1. 1 MANAGING THE UNEXPECTED: WORKOUTS, LIABILITY, BANKRUPTCY AND MORE By: Deborah Thaxter Nixon Peabody LLP IPED – San Diego, CA April 26-27, 2007

2. 2 LITIGATION ANALYSIS IS CRITICAL TO YOUR WORKOUT PLAN (The word Sues is not a forbidden four letter word) $#!$#! Know your rights and your leverage Marshall your troops at the border Choose your forum – If you dont, they will You cannot escape – litigation is everywhere

3. 3 REVIEW PROJECT DOCUMENTS Removal of property manager Removal of GP –Push aside or forfeiture –Cure period –Valuation of GP interest –Deferred Developer Fees KEY PARTNERSHIP PROVISIONS

4. 4 Repurchase GP Development and Operating Deficit Obligations GP and Developer Guaranties Adjusters Venue and Jurisdiction REVIEW PROJECT DOCUMENTS KEY PARTNERSHIP PROVISIONS (CONT.)

5. 5 Events of Default and Cure Period Foreclosure Procedure Guaranties Consent required for change in General Partner and property manager KEY LOAN PROVISIONS

6. 6 Problems –GP Affiliated General Contractor with multiple projects –Delays and Cost Overruns –Failure to meet place in service date and loss of credits MARSHALL YOUR FORCES AND TAKE CHARGE AT CONSTRUCTION PHASE

7. 7 Protections –Construction contract terminates with removal of affiliated G.P. –Payment and performance bonds –Subguard insurance products –Dont leave construction draw monitoring to lender –Site visits MARSHALL YOUR FORCES AND TAKE CHARGE AT CONSTRUCTION PHASE (CONT.)

8. 8 Remedial Actions –Exercise rights under payment and/or performance bonds –Remove and replace GP –Terminate construction contract –Work with local tax credit agencies to swap or secure additional credits –Repurchase demand MARSHALL YOUR FORCES AND TAKE CHARGE AT CONSTRUCTION PHASE (CONT.)

9. 9 Problems –Low occupancy, negative cash flow and growing payables –Failure to pay debt service or property taxes –Deferred maintenance – low REAC Scores –The gap between construction and permanent loans –Misappropriation or co-mingling of funds –Compliance issues –Failure to provide yearly audited financials MARSHALL YOUR FORCES AND TAKE CHARGE AFTER LEASE-UP

10. 10 Protections –Strong key partnership provisions –Properly documented advances –Properly documented demands for corrective behavior –Workout agreement and escrow of removal documents MARSHALL YOUR FORCES AND TAKE CHARGE AFTER LEASE-UP (CONT.)

11. 11 Remedial Actions –Replace property manager w Voluntary vs. involuntary removal –Remove and Replace GP w Has GP shown willingness to work with LP? w What are the grounds for an involuntary removal? w Push aside v. complete removal w Can the GP interest be sold to a new third party GP? w 2530 red flag risk and who wants the liability? –Send monetary demands to GP and Guarantors MARSHALL YOUR FORCES AND TAKE CHARGE

12. 12 CHOOSE YOUR FORUM AND PICK YOUR TIME Location of your business vs. location of property or adversary –State vs. Federal –Use of Declaratory Judgment to pick forum –Requests for injunctive relief – who goes first? Are the defaults substantial? –Misappropriation of funds –Risk of loss of credits due to failure to meet placed in service date

13. 13 CHOOSE YOUR FORUM AND PICK YOUR TIME –Risk of Foreclosure –Federal and state regulatory problems –Failure to provide financial information Can your adversary afford to litigate GP/Developer claims –Debt/equity conflict –Poor underwriting vs. poor management –Promises made to GP to step into existing project –Failure to fund equity advances

14. 14 Upper tier investor pressure –Greater investor scrutiny –Recent investor lawsuits –Use of upper tier reserves CHOOSE YOUR FORUM AND PICK YOUR TIME

15. 15 City vs. Property Partnerships –Administrative proceeding to shut down property as a public nuisance –Court proceeding by sheriff to declare property a public nuisance and to require extensive security improvements GP/GC vs. LP Sponsor/Syndicator –Termination of construction contracts and lien filings –Removals of GP and/or property manager –Bankruptcy litigation over effect of removal of GP (358 B.R. 24) LITIGATION IS HERE TO STAY

16. 16 –Third party suits against agencies, including against tax credit authority that granted tax credit swap –Recovery of and defense against monetary demands against GPs and Guarantors Upper tier institutional investors vs. Syndicators –Books and Records –Removals of Syndicators as General Partners –Exit strategy disputes over consents, back end splits and recapture LITIGATION IS HERE TO STAY

17. 17 NEGOTIATING A WORK-OUT AGREEMENT Does GP stay or go? –How value GP interest? –Does GP keep residual interest as SLP? Who Pays What to Whom –GP fees –GP loans – amount and priority

18. 18 –Capital contribution advances vs LP Loans –Tax consequences of canceling developers fees –Cash payments Remedy for Defaults under Workout Agreement –Signed assignment and partnership amendment documents in escrow NEGOTIATING A WORK-OUT AGREEMENT (Contd)

19. 19 –Forfeiture of fees –Penalty payments –Cross-collateralization and cross-default provisions Bankruptcy Proof Provisions Venue and Jurisdiction NEGOTIATING A WORK-OUT AGREEMENT (Contd)

20. 20 Release –General or limited in scope –Time period covered –Tax compliance carve-out –Effect on guaranty of non-released party –Representations as to liens, payables and claims NEGOTIATING A WORK-OUT AGREEMENT (Contd) B10533214.1