laws 51
Section 8.6. Priority of Payment and Application of Moneys 52
Section 8.7. Remedies Vested in Trustee 53
Section 8.8. Rights and Remedies of Holders 54
Section 8.9. Termination of Proceedings 54
Section 8.10. Waiver of an Event of Default 54
Section 8.11. Correction of an Event of Default 55
ARTICLE 9
THE TRUSTEE
Section 9.1. Acceptance of the Trustee 55
Section 9.2. Trustee's Fees, Charges and Expenses 58
Section 9.3. Notice to Holders of Default 59
Section 9.4. Intervention by Trustee 59
Section 9.5. Successor Trustee 59
Section 9.6. Resignation by Trustee 59
Section 9.7. Removal of Trustee 59
Section 9.8. Appointment of Successor Trustee 60
Section 9.9. Acceptance by Successor Trustees 60
Section 9.10. Right of Trustee To Pay Taxes and Other Charges 60
Section 9.11. Trustee Protected in Relying Upon Resolutions 61
Section 9.12. Successor Trustee as Custodian
of Funds and Paying Agent 61
<PAGE> - iii -
Section 9.13. Co-Trustee 61
Section 9.14. Obligations as to Reporting 63
Section 9.15. Appointment of Bond Registrar and Paying Agent 63
Section 9.16. Successor Paying Agent or Bond Registrar 63
Section 9.17. Confirmation of the Trustee 63
Section 9.18. Certain Representations of Trustee 64
Section 9.19. Tender Agent 64
ARTICLE 10
SUPPLEMENTAL INDENTURES
Section 10.1. Supplemental Indentures Not
Requiring Consent of Bondholders 65
Section 10.2. Supplemental Indentures Requiring
Consent of Bondholders 66
Section 10.3. Notice to Rating Agency 67
Section 10.4. Opinion of Bond Counsel 67
Section 10.5. Rights of Trustee 67
ARTICLE 11
AMENDMENTS TO RELATED DOCUMENTS
Section 11.1. Amendments Not Requiring Bondholder Consent 67
Section 11.2. Amendments Requiring Bondholder Consent 68
Section 11.3. Opinion of Bond Counsel 69
Section 11.4. Rights of Trustee 69
ARTICLE 12
MISCELLANEOUS PROVISIONS
Section 12.1. Consent of Holders 69
Section 12.2. Rights Under Indenture 69
Section 12.3. Severability 69
Section 12.4. Notices 70
Section 12.5. Required Approvals 71
Section 12.6. Counterparts 71
Section 12.7. Limitation of Liability of Issuer and Its
Officers, Employees and Agents 71
Section 12.8. Determination of Taxability 72
Section 12.9. Notice to the Rating Agency 73
EXHIBIT A-(FORM OF REQUISITION CERTIFICATE) BOND PROCEEDS FUND
EXHIBIT B-(FORM OF REQUISITION CERTIFICATE) MORTGAGE RECOVERY FUND
EXHIBIT C-FORM OF BOND
EXHIBIT D-PRELIMINARY NOTICE OF MANDATORY TENDER
EXHIBIT E-NOTICE OF CANCELED MANDATORY TENDER
EXHIBIT F-NOTICE OF ELECTION TO RETAIN BONDS
<PAGE> - iv -
INDENTURE OF TRUST
THIS INDENTURE OF TRUST dated as of December 1, 1997 (the "Indenture"),
by and between the CITY OF AURORA, ILLINOIS, a municipal corporation and home
rule unit of local government under the Constitution of the State of Illinois
(the "Issuer"), and UMB BANK, N.A., a national association organized and
existing under the laws of the United States of America and authorized to
accept and execute trusts of the character herein set forth, with its
principal corporate trust office in Kansas City, Missouri, as trustee (the
"Trustee"):
RECITALS:
1. The Issuer is authorized under the provisions of Ordinance No. 4519,
adopted March 23, 1976, as from time to time amended, and codified as Division
4 of Article V of Chapter 2 of the City of Aurora Code of Ordinances, and
Section 6(a) of Article VII of the Constitution of the State (collectively,
the "Act"), to issue economic development revenue obligations for the purposes
of financing economic development projects, which authorization includes
projects for use as multifamily residential rental facilities, and to refund
its outstanding bonds by the issuance of its refunding bonds.
2. Pursuant to the Act the Issuer has financed the acquisition and
construction of a multifamily residential rental facility consisting of the
216-unit project known as The Covey at Fox Valley (the "Covey Project")
located at 2160 Walcott Road within the incorporated limits of the Issuer,
constituting a "project" within the meaning of the Act, for Pebco-Fox Valley,
Ltd., a Georgia limited partnership (the "Original Developer"), by the
issuance of the Issuer's Multi-Family Housing Revenue Bonds (Pebco-Fox Valley,
Ltd. Project) Series 1985 (the "Series 1985 Bonds") in the original principal
amount of $12,500,000.
3. The Issuer issued its City of Aurora Multifamily Housing Mortgage
Revenue Note (Covey at Fox Valley Project) Series 1986 in the original
principal amount of $12,410,000 (the "Prior Note"), the proceeds of which were
applied to refund and redeem the Series 1985 Bonds.
4. All of the right title and interest of the Original Owner in the Covey
Project has been transferred to American National Bank and Trust Company of
Chicago, as trustee under the Trust Agreement dated June 20, 1989, known as
Trust No. 108642-05 (the "Land Trust"), the sole beneficiary of which is
[America First Apartment Investors, L.P. ("America First"), an affiliate of ]
Park Trace Apartments Limited Partnership, a Georgia limited partnership (the
"Borrower")[, and the owner of the Prior Note].
5. Contemporaneously with the issuance of the Bonds the Borrower will
acquire all [right, title and interest of America First in the Land Trust and
all] right, title and interest in a 260-unit multifamily housing project known
as Park Trace Apartments, located at 3450 Jones Mill Road in the City of
Norcross, Gwinnett County, Georgia (the "Park Trace Project", and together
with the Covey Project, the "Project").
6. The Borrower has requested that the Issuer issue bonds the proceeds of
which will be used to refund and redeem the Prior Note.
7. The Issuer deems it desirable and in keeping with its purposes to
issue its Multifamily Housing Revenue Refunding Bonds (The Covey at Fox Valley
Apartments Project) Series 1997 in the original principal amount of
$12,410,000 (the "Bonds"), for the purposes of providing proceeds for the
making of a loan (the "Loan") to the Borrower, the proceeds of which will be
used to refund and redeem the Prior Note and thereby refinance the Covey
Project for the Borrower.
8. Under the terms of a Loan Agreement dated as of December 1, 1997 (the
"Loan Agreement"), the Issuer has agreed to make the Loan and the Borrower has
agreed to the repayment of the Loan and the Borrower has executed the Mortgage
and the Assignment (as such terms are hereinafter defined) to secure, among
other things, the Borrower's Loan repayment and other obligations under the
Loan Agreement.
<PAGE> - 1 -
9. The execution and delivery of this Indenture and the issuance of the
Bonds have been in all respects duly and validly authorized by the Issuer.
10. Terms not otherwise defined in the recitals or granting clauses
hereof shall have the meanings as hereinafter defined.
11. All things necessary to make the Bonds, when authenticated by the
Trustee and issued as provided in this Indenture, valid, binding and legal
limited obligations of the Issuer according to the import thereof, and to
constitute this Indenture a valid contract for the security of the Bonds, have
been done and performed; and the creation, execution and delivery of this
Indenture, and the creation, execution and issuance of said Bonds, subject to
the terms hereof, have in all respects been duly authorized.
NOW THEREFORE, KNOW ALL PERSONS BY THESE PRESENTS, THIS INDENTURE
WITNESSETH:
GRANTING CLAUSES
The Issuer, in consideration of the premises and the acceptance by the
Trustee of the trusts hereby created and of the purchase and acceptance of the
Bonds by the Holders (as hereinafter defined) thereof, in order to secure the
payment of the principal of and interest and premium, if any, on the Bonds
according to their tenor and effect and the performance and observance by the
Issuer of all the covenants expressed or implied herein and in the Bonds, does
hereby grant, Mortgage, grant a security interest in, assign, transfer in
trust, and pledge to the Trustee, and to its successors in trust, and to them
and their assigns forever, the following:
GRANTING CLAUSE FIRST
All rights, title, interest and privileges of the Issuer in, to and under
the Loan Agreement, including, but not limited to, all sums which the Issuer
is entitled to receive from the Borrower pursuant to the Loan Agreement,
including the Project Revenues (as hereinafter defined) (but excluding the
rights of the Issuer to receive notices, approvals, consents, requests and
other communications and to receive indemnification and certain direct
payments to be made to it pursuant to Sections 4.3(2), 4.3(3), 4.3(5), 7.4 and
9.5 of the Loan Agreement), the Funds (as hereinafter defined) excluding funds
held in the Rebate Fund and excluding funds held in the Bond Proceeds Fund
(all as hereinafter defined), and all other sums (except the Purchase Fund and
arbitrage rebate whether or not deposited in the Rebate Fund) which are
required to be deposited in the Funds in accordance with Article 5;
GRANTING CLAUSE SECOND
All the Issuer's rights, title, interest and privileges in all property
mortgaged, pledged and assigned under the Mortgage and the Assignment to
secure the Bonds, and any and all other property of every name and nature
which may from time to time hereafter by delivery or by writing of any kind be
subjected to the lien hereof by the Issuer or by anyone on its behalf or with
its written consent, and the Trustee is hereby authorized to receive any and
all such property at any and all times and to hold and apply the same as
additional security hereunder subject to the terms hereof; and
GRANTING CLAUSE THIRD
The earnings derived from the investment of any of the foregoing sums as
provided herein.
TO HAVE AND TO HOLD all the same (herein called the "Trust Estate") with
all privileges and appurtenances hereby granted and assigned, or agreed or
intended so to be, to the Trustee and its successors in trust and to them and
their assigns forever;
SUBJECT TO the rights of the Borrower under the Loan Agreement, the
Regulatory Agreement (as hereinafter defined), the Mortgage and the
Assignment;
<PAGE> - 2 -
IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth, first
for the equal and proportionate benefit, security and protection of all
Holders from time to time of the Bonds issued under and secured by this
Indenture, without privilege, priority or distinction as to the lien or
otherwise of any of the Bonds over any of the others except as otherwise
provided herein, second for the benefit of the Trustee to secure the payment
of Ordinary Fees and Expenses, and third for the benefit of the Trustee to
secure the payment of Extraordinary Fees and Expenses, all as herein provided,
and for the uses and purposes and upon the terms, agreements and conditions
set forth herein;
PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall
well and truly pay, or cause to be paid, or provide fully for payment as
herein provided of the principal of the Bonds and the interest due or to
become due thereon (together with premium, if any), at the time and in the
manner set forth in the Bonds according to the true intent and meaning
thereof, and shall make the payments into the Bond Fund (as hereinafter
defined) as required under Article 5 or shall provide, as permitted hereby,
for the payment thereof by depositing with the Trustee sums sufficient for
payment of the entire amount due or to become due thereon as herein provided,
and shall well and truly keep, perform and observe all the covenants and
conditions pursuant to the terms of this Indenture to be kept, performed and
observed by it, and shall pay to the Trustee all sums of money due or to
become due to it in accordance with the terms and provisions hereof and of the
Related Documents (as hereinafter defined), then this Indenture and the rights
hereby granted shall cease, terminate and be void except as otherwise provided
herein; otherwise, this Indenture shall be and remain in full force and
effect.
THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all
Bonds issued and secured hereunder are to be issued, authenticated and
delivered and all said payments and other revenues and other income and funds
hereby pledged and assigned, are to be dealt with and disposed of under, upon
and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes as hereinafter expressed, and the Issuer has agreed
and covenanted, and does hereby agree and covenant, with the Trustee and with
the respective holders and owners of said Bonds, as follows:
ARTICLE 1
DEFINITIONS AND GENERAL PROVISIONS
Section 1.1. Definitions. In this Indenture the following terms have
the following meanings unless the context hereof clearly requires otherwise,
and any other terms defined in the Related Documents shall have the same
meanings when used herein as assigned them in the Related Documents unless the
context or use thereof indicates another or different meaning or intent:
"Act" means Ordinance No. 4519, adopted March 23, 1976, as from time to
time amended, and codified as Division 4 of Article V of Chapter 2 of the City
of Aurora Code of Ordinances, and Section 6(a) of Article VII of the
Constitution of the State.
"Act of Bankruptcy" means any of the following events:
(a) The Borrower or the Issuer shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or the like of the Borrower or the Issuer or of all
or a substantial part of the property of the Borrower or the Issuer, (ii)
commence a voluntary case under the Bankruptcy Code (as now or hereafter
in effect) or (iii) file a petition with respect to itself seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up or composition or adjustment of debts; or
(b) A proceeding or case shall be commenced without the application
or consent of the Borrower or the Issuer, as the case may be, in any
court of competent jurisdiction, seeking (i) the liquidation,
reorganization, dissolution, winding-up or the composition or adjustment
of debts of the Borrower or the Issuer, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the Borrower or
the Issuer or of all or any substantial part of the assets of the
Borrower or the Issuer or (iii) similar relief in respect of the Borrower
or the Issuer under any law relating to bankruptcy, insolvency,
reorganization, winding-up or composition or adjustment of debts and such
proceeding or case shall not be dismissed within 60 days of such filing.
<PAGE> - 3 -
For purposes of this Indenture and the Loan Agreement, an Act of
Bankruptcy shall be deemed dismissed only if (i) the petition is dismissed by
order of a court of competent jurisdiction and no further rights exist from
such order and (ii) the Borrower or the Issuer, as the case may be, notifies
the Trustee that such a dismissal has occurred.
"Additional Bonds" means additional bonds issued pursuant to Section 2.6
of this Indenture.
"Additional Charges" means the payments required by Section 4.3 of the
Loan Agreement.
"Agreement" means the Loan Agreement.
"Annual Budget" means the budget prepared by the Borrower or the Manager
with respect to the Project in accordance with Section 7.3(c) of the Loan
Agreement.
"Arbitrage Consultant" means any accountant, law firm or consultant
experienced in the calculation of arbitrage rebate selected by the Trustee and
approved by the Issuer and the Borrower.
"Assignment" means the Covey Project Assignment and the Park Trace
Project Assignment.
"Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978,
as amended, or any similar or succeeding federal bankruptcy law.
"Bond Closing" means the date on which there is delivery by the Issuer
of, and payment for, the Bonds.
"Bond Counsel" means any firm of nationally recognized bond counsel
experienced in tax exempt private activity bond financing selected by the
Issuer and acceptable to the Trustee and the Borrower.
"Bond Fund" means the Fund by that name created by Section 5.3.
"Bondholder" or "Holder" means the person in whose name a Bond is
registered in the Bond Register.
"Bond Proceeds Fund" means the Fund created under Section 5.2.
"Bond Purchase Agreement" means the Bond Purchase Agreement dated
November __, 1997, by and among the Issuer, the Borrower and the Underwriter,
whereby the Underwriter agrees to purchase all of the Bonds at closing.
"Bond Register" means the register maintained by the Bond Registrar
pursuant to Section 2.11.
"Bond Registrar" means UMB Bank, N.A., Kansas City, Missouri, and any
successor thereto appointed, qualified and then acting as such under the
provisions of this Indenture.
"Bond Year" means the one-year period beginning on December 2 and ending
on the next succeeding December 1, provided that the first Bond Year shall
begin on the date of the Bond Closing and end on December 1, 1998.
"Bonds" means the Multifamily Housing Revenue Refunding Bonds (The Covey
at Fox Valley Apartments Project) Series 1997 of the Issuer issued in the
original principal amount of $12,410,000 pursuant to this Indenture.
"Borrower" means Park Trace Apartments Limited Partnership, a Georgia
limited partnership, its successors and assigns, and any surviving, resulting
or transferee entity which may assume its obligations under the Related
Documents.
"Business Day" means any day other than a Saturday, Sunday, legal holiday
or a day on which banking institutions in the city where the principal
corporate trust office of the Trustee and the Bond Registrar are located are
authorized by law or executive order to close.
<PAGE> - 4 -
"Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, and, with respect to a specific section thereof, such
reference shall be deemed to include (a) the regulations promulgated by the
United States Department of the Treasury under such section, (b) any successor
provision of similar import hereafter enacted, (c) any corresponding provision
of any subsequent Internal Revenue Code and (d) the regulations promulgated
under the provisions described in (b) and (c).
"Condemnation" or the phrase "eminent domain" as used herein shall
include the taking or requisition by governmental authority or by a person,
firm or corporation acting under governmental authority and a conveyance made
under threat of Condemnation, provided such conveyance is made with the
approval of the Trustee, which approval shall not be unreasonably withheld,
and "Condemnation Award" shall mean payment for property condemned or conveyed
under threat of Condemnation.
"Construction Statement" has the meaning set forth in Section
5.8(6)(a)(2).
"Continuing Disclosure Agreement" means that certain Continuing
Disclosure Agreement between the Borrower and UMB Bank, N.A., as an agent of
the Borrower, in its capacity as dissemination agent, dated the date of
issuance and delivery of the Bonds, as originally executed and as it may be
amended from time to time in accordance with the terms thereof.
"Costs of Issuance" means, with respect to any Bonds, all expenses
incurred in connection with the authorization, sale, issuance and delivery of
the Bonds, including, without limitation, Underwriter's spread, discount or
fees (including any premium on the resale of the first delivery of the Bonds),
counsel fees (including Bond Counsel, Underwriter's Counsel, Trustee's Counsel
and Issuer's counsel, as well as any other specialized counsel fees incurred
in connection with the issuance of the Bonds), Issuer's costs, financial
advisory fees and accountant fees related to issuance of the Bonds, printing
costs (for the Bonds and preliminary and final offering materials), costs
incurred in connection with the required public approval process and costs of
feasibility studies necessary to the issuance of the Bonds (as opposed to
studies related to completion of the Project, but not to the Bond financing),
Mortgage banking fees, initial Trustee, Registrar and Paying Agent fees,
Rating Agency fees, title insurance fees, survey fees and recording and filing
fees, including any applicable documentary stamp taxes, intangible tax and the
Mortgage registration tax.
"Costs of Issuance Fund" means the Fund by that name created by Section
5.10.
"Covey Project" means the Premises, the Facility and any and all Project
Equipment as they may at any time exist with respect to the 216-unit project
known as The Covey at Fox Valley, located at 2160 Walcott Road within the
incorporated limits of the Issuer.
"Covey Project Assignment" means the Covey at Fox Valley Assignment of
Rents and Leases dated as of December 1, 1997, from the Borrower to the
Trustee with respect to the Covey Project, as the same may from time to time
be amended or supplemented as provided therein and in this Indenture.
"Covey Project Mortgage" means the Mortgage, Security Agreement,
Assignment of Leases and Rents and Fixture Financing Statement dated as of
December 1, 1997, from the Land Trust and the Borrower to the Trustee with
respect to the Covey Project, as the same may from time to time be replaced,
amended or supplemented as provided therein and in this Indenture and the
Covey Project Assignment.
"Current Expenses" means all operating expenses of the Borrower which are
not otherwise specifically described in Section 5.9(2) hereof, including
administrative expenses and property management fees with respect to the
Project incurred in its ordinary operations.
"Dated Date" means December __, 1997.
"Mortgage" means the Covey Project Mortgage and the Park Trace Project
Mortgage.
"Default Rate" means the interest rate equal to 4% in excess of the
floating prime rate listed in the "Money Rates" section of The Wall Street
Journal as the base rate on corporate loans posted by the nation's largest
banks established from time to time.
<PAGE> - 5 -
"Determination of Taxability" means a final judgment or order of a court
of original jurisdiction, a final order of any other court of competent
jurisdiction, or a final ruling or decision of the Internal Revenue Service,
in any such case to the effect that the interest on any of the Bonds (other
than interest on any Bond for a period during which such Bond is held by a
"substantial user" of any facility financed with the proceeds of the Bonds or
a "related person," as such terms are used in Section 147(a) of the Code and
except as a result of any minimum tax, preference tax or other similar tax) is
not excludable for federal income purposes from the gross income of the
recipients thereof subject to federal income taxes. With respect to the
foregoing, a judgment or order of a court or a ruling or decision of the
Internal Revenue Service shall be considered final only if no appeal or action
for judicial review has been filed and the time for filing such appeal or
action has expired.
"Discharge Date" means the date on which all Outstanding Bonds are
discharged under Article 7 hereof.
"DTC Letter of Representations" means the Blanket Issuer Letter of
Representations executed by the Issuer and accepted by The Depository Trust
Company in connection with establishing the book-entry-only status of the
Bonds.
"Eligible Account" shall have the meaning as set forth in Section 5.1
hereof.
"Event of Default" means any of the events set forth in Section 8.1
hereof.
"Extraordinary Fees and Expenses" means all fees and expenses charged or
incurred by the Trustee under this Indenture or Section 4.4 of the Loan
Agreement, other than Ordinary Fees and Expenses.
"Extraordinary Revenues" means Proceeds, but such term shall not include
use and occupancy insurance proceeds and rental loss insurance proceeds.
"Facility" means the buildings and improvements located on the respective
Project Premises as they may now or from time to time exist.
"Final Payment Date" means the Maturity Date, the Discharge Date or the
Purchase Date on which all Outstanding Bonds either mature, are to be
redeemed, are discharged under Article 7, or are purchased under Section 5.5,
whichever date is earliest.
"Funds" means, collectively, the Bond Fund, the Bond Proceeds Fund, the
Rebate Fund, the Revenue Fund, the Surplus Fund, the Mortgage Recovery Fund,
the Servicing Fund and the Costs of Issuance Fund.
"Holder" or "Bondholder" means the person in whose name a Bond is
registered in the Bond Register.
"Indenture" means this Indenture of Trust by and between the Issuer and
the Trustee, as the same may from time to time be amended or supplemented as
herein provided.
"Independent Accountant" means a certified public accountant or firm of
certified public accountants registered and qualified to practice as such
under the laws of the State, and not employed by the Issuer or the Borrower,
except to perform independent audits of the books and records of either or
both of them or other similar periodic reviews and to perform other
independent services.
"Independent Counsel" means any attorney acceptable to the Trustee, duly
admitted to practice law before the highest court of any state or of the
District of Columbia, who may be counsel to the Borrower or the Issuer but who
may not be an officer or an employee of the Borrower or the Issuer.
"Initial Rate Adjustment Date" means December 1, 2007.
"Insider" means the Borrower, any partner of the Borrower, the Issuer,
any guarantor of the Bonds, any other person directly or indirectly
controlling or controlled by, or under direct or indirect common control with,
any of the foregoing, or any person which is an "insider" of the Borrower or
any guarantor within the meaning of the Bankruptcy Code.
<PAGE> - 6 -
"Interest Payment Date" means June 1 and December 1 in each and every
year, commencing on June 1, 1998.
"Internal Revenue Code" or "Code" means the Internal Revenue Code of
1986, as amended, and, with respect to a specific section thereof, such
reference shall be deemed to include (a) the regulations promulgated by the
United States Department of Treasury under such section, (b) any successor
provision of similar import hereafter enacted, (c) any corresponding provision
of any subsequent Internal Revenue Code, and (d) the regulations promulgated
under the provisions described in (b) and (c).
"Issuer" means the City of Aurora, Illinois, and its successors and
assigns.
"Land Trust" means American National Bank and Trust Company of Chicago,
as trustee under the Trust Agreement dated June 20, 1989, known as Trust No.
108642-05.
"Limited Partnership Agreement" means the Amended and Restated Limited
Partnership Agreement of the Borrower, together with any amendments and
supplements thereto permitted thereby.
"Loan" means the loan of proceeds of the Bonds by the Issuer to the
Borrower described in Section 4.1 of the Loan Agreement.
"Loan Agreement" means the Loan Agreement dated as of December 1, 1997,
by and between the Issuer and Borrower, as the same may from time to time be
amended or supplemented as provided therein and in this Indenture.
"Lower Income Tenant" has the meaning set forth in the Regulatory
Agreement.
"Lower Income Unit" has the meaning set forth in the Regulatory Agreement.
"Manager" means America First Properties Management, Inc., a Nebraska
corporation, and any successor manager of the Project.
"Maturity Date" means any date on which principal of or interest or
premium, if any, on the Bonds is due, whether at stated maturity, on an
Interest Payment Date, or upon redemption or acceleration, or otherwise.
"Mortgaged Property" means the properties, real, personal or mixed,
described in the Granting Clauses of the Mortgage, as they may at any time
exist.
"Mortgagee" means, collectively, the Issuer with respect to the Park
Trace Mortgage and the Trustee and any co-trustee or successor trustee
appointed, qualified and acting as such under this Indenture, with respect to
the Covey Project, as beneficiaries under the Mortgage.
"Mortgage Recovery Fund" means the Fund created by Section 5.8.
"Net Proceeds" shall have the meaning set forth in the Mortgage.
"Non-Arbitrage Certificate" means the Non-Arbitrage Certificate executed
by the Issuer and all exhibits attached thereto including any letter of
instructions delivered by Bond Counsel attached thereto dated as of the date
of issuance of the Bonds.
"Note" means the Promissory Note executed by the Borrower and the Land
Trust in favor of the Issuer, endorsed by the Issuer, without recourse, to the
Trustee.
"Notice of Election to Retain Bonds" means the Notice of Election to
Retain Bonds in substantially the form attached as Exhibit F delivered by a
Bondowner to the Tender Agent, in connection with the mandatory tender of
Bonds as specified in Section 3A.1, by which the Bondowner elects to retain
Bonds as of the applicable Rate Adjustment Date.
<PAGE> - 7 -
"Notice of Canceled Mandatory Tender" means the Notice of Canceled
Mandatory Tender in substantially the form attached as Exhibit E delivered by
the Trustee to the Bondowners, the Remarketing Agent and the Borrower, if the
mandatory tender of Bonds on the Rate Adjustment Date is canceled as specified
in Section 3A.1.
"Ordinary Fees and Expenses" means the fees and expenses charged or
incurred by the Trustee in the fulfillment of its obligations hereunder which
are reimbursable to the Trustee from the Trust Estate in an aggregate annual
amount equal to $_____.
"Outstanding Bonds" or "Bonds Outstanding" means, as of the date of
determination, all Bonds theretofore issued and delivered under this Indenture
except:
(A) Bonds theretofore cancelled by the Trustee or Paying Agent or
delivered to the Trustee or Paying Agent cancelled or for cancellation;
(B) Bonds for which payment or redemption moneys or securities (as
provided in Article 7) shall have been theretofore deposited with the
Trustee or Paying Agent in trust for the Holders of such Bonds; provided,
however, that if such Bonds are to be redeemed, notice of such redemption
shall have been duly given pursuant to this Indenture or irrevocable
action shall have been taken to call such Bonds for redemption at a
stated redemption date; and
(C) Bonds in exchange for or in lieu of which other Bonds shall have
been issued and delivered pursuant to Section 2.7 or other provisions of
this Indenture; provided, however, that in determining whether the
Holders of the requisite principal amount of Outstanding Bonds have given
any request, demand, authorization, direction, notice, consent or waiver
hereunder, Bonds owned by the Issuer or the Borrower shall be disregarded
and deemed not to be Outstanding Bonds (unless the Borrower owns all the
Bonds otherwise outstanding, in which case they shall be deemed
outstanding), except that in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Bonds which the Trustee knows
to be so owned shall be disregarded.
"Park Trace Project" means the Premises, the Facility and any and all
Project Equipment as they may at any time exist to the 260-unit multifamily
housing project located at 3450 Jones Mill Road in the City of Norcross,
Gwinnett County, Georgia, constituting part of the Project.
"Park Trace Project Assignment" means the Park Trace Assignment of Rents
and Leases dated as of December 1, 1997, from the Borrower to the Trustee with
respect to the Park Trace Project, as the same may from time to time be
amended or supplemented as provided therein and in this Indenture.
"Park Trace Project Mortgage" means the Deed to Secure Debt, Security
Agreement, Assignment of Leases and Rents and Fixture Financing Statement
dated as of December 1, 1997, from the Borrower to the Issuer with respect to
the Park Trace Project, as the same may from time to time be replaced, amended
or supplemented as provided therein and in this Indenture, and the Park Trace
Project Assignment, assigned by the Issuer to the Trustee pursuant to the
Assignment of Deed to Secure Debt, and the Collateral Assignment of Rents and
Leases dated as of December 1, 1997.
"Paying Agent" means the Bond Registrar, the Trustee or any other entity
designated pursuant to this Indenture as the agent of the Issuer and Trustee
to receive and disburse the principal of and premium, if any, and interest on
the Bonds.
"Payment Date" means the Maturity Date, the Purchase Date, the Interest
Payment Date or the Discharge Date, as the case may be.
"Permitted Encumbrances" means the Permitted Encumbrances defined in the
Mortgage.
<PAGE> - 8 -
"Permitted Investments" means:
(a) to the extent permitted by applicable law for investment of
moneys of the Issuer:
[to be reviewed]
(i) certificates or interest-bearing notes or obligations of
the United States, or those for which the full faith and credit of
the United States are pledged for the payment of principal and
interest;
(ii) investments in any of the following obligations, provided
such obligations are backed by the full faith and credit of the
United States: (a) direct obligations or fully guaranteed
certificates of beneficial interest of the Export-Import Bank of the
United States, (b) debentures of the Federal Housing Administration,
(c) guaranteed Mortgage-backed bonds of the Government National
Mortgage Association, (d) certificates of beneficial interest of the
Farmers Home Administration, (e) obligations of the Federal
Financing Bank, (f) project notes and local authority bonds of the
United States Department of Housing and Urban Development, (g)
obligations of the Private Export Funding Corp. or (h) other such
obligations which would not result in a downgrade, withdrawal or
qualification of the rating on the Bonds as evidenced in writing
from the Rating Agency;
(iii) investments in (a) senior obligations of the Federal Home
Loan Bank System, (b) participation certificates or senior debt
obligations of the Federal Home Loan Mortgage Corporation, (c)
Mortgage-backed securities and senior debt obligations (excluding
stripped Mortgage securities that are valued greater than par on the
portion of the unpaid principal) of the Federal National Mortgage
Association or (d) senior debt obligations of the Student Loan
Marketing Association;
(iv) repurchase agreements with primary dealers and/or banks
rated "A" or better by the Rating Agency collateralized with the
obligations described in (i) or (ii) above held by a third-party
custodian, at levels set forth in paragraph (b) below;
(v) money market mutual funds registered with the Securities
Exchange Commission conforming to Rule 2a-7 of the Investment
Company Act of 1940, that invest primarily in direct obligations
issued by the U.S. Treasury and repurchase agreements backed by
those obligations, including funds for which the Trustee or an
affiliate of the Trustee acts as an advisor, and rated in the
highest category by the Rating Agency;
(vi) certificates of deposit of any bank as defined in the
Illinois Banking Act (including the Trustee) whose short-term
obligations are rated "A-1" or better by the Rating Agency provided
that such certificates of deposit are fully secured by the
obligations described in (i) or (ii) above, at the levels set forth
in paragraph (b) below, the Trustee has a perfected first security
interest in the obligations securing the certificates and the
Trustee holds (or shall have the option to appoint a bank as its
agent to hold) the obligations securing the certificates;
(vii) certificates of deposit of any bank as defined in the
Illinois Banking Act (including the Trustee) which care fully
insured by the Federal Deposit Insurance Corporation;
(viii) commercial paper rated "A-1+" or better by the Rating
Agency;
(ix) obligations of, or obligations fully guaranteed by, any
state of the United States of America or any political subdivision
thereof which obligations are rated by the Rating Agency in the
highest rating categories (without regard to any refinement or
gradation of rating category by numerical modifier or otherwise and
without regard to credit enhancement) assigned by such rating agency
to obligations of that nature;
<PAGE> - 9 -
(x) shares of an investment company (1) registered under the
Investment Company Act of 1940, whose shares are registered under
the Securities Act of 1933, and (2) which invests solely in
securities described in one or more of clauses (i) through (iv)
above, and rated AAAm or AAAm-G by the Rating Agency, including an
investment company managed by the Trustee or an affiliate of the
Trustee; and
(xi) any other investment that would not result in the
downgrade, withdrawal or qualification of the rating assigned to the
Bonds as evidenced in writing by the Rating Agency.
provided that (1) if any instrument is rated, the instrument shall not have an
"r" highlighter affixed to its rating, (2) the terms of the obligation shall
have a predetermined, fixed principal amount due at maturity without variance
or change, and (3) if any obligation (other than an obligation described in
clauses (v) and (x)) bears interest at a variable rate, the interest rate
shall be tied to a single interest rate index plus a single fixed spread, if
any, and shall move proportionately with such rate index. For purposes of
this subparagraph, the fact that the Trustee or an affiliate of Trustee is
providing services to and receiving remuneration from the foregoing investment
company or trust as an investment advisor, custodian, transfer agent,
registrar, or otherwise shall not preclude the Trustee from investing in the
securities of such investment company or investment trust.
(b) Collateral Percentage Levels of United States Government
Securities for Repurchase Agreements and Bank Certificates of Deposit.
Remaining Maturity
Frequency of 1 year 5 years 10 years 15 years 30 years
Valuation or less or less or less or less or less
------------ ------- ------- ------- ------- -------
Daily 102 105 106 107 113
Weekly 103 110 111 113 118
Monthly 106 116 119 123 130
Quarterly 106 118 128 130 135
Further Requirements:
(i) on each valuation date, the market value of the collateral shall
be in an amount equal to the indicated collateral percentage of the
obligation (including unpaid accrued interest) that is being secured;
(ii) in the event the collateral level is below its required
collateral percentage on a valuation date, such percentage shall be
restored within the following restoration periods: one Business Day for
daily valuations, two Business Days for weekly valuations and one month
for monthly and quarterly valuations. The use of different restoration
periods affects the requisite collateral percentage; and
(iii) the Trustee is hereby required to terminate the repurchase
agreement upon a failure to maintain the requisite collateral percentage
after the restoration period and, if not paid by the counterparty in
federal funds against transfer of the repurchase agreement, to liquidate
the collateral.
"Preliminary Notice of Mandatory Tender" means the Preliminary Notice of
Mandatory Tender of Bonds in substantially the form attached as Exhibit D
delivered by the Trustee to the Bondowners, the Remarketing Agent and the
Borrower, in connection with the mandatory tender of Bonds as specified in
Section 3A.1.
"Premises" means, with respect to the Covey Project or the Park Trace
Project, as applicable, the property and interests in real property described
in the Mortgage as the "Real Property" with respect to the Covey Project or
the Park Trace Project, as applicable.
<PAGE> - 10 -
"Principal Office" means (i) for the Trustee, the corporate trust office
of the Trustee located at 928 Grand Avenue, 13th Floor, Kansas City, Missouri
64106, Attention: Corporate Trust Department, or such other office or offices
as the Trustee may designate from time to time, or the office of any successor
Trustee where it principally conducts its business of serving as trustee under
indentures pursuant to which municipal or governmental obligations are issued,
and (ii) for the Tender Agent, the corporate trust office of the Trustee above
or such other office or offices as the Tender Agent may designate from time to
time, or the office of any successor Tender Agent where it principally
conducts its business of serving as a tender agent for municipal or
governmental obligations.
"Principal Payment Date" means any date on which principal of the Bonds
is payable pursuant to the provisions hereof.
"Prior Code" means the Internal Revenue Code of 1954, as amended.
"Prior Note" means the City of Aurora Multifamily Housing Mortgage
Revenue Note (Covey at Fox Valley Project) Series 1986 in the original
principal amount of $12,410,000.
"Proceeds" means the proceeds of any insurance recovery or condemnation
award (or payment in lieu of condemnation) less all expenses incurred by and
reimbursement to the Trustee and the Issuer in connection therewith.
"Project" means the Covey Project and the Park Trace Project.
"Project Engineer" means an engineer for the Project and any successor
thereto appointed by the Borrower with the consent of the Issuer, which shall
(a) be an architect, engineer or firm of architects or engineers who is not a
full-time employee of either the Issuer or the Borrower, (b) have at least
five years' experience in its field and (c) be licensed to operate in the
State of Illinois.
"Project Equipment" means, with respect to the Project, the property
described as "Personal Property" in the respective Mortgage.
"Project Insurance Premiums" means the aggregate amount of the annual (or
other periodic installments) premiums payable in consideration of the policies
of insurance required to be maintained pursuant to Section 5.5 of the
Agreement.
"Project Premises" means, with respect to the Project, the property and
interests in real property described in the Mortgage as the "Real Property."
"Project Revenues" means all gross revenues and receipts derived by the
Borrower from the operation of the Project, including tenant rentals and all
other moneys as may be paid to or on behalf of the Borrower or to which the
Borrower may be entitled with respect to the Project (including, without
limitation, revenues from rentals of the retail space therein), excluding
securities deposits and including earnings on the foregoing. Such term shall
not include Extraordinary Revenues.
"Protected Funds" means any:
(a) proceeds of any other revenue bonds of the Issuer issued to
refund in whole or part the Bonds or any other payments made by a party
other than the Borrower or the Issuer to purchase or pay debt service on
the Bonds, or any other funds (so long as an opinion of counsel familiar
with bankruptcy matters and acceptable to the Trustee and the Issuer is
first filed with the Trustee stating in effect that the proceeds of such
revenue bonds, or other payments or funds, as the case may be, to the
Bondholders, will not constitute voidable preferences under Sections 547
or 550 of the Bankruptcy Code if the Borrower, the Issuer or other third
party making the payments were to become a debtor under the Bankruptcy
Code);
(b) moneys held by the Trustee in the Bond Fund, the Servicing Fund
or the Mortgage Recovery Fund for a period of at least 91 consecutive
days, prior to and during which period no Act of Bankruptcy shall have
occurred as evidenced by a certificate of the Borrower;
<PAGE> - 11 -
(c) cash proceeds (as defined in the Illinois Uniform Commercial
Code) of any collateral pledged to the Trustee to secure payment of the
Bonds or the Borrower's obligations under the Loan Agreement which are
delivered to the Trustee within ten days after receipt thereof by the
Borrower; and
(d) investment earnings from the foregoing funds.
"Purchase Date" means the date on which any Outstanding Bonds are
purchased pursuant to Section 5.5.
"Purchase Fund" means the Fund by that name created by Section 5.3.
"Qualified Project Period" has the meaning set forth in the Regulatory
Agreement.
"Rate Adjustment Date" means the date as of which the interest rate on
the Bonds, as determined on the Rate Determination Date in accordance with
Section 2.2(2)(a), will be effective, which will be the Initial Rate
Adjustment Date and thereafter December 1 in the year determined by the
Borrower by written notice to the Remarketing Agent, the Trustee and the
Tender Agent not less than 60 days prior to the next occurring Rate Adjustment
Date.
"Rate Determination Date" means no later than 4:00 P.M., New York time,
on the third Business Day immediately preceding a Rate Adjustment Date.
"Rate Period" means the period from a Rate Adjustment Date to, but not
including, the next Rate Adjustment Date.
"Rating Agency" means Standard & Poor's Ratings Services, a Division of
The McGraw-Hill Companies, Inc., or any other nationally recognized rating
agency from time to time providing the rating borne by the Bonds, approved by
the Issuer.
"Rebate Fund" means the Fund so designated in Section 5.7 into which the
Trustee is to deposit arbitrage rebate paid by the Borrower pursuant to
Section 4.3 of the Loan Agreement.
"Rebate Requirement" means the amount of arbitrage rebate computed for
payment as of the last day of every fifth Bond Year pursuant to Treasury
Regulation Section 1.148-3 or any successor regulation as may be applicable
thereto; provided, however, that an opinion of Bond Counsel to the effect that
no money held under the Indenture is subject to rebate shall be accepted by
the Issuer and the Trustee as a substitute for such annual calculation as long
as a calculation is run, at a minimum, as of the last day of each fifth Bond
Year.
"Record Date" means with respect to any Interest Payment Date, (a) the
fifteenth day of the month (whether or not a Business Day) next preceding such
Payment Date or (b) if there is a default in payment of interest due on such
Payment Date, a special Record Date for the payment of such defaulted interest
established by notice mailed by the Trustee on behalf of the Issuer; notice of
such special Record Date shall be mailed not less than 15 days preceding such
special Record Date, to the Holder at the close of business on the fifth
Business Day preceding the date of mailing.
"Regulatory Agreement" means the Amended and Restated Regulatory
Agreement dated as of December 1, 1997, among the Borrower, the Issuer and the
Trustee, together with any amendments and supplements thereto permitted
thereby.
"Related Documents" means the Loan Agreement, the Note, the Regulatory
Agreement, the Mortgage, the Assignment and the Remarketing Agreement.
"Related Person" means a "related person" within the meaning of Section
103(b)(6)(C) of the Prior Code.
"Remarketing Agent" means the remarketing agent at the time serving as
such under the Remarketing Agreement and designated as the Remarketing Agent
for purposes of this Indenture. The initial Remarketing Agent is Stern
Brothers & Co., St. Louis, Missouri.
<PAGE> - 12 -
"Remarketing Agreement" means the Remarketing Agreement dated as of
December 1, 1997, between the Borrower and the Remarketing Agent, or, if this
Remarketing Agreement is terminated, any other agreement which may from time
to time be entered into between the Borrower and any Remarketing Agent with
respect to the remarketing or placement of the Bonds.
"Remarketing Proceeds" means proceeds from the resale by the Remarketing
Agent of Bonds delivered for purchase pursuant to Section 3A.1 that have not
been commingled with other funds which do not constitute Remarketing Proceeds
and investment earnings on the proceeds. Remarketing Proceeds do not include
any moneys provided by an Insider.
"Related Person" means a "related person" within the meaning of Section
103(b)(6)(C) of the Prior Code.
"Representative" means any officer of the Issuer or the general partner
of the Borrower, or any other person at any time designated to act on behalf
of the Issuer or the Borrower, as the case may be, as evidenced by a written
certificate furnished to such other party and the Trustee containing the
specimen signature of such person and signed for the Issuer by its Mayor or
for the Borrower by the Vice President of the general partner of the Borrower.
"Requisition" means a requisition certificate in the form of Exhibit B.
"Responsible Agent" means any person duly authorized and designated by
the Trustee, the Bond Registrar and the Paying Agent to act on its behalf in
carrying out the applicable duties and powers of such entity as set forth in
this Indenture; any action required by the Trustee, the Bond Registrar and the
Paying Agent under this Indenture may be taken by a Responsible Agent.
"Revenue Fund" means the Fund by that name created by Section 5.3.
"Series 1985 Bonds" means the Multi-Family Housing Revenue Bonds
(Pebco-Fox Valley, Ltd. Project) Series 1985 of the Issuer issued in the
original principal amount of $12,500,000, refunded in part with the proceeds
of the Prior Note.
"Servicing Fund" means the Fund created by Section 5.9.
"State" means the State of Illinois.
"Surplus Fund" means the Fund by that name created by Section 5.4.
"Tender Agent" means initially the Trustee and any successor tender agent
appointed pursuant to Section 9.19. The Tender Agent shall act as Paying
Agent for Tendered Bonds.
"Tendered Bonds" means any Bonds required to be tendered for purchase
pursuant to Section 3A.1, unless a proper waiver has been made by the Holder
of such Bonds, whether or not such Bonds are actually tendered.
"Title Company" means Lawyers Title Insurance Corporation, Phoenix,
Arizona, its successors and assigns.
"Treasury" means the United States Department of the Treasury, and any
successor to its functions.
"Treasury Regulations" means all proposed, temporary or final federal
income tax regulations issued or amended with respect to the Code by the
Treasury or the Internal Revenue Service.
"Trustee" means UMB Bank, N.A., Kansas City, Missouri, and any co-trustee
or successor trustee appointed, qualified and then acting as such under the
provisions of this Indenture.
"Trust Estate" means the Trust Estate as defined and set forth in the
Granting Clauses hereof.
"Undelivered Bonds" means Bonds which are deemed to have been tendered to
the Trustee or Tender Agent, as applicable, for purchase pursuant to Section
3._ but which have not been surrendered to the Trustee or Tender Agent, as
applicable.
<PAGE> - 13 -
"Underwriter" means Stern Brothers & Co., and its respective successors
and assigns.
"Unprotected Funds" means any funds that are not Protected Funds.
Section 1.2. Rules of Interpretation.
(1) This Indenture shall be governed by and construed in accordance with
the laws and judicial decisions of the State of Illinois, except as they may
be preempted by Federal rules, regulations and laws applicable to the Issuer.
The Issuer and the Trustee expressly acknowledge and agree that any judicial
action to enforce any rights of the Issuer under this Indenture may be brought
and maintained at the option of the acting party in the District Court for
Kane* County, Illinois or in the United States District Court for the
_________ District of Illinois or in any United States Bankruptcy Court in any
case involving or having jurisdiction over the Borrower or over the Project.
(2) The words "herein" and "hereof" and "hereunder" and words of similar
import, without reference to any particular section or subdivision, refer to
this Indenture as a whole rather than to any particular section or subdivision
of this Indenture.
(3) References in this Indenture to any particular article, section or
subdivision hereof are to the designated article, section or subdivision of
this Indenture as originally executed.
(4) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
and all computations provided for herein shall be made in accordance with
generally accepted accounting principles consistently applied and applied on
the same basis as in prior years.
(5) The Table of Contents and titles of articles and sections herein are
for convenience of reference only and are not a part of this Indenture and
shall not deny or limit the provisions hereof.
(6) Unless the context hereof clearly requires otherwise, the singular
shall include the plural and vice versa and the masculine shall include the
feminine and vice versa.
(7) Articles, sections, subsections and clauses mentioned by number only
are those so numbered which are contained in this Indenture.
(8) Any opinion of counsel called for herein shall be a written opinion
of such counsel.
(9) References to the Bonds as "tax-exempt" or to the "tax-exempt status
of the Bonds" are to the exclusion of interest on the Bonds from gross income
for federal income tax purposes pursuant to Section 103(a) of the Code,
irrespective of such forms of taxation as the alternative minimum tax,
environmental tax or branch profits tax on foreign corporations, as is
consistent with the approach taken in Section 59(i) of the Code.
ARTICLE 2
THE BONDS
Section 2.1. Authorized Amount and Form of Bonds. Bonds secured by this
Indenture shall be issued in fully registered form without coupons and in
substantially the form set forth herein with such appropriate variations,
omissions and insertions as are permitted or required by this Indenture, and
in accordance with the further provisions of this Article 2. The aggregate
principal amount of Bonds that shall be initially issued hereunder shall be
$12,410,000, unless duplicate Bonds are issued as provided in Section 2.7.
Additional Bonds may be issued hereunder in accordance with Section 2.6
hereof. The Bonds, together with the Certificate of Authentication, the form
of Assignment and the registration information thereon, shall be in
substantially the forms found at Exhibit C.
Section 2.2. Initial Issue.
(1) The Bonds shall be initially issued in the aggregate principal amount
of $12,410,000 and shall:
(a) be dated as of the Dated Date;
<PAGE> - 14 -
(b) be issued and delivered as fully registered book-entry-only
bonds without coupons, in the denominations of $5,000 or any integral
multiple thereof of a single maturity, and be numbered sequentially R-1
upwards;
(c) bear interest as provided in subsections (2) and (3), payable
semiannually on each Interest Payment Date, such interest to accrue from
the Dated Date thereof, or, in the case of transfer or exchange after the
first Interest Payment Date, from the most recent Interest Payment Date
to which interest has been paid or provided for under this Indenture; if
a payment of defaulted interest is to be made, the Trustee shall
establish the time of such payment as provided herein and shall establish
the associated special Record Date therefor as provided in the definition
of "Record Date;" and
(d) mature on December 1, 2027.
(2) The Bonds will bear interest from the Dated Date to the Initial Rate
Adjustment Date at the annual interest rate of 5.30%. Thereafter, the
Remarketing Agent will determine the interest rate for the Bonds for the Rate
Period commencing with each Rate Adjustment Date to be the lowest rate which,
in the best judgment of the Remarketing Agent, on the Rate Determination Date,
would result in the market value of the Bonds on the Rate Adjustment Date
being equal to 100% of their principal amount. In determining the interest
rate, the Remarketing Agent will have due regard for general financial
conditions and such other conditions as, in the judgment of the Remarketing
Agent, have a bearing on the interest rate on the Bonds, including then
prevailing market conditions, the yields at which comparable securities are
then being sold and the tender and redemption provisions applicable to the
Bonds during the forthcoming Rate Period. Each determination of the interest
rate for the Bonds will be conclusive and binding upon the Bondholders, the
Issuer, the Borrower, the Tender Agent, the Remarketing Agent and the
Trustee. Upon written request, the Remarketing Agent will give the Issuer,
the Trustee, the Borrower and the Tender Agent Immediate Notice of the
interest rate on the Bonds at any time.
(3) If the conditions to the remarketing of the Bonds on the Rate
Adjustment Date are not satisfied in accordance with Section 3A.1(3), the
Bonds will bear interest at the Default Rate from the Rate Adjustment Date.
(4) The Bonds shall:
(a) be payable in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public
and private debts, by check or draft, at the principal corporate trust
office of the Paying Agent, or a duly appointed successor Paying Agent,
except that interest on the Bonds payable on other than the Maturity
Date, the Purchase Date, any date of mandatory special redemption or the
Discharge Date will be payable by check or draft mailed by the Trustee to
the Holders of such Bonds on the applicable Record Date (the "Record Date
Holders" as defined in the form of Bond set forth in Exhibit C hereto) at
the last addresses thereof as shown in the Bond Register on the
applicable Record Date, and principal of and any premium on any Bonds
shall be payable upon presentation of the Bonds at the principal
corporate trust office of the Trustee;
(b) be subject to redemption and purchase upon the terms and
conditions and at the redemption prices specified in Article 3; and
(c) be subject to mandatory tender for purchase upon the terms and
conditions and at the tender price specified in Article 3A.
(5) Notwithstanding the foregoing, if the date for payment of the
principal of, premium, if any, or interest on the Bonds shall be a day which
is not a Business Day, then the date for such payment shall be the next
succeeding day which is a Business Day, and payment on such later date shall
have the same force and effect as if made on the nominal date of payment.
<PAGE> - 15 -
(6) Notwithstanding the foregoing, any Holder of at least $1,000,000
principal amount of any Bonds (or a lesser amount of such Bonds if such Bonds
constitute all the Outstanding Bonds at the time), upon payment by the Holder
of the cost of such wire transfer as an Ordinary Fee or Expense, may file with
the Trustee an instrument satisfactory to the Trustee requesting the amounts
payable by the Trustee to such Holder be paid by transferring by electronic
transfer in immediately available funds, on the day such payment is due, the
amount to be distributed to such Holder to a designated account maintained by
such Holder at any other bank in the United States. The electronic transfer
request must describe the name, address and ABA routing number of the bank
(located in the continental United States) and the account number and
acknowledge an electronic transfer fee payable by the Bondholder. The Trustee
shall pay all amounts payable by the Trustee hereunder to such Holder by
transfer directly to said designated bank in accordance with the provisions of
any such instrument, provided that if such amount represents a payment of the
principal of any Bond, such Bond shall have been presented to the Trustee.
All payments so made shall be valid and effective to satisfy and discharge the
liability upon such Bonds.
Section 2.3. Execution; Limited Obligations.
(1) Bonds shall be signed by, or executed with the facsimile or manual
signature of, the Mayor of the Issuer and attested by the facsimile or manual
signature of the City Clerk of the Issuer. In case any officer of the Issuer
whose signature or whose facsimile signature shall appear on any Bonds shall
cease to be such officer before the delivery of such Bonds, such signature or
such facsimile shall nevertheless be valid and sufficient for all purposes,
the same as if he had remained in office until such delivery, and also any
Bond may be signed by such persons as at the actual time of the execution of
such Bond shall be the proper officers to sign such Bond although at the date
of such Bond such persons may not have been such officers.
(2) The Bonds are limited obligations of the Issuer payable solely from
revenues and funds pledged therefor under this Indenture. No Bondowner shall
ever have the right to compel the exercise of the taxing power of the Issuer
or the State or any political subdivision thereof to pay the principal of the
Bonds or the interest hereon or any other cost incident hereto, or to enforce
payment hereof against any property of the Issuer, the State or any political
subdivision thereof. The Bonds and the interest thereon shall not be deemed
to constitute a debt or liability of the Issuer, the State, or any political
subdivision thereof, and the issuance thereof shall not, directly or
indirectly or contingently, obligate the Issuer, the State, or any political
subdivision thereof, to levy any form of taxation therefor or to make any
appropriation for its payment. Nothing in the Bonds, the proceedings of the
Issuer authorizing the issuance of the Bonds or this Indenture shall be
construed to authorize the Issuer to create a debt or liability of the Issuer,
the State, or any political subdivision thereof within the meaning of any
constitutional or statutory provision of the State.
Section 2.4. Authentication. No Bond shall be valid or obligatory for
any purpose or be entitled to any security or benefit under this Indenture
unless a Certificate of Authentication on such Bond, substantially in the form
set forth in Exhibit C hereto, shall have been duly executed manually by a
Responsible Agent of the Bond Registrar. Certificates of Authentication on
different Bonds need not be signed by the same person. The Bond Registrar
shall authenticate the signatures of officers of the Issuer on each Bond by
execution of the Certificate of Authentication on the Bond; and the
Certificate of Authentication so executed on each Bond shall be conclusive
evidence that it has been authenticated and delivered under this Indenture.
Section 2.5. Conditions Precedent to the Delivery of Bonds. Upon the
execution and delivery of this Indenture, the Issuer shall execute and deliver
to the Bond Registrar, and the Bond Registrar shall authenticate, the Bonds
and shall deliver the Bonds to or upon the order of the Underwriter at such
time or times as may be directed by the Issuer after the Trustee has received
the following:
(1) original executed counterparts of the Loan Agreement, the Note
endorsed by the Issuer to the Trustee and this Indenture;
(2) copies of original executed counterparts of the Mortgage, the
Assignment, the Regulatory Agreement, the Continuing Disclosure Agreement and
UCC financing statements with evidence of recording or that they will be
recorded;
<PAGE> - 16 -
(3) copies of original executed counterparts of all Related Documents not
specifically referred to in paragraphs (1) and (2) above;
(4) a copy, duly certified by the City Clerk or his or her deputy, of the
ordinance passed and approved by the governing body of the Issuer, authorizing
the execution and delivery of this Indenture and the Loan Agreement and the
issuance of the Bonds;
(5) a request and authorization (which may be part of a certificate of
the Issuer) to the Trustee on behalf of the Issuer, signed by its Mayor, to
deliver the Bonds to the purchaser identified upon payment to the Trustee for
the account of the Issuer of a specified sum plus accrued interest;
(6) the opinion of counsel to the Borrower in the form required by Bond
Counsel and counsel to the Underwriter, compliance with such form to be
evidenced by Bond Counsel's delivery of its opinion required in clause (8)
below;
(7) the opinion of counsel to the Issuer, in the form required by Bond
Counsel, compliance with such form to be evidenced by Bond Counsel's delivery
of its opinion required in clause (8) below;
(8) the opinion of Bond Counsel, to the effect that the Bonds have been
duly and validly issued and the interest on the Bonds is excludable from gross
income for federal income tax purposes and the supplemental opinion of Bond
Counsel that the Bonds are exempt from registration under the Securities Act
of 1933, as amended, and exempt from qualification under the Trust Indenture
Act of 1939;
(9) a copy of the title insurance policy specified in the Mortgage;
(10) a letter from the Rating Agency evidencing that the Bonds have
received a rating of "A-" or better from the Rating Agency;
(11) a copy of the instruction letter delivered to and accepted by the
Title Company in connection with the closing of the refinancing of the Project
by the Borrower;
(12) a copy of the executed DTC Letter of Representations in connection
with issuance of the Bonds;
(13) evidence of the payment in full and discharge of the Prior Note and
release of any liens against the Project in a form acceptable to Bond Counsel
and other such documents as required by Bond Counsel, compliance with such
form to be evidenced by Bond Counsel's delivery of its opinion required in
clause (8) above; and
(14) any other documents or opinions which the Trustee, the Issuer or
Bond Counsel may reasonably require.
Section 2.6. Additional Bonds. In addition to the Bonds initially
issued hereunder, the Issuer and the Borrower may from time to time, and upon
satisfaction of the conditions specified in this Section 2.6, agree upon and
approve the issuance and delivery of Additional Bonds on a parity with the
Bonds pursuant to this Indenture. Any issuance of Additional Bonds shall be
authorized by a supplement to this Indenture establishing the terms thereof.
Each issue of Additional Bonds shall be secured by the Trust Estate
hereunder. No Additional Bonds shall be issued under this Section 2.6 unless
at the time of such issuance the following conditions have been met (such
facts to be shown by a certificate of the Trustee):
(1) the Trustee shall have received a copy, duly certified by the City
Clerk or his or her deputy, of the ordinance adopted and approved by the
governing body of the Issuer, approving the issuance of the Additional Bonds;
(2) the Trustee shall have received original executed counterparts of the
supplement to this Indenture and amendments to each of the Related Documents
authorizing the issuance of such Additional Bonds;
(3) to the best knowledge of the Trustee, there is no Event of Default
then existing under this Indenture, or any Related Document or any amendments
or supplements thereto;
(4) the Trustee shall have received an opinion of Independent Counsel
that the Mortgage, as amended, continues to be a first lien against the
Project;
<PAGE> - 17 -
(5) the Trustee shall have received an opinion of Bond Counsel that the
Additional Bonds have been duly and validly issued and the issuance of the
Additional Bonds will not adversely affect the exclusion of interest on the
Series 1997A Bonds and the Series 1997B Bonds from gross income for federal
income tax purposes and a supplemental opinion of Bond Counsel that the
Additional Bonds are exempt from registration under the Securities Act of
1933, as amended, and exempt from qualification under the Trust Indenture Act
of 1939;
(6) the Trustee shall have received a letter from the Rating Agency to
the effect that the Additional Bonds have received a rating from the Rating
Agency of at least "A-" or higher and that the rating on the Outstanding Bonds
immediately prior to the issuance of the Additional Bonds will not be
qualified, withdrawn or downgraded by the Rating Agency;
(7) the Additional Bonds:
(a) shall be denominated and payable in United States dollars;
(b) shall not rank senior in any respect to the Bonds then
outstanding; and
(c) shall not have a maturity date beyond the Maturity Date of the
Bonds then outstanding; and
(8) any other documents or opinions which the Trustee, the Issuer, or
Bond Counsel may reasonably require.
Section 2.7. Mutilated, Lost, Destroyed or Undelivered Bonds.
(1) In case any Bond issued hereunder shall become mutilated or be
destroyed or lost, the Issuer shall, if not then prohibited by law, cause to
be executed, and the Bond Registrar shall authenticate and deliver, a new Bond
of like amount, maturity date and tenor, but bearing a number not
contemporaneously outstanding, in exchange and substitution for and upon
cancellation of any such mutilated Bond, or in lieu of and in substitution for
any such Bond destroyed or lost, upon the Holder's paying the reasonable
expenses and charges of the Bond Registrar and the Issuer and, in the case of
a Bond destroyed or lost, the Holder's filing with the Bond Registrar of
evidence satisfactory to the Bond Registrar and the Trustee that such Bond was
destroyed or lost, and of the Holder's ownership thereof, and furnishing the
Issuer, the Trustee and the Bond Registrar with indemnity satisfactory to
them. If the mutilated, destroyed or lost Bond has already matured or been
called for redemption in accordance with its terms, it shall not be necessary
to issue a new Bond prior to payment.
(2) In the event that there are Undelivered Bonds, the Trustee shall
authenticate and deliver, with such delivery to occur at the Principal Office
of the Trustee to the new Holder or Holders thereof a new Bond or Bonds of
like amount in Authorized Denominations registered in the name of the new
Holder or Holders thereof. It shall be the duty of the Trustee to hold the
moneys received from the remarketing of a replacement Bond issued in place of
an Undelivered Bond, without liability for interest thereon, for the benefit
of the former Bondowner, who shall thereafter be restricted exclusively to
such moneys for any claim of whatever nature under this Indenture or with
respect to the Undelivered Bond and so long as the moneys held by the Trustee
equal the full amount due on such Bond on the Rate Adjustment Date, such Bond
shall thereafter no longer be secured by this Indenture (except for such
moneys so held).
Section 2.8. Registration and Exchange of Bonds; Book-Entry System of
Bonds.
<PAGE> - 18 -
(1) The Bonds will be issued as a single Bond for each stated maturity in
the name of The Depository Trust Company, New York, New York (the "Securities
Depository"), or its nominee, which will act as securities depository for the
Bonds. During the term of the Bonds, ownership and subsequent transfers of
ownership will be reflected by book entry on the records of the Securities
Depository and those financial institutions for whom the Securities Depository
effects book-entry transfers (collectively, the "DTC Participants"). No
person for whom a DTC Participant has an interest in any Bond (a "Beneficial
Owner") shall receive a bond certificate representing an interest in the Bonds
except in the event that the Securities Depository or the Issuer shall
determine, at its option, to terminate the book-entry system described in this
Section 2.8 (in which event, the provisions of Section 2.10 shall apply).
Payment of principal of and premium, if any, and interest on, the Bonds will
be made by the Trustee in accordance with the DTC Letter of Representations in
immediately available funds to the Securities Depository, which will in turn
remit such payment of principal, premium if any, and interest to its DTC
Participants, which will in turn remit such principal premium if any, and
interest to the Beneficial Owners of the Bonds until and unless the Securities
Depository or the Issuer elects to terminate the book-entry system, whereupon
the Issuer shall deliver bond certificates to the Beneficial Owners of the
Bonds or their nominees and shall bear the expense of such delivery. Bond
certificates delivered to the Securities Depository under this section may not
be transferred or exchanged except as provided in this section. In the event
of a conflict between the provisions of this Section and the DTC Letter of
Representations, the DTC Letter of Representations will control.
(2) The Securities Depository, or its nominee, will be the sole
Bondholder of the Bonds, and no investor or other party purchasing, selling or
otherwise transferring ownership of any Bonds will receive, hold or deliver
any bond certificates as long as the Securities Depository is the sole
Bondholder.
(3) The Bonds may not be transferred or exchanged except:
(a) to any successor of the Securities Depository (or its nominee)
or any successor to the Substitute Depository designated pursuant to
(b)(ii) below, provided that any successor of the Securities Depository
or any Substitute Depository must be a qualified and registered "clearing
agency" as provided in Section 17A of the Securities Exchange Act of
1934, as amended;
(b) to a Substitute Depository designated by or acceptable to the
Issuer upon (i) the determination by the Securities Depository that the
Bonds shall no longer be eligible for depository services or (ii)
determination by the Issuer that the Securities Depository is no longer
able to carry out its functions, provided that any such Substitute
Depository must be qualified to act as such, as provided in subparagraph
(1) above; or
(c) to those persons to whom transfer is requested in written
transfer instructions from the Issuer in the event that:
(i) the Securities Depository shall resign or discontinue its
services for the Bonds, but only if the Issuer is unable to locate a
qualified successor within two months following the resignation or
determination of ineligibility; or
(ii) upon a determination by the Issuer that the continuation
of the book-entry system described herein, which precludes the
issuance of certificates to any Bondholder, other than the
Securities Depository (or its nominee), is no longer in the best
interest of the Beneficial Owners of the Bonds (in which event the
Borrower must provide for an increase in the Ordinary Fees and
Expenses payable hereunder and must verify with the Rating Agency
that such increase will not adversely affect the rating on the
Bonds).
(4) The Depository Trust Company, New York, New York, is hereby appointed
the Securities Depository for the Bonds.
<PAGE> - 19 -
Section 2.9. Ownership of Bonds. The Issuer, the Trustee, the Bond
Registrar and the Paying Agent may deem and treat the Holder of any Bond,
whether or not such Bond shall be overdue, as the absolute owner of such Bond
for the purpose of receiving payment thereof (subject to the provisions of
Section 2.2(4) and (5) as to payment of interest) and for all other purposes
whatsoever, and the Issuer (or any agent thereof), the Trustee, the Bond
Registrar and the Paying Agent shall not be affected by any notice to the
contrary.
Section 2.10. Preparation of Definitive Bonds; Temporary Bonds. While
the Bonds are registered in book-entry format pursuant to Section 2.8, Bonds
shall be held by the Securities Depository or its agent in typewritten form.
Following termination of the book-entry system definitive Bonds shall be
lithographed or printed on steel engraved borders at the expense of the
Borrower. Until the definitive Bonds are prepared, the Issuer may execute, in
the same manner as is provided in Section 2.3 (except that manual signatures
may be used), and deliver, in lieu of definitive Bonds, but subject to the
same provisions, limitations and conditions as the definitive Bonds, except as
to the denominations thereof, one or more temporary Bonds in typewritten form
(which shall be registered as to principal and interest), substantially of the
tenor of the definitive Bonds, in any denominations authorized by the Issuer,
and with such omissions, insertions and variations as may be appropriate to
temporary Bonds. The Issuer shall prepare and execute and, upon the surrender
of such temporary Bonds for exchange and the cancellation of such surrendered
temporary Bonds, deliver in exchange therefor, at the principal corporate
trust office of the Bond Registrar, definitive Bonds of the same aggregate
principal amount as the temporary Bonds surrendered. Any costs relating to
such surrender and cancellation shall be paid by the Borrower. Until so
exchanged, the temporary Bonds shall in all respects be entitled to the same
benefits and security as definitive Bonds issued pursuant to this Indenture.
All temporary Bonds surrendered in exchange for a definitive Bond or Bonds
shall be forthwith cancelled by the Bond Registrar.
Section 2.11. Registration, Transfer and Exchange of Registered Bonds.
(1) In the event of termination of the book-entry system as set forth in
Section 2.8 the Trustee shall, at the expense of the Borrower, prepare,
execute and authenticate fully executed Bonds, shall cause to be kept at the
principal corporate trust office of the Bond Registrar a Bond Register in
which, subject to such reasonable regulations as the Bond Registrar may
prescribe, the Issuer shall execute and provide for the registration of Bonds
and the registration of transfers of Bonds. The Bond Register shall contain a
record of every Bond, including bond number and principal amount at any time
authenticated hereunder, together with the name and address of the Holder
thereof, the date of authentication, the date of transfer or payment, and such
other matters as are appropriate for the Bond Register in the estimation of
the Bond Registrar and the Trustee.
(2) The transfer of each Bond is subject to registration by the Holder
thereof only upon compliance with the conditions for registration of transfer
imposed on the Holder under this subsection (2) and subsection (6) below.
Upon surrender of any Bond at the principal corporate trust office of the Bond
Registrar, the Issuer shall execute (if necessary), and the Bond Registrar
shall authenticate and deliver, in the name of the designated transferee or
transferees (but not registered in blank or to "bearer" or a similar
designation), one or more new Bonds of any authorized denomination or
denominations of a like aggregate principal amount, having the same stated
maturity and interest rate, as requested by the transferor.
(3) At the option of the Holder, Bonds may be exchanged for other Bonds
of any authorized denomination or denominations of a like aggregate principal
amount and stated maturity, upon surrender of the Bonds to be exchanged at the
principal corporate trust office of the Bond Registrar, and upon payment of
the taxes, if any, hereinafter referred to. Whenever any Bonds are so
surrendered for exchange, the Issuer shall execute (if necessary), and the
Bond Registrar shall authenticate and deliver, the Bonds which the Holder
making the exchange is entitled to receive.
(4) All Bonds delivered in exchange for or upon transfer of Bonds shall
be valid special obligations of the Issuer evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Bonds surrendered
for such exchange or transfer.
<PAGE> - 20 -
(5) Registration of the transfer of a Bond may be made on the Bond
Register by the Holder in person or by the Holder's attorney duly authorized
in writing. Every Bond presented or surrendered for registration of transfer
or exchange shall (if so required by the Issuer or the Bond Registrar) be duly
endorsed or be accompanied by a written instrument or instruments of transfer,
in the form printed on the Bond or in another form satisfactory to the Bond
Registrar, duly executed and with guaranty of signature of the Holder thereof
or his, her or its attorney duly authorized in writing, and shall include
written instructions as to the details of the transfer of the Bond.
(6) No service charge shall be made to the Holder for any registration,
transfer or exchange, but the Bond Registrar and Issuer may require payment of
a sum sufficient to cover any tax, fee or other governmental charge that may
be imposed in connection with any transfer or exchange of Bonds, other than
exchanges expressly provided in this Indenture to be made without expense or
without charge to Bondholders, and any legal or unusual costs of transfers and
lost bonds.
(7) Subject to the provisions of subsection (8) below, the Bond Registrar
shall endeavor to comply with rules applicable to transfer agents registered
with the Securities and Exchange Commission as to the 72-hour "turnaround"
standard established for the transfer of registered corporate securities.
(8) The Bond Registrar shall not be required (a) to transfer or exchange
any Bond during a period beginning at the opening of business 15 days before
the day of the mailing of a notice of redemption or purchase of Bonds under
this Indenture and ending at the close of business on the day of such
publication or mailing or (b) to transfer or exchange any Bond so selected for
redemption or purchase in whole or in part.
(9) In the event any Bondholder fails to provide a correct taxpayer
identification number to the Bond Registrar, the Bond Registrar may make a
charge against the Bondholder sufficient to pay any governmental charge
required to be paid as a result of the failure. In compliance with Section
3406 of the Code, this amount may be deducted by the Paying Agent from amounts
payable to the Bondholder under this Indenture or the Bonds.
Section 2.12. Nonpresentment of Bonds. In the event any Bond shall not
be presented for payment when the principal hereof becomes due, if Protected
Funds (if required and, if not required, other funds) sufficient to pay such
Bonds shall have been paid to the Trustee (or other Paying Agent, if any) for
the benefit of the registered owner thereof, all liability of the Issuer to
the registered owner thereof for the payment of such Bond shall forthwith
cease, determine and be completely discharged, and thereupon it shall be the
duty of the Trustee or other Paying Agent to hold such fund or funds, without
liability for interest thereon, for the benefit of the Holder of such Bond,
who shall thereafter be restricted exclusively to such fund or funds, for any
claim of whatever nature on his part under this Indenture or on, or with
respect to, said Bond. Any moneys still held by the Trustee (or other Paying
Agent, if any) after six years from the date on which the Bond with respect to
such amount was paid to the Trustee or other Paying Agent, if any, shall
first, if and to the extent permitted by law, be paid to the Trustee or other
Paying Agent, if any, to the extent of any amounts owed by the Borrower
hereunder, and any remaining balance to the Borrower and shall be discharged
from the trust and all liability of the Trustee or other Paying Agent, if any,
with respect to such funds shall cease; and the Holder of such Bond shall
thereafter be entitled to look only to the Borrower for payment, and the
Borrower shall not be liable for any interest thereon.
Section 2.13. Interest Rights Preserved. Each Bond delivered upon
transfer of or in exchange for or in lieu of any other Bond shall carry all
the rights to interest accrued and unpaid, and to accrue, which were carried
by such other Bond.
Section 2.14. Destruction of Bonds. Whenever any Outstanding Bond shall
be delivered to the Bond Registrar or the Trustee for cancellation pursuant to
this Indenture, upon payment of the principal amount and interest represented
thereby or for replacement pursuant to Section 2.7 or transfer pursuant to
Section 2.11, such Bond shall be canceled and destroyed by the Bond Registrar
or the Trustee, as the case may be, and counterparts of a certificate of
cancellation evidencing such cancellation shall be furnished by the Bond
Registrar, or the Trustee, as the case may be, to the Bond Registrar or the
Trustee, as appropriate, and to the Issuer at its written request.
<PAGE> - 21 -
ARTICLE 3
REDEMPTION OR PURCHASE OF BONDS
Section 3.1. Redemption or Purchase. Subject to the provisions of
Sections 3.2 and 3.4, the Bonds are subject to redemption or purchase as
follows:
(1) Calamity Redemption or Purchase. The Bonds are subject to redemption
or purchase in whole or in part, on any Business Day from Protected Funds, in
the event of damage to or destruction or condemnation of the Project or any
part thereof as provided in the Loan Agreement and the Mortgage, at a
redemption or purchase price equal to the principal amount thereof plus
accrued interest, without premium.
(2) Optional Redemption or Purchase.
(a) To and including the Initial Rate Adjustment Date, the Bonds are
subject to redemption or purchase at the option of the Borrower, from
Protected Funds, in whole or in part on any date, at a redemption or
purchase price equal to the percentage of principal amount set forth in
the following table, plus accrued interest to the designated redemption
date:
Optional Redemption Periods Redemption
(dates inclusive)Price
---------------------------
December 1, 2005 to November 30, 2006 101.0%
December 1, 2006 to December 1, 2007 100.0
(b) After the Initial Rate Adjustment Date, the Bonds are subject to
redemption or purchase at the option of the Borrower, from Protected
Funds, in whole or in part on any date, at a redemption or purchase price
equal to the percentage of principal amount set forth in the following
table, plus accrued interest to the designated redemption date:
Length of Rate Redemption Prices as a Call Protection
Period (In Years)* Percentage of Principal Amounts Period*
------------------ ------------------------------- ---------------
Greater than 10 102% after 7 years declining 1% 7 years
per 12 months to 100%
Less than or equal to 102% after 4 years declining 1% 4 years
10 and greater than 7 per 12 months to 100%
Less than or equal to 102% after 3 years declining 1% 3 years
7 and greater than 5 per 12 months to 100%
Less than or equal to 101% after 2 years declining 1/2% 2 years
5 and greater than 2 per 6 months to 100%
2 100-1/2% after 1 year declining 1 year
1/2% per 6 months to 100%
*Measured from and including the first day of such Rate Period. The Borrower
will have the option to purchase the Bonds in lieu of this redemption. If the
Borrower exercises its option to purchase as provided in Section 3.4, the
Borrower is obligated to provide all Protected Funds necessary, together with
other Protected Funds held by the Trustee, to pay the principal of and accrued
interest on the Bonds to the date of purchase, all as required by Section 3.4.
(3) Mandatory Special Redemption or Purchase Upon Determination of
Taxability. The Bonds are subject to mandatory redemption in whole on any
date, at a redemption price equal to the principal amount thereof, without
premium, plus accrued interest, to the date of redemption, upon a
Determination of Taxability. In the event of a Determination of Taxability
the Borrower shall have the option to purchase the Bonds in lieu of
redemption. If the Borrower exercises its option to purchase as provided in
Section 3.4 hereof, the Borrower is obligated to provide all funds necessary,
together with other Protected Funds held by the Trustee, to pay the principal
of and accrued interest on the Bonds to the date of purchase all as required
by Section 3.4.
<PAGE> - 22 -
(4) Mandatory Special Redemption or Purchase Upon Failed Remarketing.
The Bonds are subject to mandatory redemption in whole on any date, at a
redemption price equal to the principal amount thereof, without premium, plus
accrued interest, to the date of redemption, if the Bonds are not remarketed
on a Rate Adjustment Date in accordance with Section 3A.1(3). The Borrower
will have the option to purchase the Bonds in lieu of this redemption. If the
Borrower exercises its option to purchase as provided in Section 3.4, the
Borrower is obligated to provide all Protected Funds necessary, together with
other Protected Funds held by the Trustee, to pay the principal of and accrued
interest on the Bonds to the date of purchase all as required by Section 3.4.
(5) No Other Redemption or Purchase Rights. Except as provided in this
Section 3.1 and in Section 8.2, the Bonds shall not be subject to redemption
or purchase prior to their stated maturity date.
Section 3.2. Notice of Redemption or Purchase.
(1) To effect the redemption or purchase of the Bonds under Section 3.1,
the Trustee shall promptly give notice within the time, in the manner and with
the effect provided by this Section 3.2. Notice of redemption or purchase
shall be mailed by first class mail not less than 30 days prior to the
redemption or purchase date by the Trustee to the Paying Agent, the Holders of
Bonds to be redeemed or purchased and the Rating Agency. No defect in or
failure to give notice shall affect the validity of the proceedings for
redemption or purchase of any Bond. Such notice, which shall be prepared by
the Trustee at the expense of the Borrower, shall state the subsection under
Section 3.1 pursuant to which the Bonds are being called for redemption or
purchase and the date on which and the place where they shall be presented for
redemption, and, unless all Outstanding Bonds are to be redeemed, each such
notice shall refer to the Bonds to be redeemed by their numbers and
maturities. The Trustee shall rescind such notice to each Bondholder at least
four Business Days before the date on which such redemption or purchase is
scheduled to occur, if Protected Funds sufficient to redeem such Bonds,
including accrued interest thereon to the redemption or purchase date and any
premium, shall not have been deposited with the Paying Agent. Except as
specifically provided in this Indenture, the Bonds thus called for redemption,
provided Protected Funds, if required, and, if not required, other funds for
their redemption have been duly deposited, shall not, on or after the
specified redemption date, bear any interest and, except for the purpose of
payment, shall not be entitled to the lien of the Indenture or the benefits of
the Loan Agreement.
(2) In addition to the notice prescribed by the foregoing paragraph, the
Trustee shall give notice of the redemption or purchase of any Bond or Bonds
or portions thereof at least 30 days before the redemption or purchase date by
overnight express delivery service, certified mail or telecopy to all
registered securities depositories then in the business of holding substantial
amounts of obligations of the character of the Bonds (such depositories now
being The Depository Trust Company, Garden City, New York; Pacific Securities
Depository Trust Company, San Francisco, California; and Philadelphia
Depository Trust, Philadelphia, Pennsylvania) and to two or more national
information services that disseminate information regarding municipal bond
redemptions; provided that any defect in or any failure to give any notice of
redemption or purchase prescribed by this paragraph shall not affect the
validity of the proceedings for the redemption or purchase of any Bond.
(3) Not less than 40 days prior to each redemption date, the Bond
Registrar shall furnish the names and addresses of the Holders of the Bonds as
of the Record Date immediately preceding such redemption date to the Trustee.
Section 3.3. Cancellation. Subject to the provisions of Section 2.12,
all Bonds which have been redeemed shall be cancelled by the Trustee as
provided in Section 2.14 and shall not be reissued.
Section 3.4. Method of Redemption or Purchase.
(1) The Trustee shall redeem or purchase Bonds under subsection (1), (2)
or (4) of Section 3.1 only if it has received written notice and instructions
to so redeem or purchase at least 40 days before the redemption date, and the
Trustee has been provided with immediately available funds, which are
Protected Funds, sufficient for such purpose when added to other Protected
Funds held under the Indenture, at least four Business Days prior to the
redemption or purchase date.
<PAGE> - 23 -
(2) The Trustee shall redeem or purchase Bonds under subsection (3) of
Section 3.1 in accordance with the Borrower's instructions within 45 days of
the occurrence of a Determination of Taxability, upon receipt of (i) written
notice and instructions from the Borrower and (ii) at least four Business Days
prior to the redemption date or purchase date immediately available funds,
which are Protected Funds, sufficient for such purpose when added to other
Protected Funds held under the Indenture.
(3) To effect the partial redemption or purchase of Bonds under Section
3.1, the Trustee, prior to giving notice of redemption or purchase, shall
assign to each Bond then outstanding a distinctive number for each $5,000 of
the principal amount of such Bond. The Trustee shall then select Bonds for
redemption or purchase, using such method of selection as it shall deem proper
in its discretion, from the numbers so assigned to such Bonds, as many numbers
as, at $5,000 for each number, shall equal the principal amount of such Bonds
to be redeemed or purchased. The Bonds to be redeemed or purchased shall be
the Bonds to which were assigned numbers so selected; provided, however, that
only so much of the principal amount of each such Bond of a denomination of
more than $5,000 shall be redeemed or purchased as shall equal $5,000 for each
number assigned to it and so selected. If a Bond may be redeemed or purchased
only in part, it shall be surrendered to the Trustee (with, if the Issuer or
Trustee so requires, a written instrument of transfer in form satisfactory to
the Issuer and Trustee duly executed by the Holder thereof or his, her or its
attorney duly authorized in writing) and the Issuer shall execute (if
necessary) and the Bond Registrar shall authenticate and deliver to the Holder
of such Bond, without service charge, a new Bond or Bonds of the same series,
of any authorized denomination or denominations, as requested by such Holder,
having the same stated maturity and interest rate in aggregate principal
amount equal to and in exchange for the unredeemed or unpurchased portion of
the principal of the Bond so surrendered.
(4) After Bonds are called for redemption or purchase pursuant to this
Article 3, sums in the Bond Fund consisting of Protected Funds sufficient to
effect such redemption or purchase shall be irrevocably set aside for such
purpose and applied for no other purpose under this Indenture.
(5) Upon the setting aside of funds to purchase Bonds pursuant to this
Article 3, the Holder of such Bond or Bonds purchased shall have no claim to
interest accruing on the Bonds following the date established for the purchase
thereof and such Holder may look only to those funds set aside in the Bond
Fund for the payment of the purchase price of such Bonds.
ARTICLE 3A
TENDER AND PURCHASE OF BONDS
Section 3A.1. Mandatory Tender of Bonds and Notices to Bondowners.
(1) Mandatory Tender and Election to Retain Bonds. All Bonds are
required to be tendered to the Tender Agent for purchase on the Rate
Adjustment Date, except Bonds, or portion thereof, which will be in Authorized
Denominations with respect to which the Holders thereof have delivered to the
Tender Agent by hand or by mail at its Principal Office a properly completed
Notice of Election to Retain Bonds, together with a signature guaranty, on or
prior to the fifth Business Day next preceding the Rate Adjustment Date,
subject to the provisions of subsection (3). Any Bondowner required to tender
Bonds under this subsection shall tender its Bonds in escrow to the Tender
Agent for purchase at its Principal Office prior to 10:30 A.M., New York time,
on the Rate Adjustment Date. The tender and purchase of Bonds will become
mandatory if the Tender Agent has received Remarketing Proceeds on the Rate
Adjustment Date in an amount sufficient to pay all Tendered Bonds. The
failure to tender Bonds on the Rate Adjustment Date is the equivalent of a
tender, and the untendered Bonds will become Undelivered Bonds for which
replacement Bonds will be executed, authenticated and delivered as provided in
Section 2.7(2).
(2) Preliminary Notice of Mandatory Tender. Upon the Trustee's receipt
of the written notice from the Borrower in accordance with Section 8.2 of the
Loan Agreement, the Trustee will send the Preliminary Notice of Mandatory
Tender to Bondowners of the mandatory tender for purchase of Bonds on the Rate
Adjustment Date not less than 45 calendar days prior to the Rate Adjustment
Date.
<PAGE> - 24 -
(3) Cancellation of Mandatory Tender; Notice. If the Trustee does not
receive Remarketing Proceeds in accordance with Section 3A.4(2) by 11:00 A.M.,
New York time, on the Rate Adjustment Date and written confirmation from the
Rating Agency that the Bonds will be rated no lower than the rating set forth
in the Preliminary Notice of Mandatory Tender for the Rate Period commencing
on the Rate Adjustment Date, the mandatory tender of the Bonds will be
automatically canceled. The Trustee will promptly send the Notice of Canceled
Mandatory Tender to the Bondholders and the Tender Agent and will promptly
return tendered Bonds to the respective Holders.
(4) Failure to Give Notice. Any defect in any notice as provided in
subsections (2) and (3) or any failure by any Bondowner to receive any notice
will not in any way change the Holder's obligation to tender the Bonds for
purchase on the Rate Adjustment Date.
Section 3A.2. Irrevocability of Elections; Return of Improperly Completed
Documents. The Tender Agent, to whom a Notice of Election to Retain Bonds has
been delivered, shall determine whether the Notice of Election to Retain Bonds
has been properly completed and such determination shall be binding on the
Holder of the Bond. Subject to Section 3A.1(3), any election by a Bondholder
to retain its Bond on the Rate Adjustment Date shall be irrevocable upon
delivery to the Tender Agent of the Notice of Notice of Election to Retain
Bonds. The Tender Agent shall promptly return any incomplete or improperly
completed Notice of Election to Retain Bonds to the Bondholder.
Section 3A.3. Notice of Principal Amount of Bonds Tendered. Promptly
after the requisite time by which a Notice of Election to Retain Bonds is
required to be delivered pursuant to Section 3A.1(1), the Tender Agent shall
give Immediate Notice to the Trustee, the Remarketing Agent and the Borrower
of its receipt of Notices of Election to Retain Bonds and specifying the total
principal amount of Bonds required to be tendered for purchase on the Rate
Adjustment Date and the aggregate Tender Price therefor. The written portion
of such Immediate Notice given by the Tender Agent shall include copies of the
Notices of Election to Retain Bonds.
Section 3A.4. Remarketing of Tendered Bonds.
(1) Pursuant to the terms of this Indenture and the Remarketing
Agreement, and upon receipt of notice from the Tender Agent, specifying the
principal amount of Tendered Bonds as provided in Section 3A.3, the
Remarketing Agent will exercise its best efforts to sell all of the Tendered
Bonds as provided in the Remarketing Agreement. The Remarketing Agent will
not remarket any Bonds at a price below par plus accrued interest thereon.
(2) The Remarketing Agent will transfer, by wire transfer in immediately
available funds, the Remarketing Proceeds derived from the sale of Tendered
Bonds to the Trustee at or before 10:00 A.M., New York time, on the Rate
Adjustment Date. The Remarketing Agent is not obligated to transfer any funds
to the Tender Agent in excess of Remarketing Proceeds that the Remarketing
Agent has received from purchasers of Tendered Bonds.
Section 3A.5. Notice of Principal Amount of Bonds Remarketed. The
Remarketing Agent will provide Immediate Notice to the Trustee, the Tender
Agent and the Borrower, by 3:00 P.M., New York time, on the second Business
Day preceding the Rate Adjustment Date, specifying the new interest rate to
become effective as of the Rate Adjustment Date and the aggregate principal
amount of Tendered Bonds which have been remarketed, (ii) the aggregate
principal amount of Tendered Bonds which have not been remarketed, and (iii)
the amount of Remarketing Proceeds to be paid over to the Tender Agent by the
Remarketing Agent on the Rate Adjustment Date, which amount shall be equal to
the proceeds of the remarketing of the Tendered Bonds. Concurrently with the
notice described in the preceding sentence, the Remarketing Agent shall also
give the Trustee (with a copy to the Tender Agent) instructions as to the
registration and delivery, with such delivery to occur at the Principal Office
of the Tender Agent to the Remarketing Agent of any Tendered Bonds for whose
purchase the Remarketing Agent will make a deposit of funds with the Tender
Agent on the Rate Adjustment Date.
<PAGE> - 25 -
Section 3A.6. Purchase of Tendered Bonds.
(1) Tendered Bonds shall be purchased from the Holders thereof on the
Rate Adjustment Date at the Tender Price which shall be payable solely from
the following sources in the order of priority listed:
(a) Remarketing Proceeds;
(b) Protected Funds from any other source; and
(c) moneys from any other source.
(2) On each Rate Adjustment Date, all Bonds purchased with Remarketing
Proceeds shall be delivered and registered as directed by the Remarketing
Agent pursuant to Section 3A.5.
(3) The Tender Agent shall pay the Tender Price for each Tendered Bond
prior to the Tender Agent's close of business on the Rate Adjustment Date only
after receipt of the Bond, properly endorsed in blank, together with a
signature guaranty. Payment of the Tender Price of any Bond tendered for
purchase shall be made: (i) by check or draft mailed to the Holder thereof at
the Holder's address as it appears on the Bond Register or at such other
address as is furnished to the Tender Agent in writing by such Holder; or (ii)
in the case of the purchase from an Holder of $1,000,000 or more in aggregate
principal amount of Bonds, by electronic transfer to such Holder upon written
notice from such Holder which written notice accompanies such Holder's Notice
of Election to Tender Bonds. The electronic transfer instructions must
describe the name and ABA routing number of the bank (located in the
continental United States) and the account number and acknowledge an
electronic transfer fee payable by the Holder.
(d) The Trustee, on the written advice of the Remarketing Agent, will
authenticate remarketed Bonds in the names of the purchasers thereof and in
the appropriate denominations, and deliver the Bonds to the Remarketing Agent
upon the Tender Agent's receipt of the Remarketing Proceeds. The Trustee will
cancel, pursuant to Section 2.14, all Bonds which have been physically
tendered. Tendered Bonds which have been purchased by the Trustee on behalf
of the Borrower shall be registered in the name of the Borrower.
(e) Notwithstanding anything in this Indenture to the contrary, the
Trustee shall pay the Tender Price with respect to an Undelivered Bond only
upon the actual receipt of such Bond, and such Tender Price shall be equal to
the principal amount of such Bond plus accrued interest to the Rate Adjustment
Date. An Undelivered Bond shall not be considered Outstanding pursuant to
this Indenture.
Section 3A.7. Purchase Fund.
(1) A special trust fund is hereby created with the Tender Agent and
designated the Purchase Fund. The Purchase Fund has not been pledged or
assigned under this Indenture and is not subject to the lien created by this
Indenture. The Tender Agent will deposit the proceeds of the remarketing of
Tendered Bonds (other than Bonds remarketed to an Insider, which will be
placed in a separate account in the Purchase Fund). The Tender Agent will
remit to the Holders of the Tendered Bonds the funds in the Purchase Fund
(other than any funds being held for the benefit of former Holders of
Undelivered Bonds) in payment of the Tender Price of the Tendered Bonds.
Moneys from the remarketing of Tendered Bonds to an Insider shall be applied
solely to the purchase price of Bonds held by the Borrower. The Tender Agent
shall hold moneys for the former Holders of Undelivered Bonds in a segregated
escrow account and designated "Undelivered Bond Account." Moneys in the
Undelivered Bond Account shall not be invested, and the Tender Agent shall not
be liable to the Issuer, the Borrower or any former Holder of an Undelivered
Bond for any interest thereon.
(2) On any Rate Adjustment Date, the Trustee shall transfer on the Bond
Register ownership of all of the Tendered Bonds to the names of the respective
purchasers thereof. From and after such date, the principal of, and
redemption premium, if any, and interest on such Bonds shall be payable solely
to such purchasers, their transferees or the successors thereto. The Holders
of Tendered Bonds immediately prior to a Rate Adjustment Date with respect to
which a Notice of Election to Retain Bonds has not been given pursuant to
Section 3A.1 shall be entitled solely to payment of the Tender Price for such
Bonds upon delivery thereof to the Tender Agent as herein provided and shall
not be entitled to the payment of any principal, redemption premium, if any,
or interest thereon thereafter.
<PAGE> - 26 -
Section 3A.8. No Sales After Certain Defaults. Notwithstanding any
provision of this Indenture to the contrary, there shall be no sales of Bonds
pursuant to this Article 3A if an Event of Default has occurred and is
continuing. The Trustee shall give Immediate Notice to the Remarketing Agent,
the Tender Agent, the Borrower and the Bondowners of (i) the occurrence and
continuation of any Event of Default and that the Event of Default results in
no purchase or sales of Bonds being permitted pursuant to this Article and
(ii) the cure of any of Event of Default and that in consequence purchases and
sales are again permitted pursuant to this Article.
Section 3A.9. Remarketing Agent. The Borrower shall appoint the
Remarketing Agent for the Bonds, subject to the conditions set forth in
Section 3A.10. The Remarketing Agent shall designate to the Trustee its
principal office and signify its acceptance of the duties and obligations
imposed upon it hereunder by a written instrument of acceptance or a
remarketing agent agreement with the Borrower and delivered to the Trustee
under which the Remarketing Agent will also agree to keep such books and
records as shall be consistent with prudent industry practice and to make such
books and records available for inspection by the Issuer, the Trustee, the
Tender Agent and the Borrower at all reasonable times.
Section 3A.10. Qualifications of Remarketing Agent.
(1) The Remarketing Agent shall be a member of the National Association
of Securities Dealers, Inc. or a national banking association and shall meet
such capitalization or credit requirements as are acceptable to the Rating
Agency, and authorized by law to perform all the duties imposed upon it by
this Indenture. The Remarketing Agent may at any time resign and be
discharged of the duties and obligations created by this Indenture by giving
at least 30 days' written notice to the Issuer, the Borrower, the Tender Agent
and the Trustee. The Remarketing Agent may be removed at any time, without
cause, upon at least 30 days' written notice to the Remarketing Agent, at the
direction of the Borrower by an instrument signed by the Authorized Borrower
Representative, filed with the Trustee, the Tender Agent, the Issuer and the
Remarketing Agent.
(2) In the event of the resignation or removal of the Remarketing Agent,
the Remarketing Agent shall pay over, assign and deliver any moneys and Bonds
held by it in such capacity to its successor. In the event that the Borrower
shall fail to appoint a replacement Remarketing Agent hereunder, the Issuer
may do so.
ARTICLE 4
GENERAL COVENANTS
Section 4.1. Payment of Principal, Premium and Interest. Solely from
the moneys derived from the Loan Agreement (other than to the extent payable
from proceeds of the Bonds, temporary investments, or amounts recovered by the
Trustee under the Mortgage or the Assignment), the Issuer will duly and
punctually pay the principal of, premium, if any, and interest on the Bonds in
accordance with the terms of the Bonds and this Indenture. Moneys derived from
the Loan Agreement include all moneys derived from the Granting Clauses set
forth herein, including, but not limited to, the Project Revenues under the
Loan Agreement, and trust funds deposited in the Funds (excluding funds held
in the Bond Proceeds Fund and arbitrage rebate whether or not deposited in the
Rebate Fund) to the extent hereof and in the manner provided in Article 5
hereof. Nothing in the Bonds or in this Indenture shall be considered as
assigning or pledging funds or assets of the Issuer other than those covered
by the Granting Clauses set forth herein.
<PAGE> - 27 -
Section 4.2. Performance of Covenants.
(1) The Issuer covenants that it will faithfully perform at all times any
and all of its covenants, undertakings, stipulations and provisions contained
in this Indenture, in any and every Bond executed, authenticated and delivered
hereunder and in all proceedings of its governing body pertaining thereto;
that it is duly authorized under the Constitution and laws of the State,
including particularly and without limitation the Act, to issue the Bonds
authorized hereby, to execute this Indenture, to loan the proceeds of the
Bonds to the Borrower and to assign and pledge the Borrower's payments under
the Loan Agreement in the manner and to the extent herein set forth; that all
action on its part for the issuance of the Bonds and the execution and
delivery of this Indenture has been duly and effectively taken; and that the
Bonds in the hands of the Holders thereof are and will be valid and
enforceable obligations of the Issuer according to the terms thereof.
(2) The Trustee covenants that it will faithfully perform at all times
any and all of its covenants, undertakings, stipulations and provisions
contained in this Indenture, and in every Bond executed, authenticated and
delivered hereunder; that it is duly organized, validly existing, in good
standing and possesses all licenses and authorizations necessary to enter into
this Indenture, the Mortgage and the Assignment; that it has full power and
authority to enter into this Indenture, the Mortgage and the Assignment and
the transactions contemplated thereby; that the Indenture, the Mortgage and
the Assignment have been duly executed and delivered by it; that this
Indenture, the Mortgage and the Assignment constitute legal, valid, binding
and enforceable obligations of the Trustee (subject to bankruptcy, insolvency
or creditor rights laws generally and principles of equity generally) without
offset, defense or counterclaim, that the execution, delivery and performance
of this Indenture, the Mortgage and the Assignment by the Trustee will not
cause or constitute, including due notice or lapse of time or both, a default
under or conflict with organizational documents or other agreements or
otherwise materially or adversely affect performance of duties; that the
execution of this Indenture, the Mortgage and the Assignment by the Trustee
will not violate any law, regulation, order or decree of any governmental
authority; that all consents, approvals, authorizations, orders or filings of
or with any court or governmental agency or body, if any, required for the
execution, delivery and performance of this Indenture, the Mortgage and the
Assignment by the Trustee have been obtained or made; and that there is no
pending action, suit, proceeding, arbitration or governmental investigation
against it, an adverse outcome of which would materially adversely affect its
performance under this Indenture, the Mortgage or the Assignment.
Section 4.3. Instruments of Further Assurance. The Issuer covenants
that it has not made, done, executed or suffered, and will not make, do,
execute or suffer, any act or thing whereby its interest in the Loan Agreement
or any part thereof is now or at any time hereafter will be impaired, changed
or encumbered in any manner whatsoever, except as may be expressly permitted
herein or in the Loan Agreement or as required by law; and that it will do,
execute, acknowledge and deliver or cause to be done, executed, acknowledged
and delivered, such instruments supplemental hereto and such further acts,
instruments and transfers as the Trustee may reasonably require for the better
assuring, transferring, pledging, assigning and confirming unto the Trustee
all and singular the sums assigned and pledged hereby to the payment of the
principal of, premium, if any, and interest on the Bonds.
Section 4.4. Recording and Filing.
(1) The Issuer covenants that it will notify the Borrower of the
Borrower's obligation to deliver the title policy or policies required by
Section 3.5 of the Loan Agreement as evidence of recordation of the Regulatory
Agreement, the Mortgage, the Assignment and all related financing statements.
(2) On or before December 1 of each fifth calendar year, commencing on
December 1, 2002, or at such other time or times as the Trustee may request,
the Borrower, at its sole expense, shall furnish to the Trustee, the Issuer
and the Rating Agency an opinion of Independent Counsel stating that, in the
opinion of Independent Counsel, such action has been taken with respect to the
recording, filing, re-recording and re-filing of the Regulatory Agreement, the
Mortgage and the Assignment, any supplements thereto and any other requisite
documents and with respect to the execution and filing of any financing
statements and continuation statements as are necessary to perfect and
maintain the perfection of the liens granted hereunder in the Trust Estate and
to preserve and protect fully the security of the Holders of the Bonds and the
rights of the Trustee hereunder and under any of the other aforesaid
instruments for the next five-year period.
<PAGE> - 28 -
Section 4.5. Books and Records. The Trustee covenants that so long as
any Outstanding Bonds issued hereunder and secured by this Indenture shall be
unpaid, the Trustee will keep proper books or records and accounts, in which
full, true and correct entries will be made of all its financial dealings or
transactions in relation to the Project and the payments derived from the Loan
Agreement, this Indenture, the Mortgage and the Assignment. At reasonable
times and under reasonable regulations established by the Trustee, such books
shall be open to the inspection of the Holders, the Issuer and the Rating
Agency, and such accountants or other agencies as the Holders, the Issuer or
the Rating Agency may from time to time designate in writing to the Trustee.
Section 4.6. Bondholders' Access to Bond Register. At reasonable times
and under reasonable regulations established by the Bond Registrar, the Bond
Register or a copy thereof may be inspected and copied by the Issuer, the
Trustee or the Holders (or a designated representative thereof) of 10% or more
in principal amount of the then Outstanding Bonds, such authority of any such
designated representative to be evidenced to the reasonable satisfaction of
the Bond Registrar. Except as otherwise may be provided by law, the Bond
Register shall not be deemed a public record and shall not be made available
for inspection by the public, unless and until written notice to the contrary
is given to the Bond Registrar by the Issuer.
Section 4.7. Rights Under Loan Agreement. The Loan Agreement sets forth
covenants and obligations of the Issuer and the Borrower, and reference is
hereby made to the same for a detailed statement of said covenants and
obligations. The Issuer agrees to cooperate in the enforcement of all
covenants and obligations of the Borrower under the Loan Agreement and agrees
that the Trustee, in its name may enforce all rights of the Issuer (other than
those rights contained in Sections 4.4(2), 4.4(3), 4.4(5), 7.4 and 9.5 of the
Loan Agreement) and all obligations of the Borrower under and pursuant to the
Loan Agreement and on behalf of the Holders, whether or not the Issuer has
undertaken to enforce such rights and obligations.
Section 4.8. Rights Under Mortgage and Assignment.
(1) The Issuer acknowledges that it is not a party to the Mortgage or the
Assignment and that such instruments further secure payment of the Bonds,
interest thereon and amounts due under certain other Related Documents, and
reference is hereby made to the same for a detailed statement of the
obligations of the parties thereto.
(2) Subject to the terms hereof and of the Mortgage, the Assignment and
the Regulatory Agreement, until the happening of an Event of Default
hereunder, the Borrower shall be permitted to possess, use and enjoy the
Mortgaged Property and to receive and use the issues and profits of the
Mortgaged Property.
Section 4.9. Continuing Disclosure. Pursuant to Section 7.3 of the Loan
Agreement, the Borrower has undertaken all responsibility for compliance with
continuing disclosure requirements, and the Issuer shall have no liability to
the Holders of the Bonds or any other person with respect to Securities
Exchange Commission Rule 15c2-12, as amended. Notwithstanding any other
provision of this Indenture, failure of the Borrower to comply with the
Continuing Disclosure Agreement shall not be considered an Event of Default;
however, a Bondholder or Beneficial Owner may take such actions as may be
necessary and appropriate, including seeking mandate or specific performance
by court order, to cause the Borrower to comply with its obligations under
Section 7.3 of the Loan Agreement. For purposes of this Section, "Beneficial
Owner" means any person which (a) has the power, directly or indirectly, to
vote or consent with respect to, or to dispose of ownership of, any Bonds
(including persons holding Bonds through nominees, depositories or other
intermediaries), or (b) is treated as the owner of any Bonds for federal
income tax purposes.
<PAGE> - 29 -
ARTICLE 5
FUNDS AND ACCOUNTS
Section 5.1. Trust Funds Pledged and Assigned to the Trustee.
(1) All payments, revenues and income receivable by the Issuer under the
Loan Agreement and pledged and assigned by this Indenture to the Trustee,
together with the balance of the Trust Estate, are to be paid directly to the
Trustee and, subject to the provisions of Section 8.6, deposited by it in the
Funds described in this Article 5 and held in trust for the purposes set forth
herein, and, except as otherwise provided herein, shall not be subject to any
lien, levy, garnishment or attachment by any creditor of the Issuer or the
Borrower nor shall they be subject to any assignment or hypothecation by the
Borrower. The Trustee shall at all times maintain accurate records of
deposits into such funds and the sources and timing of such deposits.
(2) In addition, each Fund shall constitute a segregated trust account or
accounts maintained with the corporate trust department of a federal
depository institution or state-chartered depository institution subject to
regulations regarding fiduciary funds on deposit similar to Title 12 of the
Code of Federal Regulations Section 9.10(b) which, in either case, has
corporate trust power, acting in a fiduciary capacity from all other funds
held by the Trustee, shall be established in the name of the Trustee and shall
bear the designation provided below with a qualifier indicating such fund is
held with respect to the Bonds (an "Eligible Account"). The Trustee shall not
deposit into such Funds any moneys other than as provided in this Indenture.
Section 5.2. Bond Proceeds Fund; Disbursement of Bond Proceeds.
(1) A special trust fund is hereby created and designated the Bond
Proceeds Fund. The proceeds of the Bonds (less accrued interest which shall
be deposited in the Bond Fund) shall be deposited with the Trustee on the date
of Bond Closing for deposit to the Bond Proceeds Fund.
(2) Immediately upon deposit of the proceeds of the Bonds to the Bond
Proceeds Fund and upon receipt of an executed requisition certificate in the
form of Exhibit A hereto, the Bond Proceeds shall be transferred to the Prior
Note Holder (as defined in Exhibit A) upon simultaneous receipt by the Trustee
from the Prior Note Holder of a receipt for the proceeds of the Bonds in the
form of Exhibit A hereto.
Section 5.3. Revenue Fund and Bond Fund.
(1) Special trust funds are hereby created and designated the Revenue
Fund and the Bond Fund.
(2) The Trustee shall deposit in the Bond Fund all interest which has
accrued on the Bonds from the dated date of the Bonds to the date of the Bond
Closing.
(3) All Project Revenues are assigned by the Indenture to the Trustee for
deposit in the Revenue Fund.
(4) All Project Revenues received by the Borrower shall be transferred to
the Trustee within one Business Day of receipt. The Borrower is solely
responsible for the collection of rentals paid by tenants of the Project and
agrees to deposit Project Revenues in a depository account established solely
for that purpose, which account shall be invested in Permitted Investments,
provided that the sums of all accounts maintained by the Borrower at any one
depository shall not exceed $100,000. The Trustee is under no obligation to
monitor receipt of rents paid by tenants. The Borrower may retain in its
depository account a balance of up to $10,000 from the Project Revenues to
cover insufficient funds checks from tenants.
(5) Provided no Event of Default has occurred and is continuing, the
balance of the Revenue Fund shall be distributed by the Trustee within 2
Business Days of the 15th day of the month as follows:
FIRST: to the Bond Fund one-sixth of the interest to become due on the
next Interest Payment Date and one-sixth of the principal to become due on the
next Principal Payment Date, provided that (i) monthly deposits from January
15, 1998 through May 15, 1998 will be equal to a pro rata portion of the
principal of and interest on the Bonds due on June 1, 1998, and (ii) when the
amount in the Bond Fund is equal to the next required payment of principal and
interest no further payments shall be required that month;
<PAGE> - 30 -
SECOND: to the Rebate Fund the amount calculated by the Arbitrage
Consultant as due with respect to a particular Bond Year;
THIRD: to the Trustee, the amount of its Ordinary Fees and Expenses then
due, if any and then to the Arbitrage Consultant, the reasonable fees and
expenses as billed and due to it for services hereunder;
FOURTH: to the Real Estate Tax and Insurance Account of the Servicing
Fund, 1/12 of 100% of the amount budgeted by the Borrower in the Annual Budget
for annual premiums for insurance required to be maintained pursuant to the
Loan Agreement and for annual real estate taxes (or payments in lieu of taxes)
or other charges for governmental services for the current year (except for
utility charges); provided, however, that distribution by the Trustee to the
Real Estate Tax and Insurance Account in respect of the first date or dates on
which premiums for insurance and taxes or other payments described above are
payable shall be made in amounts equal to the respective quotients obtained by
dividing (i) the amount of such premiums and (ii) the amount of such taxes or
other charges by the respective number of months, including the month of
computation, to and including the month prior to the month in which such
premiums or taxes are payable;
FIFTH: to the Repair and Replacement Account of the Servicing Fund, the
sum of $10,852.67; and
SIXTH: to the Surplus Fund, any moneys not required currently to be paid
into any of the above Funds to be used to cure any cumulative deficiencies in
any of the above funds.
(6) The Trustee shall also deposit to the Bond Fund any amounts
transferred thereto pursuant to Sections 5.8 and 5.9 and any amounts deposited
to effect an optional redemption of Bonds pursuant to Article 3. Except as
otherwise provided herein, all Revenues shall be deposited to the Bond Fund
and used to pay principal of, premium, if any, and interest on the Bonds, when
due.
Section 5.4. Surplus Fund.
(1) The Trustee shall establish and maintain a fund separate from any
other fund established and maintained hereunder, designated the Surplus Fund.
(2) Moneys in the Surplus Fund shall be disbursed by the Trustee without
further authorization, within 2 Business Days of the 20th day of the month,
upon receipt of a statement to pay the Rating Agency its fees of $5,000 per
year, or to remedy any deficiency in any other Fund in the order of priority
set forth in paragraphs (6) and (7) of Section 5.3.
(3) Any balance in the Surplus Fund remaining after payment of the items
listed in clauses FIRST through FIFTH of paragraph (5) of Section 5.3 and
paragraph (2) of this Section and in excess of $5,000 shall be promptly
distributed to the Borrower.
Section 5.5. Purchase of Bonds at Request of Borrower. Upon deposit by
the Borrower in the Bond Fund of sums in excess of amounts required to pay
principal and interest due on the Bonds on the next Interest Payment Date and
Principal Payment Date and other payments then and theretofore required to be
so deposited, which, together with any other available funds in the Bond Fund
requested to be so used by the Borrower, are sufficient to redeem, provide for
the discharge of, or purchase, on the open market, one or more Bonds from
Protected Funds, as provided in Section 8.1 of the Loan Agreement, the Trustee
shall use such funds, at the written direction of the Borrower, to purchase
Bonds which are tendered for purchase by the Borrower, in the amount of the
sums so deposited or available. All Bonds so purchased by the Trustee shall
be cancelled as soon as received unless otherwise directed in the request of
the Borrower.
Section 5.6. Deposit of Funds With Paying Agent.
(1) If the Trustee is not the Paying Agent, the Trustee shall transfer
and remit sums from the Bond Fund to the Paying Agent on or before the
Business Day prior to each Interest Payment Date and Principal Payment Date,
from the balance then on hand in the Bond Fund, sufficient to pay all
principal, interest and redemption premiums then due on the Bonds. The Paying
Agent shall hold in trust for the Holders of such Bonds all sums so
transferred to it in Eligible Accounts until paid to such Holders or otherwise
disposed of as herein provided.
<PAGE> - 31 -
(2) Subject to the provisions of Sections 2.12, interest on each Bond
(including accrued interest to the date of deposit and interest, to the extent
permitted by law, on overdue installments of interest at the rate borne by
such Bond) (a) shall cease on its Maturity Date, provided that funds
sufficient for the payment thereof with accrued interest and any redemption
premium have been deposited with the Paying Agent on or before the Maturity
Date, and in the case of redemption, that the requirements of Article 3 have
been complied with, or (b) shall cease on any date after its Maturity Date on
which such deposit has been made, and the Holder shall have no further rights
with respect to the Bonds or under this Indenture except to receive the
payment so deposited.
(3) The Trustee will cause any Paying Agent which is not the Trustee to
execute and deliver to it an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section 5.6, that such
Paying Agent will:
(a) hold all sums held by it for the payment of principal of (and
premium, if any) or interest on Bonds in trust for the benefit of the
Holders of such Bonds until such sums shall be paid to such Holders or
otherwise disposed of as herein provided; and
(b) at any time during the continuance of any default in the making
of any such payment of principal (and premium, if any) or interest, upon
the written request of the Trustee forthwith pay to the Trustee all sums
so held in trust by such Paying Agent.
Section 5.7. Rebate Fund.
(1) The Trustee shall establish and maintain a fund separate from any
other fund established and maintained hereunder, designated as the Rebate
Fund. There shall be deposited in the Rebate Fund such amounts as are
required to be deposited therein pursuant to the Non-Arbitrage Certificate at
the direction of the Arbitrage Consultant. Subject to the transfer provisions
provided in subsection (3) below, all amounts on deposit in the Rebate Fund
shall be held by the Trustee in trust, to the extent required to pay arbitrage
rebate to the United States of America, and neither the Issuer, the Borrower
nor the Holders of any Bonds shall have any rights in or claim to such money.
All amounts held in the Rebate Fund shall be governed by this Section and by
the Non-Arbitrage Certificate (which is incorporated herein by reference).
(2) The Trustee shall be entitled to unconditionally accept and rely upon
the recommendations, advice, calculations and opinions of the Arbitrage
Consultant as to actions required or not required to be taken by the Trustee
to comply with the provisions of Section 148(f) of the Code, including the
payment of arbitrage rebate. The Trustee agrees to act in accordance with the
recommendations, advice and opinions of the Arbitrage Consultant for the
purpose of complying with any applicable provision of Section 148(f) of the
Code.
(3) Pursuant to the Non-Arbitrage Certificate, the Trustee shall remit
all rebate installments and a final rebate payment to the United States of
America pursuant to the final report of the Arbitrage Consultant. The Trustee
shall have no obligation to pay any amounts required to be rebated pursuant to
this Section and the Non-Arbitrage Certificate, other than from moneys held in
the Funds created under this Indenture or from other moneys provided to it by
the Borrower. Any moneys remaining in the Rebate Fund after redemption and
payment of all of the Bonds, the payment of any other amounts due hereunder
and payment and satisfaction of any arbitrage rebate shall be withdrawn and
remitted to the Borrower.
(4) Notwithstanding any other provision of this Indenture, including in
particular Article 7 hereof, the obligation to pay arbitrage rebate to the
United States of America and to comply with all other requirements of this
Section and the Non-Arbitrage Certificate shall survive the defeasance or
payment in full of the Bonds.
Section 5.8. Mortgage Recovery Fund.
(1) The Trustee shall establish and maintain a special trust fund
separate from any other fund established and maintained hereunder designated
as the Mortgage Recovery Fund.
<PAGE> - 32 -
(2)(a) Subject to subparagraph (b), in the event there is damage,
destruction or condemnation of the Project and the Proceeds exceed $250,000
per occurrence, the Proceeds shall be deposited in the Mortgage Recovery
Fund. Moneys in the Mortgage Recovery Fund shall be disbursed in the
following order of priority to (1) pay or reimburse the Borrower for the costs
of repairing or replacing the Project, in accordance with paragraph (6) below;
(2) to the extent permitted by Section 3.14 of the Mortgage, or if the
Borrower fails to comply with the requirements of paragraph (6) below, redeem
or purchase Bonds, in whole or in part, or to pay the principal of and
interest on the Bonds upon the acceleration of the maturity thereof to the
extent the available Proceeds are Protected Funds; (3) make payments of
principal and interest on the Bonds; and (4) pay Additional Charges. The
Trustee's use of Proceeds is further subject to the provisions of paragraph
(4) below. The disposition of Proceeds not exceeding $250,000 per occurrence
shall be governed by Section 3.14 of the Mortgage.
(b) If damage, destruction or condemnation of substantially all of the
Project occurs, if any damage, destruction or condemnation occurs within six
months of the final maturity of the Bonds and the Proceeds exceed $250,000 per
occurrence or if the Project cannot be repaired or replaced to its condition
immediately prior to such casualty, or in the case of a Condemnation to a
condition suitable for the continued operation of the remaining portion of the
Project, prior to expiration of the Borrower's business interruption
insurance, the Proceeds shall be deposited in the Mortgage Recovery Fund and
shall be disbursed to redeem or purchase Bonds in accordance with Section
3.1(1).
(3) In the event of a foreclosure of the Mortgage, the Net Proceeds
realized from the foreclosure sale shall be deposited in the Mortgage Recovery
Fund and shall be disbursed by the Trustee to (a) redeem Bonds, in whole, to
the extent Net Proceeds are Protected Funds; (b) make payments of principal
and interest on the Bonds or other amounts due under the Related Documents; or
(c) pay Additional Charges. The Trustee's use of Net Proceeds pursuant to
clause (c) is subject to the provisions of paragraph (4) below.
(4) Moneys in the Mortgage Recovery Fund shall be transferred by the
Trustee to the Bond Fund to pay principal of and interest on the Bonds when
due to the extent funds are not otherwise available to make payment on the
Bonds when due.
(5) In the event moneys are deposited in the Mortgage Recovery Fund
pursuant to the Assignment, such moneys shall be disbursed in the manner set
forth in paragraph (3) above.
(6)(a) If amounts in the Mortgage Recovery Fund are to be applied to pay
or reimburse the Borrower for the costs of repairing or replacing the Project
the following shall govern:
(1) The Trustee shall have been furnished within 120 days after the
date of such casualty or condemnation, (i) a written opinion of a Project
Engineer based upon plans, specifications and cost estimates provided to
the Project Engineer by the Borrower that the Project can be restored
within a period of 360 days after the date of such casualty or
condemnation to its condition immediately prior to such casualty, or in
the case of a Condemnation, to a condition suitable for the continued
operation of the remaining portion of the Project, and in any event prior
to expiration of the Borrower's business interruption insurance, and (ii)
a contract between the Borrower and a general contractor, whereby the
general contractor agrees to restore the Project for a fixed price (the
"Construction Contract");
(2) The Borrower shall provide to the Trustee a construction
statement itemizing the full cost of the repair or restoration and the
time schedule for completion, sworn to by the Borrower or the general
contractor (the "Construction Statement") unless an itemized list of the
full cost of repair and restoration and the time schedule is set forth in
the Construction Contract;
(3) The Proceeds to be deposited in the Mortgage Recovery Fund to
pay for such repair or restoration must be sufficient to complete such
repair or restoration, or the Borrower must deliver to the Trustee for
deposit in the Mortgage Recovery Fund the net difference prior to
commencing repair or restoration;
<PAGE> - 33 -
(4) Disbursements from the Mortgage Recovery Fund to pay the cost of
such repair or restoration shall be made not more frequently than twice a
month for restoration work completed and in place;
(5) The Trustee shall retain in the Mortgage Recovery Fund, 10% of
each disbursement requested until disbursed in accordance with
subparagraph (6)(b), (c) or (d) below; and
(6) Disbursements from the Mortgage Recovery Fund for the cost of
repair or restoration of the Project shall be made by the Trustee within
seven calendar days of the receipt of:
(i) a Requisition, signed by the Borrower and approved by the
Project Engineer, stating to whom the payment is to be made, the
general purpose for which the obligation to be paid was incurred and
identifying the obligation as one set forth in the Construction
Statement or Construction Contract required above;
(ii) evidence satisfactory to the Trustee furnished by the
Borrower that it has filed an amendment to all financing statements
satisfying the requirements of the Uniform Commercial Code of the
State or the State of Georgia, as applicable, adding to the property
description of the Covey Project or the Park Trace Project, as
applicable, any items, not previously included, which are acquired
as part of the Covey Project or the Park Trace Project; and
(iii) a title search certificate as described in Section 3.5 of
the Loan Agreement and applicable lien waivers.
The Trustee shall be fully protected and incur no liability in relying
upon all statements made by the Borrower in the Requisition.
(b) The Trustee shall not honor any Requisition if an Event of Default
under the Loan Agreement, any Related Document to which the Borrower is a
party or this Indenture shall have occurred and is continuing nor shall the
Trustee honor any Requisition to the extent the amount requested exceeds the
cost allocated to or allowed for such work per the Construction Statement or
as set forth in the Construction Contract as provided in clause (a)(2) of this
subsection (6). All requisitions in the form provided by this Indenture and
all other statements, orders, certifications and approvals received by the
Trustee, as required by this Article as conditions of payment from the
Mortgage Recovery Fund, may be conclusively relied upon by the Trustee, and
shall be retained by the Trustee, subject at all reasonable times to
examination by the Borrower, the Issuer, and the agents and representatives
thereof.
(c) In the event that the Borrower does not complete the repair or
replacement of the Project in accordance with the Construction Statement or as
set forth in the Construction Contract as provided in clause (a)(2) of this
subsection (6), the Trustee shall, after 30 days' written notice from the
Trustee to the Borrower of such failure and continuance of such failure at the
end of such period, either disburse moneys in the Mortgage Recovery Fund,
including retainage for the payment of costs of repairing or replacing the
Project, or disburse moneys in the Mortgage Recovery Fund for any other
purpose described in paragraph (2) above (other than clause (a)) in the
priority set forth in paragraph (2).
(d) Upon the completion of the repair or replacement of the Project (as
evidenced by a certificate of the Project Engineer, a certificate of
occupancy, delivery of construction lien waivers and delivery of an
endorsement to the title policy insuring a first lien against the Premises),
the accumulated retainage shall be disbursed to the Borrower and the balance
in the Mortgage Recovery Fund shall be first, applied to any Additional
Charges, and second, deposited by the Trustee into the Servicing Fund, unless
directed in writing by the Borrower to be applied to the redemption or
purchase of Bonds pursuant to Section 3.1(1).
Section 5.9. Servicing Fund.
(1) The Trustee shall establish and maintain a special trust fund
separate from any other fund established and maintained hereunder designated
as the Servicing Fund.
(2) The Trustee shall deposit amounts provided in Section 5.3 hereof into
the Servicing Fund. The following accounts shall be established and
maintained in the Servicing Fund:
<PAGE> - 34 -
(a) The Real Estate Tax and Insurance Account. The Trustee shall
transfer from the Revenue Fund amounts required by Section 5.3 for
deposit to the Real Estate Tax and Insurance Account (the "Real Estate
Tax and Insurance Account") and shall maintain separate accounting of
payments applicable to each of real estate taxes and assessments and
insurance premiums. Interest accrued on this account shall become a part
of this account and may be utilized for the purposes of this account.
The Trustee shall pay all of the real estate taxes and assessments with
respect to the Project solely from funds earmarked for real estate taxes
and assessments and accounted for as part of the Real Estate Tax and
Insurance Account not more than 15 days in advance of and in all events
not later than when due. The Trustee shall pay all of the insurance
premiums due with respect to the Project solely from funds earmarked for
insurance premiums and accounted for as part of the Real Estate Tax and
Insurance Account not more than 15 days in advance of and in all events
not later than when due. In the event insurance for the Project is
provided through a blanket policy of insurance covering additional
properties other than the Project, the Trustee shall pay such portion of
the premiums therefor as may be customary. The Trustee shall disburse
amounts upon receipt of a certificate from the Borrower and invoices
therefor indicating payment to be made. Except as provided in the
preceding sentence, the Trustee shall not be responsible for payment of
real estate taxes and assessments and insurance premiums in the event
there are insufficient funds in the Real Estate Tax and Insurance Account
to pay the real estate taxes and assessments and insurance premiums when
due. In such event, the Borrower shall, on demand of the Trustee,
deposit with the Trustee any amount necessary to make up the deficiency.
Amounts in the Real Estate Tax and Insurance Account in excess of the
requirements therefor shall be credited against future required transfers
from the Revenue Fund.
(b) The Repair and Replacement Account. The Trustee shall transfer
from the Revenue Fund amounts required by Section 5.3 for deposit to the
Repair and Replacement Account and shall maintain separate accounting
thereof (the "Repair and Replacement Account"). The Trustee shall
disburse amounts from such funds accounted for as the Repair and
Replacement Account to pay or reimburse the Borrower for the payment of
capital expenditures and replacements to the Project, exclusive of
ordinary or routine maintenance upon receipt by the Trustee of a
certificate from the Borrower that it has incurred capital expenditures,
repairs or replacements which have not been the subject of a previous
request, and invoices therefor indicating payment to be made. For
expenditures in excess of $20,000, the Trustee shall require written
certification of the Borrower of lien-free completion of such work. The
Trustee shall be fully protected and incur no liability in relying upon
the Borrower's certificate. Interest accrued on the Repair and
Replacement Account shall become a part of the account and may be
utilized for the purposes of this account. In no event shall the Trustee
be obligated to consider requests for more than one disbursement from the
Repair and Replacement Account each calendar month. Moneys in the Repair
and Replacement Account shall be transferred by the Trustee to the Bond
Fund to pay principal of and interest on the Bonds when due to the extent
funds are not otherwise available to make payment on the Bonds when due.
Section 5.10. Costs of Issuance Fund. A special trust fund is hereby
created and designated the Costs of Issuance Fund. There shall be deposited
to the credit of the Costs of Issuance Fund on Bond Closing $165,795 by the
Borrower representing an equity contribution by the Borrower. The Trustee
shall disburse amounts in the Costs of Issuance Fund upon written request of
the Borrower to pay or reimburse the Borrower for Costs of Issuance. Any
amounts in the Costs of Issuance Fund on the ninetieth day following the Bond
Closing shall be transferred to the Borrower.
Section 5.11. Interest Earned on Funds.
(1) The interest earned from the investment of money held by the Trustee
in each of the Funds created under this Article 5 (other than the Rebate Fund)
shall inure to the benefit of the Borrower, and, except as provided in
paragraph (2) below, shall be retained in such separate Fund and applied as a
credit against the payment next due into such separate Fund.
(2) During the continuance of an Event of Default or an event which, with
notice or lapse of time or both, would become an Event of Default, interest
earned from the investment of money in the Funds created under this Article 5
shall be held in each such Fund and not credited against the payments next due
to or from such separate Funds.
<PAGE> - 35 -
Section 5.12. Final Balances. Upon the deposit with the Trustee of
moneys sufficient to pay all principal of, premium, if any, and interest on
the Bonds, and upon satisfaction of all claims against the Issuer hereunder
and under the Related Documents, including any rebate obligation, all fees,
charges and expenses of the Trustee, the Bond Registrar, the Issuer and any
Paying Agent which are properly due and payable hereunder, or upon the making
of adequate provisions for the payment of such amounts as permitted hereby,
all moneys remaining in all Funds, except: (1) moneys necessary to pay
principal of, premium, if any, and interest on the Bonds, which moneys shall
be held by the Trustee for payment to the Bondholders or to the Borrower
pursuant to Section 5.6(3); and (2) moneys, if any, set aside pursuant to
Section 5.7 hereof, shall be remitted to the Borrower.
ARTICLE 6
INVESTMENTS
Section 6.1. Investments by Trustee.
(1) Moneys held hereunder by the Trustee in the Funds, if permitted by
law, shall, as nearly as may be practicable, be invested by the Trustee:
(a) unless an Event of Default, or an event, which with notice or
lapse of time or both would become an Event of Default has occurred and
is continuing, upon direction of the Borrower given or confirmed in
writing (which direction shall specify the amount thereof to be so
invested), in Permitted Investments maturing on or before the Business
Day prior to the day such amounts are required and in the amounts
required, to enable the Trustee to make payments due hereunder on the
Bonds or otherwise, but in no event longer than 180 days from the date of
acquisition; or
(b) if an Event of Default has occurred and is continuing, or an
event, which with notice or lapse of this or both would become an Event
of Default, in Permitted Investments of the type described in clause
(a)(v) of the definition of Permitted Investments.
(2) The Trustee shall sell and reduce to cash a sufficient portion of
investments under the provisions of this Section whenever the cash balance in
the Fund for which the investment was made is insufficient for its current
requirements. Securities so purchased as an investment of money shall be held
by the Trustee, shall be registered in the name of the Trustee or its nominee
if registration is required, and shall be deemed at all times a part of the
applicable Fund, and the interest accruing thereon and any profit realized
from such investments shall be credited to the Fund from which the investment
was made, subject to any transfer to another Fund as herein provided. Any
loss resulting from such investment shall be charged to the Fund from which
the investment was made, and in the event such loss reduces the amount held in
such Fund below the amount required to be deposited in such Fund, the Trustee
shall request the Borrower to transfer to the Trustee for deposit into such
Fund the amount required to restore amounts in such Fund to the required
amount. The Trustee shall not be liable for any loss incurred from the
purchase or sale of any investment (except for any such loss resulting from
the gross negligence or willful misconduct of the Trustee or its employees).
(3) The Trustee may purchase from or sell to itself, or through any
affiliated company, as principal or agent, securities herein authorized so
long as such purchase or sale is at fair market value.
Section 6.2. Computation of Balances in Funds. In computing the assets
of any Fund established hereunder, investments and accrued but unpaid interest
thereon shall be deemed a part thereof, and, except as otherwise provided in
the Non-Arbitrage Certificate, such investments shall be valued at par value,
or at the redemption price thereof, if then redeemable at the option of the
obligor, whichever is lower.
Section 6.3. Downgrade of Rating. If any rating of a Permitted
Investment during the term of this Indenture falls below such rating that is
required pursuant to the definition of "Permitted Investments" then the
Trustee shall within two Business Days after receiving actual knowledge of the
downgrade of the rating of an investment notify in writing the Borrower of
such downgrade. The Borrower shall within five Business Days of the receipt
of the downgrade notice from the Trustee, direct the Trustee to sell such
downgraded investment and reinvest the proceeds in other Permitted Investments.
<PAGE> - 36 -
ARTICLE 7
DISCHARGE OF LIEN
Section 7.1. Payment of Bonds; Satisfaction, Defeasance and Discharge of
Bonds and Obligation to Bondholders. Whenever the conditions specified in
either clause (A) or clause (B) of the following subsection (1) and the
conditions specified in the following subsections (2), (3), (4) and (5) to the
extent applicable, shall exist, namely:
(1) either:
(A) all Bonds have become due and payable and all principal or
premium, if any, and interest on the Bonds shall have been paid in full,
or all Bonds have been cancelled by the Trustee or delivered to the
Trustee for cancellation without payment, except for:
(i) Bonds for which Protected Funds have theretofore been
deposited in trust or segregated and held in trust by the Paying
Agent or Trustee and thereafter repaid to the Borrower or discharged
from such trust, as provided in Section 5.6; and
(ii) Bonds alleged to have been destroyed, lost or stolen which
have been replaced or paid as provided in Section 2.7, and (1)
which, prior to the satisfaction and discharge of this Indenture as
hereinafter provided, have not been presented to the Paying Agent or
Trustee with a claim of ownership and enforceability by the Holder
hereof, or (2) whose enforceability by the Holder thereof has been
determined adversely to the Holder by a court of competent
jurisdiction or other competent tribunal; or (B) the Issuer or
the Borrower has deposited or caused to be deposited, as trust
funds, with the Trustee cash and/or Permitted Investments of the
type described in clause (a)(i) of the definition of that term which
are Protected Funds and which do not permit the redemption thereof
at the option of the issuer thereof, the principal of, premium, if
any, and interest on the Bonds which when due (or upon the
redemption thereof at the option of the holder), will, without
reinvestment, provide cash which together with the cash, if any,
deposited with the Trustee at the same time, shall be sufficient, to
pay and discharge the entire indebtedness on Bonds not theretofore
cancelled by the Trustee or delivered to the Trustee for
cancellation by the payment of interest on and principal (and
premium, if any) of the Bonds which have become due and payable or
which shall become due at their stated maturity or redemption date,
as the case may be (the "Defeasance Collateral"), and which are to
be discharged under the provisions hereof, and has made arrangements
satisfactory to the Trustee for the giving of notice of redemption,
if any, by the Trustee in the name, and at the expense, of the
Borrower in the same manner as is provided by Section 3.2;
(2) the Issuer or Borrower has paid, caused to be paid or made
arrangements satisfactory to the Trustee for the payment of all other sums due
and payable hereunder, including any rebate obligation, and under the Related
Documents by the Trustee or Borrower;
(3) the Borrower has delivered to the Trustee and the Issuer a report of
an Independent Accountant stating that the payments to be made on any
securities, together with the cash, if any, deposited pursuant to clause (B)
of subsection (1) above will be sufficient to pay when due the principal of,
premium, if any, and interest on the Bonds to be defeased;
(4) if discharge is to be effected under clause (B) of subsection (1), an
opinion of Bond Counsel is delivered to the Trustee and the Issuer stating in
effect that such discharge will not impair the exclusion of interest on the
Bonds from gross income for federal income tax purposes;
<PAGE> - 37 -
(5) the Borrower has delivered to the Trustee and the Issuer an opinion
of Independent Counsel to the effect that (i) the Defeasance Collateral has
been duly and validly assigned and delivered to the Trustee, (ii) the security
interest of the Trustee for the ratable benefit of the Bondholders, with
respect to Defeasance Collateral, is a first priority perfected security
interest as security for payment of the Bonds, which opinion may contain, and
be subject to, conditions, exceptions or qualifications as are then
customarily included in such opinions, (iii) making the payment which
accompanies such opinion would not constitute an avoidable preference under
Section 547 of the Bankruptcy Code or under applicable state law in the event
of a filing of a petition for relief under the Bankruptcy Code or such
applicable state law by or against the Borrower and (iv) the Defeasance
Collateral would not be part of the bankrupt estate under Section 541 of the
Bankruptcy Code or be subject to the automatic stay under Section 362 of the
Bankruptcy Code in the event of a filing of a petition for relief under the
Bankruptcy Code by or against the Borrower; and
(6) the Borrower has delivered to the Trustee a letter from the Rating
Agency to the effect that such deposit will not cause the rating on the Bonds
to be downgraded, withdrawn or qualified by the Rating Agency;
then, except as otherwise provided in Section 7.5, the rights of the
Bondholders shall be limited to the cash or cash and securities deposited as
provided in clause (1)(A) or (1)(B) above, and upon the Borrower's request the
rights and interest hereby granted or granted by the Related Documents to or
for the benefit of the Trustee or the Bondholders shall cease, terminate and
become null and void, and the Issuer and the Trustee shall, at the expense of
the Borrower, execute and deliver such instruments of satisfaction and
transfer as may be necessary, and forthwith the estate, right, title and
interest of the Trustee in and to all of the Project and in and to all rights
under this Indenture and the Related Documents (except the moneys or
securities or both deposited as required above, arbitrage rebate and except as
may otherwise be provided in Section 7.5) shall thereupon be discharged and
satisfied; except that in any event the obligations of the Borrower under
Sections 4.4 and 7.4 of the Loan Agreement shall survive.
Section 7.2. Cancellation of Surrendered Bonds. The Issuer or the
Borrower may at any time surrender to the Trustee for cancellation by the
Trustee any Bonds previously authenticated and delivered hereunder which the
Issuer or Borrower acquired in any manner whatsoever, and such Bonds, upon
such surrender and cancellation, shall be deemed to be paid and retired.
Section 7.3. Payment of Bonds. Any Bonds shall be deemed paid if the
conditions set forth in Section 7.1 hereof have been satisfied with respect
thereto.
Section 7.4. Application of Deposited Money. All money, obligations and
income thereon deposited with the Trustee pursuant to Section 7.1 for the
purpose of paying the principal, premium, if any, and interest on Bonds shall
be applied by the Trustee solely for such purpose.
Section 7.5. Survival of Certain Provisions. Notwithstanding the
release and discharge of the lien of this Indenture as provided in this
Article, those provisions of this Indenture set forth in Sections 4.7 and 9.1
and those provisions relating to arbitrage rebate, the maturity of the Bonds,
interest payments and dates thereof, redemption of Bonds, exchange and
transfer of Bonds, replacement of mutilated, destroyed, lost, stolen or Bonds,
the safekeeping and cancellation of Bonds, non-presentment of Bonds, the
holding of moneys in trust, and the duties of the Trustee, the Bond Registrar
and the Paying Agent in connection with all of the foregoing, remain in effect
and shall be binding upon the Trustee and the Bondholders.
ARTICLE 8
DEFAULT PROVISIONS AND REMEDIES
Section 8.1. Events of Default. Subject to the provisions of Section
8.10, each of the following events is hereby defined as and declared to be and
to constitute an Event of Default (whatever the reason for such an Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) If default shall be made in the due and punctual payment of any
interest on any Outstanding Bond hereby secured on the due date thereof; or
<PAGE> - 38 -
(2) If default shall be made in the due and punctual payment of the
principal of, or any redemption premium, if any, on, any Outstanding Bond on
the Maturity Date or Purchase Date thereof; or
(3) If default shall be made in the due and punctual payment of any other
moneys required to be paid to the Trustee under the provisions hereof and,
except with respect to payments required to be made under Section 5.9(2)(a),
such default shall have continued for a period of five days after written
notice thereof, specifying such default, shall have been given by the Trustee
to the Issuer and the Borrower, or to the Issuer, the Borrower and the Trustee
by the Holders of not less than 25% in aggregate principal amount of the Bonds
then outstanding; or
(4) If default shall be made in the performance or observance of any
other of the covenants, agreements or conditions on the part of the Issuer
contained in this Indenture or in the Bonds, and such default shall have
continued for a period of 30 days after written notice thereof given in the
manner provided in clause (3) above; or
(5) If the Trustee has actual knowledge, or has been notified in
writing, that an Event of Default (as defined in the Loan Agreement, the
Mortgage or the Assignment) has occurred and is continuing; or
(6) The entry by a court having jurisdiction over the Borrower or its
general partner of (A) a decree or order for relief in respect of the Borrower
or its general partner in an involuntary case or proceeding under any
applicable federal or State bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Borrower or its general
partner bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Borrower or its general partner under any applicable federal or
State law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Borrower or its general partner
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order not stayed or dismissed and in
effect for a period of more than 90 consecutive days; or
(7) The commencement by the Borrower or its general partner of a
voluntary case or proceeding under any applicable federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated bankrupt or insolvent, or the consent by it to
the entry of a decree or order for relief in respect of the Borrower or its
general partner in an involuntary case or proceeding under any applicable
federal or State bankruptcy, insolvency, reorganization or other similar law
or to the commencement of any bankruptcy or insolvency case or proceeding
against it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable federal or State law or the
consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Borrower or its general partner or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its inability
to pay its debts generally as they become due, or the taking of corporate
action by the Borrower or its general partner in furtherance of any such
action.
The Trustee shall provide Bondholders and the Rating Agency notice of any
Event of Default as provided in Section 9.3 hereof.
Section 8.2. Acceleration. The Trustee may (and shall, upon written
direction of Holders of not less than 25% of the principal amount of Bonds
Outstanding), upon the occurrence of an Event of Default, and by notice in
writing delivered to the Issuer and the Borrower, declare the principal of all
of the Outstanding Bonds and the interest accrued thereon immediately due and
payable. The Trustee shall give notice of acceleration to Bondholders in the
same manner as notice of redemption is given under Section 3.2 (except as to
the timing thereof) stating the accelerated date upon which the Bonds are due
and payable, provided that the Trustee shall not be required to delay the
effective date of acceleration until such notice is given.
Section 8.3. Remedies.
<PAGE> - 39 -
(1) Upon the occurrence of an Event of Default or an event which, with
notice or lapse of time or both, would become an Event of Default, the Trustee
(subject to the rights of the Trustee under Article 9, including its receipt
of indemnity acceptable to it pursuant to Section 9.1 hereof) shall enforce
any and all rights available to the Issuer, the Trustee or the Bondholders
under this Indenture, the Loan Agreement, the Regulatory Agreement, the
Mortgage and the Assignment or otherwise, and, in this regard, is specifically
authorized to transfer funds from any Fund created pursuant to Article 5
(except arbitrage rebate whether or not deposited in the Rebate Fund and
moneys held in trust for the payment of Bonds or interest thereon which have
matured or otherwise become payable prior to such Event of Default) to the
Bond Fund for its use in paying principal and interest on the Bonds.
(2) No remedy by the terms of this Indenture conferred upon or reserved
to the Trustee (or the Bondholders) is intended to be exclusive of any other
remedy, but each and every such remedy shall be cumulative and shall be in
addition to any other remedy (i) given to the Trustee or to the Holders
hereunder or (ii) now or hereafter existing at law or in equity or by statute.
(3) No delay or omission to exercise any right or power accruing upon any
Event of Default shall impair any such right or power or shall be construed to
be a waiver of any such Event of Default, or acquiescence therein; and every
such right and power may be exercised from time to time and as often as may be
deemed expedient.
(4) No waiver of any Event of Default hereunder, whether by the Trustee
or the Holders, shall extend to or shall affect any subsequent Event of
Default or impair any rights or remedies consequent thereon.
Section 8.4. Direction of Proceedings by Bondholders. Anything in this
Indenture to the contrary notwithstanding, the Holders of a majority in
aggregate principal amount of the Bonds then outstanding, shall have the
right, at any time, by an instrument or instruments in writing executed and
delivered to the Trustee and subject to receipt by the Trustee of indemnity
acceptable to it pursuant to Section 9.1 hereof, to direct the method and
place of conducting all proceedings to be taken in connection with the
enforcement of the terms and conditions of this Indenture, the Loan Agreement,
the Regulatory Agreement, the Mortgage and the Assignment or for the
appointment of a receiver or any other proceedings hereunder, provided that
such direction shall not be otherwise than in accordance with the provisions
of law and of this Indenture, the Loan Agreement, the Regulatory Agreement,
the Mortgage and the Assignment. The Trustee may decline to follow any
direction if the Trustee determines in good faith that the directed proceeding
would involve it in personal liability.
Section 8.5. Waiver of Stay or Extension Laws. Upon the occurrence of
an Event of Default, to the extent that such rights may then lawfully be
waived, neither the Issuer nor anyone claiming through it or under it shall or
will set up, claim, or seek to take advantage of any appraisement, valuation,
stay, extension or redemption laws now or hereafter in force, in order to
prevent or hinder the enforcement of this Indenture, but the Issuer, for
itself and all who may claim through or under it, hereby waives to the extent
that it lawfully may do so the benefit of all such laws and all right of
appraisement and redemption to which it may be entitled under the laws of the
State.
<PAGE> - 40 -
Section 8.6. Priority of Payment and Application of Moneys. All Bonds
issued hereunder and secured hereby shall be equally and ratably secured by
and payable from the Trust Estate, without priority of one Bond over any
other, except as otherwise expressly provided herein. Upon the occurrence of
an Event of Default, all moneys collected pursuant to action taken under the
Loan Agreement, the Regulatory Agreement, the Mortgage or the Assignment
(other than sums payable directly to the Issuer under Sections 4.3(2), 4.3(3),
4.3(5), 7.4 and 9.5 of the Loan Agreement), after payment of the fees, costs
and expenses (including court costs and reasonable attorneys' fees) of the
proceedings resulting in the collection of such moneys (including any such
costs and expenses incurred by the Issuer) and of the fees, expenses,
liabilities and advances (provided that the Trustee shall not be required to
make any advances, as set forth in Section 9.1(13) hereof) incurred or made by
the Trustee, and any amounts needed to be deposited into the Rebate Fund, and
after any other prior application of such moneys has been made as is required
by law, or required or permitted by the Related Documents, shall be deposited
in such fund or funds described in Article 5 of this Indenture as the Trustee
deems appropriate; and all moneys in the Bond Fund and, at the discretion of
the Trustee except when otherwise required hereunder, any other Fund described
in Article 5 (excluding, however, arbitrage rebate, whether or not deposited
in the Rebate Fund, moneys in the Bond Proceeds Fund and any moneys held in
trust for the payment of Bonds or interest thereon which have matured or
otherwise become payable prior to such Event of Default) shall be applied as
follows:
(1) Unless the principal of all the Bonds shall have become or shall have
been declared due and payable, all such moneys shall be applied:
FIRST: To reimburse and/or pay to the Trustee in full for costs,
expenses or fees (including, without limitation, all amounts payable as
Additional Charges pursuant to the Loan Agreement) not described in the
first unnumbered paragraph of this Section 8.6;
SECOND: To the payment to the persons entitled thereto of all
installments of interest then due on the Bonds, in the order of the
maturity of the installments of such interest and, if the amount
available shall not be sufficient to pay in full any particular
installment, then to the payment ratably, according to the amounts due on
such installment, to the persons entitled thereto, without any
discrimination or privilege;
THIRD: To the payment to the persons entitled thereto of, first,
the unpaid principal of and, second, redemption premium, if any, on any
of the Bonds which shall have become due (other than Bonds which have
matured or have otherwise become payable prior to such Event of Default
and moneys for the payment of which are held in trust pursuant to the
provisions of this Indenture) in the order of their due dates and, if the
amount available shall not be sufficient to pay in full the unpaid
principal and redemption premium, if any, on Bonds due on any particular
due date, then first to the payment of principal ratably, according to
the amount of principal, due on such date, to the persons entitled
thereto, without any discrimination or privilege, and second, to the
payment of redemption premium, if any, ratably, according to the amount
of redemption premium, due on such date, to the persons entitled thereto,
without any discrimination or privilege;
FOURTH: To the payment of interest and premium, if any, on and the
principal of the Bonds, and to the purchase or redemption of Bonds, as
thereafter may from time to time become due, all in accordance with the
provisions of Article 5 of this Indenture; and
FIFTH: To reimburse and/or pay to the Issuer in full for costs,
expenses or fees (including without limitation, all amounts payable as
Additional Charges pursuant to the Loan Agreement) not described in the
first unnumbered paragraph of this Section 8.6.
<PAGE> - 41 -
(2) If the principal of all Bonds shall have become due or shall have
been declared due and payable, all such moneys shall be applied first to
reimburse the Trustee in full for any fees, costs and expenses not described
in the first unnumbered paragraph of this Section 8.6; second to the payment
of the principal and interest then due and unpaid on the Bonds, without
preference or priority of principal over interest or of interest over
principal, or of any installment of interest over any other installment of
interest, or of any Bond over any other Bond, ratably, according to the
amounts due respectively for principal and interest, to the persons entitled
thereto, without any discrimination or privilege; third to payment of any
redemption premium; and fourth to reimburse the Issuer for any costs and
expenses not described in the first unnumbered paragraph of this Section 8.6.
(3) If the principal of all the Bonds shall have been declared due and
payable, and if such declaration shall thereafter have been rescinded and
annulled under the provisions of this Article, then, subject to the provisions
of paragraph (2) of this Section in the event that the principal of all the
Bonds shall later become due or be declared due and payable, the moneys shall
be applied in accordance with the provisions of paragraph (1) of this Section.
Whenever moneys are to be applied by the Trustee pursuant to the
provisions of this Section, such moneys shall be applied by it at such times,
and from time to time, as the Trustee shall determine, having due regard to
the amount of such moneys available for application and the likelihood of
additional moneys becoming available for such application in the future.
Whenever the Trustee shall apply such funds, it shall (i) fix the date (which
shall be an Interest Payment Date unless it shall deem another date more
suitable) upon which such application is to be made and upon such date
interest on the amounts of principal to be paid on such dates shall cease to
accrue and (ii) on or before such date set aside the moneys necessary to
effect such application. The Trustee, at the expense of the Borrower, shall
give to the Bondholders mailed notice of the deposit with it of any such
moneys and of the fixing of any such date. Neither the Trustee nor any Paying
Agent shall be required to make payment of principal or redemption premium to
the Holder of any Bond until such Bond shall be presented to the Trustee for
appropriate endorsement or for cancellation if fully paid.
Whenever all Bonds and interest thereon have been paid under the
provisions of this Section 8.6, all fees, expenses and charges of the Trustee
and the Issuer have been paid and arbitrage rebate has been paid or provided
for, any balance remaining shall be paid to the person entitled to receive the
same pursuant to Section 5.12.
Section 8.7. Remedies Vested in Trustee. All rights of action
(including the right to file proof of claims) under this Indenture or under
any of the Bonds may be enforced by the Trustee without the possession of any
of the Bonds or the production thereof in any trial or other proceedings
relating thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its name as Trustee without the necessity of joining as
plaintiffs or defendants any Holders of the Bonds, and any recovery or
judgment shall be for the equal benefit of the Holders of the Outstanding
Bonds to the extent and in the manner provided herein. The Issuer and Trustee
hereby agree, without in any way limiting the effect and scope thereof, that
the pledge and assignment hereunder to the Trustee of all rights included
within the Trust Estate shall constitute an agency appointment coupled with an
interest on the part of the Trustee which, for all purposes of this Indenture,
shall be irrevocable and shall survive and continue in full force and effect
notwithstanding the bankruptcy or insolvency of the Issuer or its default
hereunder or on the Bonds.
<PAGE> - 42 -
Section 8.8. Rights and Remedies of Holders. No Holder of any Bond
shall have any right to institute any suit, action or proceeding in equity or
at law for the enforcement of this Indenture or any Related Document or for
the execution of any trust hereof or any remedy hereunder or thereunder or for
the appointment of a receiver, unless (i) a default thereunder shall have
become an Event of Default and the Holders of 25% in aggregate principal
amount of the Bonds then outstanding shall have made written request to the
Trustee and shall have offered it reasonable opportunity either to proceed to
exercise the powers hereunder granted or to institute such action, suit or
proceeding in its own name; (ii) such Holders shall have offered to indemnify
the Trustee as provided in Section 9.1; and (iii) the Trustee shall thereafter
fail or refuse to exercise within a reasonable period of time the remedies
hereunder granted, or to institute such action, suit or proceeding in its own
name. Such notification, request and offer of indemnity are hereby declared
in every such case at the option of the Trustee to be conditions precedent to
the execution of the powers and trusts of this Indenture, and to any action or
cause of action for the enforcement of this Indenture or any Related Document,
or for the appointment of a receiver or for any other remedy hereunder; it
being understood and intended that no one or more Holders of the Bonds shall
have any right in any manner whatsoever to affect, disturb or prejudice the
lien of this Indenture or any Related Document, by its, his, her or their
action or to enforce any right thereunder except in the manner herein
provided, and that all proceedings at law or in equity shall be instituted,
had and maintained in the manner herein provided and for the equal benefit of
the Holders of all Bonds then outstanding; provided, however, that nothing
herein shall be construed to preclude any Bondholder from enforcing, or impair
the right of any Bondholder to enforce, the payment by the Trustee of
principal of, and interest and premium, if any, on any Bond of such Bondholder
at or after its date of maturity, if and to the extent that such payment is
required to be made to such Bondholder by the Trustee from available funds in
accordance with the terms hereof.
Section 8.9. Termination of Proceedings. In case the Trustee shall have
proceeded to enforce any right under this Indenture or any Related Document by
the appointment of a receiver, by entry and possession or otherwise, and such
proceedings shall have been discontinued or abandoned for any reason, or shall
have been determined adversely to the Trustee, then and in every such case the
Issuer, Trustee, the Bondholders and the Borrower shall be restored to their
former positions and rights hereunder with respect to the property herein
conveyed, and all rights, remedies and powers of the Trustee shall continue as
if no such proceedings had been taken.
Section 8.10. Waiver of an Event of Default. The Trustee may, in its
discretion, and, upon written request of the Holders of 66 2/3% in aggregate
principal amount of all the Bonds then outstanding with respect to which
default in the payment of principal, premium and interest exists, waive any
Event of Default hereunder and its consequences and rescind any declaration of
acceleration of maturity or principal; provided, however, that there shall not
be waived (i) any Event of Default in the payment of the principal of or
premium on any Outstanding Bonds on the redemption date or at the date of
maturity specified therein or (ii) any Event of Default in the payment when
due of the interest on any such Bonds, unless prior to such waiver the
following shall have been paid or provided for (x) all arrearages of interest,
with interest thereon (to the extent permitted by law) at the rate borne by
the Bonds with respect to which such Event of Default shall have occurred; (y)
all payments of principal and premium, if any, with interest thereon (to the
extent permitted by law) at the Default Rate with respect to which such Event
of Default shall have occurred; and (z) all fees, expenses and charges of the
Trustee and Paying Agent in connection with such Event of Default have been
provided for. No such waiver or rescission shall extend to any subsequent or
other Events of Default, or impair any right consequent thereon.
Section 8.11. Correction of an Event of Default. Anything herein to the
contrary notwithstanding, no default under Sections 8.1(3) or (4) shall
constitute an Event of Default until actual notice of such default by
registered or certified mail shall be given by the Trustee to the Issuer and
the Borrower and the Issuer and the Borrower shall have had the time permitted
by the applicable subsection after receipt of such notice to correct said
default or cause said default to be corrected and the Issuer or Borrower shall
not have corrected said default or caused said default to be corrected within
said time; provided, however, if said default occurs under Section 8.1(4) and
is such that it cannot be corrected within the time permitted by Section
8.1(4), it shall not constitute an Event of Default if corrective action is
instituted by the Issuer or Borrower within said time and diligently pursued
until the default is corrected, but in all events the Event of Default must be
corrected within 30 days after the 30 day period described in Section 8.1(4).
<PAGE> - 43 -
ARTICLE 9
THE TRUSTEE
Section 9.1. Acceptance of the Trustee. The Trustee, prior to the
occurrence of an Event of Default, undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture; and no implied
covenants or obligations should be read into this Indenture against the
Trustee. In case an Event of Default has occurred, the Trustee agrees to
perform such trusts as a reasonable person would exercise or use under the
circumstances in the conduct of his or her own affairs, but in any event, only
upon and subject to the following express terms and conditions:
(1) The Trustee may execute any of the trusts or powers hereof and
perform any of its duties by or through attorneys, agents, receivers or
employees, and shall not be answerable for any misconduct or negligence on the
part of any agent, receiver or attorney appointed with due care, and shall be
entitled to advice of counsel concerning all matters of trusts hereof and
duties hereunder, and may in all cases pay such reasonable compensation to any
attorney, agent, receiver or employee retained or employed by it in connection
herewith and shall be entitled to reimbursement from the Borrower for such
payment. The Trustee may act upon the written opinion or written advice of
any attorney, surveyor, engineer or accountant selected by it in the exercise
of reasonable care or, if selected or retained by the Issuer, acceptable to
the Trustee in the exercise of such care, provided that the only legal advice
or opinion that the Trustee may rely upon for purposes of securing advice or
an opinion relating to the tax exempt status of the Bonds is given by Bond
Counsel. The Trustee shall not be responsible for any loss or damage
resulting from any action or in good faith in reliance upon such opinion or
advice.
(2) The Trustee shall not be responsible for any recital herein, or in
the Bonds or for the investment of moneys as herein provided (except as
provided in Section 6.1), or for insuring the Project or collecting any
property insurance proceeds, or for the validity of the execution by the
Issuer of this Indenture, or of any supplemental indentures or instruments of
further assurance, or for the sufficiency of any security for the Bonds, or
for the value of title of the property herein conveyed, if any, or otherwise
as to the maintenance of the security hereof; except as otherwise provided in
Section 4.4 and except that in the event the Trustee enters into possession of
a part or all of the property conveyed pursuant to any provisions of this
Indenture, the Mortgage or the Assignment, it shall use due diligence in
preserving such property. The Trustee may, but shall be under no duty to,
require of the Borrower full information and advice as to the performance of
the covenants, conditions and agreements in the Loan Agreement, the Regulatory
Agreement, the Mortgage and the Assignment as to the condition of any
Mortgaged Property and the performance of all other obligations thereunder and
shall use reasonable efforts, but without any obligation, to advise the Issuer
and the Borrower of any impending Event of Default known to the Trustee. The
Trustee shall not be responsible for any loss suffered in connection with any
investments made in accordance with Section 6.1 or for insuring the Project,
or for the recording, re-recording, filing or re-filing of this Indenture or
any supplemental indenture.
(3) The Trustee shall not be accountable for the use or application of
any of the Bonds or the proceeds thereof (except as herein expressly provided)
or for the use or application of any money paid over by the Trustee in
accordance with the provisions of this Indenture or for the use and
application of money received by any Paying Agent. The Trustee may become the
Holder of Bonds secured hereby with the same rights it would have if not
Trustee.
(4) The Trustee shall be protected in acting upon any written notice,
order, requisition, request, consent, certificate, opinion (including an
opinion of Independent Counsel or Bond Counsel), affidavit, letter, telegram
or other paper or document reasonably believed by it to be genuine and correct
and to have been signed or sent by the proper person or persons, and the
Trustee shall be under no duty to make an investigation or inquiry into any
statement contained therein. Any action taken by the Trustee pursuant to this
Indenture upon the request or authority or consent of any person who at the
time of making such request or giving such authority or consent is the Holder
of any Bond, shall be conclusive and binding upon all future Holders of the
same Bond and upon Bonds issued in exchange therefor, upon transfer thereof,
or in place thereof.
<PAGE> - 44 -
(5) As to the existence or non-existence of any fact or as to the
sufficiency or authenticity of any instrument, paper or proceeding, the
Trustee shall be entitled to rely upon a certificate of the Issuer signed by
its Representative or a certificate of the Borrower signed by its
Representative as sufficient evidence of the facts stated therein. The
Trustee may accept a certificate of the City Clerk of the Issuer to the effect
that a motion, resolution or ordinance in the form therein set forth has been
adopted by the governing body of the Issuer as conclusive evidence that such
motion or resolution has been duly adopted, and is in full force and effect,
and may accept such motion, resolution or ordinance as sufficient evidence of
the facts stated therein and the necessity or expediency of any particular
dealing, transaction or action authorized or approved thereby, but may at its
discretion secure such further evidence deemed necessary or advisable, but
shall in no case be bound to secure the same.
(6) The permissive right of the Trustee to take any action under this
Indenture shall not be construed as a duty and the Trustee shall not be
answerable, and shall incur no liability, except for its negligence or willful
misconduct.
(7) The Trustee shall not be personally liable for any debts contracted
or for damages to persons or to personal property injured or damaged, or for
salaries or nonfulfillment of contracts during any period in which it may be
in possession of or managing the real and tangible personal property as in
this Indenture provided.
(8) Upon the occurrence and continuance of an Event of Default and at any
and all reasonable times, the Trustee, and its duly authorized agents,
attorneys, experts, engineers, accountants and representatives, shall have the
right fully to inspect any and all of the property comprising the Mortgaged
Property, including all books, papers and records of the Issuer pertaining to
the Mortgaged Property and the Bonds, and to take such memoranda from and with
regard thereto as may be desired.
(9) The Trustee shall not be required to give any bond or surety with
respect to the execution of said trusts and powers or otherwise with respect
to the premises.
(10) Notwithstanding anything contained elsewhere in this Indenture, the
Trustee shall have the right, but shall not be required, to demand, with
respect to the authentication of any Bonds, the withdrawal of any cash, the
release of any property or any action whatsoever within the purview of this
Indenture, any showings, certificates, opinions (including opinions of
Independent Counsel), appraisals or other information, or corporate action or
evidence thereof, in addition to that by the terms hereof required as a
condition of such action by the Trustee, deemed desirable for the purpose of
establishing the right of the Issuer to the authentication of any Bonds, the
withdrawal of any cash, the release of any property, or the taking of any
other action by the Trustee.
(11) The Issuer shall not be liable for the payment of any sums under
this Indenture or for providing for the indemnification of the Trustee.
(12) Notwithstanding any provision of this Indenture to the contrary,
before taking any action hereunder, the Trustee may require that it be
furnished indemnity satisfactory to it for the reimbursement of all expenses
to which it may be put and to protect it against all liability (except
liability which is adjudicated to have resulted from the negligence or willful
misconduct of the Trustee) by reason of any action so taken by the Trustee.
(13) No provision of this Indenture or any related document shall require
the Trustee to expend or risk its own funds, make advances or otherwise incur
any financial liability in the performance of any of its duties, or the
exercise of its rights and powers hereunder, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
<PAGE> - 45 -
(14) Notwithstanding anything to the contrary contained in this
Indenture, in the event the Trustee is entitled or required to commence an
action or otherwise exercise remedies to acquire control or possession of any
or all of the Project under, but not limited to, Section 7.2 of the Mortgage,
the Trustee shall not be required to commence any such action or exercise any
such remedy if the Trustee has determined in good faith that it may incur
liability under an Environmental Law (as defined below) as the result of the
presence at, or release on or from the Project of any Hazardous Material (as
defined below) unless the Trustee has received security or indemnity, from a
person, in an amount and in a form all satisfactory to the Trustee in its sole
discretion, protecting the Trustee from all such liability. The term
"Hazardous Materials" as used herein shall mean any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum, petroleum-based products, methane,
hazardous materials, hazardous wastes, hazardous or toxic substances or
related materials as set forth in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601,
et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C.
Section 1801, et seq.), the Resource Conservation and Recovery Act, as amended
(42 U.S.C. Sections 6901, et seq.), the Toxic Substances Control Act, as
amended (15 U.S.C. Sections 2601, et seq.), or any other applicable
Environmental Law and the regulations promulgated thereunder. The term
"Environmental Laws" shall mean all federal, state and local environmental,
land use, zoning, health, chemical use, safety and sanitation laws, statutes,
ordinances and codes relating to the protection of the environment or
governing the use, storage, treatment, generation, transportation, processing,
handling, production or disposal of Hazardous Materials and the rules,
regulations, policies, guidelines, interpretations, decisions, orders and
directives of federal, state and local governmental agencies and authorities
with respect thereto.
(15) The Trustee is under no obligation to monitor the receipt of rents
by the Borrower.
(16) The Trustee shall not be required to take notice or be deemed to
have notice of any default hereunder except the failure to make any of the
payments required by Article IV of the Loan Agreement to be made to the
Trustee or with respect to acceleration of the Bonds and payment of the Bonds
upon such acceleration, unless the Trustee shall be specifically notified in
writing of such default by the Issuer or by the Holders of at least 25% in
aggregate principal amount of all Bonds then Outstanding.
(17) Notwithstanding any other provision of this Indenture to the
contrary, any provision intended to provide authority to act, right to payment
of fees and expenses, protection, immunity and indemnification to the Trustee
shall be interpreted to include any action of the Trustee whether it is deemed
to be in its capacity as Trustee, Bond Registrar or Paying Agent.
Section 9.2. Trustee's Fees, Charges and Expenses.
(1) The Trustee and any Paying Agent shall be entitled to payment and
reimbursement for Ordinary Fees and Expenses for its ordinary services
rendered under this Indenture. In the event it becomes necessary for the
Trustee to perform extraordinary services, such as upon an Event of Default,
the Trustee is entitled to payment and reimbursement for its extraordinary
fees, advances, costs, counsel fees and other expenses reasonably made or
incurred by the Trustee in and about the execution of the trusts created by
this Indenture for extraordinary services (unless such services are occasioned
by the negligence or willful misconduct of the Trustee) in the Event of
Default. In this regard the Borrower has agreed in Section 4.3 of the Loan
Agreement to pay of said fees, advances, counsel fees, costs and expenses, and
reference is hereby made to the Loan Agreement for the provisions so made.
Issuer is not liable for the payment of such sums.
(2) Upon an Event of Default, but only upon an Event of Default, the
Trustee shall have liens, with right of payment prior to payment on account of
interest on or principal or premium, if any, of any Bond, upon the money
received by them hereunder, or under the Mortgage or the Assignment, for said
fees, advances, counsel fees, costs and expenses incurred by them.
(3) The compensation of the Trustee shall not be limited by any provision
of law which limits the compensation of a trustee of an express trust.
<PAGE> - 46 -
Section 9.3. Notice to Holders of Default. The Trustee shall give to
the Bondholders and the Rating Agency written notice of all Events of Default
known to the Trustee, within 45 days after the Trustee has actual knowledge or
receives written notice of such Event of Default.
Section 9.4. Intervention by Trustee. In any judicial proceeding to
which the Issuer is a party and which in the opinion of the Trustee and its
counsel has a substantial bearing on the interests of Bondholders, the Trustee
may intervene on behalf of Holders and shall do so if requested in writing by
the Holders of at least 25% of the aggregate principal amount of Outstanding
Bonds, provided the Trustee has been provided indemnity in accordance with
Section 9.1. The rights and obligations of the Trustee under this Section are
subject to the approval of a court of competent jurisdiction in the premises.
Section 9.5. Successor Trustee. Any corporation, association or agency
into which the Trustee may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer its corporate trust business
and assets as a whole or substantially as a whole, or any corporation or
association resulting from any such conversion, sale, merger, consolidation or
transfer to which it is a party, ipso facto, shall be and become successor
trustee and paying agent under this Indenture and vested with all of the title
to the Trust Estate, and all the trusts, powers, discretions, immunities,
privileges and all other matters as was its predecessor, without the execution
or filing of any instrument or any further act, deed or conveyance on the part
of any of the parties hereto, anything herein to the contrary
notwithstanding. Each successor Trustee must meet the eligibility criteria
set forth in Section 9.8.
Section 9.6. Resignation by Trustee. The Trustee and any successor
trustee may at any time resign from the trusts hereby created by giving 30
days' written notice to the Issuer and the Borrower and by first-class mail to
each Bondholder as shown on the Bond Register, and such resignation shall take
effect upon the appointment of a successor trustee as provided in Section
9.8. Such notice to the Issuer or the Borrower may be served personally or
sent by registered or certified mail, or overnight courier.
Section 9.7. Removal of Trustee. The Issuer or the Holders of a
majority in aggregate principal amount of the Outstanding Bonds may remove the
Trustee at any time by an instrument or concurrent instruments in writing
delivered to the Trustee, Borrower and Issuer, and signed by the Issuer or by
such Holders of a majority in aggregate principal amount of Bonds then
Outstanding. No removal shall take effect until the appointment of a
successor Trustee as provided in Section 9.8. The Issuer or the Holders of a
majority in aggregate principal amount of Bonds then Outstanding may petition
a court of competent jurisdiction for the removal of the Trustee for cause.
Section 9.8. Appointment of Successor Trustee. In case the Trustee
hereunder shall resign or be removed, or be dissolved or shall be in course of
dissolution or liquidation, or otherwise become incapable of acting hereunder,
or in case it shall be taken under the control of any public officer or
officers, or of a receiver appointed by a court, a successor may be appointed
by the Holders of a majority in aggregate principal amount of the Bonds then
outstanding, by an instrument or concurrent instruments in writing signed by
such Holders, or by their attorney-in-fact, duly authorized. Nevertheless, in
case of such vacancy the Issuer by resolution of its governing body may
appoint a temporary trustee to fill such vacancy until a successor trustee
shall be appointed by the Holders in the manner above provided; and any such
temporary trustee so appointed by the Issuer shall immediately and without
further act be superseded by the Trustee so appointed by such Holders. Every
successor Trustee appointed pursuant to the provisions of this Section 9.8
must be a trust company or bank having trust powers and having a reported
capital and surplus not less than $50,000,000. If a successor Trustee has not
been appointed within 60 days of resignation or removal, the current Trustee
may petition a court of competent jurisdiction for the appointment of the
successor Trustee.
<PAGE> - 47 -
Section 9.9. Acceptance by Successor Trustees. Every successor Trustee
appointed hereunder shall execute, acknowledge and deliver to its predecessor,
to the Borrower and also to the Issuer, an instrument in writing accepting
such appointment hereunder, and thereupon such successor, without any further
act, deed or conveyance shall become fully vested with all the estates,
properties, rights, powers, trusts, duties and obligations of its predecessors
as Trustee, Bond Registrar and Paying Agent; but such predecessor shall,
nevertheless, on the written request of the Issuer, or of its successor
Trustee, execute and deliver an instrument transferring to such successor
Trustee all the estates, properties, rights, powers and trusts of such
predecessor hereunder, and every predecessor Trustee shall deliver all
securities and moneys held by it as Trustee hereunder to its successor.
Should any instrument in writing from the Issuer be required by any successor
Trustee for more fully and certainly vesting in such successor the estates,
rights, powers and duties hereby vested or intended to be vested in the
predecessor trustee, any and all such instruments in writing shall, on
request, be executed, acknowledged and delivered by the Issuer. The
resignation of any Trustee and the instrument or instruments removing any
Trustee and appointing a successor hereunder, together with all other
instruments provided for in this Article, shall be forthwith filed or recorded
or both by the successor Trustee in each recording office where this Indenture
or the Mortgage shall have been filed or recorded or both.
Section 9.10. Right of Trustee To Pay Taxes and Other Charges. In case
any tax, assessment or governmental or other charge upon any part of the
Project is not paid, to the extent, if any, that the same is legally payable,
the Trustee may, but shall be under no duty to, pay such tax, assessment or
governmental or other charge, without prejudice, however, to any rights of the
Trustee or Bondholders hereunder arising as a consequence of such failure; and
any amount at any time so paid under this Section, Section 5.3 of the Loan
Agreement, or under the Mortgage, with interest thereon as provided in Section
5.3 of the Loan Agreement at the Default Rate, shall be repaid to the Trustee
upon demand out of Additional Charges under the Loan Agreement, and shall
become so much additional indebtedness secured by the Indenture, and the same
shall be given a preference in payment over any of the Bonds, except with
respect to the payment of any principal, interest or premium on the Bonds
which is then due but not paid, but the Trustee shall be under no obligation
to make such payment of taxes, assessments or governmental charges unless it
shall have been requested to do so by the Holders of at least 25% of the
aggregate principal amount of the Bonds then outstanding and shall have been
provided with adequate indemnity for the purpose of such payment. Any such
payment shall be made upon five days' prior written notice to the Borrower
unless the delay occasioned by any such written notice could result in the
forfeiture or termination of any right.
Section 9.11. Trustee Protected in Relying Upon Resolutions. The
resolutions, orders, requisitions, opinions, certificates and other
instruments provided for in this Indenture may be accepted by the Trustee as
conclusive evidence of the facts and conclusions stated therein and shall be
full warrant, protection and authority to the Trustee.
Section 9.12. Successor Trustee as Custodian of Funds and Paying Agent.
In the event of a change in the office of the Trustee, the predecessor Trustee
which has resigned or been removed shall cease to be custodian of the Funds
described in Article 5 and shall cease to act as Bond Registrar and a Paying
Agent for principal and interest on the Bonds, and the successor Trustee shall
be and become such custodian, Bond Registrar and a Paying Agent.
<PAGE> - 48 -
Section 9.13. Co-Trustee.
(1) At any time or times, for the purpose of meeting any legal
requirements of any jurisdiction in which any part of the Trust Estate may at
the time be located, the Trustee shall have the power to appoint, and, upon
the request of the Trustee, the Issuer shall for such purpose join with the
Trustee in the execution, delivery and performance of all instruments and
agreements necessary or proper to appoint one or more persons either to act as
co-trustee or co-trustees, jointly with the Trustee, of all or any part of the
Trust Estate, or to act as separate trustee or separate trustees of all or
any part of the Trust Estate, and to vest in such person or persons, in such
capacity, such right to the Trust Estate or any part thereof, and such rights,
powers, duties, trusts or obligations as the Trustee may consider necessary or
desirable, subject to the remaining provisions of this Section 9.13. Every
such co-trustee or separate trustee appointed pursuant to the provisions of
this Section 9.13 must be a trust company or bank having trust powers and
having a reported capital and surplus not less than $50,000,000, if there be
such an institution willing, qualified and able to accept the trust upon
reasonable or customary terms.
(2) The Issuer shall execute, acknowledge and deliver all such
instruments as may be required by any such co-trustee or separate trustee for
more fully confirming such title, rights, powers, trusts, duties and
obligations to such co-trustee or separate trustee.
(3) Every co-trustee or separate trustee shall, to the extent permitted
by law but to such extent only, be appointed subject to the following terms,
namely:
(a) All rights, powers, trusts, duties and obligations conferred by
this Indenture upon the Trustee with respect to the custody, control or
management of moneys, papers, securities and other personal property
shall be exercised solely by the Trustee.
(b) All rights, powers, trusts, duties and obligations conferred or
imposed upon the trustees shall be conferred or imposed upon and
exercised or performed by the Trustee, or by the Trustee and such
co-trustee or co-trustees or separate trustee or separate trustees
jointly, as shall be provided in the instrument appointing such
co-trustee or co-trustees or separate trustee or separate trustees;
provided, however, the Trustee shall remain responsible for exercising
all rights and powers, maintaining all trusts and performing all duties
and obligations conferred or imposed upon the trustees, except to the
extent that, under the law of any jurisdiction in which any particular
act or acts are to be performed, the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such act or acts
shall be performed by such co-trustee or co-trustees or separate trustee
or separate trustees.
(c) Any request in writing by the Trustee to any co-trustee or
separate trustee to take or to refrain from taking any action hereunder
shall be sufficient warrant for the taking, or the refraining from
taking, of such action by such co-trustee or separate trustee.
(d) Any co-trustee or separate trustee may delegate to the Trustee
the exercise of any right, power, trust, duty or obligation,
discretionary or otherwise.
(e) The Trustee at any time, by an instrument in writing, may accept
the resignation of or remove any co-trustee or separate trustee appointed
under this Section 9.13. Upon the request of the Trustee, the Issuer
shall join with the Trustee in the execution, delivery and performance of
all instruments and agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or separate
trustee so resigned or removed may be appointed in the manner provided in
this Section 9.13.
(f) No trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder.
(g) Any demand, request, direction, appointment, removal, notice,
consent, waiver or other action in writing delivered to the Trustee shall
be deemed to have been delivered to each co-trustee or separate trustee.
<PAGE> - 49 -
(h) Any moneys, papers, securities or other items of personal
property received by any such co-trustee or separate trustee hereunder
shall forthwith, so far as may be permitted by law, be turned over to the
Trustee.
(i) Appointment of a co-trustee shall not relieve the Trustee of
liability under the Indenture.
(4) Upon the acceptance in writing of such appointment by any such
co-trustee or separate trustee, such co-trustee or separate trustee shall be
vested with such interest in and to the Trust Estate or any part thereof, and
with such rights, powers, duties or obligations, as shall be specified in the
instrument of appointment jointly with the Trustee (except insofar as local
law makes it necessary for any such co-trustee or separate trustee to act
alone) subject to all the terms of this Indenture. Every such acceptance
shall be filed with the Trustee. Any co-trustee or separate trustee may, at
any time by an instrument in writing, constitute the Trustee its or his or her
attorney-in-fact and agent, with full power and authority to do all acts and
things and to exercise all discretion on its or his or her behalf and in its
or his or her name.
(5) In case any co-trustee or separate trustee shall die, become
incapable of acting, resign or be removed, the title to the Trust Estate and
all rights, powers, trusts, duties and obligations of said co-trustee or
separate trustee shall, so far as permitted by law, vest in and be exercised
by the Trustee unless and until a successor co-trustee or separate trustee
shall be appointed in the manner herein provided.
Section 9.14. Obligations as to Reporting. The Trustee shall provide to
the Issuer, upon request monthly reports of the balances in the Funds held
under Article 5.
Section 9.15. Appointment of Bond Registrar and Paying Agent. The
Issuer at the direction of the Borrower hereby appoints the Trustee as Bond
Registrar and Paying Agent under this Indenture.
Section 9.16. Successor Paying Agent or Bond Registrar. The provisions
of Sections 9.5 through 9.9 with respect to removal, resignation and
appointment of a successor trustee shall be equally applicable to the removal,
resignation and appointment of a successor to the Paying Agent and the Bond
Registrar. If permissible under applicable law, the Trustee shall be eligible
for appointment as successor to the Paying Agent if the Trustee is not then
already serving in such capacity.
Section 9.17. Confirmation of the Trustee.
(1) At any time while Bonds remain outstanding under this Indenture, and
in any of the following circumstances, to the extent permitted by law, to wit:
(a) The Trustee is in doubt as to whether or not this Indenture or
any Related Document or instrument requires Bondholders' consent or the
consent of the Borrower or the Issuer in connection with any proposed
action;
(b) The Trustee has substantial doubt as to whether its consent to a
proposed action, although authorized, should in the particular
circumstances be given;
(c) The Trustee's consent is sought or deemed necessary in
connection with a proposed action which is not specifically dealt with or
contemplated by this Indenture or any Related Document, or it is unclear
whether this Indenture or any Related Document is intended to deal with
the proposed action;
(d) There is a disagreement as to whether a proposed action may be
taken or is required to be taken;
(e) There appears to be a conflict, ambiguity or inconsistency
between or among the provisions of this Indenture and any Related
Document other than as provided for in Sections 10.1 and 11.1;
(f) There is doubt as to whether or not a proposed action falls
within one of the provisions of Sections 10.1 and 11.1 authorizing such
action without Bondholders' consent; or
<PAGE> - 50 -
(g) Bondholders' consent is required by this Indenture or any
Related Document but consent cannot be obtained because it is not
possible to comply with requirements of this Indenture or any Related
Document as to the notice to be given to Bondholders with respect to the
proposed matter requiring consent;
or in any other eventuality in which it shall be necessary to determine a
question arising under, or to construe, this Indenture or any Related
Document, the Trustee may, and upon request of the Issuer, the Borrower or the
Holders of 25% or more in principal amount of Outstanding Bonds shall, proceed
in accordance with an opinion of Bond Counsel. If Bondholders' consent cannot
be obtained because of the circumstances described in (1)(g) above, a court of
competent jurisdiction may amend or supplement the Loan Agreement or Indenture
or any Related Document upon a proper showing of the necessity therefor.
(2) In construing and interpreting this Indenture and any other Related
Document, the objective shall always be to ascertain and effectuate the
intention of the parties.
(3) The Trustee or successor Trustee shall not be answerable for actions
taken in compliance with Section 9.17(1). The Trustee or successor Trustee
shall not be entitled to require an indemnity bond pursuant to Section 9.1(11)
prior to taking any action in compliance with Section 9.17(1).
Section 9.18. Certain Representations of Trustee. The Trustee
represents that:
(1) The Trustee is a banking association with trust powers, duly
organized, validly existing and in good standing under the laws of the United
States of America, is duly qualified to act as Trustee under this Indenture,
and has the corporate power to take all action required or permitted of it
under this Indenture and under Disclosure Agreement.
(2) This Indenture has been duly entered into, executed and delivered by
the Trustee. The officers of the Trustee who executed and delivered this
Indenture were, at the dates of such execution and delivery, duly qualified
and acting officers authorized to perform such acts, and the signatures of
such officers appearing on this Indenture are their genuine signatures. The
execution, delivery and performance by the Trustee of this Indenture has been
duly authorized by all necessary corporate action on the part of the Trustee
and presently does not contravene the Articles of Association or Bylaws of the
Trustee or, to the best of its knowledge after due inquiry, conflict with or
constitute a breach of or default under any law, administrative regulation,
consent decree or any agreement or instrument to which the Trustee is subject.
(3) The Trustee has a reported capital and surplus not less than
$50,000,000. In the event at any time the Trustee is not so qualified, the
Trustee shall tender its resignation pursuant to Section 9.6 hereof.
(4) The Trustee maintains errors and omissions insurance with respect to
each trust officer administering the Bonds and a fidelity bond in an amount
which is customary in connection with the performance of corporate trust
services.
Section 9.19. Tender Agent.
(1) The Trustee is hereby appointed as the initial Tender Agent for the
Bonds and with respect to Tendered Bonds, the Paying Agent, and hereby agrees
to carry out its responsibilities described in this Indenture. If the Tender
Agent is other than the Trustee, the Tender Agent shall signify its acceptance
of the duties and obligations imposed upon it hereunder by a written
instrument of acceptance delivered to the Issuer, the Borrower, the Trustee
and the Remarketing Agent, under which the Tender Agent will agree to
particularly:
(1) hold all Bonds delivered to it for purchase hereunder as agent
and bailee of, and in escrow for the benefit of, the respective Holders
which have so delivered such Bonds; until moneys representing the Tender
Price of such Bonds shall have been delivered to or for the account of or
to the order of such Holders; and
(2) keep such books and records as shall be consistent with prudent
industry practice, and make such books and records available for
inspection by the other parties.
<PAGE> - 51 -
(b) The parties hereto shall each cooperate to cause the necessary
arrangements to be made and to be thereafter continued whereby funds from the
sources specified herein will be made available for the purchase of Bonds
presented at the Principal Office of the Tender Agent, and to otherwise enable
the Tender Agent to carry out its duties under this Indenture.
(c) The Tender Agent, the Trustee and the Remarketing Agent shall
cooperate to the extent necessary to permit the preparation, execution,
issuance, authentication and delivery by the Tender Agent of replacement Bonds
in connection with the tender and remarketing of Bonds hereunder.
(d) The Issuer, the Trustee and the Borrower acknowledge that, in
carrying out its responsibilities hereunder, the Tender Agent shall be acting
solely for the benefit of and as agent for the Holders from time to time of
the Bonds. No delivery of the Bonds to the Tender Agent or any agent of the
Tender Agent or purchase of Bonds by the Tender Agent shall constitute a
redemption of the Bonds or any extinguishment of the debt evidenced thereby.
(e) The Tender Agent (if other than the Trustee) shall meet the
requirements of a successor Trustee. The Tender Agent may resign and be
discharged of the duties and obligation created by this Indenture by giving at
least 30 days' notice by mail to the Trustee, the Borrower and the Remarketing
Agent. No resignation shall not take effect unless and until a successor
Tender Agent shall be appointed by the Trustee. The Trustee shall use its
best efforts to appoint a successor Tender Agent during such 30 day period and
in the event a successor Tender Agent has not taken office prior to the
expiration of such 30 day period, the Tender Agent may petition a court of
applicable jurisdiction to appoint a successor Tender Agent. The Tender Agent
may be removed at any time by an instrument signed by the Borrower, with the
written consent of the Trustee, and filed with the Borrower, the Tender Agent,
the Remarketing Agent and the Trustee. Removal shall not take effect unless
and until a successor Tender Agent shall be appointed by the Trustee with the
approval of the Borrower. In the event of the resignation or removal of the
Tender Agent, the Tender Agent shall deliver any moneys and Bonds held by it
to its successor, and if there is no successor, to the Trustee.
ARTICLE 10
SUPPLEMENTAL INDENTURES
Section 10.1. Supplemental Indentures Not Requiring Consent of
Bondholders. The Issuer and Trustee may, from time to time and at any time,
without the consent of, or notice to, any of the Holders, and when so required
by this Indenture shall, enter into an indenture or indentures supplemental to
this Indenture as shall not be inconsistent with the terms and provisions
hereof (which supplemental indenture or indentures shall thereafter form a
part hereof), so as to thereby (1) cure any ambiguity or formal defect or
omission in this Indenture or in any supplemental indenture, (2) grant to or
confer upon the Trustee for the benefit of the Holders any additional rights,
remedies, powers, authority or security that may lawfully be granted to or
conferred upon the Holders or Trustee, (3) more precisely identify the Trust
Estate, or any other property which may become a part of the Trust Estate, (4)
subject to the lien and pledge of this Indenture additional revenues,
properties or collateral, (5) evidence the appointment of a separate trustee
or a co-trustee or the succession of a new Trustee or Paying Agent or both
hereunder, (6) modify, eliminate and/or add to the provisions of this
Indenture to such extent as shall be necessary to prevent any interest on the
Bonds from becoming includable in gross income for federal income tax purposes
or to effect the qualification of this Indenture under the Trust Indenture Act
of 1939, as then amended, or under any similar federal statute hereafter
enacted, and to add to this Indenture such other provisions as may be
expressly permitted by said Trust Indenture Act of 1939, excluding however the
provisions referred to in Section 316(a)(2) of said Trust Indenture Act of
1939, (7) provided the conditions contained in Section 2.6 hereof are
satisfied, to provide for the terms and issuance of Additional Bonds, (8) make
any other change which is required by any provision of this Indenture or which
is deemed by the Trustee necessary to reconcile the Indenture with the Related
Documents, or any amendments thereto, (9) make any change which will become
effective on a Rate Adjustment Date, provided a summary of the change is sent
with the Preliminary Notice of Mandatory Tender, or (10) make any other
change, subject to the Trustee's receipt of written confirmation from the
Rating Agency that the rating on the Bonds will not be downgraded, withdrawn
or qualified as a result thereof, which in the judgment of the Trustee, based
upon an opinion of Bond Counsel, is necessary or desirable and will not
materially prejudice any non-consenting Bondholder.
<PAGE> - 52 -
Section 10.2. Supplemental Indentures Requiring Consent of Bondholders.
Exclusive of supplemental indentures covered by Section 10.1 and subject to
the terms and provisions contained in this Section, and not otherwise, the
Trustee, upon receipt of an instrument evidencing the consent to the
below-mentioned supplemental indenture by the Holders of not less than 51% of
the aggregate principal amount of the Bonds then outstanding, shall join with
the Issuer in the execution of such other indenture or indentures supplemental
hereto as shall be deemed necessary and desirable for the purpose of
modifying, altering, amending, adding to or rescinding, in any particular, any
of the terms or provisions contained in this Indenture or in any supplemental
indenture; provided, however, that nothing herein contained shall permit or be
construed as permitting (1) an extension of the maturity of the principal of
or interest on any Bond, (2) a reduction in the principal amount of any Bond
or the rate of interest thereon, (3) a privilege or priority of any Bond or
Bonds over any other Bond or Bonds except as may be otherwise expressly
provided herein, (4) a reduction in the aggregate principal amount of the
Bonds required for consent to such supplemental indenture or (5) the
modification of any of the provisions of this Section without the consent of
the Holders of 100% of the principal amount of all Bonds adversely affected
thereby ("100% Bondholders' Consent").
If at any time the Issuer shall request the Trustee to enter into any
such supplemental indenture for any of the purposes of this Section, the
Trustee shall, upon being satisfactorily indemnified with respect to expenses,
cause notice of the proposed execution of such supplemental indenture to be
mailed by first class mail, postage prepaid, to the Bondholders at the
addresses shown on the Bond Register. Such notice shall briefly set forth the
nature of the proposed supplemental indenture and shall state that copies
thereof are on file at the principal office of the Trustee for inspection by
all Bondholders. The Trustee shall not, however, be subject to any liability
to any Bondholder by reason of its failure to mail such notice to any
particular Bondholder if notice was generally mailed to Bondholders, and any
such failure shall not affect the validity of such supplemental indenture when
consented to and approved as provided in this Section. If the Holders of not
less than the applicable percentage (as referenced above) in aggregate
principal amount of the Bonds then outstanding at the time of the execution of
any such supplemental indenture shall have consented to and approved the
execution thereof as herein provided, no Bondholder shall have any right to
object to any of the terms and provisions contained herein or the operation
thereof, or in any manner to question the propriety of the execution thereof,
or to enjoin or restrain the Trustee or Issuer from executing the same or from
taking any action pursuant to the provisions thereof. Upon the execution of
any such supplemental indenture as in this Section permitted and provided,
this Indenture shall be and is deemed to be modified and amended in accordance
herewith.
Anything herein to the contrary notwithstanding, a supplemental indenture
under this Article 10 which adversely affects the right of the Borrower under
this Indenture, the Loan Agreement, the Regulatory Agreement, the Mortgage or
the Assignment shall not become effective unless and until the Borrower shall
have consented (either in writing or by inaction as provided below) to the
execution and delivery of such supplemental indenture. In this regard, the
Trustee shall cause notice of the proposed execution and delivery of any such
supplemental indenture, together with a copy of the proposed supplemental
indenture, to be mailed by certified or registered mail to the Borrower at
least 15 days prior to the proposed date of execution and delivery of any such
supplemental indenture. The Borrower shall be deemed to have consented to the
execution and delivery of any such supplemental indenture if the Trustee does
not receive a letter signed by a Representative of the Borrower of protest or
objection thereto on or before 5:30 p.m., Eastern Standard or Eastern Daylight
time, whichever is then in effect in New York, New York, of the fifteenth day
after the mailing of said notice and a copy of the proposed supplemental
indenture to the Borrower unless such fifteenth day falls on a day which is
not a Business Day, in which event the letter of objection must be received
not later than the next succeeding Business Day.
Section 10.3. Notice to Rating Agency. The Trustee shall send a copy of
each supplemental indenture executed and delivered pursuant to this Article X
to the Rating Agency. Section 10.4. Opinion of Bond Counsel. Any amendment
governed by this Article shall be accompanied by an opinion of Bond Counsel
that such amendment is permitted by this Indenture and does not impair the
exclusion of interest on the Bonds from gross income for federal income tax
purposes nor permit the taking of action which when taken will impair the
exclusion of interest on the Bonds from gross income for federal income tax
purposes.
<PAGE> - 53 -
Section 10.5. Rights of Trustee. The Trustee shall not be required to
agree to any amendment referred to in this Article that modifies the rights,
duties or immunities of the Trustee.
ARTICLE 11
AMENDMENTS TO RELATED DOCUMENTS
Section 11.1. Amendments Not Requiring Bondholder Consent. The Issuer
or the Trustee or both may, without the consent of or notice to the
Bondholders, consent to any amendment, change or modification of any of the
Related Documents:
(1) which may be required or permitted without Bondholder consent by the
provisions of the Related Documents or this Indenture;
(2) for the purpose of curing any ambiguity or formal defect or omission;
(3) in connection with additional land, equipment or improvements which
may be acquired and which constitute a part of the Mortgaged Property, so as
to (A) more precisely identify the same, (B) substitute or add additional land
or additional equipment or (C) sell or remove such land or equipment, all as
provided in the Mortgage; provided, however, that any such amendment, change
or modification of any of the Related Documents as provided in this Section
11.1(3) shall not be effective without written confirmation from the Rating
Agency that such action will not result in the downgrade, withdrawal or
qualification of the rating on the Bonds;
(4) to reconcile any Related Documents with any amendment or supplement
to the Indenture; or
(5) subject to the Trustee's receipt of written confirmation from the
Rating Agency that the rating on the Bonds will not be downgraded, withdrawn
or qualified as a result thereof, to effect any other change in a Related
Document which, in the judgment of the Trustee, will not materially prejudice
any non-consenting Bondholder.
Section 11.2. Amendments Requiring Bondholder Consent. Except for (1)
amendments, changes or modifications as provided in Section 11.1 and (2)
amendments, changes or modifications permitted by any Related Document,
neither the Issuer nor Trustee shall consent to any other amendment, change or
modification of any Related Document without the giving of notice and the
written approval or consent of the Holders of not less than a majority in
aggregate principal amount of the Bonds then outstanding given and procured as
provided in this Section; provided that in no event shall such amendment,
change or modification relieve the Borrower of the obligation under any
Related Documents to make when and as due any payments required for the
payment of principal, interest and any premium due or to become due on the
Bonds unless the consent of the Holders of all Bonds adversely affected
thereby is first secured. If at any time the Issuer and the Borrower shall
request the consent of the Trustee to any such proposed amendment, change or
modification of any Related Documents to which the Issuer is a party or the
Borrower shall request consent of the Trustee to any such proposed amendment,
change or modification of any other Related Document to which the Issuer is
not a party, the Trustee shall, upon being satisfactorily indemnified with
respect to expenses, cause notice of such proposed amendment, change or
modification to be given in the same manner as provided in Section 10.2 with
respect to supplemental indentures. Such notice shall briefly set forth the
nature of such proposed amendment, change or modification and shall state that
copies of the instrument embodying the same are on file at the principal
office of the Trustee for inspection by all Holders. The Trustee shall not,
however, be subject to any liability to any Holder by reason of its failure to
mail such notice to any particular Bondholder if notice was generally mailed
to Bondholders, and any such failure shall not affect the validity of such
amendment, change or modification when consented to and approved as provided
in this Section. If the Holders of not less than a majority in aggregate
principal amount of the Bonds then outstanding at the time of the execution of
any such amendment shall consent to the execution thereof as herein provided,
no Holder of any Bond shall have any right to object to any of the terms and
provisions contained therein, or the operation thereof, or in any manner to
question the propriety of the execution thereof, or to enjoin or restrain the
Trustee or Issuer from executing the same or from taking any action pursuant
to the provisions thereof. Upon the execution of any such amendment, the
applicable Related Document thereby amended shall be deemed to be modified and
amended in accordance therewith. Nothing in this Section contained shall
<PAGE> - 54 -
permit or be construed as permitting any reduction in the payments required to
be made by Sections 4.2 or 4.3 of the Loan Agreement or a reduction or change
in the stated maturity of the Bonds.
Section 11.3. Opinion of Bond Counsel. Any amendment governed by this
Article shall be accompanied by an opinion of Bond Counsel that such amendment
does not adversely affect the exclusion of interest on the Bonds from gross
income for federal income tax purposes nor permit the taking of action which
when taken will adversely affect the exclusion of interest on the Bonds from
gross income for federal income tax purposes.
Section 11.4. Rights of Trustee. The Trustee shall not be required to
consent to any amendment referred to in this Article unless it has first
received an opinion of Independent Counsel that such amendment is allowed by
this Indenture.
ARTICLE 12
MISCELLANEOUS PROVISIONS
Section 12.1. Consent of Holders. Any consent, request, direction,
approval, objection or other instrument required by this Indenture to be
signed and executed by the Holders (other than the assignment of a Bond) may
be in any number of concurrent writings of similar tenor and must be signed or
executed by such Holders in person or by agent appointed in writing. Proof of
the execution of any such consent, request, direction, approval, objection or
other instrument or of the writing appointing any such agent and of the
ownership of Bonds, if made in the following manner, shall be sufficient for
any of the purposes of this Indenture, and shall be conclusive in favor of the
Trustee with regard to any action taken by it under such request or other
instrument, namely:
(1) The fact and date of the execution by any person of any such writing
may be proved by the certificate of any officer in any jurisdiction who by law
has power to take acknowledgments within such jurisdiction that the person
signing such writing acknowledged before him the execution thereof, or by an
affidavit of any witness to such execution; and
(2) The fact of the ownership by any person of Bonds and the amounts and
numbers of such Bonds, and the date of the holding of the same, may be proved
only by reference to the Bond Register.
Section 12.2. Rights Under Indenture. Nothing expressed or mentioned in
or to be implied from this Indenture or the Bonds is intended or shall be
construed to give any person or company other than the parties hereto, and the
Bondholders, any legal or equitable right, remedy, or claim under or with
respect to this Indenture or any covenants, conditions and provisions herein
contained; this Indenture and all of the covenants, conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of
the parties hereto and the Holders of the Bonds hereby secured as herein
provided.
Section 12.3. Severability.. If any provision of this Indenture shall
be held or deemed to be or shall, in fact, be inoperative or unenforceable as
applied in any particular case in any jurisdiction or jurisdictions or in all
jurisdictions or in all cases because it conflicts with any provisions of any
constitution or statute or rule of public policy, or for any other reason,
such circumstances shall not have the effect of rendering the provision in
question inoperative or unenforceable in any other case or circumstance, or of
rendering any other provisions herein contained invalid, inoperative or
unenforceable to any extent whatever.
Section 12.4. Notices. All notices, certificates or other
communications hereunder shall be given to all parties identified below, shall
be in writing (except as otherwise expressly provided herein) and shall be
sufficiently given and shall be deemed given when delivered by hand delivery,
telegram or facsimile or served by depositing the same with the United States
Postal Service, or any official successor thereto, designated as Registered or
Certified Mail, Return Receipt Requested, bearing adequate postage, or
delivery by reputable private courier such as Federal Express, Airborne, DHL
or similar overnight delivery service, and addressed as hereinafter provided.
Notices, except to the Trustee, shall be deemed given when mailed as provided
herein. Notices to the Trustee shall be deemed given only when received by
the Trustee. All parties identified below may, by written notice given by
each to the others, designate any address or addresses to which notices,
<PAGE> - 55 -
certificates or other communications to them shall be sent when required as
contemplated by this Indenture. Any notice, certificate, report, financial
statement or other communication properly provided by legal counsel on behalf
of any party hereunder shall be deemed properly provided by the party
represented by such counsel. Until otherwise provided by the respective
parties, all notices, certificates and communications to each of them shall be
addressed as follows:
To the Issuer:
City of Aurora, Illinois
44 East Downer Place
Aurora, Illinois 60507
Attention: City Clerk
To the Borrower:
Park Trace Apartments Limited Partnership
c/o America First Companies
19th Floor
399 Park Avenue
New York, New York 10022
Attention: Joseph Grego
With a copy to:
America First Companies
Suite 400
1004 Farnam Street
Omaha, Nebraska 68102
Attention: Lynn Muse
To the Trustee:
UMB Bank, N.A.
928 Grand Avenue, 13th Floor
Kansas City, Missouri 64106
Attention: Corporate Trust Department
To the Tender Agent:
UMB Bank, N.A.
928 Grand Avenue, 13th Floor
Kansas City, Missouri 64106
Attention: Corporate Trust Department
To the Bond Registrar
and Paying Agent:
UMB Bank, N.A.
928 Grand Avenue, 13th Floor
Kansas City, Missouri 64106
Attention: Corporate Trust Department
Any provision in this Indenture relative to the mailing of a notice or
other paper to Bondholders shall be fully complied with if it is mailed by
first class mail, postage prepaid, to the Trustee and to each registered owner
of any Bonds then Outstanding at the address of such registered owner
appearing upon the Bond Register.
Section 12.5. Required Approvals. Consents and approvals required by
this Indenture to be obtained from the Borrower, the Issuer or the Trustee
shall be in writing and shall not be unreasonably withheld or delayed.
Section 12.6. Counterparts. This Indenture may be simultaneously
executed in several counterparts, each of which shall be an original and all
of which shall constitute but one and the same instrument.
Section 12.7. Limitation of Liability of Issuer and Its Officers,
Employees and Agents.
<PAGE> - 56 -
(1) No covenant, agreement or obligation contained herein shall be deemed
to be a covenant, agreement or obligation of any present or future
councilmember, officer, employee or agent of the Issuer in his or her
individual capacity, and neither the councilmembers of the Issuer nor any
officer thereof executing the Bonds shall be liable personally on the Bonds or
be subject to any personal liability or accountability by reason of the
issuance thereof. No councilmember, officer, employee or agent of the Issuer
shall incur any personal liability with respect to any other action taken by
him pursuant to this Indenture or the Act, provided such member, officer,
employee or agent acts in good faith.
(2) No agreements or provisions contained in this Indenture nor any
agreement, covenant or undertaking by the Issuer contained in any document
executed by the Issuer in connection with the Project, or the issuance, sale
and delivery of the Bonds shall give rise to any pecuniary liability of the
Issuer or a charge against its general credit, or shall obligate the Issuer
financially in any way except as may be payable from the repayments by the
Borrower under the Loan Agreement and the proceeds of the Bonds. No failure
of the Issuer to comply with any term, condition, covenant or agreement herein
or in any document executed by the Issuer in connection with the issuance and
sale of the Bonds shall subject the Issuer to liability for any claim for
damages, costs or other financial or pecuniary charge except to the extent
that the same can be paid or recovered from the repayments by the Borrower
under the Loan Agreement or proceeds of the Bonds. Nothing herein shall
preclude a proper party in interest from seeking and obtaining, to the extent
permitted by law, specific performance against the Issuer for any failure to
comply with any term, condition, covenant or agreement herein, provided that
no costs, expenses or other monetary relief shall be recoverable from the
Issuer except as may be payable from the repayments by the Borrower under the
Loan Agreement or from the proceeds of the Bonds.
(3) No recourse shall be had for the payment of the principal of or
premium or interest on any of the Bonds or for any claim based thereon or upon
any obligation, covenant or agreement contained in this Indenture against any
past, present or future officer, director, member, employee or agent of the
Issuer, or of any successor corporation, as such, either directly or through
the Issuer or any successor corporation, under any rule of law or equity,
statute or constitution or by the enforcement of any assessment or penalty or
otherwise, and all such liability of any such officers, directors, members,
employees or agents, as such, is hereby expressly waived and released as a
condition of, and consideration for, the execution of this Indenture and the
issuance of such Bonds.
(4) Anything in this Indenture to the contrary notwithstanding, it is
expressly understood and agreed by the parties hereto that (a) the Issuer may
rely conclusively on the truth and accuracy of any certificate, opinion,
notice, or other instrument furnished to the Issuer by the Trustee or the
Borrower as to the existence of any fact or state of affairs required
hereunder to be noticed by the Issuer; (b) the Issuer shall not be under any
obligation hereunder to perform any record keeping or to provide any legal
services; and (c) none of the provisions of this Indenture shall require the
Issuer to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties or in the exercise of any of its
rights or powers hereunder, unless it shall first have been adequately
indemnified to its satisfaction against the cost, expenses, and liability
which may be incurred thereby.
(5) Neither the councilmembers of the Issuer nor any person executing the
Bonds shall be liable personally on the Bonds by reason of the issuance
thereof. The Bonds and the interest thereon shall be special obligations of
the Issuer payable solely out of the rents, revenues and receipts derived by
the Issuer from the Project and not from any other fund or source of the
Issuer, and are secured by a pledge and assignment of the Trust Estate to the
Trustee in favor of the Bondholders, as provided in this Indenture. The Bonds
and the interest thereon shall not constitute general obligations of the
Issuer or the State, and neither the Issuer nor the State shall be liable
thereon. The Bonds shall not constitute an indebtedness within the meaning of
any constitutional or statutory debt limitation or restriction, and are not
payable in any manner by taxation.
<PAGE> - 57 -
Section 12.8. Determination of Taxability. If any action is commenced
which questions the exclusion of interest on the Bonds from gross income under
Section 103(a) of the Code or which might result in a Determination of
Taxability and if requested by the Borrower and if the costs of such contest,
as estimated by the Trustee, are paid in advance, the Trustee hereby covenants
that it will contest such action or Determination of Taxability. All costs of
such contest shall be borne by the Borrower.
Section 12.9. Notice to the Rating Agency. The Trustee shall notify the
Rating Agency in writing, at Standard & Poor's Ratings Services, 25 Broadway,
New York, New York 10004, Attention: Commercial Real Estate Surveillance
Group, of the occurrence of any of the following events of which the Trustee
is aware: (a) any change in the identity of the Trustee; (b) any amendment or
modification of or change to this Indenture, the Loan Agreement, the Mortgage
or the Assignment (with a copy of such proposed amendment); (c) payment in
full, or provision for payment in full, of all Outstanding Bonds; or (d) any
Event of Default.
<PAGE> - 58 -
IN WITNESS WHEREOF, the City of Aurora, Illinois has caused this
Indenture to be signed in its name and behalf and attested by its duly
authorized officers, and to evidence its acceptance of the trusts hereby
created, UMB Bank, N.A. has caused this Indenture to be signed in its name and
behalf by its duly authorized officer, all as of the date first above written.
CITY OF AURORA, ILLINOIS
By /s/
Mayor
ATTEST:
/s/ Cheryl M. Vonhoff
City Clerk
UMB BANK, N.A., as Trustee
By /s/
Authorized Signatory
<PAGE> - 59 -
EXHIBIT A
(FORM OF REQUISITION CERTIFICATE)
BOND PROCEEDS FUND
Date: December __, 1997
REQUISITION CERTIFICATE
TO: UMB BANK, N.A., AS TRUSTEE UNDER THE INDENTURE OF TRUST DATED AS OF
DECEMBER 1, 1997 BETWEEN THE CITY OF AURORA, ILLINOIS AND THE TRUSTEE.
Park Trace Apartments Limited Partnership, a Georgia limited partnership
(the "Borrower"), hereby requests that proceeds of the Bonds in the amount of
$12,410,000 be paid from the Bond Proceeds Fund to America First Apartment
Investors, L.P. for the purpose of effecting the redemption and discharge of
the City of Aurora Multifamily Housing Mortgage Revenue Note (Covey at Fox
Valley Project) Series 1986 in the full, remaining outstanding principal
amount of $12,410,000.00:
Payee and Wire Instructions
AMERICA FIRST APARTMENT
INVESTORS, L.P.
PARK TRACE APARTMENTS, Bank of Boston
LIMITED PARTNERSHIP, 100 Federal Street
a Georgia limited partnership ABA# 011 000 390
By: Park Trace Operating Company, Attn: Linda Wheeler/CLS
its General Partner Ref: America First Apartment Investors, L.P.
By ____________________
Its Vice President
RECEIPT FOR BOND PROCEEDS
AMERICA FIRST APARTMENT INVESTORS, L.P. (the "Prior Note Holder") hereby
acknowledges receipt, from UMB BANK, N.A. (the "Trustee"), of $12,410,000,
which we have been informed consists of proceeds of the City of Aurora,
Illinois (the "Issuer") Multifamily Housing Revenue Refunding Bonds (The Covey
at Fox Valley Apartments Project) Series 1997 (the "Bonds"), to be applied to
redeem and discharge in full the City of Aurora Multifamily Housing Mortgage
Revenue Note (Covey at Fox Valley Project) Series 1986, on December __, 1997
(the "Redemption Date"). As consideration for receipt of the foregoing
amount, the Prior Note Holder hereby warrants to the Issuer and the Trustee
that it has delivered the Prior Note to the Issuer for cancellation.
Dated this day of December, 1997.
AMERICA FIRST APARTMENT INVESTORS, L.P.
By: America First Capital Associates Limited
Partnership Four, a Delaware limited
partnership, its general partner
By: America First Companies, L.L.C.,
a Delaware limited liability company,
its general partner
By _________________________
Title: _______________________
<PAGE> - 60 -
EXHIBIT B
(FORM OF REQUISITION CERTIFICATE)
MORTGAGE RECOVERY FUND
Requisition No.
Date:
REQUISITION CERTIFICATE
TO: UMB BANK, N.A., AS TRUSTEE UNDER THE INDENTURE OF TRUST DATED AS OF
DECEMBER 1, 1997 BETWEEN THE CITY OF AURORA, ILLINOIS AND THE TRUSTEE.
Park Trace Apartments Limited Partnership, a Georgia limited partnership
(the "Borrower"), hereby requests that the following amounts be paid from the
Mortgage Recovery Fund to the following payees for the following purposes:
Amount Payee and Address Purpose
Less 10% Retainage $
The Borrower hereby certifies that:
(1) obligations in the stated amounts have been incurred and performed at
the Project and are presently due and payable and that each item thereof is a
proper charge against the Mortgage Recovery Fund and has not been the subject
of a previous withdrawal from the Mortgage Recovery Fund,
(2) to the best of the undersigned's knowledge there has not been filed
with or served upon the Issuer, the Trustee or the Borrower notice of any
lien, right or attachment upon, or claim affecting the right of any such
persons, firms or corporations to receive payment of the respective amounts
stated in this requisition which has not been released or will not be released
simultaneously with the payment of such obligation,
(3)(A) obligations as stated on this requisition have been properly
incurred, (B) such work was actually performed or such materials or supplies
were actually furnished or installed in or about the Project, (C) if
contested, bond has been made by the Borrower in an amount equal to 125% of
the contested amount and (D) either such materials or supplies are not subject
to any lien or security interest or any such lien or security interest will be
released or discharged upon payment of this requisition,
(4) all rights, title and interest to any and all personal property
acquired with the proceeds of this requisition is vested in the Borrower.
(5) attached hereto are the items required by Section 5.8(6)(a)(6)(ii)
and (iii) of the Indenture.
Park Trace Apartments Limited Partnership,
a Georgia limited partnership
By
Borrower Representative
Requested this day of , .
[PROJECT ENGINEER]
<PAGE> - 61 -
EXHIBIT C
FORM OF BOND
No. R-__ $____________
UNITED STATES OF AMERICA
STATE OF ILLINOIS
CITY OF AURORA, ILLINOIS
MULTIFAMILY HOUSING REVENUE REFUNDING BOND
(THE COVEY AT FOX VALLEY APARTMENTS PROJECT)
SERIES 1997
Unless this Bond is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its
agent for registration of transfer, exchange or payment, and any Bond issued
is registered in the name of Cede & Co. or in such other name as is requested
by an authorized representative of DTC (and any payment is made to Cede & Co.
or to such other entity as is requested by an authorized representative of
DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co.,
has an interest herein.
As provided in the Indenture referred to herein, until the termination of
the system of book-entry-only transfers through DTC (or any successor Security
Depository appointed pursuant to the Indenture), and notwithstanding any other
provision of the Indenture to the contrary, this Bond may be transferred, in
whole but not in part, only to a nominee of DTC, or by a nominee of DTC to DTC
or a nominee of DTC, or by DTC or a nominee of DTC to any successor securities
depository or any nominee thereof.
Interest Rate Maturity Date Dated Date CUSIP
Variable December 1, 2027 December __, 1997
REGISTERED HOLDER: CEDE & CO.
PRINCIPAL AMOUNT:
The City of Aurora, Illinois (the "Issuer"), a municipal corporation and
home rule unit of local government under the Constitution of the State of
Illinois, empowered to issue economic development revenue bonds pursuant to
the provisions of Ordinance No. 4519, adopted March 23, 1976, as from time to
time amended, and codified as Division 4 of Article V of Chapter 2 of the City
of Aurora Code of Ordinances, and Section 6(a) of Article VII of the
Constitution of the State (collectively, the "Act"), for value received,
promises to pay to the Registered Holder specified above, or registered
assigns, but only from the Bond Fund established under the Indenture described
below (the "Bond Fund"), and upon presentation and surrender hereof at the
principal corporate trust office of the Trustee named below, the Principal
Amount specified above, on the Maturity Date specified above, or, if this Bond
is redeemable as stated below, on a prior date on which it shall have been
duly called for redemption, and to pay interest on said Principal Amount to
the Record Date Holder hereof, as defined below, solely from the Bond Fund,
until the Principal Amount is paid or discharged, at the interest rate
described below. Interest hereon shall be calculated on the basis of a
360-day year of twelve 30-day months. Interest shall be payable semiannually
on June 1 and December 1 of each year (each an "Interest Payment Date"),
commencing June 1, 1998. This Bond shall bear interest from the Dated Date
specified above or (in the case of transfer or exchange) from the most recent
Interest Payment Date to which interest has been paid or provided for. The
"Record Date Holder" is the person in whose name this Bond is registered (the
"Holder" hereof) in the Bond Register maintained by UMB Bank, N.A., as Bond
Registrar, or its successor either (i) on the fifteenth day of the month
(whether or not a Business Day) next preceding each Interest Payment Date (the
"Record Date"), irrespective of any transfer or exchange of such Bond
subsequent to such Record Date and prior to such Interest Payment Date, or
(ii) if there shall be a default in payment of interest due on such Interest
<PAGE> - 62 -
Payment Date, at the close of business on a date (the "special Record Date")
for the payment of such defaulted interest established by notice mailed by the
Trustee on behalf of the Issuer. Notice of the special Record Date shall be
mailed not less than 15 days before the special Record Date, to the Holder at
the close of business on the fifth Business Day preceding the date of
mailing. Except as provided in the next sentence, interest shall be payable
by check or draft mailed to the Holder at his, her or its address as it
appears on the Bond Register on the Record Date or the special Record Date, as
the case may be, except as otherwise provided in the Indenture. All payments
of principal of and premium, if any, on the Bonds payable on the Maturity
Date, the Purchase Date or the Discharge Date (each as defined in the
Indenture) shall only be payable by check or draft upon presentation of the
Bonds, at the principal corporate trust office of the Trustee.
Notwithstanding the foregoing, any Holder of at least $1,000,000 principal
amount of any Bonds (or a lesser amount of such Bonds if such Bonds constitute
all the Bonds at the time outstanding), upon payment by the Holder of the cost
of such electronic transfer, may file with the Trustee an instrument
satisfactory to the Trustee requesting the amounts payable by the Trustee to
such Holder be paid by transferring by electronic transfer in immediately
available funds, on the day such payment is due, the amount to be distributed
to such Holder to a designated account maintained by such Holder at any other
bank in the continental United States. The principal of and interest and
premium, if any, on this Bond are payable in lawful money of the United States
of America.
The Bonds (as hereinafter defined) are issued under the provisions of and
in full compliance with the Act, and a resolution duly adopted by the Issuer
pursuant to which this Bond is issued and which authorizes the execution and
delivery of the Loan Agreement (as herein defined) and the Indenture. This
Bond and the issue of which it is a part are limited obligations of the
Issuer, and the principal and premium, if any, and interest thereon are
payable solely and only from revenues, and other amounts derived by the Issuer
from the Loan Agreement pledged and assigned by the Issuer to the Trustee
under the Indenture to secure payment of the principal of, premium, if any,
and interest on this Bond.
THE BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM
REVENUES AND FUNDS PLEDGED THEREFOR UNDER THE INDENTURE. NO HOLDER OF THIS
BOND SHALL EVER HAVE THE RIGHT TO COMPEL THE EXERCISE OF THE TAXING POWER OF
THE ISSUER OR THE STATE OF ILLINOIS (THE "STATE") OR ANY POLITICAL SUBDIVISION
THEREOF TO PAY THE PRINCIPAL OF THIS BOND OR THE INTEREST HEREON OR ANY OTHER
COST INCIDENT HERETO, OR TO ENFORCE PAYMENT HEREOF AGAINST ANY PROPERTY OF THE
ISSUER, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. THE BONDS AND THE
INTEREST THEREON SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE
ISSUER, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, AND THE ISSUANCE
THEREOF SHALL NOT, DIRECTLY OR INDIRECTLY OR CONTINGENTLY, OBLIGATE THE
ISSUER, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, TO LEVY ANY FORM OF
TAXATION THEREFOR OR TO MAKE ANY APPROPRIATION FOR ITS PAYMENT. NOTHING IN
THE BONDS OR THE PROCEEDINGS OF THE ISSUER AUTHORIZING THE ISSUANCE OF THE
BONDS OR IN THE INDENTURE SHALL BE CONSTRUED TO AUTHORIZE THE ISSUER TO CREATE
A DEBT OR LIABILITY OF THE ISSUER, THE STATE, OR ANY POLITICAL SUBDIVISION
THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION OF THE
STATE.
NO RECOURSE SHALL BE HAD FOR THE PAYMENT OF THE PRINCIPAL OF OR PREMIUM
OR INTEREST ON THIS BOND AGAINST ANY PAST, PRESENT OR FUTURE OFFICER, MEMBER,
EMPLOYEE OR AGENT OF THE ISSUER, OR OF ANY SUCCESSOR TO THE ISSUER, AS SUCH,
EITHER DIRECTLY OR THROUGH THE ISSUER OR ANY SUCCESSOR TO THE ISSUER, UNDER
ANY RULE OF LAW OR EQUITY, STATUTE OR CONSTITUTION OR BY THE ENFORCEMENT OF
ANY ASSESSMENT OR PENALTY OR OTHERWISE, AND ALL SUCH LIABILITY OF ANY SUCH
OFFICERS, MEMBERS, EMPLOYEES OR AGENTS, AS SUCH, IS HEREBY EXPRESSLY WAIVED
AND RELEASED AS A CONDITION OF, AND CONSIDERATION FOR, THE EXECUTION AND
ISSUANCE OF THIS BOND.
This Bond is one of a duly authorized series of bonds of the Issuer,
issued in the initial aggregate principal amount of $12,410,000, known as the
Multifamily Housing Revenue Refunding Bonds (The Covey at Fox Valley
Apartments Project) Series 1997 (the "Bonds"). The Bonds are being issued
under, and secured in accordance with, an Indenture of Trust dated as of
December 1, 1997 (the "Indenture), by and between the Issuer and UMB Bank,
N.A., as trustee (the Trustee"), setting forth the terms upon which such Bonds
are issued. The Bonds are issued by the Issuer to prepay and discharge the
Issuer's City of Aurora Multifamily Housing Mortgage Revenue Note (Covey at
Fox Valley Project) Series 1986 in the original principal amount of
$12,410,000 (the "Prior Note"), issued to refinance the acquisition and
<PAGE> - 63 -
construction of a 216-unit multifamily residential rental facility located
within the incorporated limits of the Issuer known as The Covey at Fox Valley
constituting a "project" within the meaning of the Act (the "Covey Project").
The proceeds of the Bonds will be applied for such purpose under the terms of
a Loan Agreement dated as of December 1, 1997 (the "Loan Agreement"), by and
between the Issuer and Park Trace Apartments Limited Partnership, a Georgia
limited partnership (the "Borrower"), under the provisions of which the Issuer
will loan the proceeds of the Bonds to the Borrower. The loan made pursuant
to the Loan Agreement (the "Loan") is evidenced by a promissory note (the
"Note") from the Borrower and the Land Trust (as defined in the Indenture) to
the Issuer and endorsed without recourse by the Issuer to the Trustee. The
Borrower has agreed under the Note and the Loan Agreement to make loan
payments in amounts and at times sufficient to pay the principal of, premium,
if any, and interest on the Bonds as the same shall become due and payable.
Pursuant to the Indenture, the Issuer has assigned and pledged to the
Trustee, for the equal and ratable benefit of the Holders of the Bonds, all
revenues and receipts derived by the Borrower from the operation of the Covey
Project and the 260-unit multifamily housing project located in the City of
Norcross, Gwinnett County, Georgia (the "Park Trace Project", together with
the Covey Project, the "Project"). Pursuant to the Mortgage, Security
Agreement and Fixture Financing Statement dated as of December 1, 1997 (the
"Covey Project Mortgage") and the Covey at Fox Valley Assignment of Rents and
Leases dated as of December 1, 1997 (the "Covey Project Assignment"), each
executed by the Borrower and the Land Trust for the benefit of the Trustee
with respect to the Covey Project, and the Deed to Secure Debt, Security
Agreement and Fixture Financing Statement dated as of December 1, 1997 (the
"Park Trace Project Mortgage", together with the Covey Project Mortgage, the
"Mortgage") and the Park Trace Assignment of Rents and Leases dated as of
December 1, 1997 (the "Park Trace Project Assignment", together with the Park
Trace Project Assignment, the "Assignment") filed with respect to the Park
Trace Project, each executed by the Borrower for the benefit of the Issuer and
assigned by the Issuer to the Trustee, the Borrower has granted to the Issuer
and the Trustee, for the equal and ratable benefit of the Holders of the
Bonds, first priority Mortgage liens on and security interests in the Project
and the rents and leases thereof. Each of the Covey Project Mortgage and the
Park Trace Project Mortgage may be released or modified in any respect upon
compliance with certain conditions therein and in the Indenture.
After the initial delivery of the Bonds, the Issuer and the Borrower may
from time to time, and upon the conditions stated in the Indenture, agree upon
and approve the issuance and delivery of Additional Bonds secured by the
Indenture, the Loan Agreement, the Mortgage and the Assignment.
Reference is hereby also made to the Loan Agreement, the Indenture, the
Mortgage and the Assignment, including all supplements thereto, for a
description of the property encumbered and assigned, the provisions, among
others, with respect to the nature and extent of the security, the rights of
the Issuer, and the rights, duties and obligations of the Borrower, the
Trustee, and the Holders of the Bonds, and the terms upon which the Bonds are
issued and secured.
INTEREST RATE PROVISIONS
"Initial Rate Adjustment Date" means December 1, 2007.
"Rate Adjustment Date" means the date as of which the interest rate on
the Bonds, as determined on the Rate Determination Date, will be effective,
which will be the Initial Rate Adjustment Date and thereafter December 1 in
the year determined by the Borrower by written notice to the Remarketing
Agent, the Trustee and the Tender Agent not less than 60 days prior to the
next occurring Rate Adjustment Date.
"Rate Determination Date" means no later than 4:00 P.M., New York time,
on the third Business Day immediately preceding a Rate Adjustment Date.
"Rate Period" means the period from a Rate Adjustment Date to, but not
including, the next Rate Adjustment Date.
The Bonds will bear interest from the Dated Date to but not including the
Initial Rate Adjustment Date at the annual interest rate of 5.3%. Thereafter,
the Remarketing Agent will determine the interest rate for the Bonds for the
Rate Period commencing with each Rate Adjustment Date to be the lowest rate
which, in the best judgment of the Remarketing Agent, on the Rate
Determination Date, would result in the market value of the Bonds on the Rate
<PAGE> - 64 -
Adjustment Date being equal to 100% of their principal amount. In determining
the interest rate, the Remarketing Agent will have due regard for general
financial conditions and such other conditions as, in the judgment of the
Remarketing Agent, have a bearing on the interest rate on the Bonds, including
then prevailing market conditions, the yields at which comparable securities
are then being sold and the tender and redemption provisions applicable to the
Bonds during the forthcoming Rate Period. Each determination of the interest
rate for the Bonds will be conclusive and binding upon the Bondholders, the
Issuer, the Borrower, the Tender Agent, the Remarketing Agent and the
Trustee. Upon written request, the Remarketing Agent will give the Issuer,
the Trustee, the Borrower or the Tender Agent Immediate Notice of the interest
rate on the Bonds at any time.
If the Bonds are not remarketed on a Rate Adjustment Date and the
mandatory tender of the Bonds is canceled as described below, the Bonds will
bear interest from the Rate Adjustment Date at the Default Rate. "Default
Rate" means the interest rate equal to 4% in excess of the floating prime rate
listed in the "Money Rates" section of The Wall Street Journal as the base
rate on corporate loans posted by the nation's largest banks established from
time to time.
MANDATORY TENDER PROVISIONS
Upon the Trustee's receipt of the written notice from the Borrower in
accordance with the Loan Agreement, the Trustee will send the Preliminary
Notice of Mandatory Tender to Bondowners of the mandatory tender for purchase
of Bonds on the Rate Adjustment Date not less than 45 calendar days prior to
the Rate Adjustment Date. The Preliminary Notice of Mandatory Tender will
include expected rating on the Bonds to be in effect for the Rate Period
commencing on the Rate Adjustment Date.
All Bonds are required to be tendered to the Tender Agent for purchase on
the Rate Adjustment Date, except Bonds, or portion thereof, which will be in
Authorized Denominations with respect to which the Holders thereof have
delivered to the Tender Agent by hand or by mail at its Principal Office a
properly completed Notice of Election to Retain Bonds, together with a
signature guaranty, on or prior to the fifth Business Day next preceding the
Rate Adjustment Date. Any Bondowner required to tender Bonds under this
subsection shall tender its Bonds in escrow to the Trustee for purchase at its
Principal Office prior to 10:30 A.M., New York time, on the Rate Adjustment
Date. The tender and purchase of Bonds will become mandatory if the Trustee
has received Remarketing Proceeds on the Rate Adjustment Date in an amount
sufficient to pay all Tendered Bonds and written confirmation from the Rating
Agency that the Bonds will be rated no lower than the rating set forth in the
Preliminary Notice of Mandatory Tender for the Rate Period commencing on the
Rate Adjustment Date. The failure to tender Bonds on the Rate Adjustment Date
is the equivalent of a tender, and the untendered Bonds will become
Undelivered Bonds for which replacement Bonds will be executed, authenticated
and delivered as provided in the Indenture.
If the Trustee does not receive sufficient Remarketing Proceeds in
accordance with the Indenture by 11:00 A.M., New York time, on the Rate
Adjustment Date and written confirmation from the Rating Agency that the Bonds
will be rated no lower than the rating set forth in the Preliminary Notice of
Mandatory Tender for the Rate Period commencing on the Rate Adjustment Date,
the mandatory tender of the Bonds will be automatically canceled. The Trustee
will promptly send the Notice of Canceled Mandatory Tender to Bondowners and
the Tender Agent and will promptly return tendered Bonds to the respective
Holders.
Any defect in any notice as provided above or any failure by any
Bondowner to receive any notice will not in any way change the Holder's
obligation to tender the Bonds for purchase on the Rate Adjustment Date.
The Tender Agent, to whom a Notice of Election to Retain Bonds has been
delivered, shall determine whether the Notice of Election to Retain Bonds has
been properly completed and such determination shall be binding on the Holder
of the Bond. If the mandatory tender is not canceled, any election by a
Bondowner to retain its Bond or Bonds on the Rate Adjustment Date shall be
irrevocable upon delivery to the Tender Agent of the Notice of Notice of
Election to Retain Bonds. The Tender Agent shall promptly return any
incomplete or improperly completed Notice of Election to Retain Bonds to the
Bondowner.
<PAGE> - 65 -
REDEMPTION PROVISIONS
(A) Calamity Redemption. The Bonds are subject to purchase or redemption
in whole or in part on any Business Day, at the written direction of the
Borrower from Protected Funds, in the event of damage to or destruction or
condemnation of the Project or any part thereof as provided in the Loan
Agreement and the Mortgage, at a purchase or redemption price equal to the
principal amount thereof plus accrued interest without premium.
(B) Optional Redemption or Purchase.
(1) To and including the Initial Rate Adjustment Date, the Bonds are
subject to redemption or purchase at the option of the Borrower, from
Protected Funds, in whole or in part on any date, at a redemption or
purchase price equal to the percentage of principal amount set forth in
the following table, plus accrued interest to the designated redemption
date:
Optional Redemption Periods Redemption
(dates inclusive) Price
------------------------------------- ----------
December 1, 2005 to November 30, 2006 101.0%
December 1, 2006 to December 1, 2007 100.0
(2) After the Initial Rate Adjustment Date, the Bonds are subject to
redemption or purchase at the option of the Borrower, from Protected
Funds, in whole or in part on any date, at a redemption or purchase price
equal to the percentage of principal amount set forth in the following
table, plus accrued interest to the designated redemption date:
Length of Rate Redemption Prices as a Call Protection
Period (In Years)* Percentage of Principal Amounts Period*
------------------ ------------------------------- ---------------
Greater than 10 102% after 7 years declining 1% 7 years
per 12 months to 100%
Less than or equal to 102% after 4 years declining 1% 4 years
10 and greater than 7 per 12 months to 100%
Less than or equal to 102% after 3 years declining 1% 3 years
7 and greater than 5 per 12 months to 100%
Less than or equal to 101% after 2 years declining 1/2% 2 years
5 and greater than 2 per 6 months to 100%
2 100-1/2% after 1 year declining 1 year
1/2% per 6 months to 100%
*Measured from and including the first day of such Rate Period.
The Borrower will have the option to purchase the Bonds in lieu of this
redemption. If the Borrower exercises its option to purchase as provided in
the Indenture, the Borrower is obligated to provide all Protected Funds
necessary, together with other Protected Funds held by the Trustee, to pay the
principal of and accrued interest on the Bonds to the date of purchase.
(C) Mandatory Special Redemption or Purchase Upon Determination of
Taxability. The Bonds are subject to mandatory redemption in whole on any
date, at a redemption price equal to the principal amount thereof, without
premium, plus accrued interest, to the date of redemption, upon a
Determination of Taxability. In the event of a Determination of Taxability
the Borrower shall have the option to purchase the Bonds in lieu of
redemption. If the Borrower exercises its option to purchase as provided in
the Indenture, the Borrower is obligated to provide all funds necessary,
together with other Protected Funds held by the Trustee, to pay the principal
of and accrued interest on the Bonds to the date of purchase.
<PAGE> - 66 -
(D) Mandatory Special Redemption or Purchase Upon Failed Remarketing.
The Bonds are subject to mandatory redemption in whole on any date, at a
redemption price equal to the principal amount thereof, without premium, plus
accrued interest, to the date of redemption, if the Bonds are not remarketed
on a Rate Adjustment Date. The Borrower will have the option to purchase the
Bonds in lieu of this redemption. If the Borrower exercises its option to
purchase as provided in the Indenture, the Borrower is obligated to provide
all Protected Funds necessary, together with other Protected Funds held by the
Trustee, to pay the principal of and accrued interest on the Bonds to the date
of purchase.
Selection of Bonds for Redemption. To effect the partial redemption or
purchase of Bonds under the Indenture, the Trustee, prior to giving notice of
redemption or purchase, shall assign to each Bond then outstanding a
distinctive number for each $5,000 of the principal amount of such Bond. The
Trustee shall then select by lot, using such method of selection as it shall
deem proper in its discretion, from the numbers so assigned to such Bonds, as
many numbers as, at $5,000 for each number, shall equal the principal amount
of such Bonds to be redeemed. The Bonds to be redeemed or purchased shall be
the Bonds to which were assigned numbers so selected; provided, however, that
only so much of the principal amount of such Bond of a denomination of more
than $5,000 shall be redeemed or purchased as shall equal $5,000 for each
number assigned to it and so selected. If a Bond may be redeemed or purchased
only in part, it shall be surrendered to the Trustee (with, if the Issuer or
the Trustee so requires, a written instrument of transfer in form satisfactory
to the Issuer and the Trustee duly executed by the Holder thereof or his, her
or its attorney duly authorized in writing) and the Issuer shall execute (if
necessary) and the Bond Registrar shall authenticate and deliver to the Holder
of such Bond, without service charge, a new Bond or Bonds of the same series,
of any authorized denomination or denominations, as requested by such Holder,
having the same stated maturity and interest rate in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Bond so surrendered.
Notice of Redemption. Notice of redemption or purchase shall be mailed
by first class mail, postage prepaid, to each Holder of a Bond to be purchased
or redeemed at least 30 days prior to the redemption or purchase date. No
defect in or failure to give notice of redemption or purchase shall affect the
validity of the proceedings for redemption or purchase of any Bond not
affected by such defect. All Bonds so called for redemption or purchase,
provided Protected Funds for their redemption or purchase have been duly
deposited, will, except as otherwise provided in the Indenture, cease to bear
interest on the specified redemption or purchase date and except for the
purpose of payment shall not be entitled to the lien of the Indenture or the
benefits of the Loan Agreement.
Business Day Payments. If the date for payment of the principal of,
premium, if any, or interest on this Bond shall be a day which is not a
Business Day, then the date for such payment shall be the next succeeding day
which is a Business Day, and payment on such later date shall have the same
force and effect as if made on the nominal date of payment.
Enforcement; Modification of Indenture and Related Documents. The Holder
of this Bond shall have no right to enforce the provisions of the Indenture or
to institute action to enforce the covenants therein, or to take any action
with respect to any Event of Default under the Indenture, or to institute,
appear in or defend any suit or other proceedings with respect thereto, except
as provided in the Indenture. Modifications or alterations of the Indenture,
of any indenture supplemental thereto or of Related Documents, may be made
only to the extent and in the circumstances permitted by the Indenture and may
be made in certain cases without the consent of the holders of the Bonds.
Consent to Modifications. With the consent of the Issuer, the Borrower
and the Trustee, as appropriate, and to the extent permitted by and as
provided in the Indenture, the terms and provisions of the Indenture and the
Related Documents or any instrument supplemental thereto may be modified or
altered by the consent of the Holders of the percentage required by the
Indenture in an aggregate principal amount of the Bonds outstanding
thereunder. Supplemental indentures may also be executed and delivered,
without consent of or notice to any Holders, for the purpose of curing any
ambiguity or formal defect or omission in the Indenture or in any supplemental
indenture, granting for the benefit of the Holders additional rights,
remedies, powers, authority, revenues, property, collateral or security, more
precisely identifying the Trust Estate, subjecting the lien and pledge of the
Indenture to additional rights, remedies, powers, authority or security,
<PAGE> - 67 -
preventing the interest on the Bonds from becoming includable in gross income
for federal income tax purposes, qualifying the Indenture under the Trust
Indenture Act of 1939 evidencing appointment of a co-Trustee or successor
Trustee, successor Paying Agent, or successor Bond Registrar, providing for
the issuance of Additional Bonds as allowed by the Indenture, reconciling the
Indenture with Related Documents, making any change which will become
effective on a Rate Adjustment Date, provided a summary of the change is sent
with the Preliminary Notice of Mandatory Tender, or making any other change,
subject to the Trustee's receipt of written confirmation from the Rating
Agency that the rating on the Bonds will not be downgraded, withdrawn or
qualified as a result thereof, which in the judgment of the Trustee, based
upon an opinion of Bond Counsel, is necessary or desirable and will not
materially prejudice any non-consenting Holders. Every Holder hereof is
deemed by the Holder's purchase and retention of this Bond to consent to be
bound by every supplemental indenture and every modification and amendment
adopted in accordance with the provisions of the Indenture, whether or not
noted or endorsed hereon or incorporated herein.
Waiver or Consent Conclusive. The Indenture also contains provisions
permitting the Trustee, in its discretion, upon written request of the Holders
of a majority in aggregate principal amount of the Bonds outstanding, on
behalf of all the Holders of all the Bonds, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences.
Denomination; Exchange; Treatment of Registered Holder. The Bonds are
issued as fully registered book-entry-only bonds without coupons in the
denomination of $5,000 or any integral multiple thereof of a single maturity.
The Bonds may be exchanged by the Holder for other Bonds of any authorized
denominations and of a like aggregate principal amount and stated maturity,
upon surrender thereof by the Holder at the principal corporate trust office
of the Bond Registrar, in the manner and subject to the limitations provided
in the Indenture. The Issuer, the Trustee, the Bond Registrar and any
additional Paying Agents may deem and treat the Holder of this Bond as the
absolute owner of this Bond (whether or not this Bond shall be overdue) for
the purpose of receiving payment on this Bond (except as otherwise herein
above provided with respect to the Record Date and special Record Date) and
for all other purposes, and the Issuer, Trustee, the Bond Registrar and the
Paying Agent shall not be affected by any notice to the contrary.
Registration of Transfer. In the event of the termination of the
book-entry system as set forth in the Indenture and subject to the limitations
provided in the Indenture, the transfer of this Bond is subject to
registration by the Holder in person or by the Holder's attorney hereof upon
surrender of this Bond at the principal corporate trust office of the Bond
Registrar, duly endorsed or accompanied by a written instrument or instruments
of transfer in the form printed on this Bond or in another form satisfactory
to the Bond Registrar and executed and with guaranty of signature by the
Holder hereof or his, her or its attorney duly authorized in writing,
containing written instructions as to the details of the registration of the
transfer of the Bond. Thereupon the Issuer shall execute (if necessary) and
the Bond Registrar shall authenticate and deliver in the name of the
transferee or transferees (but not registered in blank or to "bearer" or a
similar designation), one or more new Bonds of any authorized denomination or
denominations, of a like principal amount having the same stated maturity and
interest rate.
Service Charges, Taxes. No service charge shall be made to the Holder
for any registration, transfer or exchange herein before referred to, but the
Bond Registrar and the Issuer may require payment of a sum sufficient to cover
any tax, fee or other governmental charge that may be imposed in connection
with any transfer or exchange of Bonds, other than exchanges expressly
provided in the Indenture to be made without charge to Holders, and any legal
or other unusual costs of transfers and lost bonds.
Acceleration. In certain events, on the conditions, in the manner and
with the effect set forth in the Indenture, the principal of all the Bonds
then outstanding under the Indenture may become or may be declared due and
payable before the stated maturities thereof, together with the interest
accrued thereon.
Governing Law. This Bond shall be governed by and construed in
accordance with the laws of the State of Illinois.
<PAGE> - 68 -
This Bond shall not be valid or become obligatory for any purpose or be
entitled to any benefit or security under the Indenture until it shall have
been authenticated by the execution by the Bond Registrar on the certificate
of authentication endorsed hereon.
All capitalized terms used in this Bond and not defined herein shall have
the meaning ascribed thereto in the Indenture.
IT IS HEREBY CERTIFIED AND DECLARED that all acts, conditions and things
required to exist, happen and be performed precedent to and in the execution
and delivery of the Indenture and the issuance of this Bond do exist, have
happened and have been performed in due time, form and manner as required by
law.
IN WITNESS WHEREOF, the City of Aurora, Illinois has caused this Bond to
be executed with the facsimile or manual signature of its Mayor and attested
by facsimile or manual signature of its City Clerk, and has caused this Bond
to be dated as of the Dated Date shown above.
CITY OF AURORA, ILLINOIS
Attest:
By
Mayor
By
City Clerk
CERTIFICATE OF AUTHENTICATION
This Bond is one of the Bonds described in the within mentioned Indenture.
Date of Authentication: ________________
UMB BANK, N.A., as
Bond Registrar
By
Authorized Signature
[FORM OF ASSIGNMENT]
For value received, the undersigned do(es) hereby sell, assign and transfer
unto:
(Name, Address and Tax Identification or Social
Security Number of Assignee)
the within-registered Bond and do(es) hereby irrevocably constitute and
appoint, attorney, to transfer the same on the registration books of the
Trustee, with full power of substitution in the premises.
Dated: ________________
Signature Guaranteed:
_______________________________________
NOTICE: The signature on this guaranteed by an eligible guarantor institution
(as defined by SEC Rule 17Ad-15 (12 C.F.R. 240.17 Ad-15) or any similar rule
the Trustee deems applicable).
_______________________________________
NOTICE: The signature on this assignment must correspond with the name(s) as
written on the face of the within Bond in every particular without alteration
or enlargement or any change whatsoever.
<PAGE> - 69 -
The following abbreviations, when used in the inscription on the face of the
within Bond, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM as tenants in common
TEN ENT as tenants by the entirety
JT TEN as joint tenants with rights of
survivorship and not as tenants in common
UNIF GIFT MIN ACT Custodian (Cust) (Minor)
Under Uniform Gifts to Minors Act
(State)
Additional abbreviations may also be used though not in the above list.
<PAGE> - 70 -
EXHIBIT D
PRELIMINARY NOTICE OF MANDATORY TENDER
EXHIBIT E
NOTICE OF CANCELED MANDATORY TENDER
EXHIBIT F
NOTICE OF ELECTION TO RETAIN BONDS
<PAGE> - 71 -
REVOLVING CREDIT LOAN AGREEMENT
between
AMERICA FIRST APARTMENT INVESTORS, L.P.
and
THE FIRST NATIONAL BANK OF BOSTON
As of December 19, 1996
<PAGE> - i -
TABLE OF CONTENTS
Section
1. DEFINITIONS AND RULES OF INTERPRETATION 8
1.1 Definitions 8
1.2 Rules of Interpretation 17
2. REVOLVING CREDIT FACILITY 18
2.1 Agreement to Make Loan 18
2.2 Notice and Manner of Borrowing of Loans 18
2.3 Purpose of Loan 19
2.4 Advances Do Not Constitute a Waiver 19
3. THE NOTE, INTEREST RATE OPTIONS, REPAYMENT OF LOAN 19
3.1 The Note 19
3.2 The Record 19
3.3 Interest on the Loan 20
3.4 Default Interest/Late Charges 20
3.5 Prepayment 20
3.6 Required Principal Reduction 20
3.7 Maturity 20
3.8 Extension of Maturity Date 20
4. COMMITMENT FEE; PAYMENTS AND COMPUTATIONS 21
4.1 Commitment Fee 21
4.2 Facility Fee 21
4.3 Payments 21
4.4 Additional Costs, Etc. 21
4.5 Capital Adequacy 23
4.6 Certificate 23
4.7 Charges Against Accounts 23
5. COLLATERAL SECURITY AND GUARANTY 23
5.1 Collateral 23
5.2 Substitution of Collateral 24
6. REPRESENTATIONS, WARRANTIES AND COVENANTS 24
6.1 Organization; Authority, Etc. 24
6.2 Title to Assets 25
6.3 Financial Statements 25
6.4 Financial Statements, No Material Changes, Etc. 26
6.5 Franchises, Patents, Copyrights, Etc. 26
6.6 Litigation 26
6.7 No Materially Adverse Contracts, Etc. 27
6.8 Compliance With Other Instruments, Laws, Etc. 27
6.9 Tax Status 27
6.10 No Event of Default 28
6.11 Setoff, Etc. 28
6.12 Certain Transactions 28
6.13 Subsidiaries 28
6.14 Partners 28
6.15 ERISA Plan 28
6.16 Availability of Utilities 28
6.17 Access 28
6.18 Condition of Mortgaged Property 29
6.19 Compliance with Requirements 29
6.20 Project Approvals 29
6.21 Other Contracts 29
6.22 Violations 30
6.23 Other Representation 30
6.24 Land Trustee and Trust Agreement 30
<PAGE> - ii -
7. AFFIRMATIVE COVENANTS OF THE BORROWER 31
7.1 Punctual Payment 31
7.2 Records and Accounts 31
7.3 Financial Statements, Certificates and Information 31
7.4 Insurance 33
7.5 Liens and Other Charges 33
7.6 Inspection of Collateral, Other Properties and Books, Appraisals 34
7.7 Compliance with Laws, Contracts, Licenses, and Permits 34
7.8 Leases 34
7.9 Further Assurance of Title 35
7.10 Publicity 35
7.11 Further Assurances 35
7.12 Notices 35
7.13 Management Contract 36
8. NEGATIVE COVENANTS OF THE BORROWER 36
8.1 Restrictions on Easements, Covenants and Restrictions 36
8.2 No Amendments, Terminations or Waivers 37
8.3 Restrictions on Indebtedness 37
8.4 Restrictions on Liens, Etc. 38
8.5 Restrictions on Loans and Investments 39
8.6 Merger, Consolidation, Conversion, and Disposition of Assets 40
8.7 Sale and Leaseback 40
8.8 Distributions 40
8.9 Financial Covenants 40
9. CONDITIONS TO CLOSING AND ADVANCE OF LOAN PROCEEDS 41
9.1 Loan Documents 41
9.2 Contracts 41
9.3 Leases 42
9.4 Certified Copies of Organization Documents 42
9.5 Resolutions 42
9.6 Incumbency Certificate; Authorized Signers 42
9.7 Validity of Liens 42
9.8 Deliveries 42
9.9 Legal Opinions 44
9.10 Lien Search 44
9.11 Appraisal 44
9.12 Commitment Fee 44
9.13 Performance; No Default 44
9.14 Representations and Warranties 44
9.15 Proceedings and Documents 44
9.16 Waiver 45
10. EVENTS OF DEFAULT AND REMEDIES 45
10.1 Events of Default 45
10.2 Termination of Advances and Acceleration 48
10.3 Remedies 49
10.4 Distribution of Collateral Proceeds 49
10.5 Power of Attorney 50
10.6 Waivers 50
11. SETOFF 50
12. EXPENSES 50
13. INDEMNIFICATION 51
14. LIABILITY OF THE LENDER 52
<PAGE> - iii -
15. RIGHTS OF THIRD PARTIES 52
16. SURVIVAL OF COVENANTS, ETC. 53
17. ASSIGNMENT AND PARTICIPATION 53
17.1 Conditions to Assignment by Lender 53
17.2 New Notes, Agreement 53
17.3 Participations 54
17.4 Pledge by the Lender 54
17.5 No Assignment by the Borrower 54
18. RELATIONSHIP 54
19. NOTICES 54
20. GOVERNING LAW 56
21. CONSENT TO JURISDICTION; WAIVERS 56
22. HEADINGS 56
23. COUNTERPARTS 56
24. ENTIRE AGREEMENT, ETC. 56
25. CONSENTS, AMENDMENTS, WAIVERS, ETC. 57
26. TIME OF THE ESSENCE 57
27. SEVERABILITY 57
28. LIMITED RECOURSE 57
<PAGE> - iv -
EXHIBITS
A - Interest Terms and Provisions
B - Covenant Compliance Worksheet and Certificate
C - Notice of Borrowing
SCHEDULES
6.12 - Insider Transactions
6.13 - Subsidiaries
6.14 - Partners, Beneficiaries, Etc.
6.20 - Project Approvals
8.3 - Existing Indebtedness
8.4 - Existing Liens
8.5 - Existing Investments
<PAGE> - v -
LOAN AGREEMENT
This LOAN AGREEMENT is made as of the _____ day of December, 1996, by and
among America First Apartment Investors, L.P. (the "Borrower"), a limited
partnership organized under the laws of the State of Delaware, having its
principal place of business at 1004 Farnam Street, Omaha, Nebraska 68102 and
THE FIRST NATIONAL BANK OF BOSTON (the "Lender"), a national banking
association, having its principal executive offices at 100 Federal Street,
Boston, Massachusetts 02110.
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1 Definitions. The following terms as used in this Agreement, any
Exhibit hereto, or in any other Loan Document (unless otherwise defined
therein) shall have the meanings set forth in this Section 1. Further, any
and all terms which are defined in Exhibit A, annexed hereto, shall when used
herein have the meaning as set forth in such Exhibit A.
Acquired Property. See Section 2.3.
Advance. Any disbursement of the proceeds of the Loan made or to be made
by the Lender pursuant to the terms of this Agree-ment.
Agreement. This Loan Agreement, including the Schedules and Exhibits
hereto.
Appraisal. An appraisal of the market value of each Mortgaged Property
performed by a qualified independent appraiser approved by the Lender.
Appraised Value. The market value of each Mortgaged Property determined
by the most recent Appraisal obtained pursu-ant hereto, as such may be
reviewed and adjusted by the Lender.
Arizona Mortgaged Property. The real property located in Mesa, Maricopa
County Arizona, known as Coral Point Apartments, and consisting of
approximately 15.60715 acres, as described in Exhibit A to the Arizona
Security Deed, together with (i) the residential apartment complex located
thereon known as Coral Point, consisting of 336 apartment units in 20
buildings, and (ii) all materials, furnishings, fixtures, furniture,
machinery, equipment and all items of tangible or intangible per-sonal
property now or hereafter owned or acquired by the Borrow-er, and used in
connection with the operation, ownership, or maintenance thereof.
Arizona Security Deed. The Deed of Trust, dated or to be dated on or
prior to the Closing Date, made by the Borrower in favor of the Lender, to be
recorded with the Maricopa County Registry of Deeds, Arizona.
Borrowing Base. At any time, the lesser of (i) the sum of seventy (70%)
percent of the Ap-praised Value of each Mortgaged Property or (ii) the sum of
(x) Mortgaged Property Operating Cash Flow divided by (y) 1.35, with the
resulting quotient thereof divided by (z) the Mortgage Constant [(x/y)/z].
Borrowing Conditions. (i) No event has occurred which is, or solely with
the passage of time would be, an Event of Default, (ii) the outstanding
principal balance of the Loan shall not exceed the Maximum Commitment Amount,
(iii) the Borrower is, and will continue to be after the Advance, in
compliance with the financial covenants provided for in Section 8.9, herein,
(iv) the Lender receives satisfactory evidence of the continued priority of
the Advance, including, without limitation, an endorsement to the Title
Policy, and (v) the use of the Advance is in compliance with Section 2.3,
hereof.
Business Day. Any day on which the Lender is open for the transaction of
banking business in Boston, Massachusetts.
Closing Date. The first date on which the conditions set forth in
Section 9 have been satisfied.
Code. The Internal Revenue Code of 1986 and the regulations thereunder,
all as amended and in effect from time to time.
<PAGE> - 1 -
Collateral. All of the property, rights and interests of the Borrower
that are or are intended to be subject to the security interests, assignments,
and mortgage liens created by the Security Documents, including, without
limitation, the Mortgaged Property.
Consolidated or consolidated. With reference to any term defined herein,
that term as applied to the Borrower and its Subsidiaries, consolidated in
accordance with generally accepted accounting principles. At the option of
the Lender, any financial reports required hereunder shall be submitted, and
any financial covenants established hereunder shall be calculated, on a
Consolidated basis by the Borrower.
Consolidated Interest. For any four (4) calendar quarters of the
Borrower, determined on an annualized quarterly basis, all interest incurred,
accrued or capitalized by the Borrower with respect to the Obligations and any
other Indebtedness.
Debt Service Charges. For any four (4) calendar quarters of the
Bor-rower, the sum of (i) the Consolidated Interest for such period, plus (ii)
fees payable hereunder, under the other Loan Documents, in connection with the
Obligations, or in connection with any other Indebtedness plus (iii) current
maturities of the Obligations and of any other Indebtedness (except for such
Indebtedness constituting current obligations for the purchase of goods and
services in the ordinary course of business), for such period, in each case
determined in accordance with generally accepted accounting principles.
Default. A condition or event which would, with either the giving of
notice or lapse of time or both, constitute an Event of Default.
Default Rate. See Section 3.4.
Distribution. The (i) declaration or payment of any dividend, (ii)
distribution of cash or other property, (iii) purchase, redemption, or other
retirement (directly or indirectly), or (iv) other distribution, in each case,
of, on or in respect of any shares of any class of capital stock, partnership
interests, or other beneficial or ownership interests of the Borrower.
Due Diligence Requirements. With respect to each Substitute Mortgaged
Property, the Borrower shall satisfy, in a manner acceptable to the Lender,
such due diligence requirements as are typical and usual for first mortgage
real estate loans to be secured by the subject property, including, without
limitation, the following:
a. Property Financial Analysis A financial analysis, including a
review of the lease(s), historical operating statements, cash flow
projections, capital expenditure budgets, and market data.
b. Property Inspection An inspection by an officer of the Lender,
as well as representatives of any other participating banks, if
applicable.
c. Environmental Site Assessment An Environmental site assessment,
dated no later than six (6) months before closing (or substitution of
collateral) which indicates that the subject property is free from any
environmentally hazardous materials, oil, asbestos and lead paint (other
than de minimis quantities incidental to the operation of a multi-family
residence, such as cleaning supplies and pool chemicals), prepared by a
firm acceptable to the Lender.
d. Appraisal An Appraisal supporting an Appraised Value acceptable
to the Lender.
e. Structural and Building Inspection Report A structural
inspection report completed by a construction consultant approved by the
Lender, with respect to the acceptable condition of the Substitute
Mortgaged Property and all building systems.
f. Capital Expenditure Budget A capital expenditure budget,
together with evidence that there is adequate cash flow available or
reserves maintained to pay for all capital expenditures as shown on the
budget.
g. Estoppel Certificates and Subordination Agreements To the extent
applicable, Estoppel Certificates and Subordination, Non-Disturbance and
Attornment Agreements from all commercial tenants.
<PAGE> - 2 -
h. General Real Estate Requirements All requirements typical of a
first mortgage real estate loan, including, without limitation, (i)
evidence all of applicable permits, licenses, and approvals, (ii)
mortgagee title insurance from an acceptable insurer, with such
co-insurance as may be required by the Lender, (iii) instrument survey,
with surveyor's certificate, (iv) flood insurance or evidence of
inapplicability, (v) property insurance in an acceptable amount, (vi)
evidence of payment of real estate taxes, and (vii) rent roll and copies
of lease, if requested.
EBITDA. With respect to any four (4) calendar quarters of the Borrower,
an amount determined on a consolidated basis in a manner acceptable to the
Lender in accordance with generally accepted accounting principles, and equal
to the earnings of the Borrower from continuing operations (excluding
extraordinary gains) before interest, taxes, depreciation and amortization.
ERISA Plan. Any employee benefit, employee pension, or multi employer
plan within the meaning of the Employee Retirement Income Security Act of
1974, as amended and in effect from time to time.
Event of Default. See Section 10.1.
Extension Term. If the Maturity Date is extended as provided in Section
3.8, hereof, the period from December __, 1997 until the payment in full of
the Obligations and the termination of the Loan.
Financing Statements. Uniform Commercial Code Form 1 Financing
Statement(s) from the Borrower in favor of the Lender.
General Partner. America First Capital Associates Limited Partnership
Four, a limited partnership organized under the laws of the State of Delaware,
having its principal place of business at 1004 Farnam Street, Omaha, Nebraska
68102.
Generally accepted accounting principles. Principles that are (a)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to
time and (b) consistently applied with past financial statements of the
Borrower adopting the same principles; provided that a certified public
accountant would, insofar as the use of such accounting principles is
pertinent, be in a position to deliver an unqualified opinion (other than a
qualification regarding changes in generally accepted accounting principles)
as to financial statements in which such principles have been properly
applied.
Governmental Authority. The United States of America, the State in
which the Mortgaged Property is located, -the city or town in which the
Mortgaged Property is located, and any political subdivision, agency,
authority, depart-ment, commission, board, bureau, or instrumentality of any
of them. Guaranty. The Unconditional Guaranty of Payment and Per-formance,
dated or to be dated on or prior to the Closing Date, made by the General
Partner in favor of the Lender.
Illinois Mortgaged Property. The real property located in Aurora, Kane
and Dupage Counties, Illinois, as described in Exhibit A to the Illinois
Security Deed, together with (i) the residential apartment complex located
thereon known as Covey at Fox Valley, consisting of 216 apartment units in 27
buildings, and (ii) all materials, furnishings, fixtures, furniture,
machinery, equipment and all items of tangible or intangible per-sonal
property now or hereafter owned or acquired by the Borrow-er, and used in
connection with the operation, ownership, or maintenance thereof, such real
property being owned on the record title by the Land Trustee, for the benefit
of the Borrower.
Illinois Security Deed. The Mortgage and Security Agreement, dated or to
be dated on or prior to the Closing Date, made by the Land Trustee and the
Borrower in favor of the Lender, to be recorded with the Kane County and
Dupage County Registry of Deeds, Illinois.
<PAGE> - 3 -
Indebtedness. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabil-ities, or to which reference should
be made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indi-rect; (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge, or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; (c) all liabilities under capitalized leases; and (d) all
guarantees, endorsements and other contingent obligations whether direct or
indirect in respect of indebtedness of others, includ-ing the obligations to
reimburse the issuer in respect of any letters of credit.
Indemnity Agreement. The Indemnity Agreement Regarding Hazardous
Materials, dated or to be dated on or prior to the Closing Date, made by the
Borrower and the General Partner in favor of the Lender.
Investments. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of,
or for loans, advances, capital contributions or transfers of property to, or
in respect to any guaranties (or other commitments as described under
Indebtedness), or obliga-tions of, any Person.
Land Trustee. American National Bank and Trust Company of Chicago, a
national banking association, with its principal offices at 33 LaSalle Street,
Chicago, Illinois 60690, as trustee under the Trust Agreement, together with
any successor or assign thereof.
Leases. Any and all leases, licenses and agreements, whether written or
oral, relating to the use or occupation of space in the Mortgaged Property by
Persons other than the Borrower.
Loan. The revolving credit facility which is the subject of this
Agreement.
Loan Documents. This Agreement, the Note, the Indemnity Agreement, the
Guaranty, and the Security Documents, and all other agreements, documents and
instruments now or hereafter evidencing, securing or otherwise relating to the
Loan.
Management Company. America First Properties Management, LLC and any
other Person with whom, with the prior consent of the Lender, the Borrower
will enter into an agreement to manage the operations of the Mortgaged
Property.
Management Contract. The contract(s) entered into, or to be entered
into, between the Borrower and the Management Company, providing for the
management of the operation of the Mortgaged Property by the Management
Company, together with any renewals or replacements thereof.
Maturity Date. December 19, 1997; provided, however, if extended as
provided in Section 3.8, herein, December 19, 1998.
Maximum Commitment Amount. The lesser of (i) Fifteen Million
($15,000,000.00) Dollars and (ii) the Borrowing Base.
Mortgage Constant. The fixed mortgage constant determined at any time in
a manner acceptable to the Lender and based upon (i) an assumed interest rate
equal to the seven (7) year Treasury Rate plus two-hundred (200) basis points,
and (ii) a twenty-five (25) year mortgage style amortization schedule.
Mortgaged Property. The Arizona Mortgaged Property, the Illinois
Mortgaged Property, and each Substitute Mortgage Property, exclusive of any
Released Mortgaged Property.
Mortgaged Property Operating Cash Flow. At any time, an amount determined
for the prior twelve (12) months in a manner acceptable to the Lender in
accordance with generally accepted accounting principles and equal to the sum
of, for the Mortgaged Property, the gross cash receipts less the operating
costs and expenses (including a replacement reserve of $200.00 per apartment
unit per year). In determining Mortgaged Property Operating Cash Flow, there
shall be no deduction from gross cash receipts for depreciation, amortization,
and other non-cash items.
<PAGE> - 4 -
Note. The Note in the principal face amount of Fifteen Million
($15,000,000.00) Dollars dated as of the date hereof, made by the Borrower to
the order of the Lender, together with any extension, renewal, replacement,
substitution, or modification thereof.
Notice of Borrowing. See Section 2.2.
Obligations. All indebtedness, obligations and liabilities of the
Borrower to the Lender, existing on the date of this Agreement or arising
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured,
arising by contract, operation of law or otherwise.
Obligor(s). The Borrower and the General Partner.
Operating Cash Flow. With respect to any four (4) calendar quarters of
the Borrower, an amount determined in a manner acceptable to the Lender in
accordance with generally accepted accounting principles and equal to the
gross cash receipts (after elimination of any extraordinary items of income)
less all operating costs and ex-penses. In determining Operating Cash Flow,
there shall be no deduction from gross cash receipts for depreciation,
amortization, and other non-cash items.
Organizational Documents. For any corporation, partnership, trust,
limited liability company, limited liability partnership, unincorporated
association, business or other legal entity, the documents pursuant to which
such entity has been established or organized, as such documents may be
amended from time to time.
Outstanding. With respect to the Advances or the Loan, the aggregate
unpaid principal thereof as of any date of determina-tion.
Permitted Liens. Liens, security interests and other encumbrances,
permitted by Section 8.4.
Person. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivi-sion thereof.
Project Approvals. All approvals, consents, waivers, orders, agreements,
acknowledgments, authorizations, permits and licenses required under
applicable Requirements or under the terms of any restriction, covenant or
easement affecting the Mortgaged Property, or otherwise necessary or
desirable, for the ownership, acquisition, -use, occupancy and operation of
the Mortgaged Property, whether obtained from a Governmental Au-thority or any
other Person.
Record. Any record, including computer records, maintained by the Lender
with respect to the balance due under the Loan.
Released Mortgaged Property. Any Mortgaged Property as to which the
Lender has released its interest as provided in Section 5.2, hereof.
Requirements. Any law, ordinance, code, order, rule or regulation of any
Governmental Authority relating in any way to the acquisition, ownership, use,
occupancy and operation of the Mortgaged Property.
Security Deed. (i) The Arizona Security Deed and the Illinois Security
Deed, each dated or to be dated on or prior to the Closing Date, made by the
Borrower in favor of the Lender and (ii) each Substitute Security Deed, to be
dated after the date hereof, made by the Land Trustee and the Borrower in
favor of the Lender.
Security Documents. The Security Deed, the Assignments of Leases and
Rents dated as of the date hereof, the Financing Statements and the Guaranty,
and any other agreement, document or instrument now or hereafter securing the
Obligations.
Subsidiary. Any corporation, partnership, association, trust, or other
business entity of which the designated parent shall at any time own directly,
or indirectly through a Subsidiary or Subsidiaries at least a majority (by
number of votes) of the outstanding voting interests therein.
Substitute Collateral. See Section 5.2.
<PAGE> - 5 -
Substitute Mortgaged Property. The real property located, as may be
described from time to time in Exhibit A to each Substitute Security Deed,
together with (i) the buildings and other improvements located thereon and
(ii) all materials, furnishings, fixtures, furniture, machinery, equipment and
all items of tangible or intangible per-sonal property now or hereafter owned
or acquired by the Borrow-er, and used in connection with the operation,
ownership, or maintenance thereof.
Substitute Security Deed. The Mortgage and Security Agreement, executed
on or after the date hereof, made by the Borrower in favor of the Lender, to
be recorded with the appropriate Registry of Deeds, for each parcel of real
estate which is accepted by the Lender as Substitute Collateral.
Substitution Notice. See Section 5.2.
Survey. An instrument survey of the Mortgaged Property prepared in
accordance with the Lender's survey require-ments, such survey to be
satisfactory to the Lender in form and substance.
Surveyor Certificate. With respect to any Survey, a cer-tificate
executed by the surveyor who prepares such Survey dated as of a recent date
and containing such information relating to the Mortgaged Property as the
Lender or the Title Insurance Company may require, such certificate to be
satisfactory to the Lender in form and substance.
Taking. Any condemnation for public use of, or damage by reason of, the
action of any Governmental Authority, or any transfer by private sale in lieu
thereof, either temporarily or permanently.
Title Insurance Company. Lawyers Title Insurance Company, a Virginia
corporation, with a usual place of business at 40 E. Mitchell, Phoenix,
Arizona 85012.
Title Policy. An ALTA standard form title insurance policy issued by the
Title Insurance Company (with such reinsurance or co-insurance as the Lender
may reasonably require, any such reinsurance to be with direct access
endorsements) in an amount not less than Fifteen Million ($15,000,000.00)
Dollars insuring the priority of the Security Deed and that the Borrower holds
marketable fee simple title to the Arizona Mortgaged Property and the Land
Trustee holds marketable fee simple title to the Illinois Mortgaged Property
(allocated in a manner acceptable to the Lender), subject only to such
exceptions as the Lender may reasonably approve, and shall contain such
endorsements and affirmative insurance as the Lender in its discretion may
reasonably require.
Total Tangible Assets. The value of all tangible assets of the Borrower
determined on a consolidated basis in a manner acceptable to the Lender. In
determining the Total Tangible Assets, (i) for each multi-family property as
to which the Borrower owns the fee interest, the value shall be (x) the
operating cash flow for such property (determined (1) for the prior twelve
(12) month period and (2) in the same manner as set forth in the definition of
Mortgaged Property Operating Cash Flow, but for the subject property), less a
replacement reserve of $200.00 per apartment unit per year, divided by (y) a
cap rate of ten (10%) percent, and (ii) for each mortgage loan owned by the
Borrower, a value as accounted for in accordance with generally accepted
accounting principles.
Total Liabilities. All liabilities of the Borrower determined in
accordance with generally accepted accounting principles and all Indebtedness
of the Borrower, whether or not so classified.
Treasury Rate. The latest published rate for United States Treasury Notes
or Bills as published weekly in the Federal Reserve Statistical Release
H.15(519) of Selected Interest Rates for the interest rate which corresponds
to a term equal to seven (7) years.
Trust Agreement. A certain Trust Agreement dated June 21, 1989, also
known as Trust No. 108642-05, with the Land Trustee as the trustee thereof,
pursuant to which Trust Agreement the Borrower, as successor by merger with
America First Tax Exempt Mortgage Fund 2 Limited Partnership, is the holder of
the 100% beneficial interest.
1.2 Rules of Interpretation.
<PAGE> - 6 -
(1) A reference to any Loan Document, agreement, budget, document or
schedule shall include such agreement, budget, document or schedule as
revised, amended, modified or supplemented from time to time in accordance
with its terms and the terms of this Agreement.
(2) A reference to any Exhibit hereto shall be deemed to specifically
incorporate the terms and provisions of such Exhibit herein.
(3) The singular includes the plural and the plural includes the
singular.
(4) A reference to any law includes any amendment or modification to such
law.
(5) A reference to any Person includes its permitted successors and
permitted assigns.
(6) Accounting terms not otherwise defined herein have the meaning
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer.
(7) The words "approval" and "approved", as the context so determines,
means an approval in writing given to the party seeking approval after full
and fair disclosure to the party giving approval of all material facts
necessary in order to determine whether approval should be granted.
(8) Reference to a particular "Section" refers to that section of this
Agreement unless otherwise indicated.
2. REVOLVING CREDIT FACILITY.
2.1 Agreement to Make Loan. Subject to the terms and conditions of this
Agreement and satisfaction of the Borrowing Conditions, the Lender agrees to
lend to the Borrower and the Borrower agrees to borrow from the Lender, from
time to time, Advances, provided that the aggregate principal amount of the
Loan at any one time outstanding hereunder shall not exceed the Maximum
Commitment Amount. The Borrower may borrow, prepay and reborrow, from the
date of this Agreement until the Maturity Date, the full amount of the Maximum
Commitment Amount or any lesser sum that is at least $1,000,000.00 and an
integral multiple of $500,000.00. Any Advance not repaid by the Maturity Date
shall be due and payable on the Maturity Date.
2.2 Notice and Manner of Borrowing of Loans.
(1) Whenever the Borrower desires to obtain an Advance the Borrower shall
notify the Lender by telex, telegraph or telephone received no later than
10:00 a.m. on the date three (3) Business Days before the day on which the
requested Advance is to be made. Such notice shall specify the effective date
and amount of each Advance, subject to the limitations set forth in Section
2.1, and the purpose of such Advance. Each such notification (a "Notice of
Borrowing") shall be immediately followed by a written confirmation thereof by
the Borrower in the form of Exhibit C, annexed hereto, provided that if such
written confirmation differs in any mate-rial respect from the action taken by
the Lender, the records of the Lender shall control absent manifest error.
(2) Each request for an Advance as provided above shall constitute a
certification by the Borrower that Borrowing Conditions have been satisfied as
of the date of the subject request.
(3) Subject to the terms and conditions hereof and the determination by
the Lender that the Borrowing Conditions have been satisfied, including,
without limitation, receipt of an endorsement to the Title Policy evidencing
the continued priority of the Advance, the Lender shall make each Advance on
the effective date specified therefor by crediting the amount of such Advance
to the Borrower's demand deposit account with the Lender.
2.3 Purpose of Loan. The proceeds of the Loan shall be used by the
Borrower (or a wholly owned Subsidiary of the Borrower) to purchase apartment
properties (the "Acquired Property).
2.4 Advances Do Not Constitute a Waiver. No Advance made by the Lender
shall constitute a waiver of any of the terms and conditions of this
Agreement, nor, in the event the Borrower fails to satisfy any such condition,
shall any such Advance have the effect of precluding the Lender from
thereafter declaring such failure to satisfy a condition to be an Event of
Default.
<PAGE> - 7 -
3. THE NOTE, INTEREST RATE OPTIONS, REPAYMENT OF LOAN.
3.1 The Note. The obligation of the Borrower to pay the aggregate unpaid
principal amount of all Advances made by the Lender hereunder plus accrued
interest thereon, shall be evidenced by the Note. In the event the Note is
lost, destroyed or mutilated at any time prior to payment in full of the
indebtedness evidenced thereby, the Borrower shall execute a new note
substantially in the form of the Note. The Note shall not be necessary to
establish the indebtedness of the Borrower to the Lender on account of
Advances made under this Agreement.
3.2 The Record. The Borrower irrevocably authorizes the Lender to make
or cause to be made, at or about the time of any Advance or at the time of
receipt of any payment of the principal of the Note, an appropriate notation
on the Lender's Record reflecting the making of such Advance or (as the case
may be) the receipt of such payment. The outstanding amount of the Loan set
forth on the Lender's Record shall be prima facie evidence of the principal
amount thereof owing and unpaid to the Lender, but the failure to record, or
any error in so recording, any such amount on the Lender's Record shall not
limit or otherwise affect the obligations of the Borrower here-under or under
the Note to make payments of principal or interest on the Note when due.
Further, the outstanding amount of the Loan as reflected on the Record from
time to time shall be considered correct and binding on the Borrower unless
within twenty(20) Business Days after receipt of any notice by the Borrower of
such outstanding amount, the Borrower shall notify the Lender to the contrary.
3.3 Interest on the Loan. The Loan shall bear interest at the interest
rate, and such interest shall be payable, as set forth in Exhibit A.
3.4 Default Interest/Late Charges.
(1) Upon the occurrence of an Event of Default, at the Lender's option,
the Loan and all other amounts payable hereunder or under any of the other
Loan Documents shall bear interest payable on demand at a rate per annum equal
to four percent (4%) above the then applicable highest rate of interest under
the Note until such amount shall be paid in full (after as well as before
judgment) (the "Default Rate").
(2) In addition to other charges described in the Loan Documents, and
without derogating from the right of the Lender to accelerate the Obligations
upon the occurrence of an Event of Default, the Borrower shall pay to the
Lender a late charge equal to three (3%) percent of any payment due under the
Note which is not paid within ten (10) days of the due date thereof.
3.5 Prepayment. The Borrower shall have the right at any time to prepay
the Note on or before the Maturity Date, as a whole, or in part; provided,
however, any such prepayment is in an amount not less than $1,000,000.00 and
an integral multiple of $500,000.00.
3.6 Required Principal Reduction. In the event at any time the
outstanding principal balance of the Loan exceeds the Borrowing Base, the
Borrower shall pay to the Lender on demand, such excess amount.
3.7 Maturity. The Borrower promises to pay on the Matu-rity Date, and
there shall become absolutely due and payable on the Maturity Date, all
principal of the Loan outstanding on such date, together with any and all
accrued and unpaid interest thereon.
3.8 Extension of Maturity Date. The Borrower shall have the right to
the extend the Maturity Date from December 19, 1997 to December 19, 1998;
subject to (i) the Borrower providing to the Lender a written request for such
extension, such written request to be provided to the Lender no earlier than
ninety (90) days and no later than thirty(30) days before the then applicable
Maturity Date, (ii) the Borrower paying to the Lender with such written
request an extension fee equal to Seventy-Five Thousand Dollars ($75,000.00),
which extension fee shall be non-refundable, and (iii) there is occurring and
continuing on the then applicable Maturity Date no Default or Event of
Default. The extension of the Maturity Date as requested above shall not be
effective until the Lender has provided the Borrower with written notice of
the satisfaction of the conditions provided for herein and the extension of
the Maturity Date.
<PAGE> - 8 -
4. COMMITMENT FEE; PAYMENTS AND COMPUTATIONS.
4.1 Commitment Fee. The Borrower agrees to pay to the Lender a
commitment fee in the amount of $150,000.00, of which $75,000.00 was paid upon
the acceptance of the Lender's Commitment Letter dated October 30, 1996 and of
which $75,000.00 shall be paid on the Closing Date.
4.2 Facility Fee. A facility fee at the rate of one-quarter of one
percent (0.25%) per annum on the unused portion of the Loan from the Closing
Date to the Maturity Date will be payable quarterly in arrears, based upon the
amount by which the Maximum Commitment Amount exceeds the average unpaid
principal balance of the Loan during the subject quarter.
4.3 Payments.
(1) All payments of principal, interest, fees and any other amounts due
under the Note or under any of the other Loan Documents shall be sent to the
Lender at P.O. Box 3012, Boston, Massachusetts 02241-3012, or at such other
location in the Boston, Massachusetts area that the Lender may from time to
time designate, in the billing invoice or otherwise, which payment may be made
by check or wire transfer of immediately available funds in lawful money of
the United States.
(2) All payments by the Borrower under the Note and under any of the
other Loan Documents shall be made without setoff or counterclaim and free and
clear of and without deduc-tion for any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any
jurisdiction or any political subdivision thereof or taxing or other authority
therein unless the Borrower is compelled by law to make such deduction or
withholding.
4.4 Additional Costs, Etc. During the Extension Term (and specifically
not for any period prior to the Extension Term), if any present or future
applicable law, which expression, as used herein, includes statutes, rules and
regulations thereunder and interpretations thereof by any competent court or
by any governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon
or otherwise issued to the Lender by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(a) subject the Lender to any tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature with respect to this Agreement, the
other Loan Documents, or the Loans (other than taxes based upon or measured by
the income or profits of the Lender), or
(b) materially change the basis of taxation (except for changes in taxes
on income or profits) of payments to the Lender of the principal of or the
interest on any Loans or any other amounts payable to the Lender under this
Agreement or the other Loan Documents, or
(c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar requirements
(whether or not having the force of law) against assets held by, or deposits
in or for the account of, or loans by, or commitments of an office of the
Lender, or
(d) impose on the Lender any other conditions or re-quirements with
respect to this Agreement, the other Loan Documents, the Loans, or any class
of loans or commitments of which any of the Loans forms a part; and the result
of any of the foregoing is
(i) to increase the cost to the Lender of making, funding, issuing,
renewing, extending or maintaining any of the Loans, or
(ii) to reduce the amount of principal, interest or other amount
payable to the Lender hereunder on account of any of the Loans, or
(iii) to require the Lender to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment or
foregone interest or other sum is calculated by reference to the gross
amount of any sum receivable or deemed received by the Lender from the
<PAGE> - 9 -
Borrower hereunder, then, and in each such case, the Borrower will, upon
demand made by the Lender at any time and from time to time and as often as
the occasion therefor may arise, pay to the Lender such additional amounts as
will be sufficient to compensate the Lender for such additional cost,
reduction, payment or foregone interest or other sum.
4.5 Capital Adequacy. During the Extension Term (and specifically not
for any period prior to the Extension Term), if the Lender shall have
determined that the adoption of any applicable law, rule, regulation,
guideline, directive or request (whether or not having force of law) regarding
capital requirements, or the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender with any
of the foregoing imposes or increases a requirement by the Lender to allocate
capital resources to the Loans made, or to be made, hereunder, which has or
would have the effect of reducing the return on the Lender's capital to a
level below that which the Lender could have achieved (taking into
consideration the Lender's then existing policies with respect to capital
adequacy and assuming full utilization of the Lender's capital) but for such
adoption, change or compliance, by any amount deemed by the Lender to be
material: (i) the Lender shall promptly after its determination of such
occurrence give notice thereof to the Borrower; and (ii) the Borrower shall
pay to the Lender as an additional fee from time-to-time on demand such amount
as the Lender certifies to be the amount that will compensate it for such
reduction. In determining such amounts, the Lender may use any reasonable
averaging and attribution methods.
4.6 Certificate. A certificate setting forth any additional amounts
payable pursuant to Section 4.4 or Section 4.5 and a brief explanation of such
amounts which are due, submitted by the Lender to the Borrower, shall be prima
facie evidence that such amounts are due and owing.
4.7 Charges Against Accounts. The Lender shall have the right, and the
Borrower hereby irrevocably au-thorizes the Lender, to charge any account of
the Borrower with the Lender, without the further approval of the Borrower,
for (i) any installment of interest or principal due under the Note, (ii) any
costs or expenses incurred by the Lender which are to be paid or reimbursed by
the Borrower under the terms of this Agreement or any of the other Loan
Documents or (iii) any other sums due to the Lender under the Note, this
Agreement or any of the other Loan Documents, and any other Obligations, all
to the extent that the same are not paid by the respective due dates thereof.
5. COLLATERAL SECURITY AND GUARANTY.
5.1 Collateral. The Obligations shall be secured by a perfected first
priority mortgage lien and security in the Collateral, whether now owned or
hereafter acquired, pursuant to the terms of the Security Documents to which
the Borrower is a party. The Obligations shall also be guaranteed pursuant to
the terms of the Guaranty.
5.2 Substitution of Collateral.
(1) From time to time and at any time, the Borrower may request in
writing (the "Substitution Request") that the Lender accept as collateral for
the Obligations any fee owned parcel of real estate, owned by the Borrower and
that, in conjunction with such Substitution Request, that the Lender release
its interest in any Mortgaged Property then constituting part of the
Collateral.
(2) The Lender shall determine, in its sole discretion, based upon, among
other factors, the Due Diligence Requirements, (i) to accept as collateral for
the Obligations any such fee owned parcel of real estate, owned by the
Borrower (the "Substitute Collateral") and (ii) to release its interest in any
Mortgaged Property then constituting all or a portion of the Collateral.
(3) In connection with any Substitution Request, the Borrower agrees, at
the Borrower's sole cost and expense, to (i) deliver to the Lender any and all
information and materials requested by the Lender with respect to the proposed
Substitute Collateral, including, without limitation, those set forth in the
Due Diligence Requirements, and (ii) execute any and all documentation
requested by Lender or Lender's counsel to establish the interest of the
Lender in the Substitute Collateral and release the Released Mortgaged
Property.
<PAGE> - 10 -
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower repre-sents,
warrants, and covenants to the Lender as follows:
6.1 Organization; Authority, Etc.
(1) Organization; Good Standing. The Borrower is a limited partnership
duly organized under the laws of the State of Delaware pursuant to the
Borrower's Organizational Documents, and is, and will at all times be, validly
existing and in good standing under the laws of such State, and in each
jurisdiction where required. The General Partner is a limited partnership
duly organized under the laws of the State of Delaware pursuant to the General
Partner's Organizational Documents, and is, and will at all times be, validly
existing, in good standing, and qualified to do business in each jurisdiction
where required. Each Obligor has, and will at all times have, all requisite
power to own its property and conduct its business as now conducted and as
presently contemplated.
(2) Authorization. The execution, delivery and performance of this
Agreement and the other Loan Documents to which any Obligor is or is to become
a party and the transac-tions contem-plated hereby and thereby (i) are within
the authority of such Obligor, (ii) have been duly authorized by all necessary
proceed-ings on the part of such Obligor, (iii) do not conflict with or result
in any breach or contravention of any provision of law, statute, rule or
regulation to which such Obligor is subject or any judgment, order, writ,
injunction, license or permit appli-cable to such Obligor, (iv) do not
conflict with any provision of the Organizational Documents of such Obligor,
and (v) do not require the approval or consent of, or filing with, any
governmental agency or authority other than those already obtained and the
filing of the Security Documents- and the Financing Statements in the
appro-priate public records with respect thereto.
(3) Enforceability. The execution and delivery of this Agreement and the
other Loan Documents to which each Obligor is or is to become a party will
result in valid and legally binding obliga-tions of such Obligor enforceable
against it in accordance with the respective terms and provisions hereof and
thereof, except as enforceability is limited by bankruptcy, insolvency,
reorganiza-tion, moratorium or other laws relating to or affecting generally
the enforcement of creditors' rights and except to the extent that
availability of the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding therefor
may be brought.
6.2 Title to Assets. The Borrower owns all of the assets reflected in
the balance sheet of the Borrower furnished to the Lender as provided below as
of the date thereof or acquired since that date (except property and assets
sold or otherwise disposed of in the ordinary course of business since that
date).
6.3 Financial Statements. There has been furnished to the Lender:
(1) An audited financial statement for the calendar year ending December
31, 1995 for the predecessor of the Borrower, certified by Coopers & Lybrand.
Such financial statement has been prepared in accordance with generally
accepted accounting principles and fairly present the financial condition of
such Person as at the close of business on the date thereof and the results of
opera-tions for the calendar year then ended. As of the date of this
Agreement, there are no liabilities or contingent liabilities of the Borrower
known to the General Partner which are not disclosed in said balance sheet and
the related notes thereto other than the Obligations.
(2) A balance sheet and a statement of income of the predecessor of the
Borrower for each of the first two (2) calendar quarters for the calendar year
ending December 31, 1996, which have been prepared in accordance with
generally accepted accounting principles consistent with those used in the
preparation of the annual audited statements delivered pursuant to paragraph
(a) above and to fairly present the financial condition of the Borrower at the
close of business on the dates thereof and the results of operations for the
calendar quarters then ended (subject to year-end adjustments).
(3) A statement of Mortgaged Property Operating Cash Flow for each
Mortgaged Property for calendar years 1994 and 1995, and each of the first two
(2) calendar quarters for the calendar year ending December 31, 1996, fairly
presenting the cash receipts and disbursements of such Mortgaged Property for
such period, such statement to be prepared on a basis consistent with the
schedule of cash receipts and disburse-ments delivered pursuant to paragraph
(i) above.
<PAGE> - 11 -
6.4 Financial Statements, No Material Changes, Etc. The financial
statements and other reports furnished to the Lender as described in Section
6.3, above, fairly present the financial condition of the Borrower at the
close of business on the dates thereof and the results of operations for the
calendar quarters then ended (subject to year-end adjustments). Since the date
thereof, there has occurred no adverse change in the financial condition or
business of each Person as shown on or reflected in the respective balance
sheet delivered to the Lender as provided above, or the statement of income
for the calendar year then ended, other than changes in the ordinary course of
business that have not had any adverse effect either individually or in the
aggregate on the business or financial condition of such Person.
6.5 Franchises, Patents, Copyrights, Etc. The Borrower possesses, and
will at all times possess, all franchises, patents, copyrights, trademarks,
trade names, licenses and permits, and rights in respect of the fore-going,
adequate for the conduct of its business substantially as now conducted or as
it is intended to be conducted, without known conflict with any rights of
others.
6.6 Litigation. There are no actions, suits, proceedings or
investigations of any kind pending or threatened against any Obligor or any of
the Borrower's Subsidiaries before any court, tribunal or admin-istrative
agency or board or any mediator or arbitrator that, if adversely determined,
might, either in any case or in the aggregate, adversely affect the business,
assets or financial condition of such Person, or result in any liability not
adequately covered by insurance, or for which adequate reserves are not
maintained on the balance sheet of such Person, or which question the validity
of this Agreement or any of the other Loan Documents, any action taken or to
be taken pursuant hereto or thereto, or any lien or security interest created
or intended to be created pursuant hereto or thereto, or which will adversely
affect the ability of the Borrower to use and occupy the Mortgaged Property or
to pay and perform the Obligations in the manner contemplated by this
Agreement and the other Loan Documents.
6.7 No Materially Adverse Contracts, Etc. Each Obligor is not subject to
any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation that has or is expected in the future to have a
materially adverse effect on the business, assets or financial condition of
such Person. Each Obligor is not, and will not be, a party to any contract or
agreement that has or is expected, in the judgment of the Bor-rower's
officers, to have any materially adverse effect on the business of such Person.
6.8 Compliance With Other Instruments, Laws, Etc. Each Obligor is not,
and will not at any time be, in violation of any provision of its
Organizational Documents or any agreement or instrument to which it may be
subject or by which it or any of its properties may be bound or any decree,
order, judgment, statute, license, rule or regulation, in any of the foregoing
cases in a manner that could result in the imposition of sub-stantial
penalties or materially and adversely affect the financial condition,
properties or business of such Obligor.
6.9 Tax Status. Each Obligor and Subsidiary thereof (a) has made or
filed, and will make or file in a timely fashion, all federal and state income
and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (b) has paid, and will pay when due, all
taxes and other governmental assessments and charges shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and by appropriate proceedings, (c) if a partnership, limited
partnership, limited liability partnership, or limited liability company, has,
and will maintain, partnership tax classification under the Code, and (d) has
set aside, and will at all times set aside, on its books provisions reasonably
adequate for the payment of all taxes for periods subsequent to the period to
which such returns, reports or declarations apply. There are no unpaid taxes
in any material amount claimed to be due by the taxing authority of any
juris-diction, and the officers, partners or trustees of the Borrower know of
no basis for any such claim.
6.10 No Event of Default. The Borrower has no actual knowledge that a
Default or Event of Default has occurred and is continuing.
6.11 Setoff, Etc. The Collateral and the Lender's rights with respect to
the Collateral are not subject to any setoff, claims, withholdings or other
defenses.
<PAGE> - 12 -
6.12 Certain Transactions. Except as set forth on Sched-ule 6.12
hereto, (a) none of the officers, trustees, directors, partners, managers,
members, stockholders, beneficiaries, or employees of any Obligor or
Subsidiary thereof or (b) to the knowledge of the Borrower, any corporation,
partnership, trust or other entity in which any such officer, trustee,
director, partner, manager, member, stockholder, beneficiary, or employee has
a substantial interest or is an officer, director, trustee, manager or
partner, is presently a party to any transaction with the Borrower (other than
for services as employ-ees, officers, trustees, managers and directors).
6.13 Subsidiaries. Except as set forth in Schedule 6.13, the Borrower
has no Subsidiaries.
6.14 Partners Except as set forth in Schedule 6.14, the Borrower has no
general partners or limited partners.
6.15 ERISA Plan. The Borrower does not, and will not maintain or
contribute to an ERISA Plan.
6.16 Availability of Utilities. All utility services necessary and
sufficient for the use and operation of the Mortgaged Property are presently,
and will at all times be, available to the boundaries of the Mortgaged
Property through dedicated public rights of way or through perpetual private
easements, approved by the Lender, with respect to which the Security Deed
creates a valid and enforceable first lien. The Borrower has obtained all
utility installations and connections required for the operation and servicing
of the Mortgaged Property for its intended purposes, and at the request of
Lender, will furnish the Lender with evidence of the existence of utility
service to the Mortgaged Property.
6.17 Access. The rights of way for all roads necessary for the full
utilization of the Mortgaged Property for their intended purposes have either
been acquired by the appropriate Governmen-tal Authority or have been
dedicated to public use and accepted by such Governmental Authority, all such
roads shall have been completed, and the right to use all such roads, or
suitable substitute rights of way approved by the Lender, have been obtained
and shall be maintained at all times for the Mortgaged Property. All curb
cuts and driveways required for the operation and use of the Mortgaged
Property are existing and shall be maintained at all times for the Mortgaged
Property.
6.18 Condition of Mortgaged Property. Neither the Mortgaged Property nor
any part thereof is now damaged or injured in any material respect as a result
of any fire, explosion, accident, flood or other casualty or has been the
subject of any Taking, and to the knowledge of the Borrower, no Taking is
pending or contemplated.
6.19 Compliance with Requirements. The use and occupancy of the
Mortgaged Property complies with, and will at times comply, in all material
respects with Requirements. The Borrower will give all such notices to, and
take all such other actions with respect to, such Governmental Authority as
may be required under applicable Requirements to use, occupy and operate the
Mortgaged Property.
6.20 Project Approvals.
(1) The Borrower has obtained all material Project Approvals. All
Project Approvals obtained by the Borrower have been validly issued and are in
full force and effect. The Borrower has no actual knowledge that any Project
Approvals will terminate, or become void or voidable or terminable, upon any
sale, transfer or other disposition of the Mortgaged Property, including any
transfer pursuant to foreclosure sale under the Security Deed.
(2) The Borrower will duly perform and comply with all of the terms and
conditions of all Project Approvals obtained at any time, including all
Project Approvals listed and described on Schedules 6.20 hereto.
6.21 Other Contracts.
(1) The Borrower has not made, and will not make any, contract or
arrangement of any kind or type whatsoever (whether oral or written, formal or
informal), the performance of which by the other party thereto could give rise
to a lien or encumbrance on the Collateral other than in the ordinary course
of business.
<PAGE> - 13 -
(2) The Borrower will not make any contract or arrangement of any kind or
type whatsoever, with any affiliate of the Borrower unless such contract or
arrangement is (x) approved in writing in advance by the Lender, which
approval shall not be unreasonably withheld, (y) on the same terms as would be
generally available to the Borrower in an arm's length contract or arrangement
with a third party, and (z) evidenced by a written agreement. (3) All
contracts or arrangements with any affiliate of the Borrower are on terms
which would be generally available to the Borrower in an arm's length contract
or arrangement with a third party.
6.22 Violations. The Borrower has received no notices of, or has any
knowledge of, any violations of any applicable Re-quirements or Project
Approvals.
6.23 Other Representation.
(1) The tax exempt bonds held by the Borrower are unextinguished and
valid, the Borrower would be permitted to refund and reissue such bonds,
subject to the receipt of all appropriate approvals, in an amount sufficient
to repay in full the Obligations.
(2) All assets that were owned by America First Tax Exempt Fund 2 Limited
Partnership, the predecessor in interest to the Borrower, are owned by either
the Borrower or a wholly owned Subsidiary of the Borrower.
6.24 Land Trustee and Trust Agreement.
(1) The Illinois Mortgaged Property is owned as of record by the Land
Trustee as provided in Trust Agreement.
(2) The Borrower is the owner of the one-hundred (100%) beneficial
interest in the trust established pursuant to the Trust Agreement and is the
owner of the one-hundred (100%) percent beneficial interest in the Illinois
Mortgaged Property.
(3) Pursuant to the Trust Agreement, the Trustee is required to take such
action as is directed by the beneficiary. As the holder of the one-hundred
(100%) beneficial interest therein, the Borrower has directed the Land Trustee
to execute and deliver to the Lender such documents as the Lender may from
time to time reasonably require in order to effectuate the transaction
contemplated herein and to establish and perfect the interest to be granted to
the Lender in and to the Illinois Mortgaged Property, including, without
limitation, the Illinois Security Deed.
(4) The Borrower will not direct the Trustee, or allow the Trustee, to
take any action which is in violation of, or not in accordance with, the terms
and provisions hereof.
(5) For the purposes of each and every representation, warranty and
covenant contained herein and in any other Loan Document, the Illinois
Mortgaged Property shall be deemed to be an asset of the Borrower.
(6) The Land Trustee is merely the nominal holder of the legal ownership
of the Illinois Mortgaged Property. Any and all agreements, contracts,
licenses, permits and approvals relative to the use, ownership or operation of
the Illinois Mortgaged Premises, including, without limitation, all Leases and
Project Approvals, and any Management Contract, have been obtained or entered
into, and will be obtained or entered into, in the name of the Borrower.
7. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and
agrees that, so long as the Loan is outstanding:
7.1 Punctual Payment. The Borrower will duly and punc-tu-ally pay or
cause to be paid the principal and interest on the Loan and all other amounts
provided for in the Note, this Agree-ment and the other Loan Documents to
which the Borrower is a party, all in accordance with the terms of the Note,
this Agree-ment and such other Loan Documents.
7.2 Records and Accounts. The Borrower will (a) keep true and accurate
records and books of account in which full, true and correct entries will be
made in accordance with generally accepted accounting principles and (b)
maintain adequate accounts and provide for all taxes (including income taxes),
depreciation and amortization of its properties, and properly disclose all
contingencies in its financial statements.
<PAGE> - 14 -
7.3 Financial Statements, Certificates and Information.
(1) The Borrower will deliver, or cause to be delivered, to the Lender:
(1) as soon as practicable, but in any event not later than ninety
(90) days after the end of each calendar year of the Borrower, the
audited balance sheet of the Borrower at the end of such year, and the
related audited statement of income, statement of retained earnings,
changes in capital, and statement of cash flows for such year, each
setting forth in comparative form the figures for the previous calendar
year and all such statements to be in reasonable detail, prepared in
accordance with generally accepted accounting principles, and accompanied
by an auditor's report prepared without qualification by Coopers &
Lybrand or by another independent certified public accountant accept-able
to the Lender, together with a written statement from such accountants to
the effect that they have read a copy of this Agreement, and that, in
making the examination neces-sary to said certification, they have
obtained no knowledge of any Default or Event of Default under this
Agreement, or, if such accountants shall have obtained knowledge of any
then existing Default or Event of Default they shall dis-close in such
statement any such Default or Event of De-fault; provided that such
accountants shall not be liable to the Lender for failure to obtain
knowledge of any Default of Event of Default;
(2) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the first three (3)
calendar quarters of the Borrower, copies of the un-audited property
statements for each Mortgaged Property as at the end of such quarter, and
the related unaudited statement of income, in reasonable detail and
prepared in accordance with gener-ally accepted accounting principles,
together with a certifica-tion by the principal financial or accounting
officer or general partner of the Borrower that the information contained
in such property state-ments fairly presents the financial position of
each Mortgaged Property (subject to year-end adjustments) and that, in
making the examination neces-sary to said certification, such Person has
obtained no knowledge of any Default or Event of Default under this
Agreement;
(3) contemporaneously with the delivery of the financial
statements referred to in clause (a), above, a statement of all
contingent liabilities of the Borrower which are not reflected in such
financial statements or referred to in the notes thereto, all in
reasonable detail and certified by the principal financial or accounting
officer of the Borrower;
(4) simultaneously with the delivery of the financial statements
referred to in clauses (i) and (ii) above, a statement in the form of
Exhibit B, attached hereto, signed by the principal financial or
accounting officer or general partner of the Borrower and setting forth
in reasonable detail computations evi-dencing compliance with the
covenants contained in Section 8.9;
(5) within thirty (30) days after the end of each calendar quarter
of the Borrower, a current rent roll and lease receivable aging as of the
end of such month;
(6) contemporaneously with the filing or mailing thereof, copies
of all material of a financial nature filed with the Securities and
Exchange Commission or sent to the partners of the applicable Obligor,
including, without limitation, the 10K and 10Q;
(7) no later than thirty (30) days before the commencement of each
calendar year of the Borrower, a business plan for the subject calendar
year setting forth in reasonable detail a statement of projected cash
flows of the Borrower for the said calendar year, and
(8) from time to time such other financial data and information
(including accountants' management letters) as the Lender may reasonably
request.
(2) All of the financial information required hereunder shall, if
requested by the Lender, be submitted on a Consolidated basis with all of the
Borrower's Subsidiaries.
<PAGE> - 15 -
7.4 Insurance.
(1) The Borrower will obtain and maintain insurance with respect to the
Collateral and the operations of the Borrower as required by the Security Deed.
(2) The Borrower will provide the Lender with cer-tificates evidencing
such insurance upon the request of the Lender.
7.5 Liens and Other Charges. The Borrower and each Subsidiary of the
Borrower will duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue all claims for labor, materials, or
supplies that if unpaid might by law become a lien or charge upon any of its
property; provided that any such claim with respect to properties other than
the Collateral need not be paid if the validity or amount thereof shall
currently be contested in good faith by appropriate proceedings and if the
Borrower or such Subsidiary shall have set aside on its books adequate
reserves with respect thereto; and provided further, that the Borrower or such
Subsidiary will pay all such liens and charges forthwith upon the commencement
of proceedings to foreclose any lien that may have attached as security
therefor.
7.6 Inspection of Collateral, Other Properties and Books, Appraisals.
(1) The Borrower shall permit the Lender, at the Lender's expense, to
visit and inspect the Collateral and will cooperate with the Lender during
such inspections.
(2) The Borrower shall permit, or cause to permit, the Lender at the
Lender's expense to visit and inspect the Collateral and any of the other
proper-ties of the Borrower, any other Obligor, or any Subsidiary thereof to
examine the books of account of such Person -(and to make copies thereof and
extracts therefrom) and to discuss the affairs, finances and accounts of such
Person with, and to be advised as to the same by, its officers, partners, or
trustees, all at such reasonable times and intervals as the Lender may
reasonably request.
(3) The Lender shall have the right to obtain from time to time, at the
Lender's cost and expense, updated Appraisals of the Mortgaged Property.
(4) Notwithstanding the above, after and during the continuance of an
Event of Default, the Borrower shall be obligated to pay the expenses
associated with any subsequent investi-gation of the books of account of each
Obligor and the costs and expenses incurred by the Lender in obtaining such
Appraisals.
7.7 Compliance with Laws, Contracts, Licenses, and Permits. The Borrower
will, or will cause each Obligor and each Subsidiary thereof to, comply with
(a) the applicable laws and regulations wherever its business is conducted,
including all Environmental Laws and, in the case of the Borrower, all
Re-quirements, (b) the provisions of its Organizational Documents, (c) all
agreements and instruments by which it or any of its properties may be bound,
including, in the case of the Borrower, the Management Contract, all
restrictions, covenants and easements affecting the Mortgaged Property, (d)
all applicable decrees, orders and judgments, and (e) all li-censes and
permits required by applicable laws and regulations for the conduct of its
business or the ownership, use or opera-tion of its properties, including, in
the case of the Borrower, all Project Approvals.
7.8 Leases. The Borrower will take or cause to be taken all steps within
the reasonable power of the Borrower to market and lease the leasable area of
the Mortgaged Property to such tenants and using a standard form lease
reasonably approved by the Lender. Further, the Borrower will comply with the
terms and conditions of the Security Documents relating to any and all Leases.
7.9 Further Assurance of Title. If at any time the Lender or the
Lender's counsel has reason to believe that any Advance is not secured or will
or may not be secured by the Security Deed as a first lien or security
interest on the Collateral, then the Borrower shall, within ten (10) days
after written notice from the Lender, do all things and matters necessary, to
assure to the satisfaction of the Lender and the Lender's counsel that any
Advance previously made hereunder or to be made hereunder is secured or will
be secured by the Security Deed as a first lien or security interest on the
Collateral, and the Lender, at its option, may decline to make Advances
hereunder until the Lender has received such assurance, but nothing in this
Section shall limit the Lender's right to require endorsements extending the
effective date of the Title Policy as herein set forth.
<PAGE> - 16 -
7.10 Publicity. The Borrower will permit the Lender to obtain publicity
in connection with the financing of the Collateral through press releases and
participation in such events as opening ceremonies.
7.11 Further Assurances.
(1) Regarding Preservation of Collateral. The Bor-rower will execute and
deliver to the Lender such further docu-ments, instruments, assignments and
other writings, and will do such other acts necessary or desirable, to
preserve and protect the Collateral at any time securing or intended to secure
the Obligations, as the Lender may reasonably require.
(2) Regarding this Agreement. The Borrower will cooperate with, and will
do such further acts and execute such further instruments and documents as the
Lender shall reasonably request to carry out to its satisfaction the
transactions con-templated by this Agreement and the other Loan Documents.
7.12 Notices. The Borrower will promptly notify the Lender in writing of
(i) the occurrence of any Default of which the Borrower has knowledge or Event
of Default; (ii) the occurrence of any other event which may have a material
adverse effect on the Collateral or the business or financial condition of any
Obligor; and (iii) the receipt by the Borrower of any notice of default or
notice of termination with respect to any contract or agreement relating to
the ownership, operation, or use of the Collateral, including, without
limitation, the - Management Contract.
7.13 Management Contract.
(1) The Borrower has entered into a Management Contract, which Management
Contract shall be in form and substance reasonably satisfactory to the
Lender. The Borrower acknowledges that the Lender will rely on the Management
Company's experience in operating properties such as the Mortgaged Property as
a means of maintaining the value of the Collateral. In connection with the
approval of the Management Company, or any replacement Management Company:
(1) the Management Company or holder of the stock or partnership
interest therein, shall be either (x) America First Properties
Management, LLC or (y) another Person whose character, financial
strength, stability and experience is reasonably acceptable to the Lender
and who shall have experience managing complexes of a type and size
reasonably similar to the Mortgaged Property;
(2) the Management Company shall deliver all organizational
documentation and other materials evidencing its experience reasonably
acceptable to Lender;
(3) the Borrower shall pay a reasonable fee to Lender, together
with the reasonable fees, costs and expenses of Lender and Lender's
counsel incurred in connection with the review and approval of any such
Management Company; and
(4) the terms of any Management Contract affecting the Collateral
must be acceptable to Lender in all reasonable respects.
(2) The Borrower shall, from time to time, use its best efforts to obtain
from the Management Company under the Management Contract such certificates of
estoppel with respect to compliance by Borrower with the terms of the
Management Contract as may be reasonably requested by Lender.
8. NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees
that, so long as the Loan is outstanding :
8.1 Restrictions on Easements, Covenants and Restric-tions. The Borrower
will not create or suffer to be created or to exist any easement, right of
way, restriction, covenant, condition, license or other right in favor of any
Person which affects or might affect title to the Collateral or the use and
occupancy of the Mortgaged Property or any part thereof without obtaining the
prior approval of the Lender, which consent shall not be unreasonably
withheld.
8.2 No Amendments, Terminations or Waivers.
(1) The Borrower will not amend, supplement or other-wise modify, whether
by change order or otherwise, any of the terms and conditions of the
Management Contract, without in each case the prior approval of the Lender.
<PAGE> - 17 -
(2) The Borrower will not, directly or indirectly, terminate or cancel,
or cause or permit to exist any condition which would result in the
termination or cancellation of, or which would relieve the performance of any
obligations of any other party under the Management Contract.
(3) The Borrower will not, directly or indirectly, waive or agree or
consent to the waiver of, the performance of any obligations or any other
party under the Management Contract.
(4) The Borrower will not, directly or indirectly, amend, or allow the
amendment of, any of the Organizational Documents of the Borrower.
8.3 Restrictions on Indebtedness. The Borrower and any Subsidiary
thereof will not create, incur, assume, guarantee or be or remain liable,
contingently or other-wise, with respect to any Indebtedness other than:
(1) Indebtedness to the Lender arising under any of the Loan Documents;
(2) current liabilities of the Borrower or such Subsidiary incurred in
the ordinary course of business but not incurred through (i) the borrowing of
money, or (ii) the obtaining of credit except for credit on an open account
basis customarily extended and in fact extended in connec-tion with normal
purchases of goods and services;
(3) Indebtedness in respect of taxes, assessments, governmental charges
or levies and claims for labor, mate-rials and supplies to the extent that
payment therefor shall not at the time be required to be made in accordance
with the provisions of Section 6.9 and Section 7.5 ;
(4) Indebtedness in respect of judgments or awards that have been in
force for less than the applicable period for taking an appeal so long as
execution is not levied thereunder or in respect of which the Borrower or such
Subsidiary shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution shall have
been obtained pending such appeal or review; (5) non-recourse Indebtedness
(with customary indemnification exceptions and customary exceptions based upon
the willful misconduct or bad faith of the Borrower and such other customary
exceptions as may be reasonably acceptable to the Lender); and
(6) Indebtedness existing on the date of this Agree-ment and listed and
described on Schedule 8.3 hereto, including any refinancing of any debt
listed on Schedule 8.3 hereto, so long as such refinancing is not for an
amount in excess of 100% of the fair market value of the asset being
refinanced.
8.4 Restrictions on Liens, Etc. The Borrower and any Subsidiary thereof
will not (a) create or incur or suffer to be created or incurred or to exist
any lien, encumbrance, mortgage, pledge, charge, restriction or other security
interest of any kind upon any of its property or assets of any character
whether now owned or hereafter acquired, or upon the income or profits
therefrom; (b) transfer any of its property or assets or the income or profits
therefrom for the purpose of subjecting the same to the payment of
Indebtedness or performance of any other obligation in priority to payment of
its general creditors; (c) acquire, or agree or have an option to acquire, any
property or assets upon conditional sale or other title retention or purchase
money security agreement, device or ar-rangement; (d) suffer to exist for a
period of more than thirty (30) days after the same shall have been incurred
any Indebted-ness or claim or demand against it that if unpaid might by law or
upon bankruptcy or insolvency, or otherwise, be given any prior-ity whatsoever
over its general creditors; or (e) sell, assign, pledge or otherwise transfer
any accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse; provided that the Borrower -may create
or incur or suffer to be created or incurred or to exist:
(1) statutory liens to secure taxes, assessments and other governmental
charges or claims for labor, material or supplies in respect of obligations
not overdue;
(2) liens in favor of the Lender under the Loan Documents or to secure
any Obligations;
(3) presently outstanding liens on properties other than the Collateral
listed on Schedule 8.4, hereto;
<PAGE> - 18 -
(4) other liens on the Collateral consisting of ease-ments, rights of
way, covenants and restrictions if and to the extent the same are disclosed on
the Title Policy and have been approved by the Lender;
(5) the liens now on the Illinois Mortgaged Property in favor of the
Borrower or any Subsidiary of the Borrower relating to the tax-exempt bonds
previously issued with respect to the Illinois Mortgaged Premises, as shown on
Schedule 8.4, each of which liens shall be subordinate in all respects to any
lien in favor of the Lender,
(6) any mortgage or similar lien on an Acquired Property, subject to the
terms and provisions of Section 3.6, hereof, and
(7) if no Event of Default is occurring, any other voluntary encumbrance;
provided, however, (i) the assets so encumbered do not include any Collateral,
(ii) the Indebtedness secured by the line on the Collateral is permitted under
Section 8.3, above, and (ii) the Borrower shall notify the Lender prior to the
granting of such encumbrance, which notification shall include a certification
signed by the principal financial or accounting officer or general partner
the Borrower and setting forth in reasonable detail computations evi-dencing
compliance with the covenants contained in Section 8.9.
8.5 Restrictions on Loans and Investments. The Borrower or any
Subsidiary thereof will not make or permit to exist or to remain outstanding
any loan by the Borrower or such Subsidiary to any Person or any Investment
except Investments in:
(1) marketable direct or guaranteed obligations of the United States of
America that mature within one (1) year from the date of purchase by the
Borrower;
(2) demand deposits and bankers acceptances of United States banks having
total assets in excess of $1,000,000,000;
(3) certificates of deposit and time deposits of United States banks
having total assets in excess of $1,000,000,000 that mature within one (1)
year from the date of purchase by the Borrower;
(4) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated and
the ratings for which are not less than "P 1" if rated by Moody's Investors
Services, Inc., and not less than "A 1" if rated by Standard and Poor's;
(5) Investments in a manner consistent with the business plan delivered
to the Lender in accordance with Section 7.4, herein; and (6) Investments
existing on the date hereof and listed on Schedule 8.5 hereto.
8.6 Merger, Consolidation, Conversion, and Disposition of Assets.
(1) The Borrower or any Subsidiary thereof will not become a party to any
merger or consolidation, or agree to or effect any asset acquisition or stock
acquisition (other than in the ordinary course of business consistent with the
business plan delivered to the Lender in accordance with Section 7.4, herein).
(2) The Borrower or any Subsidiary thereof will not become a party to or
agree to or effect any disposition of the Collateral or any part thereof.
(3) The Borrower or any Subsidiary thereof will not become a party to or
agree to effect any disposition of assets, other than the disposition of
assets not included in the Collateral in the ordinary course of business,
consistent with past practices consistent with the business plan delivered to
the Lender in accordance with Section 7.4, herein.
(4) The Borrower will not convert into any other type of entity,
including, without limitation, a limited liability company.
8.7 Sale and Leaseback. The Borrower or any Subsidiary thereof will not
enter into any arrange-ment, directly or indirectly, whereby the Borrower or
such Subsidiary shall sell or transfer any property owned by it in order then
or thereafter to lease such property or lease other property that the Borrower
or such Subsidiary intends to use for substantially the same purpose as the
property being sold or transferred.
<PAGE> - 19 -
8.8 Distributions. The Borrower will not make any Distributions (i) in
excess in any calendar year of the Borrower's funds from operations for such
calendar year, determined in accordance with generally accepted accounting
principals or (ii) after the occurrence of a Default or an Event of Default.
8.9 Financial Covenants. The Borrower covenants and agrees that, so long
as the Loan is outstanding:
(1) Liabilities to Worth Ratio. The Borrower will not permit, at the end
of any calendar quarter, Total Liabilities to exceed 50% of Total Tangible
Assets.
(2) Ratio of Operating Cash Flow to Debt Service Charges. The Borrower
will not, at the end of any calendar quarter, permit Operating Cash Flow to be
less than 1.75 times Debt Service Charges for the prior four (4) calendar
quarters..
(3) Ratio of EBITDA to Consolidated Interest. The Borrower will not, at
the end of any calendar quarter, permit EBITDA for the prior four (4) calendar
quarters to be less than 2.25 times Consolidated Interest.
(4) Consolidated Basis. The Lender may elect to require the compliance
with the above described financial covenants to be determined by the Borrower
on a Consolidated basis.
(5) Cure of Financial Covenants. In the event that the Borrower fails to
maintain the ratio provided in subparagraphs (a), (b) or (c), above, at any
time, such failure shall not be an Event of Default hereunder if, within five
(5) days of written notice from the Bank of such failure, the Borrower causes
a principal payment to be made on the Loan in an amount such that if the said
principal reduction had been made prior to calculation of said ratio, the
ratio would have been in compliance with the requirements hereof
9. CONDITIONS TO CLOSING AND ADVANCE OF LOAN PROCEEDS. The obligation of
the Lender to make any Advance shall be subject to the satisfaction of the
following conditions precedent:
9.1 Loan Documents. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full
force and effect and shall be in form and substance satisfactory to the Lender.
9.2 Contracts. The Borrower shall have delivered to the Lender correct
and complete photocopies of the Management Contract and all other executed
management, brokerage, sales, leasing or other agreements for the Collateral.
With respect to the Management Contract, the Management Company shall have
duly executed and delivered a Consent in form and substance satisfactory to
the Lender, and the Lender shall have received a fully executed copy of such
Consent. The Consent shall provide, without limitation, for (i) the
recognition of the Lender or any successor in the event of the exercise by the
Lender of the Lender's rights upon the occurrence of an Event of Default and
(ii) the right of the Lender to terminate the Management Contract upon thirty
(30) days notice upon the occurrence of an Event of Default.
9.3 Leases. With respect to each lease with a tenant using the Mortgaged
Property for commercial purposes, if requested by the Lender, the Borrower and
the tenant shall have duly executed and delivered a Non-Disturbance,
Attornment and Subordination Agreement in form and substance satisfactory to
the Lender, and the Lender shall have received a fully executed copy of each
such document.
9.4 Certified Copies of Organization Documents. The Lender shall have
received from each of the Obligors a certified copy of its Organization
Documents as in effect on such date of certification, such Organizational
Documents to be in form and substance satisfactory to the Lender.
9.5 Resolutions. All action necessary for the valid execution, delivery
and performance by each Obligor of this Agreement and the other Loan Documents
to which it is or is to become a party shall have been duly and effectively
taken, and evidence thereof satisfactory to the Lender shall have been
provided to the Lender. The Lender shall have received from each such Person
true copies of the resolutions authorizing the transactions described herein,
each certified as of a recent date to be true and com-plete.
<PAGE> - 20 -
9.6 Incumbency Certificate; Authorized Signers. The Lender shall have
received from each Obligor an incumbency certificate, dated as of the Closing
Date, giving the name and bearing a specimen signature of each indi-vidual who
shall be authorized: (a) to sign, in the name and on behalf of such Person
each of the Loan Documents to which such Person is or is to become a party;
(b) in the case of the Borrower, to make Draw Requests; and (c) to give
notices and to take other action on its behalf under the Loan Documents.
9.7 Validity of Liens. The Security Documents shall be effective to
create in favor of the Lender a legal, valid and enforceable first lien and
security interest in the Collateral. All filings, recordings, deliveries of
instruments and other actions reasonably necessary or desirable in the opinion
of the Lender to protect and preserve such lien and security interest shall
have been duly effected. The Lender shall have received evidence thereof in
form and substance satisfactory to the Lender.
9.8 Deliveries. The following items or documents shall have been
delivered to the Lender by the Borrower and shall be in form and substance
reasonably satisfactory to the Lender:
(1) Title Policy. The Title Policy, together with proof of payment of
all fees and premiums for such policy and true and accurate copies of all
documents listed as exceptions under such policy.
(2) Other Insurance. Duplicate originals or certified copies of all
policies of insurance required by the Security Deed or hereunder to be
obtained and maintained.
(3) Evidence of Access, Availability of Utilities, Project Approvals.
Evidence as to:
(1) the methods of access to and egress from the Mortgaged
Property, and nearby or adjoining public ways, meeting the reasonable
requirements of the Mortgaged Property;
(2) the availability of water supply and storm and sanitary sewer
facilities meeting the reasonable requirements of the Mortgaged Property;
(3) the availability of all other required utilities, in location
and capacity sufficient to meet the reasonable needs of the Mortgaged
Property; and
(4) the obtaining of all Project Approvals which are required,
necessary or desirable for the -use and operation of the Mortgaged
Property and the access thereto, together with copies of all such Project
Approvals.
(4) Environmental Report. For each Mortgaged Property, an environmental
site assessment report or reports of one or more qualified environmental
engineering or similar inspection firms approved by the Lender, which report
or reports shall indicate the environmental condition of the Mortgaged
Property and any existing improve-ments thereon in all respects satisfactory
to the Lender in its sole discretion and upon which report or reports the
Lender is expressly entitled to rely.
(5) Survey and Taxes. For each Mortgaged Property, a Survey of the
Mortgaged Property (and any existing improvements thereon) and Surveyor's
Certificate, and evidence of payment of all real estate taxes and munic-ipal
charges on the Mortgaged Property (and any existing improvements thereon)
which were not yet delinquent prior to the Closing Date.
(6) Form Lease. The standard form of residential Lease to be used by the
Borrower in connection with the Mortgaged Property.
(7) Rent Roll. For each Mortgaged Property, a Rent Roll certified by the
General Partner. (8) Subordination. A Subordination Agreement executed by
the Borrower and any Subsidiary thereof relative to any lien or liens on the
Illinois Mortgaged Property, as set forth in Schedule 8.4.
<PAGE> - 21 -
9.9 Legal Opinions. The Lender shall have received favorable opinions in
form and substance reasonably satisfactory to the Lender and the Lender's
counsel, addressed to the Lender and dated as of the Closing Date, from
counsel to the Borrower and the General Partner acceptable to the Lender, as
to the matters as the Lender shall reasonably request, including, without
limitation, the due authorization, legality, validity and binding effect of
the Loan Documents and the method of perfection of the liens of the Security
Documents.
9.10 Lien Search. The Lender shall have received a certification from
Title Insurance Company or counsel satisfac-tory to the Lender (which shall be
updated from time to time at the Borrower's expense upon request by the
Lender) that a search of the public records disclosed no conditional sales
contracts, security agreements, chattel mortgages, leases of personalty,
financing statements or title retention agreements which affect the
Collateral.
9.11 Appraisal. The Lender shall have received an Appraisal, in form and
substance satisfactory to the Lender, stating that the Mortgaged Property has
a market value of at least $21,500,000.00.
9.12 Commitment Fee. The Borrower shall have paid to the Lender the
commitment fee pursuant to Section 4.1.
9.13 Performance; No Default. The Borrower shall have performed and
complied with all terms and conditions herein required to be performed or
complied with by it on or prior to the Advance of the proceeds of the Loan,
and there shall exist no Default of which the Borrower has knowledge or Event
of Default.
9.14 Representations and Warranties. The representa-tions of warranties
made by the Obligors in the Loan Documents or otherwise made by or on behalf
of the Obligors in connection therewith shall have been true and correct in
all material respects when made and shall be true and correct in all material
respects on the date of any Advances.
9.15 Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be satisfactory to the Lender and the Lender's counsel in form and substance,
and the Lender shall have received all information and such counterpart
origi-nals or certified copies of such documents and such other cer-tificates,
opinions or documents as the Lender and the Lender's counsel may reasonably
require.
9.16 Waiver. Any waiver by the Lender of any of the conditions precedent
contained herein for the Closing and any Advance shall not be deemed to be a
waiver by the Lender of such conditions precedent for any subsequent Advance,
if any, or any other obligation of the Lender hereunder.
10. EVENTS OF DEFAULT AND REMEDIES.
10.1 Events of Default. The occurrence of any one or more of the
following conditions or events shall constitute an "Event of Default":
(1) any failure by the Borrower to pay, within five (5) Business Days of
the due date, any interest on or principal of or other sum payable under the
Note; or
(2) any failure by the Borrower to pay as and when due and payable any
other sums to be paid by the Borrower to the Lender under this Agreement and
the continuance of such failure for a period of five (5) Business Days after
notice thereof from the Lender; or
(3) title to the Collateral is or becomes unsatisfac-tory to the Lender
by reason of any lien, charge, encum-brance, title condition or exception
(including without limitation, any mechanic's, materialman's or similar
statu-tory or common law lien or notice thereof) which (i) if for a dollar
amount, is for an amount in excess of $20,000.00 and (ii) in any event, would
have a material adverse effect on the Borrower, the Collateral or the lien
held by the Lender in the Collateral, if resolved against the Borrower, and
such matter causing title to be or become unsatisfactory is not cured or
removed (including by bonding) within twenty (20) days after notice thereof
from the Lender to the Borrower; or
<PAGE> - 22 -
(4) the Mortgaged Property or any material part thereof is injured by any
uninsured fire, explosion, accident, flood or other casualty and any damage
caused thereby is not repaired or replaced within sixty (60) days of such
fire, explosion, accident, flood or other casualty; or
(5) the Mortgaged Property or any material part thereof is subject to a
Taking; or
(6) any failure by the Borrower to duly observe or perform any term,
covenant, condition or agreement contained in Section 7.4, or Section 8.9
hereof; or (7) the General Partner denies that the General Partner has any
liability or obligations under the Guaranty or the Indemnity Agreement, or
shall notify the Lender of the General Partner's intention to attempt to
cancel or terminate the Guaranty or the Indemnity Agreement, or shall fail to
observe or comply with any term, covenant, condition and agreement under the
Guaranty or the Indemnity Agreement; or
(8) any representation or warranty made or deemed to be made by or on
behalf of any Obligor in this Agreement or in any of the other Loan Documents,
or in any report, certificate, financial statement, document or other
instrument delivered pursuant to or in connection with this Agreement, any
Advance or any of the other Loan Documents, shall prove to have been false or
incorrect in any material respect upon the date when made or deemed to be made
or repeated; or
(9) any dissolution, termination, partial or complete liquidation, merger
or consolidation of any Obligor, or any sale, transfer or other disposition of
all or substantially all of the assets of any Obligor, other than as permitted
under the terms of this Agreement or the Guaranty; or
(10) any suit or proceeding shall be filed against any Obligor or the
Collateral which, if adversely determined, would have a materially adverse
affect on the ability of any Obligor to perform each and every one of their
respective obligations under and by virtue of the Loan Documents; or
(11) any failure by the Borrower to obtain any Project Approvals, or the
revocation or other invalidation of any Project Approvals previously obtained;
or
(12) any change in the legal or beneficial ownership of any Obligor not
otherwise permitted in the Loan Documents; or
(13) any change in the control of the management of any Obligor, or the
giving up or relinquishment of such control by the Person(s) who is(are)
charged with the exercise of such responsibilities on the date hereof; or
(14) as to an Indebtedness in excess of $1,000,000.00, any failure by any
Obligor to pay at maturity, or within any applicable period of grace, any
obligation for borrowed money or credit received, including, without
limitation, any Borrower Obligations, or any failure to observe or perform any
material term, covenant or agreement contained in any agreement by which it is
bound, evidencing or securing borrowed money or credit received, for such
period of time as would permit (assuming the giving of appropriate notice if
required) the holder or holders thereof or of any obligations issued
thereunder to acceler-ate the maturity thereof; or
(15) any Obligor or Subsidiary thereof shall file a voluntary petition in
bankruptcy under Title 11 of the United States Code, or an order for relief
shall be issued against any such Person in any involuntary petition in
bankruptcy under Title 11 of the United States Code, or any such Person shall
file any petition or answer seeking or acquiescing in any reor-ganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief for itself under any present or future federal, state or other law or
regu-lation relating to bankruptcy, insolvency or other relief of debtors, or
such Person shall seek or consent to or acquiesce in the appointment of any
custodian, trustee, receiver, conservator or liquidator of such Person, or of
all or any substantial part of its respective property, or such Person shall
make an assignment for the benefit of creditors, or such Person shall give
notice to any governmental authority or body of insolvency or pending
insol-vency or suspension of operation; or
(16) an involuntary petition in bankruptcy under Title 11 of the United
States Code shall be filed against any Obligor or Subsidiary thereof and such
petition shall not be dismissed within sixty (60) days of the filing thereof;
or
<PAGE> - 23 -
(17) a court of competent jurisdiction shall enter any order, judgment or
decree approving a petition filed against any Obligor or any Subsidiary
thereof seeking any reorganization, arrangement, composition, readjustment,
liquidation or similar relief under any present or future federal, state or
other law or regulation relating to bankruptcy, insolvency or other relief for
debtors, or appointing any custodian, trustee, receiver, conservator or
liquidator of all or any substantial part of its property; or
(18) any uninsured final judgment having a material adverse effect on any
Obligor shall be rendered against any such Obligor and shall remain in force,
undischarged, unsatis-fied and unstayed, for more than thirty (30) days,
whether or not consecutive; or
(19) any of the Loan Documents shall be cancelled, terminated, revoked or
rescinded otherwise than in accor-dance with the terms thereof or with the
express prior approval of the Lender, or any action at law, suit in equity or
other legal proceeding to cancel, revoke or rescind any of the Loan Documents
shall be commenced by or on behalf of the Borrower or any Obligor which is a
party thereto or any of their respective stockholders, partners or
benefi-ciaries, or any court or any other governmental or regula-tory
authority or agency of competent jurisdiction shall make a determination that,
or issue a judgment, order, decree or ruling to the effect that, any one or
more of the Loan Documents is illegal, invalid or unenforceable in accordance
with the terms thereof; or
(20) any Obligor or any Subsidiary thereof shall be indicted for a
federal crime, a punishment for which could include the forfeiture of any of
its assets; or
(21) any failure by any Obligor to duly observe or perform any other
term, covenant, condition or agreement under this Agreement and continuance of
such failure for a period of thirty (30) days after notice thereof from the
Lender or if such failure cannot be reasonably cured within such thirty (30)
day period but the Borrower commences such cure within such thirty (30 ) day
period and diligently prosecutes such cure to completion, the expiration of an
additional thirty (30) days without the cure thereof; or
(22) any "Event of Default", as defined in any of the other Loan
Documents, shall occur.
10.2 Termination of Advances and Acceleration. If any one or more of the
Events of Default shall occur and be continuing, the Lender may by notice to
the Borrower declare its obligations to make Ad-vances hereunder to be
terminated, whereupon the same shall terminate and the Lender shall be
relieved of all obligations to make Advances to the Borrower, and/or declare
all unpaid princi-pal of and accrued interest on the Note, together with all
other amounts owing under the Loan Documents, to be immediately due and
payable, whereupon same shall become and be immediately due and payable,
anything in the Loan Documents to the contrary notwith-standing, and without
presentment, protest, demand or other notice of any kind, all of which are
hereby expressly waived by the Borrower; provided that if any one or more of
the Events of Default specified in Section 10.1(o), Section 10.1(p), or
Section 10.1(q), above, shall occur with respect to any Obligor, the Lender's
obligations to make Advances hereunder automatically shall so terminate and
all unpaid principal of and accrued interest on the Note, together with all
other amounts owing under the Loan Documents, automatically shall become and
be immediately so due and payable, without any declaration or other act on the
part of the Lender.
10.3 Remedies. If any one or more of the Events of Default shall have
occurred and be continuing, and whether or not the Lender shall have
terminated its obligations to make Advances or accelerated the maturity of the
Loan pursuant to Section 10.2, the Lender may proceed to protect and enforce
its rights and remedies under this Agreement, the Note or any of the other
Loan Documents by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
con-tained in this Agreement and the other Loan Documents or any instrument
pursuant to which the Obligations are evidenced, including as permitted by
applicable law the obtaining of the ex parte appointment of a receiver, and,
if any amount owed to the Lender shall have become due, by declaration or
otherwise, proceed to enforce the payment thereof or any other legal or
equitable right of the Lender. No remedy conferred upon the Lender or the
holder of the Note in this Agreement or in any of the other Loan Documents is
<PAGE> - 24 -
intended to be exclusive of any other remedy and each and every remedy shall
be cumulative and shall be in addition to every other remedy given hereunder
or thereunder or now or here- after existing at law or in equity or by statute
or any other provision of law.
10.4 Distribution of Collateral Proceeds. In the event that, following
the occurrence or during the continuance of any Default or Event of Default,
the Lender receives any monies in connection with the enforcement of any the
Security Documents, or otherwise with respect to the realization upon any of
the Col-lateral, such monies shall be distributed for application as follows:
(1) First, to the payment of, or (as the case may be) the reimbursement
of the Lender for or in respect of all reasonable costs, expenses,
disbursements and losses which shall have been incurred or sustained by the
Lender in connection with the collection of such monies by the Lender, for the
exercise, protection or enforcement by the Lender of all or any of the rights,
remedies, powers and privileges of the Lender under this Agreement or any of
the other Loan Documents or in respect of the Collateral or in support of any
provision of adequate indemnity to the Lender against any taxes or liens which
by law shall have, or may have, priority over the rights of the Lender to such
monies;
(2) Second, to all other Obligations in such order or preference as the
Lender may determine; provided, however, that the Lender may in its discretion
make proper allowance to take into account any Obligations not then due and
payable;
(3) Third, upon payment and satisfaction in full or other provisions for
payment in full satisfactory to the Lender of all of the Obligations, to the
payment of any obligations required to be paid pursuant to Section 9-504(1)(c)
of the Uniform Commercial Code of the Commonwealth of Massa-chusetts; and
(4) Fourth, the excess, if any, shall be returned to the Borrower or to
such other Persons as are entitled thereto.
10.5 Power of Attorney. For the purposes of carrying out the provisions
and exercising the rights, remedies, powers and privileges granted by or
referred to in this Article, the Borrower hereby irrevocably constitutes and
appoints the Lender, upon the occurrence of an Event of Default and during the
continuance thereof, its true and lawful attorney-in-fact, with full power of
substitution, to execute, acknowledge and deliver any instruments and do and
perform any acts which are referred to in this Article, in the name and on
behalf of the Borrower. The power vested in such attor-ney-in-fact is, and
shall be deemed to be, coupled with an interest and irrevocable.
10.6 Waivers. The Borrower hereby waives to the extent not prohibited by
applicable law (a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions hereof or of
any of the other Loan Documents), protests and notices of dishonor, (b) any
requirement of diligence or promptness on the Lender's part in the
enforce-ment of its rights (but not fulfillment of its obligations) under the
provisions of this Agreement or any of the other Loan Docu-ments, and (c) any
and all notices of every kind and description which may be required to be
given by any statute or rule of law and any defense of any kind which the
Borrower may now or here-after have with respect to its liability under this
Agreement or under any of the other Loan Documents.
11. SETOFF. Regardless of the adequacy of any collateral, during the
continuance of any Event of Default, any deposits (general or specific, time
or demand, provisional or final, regardless of currency, maturity, or the
branch of the Lender where such deposits are held) or other sums credited by
or due from the Lender to the Borrower and any securities or other property of
the Borrower in the possession of the Lender may be applied to or set off
against the payment of the Obligations and any and all other Obligations.
<PAGE> - 25 -
12. EXPENSES. Except as provided below, the Borrower agrees to pay (a)
any taxes (including any interest and penalties in respect thereto) payable by
the Lender (other than taxes based upon the Lender's net income), including
any recording, mortgage or intangibles taxes in connection with the Security
Deed, or other taxes payable on or with respect to the transactions
contemplated by this Agreement, including any taxes payable by the Lender
after the Closing Date (the Borrower hereby agreeing to indemnify the Lender
with respect thereto), (b) all title insurance premiums, and except as
specifically provided below, the reasonable fees, expenses and dis-bursements
of the Lender's counsel or any local counsel to the Lender incurred in
connection with the administra-tion or interpretation of the Loan and the Loan
Documents and other instru-ments mentioned herein, the making of each Advance
hereunder, and amendments, modifications, approvals, consents or waivers
hereto or hereunder, (c) except as specifically provided below, the fees,
expenses and disbursements of the Lender incurred in connection with the
administra-tion or interpretation of the Loan and the Loan Documents and other
instru-ments mentioned herein, and the making of each Advance hereunder
(including all fees paid to the Appraisal fees, and surveyor fees) (d) all
reasonable out-of-pocket ex-penses (including reasonable attorneys' fees and
costs, but, with respect to attorneys who may be employees of the Lender, only
to the extent incurred after the occurrence and during the continuance of an
Event of Default) and the fees and costs of consultants, accountants,
auctioneers, receivers, brokers, property managers, appraisers, investment
bankers or other experts retained by the Lender in connection with (i) the
en-forcement of or preservation of rights under any of the Loan Documents
against the Borrower or any Obligor or the adminis-tration thereof after the
occurrence of a Default or Event of Default and (ii) any litigation,
proceeding or dispute whether arising hereunder or otherwise, in any way
related to the Lend-er's relationship with the Borrower or any Obligor,
however, excluding from the cost to be paid under this subparagraph (d) any
such costs incurred in any legal action between the Lender and the Borrower
and/or the Guarantor in which final judgement is entered against the Lender,
and (e) all reasonable fees, expenses and disbursements of the Lender
in-curred in connection with UCC searches, UCC filings, title rundowns, title
searches or mortgage recordings. Notwithstanding the above, the Lender shall
pay for the fees of Lender's counsel (including internal costs and expenses of
such counsel, but exclusive of third party costs and expenses such as filing
fees) in connection with the initial documentation of the Loan. The covenants
of this Section shall survive payment or satisfaction of payment of all
amounts owing with respect to the Note.
13. INDEMNIFICATION. Except for any claims, actions or suits (i) as a
result of the Lender's gross negligence and wilful misconduct and (ii) brought
by the Borrower and/or the Guarantor as to which final judgement is entered
against the Lender, the Borrower agrees to indemnify and hold harmless the
Lender from and against any and all claims, actions and suits, whether
groundless or otherwise, and from and against any and all liabilities, losses,
damages and expenses of every nature and character arising out of this
Agreement or any of the other Loan Documents or the transactions contemplated
hereby and thereby including, without limitations, (a) any brokerage, leasing,
finders or similar fees, (b) any disbursement of the proceeds of any of the
Advances, (c) any condition of the Mortgaged Property whether related to the
quality of construction or other-wise, (d) any actual or proposed use by the
Borrower of the proceeds of any of the Advances, (e) any actual or alleged
violation of any Requirements or Project Approvals, or (f) the Borrower or any
Obligor entering into or performing this Agreement or any of the other Loan
Documents, in each case including, without limita-tion, the reasonable fees
and disbursements of counsel and allocated costs of internal counsel incurred
in connection with any such investigation, litigation or other proceeding. In
litigation, or the preparation therefor, the Lender shall be entitled to
select its own counsel and, in addition to the foregoing indemnity, the
Borrower agrees to pay promptly the reasonable fees and expenses of such
counsel. The obligations of the Borrower under this Section shall survive the
repayment of the Loan and shall continue in full force and effect so long as
the possibility of such claim, action or suit exists. If, and to the extent
that the obligations of the Borrower under this Section are unenforceable for
any reason, the Borrower hereby agrees to make the maximum contribution to the
payment in satisfaction of such obligations which is permissible under
applicable law.
<PAGE> - 26 -
14. LIABILITY OF THE LENDER. The liability of the Lender to the Borrower
for any breach of the terms of this Agreement by the Lender shall not exceed a
sum equal to the amount which the Lender shall be determined to have failed to
advance in consequence of a breach by the Lender of its obligations under this
Agreement, together with interest thereon at the rate payable by the Borrower
under the terms of the Note for Advances which the Borrower is to receive
hereunder, computed from the date when the Advance should have been made by
the Lender to the date when the Advance is, in fact, made by the Lender, and,
upon the making of any such payment by the Lender to the Borrower, the same
shall be treated as an Advance under this Agreement, in the same fashion as
any other Advance under the terms of this Agreement. In no event shall the
Lender be liable to the Borrower, or anyone claiming by, under or through the
Borrower, for any special, exemplary, punitive or consequential damages,
whatever the nature of the breach of the terms of this Agreement by the
Lender, such damages and claims therefor being expressly waived by the
Borrower.
15. RIGHTS OF THIRD PARTIES. All conditions to the per-formance of the
obligations of the Lender under this Agreement, including the obligation to
make Advances, are imposed solely and exclusively for the benefit of the
Lender and no other Person shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to assume that the
Lender will refuse to make Advances in the absence of strict compliance with
any or all thereof and no other Person shall, under any circumstances, be
deemed to be a beneficiary of such conditions, any and all of which may be
freely waived in whole or in part by the Lender at any time if in its sole
discretion it deems it desirable to do so. In particular, the Lender makes no
representations and assumes no obligations as to third parties concerning the
quality of the construction by the Borrower of the Mortgaged Property or the
absence therefrom of defects.
16. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
representations and warranties made herein, in the Note, in any of the other
Loan Documents or in any documents or other papers delivered by or on behalf
of the Borrower or any Obligor pursu-ant hereto and thereto shall be deemed to
have been relied upon by the Lender, notwithstanding any investigation
heretofore or hereafter made by it, and shall survive the making by the Lender
of the Advances, as herein contemplated, and shall continue in full force and
effect either (i) so long as any amount due under this Agreement or the Note
or any of the other Loan Documents remains outstanding or the Lender has any
obligation to make any Advanc-es or (ii) for such longer period as may be
provided for herein or in any other Loan Document. All statements contained
in any certificate or other paper delivered to the Lender at any time by or on
behalf of any Obligor or any Subsidiary thereof pursuant hereto or in
connection with the transactions contemplated hereby shall constitute
represen-tations and warranties by such Person.
17. ASSIGNMENT AND PARTICIPATION.
17.1 Conditions to Assignment by Lender. Except as provided herein, the
Lender may assign to one or more banks or other entities all or a portion of
its interests, rights and obliga-tions under this Agreement. From and after
the effective date of any such assignment, (i) the assignee thereunder shall
be deemed to be a party hereto and, to the extent agreed to by the Lender,
have the rights and obligations of a Lender hereunder, and (ii) the Lender
shall, to the extent of its interest assigned as provided herein, be released
from its obligations under this Agreement.
17.2 New Notes, Agreement. Upon any such assignment by the Lender, the
Borrower shall execute and deliver to the Lender (a) in exchange for the-
Note, a new Note to the order of such assignee in an amount equal to the
amount assumed by such assignee and, if the Lender has retained some portion
of its obligations hereunder, a new Note to the order of the Lender in an
amount equal to the amount retained by it hereunder and (b) an amendment to
this Agreement and any other Loan Documents, as may be reasonably requested by
the Lender, to evidence the assignment, provide for the rights and interest of
the assignee, and establish the rights, responsibilities and obligations of
the Lender as agent for itself and any such assignee. Such new Notes shall
provide that they are replacements for the surrendered Notes, shall be in an
aggregate principal amount equal to the aggregate principal amount of the
surrendered Notes, shall be dated the effective date of such assignment and
shall otherwise be in substantially the form of the assigned Notes. The
surrendered Notes shall be cancelled and returned to the Borrower. The Lender
shall reimburse the Borrower for all reasonable attorneys' fees incurred by
the Borrower pursuant to this Section, but not any other out of pockets costs
and expenses.
<PAGE> - 27 -
17.3 Participations. The Lender may sell participations to one or more
banks or other entities in all or a portion of the Lender's rights and
obligations under this Agreement and the other Loan Documents; provided that
(a) any such sale of partic-ipations shall not affect the rights and duties of
the Lender hereunder to the Borrower and (b) the only rights granted to the
participant pursuant to such participation arrangements with respect to
waivers, amendments or modifications of the Loan Documents shall be the right
to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on the Loan, extend the term or increase the
amount of the Loan or extend any regularly scheduled payment date for
principal or interest.
17.4 Pledge by the Lender. The Lender may at any time pledge all or any
portion of its interest and rights under this Agreement (including all or any
portion of the Note) to any of the twelve Federal Reserve Banks organized
under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such
pledge or the enforcement thereof shall release the Lender from its
obligations hereunder or under any of the other Loan Documents.
17.5 No Assignment by the Borrower. The Borrower shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior approval of the Lender.
18. RELATIONSHIP. The relationship between the Lender and the Borrower
is solely that of a lender and borrower, and nothing contained herein or in
any of the other Loan Documents shall in any manner be construed as making the
parties hereto partners, joint venturers or any other relationship other than
lender and borrower.
19. NOTICES. Except as otherwise provided herein or in any other Loan
Document, each notice, demand, election or request provided for or permitted
to be given pursuant to this Agreement or any other Loan Document (hereinafter
in this Section referred to as "Notice") must be in writing and shall be
deemed to have been properly given or served by personal delivery or by
sending same by overnight courier or by depositing same in the United States
Mail, postpaid and registered or certified, return receipt requested, and
addressed as follows: If to the Lender;
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attn: Real Estate Division
With a copy to:
Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attn: Steven J. Weinstein, Esquire
If to the Borrower:
America First Apartment Investors, L.P.
1004 Farnam Street
Omaha, Nebraska 68102
Attn: Mr. Gary Thompson
With a copy to:
Kutak Rock
Suite 1600
3300 North Central Avenue
Phoenix, Arizona 85012
Attn: Mark R. Nethers, Esquire
<PAGE> - 28 -
Each Notice shall be effective upon being personally delivered or upon
being sent by overnight courier or upon being deposited in the United States
Mail as aforesaid. The time period in which a response to such Notice must be
given or any action taken with respect thereto (if any), however, shall
commence to run from the date of receipt if personally delivered or sent by
overnight courier, or if so deposited in the United States Mail, the earlier
of three (3) Business Days following such deposit or the date of receipt as
disclosed on the return receipt. Rejection or other refusal to accept or the
inability to deliver because of changed address for which no Notice was given
shall be deemed to be receipt of the Notice sent. By giving at least thirty
(30) days prior Notice thereof, the Borrower or the Lender shall have the
right from time to time and at any time during the term of this Agreement to
change their respective addresses and each shall have the right to specify as
its address any other address within the United States of America.
20. GOVERNING LAW. This Agreement and each of the other Loan Documents,
except as otherwise specifically provided there-in, are contracts under the
laws of the Commonwealth of Massa-chusetts and shall for all purposes be
construed in accordance with and governed by the laws of said Commonwealth
(excluding the laws applicable to conflicts or choice of law).
21. CONSENT TO JURISDICTION; WAIVERS. THE BORROWER, THE LENDER, AND EACH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO PERSONAL
JURIS-DICTION IN THE COMMONWEALTH OF MASSACHUSETTS OVER ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS, AND (B) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAWS OF
ANY STATE (I) TO THE RIGHT, IF ANY, TO TRIAL BY JURY, (II) TO OBJECT TO
JURISDICTION WITHIN THE COMMON-WEALTH OF MASSACHUSETTS OR VENUE IN ANY
PARTICULAR FORUM WITHIN THE COMMONWEALTH OF MASSACHUSETTS, AND (III) TO THE
RIGHT, IF ANY, TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN ACTUAL DAMAGES. THE BORROWER
AND EACH PARTY AGREES THAT, IN ADDITION TO ANY METHODS OF SERVICE OF PROCESS
PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF PROCESS IN ANY SUCH SUIT,
ACTION OR PROCEEDING MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED DIRECTED TO THE BORROWER AT THE ADDRESS SET FORTH IN SECTION
19 ABOVE, AND SERVICE SO MADE SHALL BE COMPLETE FIVE (5) DAYS AFTER THE SAME
SHALL BE SO MAILED. NOTHING CONTAINED HEREIN, HOWEVER, SHALL PREVENT THE
LENDER FROM BRINGING ANY SUIT, ACTION OR PROCEEDING OR EXERCISING ANY RIGHTS
AGAINST ANY COLLATERAL AND AGAINST THE BORROWER, AND AGAINST ANY PROPERTY OF
THE BORROWER, IN ANY OTHER STATE. INITIATING SUCH SUIT, ACTION OR PROCEEDING
OR TAKING SUCH ACTION IN ANY STATE SHALL IN NO EVENT CONSTITUTE A WAIVER OF
THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS SHALL GOVERN THE RIGHTS AND OBLIGATIONS OF THE BORROWER, EACH
PARTY, AND THE LENDER HEREUNDER OR THE SUBMISSION HEREIN BY THE BORROWER AND
EACH PARTY TO PERSONAL JURISDICTION WITHIN THE COMMONWEALTH OF MASSACHUSETTS.
22. HEADINGS. The captions in this Agreement are for convenience of
reference only and shall not define or limit the provisions hereof.
23. COUNTERPARTS. This Agreement and any amendment hereof may be
executed in several counterparts and by each party on a separate counterpart,
each of which when so executed and deliv-ered shall be an original, and all of
which together shall constitute one instrument. In proving this Agreement it
shall not be necessary to produce or account for more than one such
counterpart signed by the party against whom enforcement is sought.
<PAGE> - 29 -
24. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents
executed in connection herewith or therewith express the entire understanding
of the parties with respect to the transactions contemplated hereby. Neither
this Agreement nor any term hereof may be changed, waived, discharged or
terminated, except as provided in Article 25. 25. CONSENTS, AMENDMENTS,
WAIVERS, ETC. Except as other-wise expressly set forth in any particular
provision of this Agreement, any consent or approval required or permitted by
this Agreement to be given by the Lender may be given, and any term of this
Agreement or of any other instrument related hereto or mentioned herein may be
amended, and the performance or obser-vance by the Borrower of any terms of
this Agreement or such other instrument or the continuance of any Default or
Event of Default may be waived (either generally or in a particular instance
and either retroactively or prospectively) with, but only with, the written
consent of the Lender. No waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon. No course of dealing
or delay or omission on the part of the Lender in exercising any right shall
operate as a waiver thereof or otherwise be prejudicial thereto. No Advance
made by the lender hereunder during the continuance of any Default or Event of
Default shall constitute a waiver there-of. No notice to or demand upon the
Borrower shall entitle the Borrower to other or further notice or demand in
similar or other circumstances.
26. TIME OF THE ESSENCE. Time is of the essence with respect to each and
every covenant, agreement and obligation of the Borrower under this Agreement
and the other Loan Documents.
27. SEVERABILITY. The provisions of this Agreement are severable, and if
any one clause or provision hereof shall be held invalid or unenforceable in
whole or in part in any juris-diction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof,
in such juris-diction, and shall not in any manner affect such clause or
provision in any other jurisdiction, or any other clause or provision of this
Agreement in any jurisdiction.
28. LIMITED RECOURSE. The Borrower and the General Partner shall be
fully liable for the Obligations. However, the Obligations shall be on a
non-recourse basis to any limited partner of the Borrower and any partner
(whether limited or general) of the General Partner. In no event shall the
Lender make any claims or demand against any limited partner and /or general
partner of the General Partner or any shareholder, equity holder, officer,
employee or director of any such limited and/or general partner. The Lender
shall look solely to the assets of the Borrower and the General Partner to
satisfy the Obligations. IN WITNESS WHEREOF, the undersigned have duly
executed this Agreement as a sealed instrument as of the date first set forth
above.
AMERICA FIRST APARTMENT INVESTORS, L.P.
By: America First Capital Associates Limited
Partnership Four, a Delaware limited
partnership, its general partner
By: America First Companies L.L.C., a
Delaware limited liability company, its
general partner
By: /s/ Michael Thesing
Name: Michael Thesing
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Kathleen M. Ahern
Name: Kathleen M. Ahern
Title: Vice President
<PAGE> - 30 -
Exhibit A
Interest Terms and Provisions
Exhibit B
Covenant Compliance Worksheet and Certificate
Exhibit C
Notice of Borrowing
<PAGE> - 31 -
EXHIBIT A
Domestic Rate
This Exhibit A provides for certain of the substantive terms and
provisions regarding, among other thins, the interest rate and interest
repayment for the Loan established pursuant to the Loan Agreement to which
this document is attached as an Exhibit (the "Loan Agreement"). The terms and
provisions of this Exhibit A are specifically incorporated by reference into
the Loan Agreement.
1. The following terms as used in this Exhibit D and the Loan Agreement shall
have the meanings set forth below:
Base Rate. The higher of (a) the annual rate of interest announced from
time to time by the Lender at its head office in Boston, Massachusetts as its
"base rate" and (b) one half of one percent (1/2%) above the overnight
federal funds effective rate as published by the Board of Governors of the
Federal Reserve System, as in effect from time to time.
Business Day. Any day on which the Lender is open for the transaction of
banking business in Boston, Massachusetts.
Domestic Rate. Floating at the per annum rate equal to the sum of (i)
the Base Rate plus (ii) one-half percent (0.50%). The Domestic Rate shall be
adjusted automatically on any change in the Base Rate, such that any change in
the Domestic Rate resulting therefrom shall become effective as of the opening
of business on the day on which such change in the Base Rate became effective.
Interest Payment Date. As to any Loan, the first day of the each calendar
month commencing with the calendar month which includes the date of the
Advance of such Loan.
2. Any and all terms which are defined in the Loan Agreement shall when used
herein have the meaning set forth in the Loan Agreement, unless otherwise
defined herein.
3. The Loan shall bear interest at the floating rate equal to the Domestic
Rate.
4. The Borrower promises to pay interest on the Loan in arrears on each
Interest Payment Date.
5. Each determination of an interest rate by the Lender pursuant hereto
shall be conclusive and binding upon the Borrower in the absence of
manifest error.
6. All computations of interest on the Loans and of other fees to the extent
applicable shall be based on a 360-day year and paid for the actual
number of days elapsed. Whenever a payment hereunder or under any of the
other Loan Documents becomes due on a day that is not a Business Day, the
due date for such payment shall be extended to the next succeeding
Business Day, and interest shall accrue during such extension.
<PAGE> - 1 -
Schedule 6.12
Insider Transactions
Schedule 6.13
Subsidiaries
Schedule 6.14
Partners
Schedule 6.20
Project Approvals
Schedule 8.3
Existing Indebtedness
Schedule 8.4
Existing Liens
Schedule 8.5
Existing Investments
<PAGE> - 32 -
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> - 41 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1998.
/s/ Michael B. Yanney
Michael B. Yanney
<PAGE> - 42 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1998.
/s/ Gail Walling Yanney
Gail Walling Yanney
<PAGE> - 43 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1998.
/s/ George Kubat
George Kubat
<PAGE> - 44-
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1998.
/s/ Martin A. Massengale
Martin A. Massengale
<PAGE> - 45 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1998.
/s/ Alan Baer
Alan Baer
<PAGE> - 46 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1998.
/s/ Mariann Byerwalter
Mariann Byerwalter
<PAGE> - 47 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1997, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax-Exempt Mortgage Fund Limited Partnership
America First Apartment Investors, L.P.
America First Participating/Preferred Equity Mortgage Fund and America
First Participating/Preferred Equity Mortgage Fund Limited Partnership
America First PREP Fund 2 Limited Partnership
America First PREP Fund 2 Pension Series Limited Partnership
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 1998.
/s/ William S. Carter, M.D.
William S. Carter, M.D.
<PAGE> - 48 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,879,934
<SECURITIES> 13,006,526
<RECEIVABLES> 108,623
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,988,557
<PP&E> 13,845,251
<DEPRECIATION> (9,577,780)
<TOTAL-ASSETS> 87,123,522
<CURRENT-LIABILITIES> 2,190,213
<BONDS> 27,035,000
<COMMON> 0
0
0
<OTHER-SE> 55,498,309
<TOTAL-LIABILITY-AND-EQUITY> 87,123,522
<SALES> 0
<TOTAL-REVENUES> 11,449,049
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,675,090
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,132,494
<INCOME-PRETAX> (358,535)
<INCOME-TAX> 0
<INCOME-CONTINUING> (358,535)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (358,535)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
