10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1994 Commission file no. 0-16108 JMB INCOME PROPERTIES, LTD. - XII (Exact name of registrant as specified in its charter) Illinois 36-3337796 (State of organization) (I.R.S. Employer Identification No.) 900 N. Michigan Ave., Chicago, Illinois 60611 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code 312-915-1987 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS (Title of class) 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 is not contained herein, and will not be contained, to the best of 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 State the aggregate market value of the voting stock held by non-affiliates of the registrant. Not applicable. TABLE OF CONTENTS Page ---- PART I Item 1. Business. . . . . . . . . . . . . . . . . . 1 Item 2. Properties. . . . . . . . . . . . . . . . . 4 Item 3. Legal Proceedings . . . . . . . . . . . . . 6 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . 6 PART II Item 5. Market for the Partnership's Limited Partnership Interests and Related Security Holder Matters6 Item 6. Selected Financial Data . . . . . . . . . . 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations13 Item 8. Financial Statements and Supplementary Data 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . 52 PART III Item 10. Directors and Executive Officers of the Partnership. . . . . . . . . . . . . 52 Item 11. Executive Compensation. . . . . . . . . . . 55 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . 56 Item 13. Certain Relationships and Related Transactions 57 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . 57 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 59 i PART I ITEM 1. BUSINESS All references to "Notes" are to Notes to Consolidated Financial Statements contained in this report. The registrant, JMB Income Properties, Ltd. - XII (the "Partnership"), is a limited partnership formed in 1984 and currently governed under the Revised Uniform Limited Partnership Act of the State of Illinois to invest in improved income-producing commercial and residential real property. On August 23, 1985, the Partnership commenced an offering to the public of $100,000,000 (subject to increase by up to $150,000,000) in Limited Partnership Interests (the "Interests") pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933 (Registration No. 2-96716). A total of 189,679 Interests were sold to the public at $1,000 per Interest and were issued to Investors in fiscal 1986. The offering closed on January 17, 1986. No Investor has made any additional capital contribution after such date. The Investors in the Partnership share in their portion of the benefits of ownership of the Partnership's real property investments according to the number of Interests held. The Partnership is engaged solely in the business of the acquisition, operation and sale and disposition of equity real estate investments. Such equity investments are held by fee title and/or through joint venture partnership interests. The Partnership's real estate investments are located throughout the nation and it has no real estate investments located outside of the United States. A presentation of information about industry segments, geographic regions, raw materials, or seasonality is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. Pursuant to the Partnership agreement, the Partnership is required to terminate on or before October 31, 2035. Accordingly, the Partnership intends to hold its remaining properties for investment purposes until such time as sale or other disposition appears to be advantageous. Unless otherwise described, the Partnership expects to hold its properties for long-term investment where, due to current market conditions, it is impossible to forecast the expected holding period. At sale of a particular property, the proceeds, if any, are generally distributed or reinvested in existing properties rather than invested in acquiring additional properties. The Partnership has made the real property investments set forth in the following table:
SALE OR DISPOSITION DATE OR IF OWNED AT DECEMBER 31, 1994, NAME, TYPE OF PROPERTY DATE OF ORIGINAL INVESTED AND LOCATION (E) SIZE PURCHASE CAPITAL PERCENTAGE (A) TYPE OF OWNERSHIP ---------------------- ---------- -------- ---------------------- --------------------- 1. Park Center Financial Plaza office buildings San Jose, California . . . . 422,000 sq.ft. 06/20/85 27% fee ownership of land and n.r.a. improvements (through joint venture partnership) (c) 2. Topanga Plaza shopping center Los Angeles, California . . . . 360,000 sq.ft. 12/31/85 20% fee ownership of land and g.l.a. improvements (through joint venture partnership) (b)(c)(f) 3. 40 Broad Street office building New York, New York 247,800 sq.ft. 12/31/85 29% fee ownership of land and n.r.a. improvements (through joint venture partnership) (c) 4. Plaza Hermosa Shopping Center Hermosa Beach, California . . . . 94,900 sq.ft. 09/03/86 8% fee ownership of land and g.l.a. improvements (b) 5. Mid Rivers Mall shopping center St. Peters (St. Louis), Missouri . . . . . 323,100 sq.ft. 12/12/86 1/30/92 fee ownership of land and g.l.a. improvements (through joint venture partnership) (c)(d) 6. First Financial Plaza office building Encino, California . . . . 216,000 sq.ft. 05/20/87 9% fee ownership of land and n.r.a. improvements (through joint venture partnership) (b)(c)(f) --------------- (a) The computation of this percentage for properties held at December 31, 1994 does not include amounts invested from sources other than the original net proceeds of the public offering as described above and in Item 7. (b) Reference is made to Note 4 and to Schedule III filed with this annual report for the current outstanding principal balances and a description of the long-term mortgage indebtedness secured by the Partnership's real property investments. (c) Reference is made to Note 3 for a description of the joint venture partnership through which the Partnership has made this real property investment. (d) The Partnership's interest in this property has been sold. Reference is made to Note 7 for a description of the sale of this real property investment. (e) Reference is made to Item 8 - Schedule III filed with this annual report for further information concerning real estate taxes and depreciation. (f) Reference is made to Item 6 - Selected Financial Data for additional operating and lease expiration data concerning this investment property.
The Partnership's real property investments are subject to competition from similar types of properties (including in certain areas properties owned or advised by affiliates of the General Partners) in the respective vicinities in which they are located. Such competition is generally for the retention of existing tenants. Additionally, the Partnership is in competition for new tenants in markets where significant vacancies are present. Reference is made to Item 7 below for a discussion of competitive conditions and future renovation and capital improvement plans of the Partnership and certain of its significant investment properties. Approximate occupancy levels for the properties are set forth in the table in Item 2 below to which reference is hereby made. The Partnership maintains the suitability and competitiveness of its properties in its markets primarily on the basis of effective rents, tenant allowances and service provided to tenants. In the opinion of the Managing General Partner of the Partnership, all of the investment properties held at December 31, 1994 are adequately insured. Although there is earthquake insurance coverage for a portion of the value of the Partnership's investment properties, the Managing General Partner does not believe that such coverage for the entire replacement cost of the investment properties is available on economic terms. In January 1992, the Partnership reached agreement with the existing mortgage lender of Topanga Plaza for funding to finance a renovation that was funded in four stages. Reference is made to Note 4(b) for further description of such transaction. In January 1994, an earthquake occurred in Los Angeles, California. The approximate 360,000 square feet of mall shops owned by the Topanga Partnership did not suffer major structural damage. The estimated costs at Topanga for which the joint venture is responsible is approximately $10.5 million. The majority of this cost is subject to recovery under the joint venture's earthquake insurance policy. Reference is made to Note 3(c) for further description of such event. Reference is made to Note 8 for a schedule of minimum lease payments to be received in each of the next five years, and in the aggregate thereafter, under leases in effect at the Partnership's properties as of December 31, 1994. The Partnership has approximately six full-time personnel, performing on-site duties at certain of the Partnership's properties, none of whom are officers or directors of the Corporate General Partner of the Partnership. The terms of transactions between the Partnership, the General Partners and their affiliates are set forth in Item 11 below to which reference is hereby made for a description of such terms and transactions. ITEM 2. PROPERTIES The Partnership owns directly or through joint venture partnerships the properties or interests in the properties referred to under Item 1 above to which reference is hereby made for a description of said properties. The following is a listing of principal businesses or occupations and approximate occupancy levels by quarter during fiscal years 1994 and 1993 for the Partnership's investment properties owned during 1994:
1993 1994 -------------------------------------------------- At At At At At At At At Principal Business 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31 ------------------ ---- ---- ---- ----- ---- ---- ----- ----- 1. Park Center Financial Plaza San Jose, California. . Accounting/ Legal 89% 88% 84% 84% 83% 83% 83% 84% 2. Topanga Plaza Los Angeles, California. . . . . . . Retail 85% 82% 89% 94% 90% 92% 92% 95% 3. 40 Broad Street New York, New York. . . Insurance/ Financial Services 82% 82% 67% 79% 82% 82% 82% 80% 4. Plaza Hermosa Shopping Center Hermosa Beach, California. . . . . . . Retail 95% 92% 92% 92% 81% 91% 92% 95% 5. First Financial Plaza Encino (Los Angeles), California. . . . . . . University/Bank/ Housing Developer 85% 88%84%(1) 85%(1)84%(1)91%(1) 89%(1)89%(1) ---------- Reference is made to Item 6, Item 7, and Note 8 for further information regarding property occupancy, competitive conditions and tenant leases at the Partnership's investment properties. (1) The percentage represents physical occupancy. Mitsubishi (8,109 square feet) vacated its space in July 1993 prior to its lease expiration of January 1997 and continues to pay rent pursuant to its lease obligation.
ITEM 3. LEGAL PROCEEDINGS The Partnership is not subject to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of holders of Interests during 1993 and 1994. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS As of December 31, 1994, there were 16,016 record holders of Interests of the Partnership. There is no public market for Interests and it is not anticipated that a public market for Interests will develop. Upon request, the Managing General Partner may provide information relating to a prospective transfer of Interests to an investor desiring to transfer his Interests. The price to be paid for the Interests, as well as any economic aspects of the transaction, will be subject to negotiation by the investor. Reference is made to Item 6 below for a discussion of cash distribu- tions to Investors. ITEM 6. SELECTED FINANCIAL DATA JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES YEARS ENDED DECEMBER 31, 1994, 1993, 1992, 1991 AND 1990 (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
1994 1993 1992 1991 1990 ------------- ------------- ----------- ------------ ------------ Total income . . . . . . $ 31,152,216 30,055,775 31,061,115 32,094,290 32,531,243 ============ ============ =========== =========== =========== Operating earnings (loss)$ (5,376,818) (213,393) (18,250,294) (23,790,221) 6,206,403 Partnership's share of earnings (loss) from operations of uncon- solidated ventures. . . 441,700 (6,610,269) (3,123,534) (10,516,323) 185,014 Venture partners' share of consolidated ventures' operations before extraordinary item. . . 2,699,777 785,684 6,090,075 7,580,977 (1,710,015) ------------ ------------ ----------- ----------- ----------- Net operating earnings (loss) before extra- ordinary item . . . . . (2,235,341) (6,037,978) (15,283,753) (26,725,567) 4,681,402 Partnership's share of gain on sale of interest in investment property. -- -- 5,655,876 -- -- Extraordinary item (net of venture partners share) . . . . (2,300,838) -- -- -- -- ------------ ------------ ----------- ----------- ----------- Net earnings (loss). . . $ (4,536,179) (6,037,978) (9,627,877) (26,725,567) 4,681,402 ============ ============ =========== =========== =========== 1994 1993 1992 1991 1990 ------------- ------------- ----------- ------------ ------------ Net earnings (loss) per Interest (b): Net operating earnings (loss) . . . . . . . $ (12.41) (31.79) (80.48) (140.06) 23.69 Partnership's share of gain on sale of interest in investment property . . . . . . -- -- 29.52 -- -- Extraordinary item . . (11.65) -- -- -- -- ------------ ------------ ----------- ----------- ----------- Net earnings (loss) per Interest (b) . . $ (24.06) (31.79) (50.96) (140.06) 23.69 ============ ============ =========== =========== =========== Total assets . . . . . . $189,322,387 195,051,570 201,746,282 193,509,107 235,447,127 Long-term debt . . . . . $ 64,470,886 87,612,869 69,869,294 51,085,549 51,776,098 Cash distributions per Interest (c) . . . $ 10.00 12.50 50.00 35.00 55.00 ============ ============ =========== =========== =========== ------------- (a) The above selected financial data should be read in conjunction with the consolidated financial statements and the related notes appearing elsewhere in this annual report. (b) The net earnings (loss) per Interest is based upon the number of Interests outstanding at the end of each period (189,684). (c) Cash distributions to the Limited Partners since the inception of the Partnership have not resulted in taxable income to such Limited Partners and have therefore represented a return of capital. Each Partner's taxable income (or loss) from the Partnership in each year is equal to his allocable share of the taxable income (loss) of the Partnership, without regard to the cash generated or distributed by the Partnership.
SIGNIFICANT PROPERTY - SELECTED RENTAL AND OPERATING DATA AS OF DECEMBER 31, 1994
Property -------- Topanga Plaza Shopping Center a) The GLA occupancy rate and average base rent per square foot as of December 31 for each of the last five years were as follows: GLA Avg. Base Rent Per December 31, Occupancy Rate Square Foot (1) ------------ -------------- ------------------ 1990 . . . . . 99% 21.66 1991 . . . . . 96% 22.53 1992 . . . . . 87% 25.11 1993 . . . . . 94% 21.13 1994 . . . . . 95% 24.84 (1) Average base rent per square foot is based on GLA occupied as of December 31 of each year.
Base Rent Scheduled LeaseLease b) Significant Tenants Square Feet Per Annum Expiration DateRenewal Option(s) ------------------- ----------- --------- -------------------------------- None - no single tenant represents more than 10% of the total gross leasable area at the property.
c) The following table sets forth certain information with respect to the expiration of leases for the next ten years at the Topanga Plaza Shopping Center: Annualized Percent of Number of Approx. Total Base Rent Total 1994 Year Ending Expiring GLA of Expiring of Expiring Base Rent December 31, Leases Leases (1) Leases Expiring ------------ --------- --------------- ----------- ---------- 1995 12 19,500 867,000 10.2% 1996 5 9,600 174,400 2.1% 1997 7 19,100 476,800 5.6% 1998 6 19,500 410,700 4.8% 1999 8 16,900 447,000 5.3% 2000 6 12,500 296,500 3.5% 2001 7 12,800 517,700 6.1% 2002 10 35,900 887,800 10.4% 2003 11 19,300 813,800 9.6% 2004 10 32,300 874,200 10.3% (1) Excludes leases that expire in 1995 for which renewal leases or leases with replacement tenants have been executed as of March 27, 1995.
Property -------- First Financial Plaza Office Building a) The GLA occupancy rate and average base rent per square foot as of December 31 for each of the last five years were as follows: GLA Avg. Base Rent Per December 31, Occupancy Rate Square Foot (1) ------------ -------------- ------------------ 1990 . . . . . 91% 31.02 1991 . . . . . 92% 29.49 1992 . . . . . 85% 30.06 1993 . . . . . 85% 30.90 1994 . . . . . 89% 24.93 (1) Average base rent per square foot is based on GLA occupied as of December 31 of each year.
Base Rent Scheduled LeaseLease b) Significant Tenants Square Feet Per Annum Expiration DateRenewal Option(s) ------------------- ----------- --------- -------------------------------- Pepperdine University 32,000 $928,000 12/1996 4/5 year (University)
c) The following table sets forth certain information with respect to the expiration of leases for the next ten years at the First Financial Plaza Building: Annualized Percent of Number of Approx. Total Base Rent Total 1994 Year Ending Expiring GLA of Expiring of Expiring Base Rent December 31, Leases Leases (1) Leases Expiring ------------ --------- --------------- ----------- ---------- 1995 3 4,300 100,000 2.1% 1996 5 37,500 1,055,800 22.0% 1997 5 22,100 663,200 13.8% 1998 12 36,800 925,000 19.3% 1999 2 7,600 158,600 3.3% 2000 1 6,700 155,900 3.3% 2001 -- -- -- -- 2002 -- -- -- -- 2003 1 2,400 64,700 1.4% 2004 -- -- -- -- (1) Excludes leases that expire in 1995 for which renewal leases or leases with replacement tenants have been executed as of March 27, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES On August 23, 1985, the Partnership commenced an offering to the public of $100,000,000, subject to increase by up to $150,000,000, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. On January 17, 1986, the initial and final closing of the offering was consummated with the dealer manager of the public offering (an affiliate of which is a limited partner of one of the Associate General Partners of the Partnership), and 189,679 Interests were issued by the Partnership, from which the Partnership received gross proceeds of $189,679,000. After deducting selling expenses and other offering costs, the Partnership had approximately $171,306,000 with which to make investments in income-producing commercial real property, to pay legal fees and other costs (including acquisition fees) related to such investments and for working capital reserves. A portion of such proceeds was utilized to acquire the properties described in Item 1 above. At December 31, 1994, the Partnership had cash and cash equivalents of approximately $8,222,000. Such funds and short-term investments of approximately $14,177,000 are available for working capital requirements including the funding of the Partnership's share of earthquake repair costs at the Topanga Plaza and of releasing costs and capital improvements and repairs at the Park Center Financial Plaza, 40 Broad Street and First Financial Plaza as discussed below. The Partnership and its consolidated ventures have currently budgeted in 1995 approximately $3,141,000 for tenant improvements and other capital expenditures. Such budgeted amounts exclude earthquake costs at Topanga Plaza (as discussed below and in Note 3(c)). The Partnership's share of such items and its share of similar items for its unconsolidated ventures in 1995 is currently budgeted to be approximately $3,629,000. Actual amounts expended in 1995 may vary depending on a number of factors including actual leasing activity, results of property operations, liquidity considerations and other market conditions over the course of the year. Due to these commitments, the Partnership reduced the operating distribution in 1993. Additionally, as more fully described in Notes 5 and 9, distributions to the General Partners have been deferred in accordance with the subordination requirements of the Partnership agreement. The source of capital for such items and for both short-term and long-term future liquidity and distributions is expected to be through cash generated by the Partnership's investment properties and through the sale of such investments. In such regard, reference is made to the Partnership's property specific discussions below and also to the Partnership's disclosure of certain property lease expirations in Item 6 above. To the extent that a property does not produce adequate amounts of cash to meet its needs, the Partnership may withdraw funds from the working capital reserve which it maintains. The Partnership's and its ventures' mortgage obligations are all non-recourse. Therefore, the Partnership and its Ventures are not obligated to pay mortgage indebtedness unless the related property produces sufficient net cash flow from operations or sale. On January 30, 1992, the Partnership through JMB/Mid Rivers Mall Associates, sold its interest in Mid Rivers Mall located in St. Peters, Missouri to an affiliate of an unaffiliated joint venture partner. The Partnership received, in connection with the sale, after all fees, expenses, and joint venture participation, net cash of $13,250,000. See Note 7 for a further description of the transaction. Overall cash flow returns at Broad Street for the next few years are expected to be lower than in previous years. The Partnership will continue its aggressive leasing program; however, the downtown New York City market remains extremely competitive due to the significant amount of space available primarily resulting from the layoffs, cutbacks and consolidations by financial service companies and related businesses which dominated this market. In addition to competition for tenants in the downtown market from other buildings in the area, there is increasing competition from less expensive alternatives to downtown. Rental rates in the downtown market are currently at depressed levels and this can be expected to continue for the foreseeable future while the current vacant space is gradually absorbed. Little, if any, new construction is planned for downtown over the next few years. It is expected that the building will continue to be adversely affected by the lower effective rental rates achieved upon re- leasing of existing leases which expire over the next few years. In addition, new leases will likely require expenditures for lease commissions and tenant improvements prior to tenant occupancy. This decline in rental rates, the increase in re-leasing time and the costs upon re-leasing will result in a continued decrease in cash flow from operations over the near term. Therefore, Broad Street recorded a provision for value impairment of $22,908,606 at December 31, 1992 to reduce the net book value of the property to the then estimated valuation of $7,800,000. Reference is made to Notes 1 and 3(d) for further discussion of the current status of this investment property. During August 1994, San Jose received notification from the Redevelopment Agency of the City of San Jose of its offer to purchase one of the parking garage structures in the office building complex for an approved Agency project for $4,090,000. The price offered is deemed by the Agency to be just compensation in compliance with applicable State and Federal laws relating to the government's power of eminent domain. San Jose is currently investigating its options with regard to the Agency's offer, including the impact of any purchase on garage spaces leased to tenants of other Partnership properties in the complex. Should the Agency proceed to purchase the property, San Jose would recognize a gain for financial reporting and Federal income tax purposes. However, it is uncertain at this time whether a transfer of the garage to the Agency will occur, when, or upon what terms. San Jose, during the fourth quarter of 1994, finalized a loan extension and modification with the mortgage lender on the 150 Almaden and 185 Park Avenue buildings and certain parking areas as the mortgage loan secured by this portion of the complex matured on October 1, 1993 and was extended to December 1, 1993. The modified and extended loan has an interest rate of 8.4% per annum, requires monthly interest payments only beginning December 1, 1994 through December 1, 1997 when the loan begins to amortize until it matures November 30, 2001, when the unpaid principal and interest balance is due. The refinancing resulted in a partial paydown of the outstanding principal balance in the amount of $2.5 million of which the Partnership's share was $1.25 million. (Reference is made to Note 3(b)). San Jose notified the tenants in and invitees to the complex that some of the buildings, particularly the 100-130 Park Center Plaza Buildings and the garage below them, could pose a life safety hazard under certain unusually intense earthquake conditions. While the buildings and the garage were designed to comply with the applicable codes for the period in which they were constructed, and there is no legal requirement to upgrade the buildings for seismic purposes, San Jose is working with consultants to analyze ways in which such a potential life safety hazard could be minimized. Tenants occupying approximately 55,000 square feet (approximately 13% of the buildings) of the Park Center Plaza investment property have leases that expire in 1995, for which there can be no assurance of renewals. In addition, new leases will likely require expenditures for lease commissions and tenant improvements prior to tenant occupancy. These anticipated costs upon re-leasing will result in a decrease in cash flow from operations over the near term. However, since the costs of both re-leasing space and any seismic program could be substantial, San Jose has commenced discussions with the appropriate lender for additional loan proceeds to pay for all or a portion of these costs. Furthermore, should lender assistance be required to fund significant costs at the 100-130 Park Center Plaza buildings but not be obtained, the Partnership may decide not to commit any additional amounts to this portion of the complex since such amounts are likely to be large in comparison to the Partnership's current equity in this portion of the complex and the likelihood of recovering such funds through increased capital appreciation is remote. The result would be that the Partnership would no longer have an ownership interest in this portion of the complex. As a result, there is continued uncertainty about the ability to recover the net carrying value of the property through future operations and sale and accordingly, San Jose has made provisions for value impairment on the 100-130 Park Center Plaza buildings and certain parking areas and the 170 Almaden building of $944,335 in the aggregate. Such provisions at September 30, 1994 were recorded to reduce the net carrying values of these buildings to the then outstanding balances of the related non-recourse financing. Furthermore, at September 30, 1993, San Jose recorded a provision for value impairment on the 150 Almaden and 185 Park Avenue buildings and certain parking areas of $15,549,935 to reduce the net carrying value of these buildings to the then outstanding balance of related non-recourse financing. Additionally, at December 31, 1992, San Jose recorded a provision for value impairment of $8,142,152 on certain other portions of the complex to amounts equal to the then outstanding balances of the related non-recourse financing. In the event the lender on the 100-130 Park Center Plaza portion of the complex exercised its remedies as discussed above, the result would likely be that San Jose would no longer have an ownership interest in such portion. See Note 3(b) for further discussion of this investment property. On January 17, 1994, an earthquake occurred in Los Angeles, California. The epicenter was located in the town of Northridge, which is approximately six miles from Topanga Plaza Shopping Center. Consequently, significant portions of the mall, including the four major department stores who own their own buildings, suffered some casualty damage. The approximate 360,000 square feet of mall shops owned by the Topanga Partnership did not suffer major structural damage. The estimated costs at Topanga for which the joint venture is responsible is approximately $10.5 million, of which approximately $9.7 million is construction related. The majority of this cost is subject to recovery under the joint venture's earthquake insurance policy. The deductible on the earthquake casualty and business interruption coverages is approximately $2.1 million which is expected to be funded by Topanga from operations in 1995. As of December 31, 1994, Topanga has incurred approximately $7.5 million of the estimated $9.7 million of costs to repair the mall. Approximately $6.6 million has been reimbursed through insurance proceeds. The remaining amount, net of the deductible, of approximately $853,000 has been classified as a casualty insurance receivable in the accompanying consolidated financial statements. As of the date of this report, all of the mall's 114 shops and the four major department stores are open. Subsequent to the earthquake, sales at the mall shops have increased due to the greater extent of damage at a nearby competing mall. One department store, Robinson-May, had a portion of their store condemned by city inspectors. One consequence of this partial condemnation is that Robinson-May has taken back the approximately 25,000 square feet of that store which was leased to the joint venture in 1990. Pursuant to the terms of the lease agreement with the joint venture, Robinson-May was allowed to terminate the lease in the event there was substantial damage to its existing store (as defined). This is expected to represent the loss of approximately $150,000 in annual net income from subleases of the eight tenants which had subleased this space. Topanga was insured in case of such event and received, in July 1994, insurance proceeds in the amount of $2,500,000 for the cost of the unamortized tenant improvements and the loss of rents related to this space. As a result of the termination of the leasehold for this space from Robinson-May, Topanga has written off approximately $1.2 million of unamortized leasehold improvements discussed above. Topanga has recorded an extraordinary loss of $2,889,000 (of which the Partnership's share is approximately $1,676,000) which includes Topanga's share of repair cost of approximately $2.1 million, and approximately $789,000 of other costs. The earthquake did result in some adverse effect on the operations of the center in early 1994. Any future costs which may be subject to insurance recoveries are not presently determinable. The Partnership and its joint venture partner completed a renovation at the Topanga Plaza Shopping Center during 1992 of approximately $40,000,000. In conjunction with this renovation and remerchandising, the Partnership secured an extension of the operating covenant for the Nordstrom's department store to the year 2000 from an original expiration date in 1994. In addition, the Broadway store has also committed to operate in the center until the year 2000. The Partnership and its joint venture partner have refinanced the existing mortgage notes with replacement financing from the existing mortgage holder in the aggregate amount of approximately $59,000,000 which was funded in four stages. See Note 4(b) for further discussion of the refinancing of this loan. During 1994, the manager of the Topanga Plaza, an affiliate of the joint venture partner, was sold to an unaffiliated third party, who assumed management at the property on the same terms as existed prior to the sale. The Plaza Hermosa Shopping Center was developed with proceeds raised through a municipal bond financing. This financing was secured by a letter of credit facility which was ultimately secured by a deed of trust on the property. The letter of credit facility expired December 31, 1993; at which time, the Partnership signed an agreement with the holder of the letter of credit to extend its expiration date to December 31, 1994. As the bond financing was due and payable upon the expiration of the letter of credit, the bond financing was classified as a current liability at December 31, 1993. In December 1994, the Partnership signed an agreement for a long-term replacement letter of credit with a new lender and in conjunction with the new letter of credit, simultaneously retired this original bond financing and issued new bonds to the existing bondholders in their original aggregate amount of $6,400,000 (see note 4). The new letter of credit expires in December 1997. The new bond financing is due and payable upon the expiration of the letter of credit, and accordingly, has been classified as a long-term liability at December 31, 1994. This property did not sustain any significant damage in connection with the January 17, 1994 Los Angeles earthquake. In 1995, the leases of tenants occupying approximately 29,000 square feet (approximately 31% of the property) at the Plaza Hermosa Shopping Center expire. Although the Partnership has received indications that some of these tenants will renew, there can be no assurance that such renewals will take place. In addition, new leases will likely require expenditures for lease commissions and tenant improvements prior to tenant occupancy. These anticipated costs upon re-leasing will result in a decrease in cash flow from operations over the near term. At December 31, 1994, the First Financial Plaza office building is approximately 89% occupied. In July 1993, Mitsubishi vacated its approximate 8,100 square feet prior to its lease expiration of January 1997 and continues to pay rent pursuant to its lease obligation. Including the Mitsubishi lease, the building is 93% leased as of the date of this report. The Los Angeles office market in general and the Encino submarket in particular remain extremely competitive resulting in higher rental concessions granted to tenants. The previous decline in rental rates appears to have stabilized in 1994. Furthermore, due to the continued recession in southern California and concerns regarding certain tenants' ability to perform under their current leases, the venture has granted rent deferrals and other forms of rent relief to several tenants, including First Financial Housing, an affiliate of the unaffiliated venture partner, which is likely to have an adverse effect on venture cash flows in the near term. As previously reported, the First Financial office building appeared to have experienced only minor cosmetic damage as a result of the January 17, 1994 Northridge earthquake in southern California. On February 22, 1995, the City Council of the City of Los Angeles passed an ordinance requiring certain buildings (identified by building type and location) to perform additional testing on the welded steel mount connections to determine if the earthquake had weakened such joint weldings and to repair such joint weldings if weakness is detected. This property qualified for the additional testing under the ordinance, and therefore, the Partnership had retained a structural engineer to perform the additional testing. Results of the initial testing by the structural engineer indicate that the building's joint weldings have suffered damage which, in accordance with the recently enacted ordinance, must be repaired. The Partnership's structural engineer has informed the Partnership that the damage detected does not pose a life safety risk for the building's tenants. While a complete determination of the requirements to comply with such ordinance is not as yet completed, it is currently estimated that the cost of such repairs, which has been reflected in the accompanying consolidated financial statements as an extraordinary item will be approximately $1,000,000 (of which the Partnership's share is approximately $625,000). The mortgage note secured by the First Financial Plaza office building is scheduled to mature in November 1995. Although the venture has had preliminary discussions with the lender regarding an extension of this loan, there can be no assurance that such an extension or any alternative financing for all or substantially all of the mortgage loan can be obtained at maturity. The venture is also examining a possible sale of the property should a refinancing not take place. There can be no assurance that a sale of the property will occur. Based upon such uncertainty, Encino joint venture may not be able to recover the net carrying value of the investment property through future operations or sale. Accordingly, the Encino venture, as a matter of prudent accounting practice, has made a provision for value impairment of approximately $6,475,000, all of which is allocable to First Financial joint venture. Such provision was recorded at December 31, 1994 to reduce the net carrying value of the property based upon an estimated sales price should the Encino Venture be unable to extent or refinance the mortgage loan at maturity. There are certain risks associated with the Partnership's investments made through joint ventures including the possibility that the Partnership's joint venture partners in an investment might become unable or unwilling to fulfill their financial or other obligations, or that such joint venture partners may have economic or business interests or goals that are inconsistent with those of the Partnership. Though the economy has recently shown signs of improvement and financing is generally becoming more available for certain types of higher- quality properties in healthy markets, real estate lenders are typically requiring a lower loan-to-value ratio for mortgage financing than in the past. This has made it difficult for owners to refinance real estate assets at their current debt levels unless the value of the underlying property has appreciated significantly. As a consequence, and due to the weakness of some of the local real estate markets in which the Partnership's properties operate, the Partnership is taking steps to preserve its working capital. RESULTS OF OPERATIONS The increase in cash and cash equivalents and the decrease in short- term investments is primarily due to none of the Partnership's U.S. Government obligations being classified as cash and cash equivalents at December 31, 1993, whereas approximately $4,529,000 of such U.S. Government obligations were classified as cash equivalents at December 31, 1994. Reference is made to Note 1. The increase in rents and other receivables at December 31, 1994 as compared to December 31, 1993 is primarily due to the timing of payment of certain tenant receivables at Plaza Hermosa. The decrease in escrow deposits at December 31, 1994 as compared to December 31, 1993 is primarily due to the payment from escrow of tenant improvements of approximately $416,000 related to the renewal and expansion of a certain tenant in 1993 at 40 Broad Street and due to the refund of certain escrowed funds of approximately $291,000 due to the letter of credit extension at Plaza Hermosa. The casualty insurance receivable balance at December 31, 1994 represents a portion of repair costs to be reimbursed through insurance proceeds at Topanga Plaza. See Note 3(c). The decrease in land and buildings and improvements at December 31, 1994 as compared to December 31, 1993 is primarily due to a provision for value impairment of $6,475,138 recorded at First Financial Plaza. The decrease in buildings and improvements is also due to approximately $3,226,000 of previously incurred deferred costs at Topanga Plaza being reclassified as deferred expenses. The increase in investment in unconsolidated ventures at December 31, 1994 as compared to December 31, 1993 is primarily due to the Partnership's contribution to San Jose for the partial paydown of the loan secured by the 150 Almaden and 185 Park building due to the modification and extension of the loan. See note 3(b). The increase in accrued rents receivable at December 31, 1994 as compared to December 31, 1993 is primarily due to rents accrued ratably over the term of the lease rather than as paid at Topanga Plaza and 40 Broad Street. The increase in deferred expense at December 31, 1994 as compared to December 31, 1993 is primarily due to deferred costs of approximately $3,226,000 incurred at Topanga Plaza previously classified as buildings and improvements. The increase in deferred expenses is also due to deferred costs of approximately $552,000 incurred due to the letter of credit extension at Plaza Hermosa (see note 2(b)) and to deferred leasing costs of approximately $509,000 at 40 Broad Street. The increase in current portion of long-term debt and the decrease in long-term debt less current portion at December 31, 1994 as compared to December 31, 1993 is primarily due to the 1995 scheduled maturity of the loan securing First Financial Plaza partially offset by the reclassification (due to refinancing) from current portion of long-term debt to long-term debt less current portion of the debt securing Plaza Hermosa. The increase in accounts payable at December 31, 1994 as compared to December 31, 1993 is primarily due to earthquake repair costs accrued at Topanga Plaza and First Financial Plaza. The decrease in construction costs payable at December 31, 1994 as compared to December 31, 1993 is due to the timing of payment of construction costs incurred at Topanga Plaza. The increase in unearned rents at December 31, 1994 as compared to December 31, 1993 is primarily due to the prepayment of rents at Plaza Hermosa. The increase in tenant security deposits at December 31, 1994 as compared to December 31, 1993 is primarily due to the receipt of deposit of approximately $80,000 at 40 Broad Street. The decrease in advances from affiliates at December 31, 1994 as compared to December 31, 1993 is due to the repayment of $300,000 in 1994 to the venture partner at Topanga Plaza. The increase in rental income for the year ended December 31, 1994 as compared to the year ended December 31, 1993 is primarily due to approximately $1,326,000 of insurance proceeds related to the lost rental income due to the space taken back by Robinson-May at Topanga Plaza. This increase is partially offset by 40 Broad Street achieving lower effective rental rates upon renewals or upon re-leasing of space previously occupied by tenants paying higher rental rates. The decrease in rental income for the year ended December 31, 1993 as compared to the year ended December 31, 1992 is primarily due to decreased effective rents at the 40 Broad Street investment property, lower occupancy at Plaza Hermosa and First Financial in 1993, and lower occupancy in 1992 at Topanga Plaza caused by the renovation as discussed in Note 3(c). The increase in interest income for the year ended December 31, 1994 as compared to the year ended December 31, 1993 is primarily due to an increase in interest rates earned on U.S. Government obligations in 1994. The decrease for the year ended December 31, 1993 as compared to the year ended December 31, 1992 is primarily due to a decrease in the interest rates earned on U.S. Government obligations in 1993. Mortgage and other interest expense increased for the year ended December 31, 1994 and December 31, 1993 as compared to the year ended December 31, 1992 primarily due to the fundings by the Topanga mortgage lender of $16,000,000 in December 1992, $18,400,000 in February 1993 and $14,000,000 in June 1993 as more fully described in Note 4(b). Depreciation expense increased for the year ended December 31, 1993 as compared to the year ended December 31, 1992 primarily due to the increase in building and improvements at 40 Broad Street, Topanga Plaza and First Financial Plaza. The increases in amortization of deferred expenses for the years ended December 31, 1994 as compared to the year ended December 31, 1993 and for the year ended December 31, 1993 as compared to the year ended December 31, 1992 are primarily due to the capitalization of certain expenses at Topanga Plaza, 40 Broad Street and Plaza Hemosa. The provision for value impairment for the year ended December 31, 1994 is due to the Partnership recording a provision for value impairment of $6,475,138 at First Financial Plaza at December 31, 1994 to reduce the net carrying value of the investment property to the then outstanding balance of the related non-recourse debt, see Note 3(f). The provision for value impairment for the year ended December 31, 1992 is due to the Partnership recording a provision for value impairment of $22,908,606 at 40 Broad Street at December 31, 1992. The increase in Partnership's share of operations of unconsolidated ventures for the year ended December 31, 1994 as compared to the year ended December 31, 1993 is primarily due to a provision for value impairment recorded at the San Jose investment property at September 30, 1993 of which the Partnership's share was approximately $7,775,000, partially offset by the provision for value impairment recorded at the San Jose investment property at September 30, 1994, of which the Partnership's share is approximately $472,000. See Note 3(b). Venture partners' share of consolidated ventures' operations before extraordinary item increased for the year ended December 31, 1994 as compared to the year ended December 31, 1993 primarily due to the value impairment recorded at First Financial Plaza partially offset by the venture partners' share of insurance proceeds related to space taken back by Robinson-May at Topanga Plaza. See Note 3(c). The decrease for the year ended December 31, 1993 as compared to the year ended December 31, 1992 is primarily due to decreased earnings at the Topanga Plaza as a result of the renovation and re-merchandising as discussed above. Partnership's share of gain on sale of interest in investment property of $5,655,876 for the year ended December 31, 1993 as compared to the year ended December 31, 1992 is due to the sale of the Partnership's interest in Mid Rivers in January, 1992 (see Note 7). The extraordinary item for the year ended December 31, 1994 is due to the earthquake damage at Topanga Plaza and First Financial Plaza. See Note 3(c) and 3(f) respectively. INFLATION Due to the decrease in the level of inflation in recent years, inflation generally has not had a material effect on rental income or property operating expenses. To the extent that inflation in future periods does have an adverse impact on property operating expenses, the effect will generally be offset by amounts recovered from tenants as many of the long-term leases at the Partnership's commercial properties have escalation clauses covering increases in the cost of operating and maintaining the properties as well as real estate taxes. Therefore, there should be little effect on operating earnings if the properties remain substantially occupied. In addition, substantially all of the leases at the Partnership's shopping center investments contain provisions which entitle the Partnership to participate in gross receipts of tenants above fixed minimum amounts. Future inflation may also cause capital appreciation of the Partnership's investment properties over a period of time to the extent that rental rates and replacement costs of properties increase. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES INDEX Independent Auditors' Report Consolidated Balance Sheets, December 31, 1994 and 1993 Consolidated Statements of Operations, years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Partners' Capital Accounts, years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows, years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements Schedule -------- Consolidated Real Estate and Accumulated Depreciation III Schedules not filed: All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. INDEPENDENT AUDITORS' REPORT The Partners JMB INCOME PROPERTIES, LTD. - XII: We have audited the consolidated financial statements of JMB Income Properties, Ltd. - XII (a limited partnership) and consolidated ventures as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 the General Partners of the Partnership, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of JMB Income Properties, Ltd. - XII and consolidated ventures at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Chicago, Illinois March 27, 1995 JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1993 ASSETS ------
1994 1993 ------------ ----------- Current assets: Cash and cash equivalents (note 1) . . . . . . . . . . . . . . . $ 8,222,359 1,470,860 Short-term investments (note 1). . . . . . . . . . . . . . . . . 14,176,812 21,966,316 Rents and other receivables, net of allowance for doubtful accounts of $925,820 in 1994 and $481,694 in 1993 . . . . . . . . . . . . . . . . . . . . . . . 2,162,206 2,025,743 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 226,598 267,718 Escrow deposits. . . . . . . . . . . . . . . . . . . . . . . . . 708,332 1,393,527 Casualty insurance receivable (note 3(c)). . . . . . . . . . . . 853,000 -- ------------ ----------- Total current assets . . . . . . . . . . . . . . . . . . 26,349,307 27,124,164 ------------ ----------- Investment properties, at cost (notes 2, 3 and 4) - Schedule III: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,425,036 23,074,253 Buildings and improvements . . . . . . . . . . . . . . . . . . . 170,873,378 176,419,717 ------------ ----------- 193,298,414 199,493,970 Less accumulated depreciation. . . . . . . . . . . . . . . . . . 46,792,110 41,724,753 ------------ ----------- Total investment properties, net of accumulated depreciation. . . . . . . . . . . . 146,506,304 157,769,217 Investment in unconsolidated ventures, at equity (notes 1, 3 and 10) 5,719,465 3,720,296 Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . 8,340,547 4,788,858 Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . 2,406,764 1,649,035 ------------ ----------- $189,322,387 195,051,570 ============ =========== JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1993 LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS ------------------------------------------ 1994 1993 ------------ ----------- Current liabilities: Current portion of long-term debt (note 4) . . . . . . . . . . . $ 29,539,123 6,972,571 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 3,863,132 969,433 Construction costs payable . . . . . . . . . . . . . . . . . . . 342,324 537,400 Unearned rents . . . . . . . . . . . . . . . . . . . . . . . . . 64,806 17,803 ------------ ----------- Total current liabilities. . . . . . . . . . . . . . . . 33,809,385 8,497,207 Tenant security deposits . . . . . . . . . . . . . . . . . . . . . 509,493 410,232 Long-term debt, less current portion (note 4). . . . . . . . . . . 64,470,886 87,612,869 Advances from affiliates (note 3(c)) . . . . . . . . . . . . . . . 435,000 735,000 ------------ ----------- Commitments and contingencies (notes 3 and 8) Total liabilities. . . . . . . . . . . . . . . . . . . . 99,224,764 97,255,308 Venture partners' subordinated equity in ventures (note 3) . . . . 21,616,287 22,872,422 Partners' capital accounts (notes 1 and 5): General partners: Capital contributions. . . . . . . . . . . . . . . . . . . . 11,123 11,123 Cumulative net earnings. . . . . . . . . . . . . . . . . . . 669,602 642,630 ------------ ----------- 680,725 653,753 ------------ ----------- Limited partners (189,684 interests): Capital contributions, net of offering costs . . . . . . . . 171,306,452 171,306,452 Cumulative net loss. . . . . . . . . . . . . . . . . . . . . (28,347,981) (23,784,830) Cumulative cash distributions. . . . . . . . . . . . . . . . (75,157,860) (73,251,535) ------------ ----------- 67,800,611 74,270,087 ------------ ----------- Total partners' capital accounts . . . . . . . . . . . . 68,481,336 74,923,840 ------------ ----------- $189,322,387 195,051,570 ============ =========== See accompanying notes to consolidated financial statements.
JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 ------------ ------------ ------------ Income: Rental income. . . . . . . . . . . . . . . . . $30,166,883 29,224,716 30,049,260 Interest income. . . . . . . . . . . . . . . . 985,333 831,059 1,011,855 ----------- ----------- ----------- 31,152,216 30,055,775 31,061,115 ----------- ----------- ----------- Expenses: Mortgage and other interest. . . . . . . . . . 9,075,692 9,137,379 5,922,611 Depreciation . . . . . . . . . . . . . . . . . 5,640,425 5,739,255 4,811,235 Property operating expenses. . . . . . . . . . 13,695,140 14,074,577 14,475,393 Professional services. . . . . . . . . . . . . 244,951 307,769 385,726 Amortization of deferred expenses. . . . . . . 1,117,672 787,304 456,673 General and administrative . . . . . . . . . . 280,016 222,884 351,165 Provision for value impairment (note 1). . . . 6,475,138 -- 22,908,606 ----------- ----------- ----------- 36,529,034 30,269,168 49,311,409 ----------- ----------- ----------- Operating loss . . . . . . . . . . . . (5,376,818) (213,393) (18,250,294) Partnership's share of earnings (loss) from operations of unconsolidated ventures (notes 1, 3 and 10). . . . . . . . . . . . . . 441,700 (6,610,269) (3,123,534) Venture partners' share of consolidated ventures' operations before extraordinary item (notes 1 and 3). . . . . . . . . . . . . . . . 2,699,777 785,684 6,090,075 ----------- ----------- ----------- Net operating loss before extraordinary item . . . . . . . . . (2,235,341) (6,037,978) (15,283,753) Partnership's share of gain on sale of interest in investment property (notes 3 and 7) . . . . -- -- 5,655,876 Extraordinary item (net of venture partners share of $1,588,537) (note 3(c)) . . . . . . . (2,300,838) -- -- ----------- ----------- ----------- Net loss . . . . . . . . . . . . . . . $(4,536,179) (6,037,978) (9,627,877) =========== =========== =========== JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED 1994 1993 1992 ------------ ------------ ------------ Net loss per limited partnership interest (note 1): Net operating loss. . . . . . . . . . . . . . $ (12.41) (31.79) (80.48) Partnership's share of gain on sale of interest in investment property. . . . . -- -- 29.52 Extraordinary item. . . . . . . . . . . . . . (11.65) -- -- ----------- ----------- ----------- Net loss per limited partnership interest (note 1). . . . . . . . . . $ (24.06) (31.79) (50.96) =========== =========== =========== See accompanying notes to consolidated financial statements.
JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
GENERAL PARTNERS LIMITED PARTNERS (189,684 INTERESTS) -------------------------------------------------- --------------------------------------------------- CONTRI- BUTIONS NET NET OF NET CONTRI- EARNINGS CASH OFFERING EARNINGS CASH BUTIONS (LOSS) DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL ------- ----------------------- ----------- ----------- ---------- ------------------------ Balance at December 31, 1991. . . . .$11,123 612,375 -- 623,498 171,306,452 (8,088,720) (61,337,010)101,880,722 Cash distri- butions ($50.00 per limited partnership interest) . . -- -- -- -- -- -- (9,531,620) (9,531,620) Net earnings (loss) (note 5). . . -- 38,525 -- 38,525 -- (9,666,402) -- (9,666,402) ------- --------- ------- -------- ----------- ----------- ----------------------- Balance at December 31, 1992. . . . . 11,123 650,900 -- 662,023 171,306,452 (17,755,122) (70,868,630) 82,682,700 Cash distri- butions ($12.50 per limited partnership interest) . . -- -- -- -- -- -- (2,382,905)(2,382,905) Net loss (note 5). . . -- (8,270) -- (8,270) -- (6,029,708) -- (6,029,708) ------- --------- ------- -------- ----------- ----------- ---------------------- Balance at December 31, 1993. . . . .$11,123 642,630 -- 653,753 171,306,452 (23,784,830) (73,251,535)74,270,087 JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS - CONTINUED GENERAL PARTNERS LIMITED PARTNERS (189,684 INTERESTS) -------------------------------------------------- --------------------------------------------------- CONTRI- BUTIONS NET NET OF NET CONTRI- EARNINGS CASH OFFERING EARNINGS CASH BUTIONS (LOSS) DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL ------- ----------------------- ----------- ----------- ---------- ------------------------ Cash distri- butions ($10 per limited partnership interest) . . -- -- -- -- -- -- (1,906,325)(1,906,325) Net earnings (loss) (note 5). . . -- 26,972 -- 26,972 -- (4,563,151) -- (4,563,151) ------- ------- ------- ------- ----------- ----------- ----------- ---------- Balance at December 31, 1994. . . . .$11,123 669,602 -- 680,725 171,306,452 (28,347,981) (75,157,860)67,800,611 ======= ======= ======= ======= =========== =========== =========== ========== See accompanying notes to consolidated financial statements.
JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 ----------- ----------- ----------- Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . . $(4,536,179) (6,037,978) (9,627,877) Items not requiring (providing) cash or cash equivalents: Depreciation . . . . . . . . . . . . . . . . . 5,640,425 5,739,255 4,811,235 Amortization of deferred expenses. . . . . . . 1,117,672 787,304 456,673 Partnership's share of operations and gain on sale of interest in investment property of unconsolidated ventures, net of distributions (441,700) 6,610,269 (746,754) Venture partners' share of ventures' operations and extraordinary item . . . . . . . . . . . . . (4,288,314) (785,684) (6,090,075) Provisions for value impairment (note 1) . . . 6,475,138 -- 22,908,606 Write-off of assets. . . . . . . . . . . . . . 1,174,125 -- -- Extraordinary item, net of insurance recoveries of $1,174,125 . . . . . . . . . . 3,889,375 -- -- Changes in: Rents and other receivables. . . . . . . . . . (836,355) (445,506) (716,723) Prepaid expenses . . . . . . . . . . . . . . . 41,120 (44,925) (128,694) Escrow deposits. . . . . . . . . . . . . . . . 685,195 (368,796) (257,704) Casualty insurance receivable. . . . . . . . . (853,000) -- -- Accrued rents receivable . . . . . . . . . . . (757,729) (98,080) (321,480) Accounts payable . . . . . . . . . . . . . . . (295,784) 39,427 (290,092) Accrued interest . . . . . . . . . . . . . . . -- (160,105) 154,719 Unearned rents . . . . . . . . . . . . . . . . 47,003 (16,198) (12,569) Tenant security deposits . . . . . . . . . . . 99,261 33,372 (76,452) ----------- ----------- ----------- Net cash provided by operating activities 7,160,253 5,252,355 10,062,813 ----------- ----------- ----------- JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED 1994 1993 1992 ----------- ----------- ----------- Cash flows from investing activities: Net sales and maturities (purchases) of short-term investments. . . . . . . . . . . . . . . . . . 7,789,504 (2,308,024) (8,373,546) Additions to investment properties, net of related payables and in 1994 net of insurance recoveries of $6,647,000. . . (2,908,722) (10,071,938) (29,696,904) Partnership's distributions from unconsolidated ventures. . . . . . . . . . . . -- 1,000,000 13,250,000 Partnership's contributions to unconsolidated ventures. . . . . . . . . . . . (1,557,469) -- (753,750) Payment of deferred expenses . . . . . . . . . . (1,480,284) (1,428,355) (1,606,048) ----------- ----------- ----------- Net cash provided by (used in) investing activities . . . . . . . . . 1,843,029 (12,808,317) (27,180,248) ----------- ----------- ----------- Cash flows from financing activities: Principal payments on long-term debt . . . . . . (575,431) (421,223) (1,769,435) Increase (decrease) in other long-term liabilities. . . . . . . . . . . . . . . . . . -- (9,650,000) 6,549,513 Proceeds from refinancings of debt (note 4(b)) . -- 18,400,000 26,600,000 Advances from affiliates . . . . . . . . . . . . (300,000) 735,000 (1,490,000) Venture partners' contributions to venture . . . 604,973 150,126 242,420 Distributions to venture partners. . . . . . . . (75,000) (135,000) (2,406,641) Distributions to limited partners. . . . . . . . (1,906,325) (2,382,905) (9,531,620) ----------- ----------- ----------- Net cash provided by (used in) financing activities . . . . . . . . . (2,251,783) 6,695,998 18,194,237 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . 6,751,499 (859,964) 1,076,802 Cash and cash equivalents, beginning of year. . . . . . . . . . . 1,470,860 2,330,824 1,254,022 ----------- ----------- ----------- Cash and cash equivalents, end of year . $ 8,222,359 1,470,860 2,330,824 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest, net of amounts capitalized . . . . . . . . . . $ 9,053,196 9,297,484 5,965,889 =========== =========== =========== JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED 1994 1993 1992 ----------- ----------- ----------- Non-cash investing and financing activities: Change in accounts payable. . . . . . . . . . . $ 3,189,483 -- -- Change in accounts receivable . . . . . . . . . 699,892 -- -- ----------- ----------- ----------- Total extraordinary item-earthquake damage at Topanga Mall and First Financial Plaza (note 3(c) and 3(f), respectively). . . . . $ 3,889,375 -- -- =========== =========== =========== Total proceeds from sale of investment property, net of selling expenses. . . . . . . . . . . . $ -- -- 30,909,086 Assumption of long-term debt . . . . . . . . . . -- -- 17,659,086 ----------- ----------- ----------- Cash proceeds from sale of the Partnership's interest in investment properties, net of selling expenses. . . . . . . . . . . . $ -- -- 13,250,000 =========== =========== =========== See accompanying notes to consolidated financial statements.
JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (1) BASIS OF ACCOUNTING The accompanying consolidated financial statements include the accounts of the Partnership and its ventures, Topanga Plaza Partnership ("Topanga"), JMB-40 Broad Street Associates ("Broad Street"), JMB First Financial Associates ("First Financial") and First Financial's venture, JMB Encino Partnership, ("Encino") (see note 3). The effect of all transactions between the Partnership and its ventures have been eliminated in the consolidated financial statements. The equity method of accounting has been applied in the accompanying consolidated financial statements with respect to the Partnership's venture interests in JMB/San Jose Associates ("San Jose"), JMB/Mid Rivers Mall Associates ("JMB/Rivers") and JMB/Rivers' venture, Mid Rivers Mall Associates, L.P. ("Mid Rivers"). Accordingly, the accompanying consolidated financial statements do not include the accounts of San Jose, JMB/Rivers and Mid Rivers. The Partnership, through JMB/Rivers sold its interest in Mid Rivers mall in January 1992. The Partnership's records are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying consolidated financial statements have been prepared from such records after making appropriate adjustments to present the Partnership's accounts in accordance with generally accepted accounting principles ("GAAP") and to consolidate the accounts of the ventures as described above. Such adjustments are not recorded on the records of the Partnership. The net effect of these items for the years ended December 31, 1994 and 1993 is summarized as follows: JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1994 1993 ------------------------------------------------------------- GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS ------------ ----------- ------------ ----------- Total assets . . . . . . . . . . . $189,322,387 123,709,895 195,051,570 129,228,260 Partners' capital accounts (deficits) (note 5): General partners . . . . . . . 680,725 (1,073,088) 653,753 (928,062) Limited partners . . . . . . . 67,800,611 118,304,795 74,270,087 123,691,731 Net earnings (loss) (note 5): General partners . . . . . . . 26,972 (145,025) (8,270) (170,455) Limited partners . . . . . . . (4,563,151) (3,480,611) (6,029,708) (4,090,927) Net loss per limited partnership interest . . . . . . $ (24.06) (18.35) (31.79) (21.57) ============ =========== =========== ===========
JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The net loss per limited partnership interest is based upon the number of limited partnership interests outstanding at the end of each period (189,684). Statement of Financial Accounting Standards No. 95 requires the Partnership to present a statement which classifies receipts and payments according to whether they stem from operating, investing or financing activities. The required information has been segregated and accumulated according to the classifications specified in the pronouncement. Partnership distributions from its unconsolidated ventures are considered cash flow from operating activities to the extent of the Partnership's cumulative share of net earnings. In addition, the Partnership records amounts held in U.S. Government obligations at cost, which approximates market. For the purposes of these financial statements, the Partnership's policy is to consider all such amounts held with original maturities of three months or less ($4,529,080 and $0 at December 31, 1994 and 1993, respectively) as cash equivalents with any remaining amounts (generally with original maturities of one year or less) reflected as short-term investments being held to maturity. Deferred expenses consist primarily of commitment fees and loan related costs which are amortized over the term of the related mortgage loans, and lease commissions which are amortized over the term of the related leases, using the straight-line method. Although certain leases of the Partnership provide for tenant occupancy during periods for which no rent is due and/or increases in the minimum lease payments over the term of the lease, rental income is accrued for the full period of occupancy on a straight-line basis. Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments", requires entities with total assets exceeding $150 million at December 31, 1992 to disclose the SFAS 107 value of all financial assets and liabilities for which it is practicable to estimate. Value is defined in the Statement as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes the carrying amount of its financial instruments classified as current assets and liabilities (excluding current portion of long-term debt) approximates SFAS 107 value due to the relatively short maturity of these instruments. There is no quoted market value available for any of the Partnership's other instruments. The debt, with a carrying balance of $94,010,009, has been calculated to have an SFAS 107 value of $88,657,637 by discounting the scheduled loan payments to maturity. Due to restrictions on transferability and prepayment and the inability to obtain comparable financing due to current levels of debt, previously modified debt terms or other property specific competitive conditions, the Partnership would be unable to refinance these properties to obtain such calculated debt amounts reported. (See note 4.) The Partnership has no other significant financial instruments. In response to the significant vacancy levels coupled with the depressed rental rates in the downtown New York market, the Broad Street joint venture recorded a provision for value impairment on 40 Broad Street Office Building of $22,908,606 at December 31, 1992. Such a provision was recorded to reduce the net basis of the investment property to $7,800,000 at December 31, 1992. Reference is made to note 3(d) for further discussion of the current status of this investment property. This provision is in addition to similar provisions taken in earlier years and previously reported. JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED In response to the uncertainties relating to the San Jose joint venture's ability to recover the net carrying value of certain buildings within the Park Center Plaza investment property through future operations or sale, the San Jose joint venture, at December 31, 1992, recorded a provision for value impairment on certain portions of the complex of $8,142,152. Such provision was recorded to reduce the net basis of these portions to the then outstanding balance of the related non-recourse debt. Additionally, a provision for value impairment on the 150 Almaden and 185 Park Avenue buildings and certain parking areas of $15,549,935 was recorded at September 30, 1993 to reduce the net basis to the then outstanding balance of the related non-recourse debt. Furthermore, the San Jose joint venture, recorded a provision for value impairment at September 30, 1994 on the 100-130 Park Center Plaza buildings and certain parking areas, and the 170 Almaden building of $944,335, in aggregate, to reduce the net carrying values to the then outstanding balances of related non-recourse debt. Reference is made to note 3(b) for further discussion of the current status of this investment property. In response to the uncertainties relating to the Encino joint venture's ability to recover the net carrying value of the investment property through future operations or sale, the Encino joint venture, at December 31, 1994, recorded a provision for value impairment of approximately $6,475,000, all of which is allocable to First Financial. Such provision was recorded to reduce the net carrying value of the property based upon an estimated sales price should the Encino venture be unable to extend or refinance the mortgage loan at maturity. No provision for State or Federal income taxes has been made as the liability for such taxes is that of the partners rather than the Partnership. However, in certain circumstances, the Partnership has been required under applicable law to remit directly to the tax authorities amounts representing withholding from distributions paid to partners. (2) INVESTMENT PROPERTIES (a) General The Partnership has acquired, either directly or through joint ventures (see note 3), three shopping centers, two office buildings and an office complex. The Partnership sold, through JMB/Rivers, its interest in Mid Rivers Mall in January 1992. All of the remaining properties were in operation at December 31, 1994. The cost of the investment properties represents the total cost to the Partnership or its consolidated ventures plus miscellaneous acquisition costs. Depreciation on the properties has been provided over the estimated useful lives of the various components as follows: YEARS ----- Building and improvements -- straight-line 30 Personal property -- straight-line . . . . 5 == Maintenance and repairs are generally charged to operations as incurred. Significant betterments and improvements are capitalized and depreciated over their estimated useful lives. Provisions for value impairment are recorded with respect to the investment properties whenever the estimated future cash flows from a property's operations and projected sale are less than the property's net carrying value. JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Certain investment properties are pledged as security for the long- term debt, for which there is no recourse to the Partnership, as described in note 4. (b) Plaza Hermosa Shopping Center During September 1986, the Partnership acquired a multi-building neighborhood shopping center in Hermosa Beach, California. The Partnership's purchase price for the shopping center was $18,290,000, of which $11,890,000 was paid in cash at closing. The balance of the purchase price was represented by bond financing in the amount of $6,400,000 (see note 4). This financing was secured by a letter of credit facility which was ultimately secured by a deed of trust on the property. The letter of credit facility expired December 31, 1993; however, the Partnership signed an agreement with the issuer of the letter of credit to extend its expiration date to December 31, 1994. As the bond financing was due and payable upon the expiration of the letter of credit, the bond financing was classified as a current liability at December 31, 1993. In December 1994, the Partnership signed an agreement for a long-term replacement letter of credit with a new lender and in conjunction with the new letter of credit, simultaneously retired the original bond financing and issued new bonds to the existing bondholders in their aggregate amount of $6,400,000. The new letter of credit expires in December 1997. The new bond financing is due and payable upon the new expiration date of the letter of credit, and accordingly, has been classified as a long-term liability in the accompanying financial statements at December 31, 1994. The property is managed by an affiliate of the General Partners of the Partnership for a fee calculated as 4% of gross receipts of the property. (3) VENTURE AGREEMENTS (a) General The Partnership at December 31, 1994 is a party to four operating venture agreements (the Partnership, through JMB/Rivers, sold its interest in Mid Rivers Mall in January 1992) and has made capital contributions to the respective ventures as discussed below. Under certain circumstances, either pursuant to the venture agreements or due to the Partnership's obligations as a General Partner, the Partnership may be required to make additional cash contributions to the ventures. There are certain risks associated with the Partnership's investments made through joint ventures including the possibility that the Partnership's joint venture partners in an investment might become unable or unwilling to fulfill their financial or other obligations, or that such joint venture partners may have economic or business interests or goals that are inconsistent with those of the Partnership. (b) San Jose The Partnership has acquired, through San Jose, an interest in an existing office building complex in San Jose, California (Park Center Financial Plaza). San Jose acquired nine office buildings and two parking garage structures in June 1985 for a purchase price of approximately $32,472,000 subject to long-term indebtedness of approximately $6,347,000. All of the properties were in operation when acquired. In addition, in May 1986, San Jose purchased an additional office building (150 Almaden) and a parking and retail building (185 Park Avenue) JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED in the Park Center Financial Plaza complex for a total purchase price of approximately $47,476,000. In conjunction with the acquisitions, San Jose reserved approximately $31,590,000 to fund debt service, leasing commissions, and capital and tenant improvements. In 1991, all remaining amounts originally set aside by the Partnership to fund debt service, leasing commissions and capital and tenant improvement costs at Park Center Financial Plaza were utilized. In September 1986, San Jose obtained a mortgage loan in the amount of $25,000,000 secured by the 150 Almaden and 185 Park Avenue buildings and certain parking areas. The outstanding principal balance, which was non- amortizable, bore interest at the rate of 9.5% per annum and had a scheduled maturity in October 1993 and was extended to December 1, 1993. San Jose, during the fourth quarter of 1994, finalized a loan extension and modification with the mortgage lender. The modified and extended loan has an interest rate of 8.4% per annum, requires monthly interest payments only beginning December 1, 1994 through December 1, 1997 when the loan begins to amortize until it matures November 30, 2001, when the unpaid principal and interest balance is due. The refinancing resulted in the 1994 partial paydown of the outstanding principal balance in the amount of $2.5 million. The property was managed by an affiliate of the General Partners of the Partnership for a fee calculated as 3% of gross receipts until December 1994 when the affiliated property manager sold substantially all of its assets and assigned its interests in its management contracts to an unaffiliated third party. The partners of San Jose are the Partnership and JMB Income Properties, Ltd.-XI, another partnership sponsored by the Managing General Partner of the Partnership ("JMB-XI"). The terms of San Jose's partnership agreement generally provide that contributions, distributions, cash flow, sale or refinancing proceeds and profits and losses will be distributed or allocated to the Partnership in their respective 50% ownership percentages. During August 1994, San Jose received notification from the Redevelopment Agency of the City of San Jose of its offer to purchase one of the parking garage structures in the office building complex, for an approved Agency project for $4,090,000. The price offered is deemed by the Agency to be just compensation in compliance with applicable State and Federal laws relating to the government's power of eminent domain. San Jose is currently investigating its options with regard to the Agency's offer, including the impact of any purchase on garage spaces leased to tenants of other Partnership properties in the complex. Should the Agency proceed to purchase the property, San Jose would recognize a gain for financial reporting and Federal income tax purposes. Therefore, it is uncertain at this time whether a transfer of the garage to the Agency will occur or upon what terms. San Jose notified the tenants in and invitees to the Park Center Plaza complex that some of the buildings, particularly the 100-130 Park Center Plaza Buildings and the garage below them, could pose a life safety hazard under certain unusually intense earthquake conditions. While the buildings and the garage were designed to comply with the applicable codes for the period in which they were constructed, and there is no legal requirement to upgrade the buildings for seismic purposes, San Jose is working with consultants to analyze ways in which such a potential life safety hazard could be minimized. In addition, tenants occupying approximately 55,000 square feet (approximately 13% of the building) of the Park Center Plaza investment property have leases that expire in 1995, for which there can be JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED no assurance of renewals. However, since the costs of both re-leasing space and any seismic program at the 100-130 Park Center Plaza buildings could be substantial, San Jose has commenced discussions with the appropriate lender for additional loan proceeds to pay for all or a portion of these costs. Should lender assistance be required to fund significant costs at the 100-130 Park Center Plaza buildings but not be obtained, San Jose may decide not to commit any additional amounts to this portion of the complex since such amounts are likely to be large in comparison to the Partnership's current equity in this portion of the complex and the likelihood of recovering such funds through increased capital appreciation is remote. The result would be that San Jose would no longer have an ownership interest in this portion of the complex. As a result, there is uncertainty about the ability to recover the net carrying value of the property through future operations and sale and accordingly, San Jose has made provisions for value impairment on the 100- 130 Park Center Plaza buildings and certain parking areas and the 170 Almaden building of $944,335 in the aggregate. Such provisions at September 30, 1994 were recorded to reduce the net carrying values of these buildings to the then outstanding balances of the related non-recourse financing. Additionally, at September 30, 1993, San Jose recorded a provision for value impairment on the 150 Almaden and 185 Park Avenue buildings and certain parking areas of $15,549,935 to reduce the net carrying value of these buildings to the then outstanding balance of related non-recourse financing. Additionally, at December 31, 1992, San Jose recorded a provision for value impairment of $8,142,152 on certain other portions of the complex to amounts equal to the then outstanding balances of the related non-recourse financing. In the event the lender on the 100-130 Park Center Plaza portion of the complex exercised its remedies as discussed above, the result would likely be that San Jose would no longer have an ownership interest in such portion. (c) Topanga In December 1985, the Partnership acquired, through a joint venture partnership with an affiliate of the developer, a 58% interest in an existing two-level enclosed mall regional shopping center known as Topanga Plaza in the Woodland Hills area of Los Angeles, California. The aggregate purchase price for the Partnership's interest in the venture was approximately $25,263,000, which was paid in cash at closing. Under the terms of the joint venture agreement, the Partnership generally will be allocated or distributed 58% of profits and losses, cash flow from operations and sale or refinancing proceeds. The shopping center was subject to a long-term management agreement with an affiliate of the joint venture partner. Under the terms of the management agreement, the manager was entitled to receive a management fee based on a formula which relates to direct and general overhead costs and expenses incurred in the operation of the property. During 1994, the manager of the Topanga Plaza, an affiliate of the joint venture partner, was sold to an unaffiliated third party, who assumed management at the property on the same terms as existed prior to the sale. On January 17, 1994, an earthquake occurred in Los Angeles, California. The epicenter was located in the town of Northridge which is approximately six miles from Topanga Plaza Shopping Center. Consequently, significant portions of the mall, including the four major department stores who own their own buildings, suffered some casualty damage. The JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED approximate 360,000 square feet of mall shops owned by the Topanga Partnership did not suffer major structural damage. The estimated costs at Topanga for which the joint venture is responsible is approximately $10.5 million of which approximately $9.7 million is construction related. The majority of this cost is subject to recovery under the joint venture's earthquake insurance policy. The deductible on the earthquake casualty and business interruption coverages is approximately $2.1 million which is expected to be funded by Topanga from operations in 1995. As of December 31, 1994, Topanga has incurred approximately $7.5 million of the estimated $9.7 million of costs to repair the mall. Approximately $6.6 million has been reimbursed through insurance proceeds. The remaining amount, net of the deductible, of approximately $853,000 has been classified as a casualty insurance receivable in the accompanying consolidated financial statements. As of the date of this report, all of the mall's 114 shops and the four major department stores are open. Subsequent to the earthquake, sales at the mall shops have increased due to the greater extent of damage at a nearby competing mall. One department store, Robinson-May, had a portion of their store condemned by city inspectors. One consequence of this partial condemnation is that Robinson-May has taken back the approximately 25,000 square feet of that store which was leased to the joint venture in 1990. Pursuant to the terms of the lease agreement with the joint venture, Robinson-May was allowed to terminate the lease in the event there was substantial damage to its existing store (as defined). This is expected to represent the loss of approximately $150,000 in annual net income from subleases of the eight tenants which had subleased this space. Topanga was insured in case of such event and received, in July 1994, insurance proceeds in the amount of $2,500,000 for the cost of the unamortized tenant improvements and the loss of rents related to this space. As a result of the termination of the leasehold for this space from Robinson-May, Topanga has written off approximately $1.2 million, of unamortized leasehold improvements discussed above. Topanga has recorded an extraordinary loss of $2,889,000 which includes Topanga's share of repair cost of approximately $2.1 million and approximately $789,000 of other costs. The earthquake did result in some adverse effects on the operations of the center in early 1994. Any future costs which may be subject to insurance recoveries are not presently determinable. The Partnership and its joint venture partner completed a renovation of the Topanga Plaza Shopping Center during 1992. In conjunction with this renovation, the Partnership secured an extension of the operating covenant for the Nordstrom's department store to the year 2000 from an original expiration date in 1994. In addition, the Broadway store has also committed to operate in the center until the year 2000. The Partnership and its joint venture partner have refinanced the existing mortgage notes with replacement financing from the existing mortgage holder in the amount of approximately $59,000,000 which was funded in four stages. See Note 4(b) for a discussion of such refinancing. The joint venture partner has agreed to advance the joint venture funds for expenses incurred for certain redevelopment costs related to the expansion of Topanga Plaza. The balance of these advances was $435,000 at December 31, 1994. Such advances were repaid to the joint venture partner in early 1995. Construction period interest of approximately $0, $130,620 and $1,035,000, had been capitalized for the years ended December 31, 1994, 1993 and 1992, respectively. The shopping center is subject to fire, life and safety code and ordinance requirements, which have changed since the property's original construction. Accordingly, the Partnership intends to comply with such revised regulations and fund such retrofit costs. In conjunction with the renovation, a substantial portion of such retrofit costs have been completed. The Partnership will fund any remaining costs from operations over the next several years, as tenant leases expire, until the entire building conforms to such requirements. JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (d) Broad Street During December 1985, the Partnership acquired, through Broad Street, a joint venture with JMB Income Properties, Ltd.-X, a partnership sponsored by an affiliate of the Managing General Partner, a 68.56% interest in an existing 24-story office building located at 40 Broad Street in New York, New York. Broad Street's purchase price for the building, which was paid in cash at closing, was approximately $65,100,000 of which the Partnership provided approximately $44,630,000. The Partnership will be allocated or distributed profits and losses, cash flow from operations and sale or refinancing proceeds in the ratio of its capital contributions to Broad Street which is 68.56%. The downtown New York City market remains extremely competitive due to the significant amount of space available primarily resulting from the layoffs, cutbacks and consolidations by financial service companies and related businesses which dominate this market. Rental rates in the downtown market are currently at depressed levels and this can be expected to continue for the foreseeable future while the current vacant space is gradually absorbed. Little, if any, new construction is planned for downtown over the next few years and it is expected that the building will continue to be adversely affected by the lower effective rental rates now achieved upon releasing of existing leases which expire over the next few years. In addition, new leases will likely require expenditures for lease commissions and tenant improvements prior to tenant occupancy. This decline in rental rates, the increase in re-leasing time and the costs upon re-leasing will result in a continued decrease in cash flow from operations over the near-term. Therefore, due to the uncertainty of Broad Street's ability to recover the net carrying value of the investment property through future operations or sale, the Broad Street joint venture recorded a provision for value impairment of $22,908,606 at December 31, 1992 to further reduce the net book value of the property to the then estimated valuation of $7,800,000. Until December 1994, the property was managed by an affiliate of the General Partners of the Partnership for a fee calculated as 2% of gross receipts of the property (see note 6). (e) JMB/Rivers In December 1986, the Partnership and JMB Income Properties, Ltd.-XIII (a partnership sponsored by an affiliate of the Managing General Partner, "JMB-XIII") formed JMB/Rivers, which entered into a joint venture ("Mid Rivers") with an affiliate of the developer ("Venture Partner") and acquired an interest in an enclosed regional shopping center then under construction in St. Peters, Missouri, known as Mid Rivers Mall. Under the terms of the venture agreement, JMB/Rivers contributed approximately $39,400,000, of which the Partnership's share was approximately $19,700,000. During January 1992, JMB/Rivers sold its interest in Mid Rivers Mall (See note 7). The ultimate ownership percentages for JMB/Rivers and Venture Partner were established as 80% and 20%, respectively. Operating profits and losses were generally allocated in proportion to and to the extent of distributions as described above and, to the extent profits and losses exceeded such distributions, to the Partners in accordance with their respective ownership percentages. The terms of the JMB/Rivers agreement generally provided that the Partnership was allocated or distributed, as the case may be, profits and losses, cash flow from operations, and sale or refinancing proceeds in the ratio of its respective capital contributions to JMB/Rivers. JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The shopping center was managed by an affiliate of the Venture Partner for a fee calculated as 4% of gross receipts of the property through the date of sale. (f) First Financial On May 20, 1987, the Partnership, through First Financial, a joint venture with JMB-XIII, acquired an interest in a general partnership ("Encino") with an affiliate of the developer ("Venture Partner") which owns an office building in Encino (Los Angeles), California. First Financial is obligated to make an initial investment in the aggregate amount of $49,850,000 of which approximately $49,812,000 of such contributions have been made to Encino. The Partnership's share of the remaining amounts, approximately $24,000, will be contributed when the Venture Partner complies with certain requirements. In November 1987, First Financial caused Encino to obtain a third party first mortgage loan in the amount of $30,000,000. The proceeds of such loan were distributed to First Financial to reduce its contribution and to the Venture Partner who subsequently repaid a $15,500,000 loan from First Financial. Thus, the total cash investment of First Financial for its interest in the office building, after consideration of the funding of the $30,000,000 permanent financing, is approximately $20,000,000, of which the Partnership's share is approximately $12,500,000. The outstanding principal balance of the third party first mortgage loan as of December 31, 1994 is $29,161,144. The third party first mortgage loan matures in November, 1995. First Financial, on Encino's behalf, is currently discussing the terms of a possible extension or renegotiation of the mortgage loan with the existing lender upon such maturity. There can be no assurance that a satisfactory arrangement for the extension or refinancing of all or substantially all of the loan can be reached with this or any other lender. Based upon such uncertainty, Encino may not be able to recover the net carrying value of the investment property through future operations or sale. Accordingly, the Encino venture, as a matter of prudent accounting practice, has made a provision for value impairment of approximately $6,475,000, all of which is allocable to First Financial. Such provision was recorded at December 31, 1994 to reduce the net carrying value of the property based upon an estimated sales price should the Encino venture be unable to extend or refinance the mortgage loan at maturity. The First Financial Plaza office building incurred minimal damage as a result of the earthquake in southern California on January 17, 1994. On February 22, 1995, the City Council of the City of Los Angeles passed an ordinance relating to the repair of welded steel mounted frame buildings in an area of the city that includes First Financial Plaza. While a complete determination of the requirements to comply with such ordinance is not as yet completed, it is currently estimated that the cost of such repairs, which has been reflected as an extraordinary item in the accompanying consolidated financial statements, will be approximately $1 million. The Encino partnership agreement generally provides that First Financial is entitled to receive (after any participating amounts due to Pepperdine University pursuant to its tenant lease) from cash flow from operations (as defined) an annual cumulative preferred return equal to 9.05% through April 30, 1995 (and 8.9% thereafter) of its capital contri- butions. Any remaining cash flow is to be split equally between First Financial and the Venture Partner. Pepperdine University, under its tenant lease, is entitled to an amount based on 6.6% of the Venture Partner's share of the office building's net operating profit and net sale profit (as defined). JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED All of Encino's operating profits and losses before depreciation have been allocated to First Financial in 1994, 1993 and 1992. The Encino partnership agreement also generally provides that net sale proceeds and net refinancing proceeds (as defined), after any amounts due to Pepperdine University pursuant to its tenant lease, are to be distributed: first, to First Financial in an amount equal to its deficiency, if any, in its cumulative preferred return as described above; next, to First Financial in the amount of its capital contributions; next, to the Venture Partner in an amount equal to $600,000; any remaining proceeds are to be split equally between First Financial and the Venture Partner. The terms of the First Financial partnership agreement provide that annual cash flow, net sale or refinancing proceeds, and tax items will be distributed or allocated, as the case may be, to the Partnership in proportion to its 62.5% share of capital contributions. The office building is managed by an affiliate of the Venture Partner for a fee based upon a percentage of rental receipts (as defined) of the property. (4) LONG-TERM DEBT (a) Long-term debt consists of the following at December 31, 1994 and 1993: 1994 1993 ----------- ----------- 10-1/8% mortgage note secured by the Topanga Plaza shopping center in Los Angeles, California; payable in monthly installments of principal and interest of $523,225 through January 2002 when the remaining balance is due and payable, see note 4(b) . . . . . . . . . $58,448,865 58,790,592 Floating rate bond financing (certificates), secured by the Plaza Hermosa Shopping Center in Hermosa Beach, California; the certificates bore interest based on a floating rate adjustable monthly (as defined), with a maximum interest rate of 13.5%, interest only was payable monthly through December 2013 when the entire outstanding balance was due and payable, the bonds were retired in December 1994 by the bond financing described below, note 2(b) . . . . . . . . . . . -- 6,400,000 JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 1994 1993 ----------- ----------- Floating rate bond financing (certificates), secured by the Plaza Hermosa Shopping Center in Hermosa Beach, California; the certificates bear interest based on a floating rate which is adjustable weekly (as defined), with a maximum interest rate of 12%, interest only is payable monthly through December 2023 when the entire outstanding balance is due and payable, note 2(b) . 6,400,000 -- 9-7/8% mortgage note, secured by the First Financial Plaza Office Building; payable in monthly installments of principal and interest of $260,505 through November 1995 when the remaining balance is due and payable. . . 29,161,144 29,394,848 ----------- ----------- Total debt . . . . . . 94,010,009 94,585,440 Less current portion of long-term debt. . 29,539,123 6,972,571 ----------- ----------- Total long-term debt . $64,470,886 87,612,869 =========== =========== (b) Debt Refinancing In January 1992, the Partnership and its joint venture partner finalized the refinancing of the existing mortgage notes at Topanga Plaza with replacement financing from the existing mortgage holder in the aggregate amount of $59,000,000 which was funded in four stages. Included in the initial funding was the $1,600,000 repayment of advances by an affiliate of the venture partner, the $1,500,000 refinancing of a portion of the existing mortgage and $2,300,000 representing a return to the Partnership of prior contributions used to fund previous costs incurred relating to fire, life and safety regulations and certain releasing costs. The second funding occurred on December 2, 1992 in the amount of $16,000,000, which was used to paydown interim lines of credit used for certain renovation costs and operational capital expenditures as described below. The third funding of $18,400,000 occurred on February 1, 1993, a portion of which was used to paydown interim lines of credit used for certain renovation costs and the remainder to fund additional renovation costs. The fourth stage refinanced the remaining portion of the existing mortgage of $14,000,000 upon its maturity in June 1993. The loan, aggregating $59,000,000, represents the new loan of $43,500,000 and the refinancing of the existing loans of $15,500,000. The term of the new loan began June 1, 1993 with monthly principal and interest payments and matures January 31, 2002. It carries an interest rate of 10.125%. The Topanga joint venture had funded certain renovation costs through a line of credit bearing interest at 10.125% with various maturity dates. The line of credit had a balance of $9,650,000 at December 31, 1992 and was paid by the additional loan funding discussed above. JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (c) Five year maturities of long-term debt are summarized as follows: 1995 . . . . . . . . . $29,539,123 1996 . . . . . . . . . 418,075 1997 . . . . . . . . . 462,426 1998 . . . . . . . . . 511,482 1999 . . . . . . . . . 565,741 =========== (5) PARTNERSHIP AGREEMENT Pursuant to the terms of the Partnership Agreement, net profits or losses of the Partnership from operations are allocated 96% to the Limited Partners and 4% to the General Partners. Profits from the sale or refinancing of investment properties will be allocated to the General Partners: (i) in an amount equal to the greater of 1% of such profits or the amount of cash distributable to the General Partners from any such sale or refinancing (as described below); and (ii) in order to reduce deficits, if any, in the General Partners' capital accounts to a level consistent with the gain anticipated to be realized from the sale of properties. Losses from the sale or refinancing of investment properties will be allocated 1% to the General Partners. The remaining sale or refinancing profits and losses will be allocated to the Limited Partners. The General Partners are not required to make any capital contri- butions except under certain limited circumstances upon termination of the Partnership. In general, distributions of cash from operations will be made 90% to the Limited Partners and 10% to the General Partners. However, a portion of such distributions to the General Partners is subordinated to the Limited Partners' receipt of a stipulated return on capital. The Partnership Agreement provides that the General Partners shall receive as a distribution from the sale of a real property by the Partnership amounts equal to the cumulative deferrals of any portion of their 10% cash distribution and 2-1/2% of the selling price, and that the remaining proceeds (net after expenses and retained working capital) be distributed 85% to the Limited Partners and 15% to the General Partners. However, the Limited Partners shall receive 100% of such net sale proceeds until the Limited Partners (i) have received cash distributions of sale or refinancing proceeds in an amount equal to the Limited Partners' aggregate initial capital investment in the Partnership, (ii) have received cumulative cash distributions from the Partnership's operations which, when combined with sale or refinancing proceeds previously distributed, equal a 6% annual return on the Limited Partners' average capital investment for each year (their initial capital investment as reduced by sale or refinancing proceeds previously distributed) commencing with the second fiscal quarter of 1986 and (iii) have received cash distributions of sale and refinancing proceeds and of the Partnership's operations, in an amount equal to the Limited Partners' initial capital investment in the Partnership plus a 10% annual return on the Limited Partners' average capital investment. Accordingly, approximately $773,000 of sale proceeds from the sale of the Partnership's interest in Mid Rivers Mall has been deferred by the General Partners (see note 7). JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (6) MANAGEMENT AGREEMENTS Certain of the Partnership's properties are managed by affiliates of the General Partners or their assignees for fees computed as a percentage of certain rents received by the properties. In December 1994, one of the affiliated property managers sold substantially all of its assets and assigned its interest in its management contracts to an unaffiliated third party. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. The successor to the affiliated property manager's assets is the property manager of the 40 Broad Street property after the sale on the same terms that existed prior to the sale. (7) SALE OF INTEREST IN INVESTMENT PROPERTY On January 30, 1992, the Partnership through JMB/Rivers sold its interest in Mid Rivers Mall located in St. Peters, Missouri to an affiliate of an unaffiliated joint venture partner. The sale price of the interest was $26,500,000 (before closing costs and prorations) plus the outstanding balance of the mortgages of which JMB/Rivers share was $35,318,171 as of the date of closing. The Partnership received, in connection with the sale, after all fees, expenses, and joint venture partner's participation, net cash of $13,250,000. For financial reporting purposes, JMB/Rivers has recognized a gain of approximately $12,022,000 in 1992, of which, the Partnership's share was approximately $5,656,000. (8) LEASES At December 31, 1994, the Partnership and its consolidated ventures' principal assets are two shopping centers and two office buildings. The Partnership has determined that all leases relating to these properties are properly classified as operating leases; therefore, rental income is reported when earned and the cost of the properties, excluding the cost of the land, is depreciated over the estimated useful lives. Leases with tenants range in term from month-to-month to twenty-five years and provide for fixed minimum rent and partial reimbursement of operating costs. In addition, leases with shopping center tenants provide for additional rent based upon percentages of tenants' sales volumes. With respect to the Partnership's shopping center investments, a substantial portion of the ability of retail tenants to honor their leases is dependent on the retail economic sector. Cost and accumulated depreciation of the leased assets are summarized as follows at December 31, 1994: Office Buildings: Cost . . . . . . . . . . . . . . . $ 67,508,582 Accumulated depreciation . . . . . 23,203,535 ------------ 44,305,047 ------------ Shopping Centers: Cost . . . . . . . . . . . . . . . 125,789,832 Accumulated depreciation . . . . . 23,588,575 ------------ 102,201,257 ------------ $146,506,304 ============ JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Minimum lease payments, including amounts representing executory costs (e.g. taxes, maintenance, insurance) and any related profit, to be received in the future under the operating leases are as follows: 1995 . . . . . . . . . . . . . . . . $ 18,448,821 1996 . . . . . . . . . . . . . . . . 17,943,508 1997 . . . . . . . . . . . . . . . . 15,925,935 1998 . . . . . . . . . . . . . . . . 15,189,909 1999 . . . . . . . . . . . . . . . . 14,146,018 Thereafter . . . . . . . . . . . . . 64,717,387 ------------ Total. . . . . . . . . . . . . . $146,371,578 ============ Contingent rent (based on sales by property tenants) included in rental income was as follows: 1992 . . . . . . . . . . . . . . . . $309,934 1993 . . . . . . . . . . . . . . . . 427,809 1994 . . . . . . . . . . . . . . . . 662,271 ======== (9) TRANSACTIONS WITH AFFILIATES Fees, commissions and other expenses required to be paid by the Partnership to the General Partners and their affiliates as of December 31, 1994 and for the years ended December 31, 1994, 1993 and 1992 are as follows: JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
UNPAID AT DECEMBER 31, 1994 1993 1992 1994 -------- -------- -------- -------------- Property management and leasing fees . . . . . . . . . . . $184,881 221,843 238,648 -- Insurance commissions. . . . . . . . 74,228 84,976 119,867 -- Reimbursement (at cost) for out-of-pocket expenses and salaries . . . . . . . . . . . 120,374 92,243 110,263 5,043 -------- -------- -------- ----- $379,483 399,062 468,778 5,043 ======== ======== ======== =====
JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED In accordance with the subordination requirements of the Partnership Agreement, the General Partners have deferred receipt of their distri- butions (see note 5) of net cash flow from the Partnership. The cumulative amount of such deferred distributions aggregated $7,466,578 at December 31, 1994. These amounts or amounts currently payable do not bear interest and may be paid in future periods. The Topanga venture has incurred approximately $61,000, $131,000 and $1,035,000 of interest costs relating to affiliated venture partner advances (note 3(c)) in 1994, 1993 and 1992, respectively, all of which was paid to an affiliate of the venture partner as of December 31, 1994. (10) INVESTMENT IN UNCONSOLIDATED VENTURE Summary of financial information for San Jose as of and for the years ended December 31, 1994 and 1993 is as follows: 1994 1993 ------------ ------------ Current assets . . . . . . . . . $ 5,966,024 1,094,449 Current liabilities. . . . . . . (996,677) (25,841,373) ------------ ------------ Working capital (deficit). 4,969,347 (24,746,924) Investment property, net . . . . 31,913,782 33,218,816 Other assets, net. . . . . . . . 866,256 3,180,985 Long-term debt . . . . . . . . . (25,880,881) (3,784,508) Other liabilities. . . . . . . . (72,093) (70,297) Venture partners' equity . . . . (6,076,946) (4,077,776) ------------ ------------ Partnership's capital. . . $ 5,719,465 3,720,296 ============ ============ Represented by: Invested capital . . . . . . . $ 47,534,243 45,976,774 Cumulative distributions . . . (20,652,500) (20,652,500) Cumulative loss. . . . . . . . (21,162,278) (21,603,978) ------------ ------------ $ 5,719,465 3,720,296 ============ ============ Total income . . . . . . . . . . $ 9,270,819 10,369,335 ============ ============ Expenses applicable to operating loss . . . . . . . . . . . . . $ 8,387,418 23,589,873 ============ ============ Net earnings (loss). . . . . . . $ 883,401 (13,220,538) ============ ============ Reference is made to note 3(b) regarding the provision for value impairments of $944,335, $15,549,935 and $8,142,152 which were recorded in 1994, 1993 and 1992, respectively, by the San Jose joint venture. Total income, expenses related to operating earnings, and net loss for the above-mentioned venture for the year ended December 31, 1992 were $10,850,899, $12,191,635 and $6,285,057, respectively. (11) SUBSEQUENT EVENT In February 1995, the Partnership paid a distribution of $476,581 ($2.50 per Interest) to the Limited Partners. SCHEDULE III JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994
COSTS CAPITALIZED INITIAL COST TO SUBSEQUENT GROSS AMOUNT AT WHICH CARRIED PARTNERSHIP (A) TO ACQUISITION AT CLOSE OF PERIOD (B) ------------------------- -------------- ------------------------------------ BUILDINGS BUILDINGS BUILDINGS AND AND AND ENCUMBRANCE LAND IMPROVEMENTSIMPROVEMENTS(D) LAND IMPROVEMENTS TOTAL (E) ----------- ----------- --------------------------- ---------- ------------ ----------- SHOPPING CENTERS: Los Angeles, California (C) . . . . $58,448,865 8,506,014 54,714,281 44,106,513 8,506,014 98,820,794 107,326,808 Hermosa Beach, California. 6,400,000 5,106,570 13,131,181 225,273 5,106,570 13,356,454 18,463,024 OFFICE BUILDINGS: New York, New York (C) . . . . -- 13,201,780 55,095,008 (33,388,464) 1,765,194 21,706,544 23,471,738 Encino, California (C) . . . . 29,161,144 7,696,474 38,089,122 (1,099,536) 7,047,258 36,989,586 44,036,844 ----------- ---------- ----------- ----------- ---------- ----------- ----------- Total. . $94,010,009 34,510,838 161,029,592 9,843,786 22,425,036 170,873,378 193,298,414 =========== ========== =========== =========== ========== =========== ===========
SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994
LIFE ON WHICH DEPRECIATION IN LATEST STATEMENT OF 1994 ACCUMULATED DATE OF DATE OPERATIONS REAL ESTATE DEPRECIATION(F) CONSTRUCTION ACQUIRED IS COMPUTED TAXES ---------------- ---------------------- --------------- ----------- SHOPPING CENTERS: Los Angeles, California (C) . . . . . . . . . $19,933,283 1964 12/31/85 5-30 years 690,217 Hermosa Beach, California. . . . . . . . . . . 3,655,292 1985 09/03/86 5-30 years 270,097 OFFICE BUILDINGS: New York, New York (C) . . . . . . . . . . 13,509,813 1983 12/31/85 5-30 years 1,914,572 Encino, California (C) . . . . . . . . . 9,693,722 1986 05/20/87 5-30 years 485,665 ----------- ---------- Total. . . . . . . . . . . . . $46,792,110 3,360,551 =========== ========== ------------------ Notes: (A) The initial cost to the Partnership represents the original purchase price of the properties, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired. (B) The aggregate cost of real estate owned at December 31, 1994 for Federal income tax purposes was $216,608,080. (C) Properties owned and operated by joint venture; see Note 3. (D) In 1994, 1993 and 1992, the affiliated joint venture recorded provisions for value impairment totaling $6,475,138, $0, and $22,908,606, respectively, (which included a reduction in deferred costs of $37,299, $0, and $30,000, respectively); see Note 3(d).
SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994 (E) Reconciliation of real estate owned:
1994 1993 1992 ------------ ------------ ------------ Balance at beginning of period . . . . . . . $199,493,970 196,088,700 183,399,224 Additions during period. . . . . . . . . . . 2,401,281 3,608,394 35,682,188 Sale and disposal during period. . . . . . . (4,401,376) (203,124) (84,106) Provision for value impairment (D) . . . . . (4,195,461) -- (22,908,606) ------------ ----------- ----------- Balance at end of period . . . . . . . . . . $193,298,414 199,493,970 196,088,700 ============ =========== =========== (F) Reconciliation of accumulated depreciation: Balance at beginning of period . . . . . . . $ 41,724,753 36,188,622 31,461,493 Depreciation expense . . . . . . . . . . . . 5,640,425 5,739,255 4,811,235 Sale and disposal during period. . . . . . . (313,240) (203,124) (84,106) Provision for value impairment (D) . . . . . (259,828) -- -- ------------ ----------- ----------- Balance at end of period . . . . . . . . . . $ 46,792,110 41,724,753 36,188,622 ============ =========== ===========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes of or disagreements with accountants during 1993 and 1994. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Managing General Partner of the Partnership is JMB Realty Corporation ("JMB"), a Delaware corporation. JMB has responsibility for all aspects of the Partnership's operations, subject to the requirement that sales of real property must be approved by the Associate General Partner of the Partnership, Income Associates-XII, L.P., an Illinois limited partnership with JMB as the sole general partner. The Associate General Partner shall be directed by a majority in interest of its limited partners (who are generally officers, directors and affiliates of JMB or its affiliates) as to whether to provide its approval of any sale of real property (or any interest therein) of the Partnership. The Partnership is subject to certain conflicts of interest arising out of its relationships with the General Partners and their affiliates as well as the fact that the General Partners and their affiliates are engaged in a range of real estate activities. Certain services have been and may in the future be provided to the Partnership or its investment properties by affiliates of the General Partners, including property management services and insurance brokerage services. In general, such services are to be provided on terms no less favorable to the Partnership than could be obtained from independent third parties and are otherwise subject to conditions and restrictions contained in the Partnership Agreement. The Partnership Agreement permits the General Partners and their affiliates to provide services to, and otherwise deal and do business with, persons who may be engaged in transactions with the Partnership, and permits the Partnership to borrow from, purchase goods and services from, and otherwise to do business with, persons doing business with the General Partners or their affiliates. The General Partners and their affiliates may be in competition with the Partnership under certain circumstances, including, in certain geographical markets, for tenants for properties and/or for the sale of properties. Because the timing and amount of cash distributions and profits and losses of the Partnership may be affected by various determinations by the General Partners under the Partnership Agreement, including whether and when to sell or refinance a property, the establishment and maintenance of reasonable reserves, the timing of expenditures and the allocation of certain tax items under the Partnership Agreement, the General Partners may have a conflict of interest with respect to such determinations. The names, positions held and length of service therein of each director and executive officer and certain officers of the Managing General Partner of the Partnership are as follows: SERVED IN NAME OFFICE OFFICE SINCE ---- ------ ------------ Judd D. Malkin Chairman 5/03/71 Director 5/03/71 Neil G. Bluhm President 5/03/71 Director 5/03/71 Burton E. Glazov Director 7/01/71 Stuart C. Nathan Executive Vice President 5/08/79 Director 3/14/73 A. Lee Sacks Director 5/09/88 John G. Schreiber Director 3/14/73 SERVED IN NAME OFFICE OFFICE SINCE ---- ------ ------------ H. Rigel Barber Executive Vice President 1/02/87 Chief Executive Officer 8/01/93 Glenn E. Emig Executive Vice President 1/01/93 Chief Operating Officer 1/01/95 Jeffrey R. Rosenthal Managing Director-Corporate 4/22/91 Chief Financial Officer 8/01/93 Douglas H. Cameron Executive Vice President 1/01/95 Gary Nickele Executive Vice President 1/01/92 General Counsel 2/27/84 Ira J. Schulman Executive Vice President 6/01/88 Gailen J. Hull Senior Vice President 6/01/88 Howard Kogen Senior Vice President 1/02/86 Treasurer 1/01/91 There is no family relationship among any of the foregoing directors or officers. The foregoing directors have been elected to serve a one-year term until the annual meeting of the Managing General Partner to be held on June 7, 1995. All of the foregoing officers have been elected to serve one-year terms until the first meeting of the Board of Directors held after the annual meeting of the Managing General Partner to be held on June 7, 1995. There are no arrangements or understandings between or among any of said directors or officers and any other person pursuant to which any director or officer was elected as such. JMB is the corporate general partner of Carlyle Real Estate Limited Partnership-VII ("Carlyle-VII"), Carlyle Real Estate Limited Partnership-IX ("Carlyle-IX"), Carlyle Real Estate Limited Partnership-X ("Carlyle-X"), Carlyle Real Estate Limited Partnership-XI ("Carlyle-XI"), Carlyle Real Estate Limited Partnership-XII ("Carlyle-XII"), Carlyle Real Estate Limited Partnership-XIII ("Carlyle-XIII"), Carlyle Real Estate Limited Partnership-XIV ("Carlyle-XIV"), Carlyle Real Estate Limited Partnership-XV ("Carlyle-XV"), Carlyle Real Estate Limited Partnership-XVI ("Carlyle- XVI"), Carlyle Real Estate Limited Partnership-XVII ("Carlyle-XVII"), JMB Mortgage Partners, Ltd. ("Mortgage Partners"), JMB Mortgage Partners, Ltd.-II ("Mortgage Partners-II") and JMB Mortgage Partners, Ltd.-III ("Mortgage Partners-III"), JMB Mortgage Partners, Ltd.-IV ("Mortgage Partners-IV"), Carlyle Income Plus, Ltd. ("Carlyle Income Plus") and Carlyle Income Plus, Ltd.-II ("Carlyle Income Plus-II"), and the managing general partner of JMB Income Properties, Ltd.-IV ("JMB Income-IV"), JMB Income Properties, Ltd.-V ("JMB Income-V"), JMB Income Properties, Ltd.-VI ("JMB Income-VI"), JMB Income Properties, Ltd.-VII ("JMB Income-VII"), JMB Income Properties, Ltd.-VIII ("JMB Income-VIII"), JMB Income Properties, Ltd.-IX ("JMB Income-IX"), JMB Income Properties, Ltd.-X ("JMB Income-X"), JMB Income Properties, Ltd.-XI ("JMB Income-XI") and JMB Income Properties, Ltd.-XIII ("JMB Income-XIII"). Most of the foregoing directors and officers are also officer and/or directors of various affiliated companies of Arvida/JMB Managers, Inc. (the general partner Arvida/JMB Partners, L.P. ("Arvida")), Arvida/JMB Managers-II, Inc. (the general partner Arvida/JMB Partners, L.P.-II ("Arvida-II")) and Income Growth Managers, Inc. (the corporate general partner of IDS/JMB Balanced Income Growth, Ltd. ("IDS/BIG")). Most of such directors and officers are also partners of certain partnerships which are associate general partners in the following real estate limited partnerships: Carlyle-VII, Carlyle-IX, Carlyle-X, Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV, Carlyle-XV, Carlyle-XVI, Carlyle-XVII, JMB Income-VI, JMB Income-VII, JMB Income-VIII, JMB Income-IX, JMB Income-X, JMB Income-XI, JMB Income-XIII, Mortgage Partners, Mortgage Partners-II, Mortgage Partners-III, Mortgage Partners-IV, Carlyle Income Plus, Carlyle Income Plus-II and IDS/BIG. The business experience during the past five years of each such director and officer of the Managing General Partner of the Partnership in addition to that described above is as follows: Judd D. Malkin (age 57) is an individual general partner of JMB Income-IV and JMB Income-V. Mr. Malkin has been associated with JMB since October, 1969. Mr. Malkin is a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers, and a director of Catellus Development Corporation, a major diversified real estate development company. He is a Certified Public Accountant. Neil G. Bluhm (age 57) is an individual general partner of JMB Income-IV and JMB Income-V. Mr. Bluhm has been associated with JMB since August, 1970. Mr. Bluhm is a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is a member of the Bar of the State of Illinois and a Certified Public Accountant. Burton E. Glazov (age 56) has been associated with JMB since June, 1971 and served as an Executive Vice President of JMB until December 1990. He is a member of the Bar of the State of Illinois and a Certified Public Accountant. Stuart C. Nathan (age 53) has been associated with JMB since July, 1972. Mr. Nathan is also a director of Sportmart Inc., a retailer of sporting goods. He is a member of the Bar of the State of Illinois. A. Lee Sacks (age 61) (President and Director of JMB Insurance Agency, Inc.) has been associated with JMB since December, 1972. John G. Schreiber (age 48) has been associated with JMB since December, 1970 and served as an Executive Vice President of JMB until December 1990. Mr. Schreiber is President of Schreiber Investments, Inc., a company which is engaged in the real estate investing business. He is also a senior advisor and partner of Blackstone Real Estate Partners, an affiliate of the Blackstone Group, L.P. Since 1994, Mr. Schreiber has also served as a trustee of Amli Residential Property Trust, a publicly-traded real estate investment trust that invests in multi-family properties. Mr. Schreiber is also a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is also a director of a number of investment companies advised or managed by T. Rowe Price Associates and its affiliates. He holds a Masters degree in Business Administration from Harvard University Graduate School of Business. H. Rigel Barber (age 45) has been associated with JMB since March, 1982. He holds a J.D. degree from the Northwestern Law School and is a member of the Bar of the State of Illinois. Glenn E. Emig (age 47) has been associated with JMB since December, 1979. Prior to becoming Vice President of JMB in 1993, Mr. Emig was Executive Vice President and Treasurer of JMB Institutional Realty Corporation. He holds a Masters Degree in Business Administration from the Harvard University Graduate School of Business and is a Certified Public Accountant. Jeffrey R. Rosenthal (age 43) has been associated with JMB since December, 1987. He is a Certified Public Accountant. Douglas H. Cameron (age 45) is Executive Vice President of JMB. Mr. Cameron has been associated with JMB since April, 1977. Prior to becoming Executive Vice President of JMB in 1995, Mr. Cameron was Managing Director of Capital Markets -- Property Sales from June 1990. He holds a Masters Degree in Business Administration from the University of Southern California. Gary Nickele (age 42) has been associated with JMB since February, 1984. He holds a J.D. degree from the University of Michigan Law School and is a member of the Bar of the State of Illinois. Ira J. Schulman (age 43) has been associated with JMB since February, 1983. He holds a Masters degree in Business Administration from the University of Pittsburgh. Gailen J. Hull (age 46) has been associated with JMB since March, 1982. He holds a Masters degree in Business Administration from Northern Illinois University and is a Certified Public Accountant. Howard Kogen (age 59) has been associated with JMB since March, 1973. He is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no officers or directors. The General Partners of the Partnership are entitled to receive a share of cash distributions, when and as cash distributions are made to the Investors, and a share of profits or losses. Reference is also made to Notes 5 and 9 for a description of such transactions, distributions and allocations. No such cash distributions were paid to the General Partners in 1994, 1993 and 1992. An affiliate of the Managing General Partner provided property management services to the Partnership for 1994 for the Plaza Hermosa Shopping Center in Hermosa Beach, California at a fee calculated at 4% of the gross receipts of the property and to the 40 Broad Street office building in New York, New York until December 1994 (see Note 6) at a fee calculated at 2% of the gross receipts of the property. In 1994, such affiliate earned property management and leasing fees amounting to $184,881 all of which were paid at December 31, 1994. As set forth in the Prospectus of the Partnership, the Managing General Partner must negotiate such agreements on terms no less favorable to the Partnership than those customarily charged for similar services in the relevant geographical area and such agreements must be terminable by either party thereto, without penalty, upon 60 days' notice. The General Partners of the Partnership may be reimbursed for their direct expenses relating to the administration of the Partnership and the operation of the Partnership's real property investments. In 1994, the Managing General Partner received reimbursement for such expenses and salaries in the amount of $120,374 of which $5,043 was unpaid at December 31, 1994. The Managing General Partner received no disbursement agent and data processing fees in 1994. JMB Insurance Agency, Inc., an affiliate of the Managing General Partner of the Partnership, earned and received insurance brokerage commissions in 1994 aggregating $74,228 in connection with the providing of insurance coverage for the real property investments of the Partnership. Such commissions are at rates set by insurance companies for the classes of coverage involved. The Partnership is permitted to engage in various transactions involving affiliates of the Managing General Partner of the Partnership. The relationship of the Managing General Partner (and its directors and officers) to its affiliates is set forth above in Item 10 above and Exhibit 21 hereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Interests of the Partnership. (b) The Managing General Partner and its officers and directors own the following Interests of the Partnership: NAME OF AMOUNT AND NATURE BENEFICIAL OF BENEFICIAL PERCENT TITLE OF CLASS OWNER OWNERSHIP OF CLASS -------------- ---------- ----------------- -------- Limited Partnership Interests JMB Realty Corporation 5 Interests (1) Less than 1% indirectly Limited Partnership Interests Managing General Partner 5 Interests (1) Less than 1% and its officers and indirectly directors as a group (1) Includes 5 interests owned by the initial limited partner of the Partnership for which JMB Realty Corporation, as the indirect majority shareholder of the initial limited partner, is deemed to have the voting and investment power. No officer or director of the Managing General Partner of the Partnership possesses a right to acquire beneficial ownership of Interests of the Partnership. (c) There exists no arrangement, known to the Partnership, the operation of which may at a subsequent date result in a change in control of the Partnership. Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the General Partners, the executive officers and directors of the Managing General Partner and persons who own more than ten percent of the Interests to file an initial report of ownership or changes in ownership of Interests on Form 3, 4 or 5 with the Securities and Exchange Commission (the "SEC"). Such persons are also required by SEC rules to furnish the Partnership with copies of all Section 16(a) forms they file. Timely filing of an initial report of ownership on Form 3 or Form 5 was not made on behalf of Glenn Emig.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There were no significant transactions or business relationships with the Managing General Partner, affiliates or their management other than those described in Items 10 and 11 above. 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: 1. Financial Statements (See Index to Financial Statements filed with this annual report). 2. Exhibits. 3-A. The Prospectus of the Partnership dated August 23, 1985 as supplemented December 9, 1985 and January 10, pursuant to Rules 424 (b) and 424 (c), as filed with the Commission is hereby incorporated herein by reference. Copies of pages 8-12, 61-64 and A-8 to A-12 are hereby incorporated herein by reference to Exhibit 3-A to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-16108) dated March 19, 1993. 3-B. Amended and Restated Agreement of Limited Partnership set forth as Exhibit A to the Prospectus, which agreement is hereby incorporated herein by reference to Exhibit 3-B to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-16108) dated March 19, 1993. 4-A. Mortgage loan agreement between Topanga and Connecticut General Life Insurance Company dated January 31, 1992 relating to Topanga Plaza in Los Angeles, California is hereby incorporated herein by reference to Exhibit 4-A to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-16108) dated March 19, 1993. 4-B. Mortgage loan agreement between First Financial and The Prudential Insurance Company of America dated November 2, 1987 relating to First Financial Plaza in Encino, California is hereby incorporated herein by reference to Exhibit 4-B to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-16108) dated March 19, 1993. 4-C. Mortgage loan modification agreement between Topanga and Connecticut General Life Insurance dated January 31, 1993 relating to Topanga Plaza in Los Angeles, California is hereby incorporated herein by reference to Exhibit 4 of the Partnership's Report on Form 10-Q (File No. 0-16108) dated November 11, 1993. 4-D. Letter of credit agreement between JMB Income Properties, Ltd-XII and Dresdner Bank AG dated November 15, 1994 relating to the letter of credit extension at Plaza Hermosa is filed herewith. 4-E. Mortgage loan agreement, Amended and Restated Deed of Trust, Security Agreement with assignment of Rents and Fixture Filing and Real Estate tax escrow and Security Agreement between San Jose and Connecticut General Life Insurance Co. dated November 30, 1994 is filed herewith. 10-A.Acquisition documents including the venture agreement relating to the purchase by the Partnership of Topanga Plaza in Los Angeles, California, are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-16108) dated December 31, 1985. 10-B.Acquisition documents including the venture agreement relating to the purchase by the Partnership of First Financial Plaza in Encino, California are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-16108) dated June 3, 1987. 10-C.Acquisition documents including the venture agreement relating to the purchase by the Partnership of 40 Broad Street in New York, New York, are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-16108) dated December 31, 1985. 10-D.Sale documents and exhibits thereto relating to the sale of the Partnership's interest in Mid Rivers Mall in St. Peters (St. Louis), Missouri are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-16108) dated February 18, 1992. 21. List of Subsidiaries 24. Powers of Attorney 27. Financial Data Schedule ---------------- Although certain additional long-term debt instruments of the Registrant have been excluded from Exhibit 4 above, pursuant to Rule 601(b)(4)(iii), the Registrant commits to provide copies of such agreements to the Securities and Exchange Commissions upon request. (b) No Reports on Form 8-K were required or filed since the beginning of the last quarter of the period covered by this report. No annual report or proxy material for 1994 has been sent to the Partners of the Partnership. An annual report will be sent to the Partners subsequent to this filing. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JMB INCOME PROPERTIES, LTD. - XII By: JMB Realty Corporation Managing General Partner GAILEN J. HULL By: Gailen J. Hull Senior Vice President Date: March 27, 1995 Pursuant to the requirements of the Securities 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. By: JMB Realty Corporation Managing General Partner JUDD D. MALKIN* By: Judd D. Malkin, Chairman and Director Date: March 27, 1995 NEIL G. BLUHM* By: Neil G. Bluhm, President and Director Date: March 27, 1995 H. RIGEL BARBER* By: H. Rigel Barber, Chief Executive Officer Date: March 27, 1995 GLENN E. EMIG* By: Glenn E. Emig, Chief Operating Officer Date: March 27, 1995 JEFFREY R. ROSENTHAL* By: Jeffrey R. Rosenthal, Chief Financial Officer Principal Financial Officer Date: March 27, 1995 GAILEN J. HULL By: Gailen J. Hull, Senior Vice President Principal Accounting Officer Date: March 27, 1995 A. LEE SACKS* By: A. Lee Sacks, Director Date: March 27, 1995 By: STUART C. NATHAN* Stuart C. Nathan, Executive Vice President and Director Date: March 27, 1995 *By: GAILEN J. HULL, Pursuant to a Power of Attorney GAILEN J. HULL By: Gailen J. Hull, Attorney-in-Fact Date: March 27, 1995 JMB INCOME PROPERTIES, LTD. - XII EXHIBIT INDEX DOCUMENT INCORPORATED BY REFERENCE PAGE ------------- ---- 3-A. Pages 8-12, 61-64 and A-8 to A-12 of the Prospectus of the Partnership dated August 23, 1985, as supple- mented on December 9, 1985 and January 10, 1986 Yes 3-B. Amended and Restated Agreement of Limited Partnership Yes 4-A. Mortgage loan agreement related to Topanga Plaza Yes 4-B. Mortgage loan agreement related to First Financial Plaza Yes 4-C. Mortgage loan modification agreement related to Topanga Plaza Yes 4-D. Letter of credit agreement related to Plaza Hermosa No 4-E. Mortgage loan agreement related to Park Center Plaza No 10-A. Acquisition documents related to Topanga Plaza Yes 10-B. Acquisition documents related to First Financial Plaza Yes 10-C. Acquisition documents related to 40 Broad Street Yes 10-D. Sale documents related to Mid Rivers Mall Yes 21. List of Subsidiaries No 24. Powers of Attorney No 27. Financial Data Schedule No EX-4 2 ================================================================= LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT Dated as of November 15, 1994 By and Between JMB INCOME PROPERTIES, LTD.-XII and DRESDNER BANK AG Relating to $6,400,000 Floating Rate Weekly Demand Refunding Certificates of Participation (Hermosa Beach Parking Facilities Project - 1994 Series) LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT This Letter of Credit and Reimbursement Agreement is entered into as of November 15, 1994, by and between JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership ("Company"), and DRESDNER BANK AG, a German banking corporation acting through its Los Angeles Agency ("Bank"). 1. Definitions And Accounting Terms. 1.1 Defined Terms. As used in this Letter of Credit and Reimbursement Agreement, the following terms shall have the meanings set forth respectively after each: (a) "Agreement" means this Letter of Credit and Reimbursement Agreement, either as originally executed or as it may from time to time be supplemented, modified or amended. (b) "ALTA Policy" means the policy of title insurance covering the Property required pursuant to Section 5.1.6 of this Agreement. (c) "Applicable law," when used in Sections 7.12, 8.4, or 12.5.1(a), shall mean all the statutes, ordinances, regulations and requirements described in Section 12.5.2, together with all common law applicable to any Hazardous Substance. (d) "Applicable Rate" shall have the meaning given to that term in Section 3.3(b). (e) "Assignment of Leases" shall mean that certain Assignment of Rents, Leases, Income and Profits made by Company as of the date hereof. (f) "Authority" means The Parking Authority of the City of Hermosa Beach, a parking authority and public body, corporate and politic, organized and existing pursuant to the laws of the State of California. (g) "Bank Reimbursement Obligations" means, as of any date, all indebtedness and other obligations of Company to Bank and to the other Indemnitees due and owing under any of the Loan Documents (including without limitation Article XII of this Agreement). (h) "Certificate Documents" means all of the instruments, documents and agreements which may be executed from time to time by the Authority, the Trustee and/or Company in connection with the Certificates, including without limitation the following, each of which were executed as of the date hereof, unless otherwise indicated and in each case either as originally executed or as the same may from time to time be supplemented, modified or amended: (1) First Installment Sale Agreement between Company and Authority (the "Amended and Restated First Sale Agreement"); (2) Second Installment Sale Agreement between Authority and Company (the "Amended and Restated Second Sale Agreement"); (3) Trust Agreement among Authority, Trustee and Company (the "Trust Agreement"); (4) Assignment Agreement between Authority and Company; (5) Second Assignment Agreement between Company and Trustee; (6) Assignment of Deed of Trust between Authority and Company; (7) Second Assignment Deed of Trust between Company and Trustee; (8) Certificate Purchase Agreement among Authority, Underwriter and Company (the "Certificate Purchase Agreement"); and (9) Consent between Bank and Trustee with the consent of Authority (the "Consent"). (i) "Certificate Interest Rate" shall have the meaning given to that term in Section 3.2. (j) "Certificate Proceeds" means the proceeds of the Certificates, including without limitation the amounts held from time to time by Trustee in the funds established under Section 3.2 of the Trust Agreement, and any other reserve or other fund, as well as any insurance or condemnation proceeds or other assets held by the Trustee in special funds established pursuant to the Certificate Documents or otherwise. (k) "Certificates" means the $6,400,000 Floating Rate Weekly Demand Refunding Certificates of Participation (Hermosa Beach Parking Facilities Project - 1994 Series) executed and delivered by Trustee pursuant to the Trust Agreement. (l) "Closing Date" means the date the Letter of Credit is initially issued by Bank. (m) "Corporate Base Rate" means the rate of interest announced by the Bank from time to time at its New York Branch as its prime commercial loan rate, which rate shall change as and when such prime commercial loan rate changes. (n) "D Drawing" shall have the meaning given to that term in Section 3.3. (o) "Deed of Trust" means the deed of trust covering the Property required pursuant to Section 4.2(a) of this Agreement, either as originally executed or as it may from time to time be supplemented, modified or amended. (p) "Default Rate" means the Corporate Base Rate plus three percent (3%). (q) "Designated Representative" means a Person authorized by Company, with the approval of Bank, to deliver certificates and other documents and material to Bank pursuant to this Agreement. (r) "Determination of Taxability" shall have the meaning given to that term in Section 8.21. (s) "Event of Default" means each of those events so designated in Article 11 of this Agreement. (t) "Financing Statement" means the UCC-l financing statement required pursuant to Section 4.2(c) of this Agreement, either as originally executed or as it may from time to time be supplemented, modified or amended. (u) "Fiscal Year" means Company's fiscal year, which shall be a calendar year. (v) "General Partner" means JMB Realty Corporation, a Delaware corporation, the managing general partner of Company. (w) "Hazardous Substance" shall have the meaning given to that term in Section 12.5.2. (x) "Improvements" means the improvements constructed on the Property. (y) "Includes" or "including" means, respectively, "includes, without limitation" or "including, without limitation." (z) "Indemnitee" shall have the meaning given to that term in Section 12.5.1. (aa) "Letter of Credit" means the irrevocable letter of credit, in the form attached hereto as Exhibit "A", to be issued by Bank pursuant to this Agreement, either as originally executed or as it may from time to time be supplemented, modified or amended. (bb) "Loan Documents" means, collectively, this Agreement, the Notes, the Security Documents and the Project Consents, in each case either as originally executed or as the same may from time to time be supplemented, modified or amended. (cc) "Notes" means the promissory note or notes required pursuant to Section 4.1 of this Agreement, either as originally executed or as from time to time supplemented, modified or amended. (dd) "Parking Facility" shall mean the 191,000 square foot "Project" as that term is defined in the First Sale Agreement. (ee) "Participation" shall have the meaning given to that term in Section 12.7. (ff) "Payment Due Date" shall have the meaning given to that term in Section 3.2. (gg) "Permitted Encumbrances" shall have the meaning given to that term in Section 5.1.6. (hh) "Person" means any person or entity, whether an individual, trustee, corporation, partnership, trust, unincorporated organization or otherwise. (ii) "Personal Property" means all of Company's right, title, interest in and to all furniture, furnishings, fixtures, machinery, equipment, inventory and personal property of every kind and nature whether tangible or intangible, now or hereafter located at, upon or about the Property, or used or to be used in connection with or relating to or arising with respect to the Property. (jj) "Pledge Agreement" means the Pledge and Security Agreement, dated as of the date hereof, among Company, Bank, Trustee and Paying Agent in the form attached as Exhibit D. (kk) "Pledged Certificate" means any Certificate subject to the Pledge Agreement during the period from and including the date of its purchase with amounts realized under the Letter of Credit to but excluding the date on which such Certificate is purchased by any Person other than Bank and payment therefor is received by Bank or on its behalf. (ll) "Project" means the Property, the Improvements and the Personal Property. (mm) "Project Agreements" means, collectively, the agreements, documents, instruments and materials described in Section 4.5 of this Agreement, either as originally executed or prepared or as any of them may from time to time be supplemented, modified or amended. (nn) Intentionally Omitted. (oo) "Property" means the real property described in Exhibit "C" attached hereto. (pp) "Remarketing Agent" means Merrill Lynch, Pierce, Fenner & Smith Incorporated. (qq) "Retail," when used in Sections 7.12 or 8.4 shall include dry cleaning as currently conducted at the Project. (rr) "Second Reserve Account" shall have the meaning given to that term in Section 10.1. (ss) "Security" shall have the meaning given to that term in Section 12.22. (tt) "Security Agreement" means the security agreement covering the Personal Property required pursuant to Section 4.2(b) of this Agreement, either as originally executed or as it may from time to time be supplemented, modified or amended. (uu) "Security Documents" means, collectively, the Deed of Trust, the Assignment of Leases, the Security Agreement, the Pledge Agreement(s), the Financing Statement, and any other mortgage, deed of trust, security agreement, financing statement or assignment now, heretofore or hereafter executed to secure the Notes or the obligations of Company under this Agreement in each case either as originally executed or as the same may from time to time be supplemented, modified or amended. (vv) "Stated Amount" shall have the meaning given to that term in the Letter of Credit. (ww) "Stated Expiration Date" means December 5, 1997, or such later date to which the Stated Expiration Date may be extended from time to time pursuant to Section 6.5. (xx) "Taxes" shall have the meaning given to that term in Section 6.3. (yy) "Tender Draw" shall have the meaning given to that term in Section 3.3(a). (zz) "Tender Due Date" shall have the meaning given to that term in Section 3.3(a). (aaa)"Termination Notice" shall have the meaning given to that term in Section 11.2(c). (bbb)"Trustee" means First Trust of California, National Association, or its successors as trustee of any of the trusts established under the Trust Agreement. 1.2 Use of Defined Terms. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any number of the members of the relevant class. Terms not otherwise defined in this Agreement shall have the meanings given to them in the Trust Agreement. Unless otherwise provided, defined terms for agreements and documents shall include all amendments and supplements to those agreements and documents, respectively, hereafter entered into. All times used in this Agreement shall refer to New York, New York time unless otherwise stated. 1.3 Accounting Terms. All accounting terms not specifically defined in this Agreement shall be construed in conformity with, and all financial data required to be submitted by this Agreement shall be prepared in conformity with, generally accepted accounting principles applied on a consistent basis. 1.4 Exhibits. All Exhibits to this Agreement, either as now existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. 1.5 Sections. Unless otherwise provided, the term "Section" or subsection refers to a section or subsection of this Agreement. 2. Certificates; Letter of Credit. 2.1 Certificates. Company entered into the Certificate Documents in order to cause the issuance of the Certificates, and the Certificate Proceeds were used to finance the refunding of the Prior Certificates. The Prior Certificates were used to finance (a) the acquisition of the portion of the Property upon which the Parking Facility was constructed, and (b) the construction thereon of the Parking Facility. 2.2 Letter of Credit. In order to enhance the marketability of the Certificates, Company has requested Bank to issue the Letter of Credit in an aggregate amount not exceeding $6,479,957.00, of which an amount not exceeding $6,400,000.00 shall be available to pay the principal amount or purchase price of the Certificates, and an amount not exceeding $79,957.00 shall be available in accordance with the terms of the Letter of Credit to pay for interest accrued on the Certificates. Bank is willing to issue the Letter of Credit on the terms and conditions contained in this Agreement and the other Loan Documents. 3. Reimbursement of Draws. 3.1 Immediate Reimbursement for Certain Draws. Company agrees to reimburse Bank immediately, or cause Bank to be reimbursed immediately, for the amount of (a) any draft drawn under the Letter of Credit other than under Section 3.3 hereof on the date of such drawing, and (b) notwithstanding any terms hereof to the contrary, all drafts drawn under the Letter of Credit for whatever purpose on the occurrence of an Event of Default. Each amount for which Company has agreed to reimburse Bank pursuant to this Section 3.1 shall bear interest until paid, from the date on which Bank honors a drawing under the Letter of Credit in such amount at a rate per annum equal to the Default Rate, as it may change from time to time. Interest at the Default Rate shall be paid on demand and, if any such interest is then due, on the Expiration Date. 3.2 Payment of Scheduled Reimbursement Obligations. (a) Company agrees to pay to Bank, one (1) Business Day prior to the scheduled date of maturity or redemption of all or a part of the Certificates an amount equal to the sum of the drawing fee plus any and all principal amounts to be drawn under the Letter of Credit upon such maturity or redemption of the Certificates, together with unpaid interest thereon accrued to such maturity or redemption at the applicable interest rate on the Certificates under the Certificate Documents ("the Certificate Interest Rate"). (b) Company agrees to pay to Bank, monthly on each Interest Payment Date (a "Payment Due Date"), an amount equal to the sum of the drawing fee required under Section 6.2(c) plus the interest accrued from the date of the last payment to such Interest Payment Date on any and all principal amounts remaining unpaid under the Certificates. Such interest shall be paid at the Certificate Interest Rate, in effect from time to time, in consecutive monthly installments to and including the date on which all of the unpaid principal amount of the Certificates shall be paid in full. Except as otherwise provided in this Agreement, all computations of interest shall be made on the basis provided therefor in the Trust Agreement. Absent manifest error, or notice from Bank, the determination by the Remarketing Agent of the Certificate Interest Rate in effect from time to time under the Trust Agreement shall constitute notice to Company by Bank of the Certificate Interest Rate applicable hereunder in computing the payments to be made on the Payment Due Dates. Changes in the Certificate Interest Rate shall be made on the effective date of each change thereof and shall remain in effect until changed in accordance with the provisions of the Trust Agreement; provided however that if Company underpays or overpays the amount actually drawn under the Letter of Credit, there shall be a reconciliation pursuant to which (x) in the event the Company underpays the amount of a draw made on an Interest Payment Date, Company shall pay to Bank, without notice and on the Business Day next following such Interest Payment Date, the amount underpaid, or (y) in the event Company overpays the amount of a draw made on an Interest Payment Date, Bank shall pay to Company, without notice from Company and on the Business Day next following such Interest Payment Date, the excess of the amount overpaid over any costs, fees or other amounts due and owing hereunder to Bank from the Company. 3.3 Reimbursement for Tender Draws. (a) Company further agrees to reimburse Bank, or cause Bank to be reimbursed on or before the Tender Due Date for the amount of any "D Drawing" under, and as defined in, the Letter of Credit for payment of the principal amount of the purchase price of Certificates tendered pursuant to an optional tender under Section 13.2 of the Trust Agreement (a "Tender Draw"). The "Tender Due Date" for each Tender Draw shall be the first to occur of (i) the Expiration Date, (ii) the occurrence of an Event of Default, (iii) the day on which the related Pledged Certificates are (A) redeemed, or (B) purchased by any Person other than Company and payment therefor is received by Bank or on its behalf, or (iv) the day which is one hundred and eighty (180) days following the date such Tender Draw is honored by Bank. (b) In addition to any interest to be paid to Bank under the Pledge Agreement as the beneficial owner of the Pledged Certificates, Company shall also pay to Bank, from the date on which Bank honors a Tender Draw until such draw is repaid in full, an amount equal to the difference between (i) the interest on the then outstanding principal balance of such Tender Draw calculated at a rate per annum equal to the Applicable Rates and (ii) the interest payments actually received by Bank with respect to the Pledged Certificates, if any. Interest pursuant to clause (i) of this subsection shall be calculated on the basis of the actual number of days elapsed since the purchase of the Certificates and their pledge to Bank, or the last payment date, as applicable. The "Applicable Rate" shall be a rate per annum equal to: (x) prior to the occurrence of an Event of Default hereunder, the Corporate Base Rate plus one and one half percent (1.5%), and (y) following the occurrence of an Event of Default hereunder, or Company's failure to pay any amount of principal or interest owing under the Notes or any other Bank Reimbursement Obligations on the date due, the Default Rate, in either case, as such interest rate may change from time to time. The amounts due under this Section 3.3(b) shall be paid, prior to the occurrence of an Event of Default, monthly in arrears on the first day of each month and upon reimbursement of the respective Tender Draw or on the Tender Due Date (as applicable), and, following the occurrence of an Event of Default, on demand and on the Tender Due Date if not already paid. (c) Proceeds from the remarketing of Pledged Certificates shall be paid to Bank, and, when received by Bank, shall be applied first to the payment of principal due under this Section, and any balance may be applied by Bank to the payment of any other Bank Reimbursement Obligations, including interest due hereunder, then due and payable hereunder (in such order of priority as determined by Bank in its sole and absolute discretion); provided however, that the receipt and application by Bank of any such proceeds following the occurrence of any Event of Default hereunder shall not be deemed to cure any defaults unless otherwise expressly provided in this Agreement. Any unpaid interest due under Section 3.3(b) with respect to such remarketed Pledged Certificates shall be due and payable by Company immediately upon such remarketing; provided however, that any amount paid by the buyers of such remarketed Pledged Certificates on account of interest shall be credited when received by Bank against the interest owed hereunder by Company. (d) Any reimbursement of principal prior to the Tender Due Date by Company to Bank may be made by Company at its election without penalty and shall be (i) made upon at least two (2) Business Days' notice from Company to Bank, followed by payment of the principal amount to be so reimbursed together with accrued interest on such amount to the date of reimbursement, (ii) applied in the manner provided in Section 3.3(c), and (iii) in principal components equal to Authorized Denominations. 3.4 Making of Payments. All payments to Bank shall be made in immediately available funds of the United States of America by wire transfer as follows (or to such other office of Bank located in the United States of America as Bank may designate in writing from time to time): Payment to: Chase Manhattan Bank, New York ABA#: 021-000-021 For Account of:Dresdner Bank New York Account Number:920-1-059079 For further Credit to:Dresdner Bank Los Angeles, Account No. 4100669/15 Ref: Plaza Hermosa Letter of Credit #875-94 not later than 2:00 p.m. on the date due; and funds received after that hour shall be deemed to have been received by Bank on the next following Business Day. If the date for making any payment or the last date for performance of any act or the exercising of any right provided in this Agreement is not a Business Day, such payment shall be made or act performed or right exercised on the next succeeding Business Day with the same force and effect as if done on the date provided therefor in this Agreement, and appropriate additional interest or fees shall accrue and be payable for the period of such extension. 3.5 Calculation and Payment of Interest. A determination of the Corporate Base Rate and the Default Rate from time to time in effect under this Agreement shall be made on the effective date of each change in the Corporate Base Rate and shall remain in effect until the effective date of the next determination, and all interest calculated under this Agreement shall be on the basis of a year of 365/366 days for actual days elapsed. 4. Loan Documents. 4.1 Notes. The obligation of Company to make payment to Bank of its obligations pursuant to this Agreement and the other Loan Documents shall be evidenced by one or more promissory notes of Company which shall be executed by Company and delivered by Company to Bank in such form and content, and at such times, as Bank may from time to time require by notice to Company. The promissory note to be executed by Company and delivered pursuant to Section 5.1.1(a), shall be in the form attached hereto as Exhibit "B". Such promissory note(s), together with any and all other promissory notes required by Bank pursuant to this Section 4.1 shall be modified or amended by Company from time to time as required by Bank in order to more accurately evidence the obligation of Company to Bank hereunder. Without limitation upon the generality of the foregoing, in the event that the obligations of Company under this Agreement or any of the other Loan Documents exceeds or may exceed the face amount of the promissory note delivered pursuant to Section 5.1.1(a), Company shall execute and deliver to Bank, at Bank's request, an additional note or notes in substitution for, or in addition to, the promissory note delivered pursuant to Section 5.1.1(a). The interest rate under any such promissory notes or amendments thereto shall be consistent with the interest rate provided herein. All of the promissory notes required pursuant to this Section 4.1 are referred to collectively in this Agreement as the "Notes." All such notes or amendments shall be secured by the Security Documents without preference or priority over the security granted to Trustee pursuant to the Security Documents. Upon demand by Bank, Company shall execute, acknowledge and deliver to Bank and the Trustee such amendments of the Security Documents as may be required by Bank in order to reflect any such amendments of, or substitutions for, the Notes, and shall obtain and deliver to Bank and the Trustee such endorsements and binders to the ALTA Policy as Bank may from time to time reasonably require to protect the lien of the Deed of Trust. 4.2 Security Documents. In consideration of Bank's entry into this Agreement and the other Loan Documents, and as security for the prompt payment when due of all sums of principal and interest advanced by Bank pursuant to the Letter of Credit as well as for payment of any other sums owing pursuant to this Agreement, the Notes or any of the other Loan Documents and for payment of the principal of, premium (if any) and interest on the Certificates, together with any and all extensions, renewals, modifications and amendments thereof and as security for the performance and observance of all of the covenants, agreements and conditions contained in the Letter of Credit, this Agreement and all of the other Loan Documents, Company shall, at its sole expense, deliver or cause to be delivered as directed by Bank, and record or cause to be recorded, if appropriate, the following documents, each of which shall be in such form and content, and executed by such persons and/or entities, as Bank and Trustee shall reasonably require so as to be valid and binding documents, and all of which are included within the col- lective reference to Security Documents: (a) A deed of trust covering the fee interest of Company in the Property (the "Deed of Trust"), together with the Assignment of Leases. (b) A security agreement covering the Personal Property and a pledge agreement pledging to Bank the interest of Company in Certificates tendered and not remarketed pursuant to the Trust Agreement (collectively, the "Security Agreement"). (c) A financing statement covering the Personal Property (the "Financing Statement"). The obligations of Company under this Agreement and all of the other Loan Documents are and shall be secured by the Security Documents without preference or priority over the security granted to the Trustee pursuant to the terms of the Security Documents, subject however to the Consent. 4.3 Intentionally Omitted. 4.4 Other Documents and Actions. Company agrees to execute, acknowledge and/or deliver or cause to be executed, acknowledged and/or delivered to Bank such other instruments, agreements and other documents, and to take such actions, upon request by Bank, as Bank may reasonably request in order to carry out the purposes of this Agreement and the other Loan Documents and the transactions contemplated thereby and to protect and/or further the validity, priority and/or enforceability of the Security Documents or subject to the Security Documents any property, together with any renewals, additions, substitutions, replacements or betterments thereto, intended by the terms of this Agreement or the other Loan Documents to be covered by the Security Documents. 4.5 Assignment of Project Agreements. Company hereby transfers and assigns to Bank all of Company's right, title and interest, if any, in and to all agreements, documents, instruments and materials of whatever nature now or hereafter existing which relate to development of the Project, other than the Certificate Documents (collectively, the "Project Agreements"), including without limitation (i) such plans and specifications concerning the Project now or hereafter existing, and (ii) any and all contracts or agreements with any contractor, any architect, any engineer, and any subcontractor, laborer or supplier of materials or services. The remainder of this paragraph shall apply only to improvements, which individually or in the aggregate, exceed $250,000. Company represents and warrants that it is the true owner of the Project Agreements, that it has not assigned or granted a security interest in any of the Project Agreements to any person other than Bank, and that its interest in the Project Agreements, and each of them, is not subject to any claim, setoff or deduction. Notwithstanding such assignment, Company shall retain the benefit of, and the right to possession and control of, all of the Project Agreements unless and until there is a default under any of the Loan Documents which is not cured by Company after the giving of any required notice or the expiration of any required cure period. Such assignment shall become void and of no further force or effect upon payment in full of the indebtedness secured by the Security Documents and faithful performance by Company of all obligations the performance of which is secured thereby. Company hereby agrees to faithfully perform any and all obligations it may have under the Project Agreements, and not to amend in a material manner or terminate (except as expressly provided in this Agreement), whether or not such termination is for cause, any of the Project Agreements without the express prior written consent of Bank (not to be unreasonably withheld or delayed), until such indebtedness has been paid in full and such obligations have been performed. Bank shall not be obligated to perform or discharge any obligation of Company under the Project Agreements, but may at its option do so at Company's expense in the event that Company should fail to do so as herein provided. Company hereby irrevocably constitutes and appoints Bank to act as its attorney in fact after the occurrence of an Event of Default to enforce in Company's name or in Bank's name all of Company's rights under the Project Agreements, and hereby agrees to deliver to Bank, upon Bank's written demand following any default under the Loan Documents, all of the Project Agreements and such other instruments and documents as Bank may reasonably require in order to permit Bank's succession to the right, title and interest of Company in and to the Project Agreements. Bank shall incur no liability in connection with any actions it takes in connection with such enforcement, provided that such actions are taken in good faith and do not constitute gross negligence or willful misconduct. The Trustee shall have rights pari passu with Bank in the assignments made pursuant to this Section 4.5 for so long as the Trustee has an interest under the Security Documents, subject however to the Consent. 4.6 Evidence of Debt. Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of Company resulting from each drawing under the Letter of Credit. The failure to make any such notation shall not, however, impair Company's obligations hereunder. In any legal action or proceeding in respect of this Agreement or the Note, the entries made in such account or accounts shall, in the absence of manifest error, be conclusive evidence of the existence and amounts of the obligations of the Company therein recorded. 5. Conditions to Issuance. 5.1 Conditions to Issuance. The obligation of Bank to issue the Letter of Credit is subject to the following conditions precedent: 5.1.1 Bank shall have received all of the following, each of which shall be in form and substance satisfactory to Bank: (a) the original promissory note to be delivered pursuant to Section 4.1; (b) a copy of the partnership agreement and certificate of limited partnership of Company, and copies of any and all amendments to such documents, all certified as true and correct by General Partner; (c) all of the opinions, certificates, letters and other documents specified in, or requested by Underwriter, Remarketing Agent or Bank pursuant to Section 4 of the Certificate Purchase Agreement; (d) a written opinion of Company's counsel, in form and substance satisfactory to Bank, covering such matters relating to Company and the Loan Documents as may be required by Bank; (e) the certificate required pursuant to Section 7.2.1; and (f) such other documents and evidence determined in Bank's discretion, including without limitation those items identified on the Closing Checklist dated September 20, 1994, as revised, but excluding the "Soil Report" and the "ACM Report" therefrom. 5.1.2Bank shall have received confirmation to its satisfaction that the Security Agreement has been duly executed, acknowledged and delivered to Authority and duly assigned to Trustee. 5.1.3Bank shall have received, in form and substance satisfactory to Bank, the Certificate Documents required for the transaction contemplated hereby, and such certificates, documents, consents or opinions as Bank may reasonably request in connection therewith (including without limitation an opinion of counsel to the Authority). 5.1.4Bank shall have received, in form and substance satisfactory to Bank, such certificates, documents, consents or opinions as Bank may reasonably request (including without limitation a certificate of compliance with governmental and quasi-governmental requirements. 5.1.5The Deed of Trust shall have been recorded in the Official Records of Los Angeles County, California, and the beneficial interest of Authority thereunder shall have been assigned by a recorded document to Trustee, such beneficial interest of Trustee to be held jointly and concurrently with Bank. 5.1.6Company shall, at its sole expense, have delivered or caused to be delivered to Bank and Trustee duplicate originals of an ALTA form extended coverage lender's policy of title insurance (the "ALTA Policy"), or evidence of a commitment therefor satisfactory to Bank, in form and substance and issued by First American Title Company of Los Angeles, together with such endorsements and binders thereto as may from time to time be required by Bank, naming Bank and Trustee as insured, in a policy amount of not less than $6,479,957.00, insuring the Deed of Trust to be a valid first lien upon the Property, and showing the Property to be owned by Company in fee simple, subject only to the Deed of Trust and the permitted title exceptions listed on Exhibit "E" attached hereto (the "Permitted Encumbrances"). 5.1.7Company shall deliver or cause to be delivered to Bank a copy of the ALTA survey prepared in connection with issuance of the ALTA Policy, which survey shall be satisfactory to Bank and shall (i) show compliance of the Project with any and all "setbacks" and other restrictions applicable to the Property pursuant to the requirements of any governmental agencies or any applicable covenants, conditions or other private restrictions, (ii) show all easements, licenses and other rights of way, (iii) show no encroachments onto the Property or from the Property onto adjoining property (except as permitted by the reciprocal easement agreement approved by Bank for the Project), and (iv) certify the legal description of the Property as insured in the ALTA Policy. 5.1.8The Financing Statement shall have been filed with the California Secretary of State, and Bank shall have received a certificate of the California Secretary of State, in form and substance satisfactory to Bank, showing the Financing Statement to be subject to no prior filings. 6. Reimbursement and Other Payments; Extension. 6.1 Reimbursement. Company hereby agrees to pay to Bank, in cash or by such other means as may be satisfactory to Bank in its sole discretion, the following: (a) all reasonable actual out-of-pocket amounts expended, advanced or incurred by Bank in connection with any obligation of Company under this Agreement or any of the Loan Documents or to collect the Notes or to enforce the rights of Bank under this Agreement or any other Loan Document (including without limitation any costs incurred by Bank in connection with any insolvency or bankruptcy proceeding affecting Company or any other Person involved in the Project), which amounts will include all actual out-of-pocket court costs, reasonable attorneys' fees, fees of auditors and accountants and investigation expenses reasonably incurred by Bank in connection with any such matters, of which $30,000 has been paid to Bank prior to the date hereof; (b) interest on any and all amounts remaining unpaid by Company when due under this Agreement or any of the Loan Documents at any time from the date such amounts become due at the interest rate provided herein; (c) the entire amount of any and all funds disbursed by Bank under the Letter of Credit; and (d) all other amounts owing to Bank by Company under this Agreement or any of the other Loan Documents. Except as otherwise provided herein, all sums owing hereunder shall be deemed to be evidenced by the Notes, and shall be payable with interest from the date due at the Corporate Base Rate. After the occurrence of an Event of Default or Company's failure to pay any amount of principal or interest owing under the Notes or any other Bank Reimbursement Obligations on the date due, all sums owing hereunder or under the Notes shall be payable with interest at the Default Rate. 6.2 Fees. Company hereby agrees to pay to Bank, in cash or by such other means as may be satisfactory to Bank in its sole discretion, amounts as follows: (a) on or before the Closing Date (i) as an origination fee for the Letter of Credit, an amount equal to one percent (1%) of the Stated Amount; (ii) as a fee for the Letter of Credit for the period commencing on its issuance and ending on December 31, 1994, an amount equal to the pro rata portion of the fee required under subsection (b) hereof based on the Stated Amount for the actual number of days in such period; and (iii) all reasonable attorneys' fees, appraisal fees and out-of-pocket expenses incurred by Bank in connection with the negotiation, preparation and execution of this Agreement, the Letter of Credit and any and all of the other Loan Documents and the transactions contemplated thereby (including any amendments hereto or thereto or consents or waivers hereunder or thereunder), and all fees, charges or taxes for the recording or filing of Security Documents; for each quarter that the Letter of Credit remains in effect until the expiration of its term, Company will pay to Bank, in advance, on or before the first Business Day of every January, April, July and October, an amount equal to thirty seven and one-half/one hundredths of a percent (.375%) of the undrawn amount available to be drawn under the Letter of Credit as of the preceding day (which amount will take into account principal reductions of the Certificates); provided however that such fee shall be prorated (i) to and including the date on which the Letter of Credit is cancelled by Bank and the Letter of Credit is surrendered by Trustee for cancellation, and (ii) to and including the Expiration Date, as appropriate; and that in no event shall Bank have any obligation to make reimbursement or to otherwise account to Company in respect of fees paid by Company as a result of any reduction in the undrawn amount under the Letter of Credit; (c) a drawing fee of $250 each time there is a draw on the Letter of Credit, regardless of the amount of such draw, a transfer fee of $1,000 upon the transfer of the Letter of Credit to a successor Trustee under the Trust Agreement, and an amendment fee of $250 for each amendment to the Letter of Credit; and (d) an extension fee equal to twenty-five/one hundredths of a percent (.25%) of the Stated Amount if Bank agrees to the extension provided in Section 6.5(a). 6.3 Increased Costs. 6.3.1Due to Change in Law. If any change in any law or regulation or in the interpretation thereof by any court or administrative agency shall either (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against letters of credit issued by Bank, or (ii) impose on Bank any other condition regarding this Agreement or the Letter of Credit (other than changes in the rates of income taxation generally applicable to Bank), and the result of any such event shall be to increase the cost to Bank of issuing or maintaining the Letter of Credit (which increase in cost shall be determined by Bank's reasonable allocation of the aggregate of such cost increases resulting from such events), and such requirement or cost shall remain in effect after notice thereof from Bank to Company, then (a) Bank shall so notify Company, and (b) upon receipt of such notice from Bank, Company shall promptly pay to Bank, from time to time as specified by Bank, additional amounts which shall be sufficient to compensate Bank for such increased costs, together with interest on each such amount from the date of such notice until payment in full thereof at the rate contained in the Notes. A certificate as to such increased cost incurred by Bank as a result of any such event, submitted by Bank to Company, shall be conclusive as to the amount thereof. 6.3.2Taxes on Payments. (a) All payments made by Company under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present and future income, stamp or other taxes, levies, imposts, deductions, charges or withholdings imposed, assessed, levied or collected by any country or any political subdivision or taxing authority thereof or therein,but excluding (i) taxes, levies, imposts, deductions, charges or withholdings imposed on the net income of Bank, or (ii) any taxes imposed on Bank by (A) the country under the laws of which Bank is organized or managed and controlled, (B) any country in which Bank is subject to tax as a result of transactions or activities unrelated to those contemplated by this Agreement or any of the other Loan Documents or Certificate Documents, or (C) any political subdivision or taxing authority of or in any such country (all non-excluded taxes, levies, imposts, deduction, charges or withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any amounts payable to Bank hereunder, the amounts so payable to Bank shall be increased to the extent necessary to yield to Bank (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement. Whenever any Taxes are paid by Company, as promptly as possible thereafter, Company shall send to Bank a certified copy of any original official receipt(s) received by Company showing payment thereof. If Company fails to pay any Taxes when due to the appropriate taxing authority, Company shall indemnify Bank for any incremental taxes, interest or penalties that may become payable by Bank as a result of any such failure. (b) Notwithstanding Section 6.3.2, Company shall have no liability under this Section 6.3.2 to any person or entity which is a transferee of an interest of Bank in this Agreement or in any other Loan Document for any Taxes or any additional amounts payable pursuant to the second sentence of Section 6.3.2, to the extent such Taxes or additional amounts exceed the Taxes or additional amounts which would have been payable had such interest not been transferred to a person or entity which is not a "United States person" within the meaning of Section 7701(a)(30) of the Internal Revenue Code of 1986, as presently in effect. (c) If any claim shall be made against Bank for any Taxes for which Company may be liable under this Section 6.3.2, Bank shall notify Company of such claim (such notice to set forth in reasonable detail the particulars of such claim) and shall consult in good faith with Company as to whether such claim should be contested and the manner in which any such contest will be conducted; provided however, that the failure of Bank to provide such notice shall not relieve Company of its obligations, and provided further, that Bank shall be under no obligation to disclose to Company any tax returns of Bank or any other related confidential information. 6.4 Obligations Absolute. Subject to the non-recourse provisions contained in Section 12.22, the obligations of Company under this Agreement and the Notes shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and the Notes, under all circumstances whatsoever, including, without limitation, the following circumstances: (a) any lack of validity or enforceability of the Letter of Credit, or any of the Loan Documents or the Certificate Documents or any other agreement or instrument related thereto; (b) any amendment or waiver of or any consent to departure from the terms of the Letter of Credit or any of the Loan Documents or the Certificate Documents or any other agreement or instrument related thereto; (c) the existence of any claim, set-off, defense or other right which Company or Authority may have at any time against Trustee, any beneficiary or any transferee of the Letter of Credit (or any Person for whom Trustee, any such beneficiary or any such transferee may be acting), Bank or any other Person, whether in connection with this Agreement, the Letter of Credit, any of the other Loan Documents, the Certificates or any other agreement or instrument related thereto, or in connection with the Project or any unrelated transaction; (d) any statement, draft or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever (except to the extent Bank is grossly negligent or acts with willful misconduct in accepting or relying upon any such statement, draft or other document); (e) the surrender or impairment of any security for the performance or observance of the terms of this Agreement, any of the other Loan Documents or any other agreement related thereto; or (f) any other circumstance, happening or omission whatsoever, whether or not similar to any of the foregoing. 6.5 Term of the Letter of Credit. (a) The initial term of the Letter of Credit and the Notes shall be extended by two (2) years if Bank, in its sole and absolute discretion following the request of Company delivered to Bank, agrees to such extension and notifies Authority, Company, and Trustee in writing on or before November 30, 1996 that the Letter of Credit and the Notes will be so extended. In the event of such an extension, Bank shall extend the term of the Letter of Credit by delivering to Trustee and Company the Extension Certificate substantially in the form of Exhibit M to the Letter of Credit and, if required by Bank, Company shall cause a replacement Note or Notes reflecting the extended term to be delivered to Bank. (b) The Letter of Credit shall expire at 4 p.m. on the earliest to occur of: (i) the Stated Expiration Date, unless the Stated Expiration Date has been extended pursuant to subsection (a) hereof; (ii) the date specified in the Termination Notice; (iii) the date on which all Certificates are paid in full and the Trust Agreement is discharged in accordance with its terms; (iv) the date on which the Certificates become secured by an Alternate Credit Facility; or (v) five (5) days after the Conversion Date. The foregoing shall be interpreted in accordance with Section X of the Letter of Credit and shall be referred to as the "Expiration Date." 6.6 Additional Terms. The Letter of Credit is incorporated as if set forth fully herein. Without limitation, no draws under the Letter of Credit shall be honored for the payment of any premiums of any kind arising under the Certificates. Bank may grant or withhold consents provided in the Letter of Credit in its sole and absolute discretion. 7. Representations and Warranties by Company. As a material inducement to Bank's entry into this Agreement and the transactions contemplated hereby, Company represents and warrants and agrees to Bank that: 7.1 Formation of Company. Company (a) is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Illinois, (b) has all requisite power and authority to conduct its business and to own and lease its properties, (c) is duly qualified to do business in, and is in good standing in, every jurisdiction in which the nature of business conducted by it makes such qualification necessary or where failure to so qualify would have a material and adverse effect on its business or financial condition or Company's ability to perform its obligations under this Agreement or on any Loan or Certificate Document, and (d) is governed by the Amended and Restated Agreement of Limited Partnership dated August 22, 1985 as amended on December 31, 1991, true and correct copies of which have been delivered to Bank. 7.2 Execution, Delivery and Performance of Loan Documents and Certificate Documents. 7.2.1Company has all requisite power and authority to execute and deliver, and to perform all of its obligations under, the Loan Documents and the Certificate Documents, and shall execute and deliver to Bank, prior to the issuance of the Letter of Credit and as a condition thereto, the partnership authorization of Company and the corporate resolution of General Partner evidencing the due authorization and consent of the partners in Company to the execution of the Loan Documents and Certificate Documents and the entry by Company into the transaction contemplated thereby. 7.2.2The execution and delivery by Company of, and the performance by Company of all of its obligations under, each Loan Document and Certificate Document have been duly authorized by all necessary action and do not and will not: (a) require any consent or approval not heretofore obtained of any Person having any interest in Company; (b) violate any provision of, or require any consent under the partnership agreement of Company; (c) result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, claim, charge, right of others, or other encumbrance of any nature (other than as contemplated under the Loan Documents and the Certificate Documents) upon or with respect to any property now owned or leased or hereafter acquired by Company; (d) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Company known to Company after reasonable inquiry; or (e) result in a breach of or constitute a default under, or cause or permit the acceleration of any obligation owed under, any indenture or loan or credit agreement or any other agreement, lease, or instrument concerning the Project to which Company is a party or by which the Project is bound or affected. 7.2.3At the time of execution of this Agreement, Company is not in default in any material respect: (a) under its partnership agreement; or (b) that is adverse to the interests of the holders of the Loan Documents or the Certificate Documents or that would have any material and adverse effect on the Company's ability to perform its obligations under this Agreement or on any Loan or Certificate Document under any law, rule, regulation, order, writ, judgment, injunction, decree, determination, award, indenture, agreement, lease or instrument described in Section 7.2.2(d) or (e). 7.2.4 No material authorization, consent, approval, order, license, exemption from, or filing or registration or qualification with, any court or governmental department, public body, authority, commission, board, bureau, agency, or instrumentality, is or will be required to authorize, or is otherwise required in connection with the following: (a) the execution and delivery by Company of, and the performance by Company of all of its obligations under, the Loan Documents and the Certificate Documents, or (b) the creation of the liens, security interests, or other charges or encumbrances described in the Loan Documents and the Certificate Documents. 7.2.5General Partner or the Designated Representatives are fully authorized to execute the Loan Documents and the Certificate Documents. 7.2.6Each of the Loan Documents and the Certificate Documents, when executed and delivered, will constitute the legal, valid, and binding obligations of Company (to the extent Company is a party thereto or obligated thereunder), enforceable against Company in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or limiting creditors' rights generally. Financial Statements. The financial statements and reports submitted by Company to Bank reflect the financial position of the parties to which they relate as of the date thereof. 7.4 No Material Adverse Change. As of the date hereof, there has been no change in the condition, financial or otherwise, of the parties to which the financial statements described in Section 7.3 relate, since their respective dates, which would materially adversely affect Company's ability to perform its obligations under this Agreement or any other Loan or Certificate Document. 7.5 Tax Liability. Company has filed all tax returns (federal, state and local) required to be filed and has paid all taxes shown thereon to be due and all property taxes due, including interest and penalties, if any; provided, however, that Company shall not be required to pay and discharge any such tax so long as the legality thereof shall be promptly and actively contested in good faith and by appropriate proceedings and shall be disclosed in writing to Bank. 7.6 Compliance with Laws. Company is and shall remain in compliance in all material respects with all laws, regulations and requirements applicable to the Project (including without limitations respecting Hazardous Substances) and has obtained all authorizations, consents, approvals, orders, licenses, exemptions from, and has accomplished all filings or registrations or qualifications with, any court or governmental department, public body, authority, commission, board, bureau, agency or instrumentality, that is necessary for the transaction of its business with respect to the Project. 7.7 Completion. The improvements and all related aspects of the Project have been completed, in all material respects, in accordance with all applicable permits, laws, ordinances, regulations and other requirements of all governmental and quasi-governmental authorities and public utility companies (including without limitations respecting Hazardous Substances); all work requiring inspection or certification by municipal or other governmental authorities has been completed and all requisite certificates and other necessary approvals (including without limitation any required certificates of occupancy and any of the foregoing respecting Hazardous Substances) have been duly issued and remain in full force and effect, and streets and offsite utilities have been installed and completed to the satisfaction of said authorities. 7.8 Litigation. There are no actions, suits or proceedings pending or, to the best of Company's knowledge after reasonable inquiry, threatened against or affecting the Company, the General Partner, or the Project before any court or governmental department, public body, authority, commission, board, bureau, agency or instrumentality, which would materially and adversely affect (a) the transactions contemplated by or the validity or enforceability of this Agreement, the Certificate Documents, the Loan Documents or any agreement or instrument in connection therewith to which the Company is a party or by which it is bound, (b) the Company's ability to perform its obligations under this Agreement, the Loan Documents or the Certificate Documents or (c) the exemption from federal income taxation of interest paid on the Certificates, except as expressly disclosed to Bank in writing by Company prior to the execution of this Agreement and listed on a schedule to this Agreement. 7.9 Intentionally Omitted. 7.10 Official Statement. Neither the Official Statement nor the Preliminary Official Statement provided in connection with the issuance, remarketing or refunding of the Certificates or issuance of the Letter of Credit under the captions "The Project and the Shopping Center" or "The Company", nor any certificate or statement or any data furnished in writing by Company to Bank or to Trustee or any other person or entity in connection with the negotiation of this Agreement or any of the other Loan Documents or the Certificate Documents or the transactions contemplated thereby (other than statements contained in the Preliminary Official Statement which were revised or corrected in the Official Statement) contains as of the date of the making or furnishing of the same any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. 7.11 Compliance with Requirements. Company has obtained and examined all conditions, covenants, restrictions, easements, reservations, rights, and rights of way of record, and the Project does not materially violate any of the same nor any applicable laws, ordinances, regulations, use permits, occupancy permits, building permits and other requirements affecting or relating to the Property or the Project. 7.12 No Hazardous Substance. Except as may be identified in the Phase I Environmental Site Assessment Report prepared by Fugro-McClelland (West), Inc. and the Phase II Site Assessment Report prepared by Fugro West, Inc. dated November, 1993 and August, 1994, respectively, each of which have been provided to Bank, as of the date of this Agreement: (a) neither Company, nor any of its affiliates, has ever caused or permitted any Hazardous Substance to be placed, held, located or disposed of on, under or at the Project or any part thereof, or used the Project permanently or temporarily as a dump site or storage site for any Hazardous Substance in violation of applicable law, (b) to the Company's actual knowledge, no other person or entity has ever caused or permitted any Hazardous Substance to be placed, held, located or disposed of on, under or at the Project, or any part thereof, or used the Project permanently or temporarily as a dump site or storage site for any Hazardous Substances, except as to clauses (a) and (b), for commercially reasonable quantities of standard supplies for ordinary office, retail, janitorial and maintenance purposes in compliance with applicable laws, and (c) to the best of Company's knowledge after reasonable inquiry, the Project is in compliance with all applicable law, and with all provisions of any leases, relating in any way to Hazardous Substances. To the greatest extent permitted by law, the representations and warranties in this subsection shall survive in perpetuity for the benefit of Bank and all the other Indemnitees, notwithstanding the payment in full or the performance of all other obligations under this Agreement. 8. Affirmative Covenants. For the term provided in Section 12.12, Company shall unless Bank otherwise consents in writing: 8.1 Protection of Lien on Property. Maintain the lien created by the Deed of Trust as a first lien upon the Project and the Property and take such actions and execute and deliver to Bank such instruments and documents as Bank may reasonably require from time to time in connection therewith. 8.2 Protection of Security Interest in Personal Property. Maintain the lien created by the Security Agreement as a first lien upon the Personal Property, and take such actions and execute and deliver to Bank and Trustee such instruments and documents as Bank may reasonably require from time to time in connection therewith, including without limitation any supplemental security agreements, form UCC-1 or UCC-2 financing statements or other instruments and documents extending or perfecting the security interest of Bank and Trustee in and to the Personal Property as it may exist from time to time. 8.3 Payment of Taxes, Assessments and Charges. Pay all taxes, assessments, charges and levies imposed by any public authority or utility company which are or may become a lien affecting the Property or any part thereof, including without limitation assessments on any appurtenant water stock; provided, however, that Company shall not be required to pay and discharge any such tax, assessment, charge or levy so long as (a) the legality thereof shall be promptly and actively contested in good faith and by appropriate proceedings disclosed in writing to Bank, and (b) at Bank's reasonable request, Company posts reasonable security therefor. 8.4 Hazardous Substance. (a) Keep, and use its reasonable efforts to cause all tenants to keep, the Project free of any potentially harmful Hazardous Substance contamination, (b) comply, and use its best efforts to cause all tenants to comply, with applicable laws relating thereto, (c) pay or cause to be paid immediately when due the costs of removal or remediation of any such Hazardous Substance as required by applicable laws, and (d) keep the Project free of any lien imposed pursuant to such laws. Notwithstanding the foregoing, nothing herein shall be construed to prohibit Company or any tenant under any lease from using commercially reasonable quantities of standard supplies for ordinary office, retail, janitorial and maintenance purposes in compliance with applicable laws. If Company shall default in the performance or observance of any of the foregoing provisions of this subsection after notice to Company and expiration of the later of (i) the applicable cure periods hereunder or (ii) the cure period permitted under applicable law, Bank may declare an Event of Default under this Agreement and/or cause the Event of Default to be cured and, if such cure requires the clean-up of any Hazardous Substance contamination, the cost thereof shall be added to the indebtedness evidenced by the Note and secured by the Deed of Trust. Company further agrees not to release or dispose, or allow the release or disposal by others, of any Hazardous Substance at the Project, except for the release or disposal in the ordinary course of business which is not required to be reported to any governmental authority under applicable laws. Nothing herein shall be construed to require Borrower to remove from the Project any routine or ordinary amounts of Hazardous Substance commonly known to be lawfully present in or about similar improvements used in a similar manner, unless in any such case its removal is required by applicable law. 8.5 Insurance. Provide or cause to be provided the following policies of insurance of a company which shall have a Best Insurance Reports (1990) rating of "A" or better and which shall be qualified to do business in the State of California: (a) workers' compensation insurance, builder's risk-all risk insurance, and such other insurance as may be required by applicable law; (b) insurance covering 100% of the replacement cost of the Improvements in the event of fire, lightning, windstorm, vandalism, malicious mischief and such other hazards, casualties and contingencies as are normally and usually covered by extended coverage policies in effect in the locality where the Property is situated (including insurance against loss by earthquake, and by flood if the Property is now or hereafter located in an area designated as being subject to the danger of flood), provided that earthquake coverage shall be no less than $5,000,000, with a deductible level of no greater than 10%; (c) public liability insurance in an amount deemed necessary from time to time by Bank, but in no event less than $5,000,000.00 for "single occurrence"; (d) property damage insurance in an amount deemed necessary from time to time by Bank, but in no event less than $2,500,000.00; (e) such business interruption insurance with respect to business uses of the Property and Improvements other than the Parking Facility as Bank may require (including insurance against rental or income loss during a period of repair or restoration of damage for a period of one year); (f) insurance complying with the terms of the Commercial Encroachment Permit Agreement, recorded as document No., 88-916487 on June 9, 1988, as long as it affects the Property; and (g) such other customary and commercially reasonable policies of insurance as Bank may reasonably require from time to time. All such insurance coverages (i) shall be maintained at Company's sole cost and expense as long as any obligation of Company in connection with this Agreement, the Letter of Credit or any of the other Loan Documents remains outstanding, (ii) shall be with insurers of recognized responsibility which are approved in writing by Bank, (iii) shall be in form and substance satisfactory to Bank, (iv) shall include a "lender's loss payable endorsement" in form and substance satisfactory to Bank, assuring Bank that all proceeds are to be payable to Bank and the Trustee as their interests may appear, (v) shall contain a provision to the effect that the insurer shall not cancel the policy without first giving at least thirty (30) days' prior written notice thereof, and (vi) shall be in such deductible amounts as Bank and Company shall agree upon (and in the absence of materially increased risk or a material change in the value of the Project after the date hereof, the Bank shall agree to the current level of deductibles). Certificates of insurance for all of the above insurance policies, showing the same to be in full force and effect, shall be delivered to Bank prior to the Closing Date, and thereafter, upon demand by Bank therefor at any time while any obligation of Company in connection with the Certificates, this Agreement, the Letter of Credit or any of the Loan Documents remains outstanding. All policies insuring against damage to the Improvements shall contain an agreed value clause sufficient to eliminate any risk of co-insurance. Company agrees it shall not modify any policy of insurance in a manner material and adverse to the interests of Bank or the Trustee, as their interests appear, without the prior written consent of Bank not to be unreasonably withheld or delayed. Notwithstanding any terms to the contrary in the Deed of Trust or herein, provided that no Event of Default exists at the time of a fire or other casualty and at the time insurance proceeds are to be disbursed, Company alone shall have the right to settle and receive claims of $100,000 or less, individually or in the aggregate, and shall exclusively use same to rebuild the Project, provided that Bank shall have the right to settle any such claim that Company has not settled on or before one hundred eighty (180) days after the date of such loss. 8.6 Intentionally Omitted. 8.7 Governmental Approvals. Deliver to Bank, from time to time at Bank's request, based upon a reasonable belief that such a request is necessary, in reasonable form and substance satisfactory to Bank, evidence that Company and the Authority have complied with all applicable laws, ordinances, regulations and other requirements relating to the Project, and that all necessary consents or approvals of any court or governmental department, public body, public utility, authority, commission, board, bureau, agency or instrumentality having jurisdiction over the Project have been regularly and finally received with respect to the Project (provided however, that Company shall not be required to use more than its best efforts, reasonably determined, to provide such evidence with respect to the Authority's compliance), including without limitation each of the following as applicable: (a) all zoning, land use and planning requirements, including without limitation any applicable general plan requirement and any requirement relating to the adoption or amendment of a general plan; (b) all subdivision and/or parcel map requirements, including without limitation requirements of the California Subdivision Map Act; (c) all requirements relating to Hazardous Substances; (d) all requirements imposed by any public utility in connection with the use of the Property or the supply of utilities thereto; and (e) all requirements imposed in connection with any use permit, occupancy permit, building permit or other permit or approval required by any governmental or quasi-governmental authority in connection with the Project. 8.8 Compliance with Requirements. Comply with all conditions, covenants, restrictions, easements, reservations, rights, rights of way and all applicable laws, ordinances, regulations, use permits, encroachment permits, occupancy permits, building permits and other governmental requirements affecting or relating to the Property or Company's operations thereon. 8.9 Continued Existence. Maintain its existence, and continue to be a limited partnership in good standing in the State of Illinois. In connection with, but not in limitation of, the covenant given pursuant to this Section 8.9, Company agrees that the General Partner will not sell or otherwise transfer or convey its interests in Company without the express prior written approval of Bank, other than to another partner in Company. Notwithstanding the foregoing, Bank shall provide its written consent to a transfer of all of General Partner's interests in Company to an entity under common control with General Partner, which entity has financial strength and characteristics at least equal to that of General Partner on the date hereof and provided that such entity is organized in such a manner, and the transfer is accomplished by documents, which do not materially prejudice or diminish Bank's rights hereunder, all as determined by Bank in its sole discretion exercised in good faith. Company and such transferee entity shall pay all of Bank's expenses in connection therewith, including reasonable attorneys' fees and actual out-of-pocket costs. 8.10 Books and Records. Maintain full and complete books of account and other records reflecting the results of its operations relating to the Property or the Project and provide to Bank, promptly after request by Bank therefor, such financial statements and other information pertaining to the Property or the Project as Bank may from time to time reasonably request. 8.11 Maintenance of Project. Maintain the Project, and each portion thereof (including without limitation equipment, machinery and fixed assets), in good condition and repair, said condition and repair to be in line with that of comparable shopping centers; and not permit any waste or damage with respect thereto. 8.12 Statement of Replacement Cost. Deliver to Bank within thirty (30) days of demand by Bank therefor a statement showing the replacement cost of the Project for insurance purposes, all in such detail as Bank may reasonably require. 8.13 Annual Operating Statements. Deliver to Bank the following: (a) Promptly and in any event within ninety (90) days after the end of each Fiscal Year, a balance sheet and statement of income for Company's operations for such Fiscal Year, accompanied with all supporting schedules and a certificate of General Partner that the statements are true and correct. (b) Upon request, copies of all such regular or periodic financial statements or financial reports as Company shall send to its partners. (c) Upon request, copies of all such regular or periodic reports which are available for public inspection which Company may be required to file with any federal or state department, bureau, commission or agency, including without limitation tax returns. 8.14 Monthly Operating Statements. Deliver to Bank, within thirty (30) days after the end of each calendar month, an income statement reflecting the operation of the Project during such month. Such statement shall contain such information as Bank may reasonably require, and shall include, without limitation, figures setting forth a rental summary for the Project during such month. 8.15 List of Personal Property. Deliver to Bank, from time to time, within thirty (30) days of Bank's request therefor, a list of all of the Personal Property then in existence. 8.16 Notice of Litigation. Give notice to Bank, within fifteen (15) days of Company's learning thereof, of any of the following: (a) any litigation materially and adversely affecting or relating to the Project; (b) any dispute between Company and any municipal or other governmental authority relating to the Project the adverse determination of which might materially affect the Project; (c) any threat or commencement of proceedings in condemnation or eminent domain relating to the Property; and (d) any enforcement, cleanup, regulatory actions or investigations, or any material claims by third parties, against the Project, or against Company with respect to the Project, relating in any respect to Hazardous Substances. 8.17 Notice of Certain Events. Promptly notify Bank if (a) Company learns of the occurrence of any event which constitutes an Event of Default under this Agreement, or an Event of Default or Default, as applicable, under any of the other Loan Documents or any of the Certificate Documents, together with a detailed statement by a responsible officer of Company specifying the nature thereof and what action Company is taking or proposes to take with respect thereto, or (b) Company learns of the existence of any legal, judicial or regulatory proceedings affecting Company and having an adverse effect on Company's ability to perform its obligations under this Agreement or on any Loan or Certificate Document in which the amount of liability involved, if any, is material and is not covered by insurance, or (c) there shall occur or exist any other event or condition causing a material adverse change in Company's ability to perform its obligations under this Agreement or on any Loan or Certificate Document 8.18 Intentionally Omitted. 8.19 Intentionally Omitted. 8.20 Security of Property. Take such measures to protect the physical security of the Property and the Personal Property as Bank may reasonably deem advisable. 8.21 Tax Appeals. Bring, maintain and diligently prosecute any and all actions, appeals and proceedings which are available to Company in order to challenge, reverse or set aside a "Determination of Taxability," as that term is defined in the Certificate Documents. 8.22 Copies of Leases. Give written notice to Bank of the entry by Company into any lease or other agreement pursuant to which any Person is given any right to occupy or use any portion of the Project, together with true and correct copies of each such lease or other agreement. 9. Negative Covenants. For the term provided in Section 12.12, Company shall not, unless Bank otherwise consents in writing: 9.1 Liens on Property. Create or cause or suffer to become effective any mortgage, deed of trust or like lien or encumbrance affecting the Property or any portion of the same, except for the lien of the Deed of Trust, the lien of the Trust Agreement, and those matters listed in Exhibit "E" hereto, taxes not delinquent and claims of lien contested by Company in good faith, with due diligence and, at Bank's reasonable request, upon the posting of reasonable security therefor. In connection with the covenant contained in this Section 9.1, Company acknowledges that Bank has relied on the equity remaining after subjecting the Property to the liens referenced above. Under these circumstances, the prohibition against junior liens contained above is commercially reasonable and consented to by Company. The terms of this Section 9.1 shall control over any inconsistent terms of the Certificate Documents, including, without limitation, Section 3.11(c) of the First Sale Agreement. 9.2 Liens on Personal Property. Install in or otherwise use in connection with the Property any Personal Property under any security agreements or similar agreements however denominated whereby the right is reserved or accrues to anyone to remove or repossess any such items or whereby any Person other than Bank (and Trustee, so long as Trustee retains an interest in the Project as trustee under the Certificate Documents), reserves or acquires a lien upon such items. 9.3 Changes in Management Company. Terminate or replace the existing property management company of the Project without the express prior written consent of Bank, which consent will not be unreasonably withheld or delayed; and Bank hereby approves the current property management company, JMB Retail Properties Company. 9.4 Amendments to Certificate Documents. Not amend, modify, terminate or grant any waiver under, or consent to, permit or suffer to occur any action or omission which results in, or is equivalent to, an amendment, modification or grant of a waiver under any of the Certificate Documents without Bank's prior consent, which consent may be granted or withheld in its sole discretion. 9.5 Transfers of Project or Certificate Document Obligations. Assign or delegate any of Company's rights or obligations under the Certificates, the Letter of Credit, this Agreement or any of the other Loan Documents or Certificate Documents, or sell, lease or otherwise transfer the Property, the Improvements, the Personal Property, or any interest therein (except for dispositions of personal property permitted pursuant to Section 9.6), other than with the express prior written consent of Bank, which consent may be granted or withheld in its sole discretion, and in compliance with the provisions of the First and Second Sale Agreements and other Certificate Documents. In connection with the foregoing, Company acknowledges that Bank has entered into the transaction contemplated by this Agreement in reliance upon the reputation and management expertise of Company and the partners in Company, and would not have entered into such transaction but for such reliance. Notwithstanding the foregoing, Bank shall provide its written consent to a transfer of all of Company's rights and obligations specified above to an entity under common control with Company, which entity has financial strength and characteristics and property ownership expertise at least equal to that of Company on the date hereof and provided that such entity is organized in such a manner, and the transfer is accomplished by documents, which do not materially prejudice or diminish Bank's rights hereunder, all as determined by Bank in its sole discretion exercised in good faith. Company and such transferee entity shall pay all of Bank's expenses in connection therewith, including reasonable attorneys' fees and actual out-of- pocket costs. 9.6 Removal of Personal Property. Remove or permit the removal from the Property of any items of Personal Property other than in accordance with the provisions of both the Security Agreement and the First and Second Sale Agreements. Company shall keep detailed records of each such removal, substitution, sale or other disposition and make such records available to Bank upon its request from time to time, and shall execute and deliver to Bank and Trustee such instruments and documents as Bank may require in connection with the attachment and perfection of the security interest of Bank and Trustee in and to any new or replacement items of Personal Property on or about the Property. 9.7 Nature of Business. Change its principal business from the business of investing in commercial and residential real estate. 9.8 Leases. Enter into any leases or other agreements pursuant to which any Person is given any right to occupy any building area within the Project in excess of five thousand (5,000) square feet or any free-standing structure in the Project without the express prior written consent of Bank, which consent shall not be unreasonably withheld or delayed. 9.9 Easements. Grant, convey or cause to be effective any easement, license, right of way, or title restriction or limitation affecting the Property or any portion of the same without the express prior written consent of Bank (which consent shall not be unreasonably withheld or delayed); provided, however, that Company may grant routine easements which are reasonably necessary and required by governmental or quasi-governmental entities or utility companies for the furnishing of utilities or services to the Project without the requirement of such consent by Bank, so long as such easements shall not materially weaken, diminish or impair the security of the Deed of Trust or interfere with the intended use of the Property. Alterations. Remodel, renovate or otherwise alter the Improvements or any substantial portion thereof, excepting however reasonable and customary tenant improvements provided under the leases referred to in Section 9.8, in such a way as may reasonably be expected to materially alter the use, function or appearance thereof, without first furnishing to Bank a description of the alterations (and, if reasonably requested by Bank, plans and specifications for such alterations) and obtaining the express prior written approval of such alterations by Bank, which approval shall not be unreasonably withheld or delayed. 10. Second Reserve Account 10.1 Establishment and Pledge of Second Reserve Account. Company shall establish and maintain the Second Reserve Account for the sole and exclusive benefit of Company and Bank on the terms hereinafter provided. The "Second Reserve Account" shall be a deposit account in Company's name maintained at a banking institution and pursuant to such documents and arrangements, in each case as are reasonably acceptable to Bank. Company hereby pledges, assigns, conveys and transfers to Bank a security interest in all of Company's right, title and interest in the Second Reserve Account, including all sums therein whether existing on the date hereof or deposited at any time hereafter, and the proceeds thereof. Company agrees to file such financing statements and take such additional actions with respect thereto as Bank may request in its reasonable discretion to perfect Bank's rights therein, including the identification of the Second Reserve Account, which shall be attached hereto as Exhibit "F". In all instances, the Second Reserve Account shall be separate and distinct from the Reserve Fund and the Reserve Requirement under the Trust Agreement, and the funding by Company of the Reserve Fund or the Second Reserve Account, respectively, shall not be deemed to satisfy or affect in any manner Company's obligations with respect to the other reserve account. 10.2 Amount of Second Reserve Account. In no instance shall Company be required to maintain more than One Million Four Hundred Dollars ($1,400,000) in the Second Reserve Account at any time and any amount in excess thereof shall be promptly be paid to Company, or released by Bank, as applicable. Company shall deposit on the Closing Date, and quarterly thereafter on the dates specified in Section 6.2(b), the amounts shown in or interpolated, if necessary, from the Amortization Schedule attached hereto as Exhibit "G" (based on level debt service payments calculated using a 20-year amortization schedule and an annual rate of interest of 10%). 10.3 Limitation. Interest on all amounts in the Second Reserve Account shall accrue therein to be held in accordance herewith. In no instance shall the income received on the amounts in the Second Reserve Account or the types of investments permitted for such amounts adversely affect the exemption of interest on the Certificates from federal income taxation. To this end, Company shall cause investments therein to be yield restricted in accordance with the Tax Certificate executed by Company in connection with the execution and delivery of the Certificates. Bank agrees to provide Company, Trustee and any representative of Company retained for the purpose of computing sums required under Section 5.5 of the Trust Agreement with such information with respect to the Second Reserve Account and the investment thereof as they or each of them will reasonably request. Upon the occurrence of an Event of Default, Bank shall be entitled to exercise its rights and remedies with respect to the Second Reserve Account in accordance with Section 11.2. 11. Events of Default and Remedies Upon Default. 11.1 Events of Default. The occurrence of any one or more of the following, whatever the reason therefor, shall constitute an Event of Default hereunder: (a) Company shall fail to pay any amount of principal or interest owing under the Notes or any other Bank Reimbursement Obligations, in each case within three (3) days of the date due; or (b) Company shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any of the other Loan Documents on its part to be performed or observed, provided however, that if such failure cannot be remedied within such period, it shall not constitute an Event of Default hereunder if the failure is correctable without material adverse effect on the Certificates and if corrective action is instituted by Company within such period and diligently pursued until the failure is corrected but, in any event, such failure must be corrected within 90 days after Company first had notice of such failure from any source; or (c) Intentionally Omitted. (d) (1) Trustee declares any default in connection with the Certificates or the Certificate Documents, or (2) the obligation to make payment on the Certificates is accelerated for any other reason; provided however that it shall not be an Event of Default under this Section 11.1(d)(2) if such acceleration of payments on the Certificates results from actions of Bank; or (e) The occurrence of a Default or Event of Default under the Trust Agreement; or (f) Any representation or warranty in any of the Loan Documents or Certificate Documents or in any certificate, agreement, instrument or other document made or delivered by Company, General Partner or any of their respective directors, officers, agents or employees, pursuant to or in connection with any of the Loan Documents or Certificate Documents proves, to have been materially false as of the date on which made and shall continue to be materially false and shall not be remedied within 30 days after Bank gives Company notice thereof; provided however, that if such breach cannot be remedied within such period, it shall not constitute an Event of Default hereunder if the breach is correctable without material adverse effect on the Certificates and if corrective action is instituted by Company within such period and diligently pursued until the breach is corrected but, in any event, such breach must be corrected within 90 days after Company first had notice of such breach from any source; or (g) Intentionally Omitted. (h) The Project is destroyed by fire or other casualty or damaged thereby unless: (1) (A) Company deposits with Bank, or in other such manner as required under the Certificate Documents, an amount which, when added to available insurance proceeds, will be sufficient to allow for reconstruction and completion of the Project, and (B) Company thereafter diligently reconstructs the Project subject to the provisions of this Agreement and the Certificate Documents, within a reasonable time period to be approved by Bank; or (2) the Letter of Credit has been cancelled and all Bank Reimbursement Obligations have been paid in full; or (i) All or a substantial portion of the Property is condemned, seized or appropriated by a governmental authority; or (j) Intentionally Omitted. (k) The dissolution or liquidation of Company or failure by Company promptly to lift any execution, garnishment or attachment of such consequence as will materially impair its ability to make any payments under this Agreement, or the entry of an order for relief by a court of competent jurisdiction in any proceeding for the liquidation or reorganization of Company or any general partner thereof, or the filing of a petition by or against Company or any general partner thereof under the provisions of any bankruptcy act or under any similar act which may be hereafter enacted, or an assignment by Company or any general partner thereof for the benefit of its creditors, or the entry by Company or any general partner thereof into an agreement of composition with its creditors or the appointment of a receiver, trustee, custodian, liquidator or similar officer for Company or any general partner thereof; or (l) Intentionally Omitted. (m) Intentionally Omitted. (n) Cessation of operation by Company of the Project (except as a result of damage, destruction or condemnation of the Property if Company thereafter complies with the provisions of the Certificate Documents and Loan Documents pertaining thereto); or (o) The occurrence of any default (after the expiration of any applicable cure periods) in the performance of any obligation secured by, or the commencement of any foreclosure or other enforcement proceeding or procedure under, any deed of trust, mortgage, security agreement or like encumbrance upon the Project or any portion thereof. 11.2 Remedies Upon Default. Upon the occurrence of any Event of Default, Bank may, at its option, do any or all of the following: (a) Bank may deem that the Trustee has drawn the full amount remaining for all draws under the Letter of Credit and such amount shall be deemed conclusively to be included in the Bank Reimbursement Obligations; (b) The Bank Reimbursement Obligations shall become immediately due and payable in full, without demand, presentment, protest or notice of any kind, all of which are hereby expressly waived; (c) Bank may give notice (the "Termination Notice") to the Trustee of the occurrence of an Event of Default, which notice shall provide that the Letter of Credit shall terminate on the day specified in such notice and shall require either a redemption in full of the Certificates pursuant to Section 6.2(d) of the Trust Agreement, or mandatory tender all of the Certificates pursuant to Section 13.1(b) of the Trust Agreement; (d) Implement any other remedies available to Bank under or in connection with the Certificate Documents, including without limitation fully or partially funding the Letter of Credit (whether or not any amounts have previously been funded under the Letter of Credit), taking an assignment from the Trustee of the Security Documents, and exercising all of the rights and remedies available to Bank in connection therewith; (e) If the Event of Default may be cured by Bank by taking actions or making payments of money, Bank shall have the right (but not the obligation) to take such actions (including without limitation the retention of attorneys and the commencement or prosecution of actions on its own behalf or on behalf of Company), make such payments and pay for the costs of such actions (including without limitation attorneys' fees and court costs) from its own funds; provided, that the taking of such actions at Bank's expense or the making of such payments by Bank out of Bank's own funds shall not be deemed to cure such Event of Default, and the same shall not be so cured unless and until Company shall have reimbursed Bank for such payment, together with interest at the rate provided for in the Notes, from the date of such payment until the date of reimbursement. If Bank advances its own funds for such purposes, such funds shall be considered advances under the Notes and shall be secured by the Security Documents, notwithstanding that such advances may cause the total amount advanced hereunder to exceed the face amount of the Notes or the amount committed to be advanced pursuant to this Agreement, and Company shall immediately upon demand reimburse Bank therefor with interest at the rate provided for in the Notes, from the date of such advance until the date of reimbursement; and (f) Exercise any and all of its rights under the Loan Documents or the Certificate Documents including, without limitation, foreclosing on any security, and exercising any other rights with respect to any security, whether under the Security Documents or any other agreement or as provided by law, or taking possession of the Property, all in such order and in such manner as Bank in its sole discretion may determine. 11.3 Cumulative Remedies; No Waiver. All remedies of Bank provided for herein are cumulative and shall be in addition to any and all other rights and remedies provided in the Letter of Credit, the Notes, the Security Documents, the Certificate Documents or any of the Loan Documents, or provided by law or equity from time to time. The exercise of any right or remedy by Bank hereunder shall not in any way constitute a cure or waiver of default hereunder or under the Letter of Credit, the Notes, the Security Documents, the Certificate Documents or any of the Loan Documents, nor invalidate any notice of default or any act done pursuant to any such notice, nor prejudice Bank in the exercise of any rights hereunder or under the Letter of Credit, the Notes, the Security Documents, the Certificate Documents or the Loan Documents, unless in the exercise of said rights, Bank realizes all amounts owed to it under the Letter of Credit, this Agreement, the Notes, the Security Documents, the Trustee Agreement, the Certificate Documents and the Loan Documents and all Events of Default are cured. No waiver by Bank of any default or breach by Company hereunder shall be implied from any omission by Bank to take action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default expressly made the subject of the waiver. Any such express waiver shall be operative only for the time and to the extent therein stated. Any waiver of any covenant, term or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. The consent or approval by Bank to or of any act by Company requiring further consent or approval shall not be deemed to waive or render unnecessary consent or approval to or of any subsequent act. 12. Miscellaneous. 12.1 Actions. Bank shall have the right to commence, appear in and defend any action or proceeding purporting to affect the rights or duties of the parties hereunder or the payment of any funds, and in connection therewith Bank may pay necessary expenses, employ counsel and pay reasonable attorneys' fees, provided, however, that this right shall arise only after an Event of Default, or shall arise only prior to an Event of Default if Company fails after written notice from Bank to defend Bank in any action or proceeding purporting to affect the rights or duties of the parties. Company agrees to pay to Bank, on demand, all reasonable out-of-pocket costs and expenses incurred by Bank in connection therewith, including without limitation reasonable attorneys' fees, together with interest from the date of expenditure at the rate provided in the Notes. Company's obligation to repay such expenses shall be secured by the Security Documents. In the event that either Bank or Company shall bring an action against the other to interpret or enforce the terms or provisions of the Letter of Credit, the Notes, this Agreement or any of the other Loan Documents, the prevailing party in such action shall be entitled to recover its attorneys' fees and costs as awarded by a court of competent jurisdiction whether or not such action is prosecuted to final judgment. 12.2 Nonliability of Bank. Company acknowledges and agrees that: (a) any inspections of the Improvements made by or through Bank are for purposes of administration of the Loan Documents only and Company is not entitled to rely upon the same. (b) the relationship between Company and Bank is, and shall at all times remain, solely that of borrower and lender, and, without limitation, Bank neither undertakes nor assumes any responsibility or duty to Company to select, review, inspect, supervise, pass judgment upon or inform Company of any matter in connection with the Project, including without limitation matters relating to the adequacy or legal sufficiency of any of the documents, agreements or arrangements pertaining to the Certificates, the Certificate Documents or the rights or obligations of any Person in connection therewith; and Company shall rely entirely upon its own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or information supplied to Company by Bank in connection with such matters is for the protection of Bank only and neither Company nor any other Person is entitled to rely thereon; (c) Bank shall not be responsible or liable to Company for use which may be made of the Letter of Credit or for any acts or omissions of Trustee and any beneficiary or transferee in connection therewith; (d) Bank shall not be responsible or liable to Company for the validity, sufficiency or genuineness of documents (except as to Bank's signatures thereon), or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent, or forged (except to the extent Bank is grossly negligent or acts with willful misconduct in accepting or relying upon such documents); (e) Bank shall not be responsible or liable to Company as a result of any circumstances in any way related to the making or failure to make payment under the Letter of Credit, other than as a result of the gross negligence or willful misconduct of Bank. 12.3 No Representations by Bank. By accepting or approving anything required to be observed, performed or fulfilled, or to be given to Bank pursuant to this Agreement or any of the other Loan Documents or Certificate Documents, including any certificate, statement of profit and loss or other financial statement, survey, appraisal or insurance policy, Bank shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or representation to anyone with respect thereto by Bank. Bank may accept documents in connection with the Letter of Credit or any of the other Loan Documents or Certificate Documents which appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. 12.4 No Third Parties Benefited. This Agreement is made for the purpose of defining and setting forth certain obligations, rights and duties of Company and Bank in connection with the Letter of Credit. It shall be deemed a supplement to the Notes and the Security Documents. It is made for the sole protection of Company and Bank, and Bank's successors and assigns. No other Person shall have any rights of any nature hereunder or by reason hereof, except to the extent that Trustee is expressly granted rights hereunder. 12.5 Indemnity of Company. 12.5.1 Company hereby indemnifies and holds harmless Bank and its directors, officers, agents and employees (collectively the "Indemnitees") from and against: (a) any and all claims, demands, actions or causes of action that are asserted against any Indemnitee by any Person relating to: (i) a claim, demand, action or cause of action that the Person has or asserts against Company, in connection with the Letter of Credit, the Certificates, any of the Certificate Documents; (ii) the execution, delivery or transfer of the Letter of Credit, or payment or failure to pay thereunder; (iii) the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a Hazardous Substance on, under or from the Property or the Project in violation of applicable law, including all costs of any remediation, cleanup or detoxification of the Property and the Project and the preparation and implementation of any closure, remedial or other required plans, whether or not any of the costs of, or such remediation, cleanup, detoxification or plans, shall be deemed foreseeable or "consequential damages"; provided however, that such remediation, cleanup, detoxification or plans are required by any applicable law; or (iv) any other action or failure to act (including enforcement actions of any kind or manner) taken by Bank in accordance with the Loan Documents and the Certificate Documents; (b) any and all claims, demands, actions or causes of action that are asserted against any Indemnitee by any Person and arising from or in connection with (i) any statement or omission, actual or alleged, in the Certificate Documents, or (ii) any breach or default, actual or alleged, of the representations, warranties, covenants or agreements made by any party (other than Bank) contained in any of the Certificate Documents, or made by Company contained in this Agreement or any of the other Loan Documents; and (c) any and all liabilities, actual out-of-pocket losses, costs or expenses (including court costs and reasonable attorneys' fees) that any Indemnitee suffers or incurs as a result of the assertion of any claim, demand, action or cause of action specified in Section 12.5.1(a) and Section 12.5.1(b). Any obligation or liability of Company to any Indemnitee as provided in this Section 12.5.1 shall be secured by the Security Documents. The indemnity contained in this Section 12.5.1 shall not extend to any punitive damages, or any consequential damages (except for the costs of remediation, cleanup, detoxification or plans as specifically provided in clause 12.5.1(a)(iii) and only to the extent specifically provided therein), or any claims, demands, actions, causes of action, liabilities, losses, costs or expenses which result from the gross negligence or willful misconduct of any Indemnitee. 12.5.2 As used herein, "Hazardous Substance" means gasoline, petroleum and other petroleum by-products, asbestos, flammable materials, explosives, polychlorinated biphenyls (PCBs), radioactive materials or hazardous or toxic material, substance or waste which is: (i) defined as a "toxic pollutant" under Section 307(a) of the Water Pollution Control Act, 33 U.S.C. Section 1317(a); (ii) defined as a "hazardous substance" under Section 311 of the Water Pollution Control Act (33 U.S.C. Section 1321), as amended; (iii) defined as a "hazardous waste" under Section 1004(5) of the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6903(5), as amended; (iv) defined as a "hazardous substance" under Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601(14); (v) defined as a "pollutant" or "contaminant" under 42 U.S.C.A. Section 9601(33); (vi) defined as "hazardous waste" under 40 C.F.R. Part 260; (vii) defined as a "hazardous chemical" under 29 C.F.R. Part 1910; (viii) listed in the United States Department of Transportation Table (49 C.F.R. 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 C.F.R. Part 302 and amendments thereto); (ix) defined as a "hazardous waste," "extremely hazardous waste" or "restricted hazardous waste" under Sections 25117, 25115, or 25122.7, or listed pursuant to Section 25140, of the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Act); (x) defined as "used oil" under Section 25249.110 of the California Health and Safety Code, Division 20, Chapter 6.5; (xi) defined as a "hazardous substance" under Section 25316 of the California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter Presley Tanner Hazardous Substance Account Act); (xii) defined as a "hazardous material," "hazardous substance" or "hazardous waste" under Section 25501 of the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory); (xiii) defined as a "hazardous substance" under Section 25281 of the California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances Act); (xiv) contains more than 0.1 percent asbestos by weight that when dry, may be crumbled, pulverized or reduced to powder by hand pressure; or (xv) subject to any other law, statute, ordinance, regulation or requirement of any governmental authority having jurisdiction over the Project or any portion thereof in substitution, modification, replacement or amendment for, or enacted pursuant to, the foregoing. 12.6 Commissions. (a) Company and Bank hereby indemnify and hold each other harmless from any responsibility, cost and/or liability, including any reasonable attorneys' fees incurred, in connection with any claim by any Person based upon actions of the indemnifying party for the payment of any commission, charge or brokerage fee in connection with the Certificates or any of the other transactions contemplated in connection with this Agreement. (b) Company acknowledges that it will pay Garvin Guy Butler Corporation 1% of the principal amount of the Certificates out of money on deposit in the Cost of Issuance Fund, and shall indemnify and hold Bank harmless therefrom. 12.7 Binding Effect. (a) This Agreement shall be binding upon and inure to the benefit of Company and Bank and their respective successors and assigns, subject to the provisions of Section 9.5. (b) Bank may sell participations to any financial institution all or any part of, or any interest (undivided or divided) in, Bank's rights and benefits under the Loan Documents and the Certificates Documents (a "Participation"), and to the extent of that assignment, the assignee of a Participation shall have the same rights and benefits against Company hereunder as it would have had if such assignee were the bank issuing or paying under the Letter of Credit hereunder; provided however, that Company shall not and shall not be required to deal directly with any such participant and such Participation shall not release Bank from liability or any obligations under the Letter of Credit or under Section 12.24 hereof. 12.8 Execution in Counterparts. This Agreement and any other Loan Document (except the Notes) may be executed in any number of counterparts and any party hereto or thereto may execute any counterpart, each of which when executed and delivered will be deemed to be an original and all of which counterparts of this Agreement or any other Loan Document, as the case may be, taken together will be deemed to be but one and the same instrument. The execution of this Agreement or any other Loan Document by any party hereto or thereto will not become effective until counterparts hereof or thereof, as the case may be, have been executed by all the parties hereto or thereto. 12.9 Prior Agreements; Amendments; Consents. This Agreement contains the entire agreement between Bank and Company with respect to the Letter of Credit, and all prior negotiations, understandings and agreements with respect to the Letter of Credit are superseded by this Agreement. No amendment, modification, supplement, termination or waiver of any provision of this Agreement or any of the other Loan Documents, and no consent to any departure by Company therefrom, may in any event be effective unless in writing signed by Bank, and then only in the specific instance and for the specific purpose given. 12.10Cumulative Remedies; No Waiver. The rights, powers and remedies of Bank under the Loan Documents are cumulative and not exclusive of any right, power or remedy provided by law or equity or otherwise. No failure or delay on the part of Bank in exercising any right, power or remedy may be, or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right, power or remedy preclude any other or further exercise of any other right, power or remedy. 12.11Inclusion of Expenditures in Loans. All sums paid or expended by Bank under the terms of this Agreement shall bear interest at the rate specified in the Notes, as provided herein, from the date Company receives written demand from Bank for payment thereof (except as herein otherwise provided), shall be secured by the Security Documents and shall be immediately due and payable by Company upon demand (except as herein otherwise provided). 12.12Survival of Representations and Warranties. All representations and warranties of Company contained herein or in any other Loan Document will survive the delivery of the Letter of Credit and the execution and delivery of the Notes, and are material and have been or will be relied upon by Bank, notwithstanding any investigation made by Bank or on behalf of Bank. For the purpose of the foregoing, all statements contained in any certificate, agreement or other writing delivered by or on behalf of Company pursuant hereto or pursuant to any other Loan Document or in connection with the transactions contemplated hereby or thereby shall be deemed to be representations and warranties of Company contained herein or in the other Loan Documents, as the case may be. This Agreement shall terminate when the Letter of Credit has been cancelled and all Bank Reimbursement Obligations have been paid in full. 12.13Notices. All notices, requests, demands, directions and other communications provided for in this Agreement and under any of the other Loan Documents must be in writing and must be mailed, delivered by hand or sent by reputable overnight carrier to the appropriate party at its address as follows: If to Company: c/o JMB Realty Corporation 900 N. Michigan Avenue Chicago, Illinois 60611 Attention: Stephen A. Lovelette with a copy to: Pircher, Nichols & Mesks 1999 Avenue of the Stars, Suite 2600 Los Angeles, California 90067 Attention: Real Estate Notices (SCS) and Katten Muchin & Zavis 525 West Monroe Chicago, Illinois 60606 Attention: Robert Star, Esq. If to Bank: 725 S. Figueroa Street, Suite 3950 Los Angeles, CA 90017 Attention: Sidney Jordan, Vice President with a copy to: Sonnenschein, Nath & Rosenthal 685 Market Street, Suite 1000 San Francisco, California 94105 Attention: Arnold P. Schuster, Esq. Addresses for purposes of notice may be changed from time to time by written notice sent to the other parties in accordance with this Section 12.13. If any notice, request, demand, direction or other communication is given by mail it will be effective upon the earlier of (a) 96 hours after deposit in the U.S. Mail, certified or registered mail, return receipt requested postage prepaid or (b) actual receipt, as indicated by the return receipt; if delivered by hand, when delivered; if given by overnight courier 24 hours after delivery to such courier within its service hours for guaranteed overnight delivery. 12.14Advertising. Company agrees that Bank, after obtaining the prior written consent of Company, may use the name of Company in advertising that Bank may wish to publish concerning Bank's role in the transactions contemplated in this Agreement or in the Loan Documents. 12.15Further Assurances. Company shall, at its expense and without expense to Bank, do, execute and deliver such further acts and documents as Bank from time to time as Bank reasonably requires for the purpose of assuring and confirming unto Bank the rights hereby created or intended now or hereafter go to be, or for carrying out the intention or facilitating the performance of the terms of any Loan Document, or for assuring the validity of any security interest or lien under any Security Document. 12.16Governing Law. All of the Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois applicable to contracts to be performed wholly within such state, except for those provisions of the Deed of Trust as set forth more fully therein. 12.17Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable or invalid shall be inoperative, unenforceable or invalid without affecting the remaining provisions, and to this end the provisions of all Loan Documents are declared to be severable. 12.18Inconsistency With Security Documents. In the event that any of the provisions of the Security Documents are inconsistent with the provisions of this Agreement, the provisions of this Agreement shall prevail. 12.19Headings. Article and section headings in this Agreement are included for convenience of reference only and are not part of this Agreement for any other purpose. 12.20Time of the Essence. Time is of the essence. 12.21Bank Consent to Fixed Rate Conversion. Pursuant to Section 2.4 of the Trust Agreement, Company may not elect to cause a conversion of the interest on the Certificates to the Fixed Interest Rate without the express prior written consent of Bank. Bank hereby agrees that it will not withhold or delay such consent if Company furnishes evidence reasonably satisfactory to Bank either (a) that Company has sufficient available funds on hand to repurchase all of the Certificates then outstanding, and has deposited or agreed to deposit such funds with Trustee or Bank, or (b) that Company has obtained from third parties of sufficient financial strength firm written commitments to purchase all of the Certificates then outstanding upon the occurrence of such a conversion of interest rate, and Section 3.2(a) shall not be applicable thereto. 12.22Limited Nature of Certain of Company's Obligations. Anything in this Agreement or any other Loan Document to the contrary notwithstanding, it is expressly understood and agreed that: 12.22.1 With the exception of the provisions of Sections 7.6 or 7.7 (but only to the extent the same relates to Hazardous Substances), and Sections 7.12, 8.4 or 12.5.1.(a)(iii), nothing herein or in the Note, the Deed of Trust, this Agreement or otherwise shall be construed as creating any liability payable from any source other than the Security (as defined below), and (i) Bank shall not seek any monetary, personal, or deficiency judgment against Company (or any judgment whatsoever against any present or future, direct or indirect partner or principal thereof or any of their Negative Capital Accounts) or its successors or assigns, in connection with any action under the Loan Documents (including any action to foreclose the lien of the Deed of Trust) or any other document or instrument giving any security for any obligations accruing hereunder or under the other Loan Documents, and (ii) any judgment obtained in any suit permitted to Bank hereby will by its terms constitute a lien on, and will be enforced only against, the Security and not against any other assets or property of the Company (or any present or future, indirect or direct partner or principal thereof or any of their Negative Capital Accounts) or its successors or assigns; and (iii) neither the negative capital account of any present or future, indirect or direct, partner or principal of Company, or of the General Partner, nor of any present or future general partner of any partnership which is now or may hereafter become a general partner of Company (or constituent partners of such general partner), nor any obligation of any such partner to restore a capital account or to contribute capital to lend or to otherwise make any payment to Company or to any direct or indirect partner (collectively, the foregoing is referred to as a "Negative Capital Account") shall at any time be deemed to be the property or asset of the Company or any such partner and neither Bank nor any of its successors and assigns shall have any right to collect, enforce or proceed against or with respect to any such Negative Capital Account; 12.22.2 Bank and its successors and assigns shall look solely to any one or more of the following (in such order as Bank shall determine in its sole discretion) for satisfaction of Company's obligations under this Agreement and under the other Loan Documents: (a) the Property, the Personal Property and the rents, incomes, issues, profits and avails thereof (including without limitation, insurance and condemnation proceeds, and escrow and security deposits), by the enforcement of the lien created by the Deed of Trust, the Assignment of Leases and the Security Agreement in the manner therein provided; (b) the Pledged Certificates; (c) the Second Reserve Account; (d) any funds held by the Trustee pursuant to the Trust Agreement; (e) any other security given to secure the obligations hereunder or under the other Loan Documents; or (f) any guaranty or indemnity agreement hereafter given reciting it is not subject hereto (collectively, the foregoing is referred to as the "Security"); and 12.22.3 Notwithstanding the foregoing subsections 12.22.1 and 12.22.2, nothing herein shall be construed to prevent Bank from exercising any remedy allowed by law or by the terms of this Agreement, the Deed of Trust, the Note or the other Loan Documents which does not relate to or result in an obligation to pay money by Company (except to the extent such obligation or enforcement is against the Security). Notwithstanding the foregoing subsections 12.22.1 and 12.22.2, nothing herein shall be construed: to (a) limit the liability of Company and all of its assets and properties for (i) fraud or intentional misrepresentation, (ii) application of revenues from the Project, insurance proceeds or condemnation awards in contravention of the provisions of this Agreement, the Deed of Trust or any other Loan Document, to the extent of such misapplication or misappropriation, or (iii) liability pertaining to Hazardous Substances under Sections 7.6, 7.7, 7.12, 8.4 and 12.5.1(a)(iii); provided, however, that nothing in this Agreement (including Sections 12.22.1, 12.22.2 and 12.22.3) shall create any personal liability whatsoever in any circumstances on any present or future, direct or indirect partner or principal of Company or their Negative Capital Accounts, all such liability, if any, being expressly waived by Bank and by every person now or hereafter claiming any right or security hereunder. 12.22.4 Each representation, warranty, covenant, condition and agreement of Company contained in this Agreement with respect to Hazardous Substances shall be limited to apply only to Hazardous Substances that, on or at any time prior to the Foreclosure Date, were present at, in, or under, or were emanating from, the Project. The "Foreclosure Date" shall be the earlier to occur of (a) full and final repayment of all Bank Reimbursement Obligations, or (b) the completion of a foreclosure sale under the Deed of Trust, or (c) the acquisition of the Project or any part thereof by Bank, any affiliate of Bank or any other parties by any conveyance in lieu of foreclosure. 12.23Waiver of Conditions by Bank. Bank may waive the requirement of compliance by Company with any of the obligations, conditions or requirements contained in this Agreement, the other Loan Documents, or the Letter of Credit provided that no such waiver shall be effective unless contained in a written instrument signed by an authorized officer of Bank. 12.24Annual Bank Statements. While the Letter of Credit is outstanding, Bank shall Deliver to Company and Remarketing Agent Bank's annual report which is available for public inspection in Germany, when such annual report is regularly translated into English. At the time Bank delivers each such annual report to Company, it shall also deliver such report to the Remarketing Agent, and it is hereby agreed that the Remarketing Agent is a third-party beneficiary with respect to such obligation. 12.25Maximum Rate of Interest. All agreements by which Company may be required to pay to Bank amounts deemed to be for the use or forbearance of money are hereby expressly limited so that in no contingency or event whatever shall the amount paid or agreed to be paid to Bank for the use or forbearance of the money to be advanced under the Letter of Credit or this Agreement exceed the maximum permissible under applicable law as finally determined by a court of competent jurisdiction. If, from any circumstance whatsoever, fulfillment of any provision thereof, at the time performance of such provision shall be due, shall be prohibited by law as finally determined by a court of competent jurisdiction, the obligation to be fulfilled shall be reduced to the maximum not so prohibited, and if from any circumstance Bank should ever receive as interest an amount which would exceed such highest lawful rate, such amount as would be excessive interest shall be applied to the reduction of the principal of the obligations evidenced hereby (and if such principal shall be reduced to zero, such amount shall be treated as a deposit account of Company) and in no event to the payment of interest. This provision shall control every other provision of all [End of page 38] agreements by which Company may be required to pay interest, fees, costs, expenses or other amounts of any kind to Bank. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. "Company": JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership By: JMB Realty Corporation, a Delaware corporation, its Managing General Partner By: Printed Name; Vice President "Bank": DRESDNER BANK AG (LOS ANGELES AGENCY) By Its Authorized Signatory By __________________________________ Its Authorized Signatory LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT Page 1. Definitions And Accounting Terms. . . . . . . . . . . . . 1 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . 1 1.2 Use of Defined Terms . . . . . . . . . . . . . . . 5 1.3 Accounting Terms . . . . . . . . . . . . . . . . . 5 1.4 Exhibits . . . . . . . . . . . . . . . . . . . . . 5 1.5 Sections . . . . . . . . . . . . . . . . . . . . . 6 2. Certificates; Letter of Credit. . . . . . . . . . . . . . 6 2.1 Certificates . . . . . . . . . . . . . . . . . . . 6 2.2 Letter of Credit . . . . . . . . . . . . . . . . . 6 3. Reimbursement of Draws. . . . . . . . . . . . . . . . . . 6 3.1 Immediate Reimbursement for Certain Draws. . . . . 6 3.2 Payment of Scheduled Reimbursement Obligations . . 6 3.3 Reimbursement for Tender Draws.. . . . . . . . . . 7 3.4 Making of Payments . . . . . . . . . . . . . . . . 8 3.5 Calculation and Payment of Interest. . . . . . . . 8 4. Loan Documents. . . . . . . . . . . . . . . . . . . . . . .9 4.1 Notes. . . . . . . . . . . . . . . . . . . . . . . 9 4.2 Security Documents . . . . . . . . . . . . . . . . 9 4.3 Intentionally Omitted. . . . . . . . . . . . . . . 10 4.4 Other Documents and Actions. . . . . . . . . . . . 10 4.5 Assignment of Project Agreements . . . . . . . . . 10 4.6 Evidence of Debt.. . . . . . . . . . . . . . . . . 11 5. Conditions to Issuance. . . . . . . . . . . . . . . . . . 11 5.1 Conditions to Issuance . . . . . . . . . . . . . . 11 6. Reimbursement and Other Payments; Extension . . . . . . . 12 6.1 Reimbursement. . . . . . . . . . . . . . . . . . . 12 6.2 Fees 15. . . . . . . . . . . . . . . . . . . . . . 13 6.3 Increased Costs. . . . . . . . . . . . . . . . . . 14 6.4 Obligations Absolute . . . . . . . . . . . . . . . 15 6.5 Term of the Letter of Credit.. . . . . . . . . . . 16 6.6 Additional Terms . . . . . . . . . . . . . . . . . 16 7. Representations and Warranties by Company . . . . . . . . 16 7.1 Formation of Company . . . . . . . . . . . . . . . 16 7.2 Execution, Delivery and Performance of Loan Documents and Certificate Documents . . . . . 16 7.3 Financial Statements . . . . . . . . . . . . . . . 18 7.4 No Material Adverse Change . . . . . . . . . . . . 18 7.5 Tax Liability. . . . . . . . . . . . . . . . . . . 18 7.6 Compliance with Laws . . . . . . . . . . . . . . . 18 7.7 Completion . . . . . . . . . . . . . . . . . . . . 18 7.8 Litigation . . . . . . . . . . . . . . . . . . . . 18 7.9 Intentionally Omitted. . . . . . . . . . . . . . . 19 7.10 Official Statement . . . . . . . . . . . . . . . . 19 7.11 Compliance with Requirements . . . . . . . . . . . 19 7.12 No Hazardous Substance . . . . . . . . . . . . . . 19 8. Affirmative Covenants . . . . . . . . . . . . . . . . . . 20 8.1 Protection of Lien on Property . . . . . . . . . . 20 8.2 Protection of Security Interest in Personal Property. . . . . . . . . . . . . . . . . 20 8.3 Payment of Taxes, Assessments and Charges . . . . 20 8.4 Hazardous Substances . . . . . . . . . . . . . . . 20 8.5 Insurance. . . . . . . . . . . . . . . . . . . . . 21 8.6 Intentionally Omitted. . . . . . . . . . . . . . . 22 8.7 Governmental Approvals . . . . . . . . . . . . . . 22 8.8 Compliance with Requirements . . . . . . . . . . . 22 8.9 Continued Existence. . . . . . . . . . . . . . . . 22 8.10 Books and Records. . . . . . . . . . . . . . . . . 23 8.11 Maintenance of Project . . . . . . . . . . . . . . 23 8.12 Statement of Replacement Cost. . . . . . . . . . . 23 8.13 Annual Operating Statements. . . . . . . . . . . . 23 8.14 Monthly Operating Statements . . . . . . . . . . . 23 8.15 List of Personal Property. . . . . . . . . . . . . 24 8.16 Notice of Litigation . . . . . . . . . . . . . . . 24 8.17 Notice of Certain Events . . . . . . . . . . . . . 24 8.18 Intentionally Omitted. . . . . . . . . . . . . . . 24 8.19 Intentionally Omitted. . . . . . . . . . . . . . . 24 8.20 Security of Property . . . . . . . . . . . . . . . 24 8.21 Tax Appeals. . . . . . . . . . . . . . . . . . . . 24 8.22 Copies of Leases . . . . . . . . . . . . . . . . . 24 9. Negative Covenants. . . . . . . . . . . . . . . . . . . . 25 9.1 Liens on Property. . . . . . . . . . . . . . . . . 25 9.2 Liens on Personal Property . . . . . . . . . . . . 25 9.3 Changes in Management Company. . . . . . . . . . . 25 9.4 Amendments to Certificate Documents. . . . . . . . 25 9.5 Transfers of Project or Certificate Document Obligations . . . . . . . . . . . . . . . 25 9.6 Removal of Personal Property . . . . . . . . . . . 26 9.7 Nature of Business . . . . . . . . . . . . . . . . 26 9.8 Leases . . . . . . . . . . . . . . . . . . . . . . 26 9.9 Easements. . . . . . . . . . . . . . . . . . . . . 26 9.10 Alterations. . . . . . . . . . . . . . . . . . . . 26 10. Second Reserve Account. . . . . . . . . . . . . . . . . . 26 10.1 Establishment and Pledge of Second Reserve Account. . . . . . . . . . . . . . . . . . 26 10.2 Amount of Second Reserve Account.. . . . . . . . . 27 10.3 Limitation.. . . . . . . . . . . . . . . . . . . . 27 11. Events of Default and Remedies Upon Default . . . . . . . 27 11.1 Events of Default. . . . . . . . . . . . . . . . . 27 11.2 Remedies Upon Default. . . . . . . . . . . . . . . 29 11.3 Cumulative Remedies; No Waiver . . . . . . . . . . 30 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 30 12.1 Actions. . . . . . . . . . . . . . . . . . . . . . 30 12.2 Nonliability of Bank . . . . . . . . . . . . . . . 31 12.3 No Representations by Bank . . . . . . . . . . . . 31 12.4 No Third Parties Benefited . . . . . . . . . . . . 31 12.5 Indemnity of Company . . . . . . . . . . . . . . . 32 12.6 Commissions. . . . . . . . . . . . . . . . . . . . 33 12.7 Binding Effect . . . . . . . . . . . . . . . . . . 33 12.8 Execution in Counterparts. . . . . . . . . . . . . 34 12.9 Prior Agreements; Amendments; Consents . . . . . . 34 12.10 Cumulative Remedies; No Waiver . . . . . . . . . . 34 12.11 Inclusion of Expenditures in Loans . . . . . . . . 34 12.12 Survival of Representations and Warranties . . . . 34 12.13 Notices. . . . . . . . . . . . . . . . . . . . . . 35 12.14 Advertising. . . . . . . . . . . . . . . . . . . . 36 12.15 Further Assurances . . . . . . . . . . . . . . . . 36 12.16 Governing Law. . . . . . . . . . . . . . . . . . . 36 12.17 Severability of Provisions . . . . . . . . . . . . 36 12.18 Inconsistency With Security Documents. . . . . . . 36 12.19 Headings . . . . . . . . . . . . . . . . . . . . . 36 12.20 Time of the Essence. . . . . . . . . . . . . . . . 36 12.21 Bank Consent to Fixed Rate Conversion. . . . . . . 36 12.22 Limited Nature of Certain of Company's Obligations. . . . . . . . . . . . . . . . . . . . 36 12.23 Waiver of Conditions by Bank . . . . . . . . . . . 38 12.24 Annual Bank Statements . . . . . . . . . . . . . . 38 12.25 Maximum Rate of Interest.. . . . . . . . . . . . . 38 Exhibits A Irrevocable Letter of Credit B Note C Deed of Trust with Description of Real Property D Pledge and Security Agreement E Permitted Encumbrances F Second Reserve Account Description G Amortization Schedule of Second Reserve Account EX-4 3 AMENDED AND RESTATED PROMISSORY NOTE (150 Almaden/185 Park) $22,500,000 November __, 1994 FOR VALUE RECEIVED, JMB/SAN JOSE ASSOCIATES, an Illinois general partnership (hereinafter referred to as "Maker"), promises to pay to the order of Connecticut General Life Insurance Company, a Connecticut corporation having its principal address at 900 Cottage Grove Road, Hartford, Connecticut 06152-2215 (the "Payee"), at such principal address or at such other place as the Holder hereof may designate in writing (the legal holder from time to time of this Note, including Payee as the initial holder, hereinafter referred to as "Holder"), the principal sum of Twenty- Two Million Five Hundred Thousand and No/100 Dollars ($22,500,000), or so much thereof as may be advanced to Maker by Holder (hereinafter referred to as "Principal Indebtedness"), together with interest thereon at an annual rate of eight and four-tenths percent (8.4%) (the "Interest Rate"), in accordance with the provisions hereinafter set forth. 1. Terms of Payment. During the first three (3) Loan Years (as hereinafter defined) Maker shall pay to Holder on the first day of each calendar month commencing on the first calendar day of the second month following the date hereof (such payment dates being hereinafter referred to as "monthly payment dates" or singularly as a "monthly payment date") interest on the Principal Indebtedness from time to time outstanding, at the Interest Rate, for the immediately preceding calendar month. Interest shall be calculated and applied on the basis of a 360-day year consisting of twelve 30-day months, except that interest for any partial month shall be calculated and applied on the basis of a 365-day year and the actual number of days in such partial month during which the Principal Indebtedness is outstanding. Thereafter, on each monthly payment date, commencing on the first calendar day of the fourth Loan Year, through and including the Maturity Date (hereinafter defined), Maker shall pay to Holder the sum of $179,662.36, to be applied first to interest on the Principal Indebtedness from time to time outstanding at the Interest Rate and the balance to be applied in reduction of the Principal Indebtedness. The interest component of the monthly payments shall be calculated and applied on the basis of a 360-day year consisting of twelve 30-day months. On November , 2001 (the "Maturity Date") Maker shall pay to Holder the entire Principal Indebtedness then remaining unpaid, together with accrued and unpaid interest thereon at the Interest Rate and any other charges due under this Note, the Deed of Trust (hereinafter defined), and any other documents evidencing or securing or pertaining to the advancement or disbursement of the Principal Indebtedness, including, without limitation, the Environmental Indemnification Agreement of even date herewith (the "Environmental Indemnity") from Maker, among others, to Payee (collectively, the "Loan Documents"). The period from and including the date hereof to the Maturity Date will be referred to hereinafter as the "Term". MAKER HEREBY ACKNOWLEDGES AND UNDERSTANDS THAT THE FOREGOING INSTALLMENTS WILL NOT BE SUFFICIENT TO REPAY THE PRINCIPAL AMOUNT OF THIS NOTE AS OF THE MATURITY DATE BECAUSE THE COMBINED PRINCIPAL AND INTEREST PAYMENTS HEREUNDER REFLECT FULL AMORTIZATION OVER A PERIOD OF TWENTY FIVE (25) YEARS AND THE TERM OVER WHICH SUCH COMBINED PRINCIPAL AND INTEREST PAYMENTS ARE DUE UNDER THIS NOTE IS APPROXIMATELY FOUR (4) YEARS AND, THEREFORE, A SIGNIFICANT PORTION OF THE PRINCIPAL BALANCE OF THIS NOTE SHALL BE UNPAID AND DUE AND PAYABLE ON THE MATURITY DATE. 2. Prepayment. Except as specifically provided herein or in the Deed of Trust, no prepayment of the Principal Indebtedness shall be allowed during the first two (2) Loan Years (the "Closed Period"). "Loan Year" (or collectively, "Loan Years") shall mean each consecutive 12-month period measured from the first day of the first calendar month after the date hereof. Maker, whether or not a debtor in a proceeding under Title 11, United States Code, may prepay the Principal Indebtedness in full, but not in part, on any monthly payment date after the Closed Period, provided Maker gives Holder sixty (60) days prior written notice and pays, along with all accrued, unpaid interest and all other sums due under any of the Loan Documents, a prepayment fee as described below. After the Closed Period the prepayment fee shall be the greater of: (a) one percent (1%) of the then-existing Principal Indebtedness, or (b) Yield Maintenance as defined below. The foregoing prepayment fee will be due when the loan is prepaid after the Closed Period and prior to the date which is ninety (90) days prior to the Maturity Date, whether such prepayment is voluntary or results from default, acceleration or any other cause. Accordingly, the Principal Indebtedness may be prepaid at par during the last ninety (90) days of the Term. Except as otherwise expressly provided herein or in any other Loan Document, in the event of a prepayment during the Closed Period resulting from a default, acceleration or any other reason, Maker shall pay to Holder a default prepayment fee calculated as follows: (c) three percent (3%) of the then existing Principal Indebtedness, plus (d) Yield Maintenance as defined below: Yield Maintenance: Yield Maintenance is defined as the sum of the present values on the date of prepayment of each Monthly Interest Shortfall for the remaining Term of the loan, discounted at the monthly Treasury Yield. The "Monthly Interest Shortfall" for any monthly payment date is the product of (i) the positive difference, if any, of the Semi-Annual Equivalent Rate less the Treasury Yield, divided by 12, times (ii) the outstanding Principal Indebtedness, on the monthly payment date for which the calculation is made for each full and partial month remaining in the Term. The present value is then determined by discounting each Monthly Interest Shortfall at the Treasury Yield divided by twelve. The "Semi-Annual Equivalent Rate" for this loan is 8.548%. The "Treasury Yield" will be determined by reference to the Federal Reserve Statistical Release H.15 (519) of Selected Interest Rates (or any similar successor publication of the Federal Reserve) for the first week ending not less than two full weeks prior to the prepayment date. If the remaining Term is less than one year, the Treasury Yield will equal the yield for 1-Year Treasury Constant Maturities. If the remaining Term is equal to one of the maturities of the Treasury Constant Maturities (e.g., 1-year, 2-year, etc.), then the Treasury Yield will equal the yield for the Treasury Constant Maturity with a maturity equalling the remaining Term. If the remaining Term is longer than one year, but does not equal one of the maturities of the Treasury Constant Maturities, then the Treasury Yield will equal the yield for the Treasury Constant Maturity closest to, but not exceeding, the remaining Term. MAKER HEREBY EXPRESSLY (A) WAIVES ANY RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO PREPAY THIS NOTE, IN WHOLE OR IN PART, WITHOUT PENALTY, UPON ACCELERATION OF THE MATURITY DATE OF THIS NOTE AND (B) AGREES THAT IF A PREPAYMENT OF ANY OR ALL OF THIS NOTE IS MADE, UPON OR FOLLOWING ANY ACCELERATION OF THE MATURITY DATE OF THIS NOTE BY HOLDER ON ACCOUNT OF ANY DEFAULT BY MAKER, THEN MAKER SHALL BE OBLIGATED TO PAY CONCURRENTLY THEREWITH, AS A PREPAYMENT FEE, THE APPLICABLE SUM SPECIFIED IN THIS SECTION. BY INITIALLING THIS PROVISION IN THE SPACE PROVIDED BELOW, MAKER HEREBY DECLARES THAT PAYEE'S AGREEMENT TO MAKE THE LOAN EVIDENCED BY THIS NOTE AT THE INTEREST RATE AND FOR THE TERM SET FORTH IN THIS NOTE CONSTITUTES ADEQUATE CONSIDERATION, GIVEN INDIVIDUAL WEIGHT BY MAKER, FOR THIS WAIVER AND AGREEMENT. Initials: Maker __________. The aforesaid prepayment fees do not constitute a penalty, but rather represent the reasonable estimate, agreed to between Maker and Holder, of a fair compensation for the loss that may be sustained by Holder due to prepayment of the Loan prior to the Maturity Date. Any prepayment fee required pursuant to the preceding paragraphs shall be paid without prejudice to the right of Holder to collect any of the amounts owing under this Note or the Deed of Trust or otherwise to enforce any of its rights or remedies arising out of an Event of Default hereunder. 3. Security. This Note is secured by, among other things, a Deed of Trust, Security Agreement with Assignment of Rents and Fixture Filing (hereinafter referred to as the "Deed of Trust") given by Maker to Payee, of even date herewith, constituting a first lien on Maker's fee interest in certain real estate located in the City of San Jose, County of Santa Clara, State of California, and a first priority security interest in Maker's personal property and an assignment of rents and leases, each with respect to said real estate, and such other security described in the Loan Documents (hereinafter referred to as the "Security"). 4. Location and Medium of Payments. The sums payable under this Note or under the Deed of Trust shall be paid to Holder at its principal address hereinabove set forth, or at such other place as Holder may from time to time hereafter designate to Maker in writing, in legal tender of the United States of America. 5. Acceleration of Maturity. At the option of Holder, which may be exercised at any time after one or more of the following events (each being an "Event of Default") shall have occurred, the whole of the Principal Indebtedness, together with all accrued, unpaid interest, applicable prepayment fees, if any, and other charges due under any of the Loan Documents, shall immediately become due and payable ("Acceleration of Maturity"): (a) if any payment of any installment of the Principal Indebtedness, interest and/or any other sum due hereunder is not received by Holder within five (5) business days following the date when such payment was due; or (b) if an Event of Default shall occur under the Deed of Trust or any other of the Loan Documents which is not cured within any applicable grace period afforded therein, if any. 6. Late Charges; Interest Following Event of Default. If any principal, interest or escrow payment due under this Note, the Deed of Trust, or any other Loan Document, is not paid within five (5) business days after the date when such payment is due, without regard to any cure or grace period, Maker shall pay and Holder shall be entitled to collect a late payment charge for each month or fraction thereof during which such payment is not made within five (5) business days after the date when such payment is due and for each month thereafter that such sum remains unpaid, equal to the lesser of four percent (4%) of such late payment or the maximum amount that the parties may contract for under applicable law, as the reasonable estimate by Holder and Maker of a fair average compensation for the loss that may be sustained by Holder due to the failure of Maker to make timely payments, and such amount shall be secured by the Deed of Trust and the other Loan Documents. Such late charge shall be paid without prejudice to the right of Holder to collect any other amounts provided to be paid or to declare an Event of Default under this Note or the Deed of Trust. In addition to any late payment charge which may be due under this Note, Maker shall pay interest on all sums due hereunder at a rate (the "Default Rate") equal to the lesser of (i) the Interest Rate plus four percent (4%) per annum, or (ii) the maximum rate that the parties may contract for under applicable law, from and after the first to occur of the following events: if Holder elects to cause the Acceleration of Maturity; if an Event of Default occurs under Section 22(d) or 22(e) of the Deed of Trust (which is not cured within any applicable grace period afforded therein); or if all sums due hereunder are not paid on the Maturity Date. 7. Collection and Enforcement Costs. Maker, within five (5) business days of demand, shall pay Holder for all reasonable out of pocket costs and expenses, including without limitation attorneys' fees, paid or incurred by Holder in connection with the collection of any sum due hereunder, or in connection with enforcement of any of Holder's rights or Maker's obligations under this Note, the Deed of Trust, or any of the other Loan Documents. 8. Continuing Liability. The obligation of Maker to pay the Principal Indebtedness, interest and all other sums due hereunder shall continue in full force and effect and in no way be impaired, until the actual payment thereof to Holder, and in case of a sale or transfer of all or any part of the Security, or in case of any further agreement given to secure the payment of this Note, or in case of any agreement or stipulation extending the time or modifying the terms of payment above recited, Maker shall nevertheless continue to be liable on this Note, as extended or modified by any such agreement or stipulation, unless released and discharged in writing by Holder. 9. Joint and Several Liability. If more than one person, corporation, partnership or other entity shall have liability under this Note, then each person and entity shall be fully liable for all obligations of Maker hereunder, and such obligations shall be joint and several, all subject to the provisions of Paragraph 15 below. 10. No Oral Changes; Waivers. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of a change is sought. The provisions of this Note shall extend and be applicable to all renewals, amendments, extensions, consolidations, and modifications of the other Loan Documents, and any and all references herein to the Loan Documents shall be deemed to include any such renewals, amendments, extensions, consolidations, or modifications thereof. Maker and any future indorsers, sureties, and guarantors hereof, jointly and severally, waive presentment for payment, demand, notice of nonpayment, notice of dishonor, protest of any dishonor, notice of protest, and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default (except notice of default required hereby, if any), or enforcement of the payment of this Note, and they agree that the liability of each of them shall be unconditional without regard to the liability of any other party and shall not be in any manner affected by an indulgence, extension of time, renewal, waiver, or modification granted or consented to by the Holder; and Maker and all future indorsers, sureties and guarantors hereof consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by the Holder hereof with respect to the payment or other provisions of this Note, and to the release of the collateral, or any part thereof, with or without substitution, and agree that additional makers, indorsers, guarantors, or sureties may become parties hereto without notice to them or affecting their liability hereunder. Holder shall not by any act of omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver be in writing and signed by Holder, and then only to the extent specifically set forth therein; a waiver on one event shall not be construed as continuing or as a bar to or waiver of such right or remedy on a subsequent event. The acceptance by Holder of payment hereunder that is less than payment in full of all amounts due at the time of such payment shall not without the express written consent of Holder: (i) constitute a waiver of the right to exercise any of Holder's remedies at that time or at any subsequent time, (ii) constitute an accord and satisfaction, or (iii) nullify any prior exercise of any remedy. No failure to cause an acceleration of the Maturity Date hereof by reason of an Event of Default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by the laws of the State of California; and, to the maximum extent permitted by law, Maker hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. To the maximum extent permitted by law, Maker hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefits of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption and appraisement now provided, or which may hereafter be provided, by the Constitution and laws of the United States of America and of any state thereof, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note. 11. Bind and Inure. This Note shall bind and inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns. 12. Applicable Law. The provisions of this Note shall be construed and enforceable in accordance with the laws of the State of California. If any provision of this Note or the application hereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of such provision to any other person or circumstance shall be affected thereby, but rather the same shall be enforced to the greatest extent permitted by law. 13. Usury. It is hereby expressly agreed that if from any circumstances whatsoever fulfillment of any provision of this Note, at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other law, with regard to obligations of like character and amount, then ipso facto the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note that is in excess of the limit of such validity. In no event shall Maker be bound to pay for the use, forbearance or detention of the money loaned pursuant hereto, interest of more than the current legal limit; the right to demand any such excess being hereby expressly waived by Holder. 14. Notice. Any notice, request, demand, statement or consent made hereunder shall be in writing signed by the party giving such notice, request, demand, statement or consent, and shall be delivered personally, or delivered to a reputable overnight delivery service providing a receipt, or deposited in the United States Mail, postage prepaid and registered or certified mail, return receipt requested, addressed as set forth below or to such other address within the continental United States of America as may have theretofore been designated in writing. The effective date of any notice given as aforesaid shall be the date of personal service, one (1) business day after delivery to such overnight delivery service, or three (3) business days after being deposited in the United States Mail, whichever is applicable. For purposes hereof, the addresses are as follows: If to Holder: Connecticut General Life Insurance Company c/o CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, Connecticut 06152-2215 Attn: Investment Services, S-319 With a copy to: CIGNA Corporation Investment Law Department 900 Cottage Grove Road Hartford, Connecticut 06152-2215 Attn: Real Estate Division, S-215A If to Maker: JMB/San Jose Associates c/o JMB Realty Corporation 900 N. Michigan Avenue Chicago, Illinois 60611 Attn: Director of Finance With a copy to: Pircher, Nichols & Meeks 1999 Avenue of the Stars Los Angeles, CA 90067 Attn: Real Estate Notices (DSB) 15. Nonrecourse. Notwithstanding any provision herein or in any other Loan Document to the contrary, Maker's liability for repayment of the Principal Indebtedness, interest and all other sums due under this Note or any of the other Loan Documents or the performance of any obligation hereunder or under any other Loan Document shall be limited to the Security, except as provided in this Section 15. Accordingly, no judgment for the repayment of the Principal Indebtedness or the performance of any other obligation, or to collect any amount payable under any of the Loan Documents shall be enforced against Maker or any other party personally in any action to foreclose the Deed of Trust or to otherwise realize upon the Security or to collect any amount payable under any Loan Document. Nothing herein contained shall be construed as prohibiting Holder from exercising any and all remedies which the Loan Documents permit, including the right to bring actions or proceedings (including an action or suit for judicial foreclosure) against Maker and to enter a judgment against Maker, so long as the exercise of any remedy does not extend to obtaining a judgment in the nature of a deficiency judgment or to the execution against or recovery out of any property of Maker or any direct or indirect partner in Maker other than the Security and other security furnished under the Loan Documents on account of a judgment in the nature of a deficiency judgment. Notwithstanding the foregoing limitations, Maker and its general partners (but not any other sub-tier entities) shall be liable for the following acts or omissions, to the extent described: (a) (i) misapplying (i.e. using in a manner other than as permitted under the Loan Documents) any condemnation awards or insurance proceeds attributable to the Security, to the full extent of such awards or proceeds so misapplied; (ii) at the time of foreclosure or conveyance in lieu thereof, failing to turn over any unapplied security deposits attributable to the Security and required to be held by Maker under the terms of any and all leases, to the full extent of such failure; (iii) collecting any rents in advance in violation of any covenant contained in the Loan Documents, to the full extent of such rents so collected in advance; (iv) committing fraud, intentional misrepresentation or waste in connection with the operation of the Security or the making of the loan evidenced hereby, to the full extent of any remedies available at law or in equity; (v) failing to pay when due any debt service on any indebtedness related to the Security, operating and maintenance charges, insurance premiums, deposits into a reserve for replacements or any other sums due under the Loan Documents (the existence of which are known to Maker), but only to the extent that gross revenues from the Security during the six (6) months prior to a notice of acceleration to Maker through the date of foreclosure or conveyance in lieu thereof were otherwise sufficient to pay such expenses but were not so used; and (b) Under any separate guaranty, master lease or indemnity agreement from Maker or its general partners including, but not limited to, the Environmental Indemnity, provided that such agreement expressly states that recourse thereunder is an exception to the limitation on liability provided herein. Notwithstanding any provision hereof to the contrary, Holder shall be permitted to bring an action against Maker and its general partners personally but not against any sub-tier entities and to execute against and recover out of any property of Maker or its general partners (but not against or out of any property of any other sub-tier entities), for all sums due pursuant to the Loan Documents to the extent permitted by the terms of Section 726.5 of the California Code of Civil Procedure as it may be amended from time to time ("Section 726.5"), and to have the rights and remedies of an unsecured lender to the extent permitted thereunder. If Holder exercises the rights and remedies of an unsecured creditor in accordance with this grammatical paragraph, Maker and its general partners (but not any other sub-tier entities) promise to pay Holder, on demand by Holder, following such exercise, all amounts owed to Holder under the Loan Documents, and Maker and its general partners (but not any other sub-tier entity) agree that Maker and its general partners (but not any other sub-tier entities) will be personally liable for the payment of all such sums. Notwithstanding anything herein or in any other Loan Document to the contrary, no present or future constituent partner in or agent of the general partners of Maker or their respective successors or assigns, nor any shareholder, officer, director, employee, trustee, beneficiary or agent of any corporation or trust of agent of Maker or of any constituent partner in Maker shall be personally liable, directly or indirectly under or in connection with this Note or any other Loan Document, or any instrument or certificate securing or otherwise executed in connection with this Note, the Deed of Trust, or any other Loan Document or any amendments or modifications thereto made at any times heretofore or hereafter and Holder and Holder's successors and assigns hereby waive such personal liability. Accordingly, with respect to the foregoing exceptions to the non-recourse provisions contained in Section 15(a) and (b) of this Note, and the Environmental Indemnity, Holder's recourse shall be limited solely to the assets of Maker and its general partners (but of no other sub-tier entity). For the purposes of this Note, the Deed of Trust, each of the other Loan Documents and any such instruments and certificates and any amendments or modifications thereto, neither a negative capital account of any constituent partner in Maker nor any obligation to restore a negative capital account of Maker or of any constituent partner in Maker shall at any time be deemed to be the property or asset of Maker or any such other constituent partner and neither Holder nor its successors and assigns shall have the right to collect, enforce or proceed against or with respect to any such negative capital account or a partner's obligation to restore or contribute. As used in this paragraph, "constituent partner" means a partner in Maker or in a partnership that has a direct or indirect interest (through one or more partnerships) in Maker. 16. Amendment and Restatement. This Amended and Restated Promissory Note amends, modifies and restates, in its entirety, that certain Promissory Note dated September 29, 1986 from Maker to Holder in the original principal amount of $25,000,000, as well as any and all amendments, restatements, modifications and allonges thereto (the "Original Note"). All references to this Note contained herein or in any of the other Loan Documents shall be deemed to mean the Original Note as restated hereby. Maker covenants and agrees that there are no defenses or off-sets with respect to this Note, the indebtedness evidenced in connection with same, or with respect to the enforcement or collection thereof. Maker further covenants and agrees that each and every provision of this Note is in full force and effect and is the lawful and binding obligation of Maker, enforceable in accordance with its terms. Maker and Payee do not intend that this Note be construed as a novation of the Original Note or any other Loan Document. 17. Time of the Essence. Time is of the essence in this Note and the other Loan Documents. 18. Attorneys' Fees. Any reference to "attorney fees", "attorney's fees", or "attorneys' fees" in this document means both the reasonable out of pocket fees, charges and costs incurred by Holder through its retention of outside legal counsel, paralegals and legal assistants and the reasonable allocable fees, costs and charges for services rendered by Holder's in-house counsel, paralegals and legal assistants. Any reference to "attorney fees", "attorney's fees", or "attorneys' fees" shall also include but not be limited to those reasonable out of pocket attorneys or legal fees, costs and charges incurred by Holder in the collection of any Principal Indebtedness, the enforcement of any obligations hereunder or under any other Loan Document, the protection of the Security, the foreclosure of the Deed of Trust, the sale of the Security by power of sale under the Loan Documents, the defense of actions arising hereunder or under any other Loan Document and the collection, protection or setoff of any claim the Holder may have in a proceeding under Title 11, United States Code. Attorneys' fees provided for hereunder shall accrue whether or not Holder has provided notice of an Event of Default or of an intention to exercise its remedies for such Event of Default. Furthermore, any reference contained in this Note or in any other Loan Document to "out of pocket" costs, fees, charges or expenses shall include attorney's fees as described herein, including, without limitation, any reasonable allocable fees, costs, charges and expenses for services rendered by Holder's in- house counsel, paralegals and legal assistants. 19. Waiver of Trial by Jury. Maker hereby waives its rights to a trial by jury as to any matter arising out of or concerning the subject matter of this Note. IN WITNESS WHEREOF, Maker has duly executed this Note as of the day and year first above written. MAKER: JMB/SAN JOSE ASSOCIATES, an Illinois general partnership MAKER TO By: JMB Income Properties, Ltd.-XI, INITIAL PAGE 3 an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: By: JMB Income Properties, Ltd.-XII, an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: EX-4 4 Recording Requested By and When Recorded Mail To: Morrison & Foerster 345 California Street San Francisco, CA 94104-1250 Attn: Caryl B. Welborn, Esq. AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS AND FIXTURE FILING (150 Almaden/185 Park) THIS AMENDED AND RESTATED DEED OF TRUST is made as of the ______ day of November, 1994, by JMB/SAN JOSE ASSOCIATES, an Illinois general partnership, whose sole general partners are JMB Income Properties, Ltd.-XI, an Illinois limited partnership and JMB Income Properties, Ltd.-XII, an Illinois limited partnership, having its principal place of business at 900 N. Michigan Avenue, Chicago, Illinois 60611 (herein referred to as "Trustor") to COMMONWEALTH LAND TITLE COMPANY, subject to substitution as provided in Section 44 (herein referred to as "Trustee") in favor of CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation having its principal place of business at 900 Cottage Grove Road, Hartford, Connecticut 06152-2215 (hereinafter referred to as "Beneficiary"). W I T N E S S E T H: THAT, to secure (i) payment to Beneficiary of the principal indebtedness of Twenty-Two Million Five Hundred Thousand and No/100 Dollars ($22,500,000.00), together with interest thereon, as evidenced by that certain Amended and Restated Promissory Note (hereinafter referred to as the "Note") of even date herewith, and any renewals, extensions or modifications thereof, given by Trustor to Beneficiary and made payable to the order of Beneficiary in and by which Note the Trustor promises to pay the said principal indebtedness and interest at the rate and in installments as provided in the Note, (ii) the performance of the covenants herein contained and the payment of any monies expended by the Beneficiary in connection therewith, (iii) the payment of all obligations and the performance of all covenants of Trustor under any other loan documents, agreements or instruments between Trustor and Beneficiary given in connection with or related to this Deed of Trust or the Note, including, without limitation, the Environmental Indemnification Agreement (the "Environmental Indemnity") of even date from Trustor, among others, in favor of Beneficiary, and (iv) any and all additional advances made by Beneficiary to protect or preserve the Security or the security interest created hereby on the Security, or for taxes, assessments, or insurance premiums as hereinafter provided or for performance of any of Trustor's obligations hereunder or for any other purpose provided herein (whether or not the original Trustor remains the owner of the Security at the time of such advances) (all of the aforesaid indebtedness and obligations of Trustor being herein called the "Indebtedness", and all of the documents, agreements and instruments between Trustor and Beneficiary now or hereafter evidencing or securing the repayment of, or otherwise pertaining to, the Indebtedness, being herein collectively called the "Loan Documents"); the Trustor does hereby mortgage, grant, bargain, sell, assign, pledge, transfer, and convey unto Trustee and to Trustee's successors and assigns, in trust, with power of sale and right of entry and possession, all of the following described land, improvements, real and personal property and rents and leases and all of Trustor's estate, right, title and interest therein (hereinafter collectively called the "Security"): The land described in Exhibit A attached hereto and made a part hereof situate, lying and being in the City of San Jose, County of Santa Clara, and State of California (the "Land"); TOGETHER with all buildings and other improvements now or hereafter located on said Land or any part thereof, including but not limited to, all extensions, betterments, renewals, renovations, substitutes and replacements of, and all additions and appurtenances to the Security (the "Improvements"); TOGETHER with all of the right, title and interest of Trustor in and to the land lying in the bed of any street, road, highway or avenue in front of or adjoining the Land to the center lines thereof; TOGETHER with the right to use, in perpetuity, in connection with the operation of the Security any trademarks owned by Trustor, service marks or tradenames, and good will of Trustor associated therewith, used in connection with the Security; TOGETHER with all easements now or hereafter located on or appurtenant to the Land and/or the Improvements or under or above the same or any part thereof, rights-of-way, licenses, permits, approvals, and privileges, belonging or in any way appertaining to the Land and/or Improvements including without limitation (i) any drainage ponds or other like drainage areas not located on the Land which may be required for water run-off, (ii) any easements necessary to obtain access from the Land to such drainage areas, or to any other location to which Trustor has a right to drain water or sewage,(iii) any land required to be maintained as undeveloped land by the zoning rules and regulations applicable to the Land, and (iv) any easements and agreements which are or may be established to allow satisfactory ingress to, egress from and operation of the Land and/or the Improvements, including utility easements; TOGETHER with any and all awards heretofore made and hereafter to be made by any governmental, municipal or state authorities to the present and all subsequent owners of the Security for the taking of all or any portion of the Security by power of eminent domain, including, without limitation, awards for damage to the remainder of the Security and any awards for any change or changes of grade of streets affecting the Security, which said awards are hereby assigned to Beneficiary, and Beneficiary, at its option, is hereby authorized, directed and empowered to collect and receive the proceeds of any such awards from the authorities making the same and to give proper receipts and acquittances therefor, and to apply the same, subject to the provisions of this Deed of Trust, toward the payment of the Indebtedness, notwithstanding the fact that such amount may not then be due and payable; and Trustor hereby covenants and agrees to and with Beneficiary, upon request by Beneficiary, to make, execute and deliver, at Trustor's expense, any and all assignments and other instruments reasonably sufficient for the purpose of assigning the aforesaid awards to Beneficiary, free, clear and discharged of any and all encumbrances of any kind or nature whatsoever, subject to the provisions of this Deed of Trust; (all of the foregoing Land, Improvements, rights, easements, rights-of- way, licenses, privileges, and awards, collectively, the "Real Property"). TOGETHER with all proceeds, insurance or otherwise, paid for the damage done to any of the Security and all proceeds of the conversion, voluntarily or involuntarily, of any of the Security into cash or liquidated claims; TOGETHER with all fixtures, machinery, equipment, goods, and every other article of personal property, tangible or intangible, now or hereafter attached to or used in connection with the Real Property, or placed on any part thereof and whether or not attached thereto, appertaining or adapted to the use, management, operation or improvement of the Real Property, insofar as the same and any reversionary right thereto may now or hereafter be owned or acquired by Trustor, including, but without limitation: all partitions; screens; awnings; shades; blinds; floor coverings; hall and lobby equipment; heating, lighting, plumbing, ventilating, refrigerating, incinerating, elevator, escalator, air conditioning and communication plants or systems with appurtenant fixtures; vacuum cleaning systems; call systems; sprinkler systems and other fire prevention and extinguishing apparatus and materials; all equipment, manual, mechanical and motorized, for the construction, maintenance, repair and cleaning of, and removal of snow from, parking areas, walks, underground ways, truck ways, driveways, common areas, roadways, highways and streets; all equipment, manual, mechanical and motorized, for the transportation of customers or employees to and from the store facilities on the Real Property; all telephone, computer and other electronic equipment and appurtenances thereto, including software; and all other machinery, pipes, poles, appliances, equipment, wiring, fittings, panels and fixtures; and any proceeds therefrom, any replacements thereof or additions or accessions thereto; and all building materials, supplies and other property delivered to the Real Property for incorporation into the Improvements thereon, all of which are declared to be a part of the realty and covered by the lien hereof, but said lien shall not cover any fixture, machinery, equipment or article of personal property which is owned by any party other than Trustor, provided said fixture, machinery, equipment or article of personal property is not permanently affixed to the realty and may be removed without material damage thereto and is not a replacement of any item which shall have been subject to the lien hereof, but said lien shall include any other fixture, machinery, equipment or article of personal property so incorporated into the Improvements so as to constitute realty under applicable law, whether or not owned by the Trustor; TOGETHER with all of Trustor's books of account and records relating to the Security; TOGETHER with all proceeds and revenue arising from or out of the Real Property or any part thereof; all bank accounts of Trustor used in connection with operation of the Security or for holding security deposits under leases thereof; any sums of Trustor on deposit with Beneficiary hereunder; any refunds and rebates of taxes and assessments of every kind and nature imposed upon the Security, including all sums held in escrow pursuant to a certain Real Estate Tax Escrow and Security Agreement of even date herewith among Trustor, Beneficiary, and Bank of America, NT & SA Global Escrow Depository Services 8010, all licenses, permits, franchises, governmental approvals and all sanitary sewer, drainage, water, utility service and other service agreements benefiting the Real Property or any part thereof, together with all accounts, accounts receivable, credit card receipts, contract rights, reserve accounts required to be established hereunder, general intangibles, documents, instruments and chattel paper and proceeds of any of the foregoing owned by Trustor arising from or in connection with the Real Property, including all books and records in connection therewith; all rights of Trustor under any leases, covenants, agreements, easements, restrictions or declarations recorded with respect to, or as an appurtenance to, the Real Property or any part thereof; and, Trustor's interest, as lessee, under any lease of property included within the description of Personal Property above (all of the tangible and intangible personal property described in this and the previous two paragraphs, collectively, the "Personal Property"); TOGETHER with all of Trustor's right, title and interest, as the owner of the Real Property, in, to and under the following instruments: (i) that certain Parking Agreement dated as of June 18, 1985, between Trustor and New Almaden Associates, a California general partnership, (ii) that certain Supplemental Parking Agreement dated as of June 18, 1985, between Trustor and New Almaden Associates, (iii) that certain Parcel 2 Public Parking Covenant and Easement from New Almaden to the Redevelopment Agency of the City of San Jose (the "Agency") and recorded in the Official Records of Santa Clara County, California, as Instrument No. 8566697; and (iv) that certain Parcels 1, 3, and 4 Public Parking Covenant and Easement from Borrower to the Agency and recorded in the Official Records of Santa Clara County, California as Instrument No. 8566696 (such documents are sometimes collectively referred to herein as the "Parking Agreements"); TOGETHER with all of the right, title and interest of Trustor in and to all and singular the tenements, hereditaments and appurtenances thereunto belonging to or in any way pertaining to the Security; all the estate, right, title and claim whatsoever of Trustor, either at law or in equity, in and to the Security; and any and all other, further or additional title, estate, interest or right which may at any time be acquired by Trustor in or to the Security, and if Trustor shall at any time acquire any further estate or interest in or to Security, the lien of this Deed of Trust shall attach, extend to, cover and be a lien upon such further estate or interest automatically without further instrument or instruments, and Trustor, upon request of Beneficiary, shall execute such instrument or instruments as shall reasonably be requested by Beneficiary to confirm such lien, and Trustor hereby irrevocably appoints Beneficiary as Trustor's attorney-in-fact (which appointment is coupled with an interest) to execute all such instruments if Trustor shall fail to do so within ten (10) days after demand, provided, however, that Trustor shall not incur any additional recourse liability as a result of such appointment; TO HAVE AND TO HOLD the Security, and each and every part thereof, unto the Trustee and its successors and assigns in trust, for the purposes and uses herein set forth. AND, Trustor hereby further covenants, agrees and warrants as follows: 1. Payment of Indebtedness. Trustor will pay the Indebtedness and interest thereon in accordance with the provisions of the Note and all prepayment charges, late charges and fees required thereunder, and all extensions, renewals, modifications, amendments and replacements thereof, and will keep and perform all the covenants, promises and agreements and pay all sums provided in (i) each of the Note or any other promissory note or notes at any time hereafter issued to evidence the Indebtedness, (ii) this Deed of Trust and (iii) any and all other Loan Documents, all in the manner herein or therein set forth. Subject to the provisions of Section 36 below, each of the persons and/or entities constituting Trustor hereunder shall be fully liable for such payment and performance, and such liability shall be joint and several. 2. Covenants of Title. Trustor has good and indefeasible title to the entire Real Property in fee simple, has absolute unencumbered title to the Personal Property, and has good right and full power to sell, mortgage and convey the same; the Security is free and clear of easements, restrictions, liens, leases and encumbrances, except those easements, restrictions, liens, leases and encumbrances stated in Schedule B, Part 1, of the policy or policies of title insurance delivered to Beneficiary as of the recordation of this Deed of Trust (the "Permitted Encumbrances"), to which this Deed of Trust is expressly subject, or which may hereafter be created in accordance with the terms hereof and to which this Deed of Trust may be subordinated; and Trustor will warrant and defend title to the Security against all claims and demands whatsoever except the Permitted Encumbrances. Beneficiary shall have the right, at its option and at such time or times as it, in its sole discretion, shall deem necessary, to take whatever action it may deem necessary to defend or uphold the lien of this Deed of Trust or otherwise enforce any of the rights of Beneficiary hereunder or any obligation secured hereby, including without limitation, the right to institute appropriate legal proceedings for such purposes. 3. Usury. It is hereby expressly agreed that if from any circumstances whatsoever fulfillment of any provision of the Note, this Deed of Trust, or any other Loan Documents at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other law, with regard to obligations of like character and amount, then ipso facto the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under the Loan Documents that is in excess of the limit of such validity. In no event shall Trustor be bound to pay for the use, forbearance or detention of the money loaned pursuant to the Loan Documents, interest of more than the current legal limit, the right to demand any such excess being hereby expressly waived by Beneficiary. 4. Impositions. Trustor will pay, not later than thirty (30) days before the last day on which the same may be paid without penalty or interest, all real estate taxes, sewer rents, water charges and all other municipal and governmental assessments, rates, charges, impositions and liens (hereinafter referred to as "Impositions") which now or hereafter are imposed by law upon the Security. If any Imposition is not paid within the time hereinabove specified, Beneficiary shall have the right to pay the same, together with any penalty and interest thereon, and the amount or amounts so paid or advanced shall forthwith be payable by Trustor to Beneficiary and shall be secured by the lien of this Deed of Trust; but Trustor may in good faith contest, at Trustor's own cost and expense, by proper legal proceedings, the validity or amount of any Imposition, on the condition that Trustor first shall deposit with Beneficiary, as security for the payment of such contested item, an amount equal to the contested item plus all penalties and interest which would be payable if Trustor is ultimately required to pay such contested item, or if Trustor shall first post an appropriate bond reasonably satisfactory to Beneficiary from a surety company reasonably acceptable to Beneficiary for the full contested amount, and on the further condition that no amount so contested may remain unpaid for such length of time as shall permit the Security, or the lien thereon created by the item being contested, to be sold for the nonpayment thereof, or as shall permit an action, either of foreclosure or otherwise, to be commenced by the holder of any such lien. Trustor will not claim any credit on, or make any deduction from the Indebtedness by reason of the payment of any Imposition. Trustor hereby assigns to Beneficiary all rights of Trustor now or hereafter arising in and to the refund of any Imposition and any interest thereon; provided that so long as there exists no default hereunder or under of the other Loan Documents, without regard to any applicable notice and cure periods, Trustor shall be entitled to collect any such refund. If following receipt of any such refund by Beneficiary, there exists an Event of Default (as hereafter defined) or any default under this Deed of Trust or any of the other Loan Documents, or any condition which with the passage of time or the giving of notice or both, shall constitute a default hereunder or thereunder, then Beneficiary may apply said refund in reduction of the Indebtedness in whatever order Beneficiary may elect. Notwithstanding the foregoing to the contrary, Beneficiary shall not be entitled to apply in reduction of the Principal Indebtedness the portion of any such refund which Trustor is required to refund to a tenant under a tenant lease. If following receipt of any such refund by Beneficiary no such default or Event of Default then exists, then Beneficiary shall pay over the same to Trustor promptly after demand. 5. Tax Deposits. Trustor shall deposit with Beneficiary or with an escrow agent selected by Trustor and reasonably approved by Beneficiary, on the first day of the second calendar month immediately following the date of this Deed of Trust and on the first day of each calendar month thereafter (each of which dates is hereinafter called the "monthly tax deposit date") until the payment in full of the Indebtedness, a sum equal to one- twelfth of the Impositions to be levied, charged, assessed or imposed upon or for the Security within one year after said monthly tax deposit date. If on any monthly tax deposit date the amount of Impositions to be levied, charged, assessed or imposed within the ensuing one year period shall not be fixed, such amount for the purpose of computing the deposit to be made by Trustor hereunder, shall be reasonably estimated by Beneficiary, with appropriate adjustment when the amount of such Impositions is fixed. If the sums deposited by Trustor under this Section shall be held in an interest-bearing account, such interest shall be retained by Beneficiary and free of trust except to the extent, if any, that applicable law shall otherwise require, and all such sums and interest shall be applied in payment of such Impositions when due. Trustor shall give thirty (30) days prior written notice to Beneficiary in each instance when an Imposition is due, specifying the Imposition to be paid and the amount thereof, the place of payment and the last day on which the same may be paid in order to be within the time limit specified in Section 4 hereof entitled "Impositions". Notwithstanding the foregoing provision and so long as Trustor holds title to and controls the Security, Impositions are paid in full when due and there has been no default, or any state of facts which, with the passage of time or giving of notice, or both, would constitute a default under the Loan Documents, the interest (if any) earned by such escrows, less reasonable escrow costs, will be paid to Trustor on each real estate tax payment date. If for any reason the sums on deposit with Beneficiary or escrow agent under this Section shall not be sufficient to pay an Imposition within the time specified in Section 4 hereof, then Trustor shall, within fifteen (15) days after written demand by Beneficiary, deposit sufficient sums so that Beneficiary may pay such Imposition in full, together with any penalty and interest thereon. Beneficiary may change its estimate of Impositions for any period, on the basis of a change in an assessment or tax rate or equalization factor or on the basis of a prior miscalculation or for any other reason, in which event Trustor shall deposit with Beneficiary or escrow agent within fifteen (15) days after demand the amount of any excess of the deposits which would theretofore have been payable under the revised estimate over the sums actually deposited. If any Imposition shall be levied, charged, assessed or imposed upon or for the Security, or any portion thereof, and if such Imposition shall also be a levy, charge, assessment or imposition upon or for any other premises not covered by the lien of this Deed of Trust, then the computation of the amounts to be deposited under this Section shall be based upon the entire amount of such Imposition and Trustor shall not have the right to apportion any deposit with respect to such Imposition. Upon an assignment of this Deed of Trust by Beneficiary, Beneficiary shall transfer all amounts deposited and still in its possession to the assignee and Beneficiary shall thereupon be completely released from all liability with respect to such deposit arising after such assignment and Trustor or owner of the Security shall look solely to the assignee or transferee in reference thereto. Upon the payment in full by Trustor of the entire Indebtedness, any sums then held by Beneficiary under this Section shall be refunded promptly to Trustor. All amounts deposited shall be held by Beneficiary as additional security for the sums secured by this Deed of Trust, and Trustor hereby grants to Beneficiary a security interest in such sums, and upon the occurrence and continued existence of an Event of Default hereunder Beneficiary may, in its sole and absolute discretion, apply said amounts to the payment of the Indebtedness in whatever order Beneficiary may elect. Immediately upon receipt of such by Trustor, Trustor shall deliver to Beneficiary copies of all notices, demands, claims, bills, and receipts in relation to the Impositions. Notwithstanding the foregoing provisions, Beneficiary will waive the requirement for deposits as to that portion of Impositions payable directly to the governmental or other authority by tenants under the terms of leases approved by Beneficiary, provided satisfactory proof of payment is promptly furnished to Beneficiary. 6. Change in Taxes. In the event any tax shall be due or become due and payable to the United States of America, any state or any political subdivision thereof with respect to the execution and delivery or recordation of this Deed of Trust or any other Loan Document or the interest of Beneficiary in the Security, Trustor shall pay such tax at the time and in the manner required by applicable law and Trustor shall hold Beneficiary harmless and shall indemnify Beneficiary against any liability of any nature whatsoever as a result of the imposition of any such tax. In the event of the enactment, after the date of this instrument, of any law changing in any way the present law as to the taxation of notes or debts secured by mortgages, for Federal, State, or local purposes, or the manner of collection of any Impositions, so as to affect this Deed of Trust or the Note secured hereby, then Trustor shall upon demand make such payments to Beneficiary and take such other steps, as may be necessary in Beneficiary's reasonable judgment, to place Beneficiary in the same financial position as it was prior to any such enactment, failing which, or if Trustor is not permitted by law to make such payments, the Indebtedness shall, at the option of Beneficiary, become due and payable one hundred twenty (120) days after Beneficiary's demand. 7. Insurance. (a) Trustor will at all times, unless otherwise indicated, provide, maintain and keep in force: (i) policies of insurance insuring the Security against loss or damage by fire and lightning; against loss or damage by other risks embraced by coverage of the type now known as All Risk Replacement Cost Insurance with agreed amount endorsement, including but not limited to riot and civil commotion, vandalism, and malicious mischief; and against such other risks or hazards as Beneficiary from time to time reasonably may designate in an amount sufficient to prevent Beneficiary or Trustor from becoming a co-insurer under the terms of the applicable policies, but in any event in an amount not less than 100% of the then full replacement cost of the Improvements (exclusive of the cost of excavations, foundations and footings below the lowest basement floor) without deduction for physical depreciation; (ii) comprehensive general liability insurance in a minimum amount of $1,000,000, and excess or umbrella liability of at least $10,000,000. Any proceeds of such liability insurance shall not be included in the term "Insurance Proceeds" as defined in Section 8; (iii) policies of insurance insuring the Security against the loss of "rental value" of the buildings which constitute a part of the Improvements on a "rented or vacant basis" arising out of the perils insured against pursuant to subparagraph (i) above in an amount equal to not less than one year's gross "rental value" of the improvements. "Rental value" as used herein is defined as the sum of (A) the total anticipated gross rental income from tenant occupancy of such buildings as furnished and equipped by Trustor and (B) the amount of all charges which are the legal obligation of tenants and which would otherwise be the obligation of Trustor and (C) the fair rental value of any portion of such buildings which is occupied by Trustor. Trustor hereby assigns the proceeds of such insurance to Beneficiary, to be applied in payment of the interest and principal on the Note secured by this Deed of Trust, insurance premiums, taxes, assessments and private impositions until such time as such buildings shall have been restored and placed in full operation, at which time, provided there then exists no default under this Deed of Trust, the balance of such insurance proceeds, if any, held by Beneficiary shall be returned to Trustor. Such insurance proceeds shall not be included in the term "Insurance Proceeds" as defined in Section 8; (iv) flood insurance upon the Security in the event that such insurance is commercially available pursuant to the provisions of the Flood Disaster Protection Act of 1973 or other applicable legislation (Beneficiary reserves the right to require that Trustor secure flood insurance in excess of the amount provided by the Flood Disaster Protection Act of 1973 if such insurance is commercially available up to the amount provided in subparagraph (i) above); (v) boiler and pressure vessel insurance, including air tanks, pressure piping and major air conditioning equipment, provided any building which constitutes a part of the Security contains equipment of the nature ordinarily covered by such insurance, in such an amount as Beneficiary may require; (vi) war risk insurance upon the Security as and when such insurance is obtainable from the United States of America or any agency or instrumentality thereof at a reasonable premium, in any amount not less than 100% of the then full replacement cost of the Improvements (exclusive of the cost of excavations, foundations, and footings below the lowest basement floor) without deduction for physical depreciation, to the extent obtainable, and if not so obtainable, in the maximum amount obtainable; (vii) during any period of restoration under this Section 7 or Sections 8 or 9, a policy or policies of builder's "all risk" insurance in an amount not less than the full insurable value of the Improvements against such risks (including, without limitation, fire and extended coverage, collapse of the Improvements and earthquake coverage to agreed limits) as Beneficiary may request, in form and substance acceptable to Beneficiary; and (viii) such other insurance (including, but not limited to, earthquake insurance), and in such amounts, if any, as may from time to time be reasonably required by Beneficiary against the same or other insurable hazards which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height and type of buildings thereon and their construction, use and occupancy. (b) All policies of insurance required under this Section 7 shall be issued by companies approved by Beneficiary which shall have Best's ratings of not less than A:XII, shall be subject to the reasonable approval of Beneficiary as to amount, content, form and expiration date, shall contain a Non- Contributory Standard Mortgagee Clause and the Lender's Loss Payable Endorsement (Form 438 BFU NS), or their equivalents, in favor of Beneficiary, shall name Beneficiary as an additional insured, and shall provide that the proceeds thereof shall be payable to Beneficiary (to the extent of its interest). Beneficiary shall be furnished with the original insurance certificates evidencing each policy required to be provided by Trustor hereunder, which certificates shall provide that such policies shall not be modified or cancelled without thirty (30) days written notice to Beneficiary. At least thirty (30) days prior to expiration of any policy required to be provided by Trustor hereunder, Trustor shall furnish Beneficiary appropriate proof of issuance of a policy continuing in force the insurance covered by the policy so expiring. Trustor shall furnish Beneficiary receipts for the payment of premiums on such insurance policies or other evidence of such payment reasonably satisfactory to Beneficiary. In the event that Trustor does not deposit with Beneficiary a new policy of insurance with evidence of payment of premiums thereon at least thirty (30) days prior to the expiration of any expiring policy, then Beneficiary may, but shall not be obligated to, procure such insurance and pay the premiums therefor and Trustor agrees to repay to Beneficiary the premiums thereon promptly on demand, together with interest thereon at the Default Rate. (c) Trustor hereby assigns to Beneficiary all proceeds of any insurance which Trustor may be entitled to receive for loss or damage to the Security. In the event of any loss or damage to the Security, all insurance proceeds shall be payable to Beneficiary, and Trustor hereby authorizes and directs any affected insurance company to make payment of the insurance proceeds directly to Beneficiary. In the event that any such insurance proceeds or condemnation awards are paid directly to Trustor, Trustor shall make such proceeds or awards available to Beneficiary within ten (10) days of Trustor's receipt thereof. Trustor hereby authorizes and empowers Beneficiary to settle, adjust or compromise any claims for loss, damage or destruction to the Security in excess of $500,000, regardless of whether or not there are insurance proceeds available or whether any such insurance proceeds are sufficient in amount to fully compensate for such loss or damage, and Trustor hereby authorizes the application or release by Beneficiary of any such insurance proceeds under any policy or policies of insurance. The application or release by Beneficiary of any such insurance proceeds shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice. In the case of loss or damage to the Security in an amount not more than Five Hundred Thousand Dollars ($500,000), Trustor shall have the right, without Beneficiary's consent but subject to the requirements on application or use thereof set forth herein, provided that there then exists no default, or condition which with the passage of time or giving of notice, would constitute a default hereunder or under any of the Loan Documents, to (i) receive all such insurance proceeds, and (ii) settle, adjust or compromise such claim. (d) In the event of the foreclosure of this Deed of Trust or other transfer of the title to the Security in extinguishment, in whole or in part, of the Indebtedness, all right, title and interest of Trustor in and to any insurance policy, or premiums or payments in satisfaction of claims or any other rights thereunder then in force, shall pass to the purchaser or grantee notwithstanding the amount of any bid at such foreclosure sale. Nothing contained herein shall prevent the accrual of interest as provided in the Note on any portion of the principal balance due under the Note until such time as the Insurance Proceeds are actually received and applied to reduce the principal balance outstanding. 8. Casualty. (a) Occurrence of Casualty. After the happening of any casualty to the Security, whether or not required to be insured against under the policies to be provided by Trustor hereunder, Trustor shall give prompt written notice thereof to Beneficiary generally describing the nature and cause of such casualty and the extent of the damage or destruction to the Security. (b) Application of Insurance Proceeds. As used herein, "Insurance Proceeds" means all proceeds of any insurance which Trustor may be entitled to receive for loss or damage to the Security, other than insurance proceeds under Section 7(a)(ii) and Section 7(a)(iii). In the case of loss or damage to the Security in an amount not more than Five Hundred Thousand Dollars ($500,000), Trustor shall have the right, without Beneficiary's consent but subject to the requirements on application or use thereof set forth herein, provided that there then exists no default, or condition which with the passage of time or giving of notice, would constitute a default hereunder or under the Loan Documents, to (i) receive all Insurance Proceeds, and (ii) settle, adjust or compromise such claim. If within one hundred twenty (120) days after the casualty Beneficiary receives Trustor's request to release the Insurance Proceeds to pay for restoration of the Deed or Trust Property, Beneficiary shall release the Insurance Proceeds (less Beneficiary's reasonable out of pocket expenses for collecting and disbursing the Insurance Proceeds, or otherwise incurred in connection with said casualty) provided: (i) there is no existing default under the Loan Documents; (ii) not more than 30% of the Improvements are damaged; (iii) Trustor can demonstrate to Beneficiary's reasonable satisfaction that Trustor has the financial ability to pay the scheduled debt service and other amounts which may become due, if any, under the Loan Documents, during reconstruction from the proceeds of rent insurance or otherwise; (iv) such damage or destruction occurs prior to the last Loan Year (as defined in the Note) (v) Insurance Proceeds are released held in escrow and released under funding arrangements reasonably satisfactory to Beneficiary, including, without limitation, those set forth in Section 8(e) hereof; (vi) the excess of annual income from leases then in effect and approved by Beneficiary that will survive the Restoration, or otherwise satisfying the requirements of the Loan Documents such that Beneficiary's approval is not required, over all operating expenses and real estate taxes incurred with respect to the Security during the year prior to the damage, is at least 1.20 times the annual debt service payments required under the Note. The Insurance Proceeds, and any other amounts which are contributed to the Restoration, if any, are called the "Restoration Funds". In the event that the Insurance Proceeds are released by Beneficiary as provided under this grammatical paragraph, and provided that Trustor meets and is otherwise in compliance with the requirements of this Deed of Trust, Trustor shall not be required to contribute any additional amounts to the Insurance Proceeds for the purposes of increasing Restoration Funds or effectuating the Restoration. However, in the event that Beneficiary is not obligated to release funds under this Deed of Trust, but may elect to release such funds, Beneficiary may require that additional funds be contributed by Trustor as a condition to such release. Upon release of the Restoration Funds, Trustor shall commence and diligently pursue to completion in accordance with this Section 8 repairs to the portion of the Security that has been partially damaged or destroyed, in compliance with all legal requirements and to the same condition, character and at least equal value and general utility as nearly as possible to that existing prior to such damage or destruction (the "Restoration"). In the event that Beneficiary is not obligated to release the Insurance Proceeds for Restoration under the preceding grammatical paragraph, Beneficiary may, at its option, elect to apply the Insurance Proceeds to the reduction of the indebtedness secured by this Deed of Trust in such order as Beneficiary may determine, or to the cost of Restoration, and at Beneficiary's option and in its sole discretion, Beneficiary may, within one hundred twenty (120) days of such damage or destruction, declare the entire Indebtedness secured hereby immediately due and payable without any prepayment premium. (c) Requirements for Restoration. In the event the Restoration Funds are to be used for the Restoration, Trustor shall, prior to the commencement of any construction work on the Security in connection with the Restoration (the "Work"), deliver to Beneficiary (i) complete plans and specifications for the Work which (A) have been approved by all governmental authorities whose approval is then required, (B) bear the signed approval of an architect satisfactory to Beneficiary ("Architect") and (C) are accompanied by Architect's signed estimate of the total estimated cost of the Restoration which shall provide that upon completion of the Work, the Improvements shall be at least equal in value and general utility to their value and general utility immediately prior to the damage or destruction or condemnation (such plans and specifications shall be subject to Beneficiary's approval, which approval shall not be unreasonably withheld (the "Approved Plans")); (ii) copies of all permits and approvals (temporary or permanent) required by law in connection with the commencement and conduct of the Restoration; (iii) a contract for construction executed by Trustor and a contractor reasonably satisfactory to Beneficiary ("Contractor") in form, scope and substance satisfactory to Beneficiary (including the customary retention) for performance of the Work; and (iv) if the estimated cost of the Restoration exceeds Five Hundred Thousand Dollars ($500,000), a surety bond for and/or guarantee satisfactory to Beneficiary of payment for and completion of, the Restoration, which bond or guarantee shall be (A) in form, scope and substance satisfactory to Beneficiary, (B) signed by a surety or sureties, or guarantor or guarantors, as the case may be, who are acceptable to Beneficiary, and (C) in an amount not less than Architect's total estimated cost of completing the Restoration less the amount of the net Insurance Proceeds, if any, then held by Beneficiary. (d) Performance of Restoration. Trustor shall not commence any portion of the Work, other than temporary work to protect the Improvements or prevent interference with business, until Trustor shall have complied with the requirements of Section 8(c). After commencing the Work, Trustor shall perform or cause Contractor to perform the Work diligently and in good faith in accordance with the Approved Plans. (e) Disbursement of Restoration Funds. Beneficiary shall disburse the Restoration Funds in increments to Trustor or to parties to whom payments for work are then due, as Beneficiary shall elect from time to time as the Work progresses, to pay (or reimburse Trustor for) the costs of the Restoration, but subject to the following conditions, any of which Beneficiary may waive in its sole discretion: (i) The Work shall be in the charge of an experienced construction manager reasonably satisfactory to Beneficiary (which may be an employee of Trustor or its affiliates) with the consultation of Architect; (ii) Beneficiary shall make such payments not more often than at thirty (30) day intervals and only upon not less than ten (10) days' prior written notice from Trustor to Beneficiary and Trustor's delivery to Beneficiary of (A) Trustor's written request for payment (a "Request for Payment") accompanied by a certificate by Architect in form, scope and substance reasonably satisfactory to Beneficiary which states that all of the Work completed to that date has been done in compliance with the Approved Plans and in accordance with applicable law, that the amount requested has been paid or is then due and payable and is properly a part of the cost of the Restoration and that when added to all sums, if any, previously paid out by Beneficiary, the requested amount does not exceed the value of the Work done to the date of such certificate; (B) evidence reasonably satisfactory to Beneficiary that there are no mechanic's or similar liens for labor or material supplied in connection with the Work to date or that any such liens have been adequately provided for to Beneficiary's reasonable satisfaction; and (C) evidence reasonably satisfactory to Beneficiary that the balance of the Restoration Funds remaining after making the payments will be sufficient to pay for the Restoration not then completed (giving in such reasonable detail as Beneficiary may require an estimate of the cost of such completion). Each Request for Payment shall be accompanied by waivers of liens reasonably satisfactory to Beneficiary covering that part of the Work previously paid for, if any, and by a search prepared by a title company or by other evidence reasonably satisfactory to Beneficiary that no mechanic's liens or other liens or instruments for the retention of title in respect of any part of the Work have been filed against the Security and not discharged of record or otherwise bonded over or insured over to Beneficiary's reasonable satisfaction and that, except as otherwise expressly permitted herein, no encumbrance exists on or affecting the Security other than encumbrances, if any, which are set forth in the title policy issued to Beneficiary insuring the lien of this Deed of Trust; (iii) There shall then exist no Event of Default by Trustor under the Note or under any other Loan Documents, or any state of facts existing which, with the giving of notice or the passage of time or both, would constitute an Event of Default; and (iv) Any final Request for Payment after the Restoration has been completed shall be accompanied by a copy of any permanent or temporary certificate or certificates required by law (the "Certificate of Occupancy"), if any, to render occupancy of the Improvements legal. Upon Beneficiary's receipt of the Certificate of Occupancy for the Improvements and final lien waivers evidencing that the Restoration has been completed and the costs thereof paid in full, and satisfactory evidence that no mechanic's or similar liens for labor or material supplied in connection with the Restoration are outstanding against the Security and provided that Trustor is not then in default under any of the Loan Documents, Beneficiary shall pay any remaining Restoration Funds then held by Beneficiary to Trustor; provided, however, nothing contained herein shall prevent Beneficiary from applying at any time the whole or any part of the Restoration Funds to the curing of any Event of Default under the Loan Documents. (f) Application of Restoration Funds to Indebtedness. If, within sixty (60) days after the occurrence of any damage or destruction to the Security requiring Restoration, Trustor fails to request that the Insurance Proceeds be disbursed as above permitted; or if, within one hundred twenty (120) days after the occurrence of such damage or destruction to the Security (unless, in the event that Beneficiary is not obligated to permit Trustor to restore the Security under subparagraph (b) above, but nevertheless elects to do so, then one hundred twenty (120) days from such election), Trustor (i) fails to submit to Beneficiary and receive Beneficiary's approval of plans and specifications or (ii) fails to deposit with Beneficiary any additional amounts which may be required by Beneficiary in accordance with this Deed of Trust to accomplish the Restoration, or (iii) Trustor fails to commence promptly or diligently continue to completion the Restoration after such plans and specifications are approved by all such governmental authorities and Beneficiary, or (iv) Trustor becomes delinquent in payment to mechanics, materialmen or others for the costs incurred in connection with the Restoration; then, in addition to all of the rights herein set forth and after thirty (30) days' written notice of the nonfulfillment of one or more of the foregoing conditions, Beneficiary, or any lawfully appointed receiver of the Security, may at their respective options, (A) perform or cause the Work to be performed, and may take such other steps as they deem advisable to perform the Work, and may enter upon the Security for the foregoing purposes and/or (B) apply the Restoration Funds then or thereafter held by Beneficiary to reduce the unpaid Indebtedness in such order as Beneficiary may elect without prepayment premium. Any application of such proceeds to the Indebtedness shall be at par and shall cause a pro rata reduction in payments of interest and, if applicable, principal, under the Note (based on a reamortization, as applicable), provided, however, that if there exists an Event of Default, the prepayment fee (prorated based upon the amount being prepaid) as provided in the Note shall also be due. (g) Payment of Restoration Funds to Trustor. In the event that Beneficiary applies all or any portion of the Restoration Funds to reduce the unpaid Indebtedness as provided in this Section 8, after payment in full of all sums secured by the Loan Documents, any remaining Restoration Funds shall be paid to Trustor. 9. Condemnation. Should the Security or any part thereof be taken or damaged by reason of any public improvement or condemnation proceeding, or in any other manner, Beneficiary shall be entitled to all compensation, awards and other payments or relief therefor, and may, at its option, commence, appear in and prosecute in its own name any action or proceeding or make any compromise or settlement in connection with such taking or damage. In no event shall Trustor commence, appear in and prosecute any action or proceeding or make any compromise or settlement in connection with such taking or damage without the prior written consent of Beneficiary. All such compensation, awards, damages, rights of action and proceeds (the "Condemnation Proceeds") are hereby assigned to Beneficiary, who shall, after deducting therefrom all its reasonable expenses, including attorneys' fees, and so long as there is no default hereunder or under the Loan Documents or any condition which, with the passage of time or the giving of notice or both, would constitute a default hereunder or thereunder, apply or release the Condemnation Proceeds to repair any damage to the Improvements remaining on the portion of the Security not subject to the taking, as provided in Section 8 above with respect to disposition of Insurance Proceeds; provided, however, that if the taking results in a loss of the Security to an extent which, in Beneficiary's sole and absolute opinion, renders or will render the Security not economically viable, or otherwise impairs or will impair Beneficiary's security under the Loan Documents, Beneficiary may apply all or any part of the Condemnation Proceeds to reduce the unpaid Indebtedness in such order as Beneficiary may elect. Any application of such proceeds to the principal indebtedness shall be at par and shall cause a pro rata reduction in payments of interest and, if applicable, principal, under the Note (based on a reamortization, if applicable); provided, however, that if there exists an Event of Default, the prepayment fee (prorated on the basis of the amount being prepaid) as provided in the Note shall also be due. Beneficiary may require a contribution of additional funds for the repair or restoration of the Security as a condition to releasing Condemnation Proceeds for such purpose. Nothing contained herein shall prevent the accrual of interest as provided in the Note on any portion of the principal balance due under the Note until such time as the Condemnation Proceeds are actually received and applied to reduce the principal balance outstanding. 10. Repair; Alterations; Waste. Trustor shall keep all of the Security in good repair, and expressly agrees that it will neither permit nor commit any waste upon the Security nor do any other act or suffer or permit any act to be done, whereby the Security or the lien hereof may be impaired, and shall comply with all zoning laws, building codes, subdivision laws, and other laws, ordinances, rules and regulations made or promulgated by any government or municipality, or by any agency thereof or by any other lawful authority, which are now or may hereafter become applicable to the Security, provided that compliance with environmental laws shall be governed by Section 11 hereof. Subject to the provisions of Sections 8 and 9 hereof, Trustor shall repair or restore any building now or hereafter under construction on the Security and complete the same within a reasonable period of time. Trustor agrees not to initiate or acquiesce in any material zoning variance or reclassification which materially affects the Security, without Beneficiary's prior written consent, which consent shall not be unreasonably withheld. Trustor shall not construct any additional building or buildings or make any other improvements on the Land nor alter, remove or demolish any building or other Improvements on the Land, without the prior written consent of Beneficiary. In furtherance but not in limitation of Trustor's obligations hereunder, Trustor shall implement the ADA compliance requirements described as items to be addressed in the "ADA Worksheets" (8 pages) for the Security prepared in 1991 and transmitted to Beneficiary by letter dated September 7, 1994. If Trustor fails to observe any of the provisions of this Section or suffers or permits any Event of Default to exist under this Section, Beneficiary or a lawfully appointed receiver of the Security at their respective options, from time to time, may perform, or cause to be performed, any and all repairs and such other work as they deem necessary to bring the Security into compliance with the provisions of this Section and may enter upon the Security for any of the foregoing purposes, and, except for Beneficiary's gross negligence and willful misconduct, Trustor hereby waives any claim against Beneficiary and/or such receiver, arising out of such entry or out of any other act carried out pursuant to this Section. Trustor shall within ten (10) days of written demand repay to Beneficiary and such receiver, with interest at the Default Rate, all amounts expended or incurred by them, respectively, in connection with any action taken pursuant to this Section, and such repayment shall be secured by the lien of this Deed of Trust. Trustor represents and warrants that there are and at all times will be at least 689 parking spaces on and as part of the Security. 11. Environmental. (a) Except as disclosed in that certain environmental audit dated August, 1994 and prepared by Blasland, Bouck & Lee, Inc., a copy of which has been furnished to Beneficiary (the "Environmental Audit"), or in that certain Borrower's Certificate by Trustor of even date herewith (the "Borrower's Certificate"), Trustor represents and warrants that, Trustor has not used and will not use, in violation of any of the Environmental Laws (hereinafter defined) and, to the best of Trustor's knowledge, no prior owner or current or prior tenant, subtenant, or other occupant of all or any part of the Security has used or is using Hazardous Materials (hereinafter defined) on, from or affecting the Security in any manner that violates federal, state or local laws, ordinances, rules, regulations or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production, or disposal of Hazardous Materials, and that, to the best of Trustor's knowledge, no Hazardous Materials have been disposed of on or within the Security in violation of any of the Environmental Laws, intentionally or unintentionally, directly or indirectly, by any person whether related or unrelated to Trustor nor have any Hazardous Materials migrated onto or from the Security in violation of any Environmental Laws (hereinafter defined). Trustor covenants that it will use reasonable efforts to not permit or suffer any violation of any Environmental Laws (hereinafter defined). (b) For purposes of this Deed of Trust, "Hazardous Materials" shall mean and include all products or substances which are or contain petroleum, natural gas, natural gas liquids, asbestos or polychlorinated biphenyls or any chemicals known to cause cancer or reproductive toxicity and published pursuant to California Health and Safety Code Sub-Section 25249.5 et. seq and those elements, compounds, materials, mixtures and substances which are now or hereafter are contained in any list of hazardous substances adopted by the United States Environmental Protection Agency (the "EPA") or any list of toxic pollutants designated by Congress or the EPA or which are defined as hazardous, toxic, pollutant, infectious, flammable or radioactive by any other Federal, State, or local statute, law, ordinance, code, rule, regulation, order, or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic, or dangerous waste, substance, element, compound, mixture or material, as now or at any time hereafter in effect, including, without limitation, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sub-Section 9601 et seq., the Federal Hazardous Materials Transportation Act, the Federal Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sub-Section 6901 et seq., the Federal Toxic Substance Control Act, 15 U.S.C. Sub-Section 2601 et seq., the Federal Clean Air Act, the Federal Water Pollution Control Act, the California Health & Safety Code (including without limitation those chemicals known to cause cancer or reproductive toxicity, Sub-Section 25249.5, et seq.,) or rules and regulations of the EPA, the California Department of Health Services or any other agency or governmental board or entity having jurisdiction over the Security (collectively, the "Environmental Laws"). (c) Except as may be disclosed in the Environmental Audit or in the Borrower's Certificate, Trustor represents and warrants that, to its actual knowledge, as of the date hereof, no use, generation, manufacture, production, treatment, storage or disposal of any Hazardous Materials has occurred or is occurring on or within the Security in violation of any of the Environmental Laws and that Trustor will use reasonable efforts to not permit or suffer any such use, generation, manufacture, production, treatment, storage or disposal of Hazardous Materials on, under, about or within the Security in violation of any of the Environmental Laws or permit any lien or designation regarding environmental matters under any California or Federal law, rule, or regulation to attach to the Security or any portion thereof or any interest therein. Trustor represents and warrants that, to its actual knowledge, as of the date hereof, it has not received any notice from any governmental agency or any tenant of the Security with regard to such Hazardous Materials, and has received no notice that the environmental condition of the Security is in violation of any Environmental Law. (d) Except as may be disclosed in the Environmental Audit or in the Borrower's Certificate, Trustor represents and warrants that Trustor has not installed on or in the Security any asbestos containing material and, to Trustor's actual knowledge as of the date hereof, the Security does not contain, and has not in the past contained, any asbestos containing material in friable form, and there is no current or potential airborne contamination of the Security by asbestos fiber, including any potential contamination that would be caused by maintenance or tenant finish activities in the building(s). (e) Trustor represents and warrants that, to its actual knowledge, as of the date hereof, it has not received any notice that the soil, surface water, and ground water of or on the Security are not free from any spills of oil or other solid or liquid waste, toxic or hazardous substance or contaminate, and Trustor has no actual knowledge of any such spill. (f) In the event that any investigation, site monitoring, containment, clean-up, removal, restoration or other remedial work of any kind or nature (the "Remedial Work") is required under any applicable local, state or federal law or regulation, any judicial order, or by any governmental entity or person because of, or in connection with, the current or future presence, suspected presence, release or suspected release of a Hazardous Material in or about the air, soil, ground water, surface water or soil vapor at, on, about, under or within the Security (or any portion thereof), Trustor shall within forty-five (45) days after written demand for performance thereof by Beneficiary (or such shorter period of time as may be required under any applicable law, regulation, order or agreement), commence and thereafter diligently prosecute to completion, all such Remedial Work. All Remedial Work shall be performed by contractors reasonably approved in advance by Beneficiary, and under the supervision of a consulting engineer reasonably approved by Beneficiary. All costs and expenses of such Remedial Work shall be paid by Trustor including, without limitation, Beneficiary's reasonable attorneys' fees and out of pocket costs incurred in connection with monitoring or review of such Remedial Work. In the event Trustor shall fail to timely prosecute to completion such Remedial Work, after the expiration of any applicable notice and cure periods, Beneficiary may, but shall not be required to, cause such Remedial Work to be performed and all reasonable costs and expenses thereof, or incurred in connection therewith, shall be payable by Trustor within ten (10 days after written demand. Trustor shall have the right to contest, at Trustor's sole cost and expense, Trustor's requirement of any Remedial Work provided that: (i) as a condition to any such contest, Trustor shall deliver to Beneficiary, at Trustor's sole cost and expense, such test results, consultants' reports and other information regarding the then current environmental condition of the Security and the effect that any additional delay that may result from any such contest would have on such environmental condition, as Beneficiary may reasonably require; (ii) Trustor shall have no right to contest if the delay that might result from any such contest would result in any deterioration in the environmental condition of the Security or any portion thereof or in any deterioration in the environmental condition of any other property; (iii) Trustor shall have no such right to contest if, as a result of such contest, any governmental agency would have the right to claim a lien on all or any portion of the Security; and (iv) Trustor shall give prior written notice to Beneficiary of Trustor's intention to exercise such right of contest and, upon written request of Beneficiary, shall deliver to Beneficiary a good and sufficient bond or other security reasonably satisfactory to Beneficiary for the costs which would be incurred in complying with such requirement of Remedial Work. (g) Trustor shall provide Beneficiary with prompt written notice (a) upon Trustor's becoming aware of any release or threat of release of any Hazardous Materials upon, under or from the Security in violation of any of the Environmental Laws; (b) upon Trustor's receipt of any notice from any federal, state, municipal or other governmental agency or authority in connection with any Hazardous Materials located upon or under or emanating from the Security; and (c) upon Trustor's obtaining knowledge of any incurrence of expense by any governmental agency or authority in connection with the assessment, containment or removal of any Hazardous Materials located upon or under or emanating from the Security. (h) In the event that (1) there exists an Event of Default hereunder or under any of the Loan Documents or (2) Beneficiary reasonably believes that there may be a violation or threatened violation by Trustor of any requirements of Environmental Law or a violation or threatened violation by Trustor of any covenant under this Section 11, Beneficiary is authorized by itself, its agents, employees or workmen to enter at any reasonable time upon any part of the Real Property for the purposes of inspecting the same for Hazardous Materials and Trustor's compliance with this Section 11 and such inspections may include, without limitation, soil borings. Beneficiary's rights hereunder include its rights under California Civil Code Section 2929.5, as such Section may be amended from time to time. Trustor acknowledges that, pursuant to California Code of Civil Procedure Section 564(c), as such Section may be amended from time to time, Beneficiary may be entitled to the appointment of a receiver to enforce its rights under California Civil Code Section 2929.5. Trustor agrees to pay to Beneficiary, upon Beneficiary's demand, all out of pocket expenses, costs or other amounts incurred by Beneficiary in performing any inspection and/or testing for the purposes set forth in this clause (i), including, without limitation, all out of pocket expenses, costs or other amounts incurred by Beneficiary in obtaining the appointment of a receiver as aforesaid. Beneficiary is under no duty, however, to visit or observe the Real Property or to conduct tests, and any such acts by Beneficiary shall be for the sole purpose of protecting Beneficiary's security and preserving Beneficiary's and Trustee's rights under the Loan Documents. In no event shall any site visit, observation or testing by Beneficiary be a representation that Hazardous Materials are or are not present in, on, or under the Real Property, or that the construction is free from defective materials or workmanship, or that there has been or shall be compliance with any Loan Document or any applicable governmental law. Neither Trustor nor any other party is entitled to rely on any site visit, observation or testing by Beneficiary. Beneficiary owes no duty of care to protect Trustor or any other party against any Hazardous Materials, any negligent or defective design or construction of the Improvements, or any other adverse condition affecting the Real Property. (i) The foregoing provisions of this Section 11 do not apply to any ordinary use and incidental storage of small and insignificant amounts of substances reasonably necessary for the regular and ordinary maintenance of the Real Property, or consumed in the regular and ordinary use of common office business machines, nor to gasoline, oil, and other ordinary automotive fluids to the extent that they are contained in the common and ordinary manner in motor vehicles visiting the Real Property, in each case provided that the same does not constitute a violation of any of the Environmental Laws. 12. Independence of Security. Trustor shall not hereafter by act or omission permit any building or other improvement on premises not subject to the lien of this Deed of Trust to rely on the Security or any part thereof or any interest therein to fulfill any municipal or governmental requirement, and Trustor hereby assigns to Beneficiary any and all rights to give consent for all or any portion of the Security or any interest therein to be so used. Similarly, except as provided in the Parking Agreements, no part of the Security shall rely on any premises not subject to the lien of this Deed of Trust or any interest therein to fulfill any governmental or municipal requirement. Trustor shall not hereafter by act or omission impair the integrity of the Security as a single zoning lot, and as one or more complete tax parcels, separate and apart from all other premises. Any act or omission by Trustor which would result in a violation of any of the provisions of this Section shall be void. 13. No Other Liens. Trustor shall not consent, agree to, or permit any mortgage, lien, or security interest upon or affecting the Security or any part thereof except for the Permitted Encumbrances (as defined in Section 2 hereof), and as granted or permitted in this Deed of Trust and any other lien or security interest granted to Beneficiary. Trustor will promptly pay and discharge any and all amounts which are now or hereafter become liens against the Security whether or not superior to the lien hereof or to any assignment of rents and leases given to Beneficiary, subject to Trustor's right to contest taxes and mechanic's liens in accordance with this Deed of Trust. 14. Management. Trustor shall at all times retain an entity which is owned by, controlled by or under common control with JMB Realty Corporation or JMB Properties Co. to operate and manage the Security, and no change in such management shall be made without the prior written approval of Beneficiary, except to Heitman Properties, Ltd., and any such attempted change in management without such consent shall be void. The management agreement with JMB Properties Company dated January 1, 1987 may not be modified or amended and any successor agreement may not be entered into or any other management company appointed without Beneficiary's prior written approval. The management agreement, including payment of any fees thereunder or lien to which the manager shall be entitled, must be subordinate to the lien of this Deed of Trust. 15. Ground Lease. Trustor hereby represents and warrants to Beneficiary that there exist no ground leases relating to or executed in connection with the Security. 16. Sidewalks, Municipal Charges. Trustor will promptly pay and discharge any and all license fees and similar charges, with penalties and interest thereon, which may be imposed by the municipality in which the Security is situated, for the use of vaults, chutes, areas and other space beyond the lot line and under or abutting the public sidewalks in front of or adjoining the Security, and Trustor will promptly cure any violation of law and comply with any order of such municipality respecting the repair, replacement or condition of the sidewalk or curb in front of or adjoining the Security, and if Trustor fails to do same within any applicable time periods permitted by such law or order, Beneficiary may, upon ten (10) days written notice to Trustor, pay any and all such license fees or similar charges, with penalties and interest thereon, and the charges of the municipality for such repair or replacement, and any amount so paid or advanced by Beneficiary and all reasonable out of pocket costs and expenses incurred in connection therewith (including, without limitation, reasonable attorneys' fees), with interest thereon at the default rate specified in the Note, shall be a demand obligation of Trustor to Beneficiary, and, to the extent permitted by law, shall be added to the Indebtedness and shall be secured by the lien of this Deed of Trust. 17. Assignment of Rents and Leases. Trustor hereby presently, irrevocably, absolutely, and unconditionally grants, transfers, assigns and sets over unto Beneficiary all of its right, title and interest in and to all present and future leases, license agreements, concession agreements, lease termination agreements and other occupancy agreements of any nature, oral or written, of the Land and of space in the Improvements together with all modifications, supplements, extensions, renewals and replacements thereof now existing or hereafter made, and also together with the rights to sue for, collect and receive all rents, prepaid rents, additional rents, royalties, security deposits, damages payable upon default by tenant, or other sums in any of said leases provided to the lessor thereunder, profits, income, license fees, concession fees, lease termination fees and issues of the Security (collectively, the "Rents"), to be applied by Beneficiary in payment of the Indebtedness, and also together with any and all guaranties of the obligations of the tenants thereunder and the rights of Trustor to receive, hold and apply all bonds and security in all of said leases provided to be furnished to the lessor thereunder, and also together with the rights of Trustor to enforce any and all of the agreements, terms, covenants and conditions in all of said leases provided and to give notices thereunder. Beneficiary grants to Trustor a revocable license to collect the Rents as they become due and to enforce such leases, so long as no Event of Default exists hereunder. Beneficiary may receive and collect the Rents personally or through a receiver upon the occurrence of an Event of Default so long as any such Event of Default shall exist and during the pendency of any foreclosure proceeding and during any redemption period. Trustor agrees to consent to a receiver if this is believed necessary or desirable by Beneficiary to enforce its rights under this Section. Trustor shall not otherwise assign or pledge, or contract, expressly or by implication, to assign or pledge, any lease of the Land or space in the Improvements or the rights to sue for, collect and receive any Rents, or the rights to receive, hold and apply any bonds and security in any of said leases provided to be furnished to the lessor thereunder, or the rights to enforce any of the agreements, terms, covenants or conditions of said leases or to give notices thereunder, unless in each instance the written consent thereto of Beneficiary be first obtained. Nothing in this Deed of Trust shall be construed to obligate Beneficiary, expressly or by implication, to perform any of the covenants of Trustor as lessor under any of the leases hereinabove assigned or to pay any sum of money or damages therein provided to be paid by the lessor. If Beneficiary shall from time to time suffer or permit Trustor to sue for, collect or receive any Rents, or to receive, hold or apply any bonds or security under said leases, or to enforce any of the agreements, terms, covenants or conditions thereunder or to give notices thereunder, neither such sufferance nor permission shall constitute a waiver or relinquishment by Beneficiary of the rights hereunder and hereby assigned to Beneficiary with respect to any subsequent Rents, or with respect to any subsequent receipt, holding or application of bonds or security or any subsequent enforcement of such agreements, terms, covenants or conditions or any subsequent notices. 18. Future Leases. Trustor will not hereafter make any lease to any tenant, or amend, modify, terminate, renew or extend any lease (other than a renewal to which a tenant is entitled under the terms of an existing lease or contained in a lease that is subsequently approved by Beneficiary), affecting the Security unless Beneficiary shall first consent in writing to the form and substance of said lease or amendment, modification, renewal or extension, which consent shall not be unreasonably withheld. Leases (or amendments, modifications, renewals or extensions of then existing Leases) submitted for Beneficiary's review and approval shall be deemed approved if Beneficiary fails to respond (e.g. approve, reject, comment about, request more information or other reasonable response) within thirty (30) days from Beneficiary's receipt of the submitted request for approval. Trustor may, however, if the particular circumstances require, request an expedited review, in which case the lease shall be deemed approved if Beneficiary fails to respond within ten (10) business days of receipt. Notwithstanding the foregoing, a lease shall only be deemed approved if (i) the cover letter accompanying the lease submission clearly and conspicuously states that such lease will be automatically deemed approved under the Loan Documents if no response is forthcoming from Beneficiary, along with the date that such automatic approval would be effective, (ii) such lease will not be used to qualify for the reduction, release or earnout on any letter of credit, escrow, guarantee, indemnification or other form of additional collateral for the loan, nor will such lease be used to qualify for any right or privilege of Trustor under the Loan Documents which is triggered by, among other things, a debt service coverage test (however, leases expressly approved by Beneficiary may be used for such purposes), (iii) the lease submission date commences when Beneficiary actually receives a complete and final draft of the lease at the address for its Investment Services department set forth in the notice provision of this Deed of Trust, (iv) there is not Event of Default under the Loan Documents which remains uncured at the time such lease would be deemed approved, and (v) in the case of "expedited review" requests, the circumstances which require such expedited review are not caused solely by the Trustor, and such circumstances are clearly and fully explained in the cover letter accompanying the lease submission. All leases must be subordinate to the lien of this Deed of Trust unless Beneficiary otherwise specifies. Each lease must contain a provision that, upon notice to tenant by Beneficiary, the lease shall become superior, in whole or in part, to the lien of this Deed of Trust. Without limiting the foregoing, Beneficiary hereby reserves the right to subordinate this Deed of Trust to any lease subsequently made by recording in the Official Records of Santa Clara County in which this Deed of Trust is recorded a declaration to that effect, executed by Beneficiary, which declaration once so recorded shall be binding upon the tenant under such lease and such tenant's successors and assigns. To the extent any tenant estoppel certificate or agreement from a tenant relating to subordination and attornment for any Lease is required under this Deed of Trust or any other Loan Document, the forms attached hereto as Exhibit B and Exhibit C, respectively, shall be acceptable to Beneficiary for such purposes. Trustor will furnish to Beneficiary a true and complete copy of each lease, amendment, modification, extension, or renewal of lease, hereafter made by Trustor with respect to space in the Security within ten (10) days after execution and delivery of each such lease, amendment, modification, extension, or renewal by the parties thereto. Trustor shall also furnish to Beneficiary an original mortgagee subordination and attornment agreement executed by each tenant and an original estoppel, addressed to Beneficiary, from each tenant in form and substance satisfactory to Beneficiary. Trustor will from time to time upon demand of Beneficiary, confirm in writing the assignment to Beneficiary of any or all leases of the Land and space in the Improvements, and such written confirmation shall be in such form as Beneficiary shall require and as shall be necessary to make the same recordable. 19. Trustor's Obligations as Lessor. (a) Trustor shall, at Trustor's cost and expense, promptly and fully perform each and every covenant, condition, promise and obligation on the part of the lessor to be performed pursuant to the terms of each and every lease or letting, written or oral, now or hereafter made with respect to the Security or any part or parts thereof, and shall not suffer or permit there to exist any default in such performance on the part of such lessor or permit any event to occur which would give the tenant under any such lease the right to terminate the same or to offset rent. (b) Trustor shall give Beneficiary prompt written notice of any default under any lease or of the receipt by Trustor of any written notice of default from the lessee or its successors or assigns under a lease, and Trustor shall furnish to Beneficiary promptly any and all information which Beneficiary may reasonably request concerning the performance and observance of all covenants, agreements and conditions contained in the leases by the lessor thereunder to be kept, observed and performed and concerning the compliance with all terms and conditions of the leases. (c) In the event of any failure by Trustor to keep, observe or perform any covenant, agreement or condition contained in the leases or to comply with the terms and conditions of the leases, any performance, observance or compliance by Beneficiary pursuant to this Deed of Trust on behalf of Trustor shall not remove or waive, as between Trustor and Beneficiary, the corresponding Event of Default under the terms of this Deed of Trust. 20. Leases; Foreclosure. Any proceedings or other steps taken by Beneficiary to foreclose this Deed of Trust, or otherwise to protect the interests of Beneficiary hereunder, shall not operate to terminate the rights of any present or future tenant of space in the Improvements, notwithstanding that said rights may be subject and subordinate to the lien of this Deed of Trust, unless Beneficiary specifically elects otherwise in the case of any particular tenant. The failure to make any such tenant a defendant in any such foreclosure proceeding and to foreclose such tenant's rights will not be asserted by Trustor or any other defendant in such foreclosure proceeding instituted by Beneficiary to foreclose this Deed of Trust or otherwise protect the interests of Beneficiary hereunder. 21. Operating Agreements. Trustor will perform its obligations under all agreements relating to or executed in connection with the Security that require or provide for the operation of the Security in any manner and will not enter into any such agreements which would bind Beneficiary if Beneficiary becomes the owner of the Security, except for the Permitted Exceptions and Parking Agreements. 22. Events of Default. Each of the following shall constitute an "Event of Default" hereunder and shall entitle the Beneficiary to exercise its remedies hereunder and under any of the other Loan Documents or as otherwise provided by law: (a) Any payment of any installment of principal or interest due under the Note, or any escrow payment due under any of the Loan Documents, is not received by Beneficiary within five (5) business days following the date when such payment was due, or any other payment of money or indebtedness as required by this Deed of Trust or by any other Loan Document is not made within ten (10) days of when due and payable; (b) Failure of Trustor in the observance or performance of any covenant, promise or agreement provided in this Deed of Trust or in any other Loan Document other than relating to the payment of indebtedness or money ("failure to perform") for thirty (30) days after written notice to Trustor specifying the nature of the failure to perform; provided, however, that if the nature of such failure to perform is such that the same cannot be cured within such thirty (30) day period, such failure to perform shall not be deemed an Event of Default if Trustor shall within such period commence to cure that failure to perform and thereafter diligently prosecute the cure to completion, but in no event more than one hundred twenty (120) days in the aggregate. Notwithstanding anything contained herein to the contrary, the notice and cure period provided under this clause (b) shall not be applicable to and shall not be in addition to any specific notice and cure or performance period provided under any other provision of this Deed of Trust, and the specific notice and cure or performance period provided for in such provision shall control, except and to the extent that such provision expressly states that such notice or cure period is in addition to notice and cure periods provided elsewhere, and a failure by Trustor to cure a default under such provision within the applicable cure period shall be an Event of Default under this Deed of Trust; (c) Any representation, warranty, or statement of Trustor or the managing general partner of Trustor contained herein or in any of the Loan Documents proves to be untrue in any material respect as of the date when made; (d) Trustor or the managing general partner of Trustor shall (i) have an order for relief entered in a proceeding under Title 11, United States Code, whether such order shall result from a voluntary or involuntary petition, provided that, in the case of an involuntary filing, Trustor shall have also failed to obtain a dismissal within ninety (90) days of the petition date, (ii) seek or consent to the appointment of a receiver or trustee for itself or for any of the Security, (iii) file a petition or initiate a proceeding under the bankruptcy, insolvency, receivership, or similar laws of the United States, any state or any jurisdiction, or (iv) make a general assignment for the benefit of creditors; (e) A court shall enter an order, judgment or decree appointing, without the consent of Trustor or the managing general partner of Trustor, a receiver or trustee for it or for any of the Security or approving a petition filed against Trustor which seeks relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, and such order, judgment or decree shall remain in force, undischarged or unstayed, ninety days after it is entered; (f) Without the prior written consent of the Beneficiary, which may be given or withheld in Beneficiary's sole and absolute discretion, whether voluntary or involuntary, by operation of law or otherwise, (i) the Security or any portion thereof, or interest therein, shall be mortgaged, encumbered, sold, assigned or otherwise transferred by the Trustor or by operation of law, including without limitation, the sale or execution of a contract to sell or option to purchase, assignment, pledge, grant of a security interest in, conditional sale, execution of a title retention agreement, lease for space within the Security containing an option to purchase, or other alienation of a property interest in the Security, or (ii) JMB Income Properties, Ltd.-XI or JMB Income Properties, Ltd.-XII, both Illinois general partnerships, transfer all or any portion of their respective interests in Trustor or cease to be the co- managing general partners of Trustor, responsible for and in control of the management and affairs of Trustor, or (iii) JMB Realty Corporation, a Delaware corporations, transfers all or any portion of its interest in or ceases to be the managing general partners of JMB Income Properties, Ltd.-XI or JMB Income Properties, Ltd.-XII, or (iv) the partnership agreement of Trustor or of such general partners is cancelled or materially amended or modified. Notwithstanding the foregoing to the contrary: (i) Provided that Beneficiary is notified at least thirty (30) days prior to such transfer, transfers of the partnership interests in Trustor or the partners of Trustor shall be permitted, provided that, immediately following such transfer, JMB Realty Corporation, an Illinois corporation ("JMB") or one or more majority-owned direct or indirect subsidiaries of JMB, or the shareholders of JMB, shall beneficially own and control, directly or indirectly, and in the aggregate, more than fifty percent (50%) of the interests in Trustor and the Security. Without limiting the foregoing, no transfer by a limited partner of its interest in JMB Income Properties, Ltd.-XI or in JMB Income Properties, Ltd.- XII shall constitute an Event of Default under the Loan Documents. (ii) Trustor shall have the right to a one-time sale, transfer or assignment in whole or in part of its interest in the Security to any party of equal qualification and creditworthiness, provided: (A) there then is no default under the Loan Documents; (B) a property inspection by Beneficiary or Beneficiary's designee shows that all reasonably necessary maintenance on or damage or destruction to the Security has been completed or repaired; (C) the proposed transferee shall be a Qualified Real Estate Investor (hereinafter defined); (D) the aggregate annual debt service coverage (based on Annual Net Income, as hereinafter defined) on the Indebtedness and any applicable secondary financing exceeds 1.3 times; (E) the proposed transferee has specific related real estate experience in the Metropolitan Statistical Area where the Security is located; (F) the proposed transferee must own or manage a minimum of 5,000,000 square feet of office space; (G) At least 90 days prior to such a transfer, Trustor must provide Beneficiary with all of the material provisions of such transfer including without limitation the proposed date of transfer, and the name, net worth, background and address of the proposed transferee and the purchase price; (H) Trustor shall provide Beneficiary with such evidence as Beneficiary may require that the proposed transferee shall fulfill each and every obligation of Trustor under the Loan Documents and that such transfer shall not affect or impair Beneficiary's security and rights under the Loan Documents; (I) such transfer may only occur during the first five Loan Years (as defined in the Note); (J) such notice received under (vii) above shall be accompanied by the payment to Beneficiary of a non- refundable fee in the amount of $168,750 in cash or certified check to be retained by Beneficiary in order to induce Beneficiary to allow the proposed transferee to assume the obligations of Trustor under the Loan Documents, and such fee shall be returned to Trustor if Beneficiary disapproves of such transfer; (K) the loan-to-value ratio based on a then current appraisal obtained at Trustor's expense and acceptable to Beneficiary must not exceed 75%; and (L) Trustor shall pay for all of Beneficiary's costs and expenses associated with the transfer, including without limitation, attorneys' fees charged by Beneficiary's staff counsel or special counsel. As used herein, the term "Qualified Real Estate Investor" as any reputable corporation, partnership, joint venture, joint-stock company, trust or individual with a minimum net worth of $50,000,000, real estate assets of $250,000,000, a minimum current cash position of $5,000,000, based in the United States and free from any bankruptcy, reorganization or insolvency proceedings or any criminal charges or proceedings and shall not have been, at the time of transfer or in the past, a litigant, plaintiff or defendant in any suit brought against or by Beneficiary. Beneficiary agrees to be reasonable in the review of such qualifications and agrees that if the prospective purchaser is a partnership, the net worth of the general partners thereof shall be included for the purposes of the foregoing net worth calculation. As used herein, the term "Annual Net Income" is defined as actual rental income (adjusted as set forth below), parking income and regular recurring charges paid by current tenants in occupancy of the Security for the preceding six (6) months, multiplied by two (2), less actual operating expenses (adjusted as set forth below) and real estate taxes and assessments relating to the preceding six (6) month period, multiplied by two (2). Rental income shall be reduced by the amount of any outstanding monetary obligations to any tenants (such as free rent, above standard improvements, moving allowances or other monetary tenant inducement for which the landlord has an outstanding responsibility) and shall exclude any extraordinary payment from a tenant which exceeds the regular amounts due throughout its lease term. Operating expenses, if not already included, shall be increased to include any customary annual costs at market rates (such as market rate management fees, repair and maintenance costs, janitorial costs and insurance costs) which an institutional owner would incur as an expense of owning the Security. Operating expenses shall exclude any extraordinary non- recurring expenses. With respect to any direct or indirect transfer of interests in the Security or in Trustor permitted under the Loan Documents, Beneficiary may require, as applicable, (i) that the transferee enter into an assumption agreement or other reasonably necessary amendments to any of the Loan Documents, (ii) new UCC financing statements, (iii) copies of organizational documents of any entities directly or indirectly assuming any obligations under the Loan Documents, (iv) an appropriate endorsement to Beneficiary's title insurance policy, (v) an attorney's opinion (as to due organization and authorization of assignee, as well as enforceability of assumption and related transfer documents, but not enforceability of existing Loan Documents) and (v) payment by Trustor of all reasonable costs of Beneficiary (including without limitation, staff and local attorneys' fees) incurred in connection with such transfer; or (g) A default occurs under the Environmental Indemnity. 23. Remedies Upon Default. Immediately upon the occurrence of any Event of Default, the Trustee and Beneficiary shall have the option, in addition to and not in lieu of or substitution for all other rights and remedies provided in this Deed of Trust or any other Loan Document or provided by law or in equity, and is hereby authorized and empowered by Trustor, to do any or all of the following: (a) Declare without notice the entire unpaid amount of the Indebtedness immediately due and payable, by commencing an action to foreclose this Deed of Trust as a mortgage, and/or by delivery to Trustee of a written declaration of default and demand for sale and of written notice of default and of election to cause to be sold the Security, which notice Trustee shall cause to be duly filed for record in case of foreclosure by exercise of the power of sale herein. (i) Beneficiary may elect to cause the Security or any part thereof to be sold under power of sale herein granted in any manner permitted by applicable law. In connection with any sale or sales hereunder, Beneficiary may elect to treat any of the Security which consists of a right in action or which is property that can be severed from the real property covered hereby or any improvements thereon without causing structural damage thereto as if the same were personal property, and dispose of same in accordance with applicable law, separate and apart from the sale of the real property. Any sale of any personal property hereunder shall be conducted in a manner permitted by Section 9501 or any other applicable section of the California Commercial Code. Where the Security consists of real and personal property or fixtures, whether or not such personal property is located on or within the real property, Beneficiary may elect in its discretion to exercise its rights and remedies against any or all of the real property, personal property, and fixtures in such order and manner as is now or hereafter permitted by applicable law. (ii) Without limiting the generality of the foregoing, Beneficiary may, in its sole and absolute discretion and without regard to the adequacy of its security, elect to proceed against any or all of the real property, personal property and fixtures in any manner permitted under Section 9501(4)(a) of the California Commercial Code; and if the Beneficiary elects to proceed in a manner permitted under Section 9501(4)(a) 9 (ii) of the California Commercial Code, the power of sale granted herein shall be exercisable with respect to all or any of the real property, personal property and fixtures covered hereby, as designated by Beneficiary, and the Trustee is hereby authorized and empowered to conduct any such sale of any real property, personal property and fixtures in accordance with the procedures applicable to real property. (iii) Where the Security consists of real property and personal property, any reinstatement of the obligation secured hereby, following an Event of Default and an election by Beneficiary to accelerate the maturity of said obligation, which is made by Trustor or any other person or entity permitted to exercise the right of reinstatement under Section 2924c of the California Civil Code or any successor statute, shall, in accordance with the terms of California Commercial Code Section 9501(4)(c)(iii), not prohibit the Beneficiary from conducting a sale or other disposition of any personal property or fixtures or from otherwise proceeding against or continuing to proceed against any personal property or fixtures in any manner permitted by the California Commercial Code; nor shall any such reinstatement invalidate, rescind or otherwise affect any sale, disposition or other proceeding held, conducted or instituted with respect to any personal property or fixtures prior to such reinstatement or pending at the time of such reinstatement. Any sums paid to Beneficiary in effecting any reinstatement pursuant to Section 2924c of the California Civil Code shall be applied to the secured obligation and to Beneficiary's and Trustee's reasonable out of pocket costs and expenses in the manner required by said Section 2924c. (iv) Should Beneficiary elect to sell any portion of the Security which is real property or which is personal property or fixtures that Beneficiary has elected under Section 9501(4)(a)(ii) of the California Commercial Code to sell together with real property in accordance with the laws governing a sale of real property, Beneficiary and Trustee shall give such notice of sale as may then be required by law. Thereafter, upon the expiration of such time and the giving of such notice as may then be required by law, and without the necessity of any demand on Trustor, Trustee, at the time and place specified in such notice of sale, shall sell such real property or part thereof at public auction to the highest bidder for cash in lawful money of the United States. Trustee may, and upon request of Beneficiary shall, from time to time, postpone any sale hereunder by public announcement thereof at the time and place noticed therefor. (v) If the Security consists of several lots, parcels or items of property, Beneficiary may: (i) designate the order in which such lots, parcels or items of property shall be offered for sale or sold, or (ii) elect to offer such lots, parcels or items through a single sale, or through two or more successive sales, or in any other manner Beneficiary deems in its best interest. Any person, including Trustor, Trustee or Beneficiary, may purchase at any sale hereunder, and Beneficiary shall have the right to purchase at any sale hereunder by crediting upon the bid price the amount of all,or any part of the indebtedness hereby secured. Should Beneficiary decide that more than one sale or other disposition of the Security be conducted, Beneficiary may, at its option, cause the same to be conducted simultaneously, or successively, on the same day, or at such different days or times and in such order as Beneficiary may deem to be in its best interests, and no such sale shall terminate or otherwise affect the lien of this Deed of Trust or any other Loan Document on any part of the Security not sold until all indebtedness secured hereby has been fully paid. In the event that the Beneficiary elects to dispose of the Security through more than one sale, Trustor agrees to pay the costs of each such sale and of any judicial proceedings wherein the same may be made, including reasonable compensation to Trustee, its agents and counsel, and to pay all out of pocket expenses, liabilities and advances made or incurred by Trustee and Beneficiary in connection with such sale or sales, together with interest on all such advances made by Trustee at the Default Rate. (vi) Should Beneficiary elect to foreclose by exercise of the power of sale herein, Beneficiary shall also deposit with Trustee this Deed of Trust and the Note and such receipts and evidence of expenditures made and secured hereby as Trustee may require, and notice of sale having been given as then required by law and after lapse of such time as may then be required by law after recordation of such notice of default, Trustee, without demand on Trustor, shall sell the Security at the time and place of sale fixed by it in such notice of sale as Beneficiary may direct, either as a whole or in separate parcels, as Beneficiary may determine, at public auction to the highest bidder for cash in lawful money of the United States, payable at time of sale. Beneficiary shall have the right to direct the order in which separate parcels shall be sold and Trustor shall have no right to direct the order in which separate parcels are sold. Trustee may postpone sale of all or any portion of the Security by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to such purchaser its deed conveying the Security, or any portion thereof, so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustor, Trustee or Beneficiary, may purchase at such sale. (b) Proceed against the Personal Property in accordance with Beneficiary's rights and remedies with respect to the Personal Property, including the right to sell the Personal Property together with the Real Property, separately, and without regard to the remainder of the Security in accordance with Beneficiary's rights and remedies provided by the California Uniform Commercial Code as well as other rights and remedies available at law or in equity. (c) Beneficiary may, at Trustor's expense, cause to be brought down to date a title examination and tax histories of the Security, procure title insurance or title reports or, if necessary, procure new abstracts and tax histories. (d) Procure an updated or entirely new environmental audit of the Security including building, soil, ground water and subsurface investigations; have the Improvements inspected by an engineer or other qualified inspector and procure a building inspection report; procure an MAI or other appraisal of the Security or any portion thereof; enter upon the Security at any time and from time to time to accomplish the foregoing and to show the Security to potential purchasers and potential bidders at foreclosure sale; make available to potential purchasers and potential bidders all information obtained pursuant to the foregoing and any other information in the possession of Beneficiary regarding the Security. Either by itself or by its agent to be appointed by it for that purpose or by a receiver appointed by a court of competent jurisdiction, as a matter of strict right, without notice and without regard to the adequacy or value of any security for the Indebtedness or the solvency of any party bound for its payment, to take possession of the Security and, whether or not Beneficiary has taken possession of the Security, to operate the Security, Trustor hereby waiving any right Trustor might have to object to or oppose any such possession, and to collect and apply the Rents, including those past due and unpaid, in such order and manner as Beneficiary or such receiver in its sole discretion shall consider advisable, to or upon the following, in such order and amounts as Beneficiary shall elect: the expenses of receivership, if any; the proper costs of upkeep, maintenance, repair and/or operation of the Security; the repayment of any sums theretofore or thereafter advanced pursuant to the terms of this Deed of Trust; the interest then due or next to become due upon the Indebtedness; the taxes and assessments upon the Security then due or next to become due; and/or the unpaid principal of such Indebtedness. The collection and/or receipt of Rents from the Security by Beneficiary, its agent or receiver, after declaration of default and election to cause the Security to be sold under and pursuant to the terms of this Deed of Trust, shall not affect or impair such default or declaration of default or election to cause the Security to be sold or any sale proceedings predicated thereon, but such proceedings may be conducted and sale effected notwithstanding the receipt and/or collection of any such Rents. Any such Rents in the possession of Beneficiary, its agent or receiver, at the time of sale and not theretofore applied as herein provided, shall be applied in the same manner and for the same purposes as the proceeds of the sale. Beneficiary's rights hereunder include its rights under California Code of Civil Procedure Section 564, as such Section may be amended from time to time. Except for damage caused by Beneficiary's or Beneficiary's agents', employees', contractors', successors' and assigns' willful misconduct or gross negligence, Trustor hereby waives any claim Trustor may have against Beneficiary for mismanagement of the Security during Beneficiary's operation of the Security under this subparagraph or as mortgagee in actual possession under applicable statutes. (f) Beneficiary may, at its option, pay, perform or observe any defaulted term, covenant or condition contained herein or in any lease, the Management Agreement, the Parking Agreements or any other Loan Document, and all payments made or out of pocket costs or expenses incurred by Beneficiary in connection therewith shall be secured hereby and shall be, within ten (10) days after written demand, repaid by Trustor to Beneficiary with interest thereon at the default rate provided in the Note. Beneficiary shall be the sole judge of the necessity for any such actions and of the amounts to be paid. Beneficiary is hereby empowered to enter and to authorize others to enter upon the Security or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without hereby becoming liable to Trustor or any person in possession holding under Trustor. (g) Apply against the Indebtedness in such order as Beneficiary shall determine any funds held for the benefit of Trustor in escrow by Beneficiary or by any third-party escrow agent under any of the Loan Documents, including without limitation any funds held under the escrow established by Section 5 of this Deed of Trust. (h) In the event of any sale of the Security pursuant to Section 23(a), the proceeds of any such sale which are applied in accordance with this Deed of Trust shall be applied in the order following to: (i) all out of pocket expenses incurred for the collection of the Indebtedness and the foreclosure of this Deed of Trust, including reasonable compensation to Trustee and Beneficiary, Trustee's and Beneficiary's agents and attorneys; (ii) all out of pocket sums expended or incurred by Beneficiary and Trustee directly or indirectly in carrying out the terms, covenants and agreements of the Note or notes evidencing the Indebtedness, of this Deed of Trust and any other Loan Documents, together with interest thereon as therein provided; (iii) all late payment charges, prepayment fees, advances and other amounts due under any of the Loan Documents; (iv) all accrued and unpaid interest upon the Indebtedness; (v) the unpaid principal amount of the Indebtedness; and (vi) the surplus, if any, to the person or persons legally entitled thereto. In the event of any acceleration of the Indebtedness pursuant to paragraph (a) of this Section, Trustor shall pay to Beneficiary together with the principal indebtedness and interest thereon an amount equal to the prepayment fee provided for in the Note, and such fee shall be included as part of the Indebtedness, provided, however, that in the event that Trustor reinstates the loan evidenced by the Note, Trustor shall not be obligated to pay any prepayment fee or premium on account of such acceleration. (i) As described in Section 36 of this Deed of Trust, Beneficiary may, to the extent permitted under California Code of Civil Procedure Section 726.5, as such Section may be amended from time to time ("Section 726.5"), exercise the rights and remedies of an unsecured creditor to the extent permitted by law thereunder. In the event Beneficiary so elects, pursuant to Section 726.5 and this Deed of Trust, the valuation of the real property, the determination of the environmentally impaired status of such security and any cause of action for a money judgement shall, at the request of Beneficiary, be referred to a referee in accordance with California Code of Civil Procedure Sections 638 et seq. Such referee shall be an M.A.I. appraiser selected by Beneficiary and approved by Trustor, which approval shall not be unreasonably withheld or delayed. The decision of such referee shall be binding upon both Trustor and Beneficiary, and judgment upon the award rendered by such referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (j) Subject to the provisions of Section 36 of this Deed of Trust, Beneficiary may, in accordance with Section 736, as such section may be amended from time to time, bring an action against Trustor for breach of any "environmental provision" (as such term in defined in Civil Code Section 736) made by Trustor herein or in any other Loan Document, for the recovery of damages and/or the enforcement of any such "environmental provision". Neither Trustee nor Beneficiary shall be under any obligation to make any of the payments or do any of the acts referred to in this Section and any of the actions referred to in this Section may be taken by Beneficiary irrespective of whether any notice of default or election to sell has been given hereunder and without regard to the adequacy of the security for the indebtedness evidenced by the Note. Failure to exercise any right, power or remedy hereunder shall not constitute a waiver of the Event of Default or of the right to exercise such option at a later time, or a waiver of the right to exercise such option, right, power or remedy in the event of any other Event of Default or circumstance specified above. 24. Acceleration Interest. In addition to any late payment charge which may be due under the Note, Trustor shall pay interest on all sums due hereunder at a rate (the "Default Rate") equal to the lesser of (i) the interest rate set forth in the Note plus four percent (4%) per annum, or (ii) the maximum rate that the parties may contract for under applicable law, from and after the first to occur of the following events: if Beneficiary elects to cause the acceleration of the Indebtedness; if an Event of Default occurs under Section 22(d) or 22(e) of this Deed of Trust (which is not cured within any applicable grace period afforded therein); or if all sums due hereunder are not paid on the Maturity Date as set forth in the Note. 25. Late Charge. In the event any sums principal, interest or escrow payments due under the Note, this Deed of Trust or any other Loan Document are not paid by Trustor within five (5) business days of when due, without regard to any cure or grace period, Trustor shall pay to Beneficiary a late charge for the month during which such payment is not made when due and for each month or fraction thereof that such sum remains unpaid, equal to the lesser of four percent (4%) of such installment or the maximum rate that the parties may contract for under applicable law, as the reasonable estimate by Beneficiary and Trustor of a fair average compensation for the loss that may be sustained by Beneficiary due to the failure of Trustor to make timely payments, and such amount shall be secured hereby. Such late charge shall be paid without prejudice to the right of Beneficiary to collect any other amounts provided to be paid or to declare an Event of Default under this Deed of Trust or any other Loan Document. 26. Waiver of Statutory Rights. Trustor agrees, to the full extent permitted by law, that in an Event of Default on the part of Trustor hereunder, neither Trustor nor anyone claiming through or under Trustor will set up, claim, or seek to take advantage of any moratorium, reinstatement, forbearance, appraisement, valuation, stay, homestead, extension, exemption or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust, or the sale of the Security, or the delivery of possession thereof immediately after such sale to the purchaser at such sale, and Trustor, for itself and all who may at any time claim through or under it, hereby waives to the full extent that it may lawfully do so, the benefit of all such laws, and any and all rights to have the assets subject to the security interest of this Deed of Trust marshalled upon any foreclosure or sale under the power granted herein. 27. Security Interest. This Deed of Trust shall, as to any equipment and other Personal Property covered hereby and all additions thereto, substitutions therefore and proceeds thereof, be deemed to constitute a security agreement, and Trustor, as debtor, hereby grants to Beneficiary, as secured party, a security interest therein pursuant to the California Uniform Commercial Code. Trustor agrees, upon request of Beneficiary, to furnish an inventory of Personal Property owned by Trustor and subject to this Deed of Trust and, upon request by Beneficiary, to execute and file and/or record all at Trustor's expense any supplements to this Deed of Trust, any separate security agreement and any financing statements and continuation statements in order to include specifically said inventory of Personal Property or otherwise to perfect the security interest granted hereby. Without the prior written consent of Beneficiary, Trustor shall not create or suffer to be created any other security interest in said property, including replacements and additions thereto. Except as previously disclosed to and approved by Beneficiary in writing, Trustor warrants and agrees that there is no existing financing statement covering such property, or any part thereof, on file in any public office (other than those in favor of Beneficiary, as secured party) and agrees that all or such portion of any such property now or hereafter subject to this Deed of Trust is, and shall be, kept (except with the written consent of Beneficiary) free and clear from any other lien, security interest or encumbrance. Upon any Event of Default, Beneficiary shall have all of the rights and remedies provided in said Code or otherwise provided by law or by this Deed of Trust, including but not limited to the right to require Trustor to assemble such Personal Property and make it available to Beneficiary at a place to be designated by Beneficiary which is reasonably convenient to both parties, the right to take possession of such Personal Property with or without demand and with or without process of law and the right to sell and dispose of the same and distribute the proceeds according to law. The parties hereto agree that any requirement of reasonable notice shall be met if Beneficiary sends such notice to Trustor at least ten (10) days prior to the date of sale, disposition or other event giving rise to the required notice, and that the proceeds of any disposition of any such Personal Property may be applied by Beneficiary first to the reasonable expenses in connection therewith, including reasonable attorneys' fees and legal expenses incurred, and then to payment of the Indebtedness in such order and amounts as Beneficiary shall elect. With respect to the Personal Property that has become so attached to the Real Property that an interest therein arises under the real property law of the State, this Deed of Trust shall also constitute a financing statement and a fixture filing under the California Uniform Commercial Code. 28. Right of Entry. Subject to the rights of tenants under the tenant leases, Beneficiary and Beneficiary's representatives may at all times upon five (5) days prior notice to Trustor (except in the case of an emergency, in which case no notice shall be required) enter upon the Security and inspect the same, or cause it to be inspected by agents, employees, or independent contractors of Beneficiary, and show the same to others, but Beneficiary shall not be obligated to make any such entry or inspection. Beneficiary's rights hereunder shall include its rights under California Civil Code Section 2929.5 as such Section may be amended from time to time. 29. Estoppel Certificate. Both Trustor and Beneficiary, within fifteen (15) days after written request from the other party, will furnish a signed statement in writing, duly acknowledged, of the amount then due or outstanding hereunder and whether or not any offsets or defenses exist against the Indebtedness, and if so, specifying such offsets and defenses. Upon request by Beneficiary, Trustor shall exercise any right it may have to request an estoppel certificate from any or all of the tenants on the Security within fifteen (15) days following Beneficiary's request. 30. Annual Statements. Trustor shall, within ninety (90) days after the end of each fiscal year of Trustor, deliver to Beneficiary a balance sheet, statement of sources and uses, rent roll acceptable to Beneficiary, and a statement of operating cash flow and accounts receivable in reasonable detail. These annual reports are to be certified by a managing general partner of Trustor, confirming that they have been prepared in accordance with generally accepted accounting principles together with any "Notes to Financial Statements". In addition, Trustor agrees to upon request provide Beneficiary with unaudited quarterly cash flow reports and current rent roll and Trustor agrees to provide a proforma income statement and current expense statement for the current and prior year by January 15 of the current year. Beneficiary may, at any time, require that the annual reports be accompanied by an unqualified opinion of independent certified public accountants who are satisfactory to Beneficiary, the cost of which shall be paid by Trustor, provided however, that in no event shall Trustor be required to deliver the same prior to the date which is the later of (i) 90 days after Beneficiary's request or (ii) 90 days after the end of Trustor's fiscal year. If Trustor omits to prepare and deliver promptly any report required by this Section, Beneficiary shall have the right, but not the obligation, in addition to exercising any remedy for an Event of Default as provided for in this Deed of Trust, to make an audit of all books and records of Trustor and its beneficiaries, including without limitation their bank accounts, which in any way pertain to the Security, and to prepare the statement or statements which Trustor failed to procure and deliver. Such audit shall be made and such statements shall be prepared by an independent Certified Public Accountant to be selected by Beneficiary. Trustor shall pay all expenses of the audit and other services, which expenses shall be secured hereby as part of the Indebtedness and shall be immediately due and payable with interest thereon at the Default Rate set forth herein. Beneficiary shall use reasonable care to maintain the confidentiality of any information received pursuant to this Section and all other non-public information about Trustor or any indemnitor or guarantor or the physical condition of the Security; provided, however, that Beneficiary may disclose such information to its officers, employees, directors, agents, loan correspondents, independent auditors, engineering consultants, counsel or similar professionals, and to any prospective transferee (or agent or broker of such transferee) of all or any portion of Beneficiary's investment in connection with a contemplated sale of the loan evidenced by the Note, or as Beneficiary may deem necessary to allow for a fair sale of the Security in any foreclosure sale, and may disclose to such other persons or entities such information (i) as may become generally available to the public, (ii) as shall be required or appropriate in any report, statement or testimony submitted to, or made available in any audit conducted by, any municipal, state or federal regulatory body, the National Association of Insurance Commissioners or similar organizations or their successors, or any other regulatory or rating agency or company, (iii) as shall be required or appropriate in response to any summons or subpoena or in connection with any litigation, or (iv) to the extent Beneficiary shall believe it appropriate to protect Beneficiary's investment, or in order to comply with any law, order, regulation or ruling applicable to Beneficiary. 31. Rights Cumulative. Each right and remedy of Beneficiary under this Deed of Trust, the Note and any other Loan Documents, shall be in addition to every other right and remedy of Beneficiary and such rights and remedies may be enforced separately or in any combination. 32. Subrogation. To the extent that proceeds of the Indebtedness are used to pay any outstanding lien, charge or encumbrance affecting the Security, such proceeds have been advanced by Beneficiary at Trustor's request, and Beneficiary shall be subrogated to all rights, interest and liens owned or held by any owner or holder of such outstanding liens, charges and encumbrances, irrespective of whether such liens, charges or encumbrances are released of record; provided, however, that the terms and provisions hereof shall govern the rights and remedies of Beneficiary and shall supersede the terms, provisions, rights, and remedies under the lien or liens to which Beneficiary is subrogated hereunder. 33. No Waiver. Any failure by Beneficiary or Trustee to insist upon the strict performance by Trustor of any of the terms and provisions hereof shall not be deemed to be a waiver of any of the terms and provisions hereof, and Beneficiary, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by Trustor of any and all of the terms and provisions hereof to be performed by Trustor. 34. Deed of Trust Extension. The lien hereof shall remain in full force and effect during any postponement or extension of the time of payment of the Indebtedness, or of any part thereof, and any number of extensions or modifications hereof, or any additional notes taken by Beneficiary, shall not affect the lien hereof or the liability of Trustor or of any subsequent obligor to pay the Indebtedness unless and until such lien or liability be expressly released in writing by Beneficiary. 35. Indemnification. Trustor shall indemnify and hold Beneficiary harmless from and against all obligations, liabilities, losses, costs, expenses, fines, penalties or damages (including reasonable attorneys' fees) which Beneficiary may incur by reason of this Deed of Trust or with regard to the Security prior to the exercise of any remedies under this Deed of Trust. Trustor shall defend Beneficiary against any claim or litigation involving Beneficiary for the same, and shall have the right to select counsel reasonably acceptable to Beneficiary. In the event that Beneficiary incurs such obligation, liability, loss, cost, expense, fine, penalty or damage, then Trustor shall reimburse Beneficiary within ten (10) days of demand. Any amount owed Beneficiary under this provision shall bear interest at the Default Rate set forth herein and shall be secured hereby. 36. Nonrecourse. Notwithstanding any provision herein or in any other Loan Document to the contrary, Trustor's liability for repayment of the Indebtedness or the performance of any obligation hereunder or under any Loan Document shall be limited to the Security, except as provided in this Section 36. Accordingly, no judgment for the repayment of the Indebtedness or the performance of any obligation, or to collect any amount payable under any of the Loan Documents shall be enforced against Trustor or any other party personally in any action to foreclose this Deed of Trust or to otherwise realize upon the Security or to collect any amount payable under any Loan Document. Nothing herein contained shall be construed as prohibiting Beneficiary from exercising any and all remedies which the Loan Documents permit, including the right to bring actions or proceedings (including an action or suit for judicial foreclosure) against Trustor and to enter a judgment against Trustor, so long as the exercise of any remedy does not extend to obtaining a judgment in the nature of a deficiency judgment or to the or the execution against or recovery out of any property of Trustor or any direct or indirect partner in Trustor other than the Security or other security furnished under the Loan Documents on account of a judgment in the nature of a deficiency judgment. Notwithstanding the foregoing limitations, Trustor and its general partners (but not any other sub-tier entities) shall be liable for the following acts or omissions, to the extent described: (a) (i) misapplying (i.e. using in a manner other than as permitted under the Loan Documents) any condemnation awards or insurance proceeds attributable to the Security, to the full extent of such awards or proceeds so misapplied; (ii) at the time of foreclosure or conveyance in lieu thereof, failing to turn over any unapplied security deposits attributable to the Security and required to be held by Trustor under the terms of any and all leases, to the full extent of such failure; (iii) collecting any rents in advance in violation of any covenant contained in the Loan Documents, to the full extent of such rents so collected in advance; (iv) committing fraud, intentional misrepresentation or waste in connection with the operation of the Security or the making of the loan secured hereby, to the full extent of any remedies available at law or in equity; (v) failing to pay when due any debt service on any indebtedness related to the Security, operating and maintenance charges, insurance premiums, deposits into a reserve for replacements or any other sums due under the Loan Documents (the existence of which are known to Trustor), but only to the extent that gross revenues from the Security during the six (6) months prior to a notice of acceleration to Trustor through the date of foreclosure or conveyance in lieu thereof were otherwise sufficient to pay such expenses but were not so used; and (b) Under any separate guaranty, master lease or indemnity agreement from Trustor or its general partners including, but not limited to, the Environmental Indemnity, provided that such agreement expressly states that recourse thereunder is an exception to the limitation on liability provided herein. Notwithstanding any provision hereof to the contrary, Beneficiary shall be permitted to bring an action against Trustor and its general partners personally (but not against any sub-tier entities) and to execute against and recover out of any property of Trustor or its general partners (but not against or out of property of any other sub-tier entity), for all sums due pursuant to the Loan Documents to the extent permitted by the terms of Section 726.5, and to have the rights and remedies of an unsecured lender to the extent permitted thereunder. If Beneficiary exercises the rights and remedies of an unsecured creditor in accordance with this grammatical paragraph, Trustor and its general partners (but not any other sub-tier entities) promise to pay Beneficiary, on demand by Beneficiary, following the exercise, all amounts owed to Beneficiary under the Loan Documents, and Trustor and its general partners (but not any other sub-tier entity) agree that Trustor and its general partners (but not any other sub-tier entity) will be personally liable for the payment of all such sums. Notwithstanding anything herein or in any other Loan Document to the contrary, no present or future constituent partner in or agent of the general partners of Trustor or their respective successors or assigns, nor any shareholder, officer, director, employee, trustee, beneficiary or agent of any corporation or trust of agent of Trustor or of any constituent partner in Trustor shall be personally liable, directly or indirectly under or in connection with the Note, this Deed of Trust or any other Loan Document, or any instrument or certificate securing or otherwise executed in connection with the Note, this Deed of Trust, or any other Loan Document or any amendments or modifications thereto made at any times heretofore or hereafter and Beneficiary and Beneficiary's successors and assigns hereby waive such personal liability. Accordingly, with respect to the foregoing exceptions to the non-recourse provisions contained in Sections 36(a) and 36(b) of this Deed of Trust, and the Environmental Indemnity, Beneficiary's recourse shall be limited solely to the assets of Trustor and its general partners (but of no other sub-tier entity). For the purposes of the Note, this Deed of Trust, each of the other Loan Documents and any such instruments or certificates and any amendments and modifications thereto, neither a negative capital account of any constituent partner in Trustor nor any obligation to restore any negative capital account of Trustor or of any constituent partner in Trustor shall at all times be deemed to be the property or asset of Trustor or any other constituent partner and neither Beneficiary nor its successors and assigns shall have the right to collect, enforce or proceed against or with respect to any such negative capital account or a partner's obligation to restore or contribute. As used in this paragraph, "constituent partner" means a partner in Trustor or in a partnership that has a direct or indirect interest (through one or more partnerships) in Trustor. 37. Attorneys' Fees. Any reference to "attorney fees", "attorneys' fees" or attorney's fees" in this document means both the reasonable out of pocket fees, charges and costs incurred by Beneficiary or Trustee through Beneficiary's or Trustee's retention of outside legal counsel, paralegals or legal assistants, and the reasonable allocable fees, costs and charges for services rendered by Beneficiary's in-house counsel, paralegals and legal assistants. Any reference to "attorney fees", "attorneys' fees" or attorney's fees" in this document shall also include but not be limited to those reasonable out of pocket attorneys or legal fees, costs and charges incurred by Beneficiary or Trustee in the collection of any Indebtedness, the enforcement of obligations hereunder, the protection of the Security, the appointment of a receiver as permitted hereunder, the foreclosure of this Deed of Trust, the sale of the Security by power of sale under the Loan Documents , any action by Beneficiary pursuant to Section 726.5, the defense of actions arising hereunder and the collection, protection or setoff of any claim Beneficiary may have in a proceeding under Title 11, United States Code, or any state bankruptcy or insolvency statute. Attorneys' fees provided for hereunder shall accrue whether or not Beneficiary has provided notice of default or of an intention to exercise its remedies for such default. Furthermore, any reference in this Deed of Trust or any other Loan Document to "out of pocket" fees, costs, charges or expenses shall include attorneys' fees as described herein, including, without limitation, any reasonable allocable fees, costs, charges and expenses for services rendered by Beneficiary's in-house counsel, paralegals or legal assistants. 38. Trustee's Costs and Expenses; Governmental Charges. Trustor shall pay all costs, fees and expenses of Trustee, its agents and counsel in connection with the performance of its duties hereunder, including without limitation the cost of any trustee's sale guaranty or other title insurance coverage ordered in connection with any foreclosure proceedings hereunder, and shall pay all taxes (except federal and state income taxes) or other governmental charges or impositions imposed by any governmental authority on Trustee or Beneficiary by reason of their interest in the Loan Documents. 39. Protection of Security; Costs and Expenses. Trustor shall appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee, and shall pay all costs and expenses, including without limitation cost of evidence of title and reasonable attorneys' fees, in any such action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed of Trust or to enforce or establish any other rights or remedies of Beneficiary hereunder (including, without limitation, any action pursuant to Section 726.5). If Trustor fails to perform any of the covenants or agreements contained in this Deed of Trust within applicable notice or cure periods, if any, or if any action or proceeding is commenced which affects Beneficiary's or Trustee's interest in the Security or any part thereof, including, but not limited to, eminent domain, code enforcement, or proceedings of any nature whatsoever under any federal or state law, whether now existing or hereafter enacted or amended, relating to bankruptcy, insolvency, arrangement, reorganization or other form of debtor relief, or to a decedent, then Beneficiary or Trustee may, but without obligation to do so and without notice to or demand upon Trustor and without releasing Trustor from any obligation hereunder, make such appearances, disburse such sums and take such action as Beneficiary or Trustee deems necessary or appropriate to protect Beneficiary's or Trustee's interest, including, but not limited to, disbursement of reasonable attorneys' fees, entry upon the Security to make repairs or take other action to protect the security hereof, and pay, purchase, contest or compromise any encumbrance, charge or lien which in the judgment of either Beneficiary or Trustee appears to be prior or superior hereto. Trustor further agrees to pay all reasonable expenses of Beneficiary or Trustee (including without limitation fees and disbursements of counsel) incident to the protection of the rights of Beneficiary hereunder, or to enforcement or collection of payment of the Indebtedness, whether by judicial or non-judicial proceedings, or in connection with any bankruptcy, insolvency, arrangement, reorganization or other debtor relief proceeding of Trustor, or otherwise. Any amounts disbursed by Beneficiary or Trustee pursuant to this Section shall be additional indebtedness of Trustor secured by the Loan Documents as of the date of disbursement and shall bear interest at the Default Rate. All such amounts shall be payable by Trustor within ten (10) days of demand. Nothing contained in this Section shall be construed to require Beneficiary or Trustee to incur any expense, make any appearance, or take any other action. 40. Notices. Any notice, demand, request, statement or consent made hereunder shall be in writing, signed by the party giving such notice, request, demand, statement, or consent, and shall be delivered personally, or delivered to a reputable overnight delivery service providing a receipt, or deposited in the United States mail, postage prepaid and registered or certified mail, return receipt requested, addressed as set forth below or to such other address within the continental United States of America as may have theretofore have been designed in writing. The effective date of any notice given as aforesaid shall be the date of personal service, one (1) business day after delivery to such overnight delivery service, or three (3) business days after being deposited in the United States mail, whichever is applicable. For purposes hereof, the addresses are as follows: If to Beneficiary: Connecticut General Life Insurance Company c/o CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, Connecticut 06152-2215 Attn: Investment Services, S-319 with a copy to: CIGNA Corporation Investment Law Department 900 Cottage Grove Road Hartford, Connecticut 06152-2215 Attn: Real Estate Division, S-215A If to Trustor: JMB/San Jose Associates c/o JMB Realty Corporation 900 N. Michigan Avenue Chicago, Illinois 60611 Attn: Director of Finance With a copy to: Pircher, Nichols & Meeks 1999 Avenue of the Stars Los Angeles, CA 90067 Attn: Real Estate Notices (DSB) 41. Reconveyance. Upon the payment in full of all sums secured by this Deed of Trust, Beneficiary shall request Trustee to reconvey the Security and shall surrender this Deed of Trust and all notes evidencing indebtedness secured by this Deed of Trust to Trustee. Upon payment of its fees and any other sums owing to it under this Deed of Trust, Trustee shall reconvey the Security without warranty to the person or persons legally entitled thereto. Such person or persons shall pay all costs or recordation, if any. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto." Five (5) years after issuance of such full reconveyance, Trustee may destroy said notes and this Deed of Trust unless otherwise directed by Beneficiary. 42. Applicable Law. The provisions hereof shall be construed in accordance with the laws of the State of California. 43. Substitution of Trustee. Beneficiary may remove Trustee at any time or from time to time for any reason (with or without cause) and appoint a successor trustee, and upon such appointment, all powers, rights, duties and authority of Trustee, as aforesaid, shall thereupon become vested in such successor. Such substitute trustee shall be appointed by written instrument duly recorded in the county or counties where the Security covered hereby is located, which appointment may be executed by any authorized agent of Beneficiary or in any other manner permitted by applicable law. 44. Invalidity. If any provision of this Deed of Trust shall be held invalid or unenforceable, the same shall not affect in any respect whatsoever the validity of the remainder of this Deed of Trust. 45. Captions. The captions in this instrument are inserted only as a matter of convenience and for reference, and are not and shall not be deemed to be any part hereof. 46. Modifications. This Deed of Trust may not be changed or terminated except in writing by both Trustor and Beneficiary. The provisions of this Deed of Trust shall extend and be applicable to all renewals, amendments, extensions, consolidations, and modifications of the other Loan Documents, and any and all references herein to the Loan Documents shall be deemed to include any such renewals, extensions, amendments, consolidations, or modifications thereof. 47. Bind and Inure. The provisions of this Deed of Trust shall be binding on Trustor and its heirs, successors and assigns, and any subsequent owners of the Security. The covenants of Trustor herein shall run with the land, and this Deed of Trust and all of the covenants herein contained shall inure to the benefit of Beneficiary, its successors and assigns. 48. Replacement of Note. Upon receipt of evidence reasonably satisfactory to Trustor of the loss, theft, destruction or mutilation of the Note, Trustor will execute and deliver, in lieu thereof, a replacement Note,identical in form and substance to the Note and dated as of the date of the Note, and upon such execution and delivery all references in this Deed of Trust to the Note shall be deemed to refer to such replacement Note. 49. Time of the Essence. Time is of the essence with respect to each and every covenant, agreement and obligation of Trustor under this Deed of Trust, the Note and any of the other Loan Documents. Amendment and Restatement. This Deed of Trust amends, modifies and restates in its entirety that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated September 29, 1986 from Trustor in favor of Beneficiary and recorded in the Official Records of Santa Clara County as Instrument No. 8963704, together with any and all extensions, modifications and amendments thereto (the "Original Deed of Trust"). All references to the "Deed of Trust" contained herein or in any of the other Loan Documents shall mean the Original Deed of Trust as restated hereby. Trustor covenants and agrees that there are no defenses or set-offs with respect to this Deed of Trust, the indebtedness secured by same, or with respect to the collection or enforcement thereof. Trustor further covenants that each and every provision of this Deed of Trust are in full force and effect and are lawful and binding obligations of the Trustor and are enforceable in accordance with their terms. Nothing herein contained shall be construed to impair the lien created by the Original Deed of Trust or the priority thereof. The parties do not intend this agreement to be construed as a novation of the Note or any other Loan Document. REQUEST FOR NOTICE Trustor hereby requests that a copy of any Notice of Default and Notice of Sale as may be required by law be mailed to Trustor at its address above stated. IN WITNESS WHEREOF, Trustor has duly executed this Deed of Trust as of the day and year first above written. TRUSTOR: JMB/SAN JOSE ASSOCIATES, an Illinois general partnership By: JMB Income Properties, Ltd.-XI, an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: By: JMB Income Properties, Ltd.-XII, an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS AND FIXTURE FILING DEED OF TRUST, SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS AND FIXTURE FILING TABLE OF CONTENTS Page 1. Payment of Indebtedness. . . . . . . . . . . . . . . . . 4 2. Covenants of Title . . . . . . . . . . . . . . . . . . . 4 3. Usury. . . . . . . . . . . . . . . . . . . . . . . . . . 5 4. Impositions. . . . . . . . . . . . . . . . . . . . . . . 5 5. Tax Deposits . . . . . . . . . . . . . . . . . . . . . . 6 6. Change in Taxes. . . . . . . . . . . . . . . . . . . . . 7 7. Insurance. . . . . . . . . . . . . . . . . . . . . . . . 7 8. Casualty . . . . . . . . . . . . . . . . . . . . . . . . 10 9. Condemnation . . . . . . . . . . . . . . . . . . . . . . 13 10. Repair; Alterations; Waste . . . . . . . . . . . . . . . 14 11. Environmental. . . . . . . . . . . . . . . . . . . . . . 15 12. Independence of Security . . . . . . . . . . . . . . . . 18 13. No Other Liens . . . . . . . . . . . . . . . . . . . . . 18 14. Management . . . . . . . . . . . . . . . . . . . . . . . 18 15. Ground Lease . . . . . . . . . . . . . . . . . . . . . . 19 16. Sidewalks, Municipal Charges . . . . . . . . . . . . . . 19 17. Assignment of Rents and Leases . . . . . . . . . . . . . 19 18. Future Leases. . . . . . . . . . . . . . . . . . . . . . 20 19. Trustor's Obligations as Lessor. . . . . . . . . . . . . 21 20. Leases; Foreclosure. . . . . . . . . . . . . . . . . . . 21 21. Operating Agreements . . . . . . . . . . . . . . . . . . 22 22. Events of Default. . . . . . . . . . . . . . . . . . . . 22 23. Remedies Upon Default. . . . . . . . . . . . . . . . . . 25 24. Acceleration Interest. . . . . . . . . . . . . . . . . . 29 25. Late Charge. . . . . . . . . . . . . . . . . . . . . . . 30 26. Waiver of Statutory Rights . . . . . . . . . . . . . . . 30 27. Security Interest. . . . . . . . . . . . . . . . . . . . 30 28. Right of Entry . . . . . . . . . . . . . . . . . . . . . 31 29. Estoppel Certificate . . . . . . . . . . . . . . . . . . 31 30. Annual Statements. . . . . . . . . . . . . . . . . . . . 31 31. Rights Cumulative. . . . . . . . . . . . . . . . . . . . 32 32. Subrogation. . . . . . . . . . . . . . . . . . . . . . . 32 33. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . 32 34. Deed of Trust Extension. . . . . . . . . . . . . . . . . 33 35. Indemnification. . . . . . . . . . . . . . . . . . . . . 33 36. Nonrecourse. . . . . . . . . . . . . . . . . . . . . . . 33 37. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . 35 38. Trustee's Costs and Expenses; Governmental Charges . . . 35 39. Protection of Security; Costs and Expenses . . . . . . . 35 40. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 36 41. Reconveyance . . . . . . . . . . . . . . . . . . . . . . 36 42. Applicable Law . . . . . . . . . . . . . . . . . . . . . 37 43. Substitution of Trustee. . . . . . . . . . . . . . . . . 37 44. Invalidity . . . . . . . . . . . . . . . . . . . . . . . 37 45. Captions . . . . . . . . . . . . . . . . . . . . . . . . 37 46. Modifications. . . . . . . . . . . . . . . . . . . . . . 37 47. Bind and Inure . . . . . . . . . . . . . . . . . . . . . 37 48. Replacement of Note. . . . . . . . . . . . . . . . . . . 37 49. Time of the Essence. . . . . . . . . . . . . . . . . . . 37 50. Amendment and Restatement. . . . . . . . . . . . . . . . 37 Exhibit A - Legal Description Exhibit B - Estoppel Certificate Form Exhibit C - Subordination, Non-Disturbance and Attornment Agreemente Form EXHIBIT A Legal Description EXHIBIT B Estoppel Certificate Form This form has been separately furnished by Beneficiary to Trustor. EXHIBIT C Subordination, Non-Disturbance and Attornment Agreement Form This form has been separately furnished by Beneficiary to Trustor. EX-4 5 REAL ESTATE TAX ESCROW AND SECURITY AGREEMENT (150 Almaden/185 Park) This Real Estate Tax Escrow and Security Agreement (this "Agreement") is entered into as of the _____ day of November, 1994 by and among JMB/SAN JOSE ASSOCIATES, an Illinois general partnership ("Borrower"), CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation ("Lender"), and BANK OF AMERICA NT&SA, GLOBAL ESCROW DEPOSITORY SERVICES 8010 ("Escrow Holder"). RECITALS A. Lender has loaned to Borrower a sum of money evidenced by an Amended and Restated Promissory Note (the "Note") in the face principal sum of Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000) of even date herewith, given by Borrower to Lender, which Note is secured by, inter alia, an Amended and Restated Deed of Trust, Security Agreement With Assignment of Rents and Fixture Filing (the "Deed of Trust") of even date herewith on a fee simple interest in certain real property located in the City of San Jose, County of Santa Clara, State of California, together with the improvements and collateral as described in the Deed of Trust, and as more particularly described in the Deed of Trust (collectively, the "Property") (collectively, the Note, the Deed of Trust, and any other documents evidencing, securing or otherwise relating to the loan evidenced by the Note are referred to herein as the "Loan Documents"). B. Under the provisions of the Deed of Trust, Borrower must make monthly deposits to an escrow account with a bank selected by Lender, such deposits to be of sufficient funds (as reasonably estimated by Lender from time to time) to permit the payment in full of the next maturing real property taxes and assessments before any penalty or interest for the nonpayment thereof attaches or accrues (collectively, "taxes") on the Property. C. Lender and Borrower desire to enter into an escrow agreement with Escrow Holder to provide for said deposits for taxes, and Escrow Holder is willing to act as holder of the deposits so made by Borrower on the terms and conditions hereinafter set forth. AGREEMENT 1. Recitals: The foregoing recitals are true and correct and are incorporated herein by this reference. 2. Escrow Holder: Lender and Borrower hereby appoint and designate the above-named Escrow Holder for the purposes set forth herein. Lender hereby appoints Escrow Holder as its agent for the purpose of possessing, segregating and holding the Escrow Account (as hereinafter defined) and all contents, money, rights and proceeds therein and thereof. Escrow Holder hereby accepts such appointments subject to the terms of this Agreement, and acknowledges that it shall hold the Escrow Account subject to the terms of this Agreement. 3. Deposits into Escrow: On the date hereof, Borrower has deposited with Escrow Holder the sum of $29,658.70. Said deposit shall be deposited by Escrow Holder in a separate interest-bearing escrow account in the name of "Connecticut General Life Insurance Company, as secured party of JMB/San Jose Associates Real Estate Tax Escrow Account" (the "Escrow Account"). The Escrow Account number is ___________. Thereafter, on the first day of each succeeding month, commencing December 1, 1994, Borrower shall make monthly deposits to Escrow Holder, in an amount to be determined by Lender, in its reasonable discretion, to be equal to one-twelfth (1/12) of the annual estimated taxes, to be deposited by Escrow Holder in the Escrow Account. Lender hereby informs Borrower and Escrow Holder that the initial monthly deposit shall be $29,658.70. All funds so deposited by Escrow Holder in the Escrow Account shall be disbursed in accordance with the terms of this Agreement. If Lender determines that the amount of the monthly deposit must increase or decrease, Lender shall notify Borrower and Escrow Holder in writing of the new amount of such monthly deposit and provide Borrower with information substantiating the redetermination of the calculation. Commencing on the later of the first day of the month next succeeding said written notification or ten (10) days after written notice to Borrower, Borrower shall deposit with Escrow Holder an amount equal to the new amount for such monthly deposit set forth in such written notification. If Borrower receives notification from the tax collector of a change in the amount of the taxes, Borrower shall promptly notify Lender and Escrow Holder in writing. 4. Withdrawal Terms: (a) Payment of Taxes: Not more than thirty (30) days before the date when any penalty or interest for the nonpayment of an installment of taxes would attach or accrue, Escrow Holder shall immediately issue a check against the funds in the Escrow Account for the amount of said installment, to the extent there exist such funds in the Escrow Account, and made payable to the appropriate governmental authority, and notify Borrower if the funds available are not sufficient to pay said installment of taxes. Immediately upon said notification and prior to the time said payment of taxes becomes delinquent, Borrower shall deliver to Escrow Holder a check drawn on the Borrower's account which is payable to the appropriate governmental authority and in an amount equal to the difference between the amount of the check delivered to Escrow Holder and the amount of the installment of taxes then due. Upon receipt of sufficient funds, Escrow Holder shall promptly pay said taxes, and certify to Lender, in the form attached hereto as Schedule 1, that such taxes have been paid. (b) No Other Disbursements: Except for the payment of interest as provided in the paragraph entitled "Interest Payments" below, and except upon termination of this Agreement as contemplated by the paragraph entitled "Termination of Escrow" also below, Escrow Holder shall not disburse or otherwise pay any funds from the Escrow Account other than in accordance with this paragraph entitled "Withdrawal Terms". Payments from said deposits for such purposes may be made even though subsequent owners of the Property or holders of Borrower's fee simple interest therein may thereby benefit. 5. Interest Payments: So long as (i) Borrower holds title to and controls the Property, (ii) tax payments are paid in full prior to the date when any penalty or interest attaches or accrues, (iii) there then exists no default, by Borrower, or any state of facts which, with the passage of time or giving of notice, or both, would constitute a default hereunder or under any of the Loan Documents, and (iv) Escrow Holder has not received written notice from Lender of default by Borrower, or any state of facts which, with the passage of time or giving of notice, or both, would constitute a default hereunder or under any of the Loan Documents, Escrow Holder shall pay directly to Borrower all interest earned on the funds in the Escrow Account, less reasonable escrow costs charged by the Escrow Holder, on each date when tax payment withdrawals are made from the Escrow Account, and upon termination of this Agreement pursuant to the paragraph entitled "Termination of Escrow" below. Other than for gross negligence or willful misconduct on the part of Lender, it is specifically agreed that under no circumstances shall Lender be liable or accountable to Borrower for interest or any other return on or benefit accruing to funds delivered on deposit pursuant to this Agreement. 6. Default Provisions: Upon receipt by Escrow Holder of notice from Lender of a default by Borrower, or any state of facts which, with the passage of time or giving of notice, or both, would constitute a default hereunder or under any of the Loan Documents, Escrow Holder shall provide Borrower with a copy of such notice and immediately stop paying to Borrower the interest earned on the funds in the Escrow Account. At the written request of Lender, Escrow Holder shall forthwith pay over to Lender all funds, including principal and interest, then in the Escrow Account. Lender and Borrower agree that Lender shall be entitled to apply such funds in accordance with the terms of the paragraph entitled "Tax Deposits" in the Deed of Trust, and upon such payment by Escrow Holder to Lender, this Agreement shall terminate. 7. Security Interest: (a) This Agreement is intended to provide additional security for the payment of all amounts now and in the future payable under any of the Loan Documents. To that end, Borrower hereby grants, pledges, transfers and assigns to Lender a continuing security interest in and right of set-off against the following, whether now existing or hereafter acquired or arising: all of Borrower's right, title and interest, in, to and under (i) the Escrow Account, and all instruments, securities, documents, accounts, general intangibles, money, and other property and contents therein and thereof, and all rights relating thereto and proceeds therefrom and thereof, including, without limitation, the deposits made into the Escrow Account from time to time and all earnings thereon at any time or from time to time in the possession or control of Escrow Holder, (ii) all books and records relating to the types and items of property described in the foregoing clause (i), and (iii) all proceeds (whether cash or non- cash, and including, without limitation, insurance proceeds) and products of the property described in the foregoing clause (i), and all replacements and substitutions therefor and all additions and accessions thereto (hereinafter collectively called the "Collateral"). (b) In addition to all rights and remedies given to Lender by this Agreement, Lender shall have the rights and remedies of a secured party under the California Commercial Code and any other applicable law. Upon notice from Lender, Borrower will promptly execute such financing statements, continuation statements and other documents as may be necessary or convenient to perfect, continue or otherwise evidence said security interest and pay all reasonable out of pocket expenses and fees for the preparation and filing thereof. (c) Escrow Holder acknowledges receipt of notice of Lender's security interest in the Collateral. 8. Warranties: Borrower does hereby warrant and represent to Lender that, as of the date hereof, Borrower is the owner of all of the Collateral, and (i) Borrower has not heretofore made any assignment or pledge of, granted a security interest in, or otherwise transferred or encumbered all or any part of its interest in all or any part of the Collateral, and (ii) the Collateral is free and clear of any security interest, pledge, assignment or other encumbrance other than the security interest created hereby. Escrow Holder does hereby warrant and represent to Lender that Escrow Holder has not received notice from any individual or entity, except Lender, claiming an interest in the Collateral. 9. Termination of Escrow: Provided this Agreement has not been terminated pursuant to the paragraph entitled "Default Provisions" hereof, this Agreement, and the escrow provided for herein, shall automatically terminate when Escrow Holder receives written notification from Lender that all amounts due from Borrower to Lender have been paid in full, the Note has been cancelled, and the Deed of Trust discharged. Upon termination of this Agreement as provided in this paragraph, Escrow Holder shall deliver the remaining funds, including interest, then in the Escrow Account to Borrower. 10. Investment of Funds in Escrow Account: Any monies held as a part of the Escrow Account shall be invested or reinvested by Escrow Holder in Permitted Investments, as hereinafter defined, in the name of Escrow Holder. (a) Borrower's Right to Direct Investments: Until Escrow Holder shall have received written notice from Lender of a default by Borrower continuing beyond expiration of any applicable cure periods, if any, Lender grants to Borrower the privilege of selecting among the Permitted Investments, by written direction from Borrower to Escrow Holder. Lender and Borrower acknowledge and agree that Escrow Holder shall have no obligation to honor any such written direction until the expiration of one business day after the Escrow Holder's receipt of the same, or such later period as is consistent with both the nature of the Permitted Investment utilized or committed to be utilized prior to receipt of such notice and the nature of the Permitted Investment specified by such written notice. Such investments shall have maturities consonant with the need for funds as provided hereinabove in the paragraph entitled "Withdrawal Terms." Consistent with the need for funds as aforesaid, Escrow Holder may sell any such investments at any time, and the proceeds of such sale, and of all payments at maturity and upon redemption of such investments, shall be credited to the Escrow Account. Escrow Holder shall not be responsible for any loss of interest or penalties incurred as a result of the redemption of investments prior to their stated maturities if such redemption is required to comply with this Agreement. All payments of money and of other property received in respect of the Escrow Account, including, without limitation, all interest, dividends, profits and other income or proceeds received on monies or securities or other investments in the Escrow Account, shall be credited to the Escrow Account and shall be deemed to become, and shall be treated as part of, the escrowed funds for purposes of this Agreement, and shall be disbursed by Escrow Holder as provided in this Agreement. (b) Permitted Investments: The term "Permitted Investments" as used herein shall mean: (i) short term obligations of the United States Treasury; (ii) short term obligations of an agency of the United States Government; (iii) any certificate of deposit up to $100,000 issued by or savings account with any of the fifty federally- chartered banks with the greatest total assets ("Qualifying Banks"); (iv) any commercial paper issued by an issuer rated Prime-1 by Moody's or A-1 by S&P; (v) any repurchase agreement with a Qualifying Bank (provided it is issued by an agency of the United States Government, is 102% collateralized, and possession is given to the Escrow Holder); (vi) any banker's acceptance of which a Qualifying Bank is the accepting bank; (vii) any certificate of deposit up to $5,000,000 with any bank on Lender's approved list; (viii) Variable Rate Master Notes (Trust Demand Notes) rated A-1 and P-1 by Standard & Poor's or Moody's, respectively; (ix) any AAA or AA rated corporate securities on Lender's approved list; and (x) FNMA or FHLMC mortgage pool securities. Notwithstanding the foregoing, Lender's approval of any investment of funds held in the Escrow Account in any of the foregoing shall be conditioned on Lender's receiving such assurances as it requires that its security interest in any such instrument, account, or investment is perfected and shall remain perfected. Lender may limit or change the aforementioned list of Permitted Investments in order to assure its ability to perfect its security interest therein; provided that any change in the type of investment shall be subject also to Borrower's approval. In addition, at any time as any Permitted Investment is with a depository that does not satisfy Lender's financial and solvency requirements, Lender may require that such investment be terminated with such depository and re-invested with another depository reasonably approved by Lender. 11. Responsibilities of Escrow Holder: (a) Books, Records, and Statements: Escrow Holder shall at all times during the term of this Agreement keep and maintain accurate, complete, and up to date books and records with respect to the Escrow Account, and all investments thereof, earnings thereon, and disbursements therefrom. Escrow Holder shall provide monthly statements to Lender and Borrower showing the balance of the Escrow Account, the earnings thereof and the disposition of said earnings. (b) Notice of Default: In the event that Borrower shall fail to make any such required monthly deposit, Escrow Holder shall notify both Lender and Borrower, in accordance with the paragraph entitled "Notices" herein (or such other party as Lender or Borrower may designate in writing from time to time), no later than the 5th day of the month for which such payment was required. (c) Escrow Holder's Right to Resign: Escrow Holder reserves the right to resign hereunder by sixty (60) days written notice to Lender and Borrower. At or before ten (10) days prior to the effective date of such resignation, Escrow Holder shall pay over to Lender all funds and deliver all evidence of investment in the Escrow Account to be held pursuant to the terms of the Deed of Trust, in the same manner as though Lender were a substitute escrow holder hereunder. However, if prior to the time such funds are paid over or such evidence of investment delivered to Lender, Lender requests in writing that such funds be paid over to another party, (i) Escrow Holder shall forthwith pay over to such party all such funds, (ii) this Agreement shall terminate, and (iii) Escrow Holder shall not have any further liability under this Agreement, except rights of Lender, Borrower or both against Escrow Holder for its willful misconduct or gross negligence. 12. Expenses: Borrower shall pay all charges of Escrow Holder in accordance with Schedule 2 attached hereto, and such reasonable out-of-pocket attorneys' fees, expenses and other costs as may be incurred by Escrow Holder in connection with the administration of this Agreement. Said charges, attorneys' fees, expenses and other costs are collectively referred to hereinafter as the "Expenses." Any Expenses may be offset against interest earned, and only against such interest, on the Escrow Account. 13. Liability of Parties: Borrower shall have sole liability for the taxes and shall be responsible for seeing that sufficient funds are made available to Escrow Holder or Lender in adequate time for payment of the taxes before same become delinquent. Lender or Escrow Holder shall be liable severally and not jointly, and only for accounting for funds received by it, and for its gross negligence or willful misconduct in performing any act required of it hereunder. 14. Hold Harmless: Borrower hereby agrees to indemnify, protect, save and hold harmless Escrow Holder, and its successors and assigns and agents pursuant to this Agreement, from any and all liabilities, obligations, losses, damages, claims, actions, suits, and out of pocket costs or expenses (including, without limitation, reasonable attorneys' fees) of whatsoever kind or nature imposed on, incurred by or asserted against Escrow Holder which in any way relate to or arise out of the execution and delivery of this Agreement and any action taken hereunder; provided, however, that Borrower shall have no such obligation to indemnify, save and hold harmless Escrow Holder for any liability incurred by, imposed upon or established against Escrow Holder, as the case may be, for its willful misconduct or gross negligence. 15. Waiver of Offset: Except for fees due Escrow Holder as provided in the paragraph entitled "Expenses" above, Escrow Holder specifically and irrevocably waives any and all rights Escrow Holder now has or may in the future have to offset any amounts due from Lender or Borrower to Escrow Holder against the funds in the Escrow Account. Except to the extent expressly provided for in the paragraph entitled "Expenses" hereof, Escrow Holder further agrees not to pay or attempt to pay to itself any funds in the Escrow Account to satisfy any claims Escrow Holder may have against Borrower or Lender. 16. Notices: Any notice, demand, request, statement or consent made hereunder shall be in writing, signed by the party giving such notice, request, demand, statement, or consent, and shall be deemed to have been properly given when either delivered personally, delivered to a reputable overnight delivery service providing a receipt or deposited in the United States mail, postage prepaid and registered or certified return receipt requested, at the address set forth below, or at such other address within the continental United States of America as may have theretofore have been designated in writing. The effective date of any notice given as aforesaid shall be the date of personal service, one (1) business day after delivery to such overnight delivery service, or three (3) business days after being deposited in the United States mail, whichever is applicable. For purposes hereof, the addresses are as follows: If to Borrower: JMB/San Jose Associates c/o JMB Realty Corporation 900 North Michigan Avenue Chicago, IL 60611 With a copy to: Pircher, Nichols & Meeks 1999 Avenue of the Stars Los Angeles, CA 90067 Attn: Real Estate Notices (DSB) and if to Lender: Connecticut General Life Insurance Company c/o CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, CT 06152 Attn: Investment Services, S-319 with a copy to: CIGNA Corporation Investment Law Department 900 Cottage Grove Road Hartford, CT 06152 Attn: Real Estate Division, S-215A and if to Escrow Holder: Bank of America Global Escrow Depository Services 8010 333 South Beaudry Avenue, 25th Floor Los Angeles, California 90017 Attention: Katherine L. Veith Telephone: (213) 345-0670 17. Applicable Law: This Agreement shall be governed by and interpreted in accordance with the laws of the State of California. 18. Headings: The paragraph headings used herein are for convenience only and are not to be used in interpreting this Agreement. 19. Amendments: This Agreement may only be amended or revoked by a written amendment executed by all the parties hereto. 20. Attorneys' Fees and Expenses: Borrower shall pay all reasonable out of pocket charges of Lender, and such reasonable attorneys' fees (whether charged by staff counsel or outside counsel), expenses and other costs as may be incurred by Lender in connection with the enforcement of this Agreement. Notwithstanding the foregoing, if any action is instituted to enforce the terms hereof, only the prevailing party shall be entitled to reasonable attorneys' fees, costs and expenses (in the case of Lender, whether charged by staff counsel or outside counsel); provided, however, the provisions of the paragraph entitled "Hold Harmless" hereof shall control as to any claim against Escrow Holder. Any reference in this Agreement to "out of pocket" costs, fees, charges and expenses of Lender shall include, without limitation, any reasonable allocable fees, costs, charges and expenses for services rendered by Lender's in-house counsel, paralegals and legal assistants. 21. Assignment: This Agreement may not be assigned by Borrower or Escrow Holder without the written consent of Lender. Should an assignment be permitted hereunder, this Agreement shall inure to the benefit of and bind the successors and assigns of the parties hereto. 22. Execution in Counterparts: This Agreement may be executed in any number of counterparts, each of which may be executed by any one or more of the parties hereto, but all of which shall constitute one instrument, and shall be binding and effective when all parties hereto have executed at least one counterpart. 23. No Personal Liability: The provisions set forth in Section 15 of the Note and Section 36 of the Deed of Trust are incorporated herein by this reference. IN WITNESS WHEREOF, the parties have executed this Agreement under seal effective as of the day and year first above written. BORROWER: JMB/SAN JOSE ASSOCIATES, an Illinois general partnership By: JMB Income Properties, Ltd.- XI, an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: By: JMB Income Properties, Ltd.-XII, an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: LENDER: CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation By: CIGNA Investments, Inc., a Delaware corporation, its authorized signatory By: Name: Its: ESCROW HOLDER: BANK OF AMERICA, NT&SA GLOBAL ESCROW DEPOSITORY SERVICES 8010 By: Name: Its: REAL ESTATE TAX ESCROW AND SECURITY AGREEMENT (150 Almaden/185 Park) TABLE OF CONTENTS TO REAL ESTATE TAX ESCROW AND SECURITY AGREEMENT Page 1. Recitals . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Escrow Holder. . . . . . . . . . . . . . . . . . . . . . 1 3. Deposits into Escrow . . . . . . . . . . . . . . . . . . 1 4. Withdrawal Terms . . . . . . . . . . . . . . . . . . . . 2 5. Interest Payments. . . . . . . . . . . . . . . . . . . . 2 6. Default Provisions . . . . . . . . . . . . . . . . . . . 3 7. Security Interest. . . . . . . . . . . . . . . . . . . . 3 8. Warranties . . . . . . . . . . . . . . . . . . . . . . . 3 9. Termination of Escrow. . . . . . . . . . . . . . . . . . 4 10. Investment of Funds in Escrow Account. . . . . . . . . . 4 11. Responsibilities of Escrow Holder. . . . . . . . . . . . 5 12. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 6 13. Liability of Parties . . . . . . . . . . . . . . . . . . 6 14. Hold Harmless. . . . . . . . . . . . . . . . . . . . . . 6 15. Waiver of Offset . . . . . . . . . . . . . . . . . . . . 6 16. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 6 17. Applicable Law . . . . . . . . . . . . . . . . . . . . . 7 18. Headings . . . . . . . . . . . . . . . . . . . . . . . . 7 19. Amendments . . . . . . . . . . . . . . . . . . . . . . . 7 20. Attorneys' Fees and Expenses . . . . . . . . . . . . . . 7 21. Assignment . . . . . . . . . . . . . . . . . . . . . . . 7 22. Execution in Counterparts. . . . . . . . . . . . . . . . 7 23. No Personal Liability. . . . . . . . . . . . . . . . . . 8 EX-4 6 TRUST AGREEMENT by and among PARKING AUTHORITY OF THE CITY OF HERMOSA BEACH and FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION as Trustee and JMB INCOME PROPERTIES, LTD. XII Dated as of November 15, 1994 Authorizing Floating Rate Weekly Demand Refunding Certificates of Participation (Hermosa Beach Parking Facilities Project - 1994 Series) TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section 1.1. Definitions . . . . . . . . . . . . . . . . . 4 ARTICLE II THE CERTIFICATES Section 2.1. Authorized Amount of Certificates . . . . . . 14 Section 2.2. Execution and Delivery of Certificates. . . . 14 Section 2.3. Determination of Weekly Rate. . . . . . . . . 16 Section 2.4. Establishment of Fixed Rate . . . . . . . . . 16 Section 2.5. Execution of Certificates . . . . . . . . . . 18 Section 2.6. Pledge Under the Trust Agreement; Limits on Authority's Obligations and Powers . . . . . . . . 18 Section 2.7. Delivery of Certificates. . . . . . . . . . . 19 Section 2.8. Lost, Destroyed or Improperly Cancelled Certificates . . . . . . . . . . . . . . . . . . . . 19 Section 2.9. Transfer, Registration and Exchange of Certificates . . . . . . . . . . . . . . . . . . . . 20 Section 2.10.Reserved. . . . . . . . . . . . . . . . . . . 21 Section 2.11.Temporary Certificates. . . . . . . . . . . . 21 Section 2.12.Cancellation of Certificates. . . . . . . . . 21 Section 2.13.Use of Depository . . . . . . . . . . . . . . 21 ARTICLE III REVENUES AND FUNDS Section 3.1. Source of Payment of Certificates . . . . . . 23 Section 3.2. Creation of Funds and Accounts. . . . . . . . 24 Section 3.3. Initial Deposits. . . . . . . . . . . . . . . 24 Section 3.4. Proceeds Fund; Reserve Fund . . . . . . . . . 25 Section 3.5. Cost of Issuance Fund . . . . . . . . . . . . 26 Section 3.6. Revenue Fund. . . . . . . . . . . . . . . . . 26 Section 3.7. Debt Service Fund . . . . . . . . . . . . . . 27 Section 3.8. General Fund. . . . . . . . . . . . . . . . . 28 Section 3.9. The Bank Letter of Credit . . . . . . . . . . 29 Section 3.10.Custody Account . . . . . . . . . . . . . . . 31 Section 3.11.Final Balances. . . . . . . . . . . . . . . . 32 Section 3.12.Reserved. . . . . . . . . . . . . . . . . . . 32 Section 3.13.Non-presentment of Certificates . . . . . . . 32 Section 3.14.Moneys To Be Held In Trust. . . . . . . . . . 33 ARTICLE IV PURCHASE PAYMENTS AND APPLICATION Section 4.1. Purchase Payments To Be Paid Over To Trustee. . . . . . . . . . . . . . . . . . . . . . . 33 Section 4.2. Payments of Principal, Premium and Interest . 33 Section 4.3. Amounts To Be Held For All Certificateholders; Certain Exceptions. . . . 33 ARTICLE V INVESTMENT OF MONEYS Section 5.1. Investment of Moneys. . . . . . . . . . . . . 34 Section 5.2. Earnings and Losses . . . . . . . . . . . . . 35 Section 5.3. No Arbitrage. . . . . . . . . . . . . . . . . 35 Section 5.4. Investment Limit. . . . . . . . . . . . . . . 35 Section 5.5. Rebate To United States . . . . . . . . . . . 35 Section 5.6. Investments . . . . . . . . . . . . . . . . . 37 ARTICLE VI REDEMPTION OF CERTIFICATES BEFORE MATURITY Section 6.1. Limitation on Redemption. . . . . . . . . . . 37 Section 6.2. Redemption Dates, Amounts and Prices. . . . . 37 Section 6.3. Partial Redemption. . . . . . . . . . . . . . 39 Section 6.4. Notice of Redemption. . . . . . . . . . . . . 40 Section 6.5. Payment Upon Redemption . . . . . . . . . . . 40 Section 6.6. Effect of Redemption. . . . . . . . . . . . . 40 Section 6.7. No Partial Redemption After Default . . . . . 41 ARTICLE VII [RESERVED] ARTICLE VIII DEFAULTS AND REMEDIES Section 8.1. Defaults; Events of Default . . . . . . . . . 41 Section 8.2. Acceleration of Maturities. . . . . . . . . . 42 Section 8.3. Application of Moneys . . . . . . . . . . . . 43 Section 8.4. Trustee to Represent Certificateholders . . . 43 Section 8.5. Certificateholders' Direction of Proceedings. . . . . . . . . . . . . . . . . . . . . 44 Section 8.6. Limitation on Certificateholders' Right to Sue. . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 8.7. Limited Obligation of Authority . . . . . . . 45 Section 8.8. Termination of Proceedings. . . . . . . . . . 45 Section 8.9. Remedies Not Exclusive. . . . . . . . . . . . 45 Section 8.10.No Waiver of Default. . . . . . . . . . . . . 45 Section 8.11.Waivers of Events of Default. . . . . . . . . 46 ARTICLE IX THE TRUSTEE AND THE PAYING AGENT Section 9.1. Appointment, Duties, Immunities and Liabilities of Trustee and Paying Agent . . . 46 Section 9.2. Fees, Charges and Expenses of Trustee, Tender Agent and Paying Agent . . . . . . . . 49 Section 9.3. Liability of Trustee. . . . . . . . . . . . . 50 Section 9.4. Right of Trustee to Rely on Documents . . . . 50 Section 9.5. Intervention By Trustee . . . . . . . . . . . 51 Section 9.6. Designation and Successor of Paying Agent; Agreement with Paying Agent . . . . . . . . . 51 Section 9.7. Foreclosure on Deed of Trust. . . . . . . . . 51 ARTICLE X MODIFICATION OF THIS TRUST AGREEMENT AND THE AGREEMENT Section 10.1.Limitations . . . . . . . . . . . . . . . . . 52 Section 10.2.Supplemental Trust Agreement without Consent of Registered Owners. . . . . . . . . 52 Section 10.3.Supplemental Trust Agreement With Consent of Registered Owners and the Bank . . . . . . 53 Section 10.4.Effect of Supplemental Trust Agreement. . . . 54 Section 10.5.Consent of Bank and Company Required. . . . . 55 Section 10.6.Amendments to Agreements not Requiring Consent of Registered Owners. . . . . . . . . 55 Section 10.7.Amendments to the Amended and Restated First and Second Installment Sale Agreements Requiring Consent of Registered Owners. . . . . . . . . . . . . . . . . . . . 55 ARTICLE XI GENERAL COVENANTS Section 11.1.Payment of Principal, Premium, if any, and Interest . . . . . . . . . . . . . . . . . . . . . . 56 Section 11.2.Performance of Covenants; Trustee and Authority. . . . . . . . . . . . . . . . . . . . . . 56 Section 11.3.Instruments of Further Assurance. . . . . . . 57 Section 11.4.Recording and Filing. . . . . . . . . . . . . 57 Section 11.5.Inspection of Project Books . . . . . . . . . 57 Section 11.6.List of Registered Owners . . . . . . . . . . 57 Section 11.7.Rights Under Agreements . . . . . . . . . . . 57 Section 11.8.Limited Nature of the Company's Obligations . 58 ARTICLE XII DEFEASANCE Section 12.1.Defeasance. . . . . . . . . . . . . . . . . . 58 ARTICLE XIII PURCHASE AND REMARKETING OF CERTIFICATES Section 13.1.Certificateholders' Obligation to Tender Certificates Upon Conversion and Reimbursement Agreement Event of Default. . . 60 Section 13.2.Mandatory and Demand Purchase of Certificates . . . . . . . . . . . . . . . . . . . . 61 Section 13.3.Remarketing Agent . . . . . . . . . . . . . . 61 Section 13.4.Qualifications of Remarketing Agent . . . . . 62 Section 13.5.Remarketing of Certificates . . . . . . . . . 62 Section 13.6.Purchase of Certificates Delivered to Tender Agent . . . . . . . . . . . . . . . . . . . . 63 Section 13.7.Delivery of Certificates. . . . . . . . . . . 64 Section 13.8.Delivery of Remarketing Proceeds. . . . . . . 64 Section 13.9.Tender Agent. . . . . . . . . . . . . . . . . 64 Section 13.10. Qualifications of Tender Agent . . . . 66 ARTICLE XIV MISCELLANEOUS Section 14.1.Consents of Registered Owners . . . . . . . . 66 Section 14.2.Successors of the Authority and the Company . 67 Section 14.3.Parties in Interest; Consent of Bank. . . . . 67 Section 14.4.Severability. . . . . . . . . . . . . . . . . 67 Section 14.5.No Personal Liability of Authority or Trustee Officials. . . . . . . . . . . . . . . . . . 67 Section 14.6.Certificates Owned by the Authority or the Company. . . . . . . . . . . . . . . . . . . . . . . 68 Section 14.7.Counterparts. . . . . . . . . . . . . . . . . 68 Section 14.8.Governing Law . . . . . . . . . . . . . . . . 68 Section 14.9.Notices . . . . . . . . . . . . . . . . . . . 68 Section 14.10. Holidays . . . . . . . . . . . . . . . 69 Section 14.11. Immunities and Limitations of Responsibility of Authority and Trustee. . . . . . . . . . . . . . . . 70 EXHIBIT A FORM OF VARIABLE INTEREST RATE CERTIFICATE EXHIBIT B FORM OF FIXED INTEREST RATE CERTIFICATE EXHIBIT C FORM OF NOTICE OF EXERCISE OF OPTION TO SELL CERTIFICATES EXHIBIT D AGREEMENT REGARDING REFUNDING OF PRIOR CERTIFICATES TRUST AGREEMENT This TRUST AGREEMENT, made and entered into as of November 15, 1994, by and among the PARKING AUTHORITY OF THE CITY OF HERMOSA BEACH, a parking authority and public body, corporate and politic, organized and existing pursuant to the laws of the State of California and having its principal office in the City of Hermosa Beach (the "Authority"), FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, a national banking association duly organized and existing under and by virtue of the laws of the United States, and being qualified to accept and administer the trusts hereby created (the "Trustee"), and JMB INCOME PROPERTIES, LTD. XII, an Illinois limited partnership (the "Company"). W I T N E S S E T H : WHEREAS, the Company and the Authority have entered into an Amended and Restated First Installment Sale Agreement, dated as of this date (the "Amended and Restated First Installment Sale Agreement"), whereby the Company has sold the Project (as defined in the Amended and Restated First Installment Sale Agreement) to the Authority, and the Authority has purchased said Project from the Company; WHEREAS, under the Amended and Restated First Installment Sale Agreement, the Authority is obligated to pay to the Company or its assigns installment purchase payments for the purchase of the Project (the "Purchase Payments") and has by the Assignment Agreement, dated as of this date, assigned to the Company, for the benefit of the Company and the Trustee, as its assignee, certain of its rights and interests under the Amended and Restated Second Installment Sale Agreement as defined below; WHEREAS, the Authority and the Company have entered into the Amended and Restated Second Installment Sale Agreement, dated as of this date (the "Amended and Restated Second Installment Sale Agreement"), whereby the Authority has sold the Project to the Company and the Company has purchased the Project from the Authority in exchange for payments in specified amounts designated for and at least equal to the Purchase Payments to be paid at the times and in the manner the Authority is obligated to pay the Purchase Payments; WHEREAS, the Company, pursuant to a Deed of Trust, dated as of this date (the "Deed of Trust"), from the Company, as trustor, to First American Title Insurance Company, as trustee, and the Authority and Dresdner Bank AG, Los Angeles Agency, a German banking association (the "Bank"), as co-beneficiaries, has granted a first lien on the Project to the Authority and the Bank, which Deed of Trust also covers the adjacent Plaza Hermosa Shopping Center, as security for the Company's obligations under the Amended and Restated Second Installment Sale Agreement and the Reimbursement Agreement (as hereinafter defined), respectively; WHEREAS, the Authority has assigned its rights under the Deed of Trust to the Company, for the benefit of the Company and the Trustee as its assignee, pursuant to the Assignment of Deed of Trust, dated as of this date, to secure further the Authority's obligations to make the Purchase Payments; WHEREAS, the Company has assigned and transferred to the Trustee certain of its rights and interests under the Amended and Restated First Installment Sale Agreement, including its rights to receive Purchase Payments, and the Amended and Restated Second Installment Sale Agreement, pursuant to a certain Second Assignment Agreement, dated the date hereof, and under the Deed of Trust, pursuant to the Second Assignment of Deed of Trust, dated as of this date; WHEREAS, in consideration of such assignments and the execution of this Trust Agreement, the Trustee has agreed to execute and deliver refunding certificates of participation (the "Certificates"), each evidencing a proportionate interest in the Purchase Payments under the Amended and Restated First Installment Sale Agreement, and to hold in trust and disburse the proceeds of the sale of the Certificates to pay the costs of executing and delivering the Certificates and the costs of refinancing the Project for the benefit of the Company; WHEREAS, to support its obligations to make Purchase Payments under the Amended and Restated First Installment Sale Agreement, and accordingly, payment with respect to the Certificates, the Authority has agreed to require the Company to deposit with the Trustee a letter of credit issued by the Bank (the "Letter of Credit") and, pursuant to the Amended and Restated Second Installment Sale Agreement, the Company has agreed to deposit said Letter of Credit and, in connection therewith, has entered into the Letter of Credit and Reimbursement Agreement, dated as of this date (the "Reimbursement Agreement"), with the Bank; WHEREAS, the Company, pursuant to a Security Agreement dated the date hereof (the "Security Agreement") with the Authority and the Bank, has granted a security interest in certain property to further secure the Company's obligations under the Amended and Restated Second Installment Sale Agreement and the Reimbursement Agreement; WHEREAS, all acts, conditions and things required by law to exist, happen and be performed precedent to and in connection with the execution and entering into of this Trust Agreement have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly empowered to execute and enter into this Trust Agreement; NOW, THEREFORE, THIS TRUST AGREEMENT WITNESSETH, that the Company, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Certificates by the Registered Owners thereof, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, in order to secure the payment of the principal of, premium, if any, and interest due with respect to the Certificates according to their tenor and effect and secure the performance and observance by the Authority of all the covenants expressed or implied herein, does hereby assign and grant a security interest in the following to the Trustee, and unto its successors and assigns forever: GRANTING CLAUSE FIRST The Amended and Restated First Installment Sale Agreement, the Amended and Restated Second Installment Sale Agreement, the Deed of Trust, the Security Agreement, including all extensions and renewals of the term thereof, if any, together with all right, title and interest of the Company in and to the Amended and Restated First Installment Sale Agreement, the Amended and Restated Second Installment Sale Agreement, the Deed of Trust, and the Security Agreement, including, but not limited to, the present and continuing right to make claim for, collect, receive and receipt for any of the sums, amounts, income, revenues, issues and profits and any other sums of money payable or receivable under the Amended and Restated First Installment Sale Agreement, the Amended and Restated Second Installment Sale Agreement (except for amounts payable to the Authority under Sections 5.5, 5.6 and 8.5 thereof) and the Security Agreement, to bring actions and proceedings thereunder or for the enforcement thereof, and to do any and all things which the Company under the Amended and Restated First Installment Sale Agreement is or may become entitled to do; GRANTING CLAUSE SECOND All moneys and securities from time to time held by the Trustee under the terms of the trusts created in this Trust Agreement, except for moneys in the Rebate Fund, the Purchase Fund and the Custody Account, together with investment earnings thereon; TO HAVE AND TO HOLD all and singular the Trust Estate, whether now owned or hereafter acquired, unto the Trustee and its respective successors in said Trust and assigns forever; IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all present and future owners of the Certificates, from time to time, executed and delivered under and secured by this Trust Agreement without privilege, priority or distinction as to the lien or otherwise of any of the Certificates over any of the other Certificates; PROVIDED, HOWEVER, that if the Authority, its successors or assigns, shall well and truly pay, or cause to be paid, the Purchase Payments at the times and in the manner set forth in the Amended and Restated First Installment Sale Agreement according to the true intent and meaning thereof, or shall provide, as permitted thereby, for the payment thereof by depositing with the Trustee the entire amount due or to become due thereunder, and shall well and truly cause to be kept, performed and observed all of its covenants and conditions pursuant to the terms of the Amended and Restated First Installment Sale Agreement and this Trust Agreement, and shall pay or cause to be paid to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions thereof and hereof, then upon the final payment thereof, but subject to the provisions of Section 9.1 hereof, this Trust Agreement and the rights hereby granted shall cease, determine and be void; otherwise this Trust Agreement shall remain in full force and effect. THIS TRUST AGREEMENT FURTHER WITNESSETH, and it is expressly declared, that all Certificates executed and delivered and secured hereunder are to be executed and delivered and all said property, rights and interests, including, without limitation, the amounts payable under the Amended and Restated First Installment Sale Agreement and any other amounts hereby assigned and pledged are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as herein expressed, and the Authority has agreed and covenanted, and does hereby agree and covenant with the Trustee and with the respective owners of the Certificates as follows: ARTICLE I DEFINITIONS Section 1.1. Definitions. (a) In addition to the terms defined elsewhere herein, the following terms have the meanings assigned to them in this Section unless the context otherwise requires: "Account" means any one or more of the separate special trust accounts created by Article III or Article XIII hereof, and shall include any subaccount or subaccounts included in such account, as applicable. "Act of Bankruptcy of the Bank" means that the Bank has become insolvent or has failed to pay its debts generally as such debts become due or has admitted in writing its inability to pay any of its indebtedness or has consented to or has petitioned or applied to any authority for the appointment of a receiver, conservator, liquidator, trustee or similar official for itself or for all or any substantial part of its properties or assets, or that any such trustee, receiver, conservator, liquidator or similar official has been appointed or that insolvency, reorganization, arrangement, receivership, conservatorship or liquidation proceedings (or similar proceedings) have been instituted by or against the Bank. "Alternate Rate" means, on any Interest Rate Calculation Date, the rate per annum specified in the index (the "Index") published by the Indexing Agent and in effect on such Interest Rate Calculation Date. The Index shall be based upon yield evaluations at par of bonds, the interest on which is excluded from gross income for purposes of Federal income taxation, of not less than five "high grade" component issuers selected by the Indexing Agent which shall include, without limitation, issuers of general obligation bonds. The specific issuers included among the component issuers may be changed from time to time by the Indexing Agent in its discretion. The bonds on which the Index is based shall not include any bonds the interest on which is subject to a "minimum tax" or similar tax under the Code, unless all tax-exempt bonds are subject to such tax. When Certificates are in the Weekly Mode, the yield evaluation period for the Index shall be 30-day yield evaluations. "Amended and Restated First Installment Sale Agreement" means the Amended and Restated First Installment Sale Agreement dated as of this date between the Company and the Authority, and any amendments and supplements thereto. "Amended and Restated Second Installment Sale Agreement" means the Amended and Restated Second Installment Sale Agreement dated as of this date between the Authority and the Company, and any amendments and supplements thereto. "Assignment of Leases" means the Assignment of Leases, Rents, Income and Profits dated as of this date between the Bank and Authority, and any amendments and supplements thereto. "Authority" means the Parking Authority of the City of Hermosa Beach, a parking authority and public body, corporate and politic, organized and existing pursuant to the laws of the State. "Authorized Authority Representative" means each person at the time designated to act on behalf of the Authority by written certificate furnished to the Company and the Trustee containing the specimen signature of such person and signed on behalf of the Authority by it duly authorized agent. Such certificate may designate an alternate or alternates. "Authorized Company Representative" means each person at the time designated to act on behalf of the Company by written certificate furnished to the Authority and the Trustee containing the specimen signature of such person and signed on behalf of the Company by its Managing General Partner. Such certificate may designate an alternate or alternates. "Authorized Denominations" means $100,000 and any integral multiple thereof from the Closing Date until the Conversion Date (provided that, with respect to and after any redemption of Certificates during such period pursuant to Sections 6.2(c), (f) and (g) it shall mean for one Certificate $100,000 less any amount of $5,000 or any integral multiple thereof redeemed), and shall mean $5,000 and any integral multiple thereof on and after the Conversion Date. "Bank" means Dresdner Bank AG, Los Angeles Agency, a German banking association, acting as the issuer of the Bank Letter of Credit, or the issuer of a Substitute Letter of Credit, if one has been issued as provided herein. "Bank Letter of Credit" or "Letter of Credit" means the irrevocable letter of credit issued by the Bank to the Trustee on the Closing Date, or a Substitute Letter of Credit for the benefit of the Trustee meeting the requirements of Section 3.9 hereof. "Business Day" means a day which is not a Saturday or Sunday or a day on which banking institutions are authorized or required by law to be closed (a) in the State or the State of New York and (b) where the Principal Office is located, for commercial banking purposes. "Certificates" shall mean the certificates of participation executed and delivered pursuant to this Trust Agreement. "Certificate Year" means the period beginning on the Closing Date and through December 1, 1995, and each consecutive twelve-month period thereafter ending on December 1 in any year in which Certificates are or will be Outstanding. "Closing Date" means the date upon which the Certificates are initially executed and delivered in exchange for the proceeds representing the purchase price of the Certificates paid by the original purchaser thereof, being December 5, 1994. "Code" means the Internal Revenue Code of 1954, as amended, and, to the extent applicable, the Internal Revenue Code of 1986, as amended, and the United States Treasury Regulations proposed or in effect with respect thereto. "Collateral" shall mean those items set forth in Exhibit B of the Security Agreement. "Company" shall mean JMB Income Properties, Ltd. XII, a limited partnership organized and existing under the laws of the State of Illinois, its successors and their assigns. "Conversion Date" means the date after which the Certificates begin to bear interest at the Fixed Rate as provided in Section 2.4 hereof. "Cost of Issuance Fund" shall mean the Fund created by Section 3.2 hereof. "Costs of Issuance" means the items specified as such in Section 3.5 hereof. "Custodian" means First Trust of California, National Association, in its capacity as custodian under the Pledge and Security Agreement. "Custody Account" means such account created by Section 3.10 hereof. "Debt Service" means the scheduled amount of interest and amortization of principal, if any, due with respect to the Certificates during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. "Debt Service Fund" means such Fund created by Section 3.2 hereof. "Deed of Trust" shall mean the Deed of Trust, Fixture Filing and Assignment of Leases (Completed Building) dated as of this date, executed by the Company, as trustor, in favor of the Authority and the Bank as co-beneficiaries, and any and all modifications, alterations, amendments and supplements thereto. "Default" and "Event of Default" mean with respect to any Default or Event of Default under this Trust Agreement any occurrence or event specified in and defined by Section 9.1 hereof. "Demand Purchase Option" means the option of the Registered Owners to have Certificates outstanding purchased in accordance with Section 13.2 hereof. "Determination of Taxability" means (1) a final judgment or order of a court of competent jurisdiction or a final order, ruling, regulation or decision of the United States Department of the Treasury or the Internal Revenue Service which, (2) legislation enacted by the United States Congress which, or (3) an event or condition arising or existing after the Closing Date which in the opinion of Certificate Counsel, will adversely affect the Tax-exempt status of the interest with respect to the Certificates (other than interest on any Certificate for any period during which such Certificate is held by a "substantial user" of any facility financed with the proceeds of the Certificates or a "related person," as such terms are used in Section 147(a) of the Code). With respect to clause (1) above, a judgment or order of a court 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. "Electronic Means" means telecopy, telegraph, telex, facsimile transmission or other similar electronic means of communication, including a telephonic communication confirmed in writing or written transmission. "Extraordinary Services" and "Extraordinary Expenses" mean all reasonable services rendered by the Trustee and all reasonable, actual out-of-pocket expenses, including attorneys fees and expenses, incurred by the Trustee under this Trust Agreement other than Ordinary Services and Ordinary Expenses. "Financial Newspaper or Journal" means The Wall Street Journal or The Bond Buyer or any other newspaper or journal containing financial news, printed in the English language, customarily published on each Business Day and circulated in San Francisco, California and New York, New York, and selected by the Trustee, whose decision shall be final and conclusive. "Fixed Rate" means the interest rate applicable to the Certificates after the Conversion Date in accordance with Section 2.4 hereof. "Fixed Rate Mode" means the mode during which the Certificates bear interest at a Fixed Rate. "Fund" means any one or more of the separate special trust funds created by Article III hereof. "General Fund" means such Fund created by Section 3.2 hereof. "Government Obligations" means direct, non-callable, general obligations of the United States of America, or any obligations unconditionally guaranteed as to the full and timely payment of principal and interest by the full faith and credit of the United States of America. "Indexing Agent" means Kenny Information Systems, a corporation duly organized and existing under the laws of the State of New York, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer publish the indices referred to in the definition of Alternate Rate, then the term "Indexing Agent" shall be deemed to refer to any other entity selected by the Authority publishing similar indices and approved by the Bank and the Remarketing Agent (neither of whom shall be under any liability by reason of such approval). "Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' "Called Certificate Service," 65 Broadway, 16th Floor, New York, New York 10006; Moody's "Municipal and Government," 99 Church Street, 8th Floor, New York, New York 10007, Attention; Municipal News Report; and Standard and Poor's "Called Bond Record," 25 Broadway, 3rd Floor, New York, New York 10004; or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds, or no such services, as the Authority may designate in a certificate of the Authority delivered to the Trustee. "Initial Rate Calculation Date" means December 6, 1994. "Installment Payments" shall have the same meaning as provided in the Amended and Restated Second Installment Sale Agreement. "Insurance Proceeds Account" means the account in the Revenue Fund by that name created by Section 3.2 hereof. "Interest Account" means the account in the Debt Service Fund by that name created by Section 3.2 hereof. "Interest Payment Date" means, prior to and including the Conversion Date, the first Wednesday of each month, commencing the first Wednesday of the month following the Initial Rate Calculation Date, and, after the Conversion Date, June 1 and December 1 of each year, and the final maturity of the Certificates. "Interest Period" means the period commencing on the Wednesday after each Interest Rate Calculation Date to and including Tuesday of the following week. "Interest Rate Calculation Date" means, prior to the Conversion Date, each Tuesday or, if Tuesday is not a Business Day, the next succeeding day or, if such day is not a Business Day, then the Business Day next preceding such Tuesday. "Land" means the real property described in Exhibit A to the Security Agreement. "Maturity Date" means December 1, 2023. "Maximum Interest Rate" means 12 percent per year (computed on the basis of a 365 day year, actual number of days elapsed); provided, however, that the Maximum Interest Rate shall be a higher rate that can be no higher than the rate stated in the Bank Letter of Credit if the Trustee receives (i) evidence satisfactory to the Trustee that the amount of the Bank Letter of Credit or the Substitute Letter of Credit, as the case may be, has been increased by an amount equal to the principal amount of the Certificates outstanding times the increase in the interest rate, divided by 365, times 38; (ii) an opinion of Special Counsel to the effect that the designation will neither violate any provision of any law applicable to the Certificates nor cause the interest due with respect to the Certificates to cease to be Tax-exempt; and (iii) the written consent of the Company to the designation of such higher rate. In no event shall the Maximum Interest Rate exceed the highest rate allowable under any applicable State usury limitation. "Moody's" means Moody's Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, with the approval of the Company, by notice to the Remarketing Agent, the Bank and the Trustee. "Net Proceeds" shall have the same meaning as provided in the Amended and Restated First Installment Sale Agreement. "Notice by Mail" or "notice" of any action or condition "by Mail" means a written notice meeting the requirements of this Trust Agreement mailed by first-class mail to the Registered Owners of Certificates at the addresses shown in the registration books maintained pursuant to Section 2.9 hereof. "Notice Parties" means the Authority, the Trustee, the Remarketing Agent, the Tender Agent, the Company and the Bank. "Ordinary Services" and "Ordinary Expenses" mean those reasonable services to be rendered and those reasonable, actual out-of-pocket expenses, including fees of counsel, accountants and other professional advisors, including expenses incurred pursuant to Section 9.1(c) herein, to be incurred by the Trustee as depositary of the Funds, as registrar of the Certificates, as Paying Agent and as Custodian of Pledged Certificates, if any, and for its performance of any and all other duties hereunder, for which the Trustee will be compensated at the rates set forth in a certificate to be executed by the Company and the Trustee in accordance with a schedule provided to the Trustee by the Company. "Outstanding," when used in reference to the Certificates, shall mean, as at any particular date, the aggregate of all Certificates delivered under this Trust Agreement except: (i) those cancelled at or prior to such date or delivered to or acquired by the Trustee at or prior to such date for cancellation; (ii) those deemed to be paid in accordance with Article VIII of this Trust Agreement; and (iii) those in lieu of or in exchange or substitution for which other Certificates shall have been delivered pursuant to this Trust Agreement. "Paying Agent" means any commercial bank or trust company designated pursuant to this Trust Agreement to serve as a paying agency or place of payment for the Certificates, and, unless otherwise designated, means the Trustee and, with respect to the Certificates tendered for purchase pursuant to Article XIII hereof, the Tender Agent. "Permitted Encumbrance" shall have the same meaning as provided in the Amended and Restated Second Installment Sale Agreement. "Permitted Investments" means any of the following, other than those issued by the Authority or the Company, which at the time are legal investments under the laws of the State, and to the extent provided by law (provided the Trustee has no duty to investigate the law), for the moneys held hereunder then proposed to be invested therein: (i) Government Obligations; (ii) time or demand deposits in any United States bank or trust company whose obligations are rated in the highest rating category by a nationally recognized rating agency, having aggregate capital and surplus of at least $50,000,000 (including the Trustee and its affiliates and the Bank), which are secured at all times by bonds or other obligations which are authorized by law as security for public deposits; (iii) obligations, participations or other instruments of, or issued by the Federal National Mortgage Association, or issued by a United States agency or a United States government enterprise; (iv) evidence of indebtedness of corporations authorized by the provisions of Section 1364 of the California Financial Code provided such indebtedness is rated, or is on a parity with obligations that are rated "P-1" or "A-1" or better by a nationally recognized rating agency; (v) repurchase agreements secured by any of the obligations referred to in (i) or (iii) above or bonds or obligations which are authorized by law as security for public deposits, provided that no proceeding under any applicable insolvency or reorganization law has been commenced by or against the issuer of such bonds or obligations and provided further that such bonds or other obligations and the debt of the issuer of the repurchase agreement bear the highest rating assigned by a nationally recognized rating agency; (vi) obligations of state and local governments or political subdivisions or instrumentalities thereof, the interest on which is Tax-exempt, rated by Moody's (or other Rating Agency then rating the Certificates) at a rating not lower than the rating on the Certificates; (vii) a promissory note (and the investment agreement, if any) of a bank holding company whose obligations are rated AA+ or Aa1, or higher, by a nationally recognized rating agency; (viii) money market funds of the Trustee and its affiliates; and (ix) any other investment approved in writing by the Bank, acceptable to the Trustee, and otherwise in accordance with the requirements of this Trust Agreement. "Pledge and Security Agreement" or "Pledge Agreement" means that agreement dated as of the date hereof, by and among the Company, the Trustee and the Bank with respect to the holding of Pledged Certificates by the Custodian. "Pledged Certificates" means any Certificates during the period from and including the date of its purchase with amounts realized under the Bank Letter of Credit, while such Certificate is pledged to the Bank, to but excluding the date on which such Certificate is purchased by any person or entity of any kind other than the Bank and payment therefor is received by the Bank or on its behalf. "Principal Account" means the Account in the Debt Service Fund by that name created pursuant to Section 3.2 hereof. "Principal Office" means, with respect to the Trustee, the Paying Agent and the Tender Agent, the corporate trust office of the Trustee, the Paying Agent and the Tender Agent (if the Trustee is the Paying Agent and Tender Agent), located at the address set forth in Section 14.9 hereof (except for exchanges and surrenders of, and payments on, the Certificates which shall be c/o First Trust of California, National Association, 180 East Fifth Street, St. Paul, Minnesota 55101, Attention: Corporate Trust Department), and such other offices as the Trustee shall designate from time to time, and with respect to the Bank, located at the address indicated in Section 14.9 hereof, and such other offices as the Bank may designate from time to time. "Prior Certificates" means the Parking Authority of the City of Hermosa Beach $6,400,000 Floating Rate Monthly Demand Certificates of Participation (Hermosa Beach Parking Facilities Project - 1983 Series). "Proceeds Fund" means such Fund created by Section 3.2 hereof. "Project" shall have the same meaning as provided in the Amended and Restated First Installment Sale Agreement. "Project Costs" shall have the same meaning as provided in the Amended and Restated First Installment Sale Agreement. "Purchase Fund" means the Fund by that name created pursuant to Section 3.2 hereof. "Purchase Payments" shall have the same meaning as provided in the Amended and Restated First Installment Sale Agreement. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Group, Fitch Investors Service or any other nationally recognized rating agency. "Rebate Fund" means the Fund by that name created pursuant to Section 5.5. "Record Date" means, with respect to any Interest Payment Date on the Certificates occurring on or before the Conversion Date, except a payment of defaulted interest, the day next preceding such Interest Payment Date (whether or not a Business Day), and after the Conversion Date, the fifteenth day of the month preceding an Interest Payment Date. With respect to any payment of defaulted interest, "Record Date" means a special record date established in accordance with the provisions of Section 2.2 hereof. "Redemption Account" means the Account in the Debt Service Fund by that name created pursuant to Section 3.2 hereof. "Registered Owner" means the person or persons in whose name or names a Certificate shall be registered on books of the Trustee kept for that purpose in accordance with the terms of this Trust Agreement. "Registrar" means the Trustee acting as registrar of the Certificates. "Regulations" means the Income Tax Regulations promulgated or proposed by the Department of Treasury pursuant to the Code from time to time. "Reimbursement Agreement" means (i) the Letter of Credit and Reimbursement Agreement dated as of this date between the Company and the Bank pursuant to which the Letter of Credit is issued by the Bank and delivered to the Trustee, (ii) any comparable agreement between the Company and the issuer of any Substitute Letter of Credit, and (iii) any and all modifications, alterations, amendments and supplements thereto. "Remarketing Agent" means the remarketing agent appointed by the Company in accordance with the provisions of Section 13.3. "Remarketing Agreement" means that certain Remarketing Agreement, dated as of the date hereof, between the Remarketing Agent, the Authority and the Company. "Reserve Fund" means the Fund established by the Trustee pursuant to Section 3.2 hereof. "Reserve Requirement" means at any particular time (i) from the date of original delivery of the Certificates to the Conversion Date to a Fixed Rate pursuant to Section 2.4 hereof, an amount equal to the greater of (a) the amount of interest payable for six months with respect to all Certificates Outstanding at an assumed interest rate equal to the Maximum Interest Rate or (b) $432,000, and (ii) thereafter, an amount equal to the amount of interest payable for six months with respect to all Certificates Outstanding at a rate of interest equal to the Fixed Rate. "Responsible Officer" means any officer of the Trustee specifically assigned to administer its duties hereunder. "Revenues" means the amounts pledged hereunder to the payment of principal represented by, premium, if any, and interest due with respect to the Certificates, consisting of the following: (i) all moneys drawn by the Trustee under the Bank Letter of Credit; (ii) all income, revenues, proceeds and other amounts, to which the Authority is entitled, derived from or in connection with the Project and the Amended and Restated First and Second Installment Sale Agreements, including all scheduled payments of Purchase Payments and all prepayments which do not represent draws under the Bank Letter of Credit, including amounts obtained through the exercise of the remedies provided in the Amended and Restated First and Second Installment Sale Agreements upon the occurrence of events of default thereunder and all receipts of the Trustee credited under the provisions of this Trust Agreement against said amounts payable, and excluding payments made by the Company to the Rebate Fund; and (iii) moneys held in the Funds and Accounts (exclusive of moneys held in the Rebate Fund and the Purchase Fund), together with investment earnings thereon. "Seasoned Funds" means moneys paid by the Company to the Trustee and so designated at the time of such payment, which moneys have been held by the Trustee (other than in the Rebate Fund, the Purchase Fund or the Custody Account) for a period of at least 370 days and not commingled with any moneys so held for less than said period and during which period no petition in bankruptcy was filed by or against, and no receivership, insolvency, assignment for the benefit of creditors or other similar proceeding has been commenced by or against, the Authority or the Company or general partner or guarantor thereof, unless such petition or proceeding was dismissed and all applicable appeal periods have expired without an appeal having been filed. If neither the Bank Letter of Credit nor any Substitute Letter of Credit is in effect, "Seasoned Funds" means any moneys. "Seasoned Funds Account" means the Account by that name created in the Debt Service Fund pursuant to Section 3.2 hereof. "Securities Depository" means The Depository Trust Company and its successors and assigns, or any other securities depository selected as set forth in Section 2.13 hereof. "Security Agreement" means that certain Security Agreement dated the date hereof among the Company, the Bank, and the Authority, executed by the Company in favor of the Bank and the Authority, granting a security interest in, without limitation, all Collateral in which the Company has an interest in, and any amendments or supplements thereto. "Special Counsel" means an attorney or firm of attorneys of recognized national standing in the field of municipal finance acceptable to the Authority and the Trustee. "State" means the State of California. "Substitute Letter of Credit" means a letter of credit, surety bond, insurance policy, stand-by funding or bond purchase agreement or other credit facility which satisfies the criteria of Section 3.9(e) hereof and Section 5.3 of the Amended and Restated Second Installment Sale Agreement delivered by the Company to the Trustee to replace the theretofore outstanding Bank Letter of Credit. "Supplemental Trust Agreement" means any agreement hereafter authorized and entered into between the Authority and the Trustee which amends, modifies or supplements and forms a part of this Trust Agreement. "Tax Certificate" means a certificate executed and delivered by the Authority on the Closing Date, or any functionally similar replacement certificate subsequently executed and delivered by the Authority with respect to the requirements of the Code. "Tax-exempt" means, with respect to interest on any obligations of a state or local government, including the Certificates, that such interest is excluded from gross income for federal income tax purposes; provided, however, that such interest may be includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax, under the Code. "Tender Agent" means First Trust of California, National Association, or another Tender Agent appointed pursuant to Section 13.9 and acting in the capacity of tender agent under this Trust Agreement, which Tender Agent shall also be a Paying Agent hereunder. "Term of Agreement" means the term of the Amended and Restated Second Installment Sale Agreement as specified in Section 10.1 of the Amended and Restated Second Installment Sale Agreement. "Trust Agreement" means this Trust Agreement, dated as of this date, among the Authority, the Trustee, and the Company, and any and all modifications, alterations, amendments and supplements thereto. "Trust Estate" means the property conveyed to the Trustee pursuant to the Granting Clauses hereof. "Trustee" means First Trust of California, National Association, a national banking association organized and existing under the laws of the United States, as trustee of the trusts under this Trust Agreement, its successors in trust and their assigns. "Weekly Mode" means the mode during which the Weekly Rate is in effect. "Weekly Rate" means the per annum interest rate on any Certificate in the Weekly Mode determined pursuant to Section 2.3 hereof which, initially shall be from and including the first day the Certificates become subject to the Weekly Mode to and including the following Tuesday and, thereafter, commencing on each Wednesday to and including the following Tuesday. Such terms as are not defined herein shall have the meanings assigned to them in the Amended and Restated First Installment Sale Agreement and the Amended and Restated Second Installment Sale Agreement. (b) Covenants. Words of agreement and promise herein shall also be construed as covenants. (c) Number and Gender, Connectives and Disjunctives. Wherever appropriate (1) the singular and plural forms of words, (2) words of different gender and (3) the words "and" and "or" shall, within those respective classifications, be deemed interchangeable. (d) Use of Examples. When a condition, class, category, circumstance or other concept is described in general terms herein and a list of possible examples or components of what has been described generally is associated with that description, and regardless of whether the words "include" or "including" or the like are also used, the listing shall be deemed illustrative only and shall not be construed as excluding other possible examples or components or otherwise limiting the generality of the description in any way. ARTICLE II THE CERTIFICATES Section 2.1. Authorized Amount of Certificates. No Certificates may be executed and delivered under the provisions of this Trust Agreement except in accordance with this Article. The total principal amount of Certificates that may be executed and delivered is hereby expressly limited to $6,400,000, except for replaced or exchanged Certificates as provided in Sections 2.8 and 2.9 hereof. Section 2.2. Execution and Delivery of Certificates. The Authority may execute and deliver the Certificates following the execution of this Trust Agreement; and the Trustee shall, at the Authority's written request, authenticate such Certificates and deliver them as specified in the request. Any Certificates delivered prior to the Conversion Date shall be in substantially the form set forth in Exhibit A hereto and any Certificates delivered on or after the Conversion Date shall be in substantially the form set forth in Exhibit B hereto and shall be designated "Parking Authority of the City of Hermosa Beach, Floating Rate Weekly Demand Refunding Certificates of Participation (Hermosa Beach Parking Facilities Project - 1994 Series)," in each case with necessary or appropriate variations, omissions and insertions as permitted or required by this Trust Agreement, including any Supplemental Trust Agreement. The Certificates shall be deliverable only as fully registered Certificates without coupons in Authorized Denominations. Unless the Authority shall otherwise direct, the Certificates shall be numbered as determined by the Trustee. The Certificates shall be registered initially in the name of "Cede & Co.," as nominee of the Securities Depository, and shall be evidenced by one Certificate in the principal amount of the Certificates. Registered ownership of the Certificates, or any portion thereof, may not thereafter be transferred except as set forth in Section 2.13. The Certificates shall be dated as of the Closing Date, and shall mature on the Maturity Date. The Certificates shall bear interest for the period from the Closing Date to and including the Initial Rate Calculation Date, at the rate specified in writing to the Trustee by the Remarketing Agent on the Closing Date. Thereafter, the Certificates shall bear interest at the Weekly Rate, as the same shall be determined from time to time, unless and until such time as the Fixed Rate is established pursuant to Section 2.4 hereof. The amount of interest to be paid on any Interest Payment Date for each minimum Authorized Denomination of Certificates prior to the establishing of the Fixed Rate shall be determined by (i) multiplying the minimum Authorized Denomination of each Certificate times each different Weekly Rate in effect since the last Interest Payment Date times the actual number of days that such Weekly Rate was in effect, (ii) dividing the resulting product by 365 or 366, as appropriate, and (iii) totaling the amounts computed for each Weekly Rate and rounding the resulting figure to the nearest cent (half cents being rounded upward). Neither the Authority, the Company, the Remarketing Agent, the Bank nor the Trustee shall have any liability to any Certificateholder as a result of any error in calculation of the Weekly Rate. The amount of interest payable with respect to the Certificates from and after the Conversion Date shall be calculated at the Fixed Rate on the basis of a 360-day year comprised of twelve 30-day months. Interest due with respect to the Certificates shall be payable on the first Wednesday of each month commencing on the first Wednesday of the month following the Initial Rate Calculation Date; provided, however, that, subsequent to the Conversion Date, interest on the Certificates shall be payable semiannually on June 1 and December 1 of each year. Each Certificate will bear interest from the Interest Payment Date next preceding the date of authentication thereof to which interest has been duly paid or provided for, unless a Certificate is authenticated before the Record Date for the first Interest Payment Date, in which case interest will accrue from the Closing Date. The Trustee shall insert the date of authentication of each Certificate in the place provided for such purpose in the form of Trustee's certificate of authentication to be printed on each Certificate. Each Certificate shall bear interest on overdue principal at the rate then in effect on the Certificates. The principal of and premium, if any, and interest on the Certificates shall be payable by check in lawful money of the United States of America, being any coin or currency of the United States of America which, at the respective dates of payment thereof, is legal tender for the payment of public and private debts. Interest due with respect to each Certificate shall be paid to the Registered Owner thereof at the close of business on the Record Date with respect to such interest payment and shall be paid (i) in the case of Certificates in Weekly Mode, by wire transfer of immediately available funds to an account in the United States specified by the Owner in a writing delivered to the Paying Agent and (ii) in the case of Certificates in the Fixed Rate Mode by check mailed to such Registered Owner on the Interest Payment Date at its address as it appears on the registration books of the Trustee or, upon the request of a Registered Owner of at least $1,000,000 in principal amount of Certificates by wire transfer in immediately available funds to an account in the United States designated by such Registered Owner, irrespective of the cancellation of such Certificate upon any transfer or exchange thereof subsequent to such Record Date and prior to such Interest Payment Date, unless the Authority shall default in the payment of the interest due with respect to such Interest Payment Date. Payment of principal or premium due with respect to any Certificate shall be paid only upon surrender of such Certificate at the Principal Office of the Trustee, or its successor in trust or, in the event of purchase pursuant to Sections 13.1 or 13.2 hereof, at the Principal Office of the Tender Agent, or successor Tender Agent. In the event of any default in the payment of interest, such defaulted interest shall be payable to the Registered Owner of such Certificate (or its respective predecessor Certificate) on a special Record Date for the payment of such defaulted interest, which date shall be established by notice mailed by or on behalf of the Authority to the Registered Owners of Certificates not less than fifteen (15) days preceding such special Record Date. Section 2.3. Determination of Weekly Rate. The Weekly Rate to be borne by the Certificates from time to time prior to the Conversion Date shall be the rate described herein. (a) For each Interest Period commencing after the Initial Rate Calculation Date, the Weekly Rate shall be the rate determined by the Remarketing Agent by 4:00 p.m. New York time on the applicable Interest Rate Calculation Date, having due regard for prevailing financial market conditions, to be the rate (but not higher than the rate) which it would be necessary for the Certificates to bear in order to enable the Remarketing Agent to remarket Certificates at 100 percent of the principal amount thereof if Certificates were tendered to the Remarketing Agent for remarketing. The Remarketing Agent shall make the Weekly Rate available (i) after 4:00 p.m. on the Interest Rate Calculation Date by telephone to any Owner or Notice Party requesting such rate and (ii) by Electronic Means to the Paying Agent not later than the second Business Day immediately succeeding the Interest Rate Calculation Date. The Paying Agent shall give notice of such interest rates to the Trustee by Electronic Means not later than 4:00 p.m. on the second Business Day immediately succeeding the Interest Rate Calculation Date. If the Remarketing Agent shall at any time fail to determine the Weekly Rate, then the Weekly Rate shall be the Alternate Rate. (b) The determination of the Weekly Rate by the Remarketing Agent shall be conclusive and binding upon the Authority, the Company, the Trustee, the Tender Agent, the Bank, the Remarketing Agent and the Registered Owners of the Certificates. Section 2.4. Establishment of Fixed Rate. The interest rate to be borne by the Certificates may be converted to the Fixed Rate as follows: (a) The Company may elect, with the prior consent of the Authority and the Bank (as hereinafter described), at any time (so long as no Event of Default shall have occurred and is continuing) that Certificates are Outstanding to have the Certificates bear interest at the Fixed Rate by giving written notice to the Trustee of such election at least 35 and not more than 45 days prior to the Conversion Date, and by sending a copy of such notice to the Authority, the Bank, the Paying Agent, the Tender Agent and the Remarketing Agent. An election by the Company shall not be effective unless the Bank consents in writing and the Company delivers to the Bank written evidence acceptable to the Bank of (i) a Substitute Letter of Credit expected to be in effect on and after the Conversion Date or (ii) an investment letter or binding commitment for the purchase of the Certificates upon mandatory tender pursuant to Section 13.5(c) and which in either case, unless otherwise waived by the Bank in the exercise of its sole discretion, must provide for the purchase of any Pledged Certificates upon the Conversion Date. An election by the Company shall not be effective unless the notice of election states the proposed Conversion Date, which shall be an Interest Payment Date, and the Company furnishes to the Trustee, concurrently with the notice of election (i) an opinion of Special Counsel to the effect that the establishment of the Fixed Rate in accordance with the procedure described in subsection (d) below, is lawful under applicable law, is permitted by this Trust Agreement, and will not adversely affect the Tax-exempt status of interest due with respect to the Certificates, (ii) payment to the Trustee of such amount as the Trustee reasonably determines may be required in connection with the establishment of the Fixed Rate, including but not limited to its own fees and expenses and the cost of printing new Certificates; and (iii) evidence from Moody's (or another Rating Agency) specifying the rating, if any, on the Certificates expected to be in effect on and after the Conversion Date. (b) The Company may cancel such election by causing the Trustee, the Tender Agent, the Bank, the Authority and the Remarketing Agent to receive written notice of such cancellation not later than the last Business Day which is at least 35 days prior to the proposed Conversion Date. (c) Unless the Trustee, the Paying Agent, the Tender Agent and the Remarketing Agent have received a notice of cancellation as provided for in subsection (b) hereof by the date specified by said subsection the Trustee shall send a notice not less than 30 days prior to the Conversion Date to the Remarketing Agent, the Company, the Bank, Moody's and each Registered Owner by first class mail, postage prepaid, stating (i) the Conversion Date, (ii) the Fixed Rate estimated to be borne by the Certificates on and after the Conversion Date, (iii) that subsequent to such Conversion Date the Registered Owners will no longer have the right to require the purchase of Certificates pursuant to Section 13.2 hereof, (iv) the redemption provisions applicable to the Certificates after the Conversion Date, (v) the rating, if any, on the Certificates expected to be in effect on the Conversion Date, (vi) that after the Conversion Date interest due with respect to the Certificates will be payable on June 1 and December 1 of each year, (vii) the provider of the Substitute Letter of Credit or that there will be no Substitute Letter of Credit and (viii) such other information as is deemed necessary by the Trustee, the Bank, the Authority or the Company, and further stating that each Registered Owner must deliver its Certificates to the Trustee or the Tender Agent ten days prior to the Conversion Date for purchase at 100% of the principal amount thereof. Any Certificate not so delivered by such date will nonetheless be deemed to have been delivered by and purchased from the Registered Owner at such price on the Conversion Date; provided, however, that payment of principal due on any such Certificate shall only be paid upon surrender thereof at either the Principal Office of the Trustee or its successor in trust, or the Principal Office of the Tender Agent or successor Tender Agent. (d) The Remarketing Agent shall compute the Fixed Rate not later than the Business Day prior to the Conversion Date not later than 4:00 p.m. New York time on that date, and the Remarketing Agent shall make the Fixed Rate available by telephone to any Notice Party requesting such rate. The Fixed Rate shall be determined by the Remarketing Agent, having due regard for prevailing market conditions, as that rate which, if borne by the Certificates from the Conversion Date to maturity, would be the interest rate, but would not exceed the interest rate, which would result in the market value (disregarding accrued interest) of the Certificates on the date of such computation being 100 percent of the principal amount thereof. (e) Certificates delivered or deemed to have been delivered to the Trustee or the Tender Agent pursuant to the provisions of subsection (c) hereof shall be purchased and paid for in accordance with Article XIII hereof; and payment, or provision for payment, having been made, such Certificates shall cease to bear interest and shall not be deemed to be Outstanding for the purposes of this Trust Agreement, from and after the Conversion Date; and the Trustee shall cause new Certificates, in the form set forth in Exhibit B hereto and reflecting the Fixed Rate, to be printed at the expense of the Company and distributed to the respective purchasers thereof. (f) The determination of the Fixed Rate by the Remarketing Agent in accordance with the provisions of this Section is hereby approved by the Authority, and such determination shall be conclusive and binding upon the owners of the Certificates, the Authority, the Bank, the Remarketing Agent, the Company and the Trustee. Section 2.5. Execution of Certificates. The Certificates shall be executed by and in the name of the Trustee, acting in its capacity as Trustee hereunder (and not as an obligor on the Certificates), with the manual or facsimile signature of an authorized officer of the Trustee. Section 2.6. Pledge Under the Trust Agreement; Limits on Authority's Obligations and Powers. The Certificates shall be payable solely from the amounts payable under the Amended and Restated First and Second Installment Sale Agreements, the Deed of Trust and the Assignment of Leases, the Security Agreement, and the Letter of Credit (except to the extent paid out of moneys attributable to the proceeds derived from the sale of the Certificates or to income from either the temporary investment thereof and, under certain circumstances, to proceeds from insurance and condemnation awards) and shall be a valid claim of the respective Registered Owners thereof only against the Certificate Fund and other moneys held by or for the Trustee and the amounts payable under the Amended and Restated First and Second Installment Sale Agreements, the Deed of Trust and the Assignment of Leases, the Security Agreement, and the Letter of Credit, which amounts are hereby pledged, assigned and otherwise secured for the equal and ratable payment of the Certificates and shall be used for no other purpose than to pay the principal of, premium, if any, and interest on the Certificates, except as may be otherwise expressly authorized in this Trust Agreement. Neither the Trustee, the Authority, the State nor any other political subdivision of the State shall be obligated to pay the Purchase Payments or the principal of such Certificates or the interest thereon or other costs incident thereto except from the moneys pledged therefor. Neither the faith and credit nor the taxing power of the Authority, the State or any political subdivision of the State is pledged to the payment of the Purchase Payments or the principal of the Certificates or the interest thereon or other costs incident thereto. The Certificates and the Purchase Payments shall not be general obligations of the Trustee or the Authority, nor a charge upon the tax revenues of the Authority, nor a charge upon any other revenues or property of the Authority not specifically pledged thereto. Section 2.7. Delivery of Certificates. Upon the execution and delivery of this Trust Agreement, the Trustee shall execute and deliver the Certificates to the initial purchasers thereof as hereinafter in this Section provided. Prior to the delivery by the Trustee of the Certificates there shall be filed with the Trustee: (a) A copy, duly certified by the Secretary or other appropriate officer of the Authority, of the resolution adopted by the Authority authorizing the execution and delivery of this Trust Agreement, the Amended and Restated First Installment Sale Agreement and the Amended and Restated Second Installment Sale Agreement. (b) Original executed counterparts of the Amended and Restated First Installment Sale Agreement, the Amended and Restated Second Installment Sale Agreement, this Trust Agreement, the Deed of Trust and the Assignment of Leases, the Security Agreement, the Letter of Credit and the Reimbursement Agreement. (c) A request to the Trustee on behalf of the Authority and signed by its Chairman to deliver the Certificates to the purchasers therein identified upon payment to the Trustee of a sum specified in such request and authorization plus accrued interest thereon, if any, to the date of delivery. The proceeds of such payment shall be paid over to the Trustee and thereupon deposited in the Funds and Accounts established by the Trustee pursuant to Article III hereof and pursuant to instructions delivered by the Authority on the date of delivery of the Certificates regarding deposits to the various Funds and Accounts. (d) Written title evidence that the Deed of Trust will constitute a valid first lien upon the Project subject only to Permitted Encumbrances and the Assignment of Leases. Such title evidence shall consist of an American Land Title Association form of loan policy of title insurance in usual and customary form, naming the Trustee as an additional insured, without exception for matters of survey and mechanic's and materialmen's liens, and in the face amount of at least $6,400,000 issued by a title company selected by the Company and approved by the Trustee and the Bank. (e) An opinion of Special Counsel approving the validity of the Amended and Restated First Installment Sale Agreement and the Tax-exempt status of the interest payable thereunder and with respect to the Certificates. Section 2.8. Lost, Destroyed or Improperly Cancelled Certificates. If any Certificate, whether in temporary or definitive form, is lost (whether by reason of theft or otherwise), destroyed (whether by mutilation, damage, in whole or in part, or otherwise) or improperly cancelled, the Trustee may execute and deliver a new Certificate of like date and denomination and bearing a number not contemporaneously outstanding; provided that (a) in the case of any mutilated Certificate, such mutilated Certificate shall first be surrendered to the Trustee, (b) in the case of any lost Certificate or Certificate destroyed in whole, there shall be first furnished to the Trustee evidence of such loss or destruction, together with indemnity, satisfactory to it. In the event any lost, destroyed or improperly cancelled Certificate shall have matured or is about to mature, or has been called for redemption, instead of executing and delivering a duplicate Certificate the Trustee shall, pay the same without surrender thereof if there shall be first furnished to the Trustee evidence of such loss, destruction or cancellation, together with indemnity, satisfactory to it. Upon the execution and delivery of any substitute Certificate, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. The Trustee may charge the Registered Owner of any such Certificate with the Trustee's reasonable fees and expenses in connection with any transaction described in this Section 2.8. Section 2.9. Transfer, Registration and Exchange of Certificates. The Trustee shall cause books for the registration of the transfer of the Certificates as provided in this Trust Agreement to be kept at its Principal Office. The books shall at all times be open to inspection by a duly authorized employee or agent of the Authority during normal business hours and upon reasonable notice. Upon surrender for registration of transfer of any Certificate at the Principal Office of the Trustee, duly endorsed for transfer or accompanied by an assignment duly executed by the Registered Owner or his attorney duly authorized in writing, the Authority shall cause to be executed and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Certificate or Certificates, of the same maturity and for a like aggregate principal amount. Certificates may be exchanged at the Principal Office of the Trustee for a like aggregate principal amount of Certificates of the same maturity of other Authorized Denominations. The Authority shall cause to be executed and the Trustee shall authenticate and deliver Certificates which the Certificateholder making the exchange is entitled to receive, bearing numbers not then outstanding. The execution by the Chairman of the Authority of any Certificate of any Authorized Denomination shall constitute full and due authorization of such denomination, and the Trustee shall thereby be authorized to authenticate and deliver such Certificate. The Trustee shall not be required to register the transfer of or exchange any Certificate after the mailing of notice calling such Certificate for redemption has been given as herein provided during the period of fifteen (15) days next preceding the giving of such notice of redemption nor between the Conversion Date and the date on which notice thereof has been given nor between the Record Date and the related Interest Payment Date. As to any Certificate other than a Pledged Certificate, the Registered Owner shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of either principal or interest on any Certificate shall be made only to or upon the order of the Registered Owner thereof on the Record Date for such payment or of his attorney duly authorized in writing, but such registration may be changed as hereinabove provided. As to a Pledged Certificate, the Trustee shall make payments due, if any, to the Custodian as the Registered Owner of such Pledged Certificate. All such payments made with respect to a Certificate or a Pledged Certificate shall be valid and effectual to satisfy and discharge the liability upon such Certificate to the extent of the sum or sums so paid. The Authority and the Trustee shall not charge Certificateholders for any exchange or registration of transfer of Certificates, except that in each case the Trustee shall require the payment by the Certificateholder requesting exchange or registration of transfer of any tax or other governmental charge required to be paid with respect thereto. The cost of printing any additional Certificates and any services reasonably rendered or other reasonable, actual out-of- pocket expenses incurred by the Trustee in connection with any exchange or transfer provided for in this Section 2.5 is required to be paid by the Company pursuant to the Amended and Restated Second Installment Sale Agreement. Section 2.10.Reserved. Section 2.11.Temporary Certificates. Pending the preparation of definitive Certificates, the Trustee may execute and deliver temporary Certificates. Temporary Certificates shall be issuable as registered Certificates without coupons, of any Authorized Denomination, and substantially in the form of the definitive Certificates but with such omissions, insertions and variations as may be appropriate for temporary Certificates all as may be determined by the Trustee. Temporary Certificates may contain such reference to any provisions of this Trust Agreement as may be appropriate. Every temporary Certificate shall be executed by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Certificates. As promptly as practicable the Trustee shall execute and shall furnish definitive registered Certificates without coupons and thereupon temporary Certificates may be surrendered in exchange therefor without charge at the Principal Office of the Trustee, and the Trustee shall execute and deliver in exchange for such temporary Certificates a like aggregate principal amount of definitive Certificates of Authorized Denominations. Until so exchanged the temporary Certificates shall be entitled to the same benefits under this Trust Agreement as definitive Certificates. Section 2.12.Cancellation of Certificates. Whenever any Outstanding Certificate shall be delivered to the Trustee for cancellation pursuant to this Trust Agreement, for payment of the principal amount represented thereby, or for replacement pursuant to Section 2.9 hereof, such Certificate shall be promptly cancelled and cremated or otherwise destroyed by the Trustee, and counterparts of a certificate of destruction evidencing such cremation or other destruction shall be furnished by the Trustee to the Authority and the Company upon written request to the Trustee. Section 2.13.Use of Depository. Notwithstanding any provision of this Trust Agreement to the contrary: (a) The Certificates shall be initially executed and delivered as provided in Section 2.2. Registered ownership of the Certificates, or any portion thereof, may not thereafter be transferred except: (i) To any successor of the Securities Depository or its nominee, or to any substitute depository designated pursuant to clause (ii) of this subsection (a) ("substitute depository"); provided that any successor of the Securities Depository or substitute depository shall be qualified under any applicable laws to provide the service proposed to be provided by it; (ii) To any substitute depository designated by the Authority and not objected to by the Trustee, upon (1) the resignation of the Securities Depository or its successor (or any substitute depository or its successor) from its functions as depository or (2) a determination by the Company and the Bank that the Securities Depository or its successor (or any substitute depository or its successor) is no longer able to carry out its functions as depository; provided that any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (iii) To any person as provided below, upon (1) the resignation of the Securities Depository or its successor (or substitute depository or its successor) from its functions as depository; provided that no substitute depository which is not objected to by the Trustee can be obtained or (2) a determination by the Company and the Bank that it is in the best interests of the Company and the Bank to remove the Securities Depository or its successor (or any substitute depository or its successor) from its functions as depository. (b) In the case of any transfer pursuant to clause (i) or clause (ii) of subsection (a) hereof, upon receipt of the Outstanding Certificates by the Trustee, together with a certificate of the Authority to the Trustee, a single new Certificate shall be executed and delivered in the aggregate principal amount of the Certificates then Outstanding, registered in the name of such successor or such substitute depository, or their nominees, as the case may be, all as specified in such certificate of the Authority. The Trustee shall have three Business Days to deliver the new Certificate in case of any transfer pursuant to clause (i) or (ii) of subsection (a) hereof. In the case of any transfer pursuant to clause (iii) of subsection (a) hereof, upon receipt of the Outstanding Certificates by the Trustee together with a certificate of the Authority to the Trustee, new Certificates shall be executed and delivered in such denominations numbered in consecutive order from R1 up and registered in the names of such persons as are requested in such certificate of the Authority, subject to the limitations of Section 2.2 hereof, provided the Trustee shall not be required to deliver such new Certificates within a period less than sixty (60) days from the date of receipt of such a certificate of the Authority. (c) In the case of a partial redemption or an advance refunding of the Certificates evidencing all or a portion of the principal amount Outstanding, the Securities Depository shall make an appropriate notation on the Certificates indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee. (d) The Authority and the Trustee shall be entitled to treat the person in whose name any Certificate is registered as the Certificateholder thereof for all purposes of this Trust Agreement and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the Authority; and the Authority and the Trustee shall have no responsibility for transmitting payments to, communication with, notifying, or otherwise dealing with any beneficial owners of the Certificates. Neither the Authority nor the Trustee will have any responsibility or obligations, legal or otherwise, to the beneficial owners or to any other party including the Securities Depository or its successor (or substitute depository or its successor), except for any Certificateholder. (e) So long as the outstanding Certificates are registered in the name of Cede & Co. or its registered assign, the Authority and the Trustee shall cooperate with Cede & Co., as sole registered Certificateholder, and its registered assigns in effecting payment of the principal of, and redemption premium, if any, and interest on the Certificates by arranging for payment in such manner that funds for such payments are properly identified and are made immediately available on the date they are due. (f) So long as the Securities Depository is the Registered Owner of the Certificates: (i) selection of Certificates to be redeemed upon partial redemption, presentation of Certificates to the Trustee upon partial redemption, delivery of Certificates to the Trustee in connection with an optional or mandatory tender, or redelivery of such Certificates by the Trustee to Certificateholders following a remarketing or failed conversion to the Fixed Rate shall be deemed made when the right to exercise ownership rights in such Certificates through the Securities Depository is transferred by the Securities Depository on its books; (ii) notice of a demand for purchase of Certificates pursuant to Section 13.2 hereof shall be given by the beneficial owner of such Certificates exercising ownership rights through the Securities Depository by telephonic notice (confirmed in writing) or written notice; (iii) any notices of the interest rate on the Certificates to be provided by the Trustee shall be provided to anyone identifying itself to the Trustee as a person entitled to exercise ownership rights with respect to such Certificates through the Securities Depository or its participants; (iv) the Securities Depository may present notices, approvals, waivers or other communications required or permitted to be made by Certificateholders under this Trust Agreement on a fractionalized basis on behalf of some or all of those persons entitled to exercise ownership rights in the Certificates through the Securities Depository; and (v) Beneficial interests in Certificates deemed to be held in the Custody Account will be held in the name of the Trustee (or its participant) as collateral security for the Bank. ARTICLE III REVENUES AND FUNDS Section 3.1. Source of Payment of Certificates. The Certificates and all payments required of the Authority hereunder are not general obligations of the Authority but are limited obligations as described in Section 2.6 hereof. The Trust Estate is pledged and assigned as a first lien pledge as security for the equal and ratable benefit of the holders of the Certificates and shall be used for no other purpose than payment of the principal of, premium (if any) and interest due with respect to the Certificates, except as may be otherwise expressly authorized in this Trust Agreement. Section 3.2. Creation of Funds and Accounts. The following Trust Funds and Accounts are hereby created and established with the Trustee: (a) the Proceeds Fund; (b) the Cost of Issuance Fund; (c) the Reserve Fund; (d) the Revenue Fund, which shall include the Insurance Proceeds Account and the Revenue Fund Letter of Credit Account; (e) the Debt Service Fund, which shall include the Interest Account, the Principal Account (each of which Accounts shall include a Letter of Credit Sub-Account) and the Redemption Account (which shall include a Letter of Credit Sub-Account and a Seasoned Funds Sub-Account) and the Seasoned Funds Account; (f) the General Fund; (g) the Purchase Fund, which shall include the Purchase Fund Letter of Credit Account; and (h) the Custody Account. To the extent that, pursuant to the instructions contained herein, moneys received by the Trustee and deposited in, or paid by the Trustee from, the Revenue Fund, the Purchase Fund, the Interest Account, the Principal Account, or the Redemption Account constitute draws on the Bank Letter of Credit, such moneys shall be deposited in or paid from the relevant Letter of Credit Account or Sub-Account within such Fund or Account. Each Fund, Account and Sub-Account shall be maintained by the Trustee as a separate and distinct trust fund or account to be held, managed, invested, disbursed and administered as provided in this Trust Agreement. All moneys deposited in the Funds and Accounts shall be used solely for the purposes set forth in this Trust Agreement. The Trustee shall keep and maintain adequate records pertaining to each Fund and Account, and all disbursements therefrom. Section 3.3. Initial Deposits. On the Closing Date, as shall be more fully specified in a written request from the Authority, the Trustee shall deposit: (a) An amount equal to $380,000 received from the Company into the Costs of Issuance Fund; and (b) An amount equal to $432,000 transferred from Bank of America National Trust and Savings Association, as trustee for the Prior Certificates, from existing reserves relating to the Prior Certificates, into the Reserve Fund. Upon the unconditional release of the proceeds of the Certificates to Wells Fargo Bank in the amount of $6,400,000, such proceeds of the Certificates shall be deemed to be deposited into the Proceeds Fund. Section 3.4. Proceeds Fund; Reserve Fund. (a) Amounts deemed to have been deposited in the Proceeds Fund in the amount required by Section 3.3 shall be deemed to have been applied to repay the Prior Certificates, pursuant to an agreement among the Authority, the Company, Bank of America National Trust and Savings Association, as trustee for the Prior Certificates, and the Trustee attached hereto as Exhibit D. (b) The Trustee shall deposit in the Reserve Fund the amount required by Section 3.3(c) hereof as the initial Reserve Fund deposit. Moneys credited to the Reserve Fund shall constitute a reserve for payment of interest under the Amended and Restated First Installment Sale Agreement, and accordingly with respect to the Certificates. Amounts on deposit in the Reserve Fund are subject to reduction upon conversion to a Fixed Rate pursuant to Section 2.4 hereof, with amounts resulting from said reduction to be used to redeem Certificates. If at any time the moneys credited to the Reserve Fund are less than the Reserve Requirement as then in effect, the Trustee shall make immediate demand upon the Company for the amount of such deficiency, which shall be restored by the Company upon such demand of the Trustee in accordance with the Amended and Restated Second Installment Sale Agreement. If at any time and for so long as the moneys on credit to the Reserve Fund are at least equal to the Reserve Requirement as then in effect no further credits shall be made to such Fund. Any earnings on such Fund shall either (i) at the direction of the Company, be remitted to the Bank as reimbursement for drawings under the Bank Letter of Credit, (ii) be deposited in the Rebate Fund to pay amounts arising under Section 5.5 hereof or (iii) be credited to the Seasoned Funds Account of the Revenue Fund for use and application as are all other moneys on deposit therein except during any period during which there is a deficiency in the Reserve Fund, in which case such earnings shall be credited to such Fund. Any other amounts in the Reserve Fund in excess of the Reserve Requirement as then in effect shall either (i) at the direction of the Company, be remitted to the Bank as reimbursement for drawings under the Bank Letter of Credit, (ii) be deposited in the Rebate Fund to pay amounts arising under Section 5.5 hereof or (iii) be transferred to the Seasoned Funds Account of the Revenue Fund for use and application as are all other moneys on deposit therein. To the extent moneys on credit to the Reserve Fund constitute Seasoned Funds at the time of final payment of Purchase Payments under the Amended and Restated First Installment Sale Agreement and accordingly, on the Certificates may be applied to the payment of the principal of the Purchase Payments under the Amended and Restated First Installment Sale Agreement. The Trustee shall give the Authority, the Company and the Bank immediate notice of any withdrawals from the Reserve Fund which reduce the amount therein to an amount less than the Reserve Requirement. Section 3.5. Cost of Issuance Fund. On the Closing Date, the Trustee shall deposit into the Cost of Issuance Fund the amount required by Section 3.3 of this Trust Agreement. Moneys on deposit in the Cost of Issuance Fund shall be applied to pay the costs of executing and delivering the Certificates ("Costs of Issuance"), including, but not limited to, all printing and document preparation expenses in connection with this Trust Agreement, the Amended and Restated First and Second Installment Sale Agreements, the Deed of Trust and the Assignment of Leases, the Certificates and the preliminary official statement and the official statement pertaining to the Certificates; rating agency fees; legal fees and expenses of Special Counsel, counsel to the Authority, and other counsel with respect to the financing of the Project; the initial fees and expenses of the Trustee and any Paying Agent; the administrative expenses of the Authority; and other fees and expenses incurred in connection with the execution and delivery of the Certificates or the implementation of the refinancing for the Project, all as set forth on Exhibit A to the Certificate Purchase Agreement. Such costs shall be payable upon submission of a written request from a duly authorized officer or agent of the Authority to the Trustee stating that the amount indicated thereon is justly due and owing, has not been the subject of another written request which has been paid, and is a proper cost of executing and delivering the Certificates or implementing the refunding of the Prior Certificates, and a copy of each such request will be sent by the Authority to the Company; provided that any such costs which exceed the estimates all as set forth on Exhibit A to the Certificate Purchase Agreement shall be payable only upon approval of the Company with written notice to the Trustee of such approval and the amount so payable. Any moneys remaining in the Cost of Issuance Fund on the 180th day following the Closing Date and determined by the Trustee not to be necessary for the payment of any expenses hereunder or Costs of Issuance of the Certificates shall be disbursed to the Company. Section 3.6. Revenue Fund. The Trustee shall deposit into the Revenue Fund all Revenues and any other amounts received by the Trustee which are subject to the lien and pledge of this Trust Agreement, to the extent not required to be deposited in other Funds and Accounts in accordance with the terms of this Trust Agreement. The Trustee shall immediately apply those moneys on deposit in the Revenue Fund which represent draws on the Bank Letter of Credit, other than amounts representing prepayments of Purchase Payments and accrued interest related thereto, on each scheduled Interest Payment Date on the Certificates, in the order of priority and for the purposes as follows: (a) First, to the Interest Account, an amount sufficient to pay the interest becoming due and payable with respect to the Certificates on such date; and (b) Second, to the Principal Account, an amount sufficient to pay the principal of the Certificates maturing on such date, if any. Draws on the Bank Letter of Credit deposited in the Revenue Fund representing prepayments of Purchase Payments and related accrued interest shall be immediately applied as follows: (a) First, to the Interest Account, the accrued interest received with such payment; and (b) Second, to the Redemption Account, the balance of the prepayment. Moneys on deposit in the Revenue Fund which represent payments made to the Trustee by the Company shall be immediately applied as follows: (a) To the Seasoned Funds Account, moneys deposited by the Company with the Trustee and designated by the Company at the time of deposit to become Seasoned Funds; and (b) To the General Fund, moneys deposited by the Company with the Trustee as payment of the amounts owing under the agreement(s) regarding the fees and expenses of the Trustee, the Tender Agent, the Authority and the Paying Agent. The Trustee shall deposit directly into the Insurance Proceeds Account of the Revenue Fund insurance proceeds or other compensation received by it in the event of a taking or an involuntary loss or a substantial destruction of all or any part of the Project deposited pursuant to the Amended and Restated First and Second Installment Sale Agreements. Moneys on deposit in the Insurance Proceeds Account shall be disbursed from time to time, to the Company in accordance with the Amended and Restated First and Second Installment Sale Agreements. The Trustee shall draw upon the Bank Letter of Credit for deposit directly into the Letter of Credit Sub-Account of the Redemption Account an amount equal to any amount remaining in the Insurance Proceeds Account following the disbursements pursuant to the Amended and Restated First and Second Installment Sale Agreements: (i) on the 61st day following the event giving rise to the taking, loss or destruction if the Company has not supplied the notice referred to in the Amended and Restated First and Second Installment Sale Agreements, (ii) on the 61st day following the Trustee's receipt of funds to be deposited in the Insurance Proceeds Account if the Company has not commenced to reconstruct the Project, and (iii) on the date which is 12 months from the date of the notice from the Company referred to in clause (i) of this paragraph. Immediately upon the receipt of the proceeds of any such draw upon the Bank Letter of Credit, the Trustee shall reimburse the Bank from the Insurance Proceeds Account an amount equal to the amount of such draw, which amount shall be credited against the Company's obligations under the Reimbursement Agreement. Amounts deposited in the Insurance Proceeds Account and not requisitioned pursuant to the procedures set forth in the Amended and Restated First and Second Installment Sale Agreements shall be used to redeem Certificates if no Bank Letter of Credit is in force or effect in such amounts and otherwise transferred to the Bank pursuant to this Section 3.6. Section 3.7. Debt Service Fund. The Trustee shall deposit into the Interest Account of the Debt Service Fund the amounts required by Section 3.6 of this Trust Agreement. Moneys on deposit in the Interest Account shall be applied solely to pay the interest due with respect to the Certificates as the same becomes due and payable. On each date fixed for redemption of Certificates and on each scheduled Interest Payment Date on the Certificates, the Trustee shall remit to the respective Registered Owners of such Certificates as of the Record Date for such interest payment, an amount from the Interest Account sufficient to pay the interest due with respect to the Certificates becoming due and payable on such date. The Trustee shall deposit into the Principal Account of the Debt Service Fund the amounts required by Section 3.6 of this Trust Agreement. Moneys on deposit in the Principal Account shall be applied solely to pay the principal of the Certificates as the same becomes due and payable at maturity. On the Maturity Date, the Trustee shall set aside and hold in trust, or remit to any Paying Agent to be held in trust, an amount from the Principal Account sufficient to pay the principal of the Certificates becoming due and payable on such date. The Trustee shall deposit into the Redemption Account of the Debt Service Fund the amounts required by Section 3.6 of this Trust Agreement. Moneys on deposit in the Redemption Account shall be applied solely to pay the principal and premium, if any, with respect to the Certificates as the same become due and payable by redemption. On each date fixed for such redemption, the Trustee shall set aside and hold in trust, or shall remit to any Paying Agent to be held in trust, an amount from the Redemption Account sufficient to pay the principal of and premium, if any, with respect to the Certificates becoming due and payable on such date. The Trustee shall deposit into the Seasoned Funds Account of the Debt Service Fund the amounts required by Section 3.6 of this Trust Agreement. Moneys on deposit in the Seasoned Funds Account which represent Seasoned Funds shall be transferred to the Redemption Account to the extent necessary to pay the principal of and interest and premium, if any, on the Certificates as the same shall become due and payable by redemption; provided, however, that Seasoned Funds shall first be applied to the payment of any premium due on the Certificates before applying Seasoned Funds to the payment of principal of or interest due with respect to the Certificates. Such moneys shall be paid to the Bondholders only if they constitute Seasoned Funds. Any moneys remaining in the Seasoned Funds Account following a redemption of Certificates shall be immediately transferred to the General Fund. Section 3.8. General Fund. The Trustee shall deposit into the General Fund the amounts required by Sections 3.6, 3.7 and 5.2 of this Trust Agreement. The Trustee shall apply moneys on deposit in the General Fund solely for the following purposes, in the following order of priority and in accordance with the following conditions: (a) to the Trustee, the Tender Agent and any Paying Agent for the cost of Extraordinary Expenses incurred and Ordinary Services rendered; (b) to the Trustee, the Tender Agent and any Paying Agent for the cost of Extraordinary Expenses incurred and Extraordinary Services rendered if said Extraordinary Expenses and Extraordinary Services are necessary and reasonable and are not occasioned by the negligence or willful misconduct of the Trustee, the Tender Agent or any Paying Agent; and (c) to the Authority, out-of-pocket expenses incurred by the Authority in enforcing the compliance of the terms of this Trust Agreement and the Amended and Restated First and Second Installment Sale Agreements, for which it has requested payment from the Company in writing at least 30 days prior to its request hereunder and for which is has not been paid, as specified in a written request of the Authority delivered to the Trustee; (d) to the extent that there are excess moneys in the General Fund not needed to pay the above-described expenses, the Trustee shall pay such moneys to the Bank for application pursuant to the Reimbursement Agreement; and (e) to the Company, all other excess moneys in the General Fund after the foregoing transfers. Section 3.9. The Bank Letter of Credit. (a) The Bank Letter of Credit shall be held by the Trustee and drawn upon in accordance with its terms consistent with the provisions of this Trust Agreement and the Amended and Restated First and Second Installment Sale Agreements. Moneys derived from draws upon the Bank Letter of Credit shall be deposited in the Revenue Fund, except that moneys drawn on the Bank Letter of Credit to purchase Certificates pursuant to Section 13.6 hereof shall be deposited in the Purchase Fund, and applied by the Trustee to pay the principal of and interest on the Certificates. (b) The Trustee shall draw moneys under the Bank Letter of Credit in accordance with the terms thereof to the extent and at such time as may be necessary to make timely payments due with respect to the Certificates required to be made from the Debt Service Fund. In accordance with the preceding paragraph, the Trustee shall draw moneys under the Bank Letter of Credit to make payments with respect to the Certificates by presenting an appropriate draw request to the Bank no later than 9:00 a.m., Pacific time, on the Business Day preceding each of the dates set forth in (i) through (iii) below: Each Interest Payment Date, in an amount sufficient to pay the interest becoming due and payable with respect to Certificates on such date; (ii) The date fixed for redemption of any of the Certificates, in an amount which, when added to any Seasoned Funds, will be sufficient to redeem the Certificates to be redeemed; and (iii) The maturity date of the Certificates to pay the principal amount thereof; In addition, the Trustee shall draw moneys under the Bank Letter of Credit on the Purchase Date as specified in Section 13.5(c) hereof. (c) When determining the amount to draw under the Bank Letter of Credit for the payment of principal of or interest due with respect to the Certificates, the Trustee shall not draw any amount to pay interest or principal on any Pledged Certificates unless the Bank requires the Trustee to make such a draw and the Bank Letter of Credit has been reinstated to an amount at least equal to the full principal amount of Certificates outstanding, treating Pledged Certificates as outstanding for this purpose, plus 38 days' interest thereon at 12% per annum. (d) The Trustee shall send to the Company a copy of any documents which are presented to the Bank in connection with a drawing on the Bank Letter of Credit concurrently with its submission of those documents to the Bank. (e) Prior to or on the Conversion Date, the Company shall be permitted to provide the Trustee with a Substitute Letter of Credit in accordance with the Reimbursement Agreement and the requirements set forth below: (i) The Substitute Letter of Credit may be a letter of credit, surety bond, insurance policy, stand-by funding or bond purchase agreement or any other credit facility issued by a credit provider which, prior to the Conversion Date, includes provisions for payments and liquidity hereunder in substantially the same manner as the Bank Letter of Credit (the "Substitute Provider"); and (ii) Contemporaneously with the issuance of any Substitute Letter of Credit issued prior to the Conversion Date: (A) The Trustee shall receive written evidence satisfactory to it that no Event of Default shall have occurred and is continuing; and (B) The Trustee must receive an opinion of Special Counsel in form and substance satisfactory to the Trustee to the effect that (A) the Substitute Letter of Credit is the valid and binding obligation of the Substitute Provider enforceable against the Substitute Provider in accordance with its terms, except insofar as its enforceability may be limited by any insolvency or similar proceedings applicable to the Substitute Provider or by proceedings affecting generally the rights of the Substitute Provider's creditors, and that (B) a payment on the Certificates from the proceeds of a drawing or payment with respect to the Substitute Letter of Credit will not constitute a voidable preference under the United States Bankruptcy Code in the event the Authority or the Company becomes the debtor in a case under the Bankruptcy Code; and (C) The Trustee shall receive written evidence from Moody's (if Moody's maintains a rating on the Certificates) that said substitution will not result in a reduction or withdrawal of the rating of the Certificates by such Rating Agency, or from any Rating Agency to the effect that said substitution will result in a rating on the certificates in either of the two highest investment grades of such Rating Agency (without regard to subcategories of rating); and (D) The Substitute Provider and the Company must agree in writing not to enter into any agreement which would adversely affect the Tax-exempt status of interest on the Certificates; (E) The Trustee shall receive an opinion of Special Counsel stating that the use of the Substitute Letter of Credit will not adversely affect the Tax-exempt status of interest on the Certificates; and (F) The Bank shall have provided its prior written consent to such substitution, which consent shall not be withheld so long as the Company complies with the terms of the Reimbursement Agreement and delivers to the Bank written evidence acceptable to the Bank of (i) such Substitute Letter of Credit or (ii) an investment letter or binding commitment of sufficient creditworthiness for the purchase of the Certificates upon mandatory tender pursuant to Section 13.5(c) and which in either case, unless otherwise waived by the Bank in the exercise of its sole discretion, must provide for the purchase of any Pledged Certificates upon the date of such substitution. Upon receipt of such Substitute Letter of Credit, the Trustee shall send written notice to the Remarketing Agent and all Certificateholders not less than 15 days in advance of the date on which any Substitute Letter of Credit shall take effect, which notice shall identify the Substitute Provider and if any then existing rating on the Certificates is reduced or withdrawn as a result of such substitution (as permitted under subpart (c) above), the new rating to be effective with respect to the Certificate. Section 3.10.Custody Account. (a) Deposit of Pledged Certificates in Custody Account. If any Certificate is purchased by the Trustee or the Paying Agent pursuant to Sections 13.1 or 13.2 hereof with moneys drawn under the Bank Letter of Credit, that Certificate shall be delivered to and held by the Trustee or the Paying Agent (and shall therefore constitute a Pledged Certificate until released as herein provided), shall be deposited in the Custody Account and shall be subject to the lien of the Pledge and Security Agreement, and shall be released from the lien of the Pledge and Security Agreement to the Authority or its order only upon the following: (i) written or telephonic notice to the Company and the Bank from the Trustee, the Remarketing Agent or the Paying Agent promptly confirmed by facsimile, that such Certificate has been remarketed by the Remarketing Agent; (ii) evidence that the Paying Agent or the Trustee has received the proceeds of the remarketing of such Certificates and holds such proceeds for the account of the Bank; and (iii) written notice from the Bank to the Paying Agent that the Bank Letter of Credit has been reinstated to cover such remarketed Certificates. (b) Registration of Pledged Certificates. Certificates purchased by the Paying Agent pursuant to Sections 13.1 or 13.2 hereof which, by virtue of subsection (a) of this Section 3.10, constitute Pledged Certificates shall, immediately, upon receipt thereof by the Trustee or the Paying Agent, be registered in the name of, or as directed by, the Bank, subject to the provisions of Section 2.13 hereof. (c) Deposit of Proceeds of Remarketing in Custody Account. To the extent of amounts due and owing to the Bank under the Reimbursement Agreement the proceeds of the remarketing of Certificates held in the Custody Account shall be deposited into the Custody Account and held by the Trustee for the account of, and in trust solely for, the Bank, shall not be commingled with the Trust Estate or any other moneys held by the Trustee, and shall be paid over immediately to the Bank. The balance of such proceeds shall be deposited in the Principal and Interest Account of the Debt Service Fund. (d) Principal and Interest Payments on Pledged Certificates. On each Interest Payment Date prior to the release of such Pledged Certificates to the Authority or the Remarketing Agent and reinstatement of the Bank Letter of Credit as aforesaid, the Trustee shall apply the moneys in the Principal and Interest Account to the payment of principal of, and interest on, such Pledged Certificates in the manner provided in Section 3.6 hereof, but shall not draw on the Bank Letter of Credit or use moneys in the Purchase Fund or any other moneys in the Debt Service Fund, except moneys in the Principal and Interest Account, for that purpose to any extent unless reimbursed; and the Trustee shall receive for the account of the Company, subject to the lien of the Pledge and Security Agreement, the interest and principal paid with respect to such Certificates and immediately upon such receipt the Trustee shall pay such interest and principal over to the Company; provided, however, that if at such time there shall remain any unreimbursed draw on the Bank Letter of Credit with respect to such Certificates, such interest and principal payments shall be paid over to the Bank until the amount of such draw plus interest thereon as provided in the Reimbursement Agreement shall have been fully reimbursed. (e) Cancellation of Pledged Certificates Upon Redemption. If, on any date prior to the release of such Pledged Certificates from the Custody Account to the Authority or the Remarketing Agent and reinstatement of the Letter of Credit as aforesaid, all Certificates are called for redemption pursuant to Section 6.2 hereof, the Pledged Certificates shall be deemed to have been paid and shall thereupon be cancelled by the Trustee. Section 3.11.Final Balances. Upon the deposit with the Trustee of moneys sufficient to pay all principal of, premium, if any, and interest due with respect to the Certificates, and upon satisfaction of all claims against the Authority hereunder, including all reasonable fees, charges and expenses of the Trustee, the Authority, the Tender Agent 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 and Accounts, except moneys in the Rebate Fund, moneys that are proceeds of a draw on the Bank Letter of Credit, moneys held in the Purchase Fund, and moneys necessary to pay principal of, premium, if any, and interest on the Certificates, which moneys shall be held by the Trustee, shall be remitted to the Bank for application under the Reimbursement Agreement. Section 3.12.Reserved. Section 3.13.Non-presentment of Certificates. In the event any Certificate shall not be presented for payment when the principal thereof becomes due, either at maturity or otherwise, or at the date fixed for redemption thereof, in which case interest shall cease to accrue from and after such date, if moneys sufficient to pay such Certificate shall have been deposited in the Debt Service Fund, all liability of the Authority to the holder thereof for the payment of such Certificate shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such moneys, without liability for interest thereon, for the benefit of the holder of such Certificate who shall thereafter be restricted exclusively to such moneys, for any claim of whatever nature on his part under this Trust Agreement or on, or with respect to, said Certificate. Any moneys (other than proceeds of a draw on the Bank Letter of Credit or moneys held in the Purchase Fund) so deposited with and held by the Trustee not so applied to the payment of Certificates within two (2) years after the date on which the same shall have become due shall be paid by the Trustee to the Authority, free from the trusts created by this Trust Agreement. Thereafter, Certificateholders shall be entitled to look only to the Authority for payment, and then only to the extent of the amount so repaid by the Trustee. The Authority shall not be liable for any interest on the sums paid to it pursuant to this section and shall not be regarded as a trustee of such money. Section 3.14.Moneys To Be Held In Trust. All moneys required to be deposited with or paid to the Trustee under any provisions of this Trust Agreement shall be held by the Trustee in trust and shall be and remain entitled to the benefit and shall be subject to the security of this Trust Agreement and shall be applied for the purposes herein specified. ARTICLE IV PURCHASE PAYMENTS AND APPLICATION Section 4.1. Purchase Payments To Be Paid Over To Trustee. The Company has agreed and covenanted in the Amended and Restated Second Installment Sale Agreement to pay an amount equal to the Purchase Payments to the Trustee for deposit when necessary in accordance with the terms of this Trust Agreement to effect payment of the principal of, premium, if any, and interest with respect to the Certificates as the same become due. Section 4.2. Payments of Principal, Premium and Interest. The Trustee shall make available to the Paying Agent from the amounts paid by the Company sufficient amounts to pay the principal of, premium, if any, and interest with respect to the Certificates as the same become due and payable. Section 4.3. Amounts To Be Held For All Certificateholders; Certain Exceptions. The amounts paid by the Company pursuant to Section 4.1 shall, until applied as provided in this Trust Agreement, be held by the Trustee for the benefit of the holders of all Outstanding Certificates, the Bank and the Company as herein provided, except that any portion of the said amounts representing principal, redemption price or purchase price of, and interest on, earlier prepayments of the Purchase Payments and any Certificates previously called for redemption in accordance with Article VI of this Trust Agreement or tendered (or deemed to have been tendered) for purchase in accordance with the provisions of Article XIII hereof, or previously matured, shall be held for the benefit of the holders of such Certificates only and shall not be deposited or invested pursuant to Article V hereof, notwithstanding any provision of Article V. ARTICLE V INVESTMENT OF MONEYS Section 5.1. Investment of Moneys. Subject to Sections 4.3 and 5.3, moneys in all Funds and Accounts shall be continuously invested and reinvested by the Trustee as provided in this Section 5.1 until such time or times as said moneys shall be needed for the purposes for which they were deposited. Moneys on deposit in all Funds and Accounts may be invested only in Permitted Investments; provided that (1) amounts drawn on the Bank Letter of Credit may not be invested and shall be held in cash; (2) amounts in the Revenue Fund shall not be invested in any instruments bearing a credit rating by Moody's or other Rating Agency then rating the Certificates of lesser quality than that of the Bank; and (3) any amounts held hereunder as Seasoned Funds, including such amounts held in the Seasoned Funds Account of the Debt Service Fund (including after transfer of such moneys to the Redemption Fund in accordance with Section 3.7 hereof) and all amounts held in the Purchase Fund shall be invested only in Government Obligations maturing on the earlier of the date such amounts will be needed for the purchase of Certificates or the date which is thirty (30) days after the date on which such Government Obligations were acquired; and (3) amounts in the Reserve Fund shall be invested only in Permitted Investments having a maturity of three (3) years or less. All such investments shall mature not later, nor, to the extent reasonably practicable, earlier, than the date such moneys or investment proceeds are required for the purposes of the respective Funds and Accounts. The Trustee and its affiliates may act as principal, sponsor, advisor, agent or depository with respect to investments hereunder. The Company may provide the Trustee with written requests regarding the investment of certain funds and the Trustee shall invest all such moneys in accordance with any such requests received by 12:00 noon Pacific Time on the day prior to any such investment; provided, however that all such investments by the Trustee shall be made subject to any limitations contained in this Trust Agreement and Trustee's fiduciary obligations. In the absence of written direction from the Company, the Trustee shall invest all moneys in money market funds as defined in clause (viii) of the definition of Permitted Investments contained in Section 1.1 hereof. The Trustee shall have no liability or responsibility for any loss resulting from any investment made in accordance with the provisions of this Section 5.1. All investments shall constitute a part of the Fund or Account from which the moneys used to acquire such investments have come. The Trustee shall sell and reduce to cash a sufficient amount of investments in a Fund or Account whenever the cash balance therein is insufficient to pay the amounts required to be paid therefrom. The Trustee may transfer investments from any Fund or Account to any other Fund or Account in lieu of cash when any transfer is required or permitted by the provisions of this Trust Agreement. In computing the amount in any Fund or Account, Permitted Investments purchased as an investment of moneys therein shall be valued at the then market price of such obligations, excluding any accrued interest. If the market price of such obligations is not readily available, the Trustee shall determine the value of such obligations in any reasonable manner. Amounts in the Reserve Fund shall be valued at the market value thereof at least semiannually. Any other provisions of this Section 5.1 to the contrary notwithstanding, for purposes of the arbitrage requirements under Section 148 of the Code and the Regulations, in computing the amount in any Fund or Account held by the Trustee under the provisions of this Trust Agreement, investments shall be valued at cost, except if any investment is purchased at a discount, and if the amount of interest accruing in any period is greater than the amount of interest in the prior period (thus reflecting the reinvestment of interest as principal) the amount of such discount or excess interest shall be added to the cost of the investment ratably each year over its term. Section 5.2. Earnings and Losses. Subject to the restrictions hereinafter set forth in this Article V, all capital gains, profits and interest earnings resulting from the investment of moneys in all Funds, including any Accounts thereof, shall be deposited into the Fund or Account from which such investments were made, and any loss of principal value resulting from the investment of moneys in any Fund or Account and any expenses incurred in making or disposing of investments shall be charged, when incurred, to such Fund or Account. Section 5.3. No Arbitrage. The Authority shall not take, nor permit nor suffer to be taken by the Trustee or otherwise, any action which if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of the issuance of the Certificates would have caused the Certificates to be "arbitrage bonds" within the meaning of Section 148(a) of the Code and Regulations promulgated thereunder. To that end, the Authority will comply with all requirements of Section 148 of the Code to the extent applicable to the Certificates. The Authority shall require that the Company (and any "related person" as defined in Section 147(a) of the Code) shall not, pursuant to an arrangement, formal or informal, purchase Certificates in an amount related to the amount of the Purchase Payments payable pursuant to the Amended and Restated First Installment Sale Agreement. In the event that at any time the Authority or the Company as its agent is of the opinion that for purposes of this Section 5.3 it is necessary to restrict or to limit the yield on the investment of any moneys held by the Trustee under this Trust Agreement, the Authority shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions. Section 5.4. Investment Limit. The Authority will not allow the amount of Gross Proceeds invested during any Certificate Year in Nonpurpose Investments with a Yield in excess of the Yield on the Certificates to exceed the lesser of 5% of the proceeds of the Certificates or $100,000. The obligations of the Authority under this Section 5.4 are more particularly set forth in the Tax Certificate. For the purpose of this Section 5.4, capitalized terms not defined in this Trust Agreement shall have the meanings ascribed to them in the Tax Certificate. Section 5.5. Rebate To United States. (a) The Trustee shall establish and maintain a fund separate from any other fund established and maintained hereunder designated as the Rebate Fund. All money at any time deposited in Rebate Fund shall be held by the Trustee in trust, for payment to the United States Treasury. Annual Computation. Within 55 days of the end of each Certificate Year, the Authority shall calculate or cause to be calculated the amount of rebatable arbitrage for the Certificates to which this Section 5.5 is applicable (or the amounts of yield reduction payments), in accordance with Section 148 of the Code and Section 1.148-2, 3 and 5 of the Regulations for this purpose treating the last day of the applicable Certificate Year as a computation date, within the meaning of Section 1.148-(b) of the Regulations (the "Rebatable Arbitrage"). The Authority shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section. Annual Transfer. Within 55 days of the end of each Certificate Year for which Rebatable Arbitrage must be calculated as required by the Tax Certificate for the Certificates, upon the written direction of an Authorized Authority Representative, an amount shall be deposited to the Rebate Fund by the Trustee from any funds so designated by the Authority if and to the extent required, so that the balance in the Rebate Fund shall equal the amount of Rebatable Arbitrage so calculated by or on behalf of the Authority in accordance with Subsection (a). In the event that immediately following any transfer required by the previous sentence, or the date on which the Authority determines that no transfer is required for such Certificate Year, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon written instructions from an Authorized Authority Representative, the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the Revenue Fund. Payment to the Treasury. The Trustee shall pay, as directed in writing by an Authorized Authority Representative, to the United States Treasury, out of amounts in the Rebate Fund, (X) Not later than 60 days after the end of (A) the fifth Certificate Year, and (B) each applicable fifth Certificate Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Certificate Year with respect to the Certificates; and (Y) Not later than 60 days after the prepayment or redemption of all of the Certificates, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Certificate Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code. In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the Authority shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this Subsection (a)(1) shall be made to the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T, or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund with respect to the Certificates after redemption and payment of the Certificates and after making the payments described in Subsection (a), may be withdrawn by the Trustee at the written direction of the Authority and utilized in any manner by the Authority. (c) Survival of Defeasance and Final Payment. Notwith- standing anything in this Section or this Trust Agreement to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance and final payment of any Certificates. (d) Amendment Without Consent of Owners. This Section 5.5 may be deleted or amended in any manner without the consent of the Owners, provided that prior to such event there is delivered to the Authority an opinion of Special Counsel to the effect that such deletion or amendment will not adversely affect the exclusion from gross income for federal income tax purposes of interest with respect to the Certificates. Section 5.6. Investments. Subject to the provisions of Sections 5.3, 5.4 and 5.5 hereof, the Trustee may make any and all investments permitted by the provisions of Section 5.1 hereof through its and its affiliates own investment department whether as principal, advisor, sponsor, depository or as an agent. As and when any amount invested pursuant to this Article may be needed for disbursement, the Trustee may cause a sufficient amount of such investments to be sold and reduced to cash to the credit of the applicable Fund or Account. ARTICLE VI REDEMPTION OF CERTIFICATES BEFORE MATURITY Section 6.1. Limitation on Redemption. The Certificates shall be subject to redemption prior to maturity only as provided in this Article VI. Section 6.2. Redemption Dates, Amounts and Prices. The Certificates shall be subject to redemption as follows (in each case accrued interest to the redemption date shall be paid to the Registered Owner of each Certificate as of the applicable Record Date): (a) in whole, on the first day for which notice of redemption can be timely given, at a price equal to the principal amount of Certificates so called for redemption, after the Trustee has accelerated the Purchase Payments or Installment Payments, as the case may be, as a result of an Event of Default under the Amended and Restated First Installment Sale Agreement or the Amended and Restated Second Installment Sale Agreement; (b) in whole, on the first day for which notice of redemption can be timely given, and not less than 5 days prior to the expiration of the Bank Letter of Credit in the case of a redemption pursuant to clause II(C) of this subsection (b), at a price equal to the principal amount of the Certificates called for redemption, if the Bank Letter of Credit or any Substitute Letter of Credit is then in effect, if (I) the Bank fails or refuses to honor a draw upon the Bank Letter of Credit, or (II)(A) within 60 days after an Act of Bankruptcy of the Bank, (B) within 30 days after a determination by the Trustee, based on an opinion of Counsel, that the Bank Letter of Credit is not enforceable, or (C) prior to the Conversion Date, at least 30 days prior to the expiration date of the Bank Letter of Credit, the Company does not cause to be delivered to the Trustee a Substitute Letter of Credit; (c) on the first Interest Payment Date for which notice of redemption can be timely given, at a price equal to the principal amount of the Certificates so called for redemption, in the event of an involuntary loss or the substantial destruction of the Project as a result of unforeseen events (e.g., fire, seizure or requisition or condemnation), in whole or in part, if and to the extent that draws on the Bank Letter of Credit are deposited into the Redemption Account in an amount equal to any amount remaining in the Insurance Proceeds Account on the dates specified in Section 3.6 hereof; in whole or in part if there were no payments of insurance or other compensation deposited in the Insurance Proceeds Account after the event giving rise to the involuntary loss or substantial destruction of the Project, if and to the extent that draws on the Bank Letter of Credit are deposited into the Redemption Account; or, in whole, from a draw on the Letter of Credit, if there were no such payments of insurance or other compensation deposited in the Insurance Proceeds Account, after the event giving rise to the total involuntary loss or total destruction of the Project and (i) within 60 days after the event giving rise to the event of loss, the Company (or following a total event of loss, the Bank or the Company) has not notified the Trustee and the Authority, in writing, that the Project can be restored within 12 months to a condition permitting the conduct of normal business operations; (ii) within 60 days after receiving any amounts as a consequence of the event of loss, the Company has not commenced to use such amounts to reconstruct the Project pursuant to the terms of the Amended and Restated First and Second Installment Sale Agreements and this Trust Agreement; and (iii) such amounts are not disbursed for the restoration of the Project within 12 months after the date of the notice from the Company referred to in clause (i) hereof; (d) in whole, on the first date for which notice of redemption can be given and in any event not later than five days before the expiration date of the Letter of Credit, at a redemption price equal to the principal amount of the Certificates called for redemption, after the Trustee has received written notice from the Bank that an event of default has occurred under the Reimbursement Agreement and the request that the Trustee redeem the Certificates; (e) in whole, on the first date for which notice of redemption can be timely given, at a price equal to the principal amount of the Certificates called for redemption, after written notice to a Responsible Officer of the Trustee of a Determination of Taxability; (f) with the express written consent of the Bank, in whole or in part, at a redemption price equal to the principal amount of the Certificates called for redemption, on any Interest Payment Date prior to the Conversion Date, in the event and to the extent the Purchase Payments are caused to be prepaid by the Company prior to the Conversion Date by the Company's act of voluntarily prepaying the Installment Payments in amounts sufficient to cause the prepayment of the Purchase Payments; and (g) on or after the Conversion Date, in whole on any date or in part on any Interest Payment Date, in the event and to the extent the Purchase Payments are caused to be prepaid by the Company's act of voluntarily prepaying the Installment Payments in amounts sufficient to cause the prepayment of the Purchase Payments on or after the Conversion Date, at a redemption price equal to the sum of the principal amount of Certificates to be redeemed plus a redemption premium, as follows: (i) If on the Conversion Date there remain at least fifteen years until the Maturity Date, the Certificates may be redeemed on or after the first December 1 following the eighth anniversary of the Conversion Date, with a redemption premium commencing at two percent (2%) on such December 1, with such premium declining and being reduced by one-half of one percent (1/2 of 1%) on each anniversary of such December 1 until it reaches zero percent (0%). (ii) If on the Conversion Date there remain at least ten years but less than fifteen years until the Maturity Date, the Certificates may be redeemed on or after the first December 1 following the sixth anniversary of the Conversion Date, with a redemption premium commencing at one and one-half percent (1-1/2%) on such December 1, with such premium declining and being reduced by one-half of one percent (1/2 of 1%) on each anniversary of such December 1 until it reaches zero percent (0%). (iii) If on the Conversion Date there remain at least five years but less than ten years until the Maturity Date, the Certificates may be redeemed on or after the first December 1 following the fourth anniversary of the Conversion Date, with a redemption premium commencing at one percent (1%) on such December 1, with such premium declining and being reduced by one-half of one percent (1/2 of 1%) on each anniversary of such December 1 until it reaches zero percent (0%). If the Conversion Date is less than five years before the Maturity Date, there shall be no premium due to voluntary prepayment. The Trustee is hereby authorized and directed, and hereby agrees, to give notice of the call for redemption of Certificates on the earliest practicable date following the event giving rise to redemption set forth in this Section 6.2, to fix the date for any such redemption within the periods prescribed by Section 6.4 hereof. The Certificates are also subject to mandatory tender in the event the Company elects to have the Certificates bear interest at the Fixed Rate, all as more fully set forth in Section 2.4 hereof. Section 6.3. Partial Redemption. All or a portion of any Certificate may be redeemed, but only in Authorized Denominations except that a redemption in part pursuant to Section 6.2(c), (f) or (g) prior to the Conversion Date may be in an integral multiple of $5,000. If, prior to the Conversion Date, Certificates are to be redeemed in principal amounts less than $100,000, the Trustee shall select only one Certificate, by lot, to be redeemed in part in a principal amount equal to an integral multiple of $5,000. In the event that less than all of the Certificates outstanding are to be redeemed, the Trustee shall select the Certificates to be redeemed by lot. Upon surrender of any Certificate for redemption in part, the Authority shall execute and the Trustee shall authenticate and deliver to the owner thereof, at the expense of the Company, a new Certificate or Certificates of Authorized Denominations of the same maturity and in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. Section 6.4. Notice of Redemption. Except in the case of redemption prior to the Conversion Date as a result of the voluntary prepayment of the Purchase Payments, in which instance notice shall be mailed not less than 30 days prior to the date fixed for redemption, notice of redemption shall be given by the Trustee not less than twenty (20) nor more than forty (40) days prior to the redemption date to (i) the respective Registered Owners of the Certificates designated for redemption at their addresses appearing on the bond registration books of the Trustee by first class mail, (ii) the Securities Depository, (iii) one or more Information Services and (iv) the Bank by first class mail. Notice of redemption to the Securities Depository and the Information Services shall be given by registered mail or overnight delivery. Each notice of redemption shall state the date of such notice, the date of delivery of the Certificates, the redemption date, the redemption price, the place or places of redemption (including the name and appropriate address or addresses of the Trustee), the CUSIP number (if any) of the maturity or maturities to be redeemed, and, if less than all of any such maturity the distinctive certificate numbers of the Certificates of such maturity to be redeemed and, in the case of Certificates to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on said date there will become due and payable on each of said Certificates the redemption price thereof or of said specified portion of the principal amount thereof in the case of a Certificate to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Certificates be then surrendered at the address or addresses of the Trustee specified in the redemption notice. Failure by the Trustee to give notice pursuant to this Section 6.4 to any one or more of the Registered Owners of the Certificates, the Bank, and the Information Services or Securities Depository, or the insufficiency of any such notice shall not affect the sufficiency of the proceedings for redemption. Section 6.5. Payment Upon Redemption. Prior to each redemption date, the Trustee shall make provisions for the payment of the Certificates to be redeemed on such date by setting aside and holding in trust, or depositing in trust with any Paying Agent, an amount from the Redemption Account, or shall otherwise determine that it will have available as a result of a draw upon the Bank Letter of Credit, an amount sufficient to pay the principal represented by, the premium, if any, and interest due with respect to such Certificates. Upon presentation and surrender of any such Certificate at the Principal Office of the Trustee or any Paying Agent, as the case may be, on or after the date fixed for redemption, the Trustee or any Paying Agent shall pay the principal of and premium, if any, on such Certificate from the moneys set aside for such purpose. Interest with respect to any Certificate called for redemption maturing prior to or on the date fixed for redemption shall be payable by check to the Registered Owner of such Certificate. Section 6.6. Effect of Redemption. Notice of redemption having been given as provided in Section 6.4 hereof, the Certificates or portions thereof designated for redemption shall become due and payable on the date fixed for redemption and, unless the Authority defaults in the payment of amounts equal to the Purchase Payments to be prepaid and, accordingly, the principal and premium, if any, due with respect to the Certificates or portions thereof designated for redemption, such Certificates or portions thereof shall cease to bear interest from and after the date fixed for redemption whether or not such Certificates are presented and surrendered for payment on such date. If any Certificate or portion thereof called for redemption is not so paid upon presentation and surrender thereof for redemption, such Certificate or portion thereof shall continue to bear interest at the rate set forth thereon until paid or until due provision is made for the payment of same. Section 6.7. No Partial Redemption After Default. Anything in this Trust Agreement to the contrary notwithstanding, if there shall have occurred and be continuing an Event of Default defined in the first paragraph of Section 9.1 hereof, there shall be no redemption of less than all of the Certificates at the time Outstanding. ARTICLE VII [RESERVED] ARTICLE VIII DEFAULTS AND REMEDIES Section 8.1. Defaults; Events of Default. If any of the following events occurs, it is hereby defined as and declared to be and to constitute a Default or an Event of Default: (a) Failure to make payment of any installment of interest upon any Certificate when the same shall have become due and payable; (b) Failure to make due and punctual payment of the principal of or premium, if any, on any Certificate, whether at the stated maturity thereof, or upon proceedings for redemption thereof or upon the maturity thereof by acceleration; (c) Any material representation or warranty made in this Trust Agreement or the Certificates shall be determined to have been untrue when made or any failure by the Authority to observe and perform any covenant, condition or agreement on its part to be observed and performed under the Trust Agreement or the Certificates, other than as referred to in subsections (a), (b) or (d) of this Section, for a period of 60 days after written notice specifying such breach or failure and requesting that it be remedied, given to the Authority, the Bank, the Company and the Certificateholders by the Trustee or by the holders of not less than 25 percent in aggregate principal amount of the Certificates then Outstanding, unless (i) the Trustee shall agree in writing to an extension of such time prior to its expiration or (ii) if the breach or failure be such that it cannot be corrected within the applicable period, corrective action is instituted by the Authority within the applicable period and is being diligently pursued; and (d) Failure to pay the purchase price for the Certificates delivered pursuant to Sections 13.1 or 13.2 hereof. Section 8.2. Acceleration of Maturities. Upon the occurrence of an Event of Default (other than an Event of Default described in subsection (c) of Section 8.1 hereof which the Trustee, based on an opinion of Special Counsel determines will not have a material adverse effect on the security for or the Tax-exempt status of the interest due with respect to the Certificates), the Trustee shall, and in the case of an Event of Default described in subsection (c) of Section 8.1 hereof of the type described hereinabove, the Trustee shall, but only with the prior express written consent of the Bank, declare the principal represented by all of the Certificates then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything contained in this Trust Agreement or in the Certificates to the contrary notwithstanding. Upon such acceleration, the Trustee shall (i) provide the Certificateholders with a notice of such acceleration substantially in the form of a notice of redemption, as described in Section 6.4 hereof, (ii) if the Bank Letter of Credit or any Substitute Letter of Credit is then in effect, draw on the Bank Letter of Credit as provided below and, (iii) immediately after the Bank honors the draw upon the Bank Letter of Credit, transfer all moneys then on deposit in all of the Funds (except amounts in the Rebate Fund, the Purchase Fund, and any amounts drawn on the Bank Letter of Credit and any amounts representing Seasoned Funds to be applied to the payment of the principal represented by and interest due with respect to the Certificates or to pay expenses due under Section 3.8 hereof) to the Bank and (iv) if the Bank Letter of Credit or any Substitute Letter of Credit is then in effect, shall take such action as is reasonably necessary to pay the Certificates out of such draw on the Bank Letter of Credit and amounts representing Seasoned Funds at the earliest possible date after providing the Certificateholders with the notice described in clause (i) of this sentence. The amount drawn under the Bank Letter of Credit shall equal the aggregate unpaid principal and interest due with respect to the Outstanding Certificates to the date of acceleration fixed by the Trustee, less the amount of any Seasoned Funds held by the Trustee hereunder which are available to pay the principal represented and interest due with respect to the Certificates. The Trustee, subject to the indemnification provisions pursuant to this Trust Agreement, also shall take whatever additional action at law or in equity may appear reasonably necessary or desirable to collect the moneys necessary to pay the principal represented by and interest due with respect to the Certificates. The above provisions hereof, however, are subject to the conditions that if, within 15 days after the principal of all Certificates then Outstanding shall have been so declared to be due and payable and prior to the Trustee's draw on the Bank Letter of Credit referred to hereinabove, all arrears of interest upon such Certificates, and interest on overdue installments of interest (to the extent permitted by law) at the rate of interest then in effect with respect to the Certificates, and the principal and redemption premium, if any, on all Certificates then Outstanding which shall have become due and payable otherwise than by acceleration, and all other sums payable under this Trust Agreement, except the principal represented by, and interest with respect to, the Certificates which by such declaration shall have become due and payable, shall have been paid by or on behalf of the Authority, together with the reasonable fees and actual out-of-pocket expenses of the Trustee and of the holders of such Certificates, including reasonable attorneys' fees paid or incurred, then and in every such case, but only upon receipt by the Trustee of the express prior written consent of the Bank and Certificateholders of not less than a majority in aggregate principal amount of the Certificates then Outstanding, the Trustee may annul such declaration of maturity and its consequences, which waiver and annulment shall be binding upon all Certificateholders; but no such waiver, rescission and annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. In the case of any such annulment, the Company, the Authority, the Bank, the Trustee and the Certificateholders shall be restored to their former positions and rights under this Trust Agreement. Notwithstanding the foregoing, the Trustee may not waive any Event of Default which consists of a breach of a covenant set forth in Section 5.3 or 7.11 hereof or of any other covenant with respect to the Tax-exempt status of the Certificates. Nothing contained in this Section, however, shall be construed to allow the Trustee to permit its rights on behalf of the Certificateholders under the Bank Letter of Credit to be reduced, to lapse or otherwise be extinguished. Section 8.3. Application of Moneys. All moneys received by the Trustee pursuant to any right given or action taken under the provisions of this Article shall, after payment of the costs and expenses of the proceedings relating to the exercise of remedies hereunder and of the expenses, liabilities and advances incurred or made by the Trustee and its Counsel, and its outstanding fees and expenses, if any, be deposited in the Debt Service Fund and all such moneys in the Debt Service Fund shall be applied to the payment of the principal (and premium, if any) and interest then due and unpaid upon the Certificates, without preference or priority of any kind, ratably, according to the amounts due and payable on such Certificates for principal (and premium, if any) and interest, respectively, to the persons entitled thereto without any discrimination or privilege. Notwithstanding the foregoing, proceeds of a draw on the Bank Letter of Credit, Seasoned Funds and moneys being aged to become Seasoned Funds shall be used solely to pay principal, interest or redemption price of the Certificates. Whenever moneys are to be applied pursuant to the provisions of this Section, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine. Whenever the Trustee shall apply such moneys, it shall 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 date shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date. Whenever all principal of, premium, if any, and interest on all Certificates have been paid under the provisions of this Section and all expenses and charges of the Trustee in accordance with Section 9.2 have been paid, any balance remaining in the Debt Service Fund shall be paid to the Bank as provided in Section 3.11 hereof, subject to the restrictions set forth in Section 3.11. Section 8.4. Trustee to Represent Certificateholders. The Trustee is hereby irrevocably appointed (and the successive respective Certificateholders, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Certificateholders for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Certificateholders under the provisions of the Certificates and this Trust Agreement, as well as under the applicable provisions of any other law. Upon the occurrence and continuance of any Event of Default or other occasion giving rise to a right in the Trustee to represent the Certificateholders of which a Responsible Officer has received notice, the Trustee in its discretion may, and upon the written request of the Certificateholders of not less than 25 percent in aggregate principal amount of the Certificates then Outstanding, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Certificateholders by such appropriate suit, action, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Certificateholders under this Trust Agreement or any other law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under this Trust Agreement, pending such proceedings. All rights of action under this Trust Agreement or the Certificates or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceedings relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of all the Certificateholders, subject to the provisions of this Trust Agreement. In addition, the Trustee may, without the consent of the Authority or the Company, after giving them written notice of any intended action, exercise any and all remedies afforded the Authority under the Company Loan Documents in its name or the name of the Authority. Section 8.5. Certificateholders' Direction of Proceedings. Anything in this Trust Agreement to the contrary notwithstanding, the Certificateholders of a majority in aggregate principal amount of the Certificates then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, to direct the method of conducting all remedial proceedings taken by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of this Trust Agreement, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Certificateholders not parties to such direction or result in liability for the Trustee. In rendering such opinion, the Trustee may rely on the opinion of Counsel. Section 8.6. Limitation on Certificateholders' Right to Sue. No Certificateholder shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Trust Agreement or any other applicable law with respect to such Certificate, unless (A) such Certificateholder shall have given to the Trustee written notice of the occurrence of an Event of Default; (B) the Certificateholders of not less than 25 percent in aggregate principal amount of the Certificates then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; (C) such Certificateholder or said Certificateholders shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (D) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Certificateholder of any remedy hereunder or under law; it being understood and intended that no one or more Certificateholders shall have any right in any manner whatever by its or their action to affect, disturb or prejudice the security of this Trust Agreement or the rights of any other Certificateholders, or to enforce any right under this Trust Agreement, or other applicable law with respect to the Certificates, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all owners of Outstanding Certificates, subject to the provisions of this Trust Agreement. Nothing in this Trust Agreement, however, affects or impairs the right of any Certificateholder to enforce the payment of the principal of, premium, if any, and interest on any Certificate at or after the maturity thereof, or the obligation of the Authority to cause to be paid the principal of, premium, if any, and interest on each of the Certificates issued under the Trust Agreement to the respective holders thereof at the time and place, from the sources and in the manner expressed in the Certificates and in the Trust Agreement. Section 8.7. Limited Obligation of Authority. Nothing in Section 8.6 or in any other provision of this Trust Agreement, or in the Certificates, contained shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay the principal or redemption price of and interest on the Certificates to the respective Certificateholders of the Certificates at their respective dates of maturity, or upon call for redemption, as herein provided, but only out of the prepayments and payments of Purchase Payments and other assets herein pledged therefor, or affect or impair the right of such Certificateholders, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Certificates. Section 8.8. Termination of Proceedings. In case any proceedings taken by the Trustee or any one or more Certificateholders on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Certificateholders, then in every such case the Authority, the Trustee and the Certificateholders, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the Authority, the Trustee and the Certificateholders shall continue as though no such proceedings had been taken. Section 8.9. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Certificateholders is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Section 8.10.No Waiver of Default. No delay or omission of the Trustee or of any Certificateholder to exercise any right or power arising upon the occurrence of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy given by this Trust Agreement to the Trustee or to the Certificateholders may be exercised from time to time and as often as may be deemed expedient. Section 8.11.Waivers of Events of Default. Except as otherwise provided in Section 8.2, the Trustee in its discretion may or, with the written request of the holders of not less than a majority in aggregate principal amount of all Certificates outstanding, shall waive any Event of Default hereunder and rescind its consequences, provided that the Bank Letter of Credit is then in full force and effect and is fully reinstated as to the principal amount of Certificates Outstanding and the 38 days' of interest thereon. In the case of any such waiver and rescission, the Authority, the Trustee, the Bank and the Certificateholders shall be restored to their former positions and rights hereunder, respectively, but no such waiver and rescission shall extend to any subsequent or other default, or impair any right consequent thereon. All waivers under this Trust Agreement shall be in writing and a copy thereof shall be delivered to the Authority, the Bank and to the Company. ARTICLE IX THE TRUSTEE AND THE PAYING AGENT Section 9.1. Appointment, Duties, Immunities and Liabilities of Trustee and Paying Agent. (a) The Authority hereby appoints First Trust of California, National Association as Trustee and principal Paying Agent and designates the Principal Office of the Trustee as the principal place of payment for the Certificates, such appointment and designation to remain in effect until notice of change is filed with the Trustee. The Trustee shall perform such duties and only such duties as are specifically set forth in this Trust Agreement and the Amended and Restated First and Second Installment Sale Agreements. The Trustee shall, during the existence of any Event of Default (which has not been cured), exercise such of the rights and powers vested in it by this Trust Agreement, and use the same degree of care and skill in their exercise, as a reasonable person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) With the consent of the Bank, the Authority may remove the Trustee at any time, upon thirty (30) days prior written notice unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Certificateholders of not less than a majority in aggregate principal amount of the Certificates then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with subsection (e) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; in each case by giving written notice of such removal to the Trustee and the Bank, and thereupon shall appoint a successor Trustee by an instrument in writing. (c) The Trustee may at any time resign by giving written notice of such resignation to the Authority, the Company and the Bank, by registered or certified mail, and by giving the Certificateholders notice of such resignation by publication at least once in a Financial Newspaper or Journal. Upon receiving such notice of resignation, the Authority shall promptly, following consultation with the Company, appoint a successor Trustee by an instrument in writing. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee and upon transfer of the Letter of Credit to the successor Trustee in accordance with its terms. Promptly upon such acceptance, the Authority shall give notice thereof to the Certificateholders by publication at least once in a Financial Newspaper or Journal and to the Company and the Bank in writing. If no successor Trustee shall have been appointed and have accepted appointment within thirty (30) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Certificateholder (on behalf of himself and all other Certificateholders) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Trust Agreement shall signify its acceptance of such appointment by executing and delivering to the Authority and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the request of the Authority or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Trust Agreement and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the Authority shall execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. The Trustee's rights to indemnity and to payment of its fees and expenses shall survive the Trustee's resignation or removal and final payment or defeasance of the Certificates. (e) Any Trustee appointed under the provisions of this Section in succession to the Trustee shall be a trust company or bank or national banking association having the powers of a trust company within or without the State, duly authorized to accept and execute trusts of the character herein set forth, having a combined capital and surplus of at least fifty million dollars ($50,000,000), and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this Section the combined capital and surplus of such bank or trust company or national banking association shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. (f) Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under subsection (e) of this Section, shall be the successor to such Trustee without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. (g) 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. The Trustee shall have no liability for its agents and attorneys appointed with due care. Neither the Remarketing Agent nor the Bank shall be considered agents of the Trustee for any purpose and the Trustee shall not be responsible for compliance by either of them with their respective obligations in connection with the transactions contemplated by this Trust Agreement. The Trustee shall be entitled to advice of counsel in connection with all matters concerning the trust hereof and duties of the Trustee hereunder, and in all cases may pay and be reimbursed for such reasonable compensation to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trust hereof. The Trustee may act upon the opinion or advice of any attorneys, accountants and consultants approved by the Trustee in the exercise of reasonable care. The Trustee shall not be responsible for any loss or damage resulting from any action or nonaction exercised reasonably and in good faith in reliance on such opinion or advice. (h) The right of the Trustee to perform any discretionary act enumerated in this Trust Agreement or the Amended and Restated First and Second Installment Sale Agreements shall not be construed as a duty. (i) At all reasonable times the Trustee and its duly authorized agents, accountants, attorneys, and experts, shall have the right to inspect fully all books, papers and records of the Authority relating to the Certificates, and to take such photocopies and memoranda therefrom and in regard thereto as may be desired. (j) The Trustee shall not be required to give any bond or surety in respect to the execution of the trust created hereby or the powers granted hereunder. (k) Reserved. (l) The Trustee shall not be responsible for calculation of any interest rate with respect to any of the Certificates, and shall be fully protected in relying upon, interest rate calculations submitted to the Trustee by the Remarketing Agent. (m) The Trustee shall not be required to take notice of or be deemed to have taken notice of any Event of Default hereunder except (i) failure by the Authority to cause to be made any payments referred to in Section 8.1(a) or (b) hereof, or (ii) any Event of Default of which a Responsible Officer of the Trustee has actual knowledge, unless a Responsible Officer of the Trustee shall be specifically notified in writing of such Event of Default by or on behalf of the Authority or the Owners of at least 25% in aggregate principal amount of the Certificates then Outstanding. (n) No provision of this Trust Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights and powers, 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. (o) The Trustee makes no representations as to and shall have no responsibility for the sufficiency of the insurance on the Project. The Trustee shall have no responsibility for the monitoring, renewing or receiving any insurance or document related thereto. (p) All moneys received by the Trustee or any Paying Agent shall, until used or applied or invested as herein provided, be held in trust for the purposes for which they were received and shall not be commingled with the general funds of the Trustee or any Paying Agent. (q) The immunities and protections from liability granted to the Trustee hereunder shall extend to its directors, officers and employees. Section 9.2. Fees, Charges and Expenses of Trustee, Tender Agent and Paying Agent. The Trustee, the Tender Agent and any Paying Agent shall be entitled to payment and/or reimbursement from the Authority, but only out of funds made available from the Company, for reasonable fees for its Ordinary Services rendered hereunder and all advances, counsel fees and other Ordinary Expenses reasonably and necessarily made or incurred by the Trustee, the Tender Agent and any Paying Agent, in connection with such Ordinary Services hereunder and, in the event that it should become necessary that the Trustee, the Tender Agent or any Paying Agent perform Extraordinary Services, it shall be entitled to reasonable extra compensation therefor from the Company, and to reimbursement from the Company for reasonable and necessary Extraordinary Expenses in connection therewith; provided, that if such Extraordinary Services or Extraordinary Expenses are occasioned by the negligence or willful misconduct of the Trustee, the Tender Agent or any Paying Agent, as the case may be, the responsible party shall not be entitled to compensation or reimbursement therefor, and provided further that such payment, compensation and reimbursement shall be made only from the Revenues (other than draws under the Bank Letter of Credit, Seasoned Funds, moneys being aged to become Seasoned Funds and moneys held in the Purchase Fund) as herein provided or moneys received from the Company. The Trustee shall be entitled to payment and reimbursement from the Company for the reasonable fees and charges of the Trustee as Certificate Registrar for the Certificates. The Trustee's rights to receive compensation and reimbursement of expenses under this Section and under applicable provisions of the Amended and Restated First and Second Installment Sale Agreements shall be secured by a lien on the Trust Estate (other than proceeds of a draw on the Letter of Credit, the Rebate Fund, the Purchase Fund, Seasoned Funds and moneys being aged to become Seasoned Funds), which lien shall be subordinate to the lien in favor of the Certificateholders for payment of the principal of, premium, if any, and interest with respect to the Certificates (except after an Event of Default when such lien of Trustee shall have the first priority). The Company agrees to indemnify and save harmless the Trustee against any liabilities which the Trustee may incur in the exercise and performance of its powers and duties hereunder and under any other agreement referred to herein which are not due to the Trustee's negligence or willful misconduct, and for any reasonable fees and actual out-of-pocket expenses of the Trustee to the extent exceeding funds available under this Trust Agreement for the payment thereof. The Trustee shall be entitled to interest on all advances at the maximum rate permitted by law. Section 9.3. Liability of Trustee. The recitals of facts herein and in the Certificates contained shall be taken as statements of the Authority, and the Trustee assumes no responsibility for the correctness of the same, and makes no representations as to the validity or sufficiency of this Trust Agreement or of the Certificates, and shall incur no responsibility in respect thereof, other than in connection with the duties or obligations herein or in the Certificates assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Certificates. The Trustee shall not be liable in connection with the performance of its duties hereunder except for its own negligence or willful misconduct. The Trustee may become the owner of Certificates with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Certificateholders, whether or not such committee shall represent the Certificateholders of a majority in principal amount of the Certificates then Outstanding. The Trustee makes no representation or warranty with respect to and has made no independent investigation concerning the compliance of the Project with the Act (as defined in the Amended and Restated First Installment Sale Agreement), the Tax-exempt status of the interest on the Certificates, or the validity or sufficiency of the Bank Letter of Credit. The Trustee assumes no responsibility with respect to any information, statement, or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the Certificates. Section 9.4. Right of Trustee to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the Authority, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee shall not be bound to recognize any person as the Owner of a Certificate unless and until such Certificate is submitted for inspection, if required, and the person's title thereto satisfactorily established, if disputed. Whenever in the administration of the trusts imposed upon it by this Trust Agreement the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate of the Authority, and such certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Trust Agreement in reliance upon such certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Section 9.5. Intervention By Trustee. In any judicial proceedings to which the Authority is a party and which in the opinion of the Trustee and its Counsel has a substantial bearing on the interest of owners of the Certificates, the Trustee may in its discretion intervene on behalf of Certificateholders and, upon being indemnified to its satisfaction therefor, shall do so if requested in writing by the owners of a majority in aggregate principal amount of all Certificates then Outstanding. Section 9.6. Designation and Successor of Paying Agent; Agreement with Paying Agent. The Trustee and the Tender Agent shall be Paying Agents for the Certificates. The Trustee, following consultation with the Company, may remove or replace the Tender Agent as Paying Agent and any subsequent Paying Agent by written notice, which removal or replacement shall not require any consents or approvals. The Trustee shall notify all registered Certificateholders by mail of and upon appointment, removal or replacement of the Paying Agent, such notice to include the name and address of the then appointed Paying Agent, if any. Any bank or trust company with or into which any Paying Agent may be merged or consolidated, or to which the assets and business of such Paying Agent may be sold, shall be deemed the successor of such Paying Agent for the purposes of this Trust Agreement. If the position of Paying Agent shall become vacant for any reason, the Authority, following consultation with the Company, may appoint a commercial bank or trust company located in the same city as such Paying Agent to fill such vacancy. The Paying Agent shall enjoy the same protective provisions in the performance of its duties hereunder as are specified in Sections 9.2, 9.3 and 9.4 hereof with respect to the Trustee insofar as such provisions may be applicable. Section 9.7. Foreclosure on Deed of Trust. Notwithstanding anything in the Trust Agreement or the Deed of Trust to the contrary, the Trustee shall not be required to initiate foreclosure proceedings with respect to the Project, and shall not otherwise be required to acquire possession of, or take other action with respect to the Project which could cause it to be, considered an "owner" or "operator" as described below, unless: (a) the Trustee has sought and received an opinion of counsel rendered by counsel independent of the Company to the effect that the Trustee would not by such initiation, acquisition or other action be considered to hold title to, to be a "mortgagee-in-possession" of, or to be an "owner" or "operator" of such Project within the meaning of the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended from time to time, or any other law dealing with the environmental matters or hazardous substances (collectively, "Environmental Laws"); or (b) the Trustee has sufficient comfort, based on previous determinations by experts on which Trustee can rely, including an environmental report, that: (A) the Project is in compliance with Environmental Laws or, if not, that it would nevertheless be in the best economic interest of the Trustee and the Certificateholders to take such actions as are necessary for the Project to comply therewith; (B) there are no circumstances present at the Project relating to the use, management or disposal of any hazardous substances, hazardous materials, hazardous wastes, or petroleum-based materials in violation of applicable laws for which investigation, testing, monitoring, contaminant, clean up or remedial action could be required under any Environmental Laws, or that if any such materials are present for which such action could be required, that it would be nevertheless in the best economic interest of the Trustee and the Certificateholders to take such actions with respect to the Project; (C) if the Trustee has determined that it would be in the best economic interest of the Trustee and the Certificateholders, the Trustee must be satisfied that it will suffer no unreimbursed liabilities and will be adequately reimbursed for all liabilities, expenses and costs from available funds in Trustee's possession and control; and (D) if the Trustee has determined that it would be in the best economic interest of the Trustee and the Certificateholders to take any such action and its aforementioned liabilities, expenses and costs are adequately reimbursed, the Trustee has so notified the Certificateholders and has not received, within thirty (30) days of such notification, instructions from the Certificateholders of 66- 2/3% or more in principal amount of the then Outstanding Certificates directing it not to take such action. ARTICLE X MODIFICATION OF THIS TRUST AGREEMENT AND THE AGREEMENT Section 10.1.Limitations. Neither this Trust Agreement nor the Amended and Restated First or Second Installment Sale Agreement shall be modified or amended in any respect subsequent to the first execution and delivery of the Certificates except as provided in and in accordance with and subject to the provisions of this Article X. Section 10.2.Supplemental Trust Agreement without Consent of Registered Owners. The Authority, Trustee and Company may, from time to time and at any time, without the consent of or notice to the Registered Owners, but subject to the provisions of Section 10.5 hereof, enter into Supplemental Trust Agreements as follows: (a) to cure any formal defect, omission, inconsistency or ambiguity in this Trust Agreement: (b) to grant to or confer or impose upon the Trustee, the Registrar or the Paying Agent for the benefit of the Registered Owners any additional rights, remedies, powers, authority, security, liabilities or duties which may lawfully be granted, conferred or imposed and which are not contrary to or inconsistent with this Trust Agreement as theretofore in effect, provided that no such additional liabilities or duties shall be imposed upon the Trustee, the Registrar or the Paying Agent without their respective consents; (c) to add to the covenants and agreements of, and limitations and restrictions upon, the Authority and the Company in this Trust Agreement other covenants, agreements, limitations and restrictions to be observed by the Authority which are not contrary to or inconsistent with this Trust Agreement as theretofore in effect; (d) to confirm, as further assurance, any pledge under, and the subjection to any claim, lien or pledge created or to be created by, this Trust Agreement, of payments made or to be made under the Amended and Restated First or Second Installment Sale Agreement or of any other moneys, securities or funds; (e) to authorize a different denomination or denominations of the Certificates and to make correlative amendments and modifications to this Trust Agreement regarding exchangeability of Certificates of different denominations, redemptions of portions of Certificates of particular denominations and similar amendments and modifications of a technical nature; (f) to comply with the requirements of the Trust Agreement Act of 1939, as from time to time amended; and (g) to modify, alter, amend or supplement this Trust Agreement in any other respect which is not materially adverse to the Registered Owners and which does not involve a change described in clause (i), (ii), (iii) or (iv) of Section 10.3(a) hereof and which, in the judgment of the Trustee, is not to the prejudice of the Trustee; and Before the Authority, Trustee and Company shall enter into any Supplemental Trust Agreement pursuant to this Section 10.2, there shall have been delivered to the Trustee an opinion of Special Counsel stating that such Supplemental Trust Agreement is authorized or permitted by this Trust Agreement, complies with its terms, will, upon the execution and delivery thereof, be valid and binding upon the Authority and the Company in accordance with its terms and will not adversely affect the exemption from federal income taxation of interest on the Certificates. Section 10.3.Supplemental Trust Agreement With Consent of Registered Owners and the Bank. (a) Except for any Supplemental Trust Agreement entered into pursuant to Section 10.2 hereof, subject to the terms and provisions contained in this Section 10.3 and not otherwise, but subject to the provisions of Section 10.5 hereof, the Registered Owners of not less than 60% in aggregate principal amount of the Certificate then Outstanding with the consent of the Bank shall have the right from time to time to consent to and approve the execution and delivery by the Authority, Trustee and Company of any Supplemental Trust Agreement deemed necessary or desirable by the Authority and the Company for the purposes of modifying, altering, amending, supplementing or rescinding, in any particular, any of the terms or provisions contained in this Trust Agreement; provided, however, that, unless approved in writing by the Registered Owners of all the Certificates then Outstanding and affected thereby nothing herein contained shall permit, or be construed as permitting, (i) a change in the times, amount or currency of payment of the principal of or interest on any Outstanding Certificate, a change in the terms of the purchase thereof by the Remarketing Agent or the Paying Agent, or a reduction in the principal amount or redemption price of any Outstanding Certificate or the rate of interest thereon, or (ii) the creation of a claim or lien upon, or a pledge of, the payments under the Amended and Restated First or Second Installment Sale Agreement ranking prior to or on a parity with the claim, lien or pledge created by this Trust Agreement (except as referred to in Section 10.4 hereof), or (iii) a preference or priority of any Certificate or Certificates over any other Certificate or Certificates, or (iv) a reduction in the aggregate principal amount of Certificates the consent of the Registered Owners of which is required for any Supplemental Trust Agreement or which is required, under Section 10.7 hereof, for any modification, alteration, amendment or supplement to the Amended and Restated First or Second Installment Sale Agreement. (b) If at any time the Authority and the Company shall request the Trustee to enter into any Supplemental Trust Agreement for any of the purposes of this Section 10.3, the Trustee shall cause notice of the proposed Supplemental Trust Agreement to be given by mail to all Registered Owners of outstanding Certificates appearing on the list kept on file by the registrar pursuant to Section 2.9. Such notice shall briefly set forth the nature of the proposed Supplemental Trust Agreement and shall state that a copy thereof is on file at the office of the Trustee for inspection by all Registered Owners. (c) Within two years after the date of the first Notice by Mail, the Authority, Trustee and Company may enter into such Supplemental Trust Agreement in substantially the form described in such notice, but only if there shall have first been delivered to the Trustee (i) the required consents, in writing, of Registered Owners and the Bank, and (ii) an opinion of Special Counsel stating that such Supplemental Trust Agreement is authorized or permitted by this Trust Agreement, complies with its terms and, upon the execution and delivery thereof, will be valid and binding upon the Authority and the Company in accordance with its terms and will not adversely affect the exemption from federal income taxation of interest of Certificates. (d) If Registered Owners of not less than the percentage of Certificates required by this Section 10.3 shall have consented to and approved the execution and delivery thereof as herein provided, no Registered Owner shall have any right to object to the execution and delivery of such Supplemental Trust Agreement, or 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 and delivery thereof, or to enjoin or restrain the Authority, Trustee or Company from executing and delivering the same or from taking any action pursuant to the provisions thereof. The Trustee shall furnish written notice of any Supplemental Trust Agreement to Moody's. Section 10.4.Effect of Supplemental Trust Agreement. Upon the execution and deliver of any Supplemental Agreement pursuant to the provisions of this Article X, this Trust Agreement shall be, and be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under this Trust Agreement of the Authority, the Trustee, the Company and all Registered Owners of Certificates then outstanding shall thereafter be determined, exercised and enforced under this Trust Agreement subject in all respects to such modifications and amendments. Section 10.5.Consent of Bank and Company Required. Anything herein to the contrary notwithstanding, a Supplemental Trust Agreement under this Article X shall not become effective unless and until the Company and the Bank shall have consented to such Supplemental Trust Agreement. Section 10.6.Amendments to Agreements not Requiring Consent of Registered Owners. The Authority, the Company, and the Trustee shall without the consent of or notice to the Registered Owners, consent to any amendment, change or modification of the Amended and Restated First and Second Installment Sale Agreements as may be required (i) by the provisions of the Amended and Restated First and Second Installment Sale Agreements and this Trust Agreement, (ii) for the purpose of curing any ambiguity or formal defect or omission in the Amended and Restated First and Second Installment Sale Agreements, (iii) so as to identify the Project more precisely or to substitute or add additional improvements or equipment to the Project or additional rights or interests in property acquired in accordance with the provisions of said Agreements, (iv) to enter into an agreement or agreements supplemental hereto as provided in Section 10.2 hereof, or (v) in connection with any other change therein which, in the judgment of the Trustee, is not to the prejudice of the Trustee or the Registered Owners. Before the Authority and the Company shall enter into, and the Trustee shall consent to, any amendment change or modification pursuant to this Section 10.6, there shall have been delivered to the Authority, the Trustee and the Company (i) the written consent of the Bank and (ii) an opinion of Special Counsel stating that such amendment, change or modification is authorized or permitted by this Trust Agreement, complies with its terms, will, upon the execution and delivery thereof, be valid and binding upon the Authority and the Company, as the case may be, in accordance with its terms and will not adversely affect the exemption of interest on the Certificates from federal income taxation. Section 10.7.Amendments to the Amended and Restated First and Second Installment Sale Agreements Requiring Consent of Registered Owners and the Bank. Except for the amendments, changes or modifications as provided in Section 10.6 hereof, neither the Authority, the Company nor the Trustee shall consent to any other amendment, change or modification of the Amended and Restated First or Second Installment Sale Agreements (the Agreements") without Notice by Mail and receipt of the express written consent of the Bank and the Registered Owners of not less than 60% in aggregate principal amount of the Certificates at the time Outstanding given as in this Section 10.7 provided, provided that the consent of the Registered Owners of all Certificates Outstanding is required for any amendment, change or modification of either Agreement that would permit the termination or cancellation of either Agreement or a reduction in or postponement of the payments under either Agreement or any change in the provisions relating to the payments thereunder. If at any time the Authority and the Company shall request the consent of the Trustee to any such proposed amendment, change or modification of said Agreements, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice to be given of such proposed amendment, change or modification in the same manner as provided by Section 10.3 hereof with respect to Supplemental Trust Agreements. 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 Registered Owners. The Authority and the Company may enter into, and the Trustee may consent to, any such proposed amendment, change or modification subject to the same conditions and with the same effect as provided in Section 10.3 hereof with respect to Supplemental Trust Agreements. The Trustee shall furnish written notice of any amendment to either Agreement to Moody's. ARTICLE XI GENERAL COVENANTS Section 11.1.Payment of Principal, Premium, if any, and Interest. The Trustee, in its capacity as Trustee hereunder, covenants that it will promptly pay the principal of, premium, if any, and interest with respect to every Certificate executed and delivered under this Trust Agreement at the place, on the dates and in the manner provided herein and in said Certificates according to the true intent and meaning thereof, but solely from the amounts pledged therefor which are from time to time held by the Trustee under Article III hereof in the Revenue Fund. The principal represented by, premium, if any, and interest due with respect to the Certificates are payable by the Trustee solely from the amounts to be paid to it under the Amended and Restated First Installment Sale Agreement and otherwise as provided herein and in the Amended and Restated First Installment Sale Agreement, which amounts are hereby specifically pledged to the payment thereof in the manner and to the extent herein specified, and nothing in the Certificates or in this Trust Agreement shall be construed as pledging any other funds or assets of the Trustee or the Authority. The Authority covenants to perform all obligations and duties imposed on it under the Amended and Restated First Installment Sale Agreement and to cooperate with the Trustee in enforcing the Amended and Restated Second Installment Sale Agreement against the Company in accordance with its terms. Neither the State nor the Authority nor any political subdivision of the State shall in any event be liable for the payment of the Purchase Payments or the principal represented by, premium, if any, or interest due with respect to any of the Certificates or for the performance of any pledge, obligation or agreement undertaken by the Authority or the Trustee except to the extent that moneys pledged herein are sufficient therefor. Neither the faith and credit nor the taxing power of the Authority is pledged to the payment of the principal represented by, premium, if any, or interest due with respect to Purchase Payments or the Certificates, nor is the Authority in any manner obligated to make any appropriation for payment of the Certificates. No member or officer of the Authority or the Trustee or any persons executing the Certificates shall, in any event, be subject to any personal liability or accountability by reason of the execution and delivery of the Certificates. Section 11.2.Performance of Covenants; Trustee and Authority. The Authority and the Trustee covenant that they will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions on their part contained in this Trust Agreement and in the Amended and Restated First Installment Sale Agreement, in any and every Certificate executed and delivered hereunder and in all of the proceedings pertaining hereto. The Authority covenants that it is duly authorized under the Constitution and laws of the State to execute the Amended and Restated First Installment Sale Agreement and to execute this Trust Agreement, to assign the Amended and Restated Second Installment Sale Agreement and the Deed of Trust and the Assignment of Leases and to pledge the amounts to be paid under the Amended and Restated Second Installment Sale Agreement and other amounts hereby pledged in the manner and to the extent herein set forth, that all action on its part in connection therewith and the execution and delivery of this Trust Agreement has been duly and effectively taken. Section 11.3.Instruments of Further Assurance. The Authority and the Company will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such resolutions supplemental hereto and such further acts, instruments and transfers as the Trustee may reasonably require for the better assuring, transferring, conveying, pledging, assigning and confirming unto the Trustee all and singular the amounts pledged hereby to the payment of the Purchase Payments and the principal of, premium, if any and interest on the Certificates. The Authority, except as herein and in the Amended and Restated Second Installment Sale Agreement provided, will not sell, convey, mortgage, encumber or otherwise dispose of any part of the Project, the amounts, revenues and receipts payable under the Amended and Restated Second Installment Sale Agreement or its rights under the Amended and Restated Second Installment Sale Agreement. Section 11.4.Recording and Filing. The Company covenants that it will cause all financing statements related to this Trust Agreement and all supplements thereto and the Amended and Restated First and Second Installment Sale Agreements and all supplements thereto, as well as such other security agreements, assignments, financing statements and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and filed in such manner and in such places as may from time to time be required by law in order to preserve and protect fully the security of the Registered Owners of the Certificates and the rights of the Trustee hereunder, and to take or cause to be taken any and all other action necessary to perfect the security interest and lien created by this Trust Agreement. Section 11.5.Inspection of Project Books. All books and records in the Authority's possession relating to the Project and the amounts derived from the Project shall at all reasonable times be open to inspection by such accountants or other agencies as the Trustee may from time to time designate. Section 11.6.List of Registered Owners. The Trustee will keep on file a list of the names and addresses of all Registered Owners of all Certificates as from time to time registered on the registration books maintained by the Trustee as Registrar, together with the principal amount and numbers of such Certificates. The Trustee shall be under no responsibility with regard to the accuracy of said list. At reasonable times and under reasonable regulations established by the Trustee, said list may be inspected and copied by the Company or by Registered Owners (or a designated representative thereof) of twenty-five percent (25%) or more in principal amount of Certificates then Outstanding, such ownership and the authority of such designated representative to be evidenced to the satisfaction of Trustee. Section 11.7.Rights Under Agreements. The Amended and Restated First and Second Installment Sale Agreements, duly executed counterparts of which have been filed with the Trustee, set forth the covenants and obligations of the Authority and the Company, including provisions that subsequent to the execution, sale and delivery of Certificates and prior to their payment in full or provision for payment thereof in accordance with the provisions hereof said Agreements may not be effectively amended, changed, modified, altered or terminated without the written consent of the Trustee and the Bank, and reference is hereby made to said Agreements for a detailed statement of said covenants and obligations of the Company and the Authority thereunder, and the Authority agrees that, except as expressly set forth in the Amended and Restated First and Second Installment Sale Agreements, the Trustee in its name or in the name of the Authority may enforce all rights of the Authority and all obligations of the Company under and pursuant to the Amended and Restated Second Installment Sale Agreement for and on behalf of the Registered Owners, whether or not the Authority is in Default hereunder or under the Amended and Restated First Installment Sale Agreement. Section 11.8.Limited Nature of the Company's Obligations. Notwithstanding anything to the contrary herein, the Company's payment obligations under the Amended and Restated Second Installment Sale Agreement shall be limited as and in the manner set forth in Section 5.4(b) of such Agreement and in Section 4.20 of the Deed of Trust. ARTICLE XII DEFEASANCE Section (a) Defeasance. If there shall be paid or provisions made for payment to or for the holders and owners of the Certificates in accordance with the provisions of this Trust Agreement, the principal, premium, if any, and interest due or to become due thereon at the time and in the manner stipulated therein, and if the Authority shall keep, perform and observe all and singular the covenants and promises in the Certificates and in this Trust Agreement expressed as to be kept, performed and observed by it or on its part, and shall pay or cause to be paid to the Trustee, the Tender Agent, any Paying Agent and the Bank all sums of money due or to become due to them according to the provisions hereof, then this Trust Agreement and the lien, rights and interest created hereby shall cease, determine and become null and void (except as to any surviving rights of registration, transfer or exchange of Certificates herein provided for), whereupon the Trustee shall cancel and discharge this Trust Agreement, and execute and deliver to the Authority such instruments in writing as shall be requested by the Authority and requisite to discharge this Trust Agreement, and release, assign and deliver unto the Bank, if there are obligations then due under the Reimbursement Agreement, and if not, to the Company, any and all the estate, right, title and interest in and to any and all rights assigned or pledged to the Trustee or otherwise subject to this Trust Agreement, except moneys or securities held by the Trustee for the payment of the principal of, premium, if any, and interest on the Certificates, proceeds of draws on the Bank Letter of Credit, and moneys held in the Purchase Fund. Any Certificate or portion thereof in Authorized Denominations shall, prior to the maturity or redemption date thereof, be deemed to be paid and defeased within the meaning of this Trust Agreement when payment of the principal of and the applicable redemption premium, if any, on such Certificate or portion thereof, plus interest thereon to the due date thereof (whether such due date be by reason of maturity or upon redemption as provided in this Trust Agreement, or otherwise), either: (i) shall have been made or caused to be made in accordance with the terms hereof and thereof, or (ii) shall have been provided for by irrevocably depositing with the Trustee, in trust and irrevocably setting aside exclusively for such payment: (1) moneys which shall be sufficient to make such payment when due, or (2) moneys and/or non-callable Government Obligations maturing as to principal and interest in such amounts and at such times as will be such as to insure the availability of sufficient moneys to make such payment, and all necessary and proper fees, compensation and expenses of the Trustee and any Paying Agent pertaining to the Certificates with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Trustee and any Paying Agent. Moneys or Government Obligations deposited with the Trustee by the Company under this Section shall be used to pay and defease Certificates only if they constitute Seasoned Funds or proceeds of a drawing under the Bank Letter of Credit. Prior to the Conversion Date, no Certificates may be defeased under this Section unless the Trustee receives written confirmation from each rating agency then rating the Certificates that the defeasance will not result in the withdrawal or reduction of the rating on the Certificates. Notwithstanding the foregoing, no deposit under clause (ii) of the immediately preceding paragraph shall be deemed a payment of such Certificates or portion thereof as aforesaid until: (A) proper notice of redemption of such Certificates or portions thereof shall have been previously given in accordance with Article VI hereof to the owners of the Certificates or portions thereof, that the deposit required by (ii) above has been made with the Trustee and that said Certificates or portions thereof are deemed to have been paid and stating such maturity or redemption date or dates upon which moneys are to be available for the payment of the principal or redemption price, if applicable, on said Certificates; or (B) the maturity of such Certificates. At such time as a Certificate or portion thereof shall be deemed to be paid hereunder, as aforesaid, it shall no longer be secured by or entitled to the benefits of this Trust Agreement except for the purposes of Sections 2.8 and 2.9 hereof and of any such payment from such moneys or Government Obligations. Any moneys so deposited with the Trustee as provided in this Article may at the written direction of the Company also be invested and reinvested in non-callable Government Obligations maturing in the amounts and times as hereinbefore set forth, and all income from all such Government Obligations in the hands of the Trustee pursuant to this Article which is not required for the payment of the Certificates and interest and premium, if any, thereon with respect to which such moneys shall have been so deposited, shall be deposited in the fund or account in which such moneys so deposited are held. Notwithstanding any provisions of any other Article of this Trust Agreement which may be contrary to the provisions of this Article, all such moneys or Government Obligations set aside and held in trust pursuant to the provisions of this Article and for the payment of Certificates (including interest and premium thereon, if any) shall be applied to and used solely for the payment of the particular Certificates (including interest and premium thereon, if any) with respect to which such moneys and Government Obligations have been so set aside in trust. Anything in Article X hereof to the contrary notwithstanding, if such moneys or Government Obligations have been deposited or set aside with the Trustee pursuant to this Article for the payment of Certificates and interest and premium thereon, if any, and such Certificates shall not have in fact been actually paid in full, no amendment to the provisions of this Article XII shall be made without the consent of the holder of each Certificate affected thereby. ARTICLE XIII PURCHASE AND REMARKETING OF CERTIFICATES Section 13.1.Certificateholders' Obligation to Tender Certificates Upon Conversion and Reimbursement Agreement Event of Default. (a) (i) Upon receipt of a notice of conversion to the Fixed Rate pursuant to Section 2.4 hereof or (ii) unless notice has been received stating that there has not been a reduction or withdrawal of the rating on the Certificates under 3.9(e)(ii)(C) as a result of the delivery of a Substitute Letter of Credit, together with the Bank's express written consent to such Substitution, each Certificateholder shall tender its Certificates for purchase on or before the Conversion Date with respect to (i) above, or, with respect to (ii) above, on a special mandatory tender date established relative to the substitution of the Letter of Credit, which shall be a date not less than 5 days before the expiration or termination of the Letter of Credit, in accordance with Section 13.2. All Certificates which are not tendered for purchase prior to the Conversion Date or the special mandatory tender date, as the case may be, shall be deemed tendered and shall be purchased on the Conversion Date or the special mandatory tender date, as the case may be, at a price of 100 percent of the principal amount thereof plus accrued interest to such date. The Trustee shall deem Certificates not tendered by Certificateholders to be no longer outstanding and shall deliver a revised form of Certificate, prepared with the advice of Special Counsel and consistent with the terms of this Trust Agreement. (b) Upon receipt of a notice from the Bank that an event of default has occurred under the Reimbursement Agreement and the express written consent of the Bank to the Trustee's exercise of the remedy provided in this Section 13.1(b), each Certificateholder shall tender its Certificate for purchase to the Trustee on or before the date set forth in the notice delivered to the Trustee in accordance with Section 11.2(c) of the Reimbursement Agreement and in any event not later than 5 days prior to the expiration of the Letter of Credit. All Certificates which are not tendered for purchase on or before the date set forth in the notice from the Bank shall be deemed tendered and shall be purchased on said date at a price of one hundred percent (100%) of the principal amount thereof plus accrued interest to said date. The Trustee shall deem Certificates not tendered by Certificateholders to be no longer outstanding and shall deliver a revised form of Certificate, prepared with the advice of Special Counsel and consistent with the terms of this Trust Agreement. Section 13.2.Mandatory and Demand Purchase of Certificates. Subject to the provisions of Section 13.9, any Certificate shall be purchased, at the option of the owner thereof or as required by Section 13.1 hereof, on any Business Day on or before the Conversion Date, at a purchase price equal to 100 percent of the principal amount thereof plus accrued interest to the Purchase Date (as defined below), with such payment to be made in immediately available funds, upon: (a) delivery of an irrevocable written notice of tender or an irrevocable telephonic notice of tender to the Remarketing Agent, promptly confirmed in writing to the Tender Agent, not later than 4:00 p.m. New York time not less than seven days prior to the date on which the Certificates are to be purchased (the "Purchase Date") of a notice of exercise of option to sell Certificates in substantially the form set forth in Exhibit C hereto duly completed and executed by the Registered Owner of the Certificate or Certificates to be purchased (which notice shall be effective upon receipt); and (b) delivery to the Principal Office of the Tender Agent not later than 12:00 noon New York time on the Purchase Date specified in the aforesaid notice, of the Certificates to be purchased. Any Certificates purchased pursuant to a draw on the Bank Letter of Credit and delivered to or on behalf of the Trustee or the Tender Agent (including any Certificate executed and delivered in replacement thereof) shall be held in the name of the Bank (or its participants) on the records of the Securities Depository and held by the Trustee or the Tender Agent, under the security interest of the Bank pursuant to the provisions of the Reimbursement Agreement and the Pledge and Security Agreement, pending written instructions from the Bank. Section 13.3.Remarketing Agent. The Company will appoint the Remarketing Agent for the Certificates, subject to the conditions set forth in Section 13.4 hereof. The Remarketing Agent has designated to the Trustee its principal office and signified its acceptance of the duties and obligations imposed on it hereunder by its execution and delivery of the Remarketing Agreement concurrently herewith, and satisfactory in form and substance to the Authority, under which the Remarketing Agent agrees to perform the obligations of the Remarketing Agent set forth in Section 13.5 hereof. The Authority shall cooperate with the Trustee and the Company 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 Certificates and whereby Certificates executed by the Authority and authenticated by the Trustee shall be made available to the Remarketing Agent to the extent necessary for delivery pursuant to Section 13.7 hereof. If at any time the Remarketing Agent is not performing under this Trust Agreement, upon written notice from the Company to the Trustee of said nonperformance, the Trustee shall accept notices and tenders of Certificates hereunder. Section 13.4.Qualifications of Remarketing Agent. The Remarketing Agent shall be a member of the National Association of Securities Dealers, Inc. or a banking corporation having a capitalization of at least $15,000,000 and which is authorized by law to perform all the duties imposed upon it by this Trust Agreement. The Remarketing Agent may be removed from, and may resign and be discharged of, the duties and obligations created by this Trust Agreement, under the circumstances and in the manner described in the Remarketing Agreement. Section 13.5.Remarketing of Certificates. (a) Upon the Tender Agent or the Trustee determining that a Certificate should be deemed tendered pursuant to Section 13.2 hereof, the Trustee or the Tender Agent shall immediately give the Remarketing Agent, the Bank and the Company telephonic notice, promptly confirmed in writing, and the Remarketing Agent shall use its best efforts to remarket the Certificates to which such notice relates. Any such sale shall be made at a price equal to the principal amount of the Certificates sold plus interest accrued to the Purchase Date (as defined in Section 13.2 hereof). (b) On each Purchase Date: (i) Unless the Remarketing Agent has notified the Tender Agent otherwise, the Remarketing Agent shall notify the Tender Agent by Electronic Means not later than 12:30 p.m. New York time of the amount of tendered Certificates which were successfully remarketed, the names of the tendering Owners and the registration instructions (i.e., the names, addresses and taxpayer identification numbers of the purchasers and the desired Authorized Denominations) with respect thereto; and (ii) the Tender Agent shall authenticate new Certificates for the respective purchasers thereof which shall be available for pick-up by the Remarketing Agent not later than 2:30 p.m. New York time. (c) On each Purchase Date: (i) the Remarketing Agent shall give notice to the Tender Agent of receipt of the purchase price of remarketed Certificates by 12:30 p.m. New York time; and (ii) the Tender Agent shall direct the Trustee to draw on the Letter of Credit by 1:00 p.m. New York time in an amount equal to the purchase price of all Certificates tendered or deemed tendered less the aggregate amount of remarketing proceeds notice of the receipt of which was given to the Tender Agent by the Remarketing Agent pursuant to clause (i) of this Section 13.5(c) or in the failure of such notice, the Trustee shall draw on the Letter of Credit by 1:00 p.m. New York time in an amount equal to the purchase price of all Certificates tendered or deemed tendered. (d) Any Certificates tendered for purchase under Section 13.2 after the date notice of conversion to the Fixed Rate is given shall not be remarketed except to a buyer who agrees, in writing delivered to the Trustee concurrently with the written notice of sale described in subparagraph (b), at the time of such purchase to tender the Certificates for repurchase at par plus accrued interest on the Conversion Date. No Certificate tendered for purchase under Section 13.2 after the date of notice of redemption with respect thereto has been given shall be remarketed. (e) Certificates tendered for purchase within 7 days prior to the Conversion Date shall not be remarketed except in connection with the Remarketing Agent's efforts to remarket bonds as Fixed Rate Certificates pursuant to Section 13.5(a) hereof. (f) Certificates shall not be remarketed to the Authority, the Company or a general partner or any insider of the Company. The Authority hereby agrees not to purchase Certificates from the Remarketing Agent. (g) Anything in this Trust Agreement to the contrary notwithstanding, if there shall have occurred and be continuing an Event of Default described in subsection (a) or (b) of Section 8.1, the Remarketing Agent shall not remarket any Certificates. Section 13.6.Purchase of Certificates Delivered to Tender Agent. There shall be deposited into the Purchase Fund the following amounts: (i) all moneys received from the remarketing of Certificates pursuant to Section 13.5 hereof; and (ii) a sum drawn by the Trustee under the Bank Letter of Credit pursuant to Section 13.5 which, when added to the moneys described in clause (i), will be sufficient to permit purchase of Certificates as required under Sections 13.1 and 13.2 hereof. (b) Funds for the purchase of Certificates at the principal amount thereof plus interest accrued to the Purchase Date shall be paid out of the Purchase Fund in the order of priority indicated: (i) proceeds from the remarketing of Certificates pursuant to Section 13.5 hereof; and (ii) moneys representing proceeds of a drawing by the Trustee under the Bank Letter of Credit. (c) The Tender Agent and the Trustee shall (i) hold all Certificates delivered to it pursuant to Section 13.2 hereof in trust for the benefit of the respective owners which shall have so delivered such Certificates until moneys representing the purchase price of such Certificates shall have been delivered to or for the account of or to the order of such owners; and (ii) deliver to the Company, the Remarketing Agent and the Bank a copy of each notice delivered to it in accordance with Section 13.2 hereof and, immediately upon the delivery to it of Certificates in accordance with said Section 13.2, give telephonic or telegraphic notice to the Company and the Bank specifying the principal amount of the Certificates so delivered. (d) The Trustee, the Tender Agent and the Remarketing Agent shall hold all moneys delivered to it pursuant to Section 13.8 in trust for the benefit of the respective purchasers until the Certificates purchased with such moneys can be delivered to such purchasers. Neither the Authority nor the Company shall have any right, title or interest in any moneys held in the Purchase Fund or by the Remarketing Agent or the Tender Agent. Section 13.7.Delivery of Certificates. Upon the purchase of Certificates with funds described in Section 13.6(b)(i) hereof, transfer of the ownership thereof shall be registered by the Trustee, and replacement Certificates shall be delivered by the Trustee, or by the Tender Agent at the direction of the Trustee, in the manner requested by the Remarketing Agent. Certificates paid by the Trustee with moneys described in subsection (b)(iii) of Section 13.6 shall be registered by the Trustee in the name of the Trustee, and shall be held by the Custodian for the Bank in the manner described in the Custody Agreement. The Trustee agrees to cooperate with the parties to arrange the transfer of the Pledged Certificates to new custody or ownership as may be required by the issuer of a Substitute Letter of Credit. Section 13.8.Delivery of Remarketing Proceeds. The remarketing proceeds of Certificates remarketed by the Remarketing Agent shall be deposited in the Purchase Fund and used as provided in Section 13.6. The Trustee shall thereupon register such Certificates in such names and deliver them to such new owners as shall have been specified to the Trustee by the Remarketing Agent or the Bank. Section 13.9.Tender Agent. The Trustee, with the consent of the Company and the Bank, which shall not be unreasonably withheld, shall appoint the Tender Agent for the Certificates, subject to the conditions set forth in Section 13.10 hereof. The Tender Agent initially appointed hereunder shall be First Trust of California, National Association. The Tender 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 delivered to the Authority, the Trustee and the Remarketing Agent under which the Tender Agent acknowledges its qualifications and authority to act as Tender Agent under this Trust Agreement and agrees, particularly, as follows: (A) The Tender Agent shall, upon receipt of a notice from any Certificateholder in accordance with Section 13.2 hereof or upon the failure of any Certificateholder to deliver a notice in accordance with Section 2.4 hereof, give immediate telephonic notice thereof to the Trustee, specifying the amount of Certificates to be purchased and the Purchase Date, and shall, not later than the following Business Day, confirm such telephonic notice in writing and deliver to the Bank and the Company a copy of such notice. (B) Not later than 12:30 p.m. New York time on each Purchase Date the Tender Agent shall give the Trustee and the Company telephonic notice, confirmed in writing by the following Business Day, of the amount of Certificates delivered or deemed delivered pursuant to Sections 2.4 and 13.2. (C) The Tender Agent shall deliver to the Remarketing Agent, immediately upon receipt thereof, any Certificates specified in the notice given by the Remarketing Agent to the Tender Agent pursuant to Section 13.5(b) which have been remarketed by the Remarketing Agent. (D) The Tender Agent shall deliver to the Trustee all Certificates not delivered to the Remarketing Agent pursuant to paragraph (3) above, immediately upon receipt of such Certificates from the holders thereof. (E) The Tender Agent shall deliver Certificates to purchasers thereof at the direction of the Trustee in accordance with Section 13.7 hereof. (F) The Tender Agent shall hold all Certificates delivered to it pursuant to Sections 2.4 and 13.2 hereof in trust for the benefit of the respective Certificateholders which shall have so delivered such Certificates until such Certificates are required to be delivered to the Remarketing Agent or the Trustee. (G) The Tender Agent shall keep such books and records as shall be consistent with prudent industry practice and shall make such books and records available for inspection by the Authority, the Trustee, the Bank and the Company at all reasonable times. (H) The Tender Agent shall hold all moneys delivered to it by the Remarketing Agent for the purchase of Certificates in trust for the benefit of the person which shall have delivered such moneys to the Remarketing Agent until the Certificates purchased with such moneys shall have been delivered to or for the account of such person, and shall not invest such moneys or commingle such moneys with other funds of the Tender Agent. (I) The Tender Agent shall cancel all Certificates for which it has received written notice of remarketing from the Remarketing Agent and shall authenticate new Certificates in a like aggregate principal amount in the names and in the denominations set forth in the written notice given to the Tender Agent by the Remarketing Agent pursuant to Section 13.5 hereof. Insofar as such provisions may be applicable, the Tender Agent shall enjoy the same protective provisions in the performance of its duties hereunder as are specified in Article IX with respect to the Trustee. Section 13.10. Qualifications of Tender Agent. The Tender Agent shall be a commercial bank or trust company having a capitalization of at least $1,000,000 and authorized by law to perform all the duties imposed upon it by this Trust Agreement. The Tender Agent may at any time resign and be discharged by giving at least sixty (60) days written notice to the Trustee, the Authority, the Company and the Bank. The Tender Agent may be removed at any time, upon 60 days written notice, upon consultation with the Company, by an instrument signed by the Trustee and filed with the Tender Agent, the Remarketing Agent, the Bank and the Authority. Upon the resignation or removal of the Tender Agent the Trustee shall promptly appoint a successor Tender Agent. In the event of the resignation or removal of the Tender Agent, the Tender Agent shall pay over, assign and deliver any moneys and Certificates held by it in such capacity, and shall deliver all books and records relating thereto, to its successor or, if there be no successor, to the Trustee. In the event that the Trustee shall fail to appoint a Tender Agent hereunder, or in the event that the Tender Agent shall resign or be removed, or be dissolved, or if the property or affairs of the Tender Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, and the Trustee shall not have appointed its successor as Tender Agent, the Trustee, notwithstanding the provisions of the first paragraph of this Section 13.10, shall be deemed to be the Tender Agent for all purposes of this Trust Agreement until the appointment by the Trustee of the Tender Agent or a successor Tender Agent, as the case may be, which shall be done with all due dispatch. ARTICLE XIV MISCELLANEOUS Section 14.1.Consents of Registered Owners. Any consent, request, direction, approval, objection or other instrument required by this Trust Agreement to be signed and executed by the Registered Owners may be in any number of concurrent documents and may be executed by such Registered Owners 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 written appointment of any such agent or of the ownership of Certificates, if made in the following manner, shall be sufficient for any of the purposes of this Trust Agreement, and shall be conclusive in favor of the Trustee with regard to any action taken by it under such request or other instrument, namely: (a) 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. (b) The fact of ownership of Certificates and the amount or amounts, numbers and other identification of such Certificates, and the date of holding the same shall be proved by the registration books maintained by the Trustee pursuant to Section 2.9 hereof. For all purposes of this Trust Agreement and of the proceedings for the enforcement hereof, such person shall be deemed to continue to be the Registered Owner of such Certificate until the Trustee shall have received notice in writing to the contrary. Section 14.2.Successors of the Authority and the Company. In the event of the dissolution of the Authority or the Company, all the covenants, stipulations, promises and agreements in this Trust Agreement contained, by or on behalf of, or for the benefit of, the Authority or the Company, shall bind or inure to the benefit of their respective successors from time to time and any entity, officer, board, commission, agency or instrumentality to whom or to which any power or duty of the Authority or Company, as the case may be, shall be transferred. Section 14.3.Parties in Interest; Consent of Bank. (a) Except as herein otherwise specifically provided, nothing in this Trust Agreement expressed or implied is intended or shall be construed to confer upon any person, firm or corporation other than the Authority, the Company, the Bank, the Trustee and the Registered Owners any right, remedy or claim under or by reason of this Trust Agreement, this Trust Agreement being intended to be for the sole and exclusive benefit of the Authority, the Company, the Bank and the Trustee and the Registered Owners. (b) Whenever the consent or the approval of the Bank is required under any provision of this Trust Agreement, such consent or approval shall be required only for so long as the Letter of Credit shall be in effect or there shall remain unsatisfied any obligations of the Company under the Reimbursement Agreement and then only if the Bank shall not be in default under the Letter of Credit. (c) It shall be the Bank's option, exercised in its sole, absolute and exclusive discretion whether to exercise its remedy under Section 3.6(d) or Section 13.1(b) following the occurrence of an event of default under the Reimbursement Agreement. Section 14.4.Severability. In case any one or more of the provisions of this Trust Agreement or of the Amended and Restated First or Second Installment Sale Agreement or of the Certificates issued hereunder shall, for any reason, be held to be illegal or invalid, such illegality or invalidity shall not affect any other provisions of this Trust Agreement or of such Agreements or of such Certificates, and this Trust Agreement and such Agreements and such Certificates shall be construed and enforced as if such illegal or invalid provisions had not been contained herein or therein. Section 14.5.No Personal Liability of Authority or Trustee Officials. No covenant or agreement contained in the Certificates or in this Trust Agreement shall be deemed to be the covenant or agreement of any official, officer, agent or employee of the Authority or the Trustee in his individual capacity, and no such individual person shall be liable personally on the Certificates or be subject to any personal liability or accountability by reason of the issuance thereof. Section 14.6.Certificates Owned by the Authority or the Company. In determining whether Registered Owners of the requisite aggregate principal amount of the Certificates have concurred in any direction, consent or waiver under this Trust Agreement, Certificates which are owned by the Authority or the Company or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company (unless the Authority, the Company or such person owns all Certificates which are then Outstanding, determined without regard to this Section 14.6) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Certificates which the Trustee knows are so owned shall be so disregarded. Certificates so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Certificates and that the pledgee is not the Authority or the Company or any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 14.7.Counterparts. This Trust Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be deemed to be an original; but such counterparts shall together constitute but one and the same Trust Agreement. Section 14.8.Governing Law. The laws of the State shall govern the construction of this Trust Agreement and of all Certificates issued hereunder. Section 14.9.Notices. All notices, certificates or other communications shall be in writing (unless specifically provided otherwise herein) and sufficiently given and shall be deemed given on the second day following the date on which the same have been personally delivered or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows: To the Authority: City of Hermosa Beach 1315 Valley Drive Hermosa Beach, California 90254 Attention: City Manager To the Company: JMB Income Properties, Ltd. - XII c/o JMB Realty Corporation 900 North Michigan Avenue, 19th Floor Chicago, Illinois 60611 Attention: Stephen Lovelette To the Trustee and First Trust of California, National Association Paying Agent: 333 South Grand Avenue, Suite 3020 Los Angeles, California 90071 Attention: Melonee Young To the Tender First Trust of California, National Association Agent: c/o First Trust of New York 100 Wall Street, Suite 1600 New York, New York 10005 Attention: Patsy Poole To the Bank: Dresdner Bank AG Los Angeles Agency 725 South Figueroa Street, Suite 3950 Los Angeles, California 90017 Attention: Mr. Sidney Jordan, Vice President To the Remarketing Merrill Lynch, Pierce, Fenner & Smith Agent: Two California Plaza 350 South Grand Avenue, Suite 2630 Los Angeles, California 90071 Attention: Managing Director A duplicate copy of each notice, certificate or other communication given hereunder by either the Authority or the Company to the other shall also be given to the Trustee and the Bank. All other documents required to be submitted to any of the foregoing parties shall also be submitted to such party at its address set forth above. Any of the foregoing parties may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, documents or other communications shall be sent. In addition to all other notices required by this Trust Agreement, the Trustee and the Authority covenant to provide Moody's at Moody's Investors Service, Public Finance Department, 99 Church Street, New York, New York 10007, Attn: Structured Finance Group, notice of the following events: (1) any change in the Trustee or the Remarketing Agent, (2) provision of a Substitute Letter of Credit by the Company, (3) any amendment to this Trust Agreement, the Reimbursement Agreement or any other documents relating to the Certificates or the Bank Letter of Credit, (4) any redemption of Certificates pursuant to Section 6.2, (5) the extension, termination or expiration of any Letter of Credit, (6) the conversion of the interest rate on the Certificates to the Fixed Rate, (7) any defeasance of the Certificates under Article XII hereunder, or (8) any material change actually known to the Authority or a Responsible Officer of the Trustee in the Amended and Restated First and Second Installment Sale Agreements or the Pledge and Security Agreement. Section 14.10. Holidays. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Trust Agreement, shall be a legal holiday or a day on which banking institutions in the city in which is located the Principal Office of the Trustee or the Paying Agent are authorized by law to remain closed, such payment may be made or act performed or right exercised on the next succeeding day not a legal holiday or a day on which such banking institutions are authorized by law to remain closed, with the same force and effect as if done on the nominal date provided in this Trust Agreement, and no interest shall accrue for the period after such nominal date. Section 14.11. Immunities and Limitations of Responsibility of Authority and Trustee. Except as to particular circumstances specifically indicated in this Section 13.11, the immunities and limits of responsibility conferred by this Section 13.11 shall be applicable to the Authority, the Trustee and the Company individually as well as together, and the use of the words "they", "them" and "their" in this Section 13.11 shall not be construed to require joint action not required by provisions hereof. They shall be entitled to the advice of counsel of their own choice, and they shall be wholly protected as to action taken or omitted in good faith in reliance on such advice. They may rely conclusively on any communication or other document furnished to them hereunder and reasonably believed by them to be genuine. They shall not be liable for any action (a) taken by them in good faith and reasonably believed by them to be within their discretion or powers hereunder, or (b) in good faith omitted to be taken by them because reasonably believed to be beyond their discretion or powers hereunder, or (c) taken by them pursuant to any direction or instruction by which they are governed hereunder, or (d) omitted to be taken by them by reason of the lack of any direction or instruction required hereby for such action; nor shall they be responsible for the consequences of any error of judgment reasonably made by them. They shall in no event be liable for the application or misapplication of funds or for other acts or defaults by any person, except their own officers and employees. When any payment or consent or other action by them is called for hereby, they may defer such action pending receipt of such evidence (if any) as they may require in support thereof. They shall not be required to take any remedial action (other than the giving of notice) unless reasonable indemnity is furnished for any expense or liability to be incurred therein, other than liability for failure to meet the standards set forth in this Section 13.11. No permissive right or power to act which they may have shall be construed as a requirement to act; and no delay in the exercise of a right or power shall affect their subsequent exercise of that right or power. No recourse shall be had by any Registered Owner for any claim based on this Trust Agreement or the Certificates against any member, officer, employee or agent of the Authority or the Company alleging personal liability on the part of such person, unless such claim is based upon the bad faith, fraud or deceit of such person. Neither the Authority nor the Company shall be required to take notice of any breach or default by the other, or to give a default notice to the other, unless directed by the Trustee. Upon receipt of indemnity as provided above and after making such investigation, if any, as it deems appropriate to verify the occurrence of any default of which it is notified by the Registered Owners, the Trustee shall promptly pursue such remedies hereunder as it deems appropriate for the protection of the Registered Owners; and in its actions under this sentence, the Trustee shall be required to act for the protection of the Registered Owners with the same promptness and prudence as would be expected of a prudent man in the conduct of his own affairs. IN WITNESS WHEREOF, the Parking Authority of the City of Hermosa Beach, First Trust of California, National Association, as Trustee, and JMB Income Properties, Ltd. XII, have caused this Trust Agreement to be duly executed by authorized officers, all as of the day and year first above written. PARKING AUTHORITY OF THE CITY OF HERMOSA BEACH By: Chairman By: Secretary Approved as to Form: General Counsel FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, as Trustee By: Its: JMB INCOME PROPERTIES, LTD. XII, an Illinois limited partnership By: JMB REALTY CORPORATION, a Delaware corporation Managing General Partner By: Vice President EXHIBIT A FORM OF VARIABLE INTEREST RATE CERTIFICATE No. 1 $ PARKING AUTHORITY OF THE CITY OF HERMOSA BEACH FLOATING RATE WEEKLY DEMAND REFUNDING CERTIFICATE OF PARTICIPATION (HERMOSA BEACH PARKING FACILITIES PROJECT-1994 SERIES) THIS CERTIFICATE IS SUBJECT TO MANDATORY TENDER UNDER THE CIRCUMSTANCES HEREINAFTER DESCRIBED, AND IT MUST BE SO TENDERED OR IT WILL BE DEEMED TO HAVE BEEN SO TENDERED AND INTEREST WITH RESPECT THERETO WILL CEASE TO ACCRUE AND THIS CERTIFICATE WILL NO LONGER BE ENTITLED TO THE BENEFITS OF THE TRUST AGREEMENT (AS HEREINAFTER DEFINED). Interest Rate Maturity Date Dated Date CUSIP Number Variable December 1, 2023 December 5, 1994 REGISTERED OWNER: PRINCIPAL AMOUNT: The Registered Owner named above, or registered assigns, is entitled to receive, subject to the terms of the Amended and Restated First Installment Sale Agreement (as hereinafter defined), the principal amount set forth above on the Maturity Date specified above (subject to any right of prior redemption hereinafter mentioned), and interest on the balance of said principal amount from time to time remaining unpaid (but only out of the sources hereinafter mentioned) at the rates and at the times as hereinafter provided. The principal or redemption price hereof is payable by check only upon presentation and surrender hereof at the Principal Office (as defined in the Trust Agreement) of First Trust of California, National Association (the "Trustee"), and interest shall be paid by check mailed, first class mail, postage prepaid, on each Interest Payment Date (as hereinafter defined), to the person in whose name this Certificate is registered on the applicable Record Date (as hereinafter defined), at the address of such registered owner shown on the books of the Trustee, except that such interest payments may be made by wire transfer to any registered owner of $1,000,000 or more in aggregate principal amount of the Certificates who shall have designated to the Trustee an account within the United States for such payments at least fifteen days before the applicable Interest Payment Date. The Registered Owner is the owner of an undivided proportionate interest in the right to receive certain purchase payments (the "Purchase Payments") to be made under that certain Amended and Restated First Installment Sale Agreement dated as of November 15, 1994 (the "Amended and Restated First Installment Sale Agreement"), by and between JMB Income Properties, Ltd. - XII, an Illinois limited partnership organized and existing under the laws of the State of Illinois (the "Company"), and the Parking Authority of the City of Hermosa Beach, a parking authority and public body, corporate and politic, organized and existing under the laws of the State of California (the "Authority"), for title to certain public parking facilities and related facilities described therein (the "Project"), such Amended and Restated First Installment Sale Agreement, including the right to receive Purchase Payments, having been assigned to the Trustee. The Authority has agreed to convey title to the Project to the Company pursuant to an Amended and Restated Second Installment Sale Agreement, dated as of November 15, 1994 (the "Amended and Restated Second Installment Sale Agreement"), under which the Company is obligated to make installment payments (the "Installment Payments") sufficient to permit the Authority to make Purchase Payments under the Amended and Restated First Installment Sale Agreement. The Trustee has received an assignment of the Authority's rights to the Installment Payments under the Amended and Restated Second Installment Sale Agreement. The obligations of the Company to make payments under the Amended and Restated Second Installment Sale Agreement are secured by, among other things, a Deed of Trust, Fixture Filing and Assignment of Rents (Completed Building) (the "Deed of Trust"), constituting a first lien on the Project, an Assignment of Rents, Leases, Income and Profits dated as of November 15, 1994 (the "Assignment of Leases") executed by the Company in favor of the Bank and the Authority and a Security Agreement dated as of November 15, 1994 (the "Security Agreement") among the Company, the Bank and the Authority, which have been assigned to the Trustee. Payment of the Certificates is additionally secured by a letter of credit, hereinafter described, issued initially by Dresdner Bank AG, Los Angeles Agency (the "Bank"). The lien of the Deed of Trust is shared by the Trustee co-equally with the Bank in order to secure the Company's obligations to reimburse the Bank for drawings made under such Letter of Credit, pursuant to a Letter of Credit and Reimbursement Agreement dated as of November 15, 1994 between the Company and the Bank. This Certificate is one of an authorized issue of certificates of the Authority designated as the "Parking Authority of the City of Hermosa Beach Floating Rate Weekly Demand Refunding Certificates of Participation (Hermosa Beach Parking Facilities Project - 1994 Series)", limited in aggregate principal amount to $6,400,000 (the "Certificates") executed and delivered pursuant to the terms of the Trust Agreement, dated November 15, 1994, by and among the Authority, the Trustee and the Company (the "Trust Agreement"). Interest with respect to this Certificate and not yet paid is payable from the date to which interest has been paid next preceding the date of registration of this Certificate (unless this Certificate is registered as of an Interest Payment Date for which interest has been paid, or after the Record Date in respect thereof, in which event it shall bear interest from such Interest Payment Date, or unless it is registered on or before the Record Date for the first Interest Payment Date, in which event it shall bear interest from the date of the first authentication and delivery of the Certificates), at the rate per annum set forth in the Trust Agreement. The term "Interest Payment Date" means the first Wednesday of each month, commencing the first Wednesday of January, 1995, until the rate of interest due with respect to the Certificates is established at a Fixed Rate (as defined in the Trust Agreement), in which case "Interest Payment Date" thereafter means December 1 and June 1 of each year. The term "Record Date" means the day before an Interest Payment Date (whether or not such date is a Business Day). NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA, ANY POLITICAL SUBDIVISION THEREOF OR THE CITY OF HERMOSA BEACH IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST REPRESENTED BY ANY CERTIFICATE, NOR IS THE STATE, ANY POLITICAL SUBDIVISION THEREOF, THE AUTHORITY OR THE CITY OF HERMOSA BEACH IN ANY MANNER OBLIGATED TO MAKE ANY APPROPRIATION THEREFOR. THE AUTHORITY HAS NO TAXING POWER. IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all conditions and acts required to exist, to have happened and to have been performed precedent to and in the execution and delivery of the Trust Agreement and the execution and delivery of this Certificate do exist, have happened and have been performed in due time, form and manner as required by law; and that the execution and delivery of this Certificate does not exceed or violate any constitutional or statutory limitation. THE TERMS AND PROVISIONS OF THIS CERTIFICATE ARE CONTINUED AFTER THIS PAGE AND SUCH CONTINUED TERMS AND PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. This Certificate shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Trust Agreement unless and until the certificate of authentication hereon shall have been duly executed by the Trustee. IN WITNESS WHEREOF, this Certificate has been executed by the manual signature of an authorized officer of the Trustee solely in its capacity as trustee under the Trust Agreement. FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, as Trustee Dated:____________________ By Authorized Officer [FORM OF CERTIFICATE OF AUTHENTICATION] This Certificate is one of the Certificates described in the within-mentioned Trust Agreement. Date of registration and authentication: FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, as Trustee By: Authorized Officer The Certificates are limited obligations of the Authority and, as and to the extent set forth in the Trust Agreement, are payable solely from and secured by a pledge of and lien on the revenues to be received in connection with the sale of the Project pursuant to the Amended and Restated First and Second Installment Sale Agreements and any other moneys made available to the Authority or the Trustee, including amounts drawn under an irrevocable direct-pay letter of credit issued by the Bank, for the account of the Company in favor of the Trustee, concurrently with the execution and delivery of the Certificates, or any qualified letter of credit issued in substitution therefor (such letter of credit or substitute letter of credit being referred to herein as the "Bank Letter of Credit"). The Certificates are executed and delivered for the purpose of refinancing of the acquisition and construction of the Project. The Amended and Restated First Installment Sale Agreement, the Amended and Restated Second Installment Sale Agreement, the Deed of Trust, the Assignment of Leases, the Security Agreement, the Bank Letter of Credit and the other related documents are hereinafter collectively referred to as the "Company Documents". Reference is hereby made to the Trust Agreement and the Company Documents, copies of which are on file with the Trustee at its Principal Office, for the provisions, among others, with respect to the nature and extent of the rights, duties and obligations of the Authority, the Trustee, the Company, the Bank and the owners of the Certificates, the terms upon which the Certificates are executed and delivered and secured, the collection and disposition of revenues, a description of the Project and interests pledged, the modification or amendment of the Trust Agreement and the Company Documents, and other matters, to all of which the owner of this Certificate assents by the acceptance of this Certificate. For the period commencing on the date of first delivery of fully executed and authenticated Certificates to and including the Initial Rate Calculation Date (as defined in the Trust Agreement) the interest rate on the Certificates shall be the rate specified by the Remarketing Agent (as defined in the Trust Agreement) on said date of first delivery. On said Tuesday and on Tuesday of each week thereafter prior to the Conversion Date, or if any such Tuesday is not a Business Day on the next succeeding day (each such date being referred to herein as an "Interest Rate Calculation Date"), the interest rate on the Certificates for the period commencing the Wednesday next following such Interest Rate Calculation Date to and including Tuesday of the following week (the "Interest Period") shall be set by the Remarketing Agent. The interest rate on the Certificates for each such Interest Period shall be the rate determined by the Remarketing Agent, having due regard for prevailing financial market conditions, to be the rate (but not higher than the rate) which it would be necessary for the Certificates to bear in order to enable the Remarketing Agent to remarket Certificates at 100% of the principal amount thereof if any Certificates were tendered to the Remarketing Agent for remarketing (the "Weekly Rate"). If the Remarketing Agent shall fail to determine the Weekly Rate on an Interest Rate Calculation Date as provided above, then the Weekly Rate shall be the Alternate Rate. Notwithstanding the foregoing, the Weekly Rate in effect as of the Record Date next preceding any Interest Payment Date shall be the rate deemed to be in effect from such Record Date through such Interest Payment Date, and the Weekly Rate shall not exceed 12% per annum (the "Maximum Interest Rate"). The determination of the Weekly Rate by the Remarketing Agent in accordance with the provisions of the Trust Agreement shall be conclusive and binding on the registered owners of the Certificates, the Authority, the Company, the Trustee, the Tender Agent, the Bank and the Remarketing Agent. If the Company, with the consent of the Authority and the Bank, so elects, the interest rate on the Certificates shall be converted to the Fixed Rate (as defined in, and determined pursuant to the provisions of the Trust Agreement) at any time that Certificates are outstanding on any Interest Payment Date selected by the Company following compliance with certain provisions of the Trust Agreement (the "Conversion Date") and following the mailing of notice to the registered owners of the Certificates by the Trustee, which mailing shall occur not less than 20 days prior to the Conversion Date. Upon receipt of a notice from the Trustee that the Company has elected to convert the interest rate on the Certificates to the Fixed Rate, each Certificateholder is required, and the owner hereof specifically agrees, to tender his Certificates for purchase at a price of 100% of the principal amount thereof in accordance with the Trust Agreement. Any Certificate which is not so tendered prior to the Conversion Date shall nonetheless be deemed to have been tendered and shall be purchased from the owner thereof on the Conversion Date at said price plus accrued interest thereon to the Conversion Date. Interest with respect to such Certificate shall thereafter cease to accrue and may be cancelled by the Trustee, and the Trustee may execute and deliver a revised form of Certificate in substitution therefor; provided, however, payment of the principal and interest due with respect to any such Certificate will be made only upon surrender thereof at the Principal Office of the Trustee or the Tender Agent. The transfer of this Certificate by the registered owner hereof in person or by its attorney duly authorized in writing is registrable at the aforesaid principal corporate trust office of the Trustee but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement, and upon surrender and cancellation of this Certificate at such Principal Office. The Trustee shall not be required to register the transfer of or exchange any Certificate after the mailing of notice calling such Certificate for redemption has been given as provided in the Trust Agreement, nor during the period of fifteen days next preceding the giving of such notice of redemption, nor between the Conversion Date and the date on which notice thereof has been given, nor between the Record Date and the related Interest Payment Date. Upon registration of such transfer, a new registered Certificate or Certificates of authorized denomination or denominations, for the same aggregate principal amount, will be executed and delivered to the transferee in exchange herefor. The Certificates are deliverable as registered Certificates without coupons in the denomination of $100,000 and any integral multiple thereof, provided that, with respect to and after certain redemptions of Certificates one Certificate may be in the amount of $100,000 less any amount of $5,000 or any integral multiple thereof, and provided that after the Conversion Date the Certificates shall be delivered in denominations of $5,000 and any integral multiple thereof (the "Authorized Denominations"). Subject to the limitations and upon payment of the charges provided in the Trust Agreement, Certificates may be exchanged for a like aggregate principal amount of Certificates of Authorized Denominations. Subject to certain exceptions set forth in the Trust Agreement, at the option of the registered owner hereof, this Certificate shall be purchased on or before the Conversion Date, as provided in the Trust Agreement, on any Business Day, at a purchase price equal to 100% of the principal amount hereof plus accrued interest to the date of purchase, with such payment to be made in immediately available funds, upon: (a) delivery of an irrevocable written notice of tender or an irrevocable telephonic notice of tender to the Remarketing Agent promptly confirmed in writing to the Tender Agent, not less than seven days prior to the date on which the Certificates are to be purchased, of a notice of exercise of option to sell Certificates substantially in the form provided in the Trust Agreement, a copy of which may be obtained from the Trustee upon request (said notice effective upon receipt); and (b) delivery to the Principal Office of the Tender Agent, not later than 12:00 noon New York time on the purchase date specified in said notice, of the Certificates to be purchased, such Certificates to be in negotiable form. The Certificates are subject to mandatory tender in accordance with the Trust Agreement in the event of (i) conversion to the Fixed Rate, (ii) reduction or withdrawal of the rating on the Certificates as a result of the delivery of a Substitute Letter of Credit, or (iii) an Event of Default under the Reimbursement Agreement, and otherwise at the time and in the manner more fully described in the Trust Agreement. The Certificates are subject to mandatory redemption prior to their maturity as follows, at a redemption price equal to the principal amount thereof without premium, plus accrued interest to the date of redemption, as follows: (1) in whole, on the first day for which notice of redemption can be timely given, after the Trustee has accelerated the Purchase Payments or Installment Payments, as the case may be, as a result of an Event of Default under the Amended and Restated First Installment Sale Agreement or the Amended and Restated Second Installment Sale Agreement; (2) in whole, on the first day for which notice of redemption can be timely given (and not less than five days prior to the expiration of the Letter of Credit in the case of a redemption pursuant to clause (B)(iii) below), if the Letter of Credit or any Substitute Letter of Credit is then in effect, if (A) the Bank fails or refuses to honor any draw on the Letter of Credit; or (B) (i) within 60 days after an Act of Bankruptcy of the Bank, or (ii) within 30 days after a determination by the Trustee, based on an opinion of counsel, that the Letter of Credit is unenforceable, or (iii) prior to the Conversion Date, at least 30 days prior to any expiration date of the Letter of Credit, the Company does not cause a Substitute Letter of Credit to be delivered to the Trustee; (3) in whole, on the first day for which notice of redemption can be timely given and in any event not later than five days before the expiration date of the Letter of Credit, after the Trustee has received written notice from the Bank that an event of default has occurred under the Reimbursement Agreement and the Bank requests that the Trustee redeem the Certificates; (4) in whole, on the first day for which notice of redemption can be timely given, after written notice to a Responsible Officer of the Trustee of a Determination of Taxability; or (5) on the first Interest Payment Date for which notice of redemption can be timely given, in the event of an involuntary loss or the substantial destruction of the Project as a result of unforeseen events (e.g., fire, seizure, requisition or condemnation) (A) in whole or in part, if and to the extent that draws on the Letter of Credit are deposited into the Redemption Account in an amount equal to any amount remaining in the Insurance Proceeds Account on the dates specified in the Trust Agreement; (B) in whole or in part if there were no payments of insurance or other compensation deposited in the Insurance Proceeds Account after the event giving rise to the involuntary loss or substantial destruction of the Project, if and to the extent that draws on the Letter of Credit are deposited into the Redemption Account; or (C) in whole, from a draw on the Letter of Credit, if there were no such payments of insurance or other compensation deposited in the Insurance Proceeds Account after the event giving rise to the total involuntary loss or total destruction of the Project and (i) within 60 days after the event giving rise to the event of loss, the Company (or following a total event of loss, the Bank or the Company) has not notified the Trustee and the Authority, in writing, that the Project can be restored within 12 months to a condition permitting the conduct of normal business operations; (ii) within 60 days after receiving any amounts as a consequence of the event of loss, the Company has not commenced to use such amounts to reconstruct the Project pursuant to the terms of the First and Second Installment Sale Agreements and the Trust Agreement; and (iii) such amounts are not disbursed for the restoration of the Project within 12 months after the date of the notice from the Company referred to in clause (i) above. The Certificates shall also be subject to optional redemption, with the prior consent of the Bank, in whole or in part in Authorized Denominations, at a redemption price equal to the principal amount of the Certificates called for redemption plus accrued interest to the date fixed for redemption, on any Interest Payment Date prior to the Conversion Date, in the event and to the extent that the Purchase Payments are caused to be prepaid by the Company prior to the Conversion Date plus accrued interest to the date fixed for redemption. The Certificate shall also be subject to redemption on or after the Conversion Date, at the times and in the amounts specified in the Trust Agreement. If less than all of the Certificates are to be redeemed, the principal amount of Certificates redeemed shall be an integral multiple of $100,000 prior to the Conversion Date (with the exception of a partial redemption pursuant to the Trust Agreement, in which case one Certificate, selected by lot may be redeemed in integral multiples of $5,000) or of $5,000 on or after the Conversion Date, and the particular Certificates to be redeemed shall be selected as provided in the Trust Agreement. Except in the case of a redemption prior to the Conversion Date as a result of a voluntary prepayment of Purchase Payments, in which instance notice shall be mailed to the registered owner of each Certificate to be redeemed at least 30 days prior to the date fixed for redemption, notice of each such redemption shall be given by sending such notice, by first class mail, postage prepaid, not less than 20 nor more than 40 days prior to the date fixed for redemption. All notices of redemption shall be mailed to the registered owner of each Certificate to be redeemed in whole or in part at the address shown on the registration books maintained by the Trustee. Failure by the Trustee to so mail notice of redemption to any one or more of the respective owners of any Certificates designated for redemption shall not affect the sufficiency of the proceedings for redemption. All Certificates or portions thereof so called for redemption will cease to bear interest on the specified redemption date provided funds for their redemption are on deposit at the principal place of payment at that time whether or not such Certificates are presented and surrendered for payment on such date. The owner of this Certificate shall have no right to enforce the provisions of the Trust Agreement or to institute action to enforce the covenants therein, or to take any action with respect to any event of default under the Trust Agreement, or to institute, appear in or defend any suit or other proceedings with respect thereto, except as provided in the Trust Agreement. If an Event of Default as defined in the Trust Agreement occurs, the principal of all Certificates then outstanding executed and delivered under the Trust Agreement may be declared due and payable upon the conditions and in the manner and with the effect provided in the Trust Agreement. The Authority, the Trustee, the Tender Agent, the Paying Agent and any agent of the Authority, the Trustee, the Tender Agent or the Paying Agent may treat the person in whose name this Certificate is registered as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Certificate be overdue, and neither the Authority, the Trustee, the Tender Agent, the Paying Agent nor any other such agent shall be affected by notice to the contrary. Modifications or alterations of the Trust Agreement, or of any supplements thereto, may be made only to the extent and in the circumstances permitted by the Trust Agreement. [FORM OF ASSIGNMENT] For Value Received, the undersigned hereby sells, assigns and transfers unto (Please insert Social Security or taxpayer identification number of assignee) (Please print or typewrite name and address of assignee) the within Certificate, and all rights thereunder, and hereby does irrevocably constitute and appoint ___________________________ agent to transfer the within Certificate on the books kept for the registration thereof, with full power of substitution in the premises. Dated: (Signature guaranty) NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Certificate in every particular, without alteration or enlargement or any change whatever. Signature guaranteed by eligible guarantor institution (being banks, stock brokers, savings and loan institutions and credit unions with membership in an approved signature guarantee medallion program) pursuant to Securities and Exchange Commission Rule 17A(d)15. EXHIBIT B FORM OF FIXED INTEREST RATE CERTIFICATE No. ________ $_________ PARKING AUTHORITY OF THE CITY OF HERMOSA BEACH FLOATING RATE WEEKLY DEMAND REFUNDING CERTIFICATE OF PARTICIPATION (HERMOSA BEACH PARKING FACILITIES PROJECT-1994 SERIES) THIS CERTIFICATE IS SUBJECT TO MANDATORY TENDER UNDER THE CIRCUMSTANCES HEREINAFTER DESCRIBED, AND IT MUST BE SO TENDERED OR IT WILL BE DEEMED TO HAVE BEEN SO TENDERED AND INTEREST WITH RESPECT THERETO WILL CEASE TO ACCRUE AND THIS CERTIFICATE WILL NO LONGER BE ENTITLED TO THE BENEFITS OF THE TRUST AGREEMENT (AS HEREINAFTER DEFINED). Interest Rate Maturity Date Original Date CUSIP Number December 1, 2023 REGISTERED OWNER: PRINCIPAL AMOUNT: The Registered Owner named above, or registered assigns, is entitled to receive, subject to the terms of the Amended and Restated First Installment Sale Agreement (as hereinafter defined), the principal amount set forth above on the Maturity Date specified above (subject to any right of prior redemption hereinafter mentioned), and interest on the balance of said principal amount from time to time remaining unpaid (but only out of the sources hereinafter mentioned) at the Interest Rate specified above, on December 1 and June 1 of each year (any such date being referred to herein as an "Interest Payment Date"). The principal or redemption price hereof is payable by check only upon presentation and surrender hereof at the Principal Office (as defined in the Trust Agreement) of First Trust of California, National Association (the "Trustee"), and interest shall be paid by check mailed, first class mail, postage prepaid, on each Interest Payment Date (as hereinafter defined), to the person in whose name this Certificate is registered on the applicable Record Date (as hereinafter defined), at the address of such registered owner shown on the books of the Trustee, except that such interest payments may be made by wire transfer to any registered owner of $1,000,000 or more in aggregate principal amount of the Certificates who shall have designated to the Trustee an account within the United States for such payments at least fifteen days before the applicable Interest Payment Date. The Registered Owner is the owner of an undivided proportionate interest in the right to receive certain purchase payments (the "Purchase Payments") to be made under that certain Amended and Restated First Installment Sale Agreement dated as of November 15, 1994 (the "Amended and Restated First Installment Sale Agreement"), by and between JMB Income Properties, Ltd. - XII, an Illinois limited partnership organized and existing under the laws of the State of Illinois (the "Company"), and the Parking Authority of the City of Hermosa Beach, a parking authority and public body, corporate and politic, organized and existing under the laws of the State of California (the "Authority"), for title to certain public parking facilities and related facilities described therein (the "Project"), such Amended and Restated First Installment Sale Agreement, including the right to receive Purchase Payments, having been assigned to the Trustee. The Authority has agreed to convey title to the Project to the Company pursuant to an Amended and Restated Second Installment Sale Agreement, dated as of November 15, 1994 (the "Amended and Restated Second Installment Sale Agreement"), under which the Company is obligated to make installment payments (the "Installment Payments") sufficient to permit the Authority to make Purchase Payments under the Amended and Restated First Installment Sale Agreement. The Trustee has received an assignment of the Authority's rights to the Installment Payments under the Amended and Restated Second Installment Sale Agreement. The obligations of the Company to make payments under the Amended and Restated Second Installment Sale Agreement are secured by, among other things, a Deed of Trust, Fixture Filing and Assignment of Rents (Completed Building) (the "Deed of Trust"), constituting a first lien on the Project, an Assignment of Rents, Leases, Income and Profits dated as of November 15, 1994 (the "Assignment of Leases") executed by the Company in favor of the Bank and the Authority and a Security Agreement dated as of November 15, 1994 (the "Security Agreement") among the Company, the Bank and the Authority, which have been assigned to the Trustee. Payment of the Certificates is additionally secured by a letter of credit, hereinafter described, issued initially by Dresdner Bank AG, Los Angeles Agency (the "Bank"). The lien of the Deed of Trust is shared by the Trustee co-equally with the Bank in order to secure the Company's obligations to reimburse the Bank for drawings made under such Letter of Credit, pursuant to a Letter of Credit and Reimbursement Agreement dated as of November 15, 1994 between the Company and the Bank. This Certificate is one of an authorized issue of certificates of the Authority designated as the "Parking Authority of the City of Hermosa Beach Floating Rate Weekly Demand Refunding Certificates of Participation (Hermosa Beach Parking Facilities Project - 1994 Series)", limited in aggregate principal amount to $6,400,000 (the "Certificates") executed and delivered pursuant to the terms of the Trust Agreement, dated November 15, 1994, by and among the Authority, the Trustee and the Company (the "Trust Agreement"). Interest with respect to this Certificate and not yet paid is payable from the date to which interest has been paid next preceding the date of registration of this Certificate (unless this Certificate is registered as of an Interest Payment Date for which interest has been paid, or after the Record Date in respect thereof, in which event it shall bear interest from such Interest Payment Date, or unless it is registered on or before the Record Date for the first Interest Payment Date, in which event it shall bear interest from the date of the first authentication and delivery of the Certificates). The term "Record Date" means the fifteenth day of the month before an Interest Payment Date (whether or not such date is a Business Day). NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA, ANY POLITICAL SUBDIVISION THEREOF OR THE CITY OF HERMOSA BEACH IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST REPRESENTED BY ANY CERTIFICATE, NOR IS THE STATE, ANY POLITICAL SUBDIVISION THEREOF, THE AUTHORITY OR THE CITY OF HERMOSA BEACH IN ANY MANNER OBLIGATED TO MAKE ANY APPROPRIATION THEREFOR. THE AUTHORITY HAS NO TAXING POWER. IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all conditions and acts required to exist, to have happened and to have been performed precedent to and in the execution and delivery of the Trust Agreement and the execution and delivery of this Certificate do exist, have happened and have been performed in due time, form and manner as required by law; and that the execution and delivery of this Certificate does not exceed or violate any constitutional or statutory limitation. THE TERMS AND PROVISIONS OF THIS CERTIFICATE ARE CONTINUED AFTER THIS PAGE AND SUCH CONTINUED TERMS AND PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. This Certificate shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Trust Agreement unless and until the certificate of authentication hereon shall have been duly executed by the Trustee. IN WITNESS WHEREOF, this Certificate has been executed by the manual signature of an authorized officer of the Trustee solely in its capacity as trustee under the Trust Agreement. FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, as Trustee Dated:____________________ By Authorized Officer [FORM OF CERTIFICATE OF AUTHENTICATION] This Certificate is one of the Certificates described in the within-mentioned Trust Agreement. Date of registration and authentication: _______________ FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, as Trustee By: Authorized Officer [FORM OF REVERSE OF CERTIFICATE] The Certificates are limited obligations of the Authority and, as and to the extent set forth in the Trust Agreement, are payable solely from and secured by a pledge of and lien on the revenues to be received in connection with the sale of the Project pursuant to the Amended and Restated First and Second Installment Sale Agreements and any other moneys made available to the Authority or the Trustee, including amounts drawn under an irrevocable direct-pay letter of credit issued by the Bank, for the account of the Company in favor of the Trustee, concurrently with the execution and delivery of the Certificates, or any qualified letter of credit issued in substitution therefor (such letter of credit or substitute letter of credit being referred to herein as the "Bank Letter of Credit"). The Certificates are executed and delivered for the purpose of refinancing of the acquisition and construction of the Project. The Amended and Restated First Installment Sale Agreement, the Amended and Restated Second Installment Sale Agreement, the Deed of Trust, the Assignment of Leases, the Security Agreement, the Bank Letter of Credit and the other related documents are hereinafter collectively referred to as the "Company Documents". Reference is hereby made to the Trust Agreement and the Company Documents, copies of which are on file with the Trustee at its Principal Office, for the provisions, among others, with respect to the nature and extent of the rights, duties and obligations of the Authority, the Trustee, the Company, the Bank and the owners of the Certificates, the terms upon which the Certificates are executed and delivered and secured, the collection and disposition of revenues, a description of the Project and interests pledged, the modification or amendment of the Trust Agreement and the Company Documents, and other matters, to all of which the owner of this Certificate assents by the acceptance of this Certificate. The transfer of this Certificate by the registered owner hereof in person or by its attorney duly authorized in writing is registrable at the aforesaid principal corporate trust office of the Trustee but only in the manner, subject to the limitations and upon payment of the charges provided in the Trust Agreement, and upon surrender and cancellation of this Certificate at such Principal Office. The Trustee shall not be required to register the transfer of or exchange any Certificate after the mailing of notice calling such Certificate for redemption has been given as provided in the Trust Agreement, nor during the period of fifteen days next preceding the giving of such notice of redemption, nor between the Conversion Date and the date on which notice thereof has been given, nor between the Record Date and the related Interest Payment Date. Upon registration of such transfer, a new registered Certificate or Certificates of authorized denomination or denominations, for the same aggregate principal amount, will be executed and delivered to the transferee in exchange herefor. The Certificates are deliverable as registered Certificates without coupons in the denomination of $5,000 and any integral multiple thereof (the "Authorized Denominations"). Subject to the limitations and upon payment of the charges provided in the Trust Agreement, Certificates may be exchanged for a like aggregate principal amount of Certificates of Authorized Denominations. The Certificates are subject to mandatory tender in accordance with the Trust Agreement in the event of (i) reduction or withdrawal of the rating on the Certificates as a result of the delivery of a Substitute Letter of Credit, or (ii) an Event of Default under the Reimbursement Agreement, and otherwise at the time and in the manner more fully described in the Trust Agreement. The Certificates are subject to mandatory redemption prior to their maturity as follows, at a redemption price equal to the principal amount thereof without premium, plus accrued interest to the date of redemption, as follows: (1) in whole, on the first day for which notice of redemption can be timely given, after the Trustee has accelerated the Purchase Payments or Installment Payments, as the case may be, as a result of an Event of Default under the Amended and Restated First Installment Sale Agreement or the Amended and Restated Second Installment Sale Agreement; (2) in whole, on the first day for which notice of redemption can be timely given (and not less than five days prior to the expiration of the Letter of Credit in the case of a redemption pursuant to clause (B)(iii) below), if the Letter of Credit or any Substitute Letter of Credit is then in effect, if (A) the Bank fails or refuses to honor any draw on the Letter of Credit; or (B) (i) within 60 days after an Act of Bankruptcy of the Bank, or (ii) within 30 days after a determination by the Trustee, based on an opinion of counsel, that the Letter of Credit is unenforceable; (3) in whole, on the first day for which notice of redemption can be timely given and in any event not later than five days before the expiration date of the Letter of Credit, after the Trustee has received written notice from the Bank that an event of default has occurred under the Reimbursement Agreement and the Bank requests that the Trustee redeem the Certificates; (4) in whole, on the first day for which notice of redemption can be timely given, after written notice to a Responsible Officer of the Trustee of a Determination of Taxability; or (5) on the first Interest Payment Date for which notice of redemption can be timely given, in the event of an involuntary loss or the substantial destruction of the Project as a result of unforeseen events (e.g., fire, seizure, requisition or condemnation) (A) in whole or in part, if and to the extent that draws on the Letter of Credit are deposited into the Redemption Account in an amount equal to any amount remaining in the Insurance Proceeds Account on the dates specified in the Trust Agreement; (B) in whole or in part if there were no payments of insurance or other compensation deposited in the Insurance Proceeds Account after the event giving rise to the involuntary loss or substantial destruction of the Project, if and to the extent that draws on the Letter of Credit are deposited into the Redemption Account; or (C) in whole, from a draw on the Letter of Credit, if there were no such payments of insurance or other compensation deposited in the Insurance Proceeds Account after the event giving rise to the total involuntary loss or total destruction of the Project and (i) within 60 days after the event giving rise to the event of loss, the Company (or following a total event of loss, the Bank or the Company) has not notified the Trustee and the Authority, in writing, that the Project can be restored within 12 months to a condition permitting the conduct of normal business operations; (ii) within 60 days after receiving any amounts as a consequence of the event of loss, the Company has not commenced to use such amounts to reconstruct the Project pursuant to the terms of the First and Second Installment Sale Agreements and the Trust Agreement; and (iii) such amounts are not disbursed for the restoration of the Project within 12 months after the date of the notice from the Company referred to in clause (i) above. The Certificates shall also be subject to redemption in whole on any date or in part on any Interest Payment Date, in the event and to the extent the Purchase Payments are caused to be prepaid by the Company's act of voluntarily prepaying the Installment Payments in amounts sufficient to cause the prepayment of the Purchase Payments, at a redemption price equal to the sum of the principal amount of Certificates to bed redeemed plus a redemption premium as follows: Redemption Date Redemption (dated inclusive) Premiums If less than all of the Certificates are to be redeemed, the principal amount of Certificates redeemed shall be an integral multiple of $5,000, and the particular Certificates to be redeemed shall be selected as provided in the Trust Agreement. Notice of each such redemption shall be given by sending such notice, by first class mail, postage prepaid, not less than 20 nor more than 40 days prior to the date fixed for redemption. All notices of redemption shall be mailed to the registered owner of each Certificate to be redeemed in whole or in part at the address shown on the registration books maintained by the Trustee. Failure by the Trustee to so mail notice of redemption to any one or more of the respective owners of any Certificates designated for redemption shall not affect the sufficiency of the proceedings for redemption. All Certificates or portions thereof so called for redemption will cease to bear interest on the specified redemption date provided funds for their redemption are on deposit at the principal place of payment at that time. The owner of this Certificate shall have no right to enforce the provisions of the Trust Agreement or to institute action to enforce the covenants therein, or to take any action with respect to any event of default under the Trust Agreement, or to institute, appear in or defend any suit or other proceedings with respect thereto, except as provided in the Trust Agreement. If an Event of Default as defined in the Trust Agreement occurs, the principal of all Certificates then outstanding executed and delivered under the Trust Agreement may be declared due and payable upon the conditions and in the manner and with the effect provided in the Trust Agreement. The Authority, the Trustee, the Tender Agent, the Paying Agent and any agent of the Authority, the Trustee, the Tender Agent or the Paying Agent may treat the person in whose name this Certificate is registered as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Certificate be overdue, and neither the Authority, the Trustee, the Tender Agent, the Paying Agent nor any other such agent shall be affected by notice to the contrary. Modifications or alterations of the Trust Agreement, or of any supplements thereto, may be made only to the extent and in the circumstances permitted by the Trust Agreement. [FORM OF ASSIGNMENT] For Value Received, the undersigned hereby sells, assigns and transfers unto (Please insert Social Security or taxpayer identification number of assignee) (Please print or typewrite name and address of assignee) the within Certificate, and all rights thereunder, and hereby does irrevocably constitute and appoint ___________________________ agent to transfer the within Certificate on the books kept for the registration thereof, with full power of substitution in the premises. Dated: (Signature guaranty) NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Certificate in every particular, without alteration or enlargement or any change whatever. Signature guaranteed by eligible guarantor institution (being banks, stock brokers, savings and loan institutions and credit unions with membership in an approved signature guarantee medallion program) pursuant to Securities and Exchange Commission Rule 17A(d)15. EXHIBIT C FORM OF NOTICE OF EXERCISE OF OPTION TO SELL CERTIFICATES Merrill Lynch & Co., Remarketing Agent Two California Plaza 350 S. Grand Avenue, Suite 2630 Los Angeles, California 90071 The undersigned is the registered owner of the Parking Authority of the City of Hermosa Beach, Floating Rate Weekly Demand Refunding Certificates of Participation (Hermosa Beach Parking Facilities Project - 1994 Series) (the "Certificates"). The undersigned hereby irrevocably demands payment of $_______ aggregate principal amount of the Certificates (which amount is an integral multiple of an Authorized Denomination) and accrued interest thereon to the date of payment (the "Purchase Price"). Payment of the Purchase Price shall be made in the following manner: [check and complete (a) or (b)] (a) By check mailed to the undersigned at the following address: ____________________________________________________________; or (b) By wire transfer of immediately available funds to Account No. ______ at the following bank: ___________________________________________. Payment shall occur on ___________, _____ (the "Purchase Date"), which shall be not prior to the seventh (7th) calendar day after (but not including) the date of receipt of this notice by the addressee hereof, or if such seventh calendar day is not a Business Day (as defined in the Trust Agreement pursuant to which the Certificates were delivered), the Business Day next succeeding such day. Delivery hereof shall be made in person or by registered mail, return receipt requested, to the address set forth above and shall occur upon receipt hereof by the Remarketing Agent on a Business Day. The Certificates shall be tendered to the Principal Office of the Tender Agent, at the address set forth below, with a duly executed instrument of transfer in the form set forth on the Certificates, with signature guaranteed in a manner satisfactory to the Tender Agent, at or prior to 12:00 noon New York time, on the Purchase Date, and if the Certificates are not delivered by such time, the undersigned shall not be entitled to payment of the Purchase Price therefor. The Certificates shall conform in all respects to the description thereof in this Notice. The undersigned hereby authorizes and directs Merrill Lynch, Pierce, Fenner & Smith, as Remarketing Agent, to arrange for the sale of all or any part of the Certificates at not less than par plus accrued interest to the Purchase Date. In the event of such a sale, payment of the Purchase Price of the Certificates shall be made on the Purchase Date as hereinabove provided. This notice shall not be effective unless, simultaneously with the delivery hereof to the Remarketing Agent, a copy hereof is sent by the Remarketing Agent to the Tender Agent at the address set forth below. (Name of Beneficial Owner) Date: _________________ Authorized Signature Signature guaranteed by: _________________ Note:The signature to the assignment and the notice of exercise of option must correspond with the name of the registered owner as it appears on the face of the within certificate in every particular, without alteration, enlargement or any change whatsoever; and such signature must be guaranteed by a member of the New York Stock Exchange or a commercial bank or trust company. cc: First Trust of California, N.A., Tender Agent 180 East Fifth Street St. Paul, Minnesota 55101 Attention: Corporate Trust Department EXHIBIT D AGREEMENT REGARDING REFUNDING OF PRIOR CERTIFICATES THIS AGREEMENT REGARDING REFUNDING OF PRIOR CERTIFICATES, dated as of December 1, 1994 (the "Agreement"), by and among BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, successor to Security Pacific National Bank, as trustee (the "Prior Trustee") under that certain Trust Agreement, dated as of December 1, 1983, among the Parking Authority of the City of Hermosa Beach (the "Authority") PCH-Pier Hermosa Partnership (the "Prior Owner") and the Prior Trustee (the "Prior Trust Agreement"), the AUTHORITY, FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, as trustee (the "Trustee") under the Trust Agreement hereinafter defined, and JMB INCOME PROPERTIES, LTD. - XII, an Illinois limited partnership (the "Company") as successor in interest and assignee of the Prior Owner. W I T N E S S E T H: WHEREAS, simultaneously with the execution of this Agreement, the Authority is issuing its Floating Rate Weekly Demand Refunding Certificates of Participation (Hermosa Beach Parking Facilities Project-1994 Series) (the "Certificates"), in the aggregate principal amount of $6,400,000 pursuant to a Trust Agreement dated as of November 15, 1994, by and among the Authority, the Company and the Trustee (the "Trust Agreement"); and WHEREAS, the Authority has applied the proceeds of the Certificates for the benefit of the Company for the purpose of effecting the payment of amounts denominated as principal and interest due and payable under that certain Second Installment Sale Agreement, dated as of December 1, 1983, by and among the Authority, the Prior Trustee and the Prior Owner (the "1983 Installment Payment Obligation") in order to refund and defease the outstanding Floating Rate Monthly Demand Certificates of Participation (Hermosa Beach Parking Facilities Project - 1983 Series) (the "1983 Certificates") in accordance with Article VIII of the Prior Trust Agreement; and WHEREAS, Wells Fargo Bank (the "Bank") delivered a letter of credit securing the 1983 Certificates (the "1983 Letter of Credit") which remains outstanding; and WHEREAS, the Prior Trustee has determined that a drawing under the 1983 Letter of Credit in the amount of $6,400,000.00 together with available moneys in the Certificate Fund is sufficient in the aggregate to effect the payment of the principal of and interest on the 1983 Certificates upon mandatory repurchase in whole on December 1, 1994 (the "Repurchase Date"), pursuant to Section 2.01(e)(ii) of the Prior Trust Agreement, as amended herein; and WHEREAS, upon the execution and delivery of the Certificates on December 5, 1994 (the "Redemption Date"), and the transfer of the proceeds of the Certificates to the Bank. together with a transfer of other monies held by the Prior Trustee to the Bank in an amount sufficient to pay all sums owing to the Bank pursuant to the Reimbursement Agreement (as defined in the Prior Trust Agreement), the Certificates shall be deemed paid and redeemed in full pursuant to Section 2.01(e)(ii) of the Prior Trust Agreement, as amended in Section 2 hereof; and WHEREAS, the Authority and the Company are desirous of undertaking the actions required by the Prior Trust Agreement as amended herein in order to refund and defease the 1983 Certificates, discharge the lien of the Prior Trust Agreement and release all of the Prior Trustee's right, title and interest in and to the rights and property assigned and pledged to the Prior Trustee under the terms of the Prior Trust Agreement, except for the right of the Prior Trustee and its counsel to receive all necessary and proper fees, expenses and indemnities pertaining to the 1983 Certificates; and WHEREAS, the Authority and the Company wish to amend the Trust Agreement to provide that the payment to the Bank of all amounts owing pursuant to the Reimbursement Agreement (as defined in the Prior Trust Agreement) following the mandatory repurchase of Certificates on December 1, 1994 pursuant to Section 2.01(e)(ii) of the Prior Trust Agreement shall be treated for all purposes as a mandatory redemption of certificates on the Redemption Date without regard to the notice or other requirements for such redemption, upon the execution and delivery of the Certificates; NOW THEREFORE, in consideration of the premises and in order to provide for the coordination of the aforesaid arrangements, the parties hereby agree as follows: Section 1. In order to apply the proceeds of the Certificates to the payment at early call for redemption of the 1983 Certificates, the following actions are being taken simultaneously with or prior to the execution and delivery of the Certificates: (a) The Prior Trustee has drawn upon the 1983 Letter of Credit pursuant to the provisions thereof, such that amounts were received by the Prior Trustee on December 1, 1994, in an amount equal to the principal ($6,400,000) of the Prior Certificates to be repurchased on such date, and deposited such amount in the certificate fund established by the Prior Trustee under the Prior Trust Agreement (the "Certificate Fund") for the purpose of causing the purchase on the Repurchase Date of the 1983 Certificates; such amount being at least equal to the payment of principal upon mandatory repurchase of the 1983 Certificates, being 100% of the $6,400,000 principal amount of 1983 Certificates outstanding to be repurchased. Such amount, plus interest accrued thereon to the Repurchase Date which was funded from amounts in the Certificate Fund which were available therefor, paid the entire purchase price of the Prior Certificates on such date, and the Prior Certificates have been and remain registered in the name of the Company and pledged to the Bank in accordance with the Prior Trust Agreement. (b) The Prior Trustee acknowledges it established December 1, 1994 as the date on which the above amounts deposited and held in the Certificate Fund were applied to effect the mandatory repurchase of $6,400,000 in aggregate principal amount of the 1983 Certificates and interest accrued thereon in accordance with Section 2.01(e)(ii) of the Prior Trust Agreement. (c) Upon written confirmation by the Bank of the receipt of a federal fund wire in the amount of $6,400,000 (the "Wire") and the transfer described in (d) below, the Trustee shall be deemed to have received $6,400,000, as the purchase price of the Certificates from Merrill Lynch, Pierce, Fenner & Smith, Incorporated, the Trustee shall be deemed to have transferred to the Prior Trustee the entire proceeds of the Wire which shall be further deemed to have been applied to the reimbursement of the Bank for a drawing made under the 1983 Letter of Credit, the proceeds of which drawing were applied to the payment of the 1983 Certificates on the Repurchase Date. (d) The Company acknowledges it has transferred to the Bank $11,646.17 to be applied to the payment to amounts owing pursuant to the Reimbursement Agreement (as defined in the Prior Trust Agreement). (e) The Prior Trustee holds in the Certificate Fund $291,156.32 received from the Company representing advance payment of Installment Payments with respect to the 1983 Certificates. The Authority and the Company hereby irrevocably instructs the Prior Trustee to transfer on December 5, 1994, any amounts remaining on deposit in the Reserve Account established under the Prior Trust Agreement to the Trustee for deposit in the Reserve Fund created under the Trust Agreement, and to transfer all other amounts remaining in the funds and accounts established under the Prior Trust Agreement to or at the written direction of the Company, except for an amount equal to $10,750.00 to be retained by the Prior Trustee for application to its fees and expenses payable under the Prior Trust Agreement. With respect to the transfers set forth in paragraphs (c) and (d) above: (1) The Trustee acknowledges that the Bank's written receipt of the Wire constitutes the receipt of the Certificate proceeds, and the Authority hereby acknowledges that the transfer of the proceeds of the Wire to the Bank pursuant to Section 1(c) above, together with the application of the amounts in the Certificate Fund as set forth in Section 1(b) above, constitutes payment of the 1983 Installment Sale Obligation and the parties acknowledge such payment constitutes payment of the Authority's Purchase Payment obligation under the First Installment Sale Agreement (as defined in the Prior Trust Agreement). (2) The Company acknowledges that the Prior Trustee's deemed deposit of the amounts in the Certificate Fund as set forth in Section 1(c) and (d) above, constitutes (a) payment of the 1983 Installment Sale Obligation and a discharge of all obligations of the Prior Trustee and the Authority under the Prior Trust Agreement, except as otherwise set forth in the Prior Trust Agreement, and (b) satisfaction of an obligation of the Authority to make a deposit under the Trust Agreement and the Amended and Restated Second Installment Sale Agreement described herein with respect to the proceeds of the Certificates. Section 2. The Authority, the Prior Trustee and the Company hereby amend Section 2.01(e)(ii) of the Prior Trust Agreement by adding at the end thereof, a new sentence to read, as follows: Notwithstanding any other provision of this Trust Agreement to the contrary, upon (i) the mandatory repurchase of Certificates on December 1, 1994 pursuant to Section 2.01(e)(ii) hereof, (ii) the execution and delivery on December 5, 1994 (the "Redemption Date") of refunding Certificates of Participation described as the Certificates in that certain Agreement Regarding Refunding of Prior Certificates dated as of December 1, 1994, (the "Refunding Agreement") and (iii) the application of moneys in accordance with Section 1(c) and (d) of the Refunding Agreement, such events shall be treated for all purposes of this Trust Agreement as a mandatory redemption of Certificates on the Redemption Date and such Certificates shall be cancelled by the Trustee and deemed fully paid, discharged and defeased without regard to any notice or other provisions of this Trust Agreement; Section 3. The Prior Trustee acknowledges that, upon completion of the transfers described in paragraph (a)-(e) of Section 1 above, pursuant to Section 2 hereof, it will be deemed to have paid the 1983 Certificates in full and to satisfy all other amounts to be paid pursuant to the Prior Trust Agreement in accordance with the requirements of the Prior Trust Agreement. Accordingly, the Prior Trustee agrees, at the request of the Authority and at the expense of the Company (such reimbursement to be for actual out-of-pocket expenses only), to execute all required reconveyances or releases of any Deeds of Trust, mortgage or other security interests in order to relinquish and release the Prior Trustee's rights in the real and personal property constituting a part of the property pledged under the Prior Trust Agreement and to evidence the payment of the 1983 Certificates and the discharge of the lien of the Prior Trust Agreement. The Prior Trustee shall execute and deliver such other documents, and take such further actions, reasonably required by the Authority in order to carry out the purposes of this paragraph; provided, however, that the Prior Trustee shall not be obligated to expend any of its own funds in connection with the execution of such documents or the undertaking of such actions. Section 4. The Prior Trustee shall not be liable or responsible because of the failure of any of the other parties to this Agreement to perform any act required of each of them hereunder or because of the loss of any moneys arising through the insolvency or the act or default or omission of any depository, other than itself, in which such moneys shall have been deposited. The liability of the Prior Trustee hereunder to make payments due and payable with respect to the 1983 Certificates as provided herein is limited to the availability of amounts on deposit in the Certificate Fund. Section 5. The Prior Trustee shall be entitled to all rights, privileges, indemnities and immunities under the Prior Trust Agreement, as amended by Section 2 herein, in executing and performing its duties under this Agreement. In the event there is any conflict between the terms of this Agreement and the Prior Trust Agreement, the Prior Trust Agreement, as amended herein shall control. Section 6. The Company represents that the Prior Owner has assigned its interest in and the Company has assumed all rights, duties and obligations of the Prior Owner under the Prior Trust Agreement and all related documents, including the Second Installment Sale Agreement. Section 7. This Agreement may be executed in any number of counterparts, each of which shall constitute but one and the same instrument. Section 8. This Agreement shall be governed by the applicable laws of the State of California. Section 9. Upon redemption of the 1983 Certificates pursuant to Section 2 above and payment of all of the fees and expenses of the Prior Trustee and transfer on December 5, 1994 of amounts held in the funds and accounts established under the 1983 Trust Agreement as described above, all obligations of the Prior Trustee under this Agreement and the Prior Trust Agreement shall cease and terminate. Section 10. The Trustee is entering into this Agreement solely in its capacity as Trustee under the Trust Agreement and shall be entitled to the protections, immunities, indemnities and limitations from liability afforded it thereunder which are incorporated herein by reference. The Trustee is not responsible for the accuracy of the recitals hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement Regarding Refunding of 1983 Certificates to be duly executed and delivered by their respective officers thereunto duly authorized as of the date hereof. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Prior Trustee By: Authorized Officer THE PARKING AUTHORITY OF THE CITY OF HERMOSA BEACH By: General Manager JMB INCOME PROPERTIES, LTD. - XII, an Illinois Limited Partnership By: JMB Realty Corporation, a Delaware corporation, Its Managing General Partner By: Vice President FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, as Trustee By: Authorized Officer The undersigned hereby consents to the amendment to the Prior Trust Agreement described in Section 2 hereof and to the application of funds described in Section 1 hereof. WELLS FARGO BANK, N.A. By: Authorized Officer EX-21 7 EXHIBIT 21 LIST OF SUBSIDIARIES The Partnership is a general partner in JMB/San Jose Associates, an Illinois general partnership which holds title to Park Center Financial Plaza. The Partnership is a general partner in Topanga Plaza Partnership, a California general partnership which holds title to Topanga Plaza. The Partnership is a general partner in JMB-40 Broad Street Associates, an Illinois general partnership which holds title to the 40 Broad Street Building. The Partnership is a general partner in JMB First Financial Associates, an Illinois general partnership. JMB First Financial Associates is a general partner in JMB Encino Partnership, a California general partnership, which holds title to the First Financial Plaza. Reference is made to Note 3 for a summary description of the terms of such partnership agreements. The Partnership's interest in the foregoing joint venture partnerships, and the results of their operations are included in the consolidated financial statements of the Partnership filed with this annual report. EX-24 8 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors of JMB Realty Corporation, the corporate general partner of JMB INCOME PROPERTIES, LTD. - XII, do hereby nominate, constitute and appoint GARY NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and agents of the undersigned with full power of authority to sign in the name and on behalf of the undersigned officer or directors a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, hereby ratifying and confirming all that said attorneys and agents and any of them may do by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney the 31st day of January, 1995. JUDD D. MALKIN ----------------------- Judd D. Malkin Chairman and Director NEIL G. BLUHM ----------------------- Neil G. Bluhm President and Director H. RIGEL BARBER ----------------------- H. Rigel Barber Chief Executive Officer JEFFREY R. ROSENTHAL ----------------------- Jeffrey R. Rosenthal Chief Financial Officer The undersigned hereby acknowledge and accept such power of authority to sign, in the name and on behalf of the above named officer and directors, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, the 31st day of January, 1995. GARY NICKELE ----------------------- Gary Nickele GAILEN J. HULL ----------------------- Gailen J. Hull DENNIS M. QUINN ----------------------- Dennis M. Quinn EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors of JMB Realty Corporation, the corporate general partner of JMB INCOME PROPERTIES, LTD. - XII, do hereby nominate, constitute and appoint GARY NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and agents of the undersigned with full power of authority to sign in the name and on behalf of the undersigned officer or directors a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, hereby ratifying and confirming all that said attorneys and agents and any of them may do by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney the 31st day of January, 1995. STUART C. NATHAN ----------------------- Stuart C. Nathan Executive Vice President, Director of General Partner A. LEE SACKS ----------------------- A. Lee Sacks Director of General Partner The undersigned hereby acknowledge and accept such power of authority to sign, in the name and on behalf of the above named officer and directors, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, the 31st day of January, 1995. GARY NICKELE ----------------------- Gary Nickele GAILEN J. HULL ----------------------- Gailen J. Hull DENNIS M. QUINN ----------------------- Dennis M. Quinn EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer of JMB Realty Corporation, the corporate general partner of JMB INCOME PROPERTIES, LTD. - XII, does hereby nominate, constitute and appoint GARY NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and agents of the undersigned with full power of authority to sign in the name and on behalf of the undersigned officer, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, hereby ratifying and confirming all that said attorneys and agents and any of them may do by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney the 20th day of February, 1995. GLENN E. EMIG ----------------------- Glenn E. Emig Chief Operating Officer The undersigned hereby acknowledge and accept such power of authority to sign, in the name and on behalf of the above named officer, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, the 20th day of February, 1995. GARY NICKELE ----------------------- Gary Nickele GAILEN J. HULL ----------------------- Gailen J. Hull DENNIS M. QUINN ----------------------- Dennis M. Quinn EX-27 9
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT. 0000765813 JMB INCOME PROPERTIES, LTD. - XII 12-MOS DEC-31-1994 DEC-31-1994 8,222,359 14,176,812 3,950,136 0 0 26,349,307 193,298,414 46,792,110 189,322,387 33,809,385 64,470,886 0 0 0 68,481,336 189,322,387 30,166,883 31,152,216 0 20,453,237 7,000,105 0 9,075,692 (5,376,818) 0 (2,235,341) 0 (2,300,838) 0 (4,536,179) (24.06) 0