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senior lender or tax credit investor. <br />Funds shall be invested subject to the prior written approval of the City, and any <br />earnings shall become and remain a part of the Operating Reserve. Funds may be drawn <br />only when revenue is insufficient to pay operating expenses and may be used as permitted <br />under Borrower's Partnership Agreement, At the time of any withdrawals from the <br />Operating Reserve Account, written notice shall be provided to the City which provides a <br />detailed narrative of the nature of the operating deficits that are being cured, including all <br />necessary amounts to cure them. <br />If the balance in the Operating Reserve Account falls below the amount required to <br />pay three (3) months of operating expenses and three (3) months of mandatory debt service <br />payments, then Developer shall apply Residual Receipts, when and if available, or other <br />funds, to the replenishment of Operating Reserves until the Target Balance is achieved. <br />12.9. Replacement Reserve Account. At or before the Conversion Date, <br />Developer shall establish an interest bearing account to be known as the Replacement <br />Reserve Account. Annually prior to March 31 of each year, Developer shall deposit into <br />the Replacement Reserve Account an amount equal to a minimum of two hundred fifty <br />dollars ($250) per unit but shall not exceed five hundred dollars ($500) per unit, which <br />amounts may increase by 3% annually, or such higher amount as may be required by the <br />Tax Credit Investor or Senior Lender and approved by City; provided, however, that City <br />acknowledges that the Tax Credit Investor and/or Senior Lender will require an annual <br />deposit of funds into the Replacement Reserve Account for all units, and City hereby <br />approves such requirement and agrees that any replacement reserve established by <br />Developer and held by the Tax Credit Investor and/or Senior Lender shall satisfy the <br />requirements of this Section 12.9. The funds in the Replacement Reserve Account shall <br />be held in an interest bearing account , subject to the prior written approval of the City, and <br />any earnings shall become and remain a part of the Replacement Reserve. The Developer <br />shall not draw funds from the Replacement Reserve Account without the prior written <br />approval of the City. <br />Funds may only be drawn from the Replacement Reserve Account to replace or <br />maintain Project assets that have a useful life of more than one (1) year in accordance with <br />Generally Accepted Accounting Principles ("GAAP"), and have been or will be <br />depreciated on the Partnership Tax Return, Form 1040P, filed with the Internal Revenue <br />Service by the Developer's accountant. <br />In the event of a failure by the Developer to adequately maintain the Project, or pay <br />operating expenses, mandatory debt service payments, or other payments required under <br />the Loan Documents or Senior Loan Documents, or during the continuance of an event of <br />default by Developer under the Loan Documents or Senior Loan Documents that would <br />provide for the acceleration of the City/NSP Loan or Senior Loan, then the City may, after <br />delivery of notice to Developer and the expiration of any applicable cure periods and <br />subject to the rights of any Senior Lender, apply the funds in the Replacement Reserve <br />Account to the City/NSP Loan, the Senior Loan, or use such funds for the maintenance, <br />improvement, or continued operation of the Project. <br />33 <br />The Crossroads at Washington <br />City NSP Loan Agreement <br />