WASHINGTON SANTA ANA HOUSING PARTNERS, L.P

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so long as: (a) its validity is being actively contested in good faith and by appropriate proceedings; (b) Developer has demonstrated to City's reasonable satisfaction that leaving such Imposition unpaid pending the outcome of such proceedings could not result in conveyance of the Property in satisfaction of such Imposition or otherwise impair City's interests under the Loan Documents; and, (c) Developer has furnished City with a bond or other security satisfactory in an amount not less than 100% of the applicable claim (including interest and penalties). 12.6. Evidence of Payment. Upon demand by City from time to time, Developer shall deliver to City, within thirty (30) days following the due date of any Imposition, evidence of payment reasonably satisfactory to City. 12.7. Books, Records and Annual Statement. Developer shall maintain complete books of account and other records reflecting the construction and operation of the Project in accordance with generally accepted accounting principles applied on a consistent basis. During the Term of Agreement, the amount of the Residual Receipts shall be determined on the basis of an annual audited financial statement ("Annual Statement"), for the preceding year, beginning with the first year of operation of all or any part of the Project, prepared at the Developer's expense by an independent certified public account firm acceptable to the City. Such Annual Statement shall be prepared based on the guidelines, and taking into account the information, set forth on Exhibit C, attached hereto and incorporated herein. During the Term of Agreement, the Developer shall submit the Annual Statement and any payment to the City not later than one hundred twenty (120) days after closing of the Developer's previous year's books. The first Annual Statement submitted by the Developer for the City/NSP Loan shall include the period from the Completion of Construction to the close of that year's books. The City shall review and approve such statement (such approval not to be unreasonably withheld or delayed), or request revisions, within ninety (90) days after receipt. In the event that Developer's calculation of Residual Receipts is found to be incorrect as a result of a City review, and has underreported, Developer shall pay to the City the fill amount of additional amounts owed within thirty (30) days of notice of such error. The terms of this subsection shall not be the exclusive method by which the City may review Residual Receipts payments by the Developer. In the event the discovery occurs at any time subsequent to the ninety (90) day period for that year's books, Developer shall pay to the City the full amount of such additional amounts owed within thirty (30) days after the error is discovered. Notwithstanding the foregoing, no previous action or inaction by the City shall prohibit the City from requesting repayment of any unpaid, owed amounts of Residual Receipts at any time during the term of this Agreement or thereafter within ten (10) years of when such Residual Receipts were due. The Developer shall pay to the City the full amount of such additional amounts owed within thirty (30) days of notice of such errors for periods prior to the previous year. 12.8. Project Operating Account. Developer shall establish an interest bearing account to be known as the Operating Reserve Account. Upon the Conversion Date, Developer shall deposit an amount into the Operating Reserve Account sufficient to pay at least three (3) months of operating expenses and three (3) months of mandatory debt service payments ("Target Balance"), or such greater amount as may be required by a 32 The Crossroads at Washington City NSP Loan Agreement