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HomeMy WebLinkAboutRevenue Bonds PA3/Res 06-76/Res FA-57/Res 529/PA2 & PA3CITY OF PALM DESERT PALM DESERT FINANCING AUTHORITY PALM DESERT REDEVELOPMENT AGENCY STAFF REPORT REQUEST: APPROVAL OF RESOLUTION NO. 06- 76 OF THE CITY COUNCIL OF THE CITY OF PALM DESERT MAKING A FINDING OF SIGNIFICANT PUBLIC BENEFIT AND OTHER FINDINGS IN CONNECTION WITH THE ISSUANCE AND SALE BY THE PALM DESERT FINANCING AUTHORITY OF ITS TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C APPROVAL OF RESOLUTION NO. FA- 57 OF THE PALM DESERT FINANCING AUTHORITY ACKNOWLEDGING A FINDING OF SIGNIFICANT BENEFIT AND APPROVING AS TO FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION WITH THE ISSUANCE, SALE AND DELIVERY OF THE AUTHORITY'S TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO APPROVAL OF RESOLUTION NO. 529 OF THE PALM DESERT REDEVELOPMENT AGENCY APPROVING AS TO FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION WITH THE SALE AND ISSUANCE BY THE PALM DESERT FINANCING AUTHORITY OF TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO SUBMITTED BY: DAVE YRIGOYEN, DIRECTOR OF REDEVELOPMENT/HOUSING DATE: JUNE 8, 2006 CONTENTS: (1) CITY COUNCIL RESOLUTION NO. 06 76 (2) PALM DESERT FINANCING AUTHORITY RESOLUTION NO. FA-57 (3) PALM DESERT REDEVELOPMENT AGENCY RESOLUTION NO. 529 (4) INDENTURE OF TRUST (SENIOR BONDS) (5) PROJECT AREA NO. 3 LOAN AGREEMENT (2006 SENIOR LOANS) (6) INDENTURE OF TRUST (SUBORDINATE BONDS) (7) PROJECT AREA NO. 3 LOAN AGREEMENT (2006 SUBORDINATE LOAN) (8) PRELIMINARY OFFICIAL STATEMENT (9) BOND PURCHASE AGREEMENT Staff Report Approval of Agency/PDFA Resolutions — PA#3 Tax Allocation Revenue Bonds 2006 Series A, B and C Page 2 of 4 June 8, 2006 (10) CONTINUING DISCLOSURE AGREEMENT Recommendation: By Minute Motion: 1. That the City Council approve Resolution No. 06-76 , making (i) findings of significant public benefit in connection with the issuance and sale of three series of bonds (the "Bonds") by the Palm Desert Financing Authority: (A) Tax Allocation Revenue Bonds (Project Area No. 3), 2006 Series A (the "Series 2006A Bonds"), (B) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series B (the "Series 2006E Bonds"), and (C) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series C (the "Series 2006C Bonds"), and (ii) findings pursuant to Sections 33679 and 33445 of the California Health and Safety Code with respect to the projects to be funded by proceeds of the Bonds; 2. That the Palm Desert Financing Authority approve Resolution No. FA-57 , acknowledging finding of significant public benefit in connection with the issuance and sale of the Bonds, approving of the issuance, sale and delivery of the Bonds and authorizing the execution and delivery of documents relating to the Bonds; and 3. That the Palm Desert Redevelopment Agency approve Resolution No.529 , approving and authorizing the execution and delivery of documents relating to the Bonds. Executive Summary. Adoption of the attached resolutions will allow Staff to proceed with the issuance of the Bonds and the use of proceeds from the Bonds to pay for the costs of certain projects. Background and discussion: Staff recommends the issuance of three series of Bonds relating to the financing of projects for the Agency's Project Area No. 3. The Bonds will be issued as tax-exempt bonds. Net proceeds of the Bonds will be used to pay all or a portion of the costs of certain Agency projects benefiting Project Area No. 3. Based on current estimates by the Financing Advisor and the Underwriter, the sale of the three series of Bonds is expected to generate approximately $14,150,000 of net proceeds to be available for Agency projects. The proposed projects are outlined in the attached City Council resolution and are also described in a Summary Report, which was made available to the public for inspection in connection with the City Council public hearing. The repayment of the Bonds will be primarily secured by tax increments generated with respect to Project Area No. 3. The Series 2006A Bonds and the Series 2006B Bonds will rank on a parity with the outstanding bonds previously issued for Project Area No. 3, and will rank senior to the Series 2006C Bonds. The Series 2006A Bonds will be current interest bonds. The Series 2006E Bonds Staff Report Approval of Agency/PDFA Resolutions — PA#3 Tax Allocation Revenue Bonds 2006 Series A,BandC Page 3 of 4 June 8, 2006 and the Series 2006C Bonds will be capital appreciation bonds. Adoption of the attached resolutions will allow Staff to proceed with the issuance of the Bonds and the use of proceeds to pay for the costs of the identified projects. Staff is utilizing the following financing team: Kenneth L. Dieker, D.B.A. Del Rio Advisors, LLC, Modesto, CA — Financial Advisor, Richards, Watson & Gershon, A Professional Corporation, Los Angeles, CA— Bond Counsel Lofton & Jennings, San Francisco, CA — Disclosure Counsel Wells Fargo Bank, National Association, Los Angeles, CA — Trustee and Escrow Agent Citigroup Global Markets Inc., Los Angeles, CA — Underwriter Rosenow Spevacek Group, Inc., Santa Ana, CA — Fiscal Consultant MuniFinancial, Inc., Temecula, CA — Dissemination Agent SUMMARY OF DOCUMENTS TO BE APPROVED: Indentures of Trust Generally, an indenture sets forth all of the terms and conditions of the bonds (e.g., principal amounts, maturity and redemption schedules, payment, registration and transfer provisions and the form of the Bonds), the covenants and other obligations of the Authority to the bondholders, and the role and the duties of the Trustee. Two indentures are presented, one for the Series 2006A Bonds and the Series 2006B Bonds, and the other for the Series 2006C Bonds. As presented, the Indentures are in substantially final form, except that final dollar amounts and interest rates will be added after the Bonds have been priced and sold. Provisions also may be added, deleted or otherwise modified to accommodate the bond insurer requirements. Loan Aareements Presented are two loan agreements, one for the Series 2006A Bonds and the Series 2006E Bonds, and the other for the Series 2006C Bonds. Pursuant to the Loan Agreements, the Authority agrees to lend the Agency funds that would be used by the Agency to fund capital projects for benefit to Project Area No. 3. The Agency agrees to pay tax increment revenues to the Trustee, as the Authority's assignee, in sufficient amounts to pay debt service on the Bonds. Bond Purchase Aareement This is an agreement between the Authority, the Agency and the Underwriter for the purchase and sale of the bonds. Pursuant to the Bond Purchase Agreement, the underwriter agrees to purchase the Authority bonds at specified prices and interest rates, subject to the receipt of certain opinions, certificates and other conditions. The Bond Purchase Agreement will be presented to the appropriate officers of the Authority and Agency for approval and execution as soon as the Underwriter has completed the process of offering and then pricing the Bonds in the market. Preliminary Official Statement A Preliminary Official Statement relating to the Bonds, in substantially final form, has been prepared by Disclosure Counsel. The Preliminary Official Statement is designed to provide material Staff Report Approval of Agency/PDFA Resolutions — PA#3 Tax Allocation Revenue Bonds 2006 Series A, B and C Page 4 of 4 June 8, 2006 information to investors with respect to the terms and the security of the Bonds. It includes a full description of the legal and financial aspects, as well as the various legal documents in regard to the Bonds, except for certain information which will be determined upon the pricing of the Bonds (such as the final principal amounts, the interest rates and the redemption dates). The Preliminary Official Statement also includes information regarding the Authority, the Agency, and the Project Area. The Preliminary Official Statement will be utilized by the Underwriter in its effort to market the bonds to the public. Once the Bonds have been priced and the Bond Purchase Agreement has been signed, Disclosure Counsel will insert the final pricing information into the Preliminary Official Statement, thereby converting it to the Official Statement. The Underwriter will then distribute the Official Statement to the individuals and institutions that purchased the Bonds. Continuing Disclosure Aareement The Continuing Disclosure Agreement is between the Agency, the Trustee and the Dissemination Agent. This agreement directs the Agency to provide an annual report to the Dissemination Agent. The Annual Report contains the Agency's audited financial statements and other pertinent information relating to Project Area No. 3. The Annual Report is sent to state and national repositories so that this information is available to the bondholders. This mechanism is used to keep bondholders informed on an annual basis of the financial status of the Agency. The resolutions permit Staff to make the necessary changes to all of the documents in order to finalize and execute the documents. Staff is recommending that the City Council, the Authority and the Agency adopt their respective resolutions approving and authorizing the sale and issuance of the Bonds, and the execution and delivery of the related documents. S,\mitted y: //// Aix/ Yrigoyen tor of Redeye Aproval• in McCarthy, ACM Rede elopment }ed- Carlos L. Ortega, City Manager/GAO/Executive Director 4 BY RDA ONlr• '649 VERIFIED BY O'S IM P), Original on file with City Clerk's Office BY FIN AUTH ON 1,0 • UP VERIFIED BY: Pac Original on file / Ci Ierk's Office PIpo- Paul S. Gor of Finance/Treasurer CITY COUNCI%ACTION: APPROVED ✓ DENIED RECEIVED OTHER too A/c , 66-76 04167 and .5- METING DATE •O}G AYES : /t0Y) ,,(�.rtS•, (� /e.�. � e -ani NOES: �j &Le ABSENT: ►\ ABSTAIN: VERIFIED BY: 3 ��,-� Original on F ®w t 1ty Clerk's Office RESOLUTION NO. 06- 76 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT MAKING A FINDING OF SIGNIFICANT PUBLIC BENEFIT AND OTHER FINDINGS IN CONNECTION WITH THE ISSUANCE AND SALE BY THE PALM DESERT FINANCING AUTHORITY OF ITS TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") has proposed to sell and issue three series of bonds (collectively, "the Bonds"): (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 3), 2006 Series A, (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series B; and (iii) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series C; and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making three loans to the Palm Desert Redevelopment Agency (the "Agency") for the object and purpose of, among other things, assisting in the financing of certain public capital improvements (the "Projects") of benefit to Project Area No. 3, of the Agency (the "Project Area"), including: (A) civic center park improvements, including the construction and improvements of public recreational buildings, (B) construction of a parking structure to accommodate a hotel and related development at the Desert Willow Golf Resort, (C) construction of on- and off -ramps at Portola Avenue and Interstate 10, (D) undergrounding of utilities throughout the Project Area; and WHEREAS, pursuant to Section 6586.5 of the California Government Code and Section 33679 of the California Health and Safety Code, after notice duly published in accordance with law, this City Council held a public hearing on this date with respect to the issuance of the proposed Bonds and received evidence conceming the public benefits therefrom; and WHEREAS, there has been made available in the office of the City Clerk for two weeks prior to such public hearing for public inspection and copying, at a cost not to exceed the cost of duplication, a summary report which includes all of the following: (i) estimates of the amount of such taxes allocated to the Agency from the Project Area proposed to be used to pay for the Projects, including interest payments; (ii) facts supporting the determinations required to be made by the City Council pursuant to California Health and Safety Code Section 33445; and (iii) the redevelopment P6402.1056\893634.1 purpose for which such taxes are being used to pay for the installation and construction; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PALM DESERT DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. Recitals. The above recitals, and each of them, are true and correct. Section 2. Approval of Financing. The City Council hereby finds that the financing of public capital improvements described above through the issuance by the Authority of the Bonds will result in significant public benefits to the constituents of the Agency and the City of Palm Desert, including demonstrable savings in effective interest rate and more efficient delivery of Agency and City services to residential and commercial development. The City Council hereby approves the issuance of the Bonds by the Authority. Section 3. Further Findings. The City Council hereby finds and determines that based upon the "Summary Report Regarding Payment by the Palm Desert Redevelopment Agency for All or A Portion of the Installation and Construction of Certain Other Public Capital Improvements of Benefit to Project Area No. 3," which Report was made available at the office of the City Clerk in connection with the public hearing described in the Recitals hereof, and other information presented to the City Council: (i) the above -described public capital improvements are of benefit to the Project Area and to the immediate neighborhoods in which the Projects are located; (ii) the payment of funds for the cost of such public capital improvements will assist in the elimination of one or more blighting conditions inside the Project Area; (iii) the payment of funds for the cost of such improvements is consistent with the Agency's implementation plan adopted pursuant to Health and Safety Code Section 33490; and (iv) no other reasonable means of financing such improvements is available to the City. Section 4. Approval of Payment by Agency. The City Council hereby approves payment by the Agency for the cost of the installation and construction of the above -described improvements from tax increment revenues of the Agency from the Project Area. Section 5. Other Acts. The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents which they may deem necessary or advisable in order to effectuate the purposes of this Resolution and any such actions previously taken by such officers are hereby ratified and confirmed. P6402.1056\893634.1 2 Section 6. Effective Date. This Resolution shall take effect immediately upon adoption. APPROVED and ADOPTED this 8th day of June 2006 by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: Jim Ferguson, Mayor ATTEST: Rachelle D. Klassen, City Clerk P6402.1056\893634.1 3 RESOLUTION NO. FA-57 A RESOLUTION OF THE PALM DESERT FINANCING AUTHORITY ACKNOWLEDGING A FINDING OF SIGNIFICANT BENEFIT AND APPROVING AS TO FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION WITH THE ISSUANCE, SALE AND DELIVERY OF THE AUTHORITY'S TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") is a joint powers authority duly organized and existing under and pursuant to Articles 1 through 4 (commencing with Section 6500), Chapter 5, Division 7, Title 1 of the Califomia Govemment Code (the "Act") and that certain Joint Exercise of Powers Agreement dated as of January 26, 1989, by and between the City of Palm Desert (the "City") and the Palm Desert Redevelopment Agency (the "Agency"), and is authorized pursuant to Article 4 of the Act to issue bonds for the purpose of making loans to the Agency to provide financing and refinancing for public capital improvements; and WHEREAS, the Authority desires to issue and sell three series of bonds: (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 3), 2006 Series A (the "Series 2006A Bonds"), (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series B (the "Series 2006B Bonds," and together with the Series 2006A Bonds, the "Senior Bonds"), and (iii) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series C (the "Subordinate Bonds," and together with the "Series Bonds," the "Bonds"); and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making three loans to the Agency pursuant to two loan agreements for the object and purpose of, among other things, assisting in the financing of certain public capital improvements of benefit to Project Area No. 3, of the Agency; and WHEREAS, the City Council has made a finding, after a duly noticed public hearing pursuant to Section 6586.5 of the California Government Code held on the date hereof, that the issuance of the Bonds will result in significant public benefit; P6402. l 057\893635.1 1 NOW, THEREFORE, THE PALM DESERT FINANCING AUTHORITY DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. Recitals. The above recitals, and each of them, are true and correct. Section 2.Acknowledgment of City Council Findings. The Authority hereby acknowledges and concurs with the City Council's finding of significant public benefit and hereby approves and authorizes the issuance and sale of the Bonds. Section 3.Issuance of Senior Bonds; Senior Indenture. The Indenture of Trust (the "Senior Indenture"), proposed to be entered into by and between the Authority and the Trustee (defined in Section 5 below) relating to the Senior Bonds, in the form presented at this meeting and on file in the office of the Secretary of the Authority (the "Secretary"), is hereby approved. The issuance of the Series 2006A Bonds in an aggregate principal amount not exceeding $14,000,000, and the Series 2006B Bonds in an aggregate initial principal amount not exceeding $1,500,000, pursuant to the Senior Indenture is hereby approved. Subject to Section 11 below, each of the President, the Chief Administrative Officer and the Treasurer of the Authority, any deputy of such officers, and any member of the Authority Commission (each, an "Authorized Officer"), acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Senior Indenture in substantially said form, with such additions or changes as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 4.Issuance of Subordinate Bonds; Subordinate Indenture. The Indenture of Trust (the "Subordinate Indenture"), proposed to be entered into by and between the Authority and the Trustee relating to the Subordinate Bonds, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. The issuance of the Subordinate Bonds, in an aggregate principal amount not exceeding $4,500,000, pursuant to the Subordinate Indenture is hereby approved. Subject to Section 11 below, each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Subordinate Indenture in substantially said form, with such additions or changes as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 5.Appointment of Trustee. The appointment of Wells Fargo Bank, National Association, as trustee (the "Trustee") under the Senior Indenture and the Subordinate Indenture is hereby approved. Section 6.Senior Loan Agreement. The Project Area No. 3 Loan Agreement (2006 Senior Loans) (the "Senior Loan Agreement"), proposed to be entered into by and among the Agency, the Authority and the Trustee, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. Each P6402.1057\893635.1 2 Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Senior Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 7.Subordinate Loan Agreement. The Project Area No. 3 Loan Agreement (2006 Subordinate Loan) (the "Subordinate Loan Agreement"), proposed to be entered into by and among the Agency, the Authority and the Trustee, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Subordinate Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 8. Preliminary Official Statement. The Preliminary Official Statement relating to the Bonds (the "Preliminary Official Statement"), in the form presented at this meeting and on file with the Secretary, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to cause the Preliminary Official Statement in substantially said form, with such changes therein as such Authorized Officer may approve, to be deemed final for the purposes of Rule 15c2-12 of the Securities and Exchange Act of 1934. The distribution by Citigroup Global Markets Inc. (the "Underwriter") of copies of the Preliminary Official Statement to potential purchasers of the Bonds is hereby approved. Section 9. Official Statement. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to cause the Preliminary Official Statement to be brought into the form of a final Official Statement (the "Official Statement"), and to execute the same for and in the name and on behalf of the Authority, with such changes therein as such Authorized Officer may approve (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof). The distribution and use of the Official Statement by the Underwriter in connection with the sale of the Bonds are hereby approved. Section 10. Purchase Agreement. The form of the Bond Purchase Agreement as presented to this meeting by the Underwriter and the sale of the Bonds pursuant thereto upon the terms and conditions set forth therein are hereby approved. Subject to Section 11 below, Each Authorized Officer, acting singly, is authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Purchase Agreement in substantially said form, with such changes therein as the officer executing the same may require or approve, including such matters as are authorized by Section 11 hereof (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof). P6402.1057\893635.1 3 Section 11. Terms of Sale of Bonds. Each Authorized Officer, acting singly, is hereby authorized and directed to act on behalf of the Authority to establish and determine each of the following: (a) the aggregate initial principal amount of each series of Bonds, which amount (i) with respect to the Series 2006A Bonds shall not exceed $14,000,000, (ii) with respect to the Series 2006B Bonds shall not exceed $1,500,000, and (iii) with respect to the Subordinate Bonds shall not exceed $4,500,000; (b) interest rates on the Bonds, provided that (i) the true interest cost with respect to the Series 2006A Bonds shall not exceed 6.25 percent, (ii) the true interest cost with respect to the Series 2006B Bonds shall not exceed 6.25 percent, and (iii) the true interest cost with respect to the Subordinate Bonds shall not exceed 6.25 percent; (d) the Underwriter's compensation (i.e., underwriter's discount) with respect to the sale of the Bonds, provided that such compensation (i) with respect to the Series 2006A Bonds shall not exceed one percent of the aggregate principal amount of the Series 2006A Bonds, (ii) with respect to the Series 2006B Bonds shall not exceed one percent of the aggregate initial principal amount of the Series 2006B Bonds, and (iii) with respect to the Subordinate Bonds shall not exceed one percent of the aggregate initial principal amount of the Subordinate Bonds; and (e) such provisions as may be required by the terms of the bond insurance, if any, or debt service reserve surety bond(s), if any, purchased in connection with the issuance of the Bonds. The authorization and powers delegated to such officer by this Section 11 shall be valid for a period of 120 days from the date of adoption of this Resolution. Section 12. Other Acts. The Authorized Officers and all other officers of the Authority are hereby authorized and directed, jointly and severally, to do any and all things, to execute and deliver any and all documents which they may deem necessary or advisable in order to consummate the issuance, sale and delivery of the Bonds, or otherwise to effectuate the purposes of this Resolution, the Senior Indenture, the Senior Loan Agreement, the Subordinate Indenture, the Subordinate Loan Agreement, the Purchase Agreement and the Official Statement, and any such actions previously taken by such officers are hereby ratified and confirmed. Section 13. Effective Date. This Resolution shall take effect immediately upon adoption. P6402.1057\893635.1 4 to wit: APPROVED AND ADOPTED this 8th day of June 2006 by following vote AYES: NOES: ABSENT: ABSTAIN: ATTEST: Rachelle D. Klassen, Secretary Jim Ferguson, President P6402.1057\893635.1 5 RESOLUTION NO, 529 A RESOLUTION OF THE PALM DESERT REDEVELOPMENT AGENCY APPROVING AS TO FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION WITH THE SALE AND ISSUANCE BY THE PALM DESERT FINANCING AUTHORITY OF TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") has determined to sell and issue three series of bonds: (i) Tax Allocation Revenue Bonds (Project Area No. 3), 2006 Series A (the "Series 2006A Bonds"), (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series B (the "Series 2006B Bonds," and together with the Series 2006A Bonds, the "Senior Bonds") and (iii) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series C (the "Subordinate Bonds," and together with the Senior Bonds, the "Bonds"); and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making three loans (the "Loans") to the Palm Desert Redevelopment Agency (the "Agency") pursuant to two loan agreements for the object and purpose of, among other things, assisting in the financing of certain public capital improvements of benefit to Project Area No. 3, of the Agency; and NOW, THEREFORE, THE PALM DESERT REDEVELOPMENT AGENCY DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. Recitals. The above recitals, and each of them, are true and correct. Section 2. Senior Loan Agreement. The Project Area No. 3 Loan Agreement (2006 Senior Loans) (the "Senior Loan Agreement"), proposed to be entered into by and among the Authority, the Agency and Wells Fargo Bank, National Association, as trustee (the "Trustee"), in the form presented at this meeting and on file with the Secretary of the Agency (the "Secretary") is hereby approved. Each of the Chairman and the Executive Director, or either of them, or their designee (each, an "Authorized Officer"), is hereby authorized and directed, for and in the name and on P6402. 1 056,893643.1 behalf of the Agency, to execute and deliver the Senior Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof). Section 3. Subordinate Loan Agreement. The Project Area No. 3 Loan Agreement (2006 Subordinate Loan) (the "Subordinate Loan Agreement"), proposed to be entered into by and among the Authority, the Agency and the Trustee, in the form presented at this meeting and on file with the Secretary is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Agency, to execute and deliver the Subordinate Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof) Section 4. Continuing Disclosure Agreement. The Continuing Disclosure Agreement (the "Continuing Disclosure Agreement"), proposed to be entered into by and among the Agency, the Trustee and MuniFinancial, Inc., as Dissemination Agent, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Agency, to execute and deliver the Continuing Disclosure Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such officer's execution and delivery thereof). Section 5. Purchase Agreement. The Bond Purchase Agreement (the "Purchase Agreement") proposed to be entered into by the Authority, the Agency and Citigroup Global Markets Inc. (the "Underwriter"), in the form presented at this meeting and on file with the Secretary, and the sale of the Bonds pursuant thereto upon the terms and conditions set forth therein, are hereby approved. Subject to the limitations imposed by the Authority by its Resolution relating to the issuance and sale of the Bonds, each Authorized Officer, acting singly, is authorized and directed, for and in the name and on behalf of the Agency, to execute and deliver the Purchase Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may require or approve (such approval to be conclusively evidenced by his execution and delivery thereof). Section 6. Requisitions. Each Authorized Officer, the Treasurer or any deputy of such officers, acting singly, is hereby authorized and directed to execute one or more requisitions authorizing the Trustee to pay costs relating to the incurrence of the Loans and the issuance of the Bonds from the proceeds of the Bonds pursuant to the Senior Loan Agreement and the Subordinate Loan Agreement. Section 7. Other Acts. The Authorized Officers and all other officers of the Agency are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents which they may deem P6402.1056\893643.1 2 necessary or advisable in order to effectuate the purposes of this Resolution, the Senior Loan Agreement, the Subordinate Loan Agreement, the Continuing Disclosure Agreement and the Purchase Agreement, and any such actions previously taken by such officers are hereby ratified and confirmed. Section 8. Effective Date. This Resolution shall take effect immediately upon adoption. APPROVED and ADOPTED this 8th day of June,2006 by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: ATTEST: Jim Ferguson, Chairman Rachelle D. Klassen, Secretary P6402.1056.893643.1 3 Indenture of Trust Nyith reference to Palm Desert Financing Authority Tax Allocation Rcycnuc Bonds (Project Area No. 3) 2006 Series A 5 Palm Desert Financing Authority Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 3) 2006 Series B P6402. 1056\875 154. 3 RWG DRAFT: 5/24/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY 2 Section 1.01. Definitions 2 Section 1.02. Rules of Construction 9 Section 1.03. Authorization and Purpose of Bonds 9 Section 1.04. Equal Security 9 ARTICLE II ISSUANCE OF BONDS 9 Section 2.01. Designation 9 Section 2.02. Terms of Bonds 9 Section 2.03. Redemption of Bonds 11 Section 2.04. Form of Bonds 13 Section 2.05. Execution of Bonds 14 Section 2.06. Transfer of Bonds 14 Section 2.07. Exchange of Bonds 14 Section 2.08. Temporary Bonds 14 Section 2.09. Registration Books 15 Section 2.10. Bonds Mutilated. Lost. Destroyed or Stolen 15 ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS: ISSUANCE OF BONDS 15 Section 3.01. Issuance of Bonds 15 Section 3.02. Loan Funds: Application of Proceeds of Sale of Bonds 15 Section 3.03. Validity of Bonds 16 ARTICLE IV REVENUES: FLOW OF FUNDS 16 Section 4.01. Pledge of Revenues: Assignment of Rights 16 Section 4.02. Receipt. Deposit and Application of Revenues 16 Section 4.03. Investments 17 Section 4.04. Valuation and Disposition of Investments 18 ARTICLE V COVENANTS OF THE AUTHORITY 18 Section 5.01. Punctual Payment 18 Section 5.02. Extension of Payment of Bonds 18 Section 5.03. Against Encumbrances 18 Section 5.04. Power to Issue Bonds and Make Pledge and Assignment 19 Section 5.05. Accounting Records and Financial Statements 19 Section 5.06. No Additional Indebtedness 19 Section 5.07. Tax Covenants 19 Section 5.08. Loan Agreement 20 Section 5.09. Further Assurances 21 ARTICLE VI THE TRUSTEE 21 Section 6.01. Appointment of Trustee 21 Section 6.02. Acceptance of Tnists 21 Section 6.03. Fees. Charges and Expenses of Trustee 24 Section 6.04. Notice to Owners of Default 24 Section 6.05. Intervention by Trustee 24 Section 6.06. Removal of Trustee 25 Section 6.07. Resignation by Trustee 25 Section 6.08. Appointment of Successor Trustee 25 Section 6.09. Merger or Consolidation 25 -i- P6402. 1056\875 154.3 Section 6.10. Concerning an Successor Trustee 25 Section 6.11. Appointment of Co -Trustee 25 Section 6.12. Indemnification: Limited Liability of Trustee 26 ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE 26 Section 7.01. Amendment Hereof 26 Section 7.02. Effect of Supplemental Indenture 27 Section 7.03. Endorsement or Replacement of Bonds After Amendment 27 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES 28 Section 8.01. Events of Default 28 Section 8.02. Remedies Upon Event of Default 28 Section 8.03. Application of Revenues and Other Funds After Default 29 Section 8.04. Power of Trustee to Control Proceedings 30 Section 8.05. Appointment of Receivers 30 Section 8.06. Non -Waiver 30 Section 8.07. Limitation on Rights and Remedies of Owners 31 Section 8.08. Termination of Proceedings 31 ARTICLE IX BOND INSURANCE 31 ARTICLE X BOOK -ENTRY SYSTEM 32 SECTION 10.01 Book -Entry System: Limited Obligation of Authority 32 SECTION 10.02 Representation Letter 32 SECTION 10.03 Transfers Outside Book -Entry System 32 SECTION 10.04 Payments to the Nominee 33 SECTION 10.05 Initial Depository and Nominee 33 ARTICLE XI MISCELLANEOUS 33 Section 11.01. Limited Liability of Authority 33 Section 11.02. Benefits of Indenture Limited to Parties 33 Section 11.03. Discharge of Indenture 33 Section 11.04. Successor Is Deemed Included in All References to Predecessor 34 Section 11.05. Content of Certificates 34 Section 1 1.06. Execution of Documents by Owners 3� Section 11.07. Disqualified Bonds 3� Section 11.08. Waiver of Personal Liability 3� Section 11.09. Partial Invalidity 3� Section 1 1.10. Destruction of Cancelled Bonds 3� Section 1 1.1 1. Funds and Accounts 36 Section 11.12. Payment on Business Days 36 Section 11.13. Notices 36 Section 11.14. Unclaimed Moncys 37 Section 1 1. 15. Governing Law 37 EXHIBIT A — FORM OF SERIES 2006A BOND EXHIBIT B — FORM OF SERIES 2006B BOND P6402. 1056\875 154.3 INDENTURE OF TRUST This Indenture of Trust (this "Indenture) is made and entered into as of Jule I. 2006. by and between the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority) and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America. haying a corporate trust office in Los Angeles. California. and being qualified to accept and administer the trusts hereby created (the "Trustee.). Recitals A. The Palm Desert Redevelopment Agency (the "Agency) is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers. all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 3 of the Agency (the "Project Area) has been duly approved and adopted by the City. C. The Authority is authorized to borrow money for the purpose of making loans to the Agency to provide financing for public capital improvements of the Agency. D. For the purpose of aiding in the financing of redevelopment projects for the Project Area. the Authority has determined to make two loans (the "Loans) to the Agency under and pursuant to the Project Area No. 3 Loan Agreement (2006 Senior Loans). dated as of July I. 2006 (the "Loan Agreement) by and among the Authority. the Agency and the Trustee. E. To provide the moneys required to make the Loans under the Loan Agreement. the Authority has determined to issue its Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A. in the aggregate principal amount of $ (the "Series 2006A Bonds.). and its Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B. in the aggregate initial principal amount of $ (together with the Series 2006A Bonds. the "Bonds.). pursuant to and secured by this Indenture in the manner provided herein. F. To provide for the authentication and delivery of the Bonds. to establish and declare the terms and conditions upon which the Bonds are to be issued and to secure the payment of the principal thereof. premium. if any. and interest thereon. the Authority has authorized the execution and delivery of this Indenture. NOW. THEREFORE. THIS INDENTURE WITNESSETH. that in order to secure the payment of the principal of. premium. if any. and interest on the Bonds at any time issued and Outstanding under this Indenture. according to their tenor. and to secure the performance and observance of all the covenants and conditions therein and herein set forth. and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received. and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof. and for other valuable considerations. the receipt whereof is hereby acknowledged. the Authority hereby covenants and agrees with the Trustee. for the benefit of the Owners of the Bonds. as follows: P6402. 1056\875 154.3 -1- ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY Section 1.01. Definitions. The following terms shall for all purposes of this Indenture and of any Supplemental Indenture and of any certificate. opinion. request or other documents herein mentioned have the meanings ascribed thereby. In addition. the terms defined in Section 1.01 of the Loan Agreement and not otherwise defined in this Section 1.01 shall have the meanings ascribed thereby in the Loan Agreement. "Accreted Value means. Nvith respect to any Series 2006B Bond. as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Closing Date at the stated yield to maturity thereof on each April I and October I. assuming in any such semiannual period that such Accreted Value increases in equal daily amounts on the basis of a 360-dav year of twelve 30-dav months. "Act means Articles I through 4 (commencing Nvith Section 6500) of Chapter 5. Division 7. Title I of the Government Code of the State. as in existence on the Closing Date or as thereafter amended from time to time. ..Agency.. means the Palm Desert Redevelopment Agency. a redevelopment agency. a public body corporate and politic. duly created. established and authorized to transact business and exercise its powers all under and pursuant to the Redevelopment Law. and any successor to its duties and functions. "Authority means the Palm Desert Financing Authority. a joint powers authority duly organized and existing under the Joint Exercise of Powers Agreement. dated January 26. 1989. by and between the City and the Agency. and under the lays of the State. "Authority Commission"' means the governing body of the Authority. "Bond Counsel means Richards. Watson & Gershon. A Professional Corporation. Los Angeles. California. or a firm of attorneys of favorable reputation in the field of municipal bond lacy. "Bond Lary means the Marks -Roos Local Bond Pooling Act of 1985. being Article 4 of the Act (commencing Nyith Section 6584). as in existence on the Closing Date or as thereafter amended from time to time. "Bond Year- means each twelve-month period extending from April 2 in one calendar year to April I of the succeeding calendar year. both dates inclusive. except that the first Bond Year shall begin on the Closing Date and extend to and include April I. 2007. "Bonds means the Series 2006A Bonds and the Series 2006B Bonds. "Business Day" means any day other than (i) a Saturday or a Sunday or (ii) any other day on Nyhich the New York Stock Exchange or banks are authorized or obligated by lacy or executive order to close in New York. New York. San Francisco. California. Los Angeles. California or any city in Nyhich the Trust Office is located. P6402. 1056\875 154.3 -2- "Certificate"' means a certificate in writing signed by any officer of the designated public entity. duly authorized by its legislative body for that purpose. "City means the City of Palm Desert. a charter city and municipal corporation duly organized and validly existing under the laws of the State. purchaser. "Closing, Date means the date of delivery of the Bonds to the Underwriter as the original "Code" means the Internal Rcycnuc Code of 1986. as amended. "County" means the County of Riverside. "Defeasance Obligations" means (a) an obligations described in paragraph A (provided that stripped securities are only permitted if they have been stripped by the U.S. Treasury itself) or paragraph B (excluding the obligations described in subparagraphs B.4 and B.6) of the definition of "Permitted Investments' set forth in this Section. (b) bonds. debentures. notes or other evidences of indebtedness issued or guaranteed by the non -full faith and credit U.S. government agency Resolution Funding Corp. (REFCORP) (provided stripped securities and interest components thereof are only permitted if they have been stripped by request to the Federal Reserve Bank of NOV York in book entry form). or (c) pre -refunded municipal bonds rated "Aaa- by Moody's and "AAA' by S&P. provided if the issue is only rated by S&P. the pre -refunded bonds must have been pre -refunded with cash. direct U.S. or U.S. guaranteed obligations. or AAA rated pre -refunded municipal obligations. "Depository means The Depository Trust Company. New York. New York. and its successors and assigns as securities depository for the Bonds. or any other securities depository acting as Depository under Article X. "Event of Default means any of the events described in Section 8.0 I . "Fiscal Year- means any twelve-month period extending from July I in one calendar year to June 30 of the succeeding calendar year. both dates inclusive. or any other twelve-month period selected and designated by the Authority as its official fiscal year period. "Indenture means this Indenture of Trust. as may from time to time be supplemented. modified or amended by any Supplemental Indenture pursuant to the provisions hereof. "Independent Accountant means any certified public accountant or firm of certified public accountants appointed and paid by the Authority. and \vho. or each of whom (i) is in fact independent and not under domination of the Authority. the City or the Agency: (ii) does not have any substantial interest. direct or indirect. in the Authority. the City or the Agency: and (iii) is not connected with the Authority. the City or the Agency as an officer or employee of the Authority. the City or the Agency but whom may be regularly retained to make annual or other audits of the books of or reports to the Authority. the City or the Agency. "Information Services" means Financial Information. Inc.'s "Daily Called Bond Service." 30 Montgomery Street. I0th Floor. Jersey City. New Jersey 07302. Attention: Editor: Mergent's "Municipal and Government."' 5250 77 Center Drive. Suite 150. Charlotte. North Carolina 28217. Attention: Called Bond Department: and Kenny S&P. 55 Water Street. 45 Floor. New York. New York 1004I. Attention: Notification Department: or. in accordance with then -current guidelines of the P6402. I c 56\875 154.3 Securities and Exchange Commission. such other addresses and/or such other services providing information wvith respect to called bonds as the Agency may designate to the Trustee in writing. "Initial Principal Amount. with respect to any Series 2006B Bond. means the initial principal amount thereof as of the Closing Date. "Insurance Paying Agent means or its successors under the Insurance Policy. "Insurance Policy means the municipal bond insurance policy issued by the Insurer insuring the payment when due of the principal of and interest on the Bonds. "Insurer- means "Interest Payment Date means April I and October I of each year. commencing October I. 2006. "Loan Agreements means the Project Area No. 3 Loan Agreement (2006 Senior Loans). dated as of July I. 2006. by and among the Authority. the Agency and the Trustee relating to the Loans. as may from time to time be supplemented. modified or amended. "Loan Funds means the Series 2006A Loan Fund and the Series 2006B Loan Fund. "Loans means the Series 2006A Loan and the Series 2006B Loan. "Maturity Amount. with respect to any Series 2006B Bond. means the Accreted Value thereof at maturity. "Moody's' means Moody's Investors Service. its successors and assigns. "Nominee means the nominee of the Depository. which may be the Depository. as determined from time to time pursuant to Article X. "Outstanding. when used as of any particular time with reference to Bonds. means (subject to the provisions of Section 11.07) all Bonds theretofore executed. issued and delivered by the Authority under this Indenture except (i) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation. (ii) Bonds paid or deemed to have been paid within the meaning of Section 11.0 3. and (iii) Bonds in Iicu of or in substitution for which other Bonds shall have been executed. issued and delivered pursuant to this Indenture. "Owner- means the person in wvhose name the ownership of any Bond or Bonds shall be registered on the Registration Books. "Participants means those broker -dealers. banks and other financial institutions from time to time for which the Depository holds Bonds as securities depository. "Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein: A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury. and CATS and TIGRS) or P6402. 1056\875 154.3 -4- obligations the principal of and interest on hich are unconditionally guaranteed by the United States of America. For purposes of this paragraph A. 'obligations the principal of and interest on hich are unconditionally guaranteed by the United States of America include Nyithout limitation tax exempt obligations of a state or a political subdivision thereof which have been defeased under irrevocable escrow instructions Nyith non -callable obligations for which the full faith and credit of the United States of America are pledged for the payment of principal and interest and which are rated "Aaa- by Moody's and "AAA by S&P. B. Bonds. debentures. notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies. provided such obligations are backed by the full faith and credit of the United States of America (provided that stripped securities are only permitted if they have been stripped by the agency itself): U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing. Bank 4. Federal Housing. Administration Debentures (FHA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae-) GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations 7 U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing. and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds. debentures. notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (provided that stripped securities are only permitted if they have been stripped by the agency itself): P6402. I c 56\875 154.3 -5- I . Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mace) Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae-) Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing, Association (SLMA or "Sallie Mae-) Senior debt obligations 5. Resolution Funding, Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds. including funds for «Vhich the Tnistee or its affiliates provide investment advisory or other management services. registered under the Investment Company Act of 1940. «hose shares are registered under the Securities Act of 1933. and having a rating by S&P of AAAm-G: AAAm: or AAm and. if rated by Moody's. rated Aaa. Aa I or Aa2. E. Certificates of deposit secured at all times by collateral described in A and/or B above: provided that such certificates must be issued by commercial banks (including the Trustee and its affiliates). savings and loan associations or mutual savings banks and provided further that the collateral must be held by a third party and the Trustee on behalf of the Owners must have a perfected first security interest in the collateral. F. Certificates of deposit. savings accounts. deposit accounts or money market deposits NVhich are fully insured by the Federal Deposit Insurance Corporation. including those of the Trustee and its affiliates. G. Investment agreements. including guaranteed investment contracts. fonvard purchase agreements and reserve fund put agreements acceptable to the Insurer. H. Commercial paper rated. at the time of purchase. "Prime - I by Moody's and "A- I " or better by S&P. I. Bonds or notes issued by an state or municipality NVhich are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances NVith a maximum term of one year of any bank (including the Trustee and its affiliates) NVhich has an unsecured. uninsured and unguaranteed obligation rating of "Prime - I or "A3- or better by Moody's and "A -I.. or "A- or better by S&P. K. Repurchase Agreements NVhich are approved by the Insurer and NVhich provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee or third P6462. I 056\875 154.3 -6- party custodian. as the case may be (buyer/lender). and the transfer of cash from the Tnistcc to the dealer bank or securities firm wvith an agreement that the dealer bank or securities firm NViII repay the cash plus a yield to the Trustee in exchange for the securities at a specified date. L. The Local Agency Investment Fund in the State Treasury or any similar pooled investment fund administered by the State. to the extent such investment is held in the name and to the credit of the Trustee. M. Medium -term notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Such notes shall have a minimum credit rating of "Aar by Moody's and "AA by S&P at time of purchase. and shall mature within three years or Tess. N. Shares of beneficial interest issued by the California Asset Management Trust. a common law trust established under the laws of the State. "Principal Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)(2). "Principal Amount" means. as of any date of calculation. with respect to (i) any Series 2006A Bond. the principal amount thereof. and (ii) any Series 2006B Bond. the Accreted Value thereof " Proiect Area means. unless the context clearly requires otherwise. the project area described and defined in the Redevelopment Plan approved and adopted by the City by its Ordinance No. 652. "Record Date means. with respect to any Interest Payment Date. the 15th calendar day of the month immediately preceding such Interest Payment Date. whether or not such day is a Business Day. "Redemption Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)(3). "Redevelopment Law means the Community Redevelopment Law. being California Health and Safety Code Section 33000. et seq.. and all future acts supplemental thereto or amendatory thereof. "Redevelopment Plane means the Redevelopment Plan for the Project Area. approved and adopted by the City by its Ordinance No. 652 and includes any amendment of the Redevelopment Plan heretofore or hereafter made pursuant to law. "Re zistration Books means the records maintained by the Trustee pursuant to Section 2.09 for the registration and transfer of ownership of the Bonds. "Report" means a document in writing signed by an Independent Redevelopment Consultant and including: (i) a statement that the person or firm making or giving such Report has read the pertinent provisions of the document or documents to which such Report relates: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based: and (iii) a statement that. in the opinion of such person or firm. sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report. P6402. 1056\875 154.3 -7- "Representation Letter- means the Blanket Issuer Letter of Representations. dated July 1. 1997. from the Authority to the Depository. qualifying bonds issued by the Authority for the Depository's book -entry system. "Request" means a request in writing signed by any officer of the designated public entity duly authorized by its legislative body for that purpose. "Revenue Fundy means the fund by that name established and held by the Trustee pursuant to Section 4.02(a). "Reyenues- means (i) all amounts payable by the Agency pursuant to Section 2.3 or Section 2.4 of the Loan Agreement: (ii) any proceeds of the Bonds originally deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established hereunder: and (iii) income and gains with respect to the investment of amounts on deposit in the funds and accounts established hereunder. other than amounts payable to the United States of America pursuant to Section 5.07. "S&P- means Standard & Poor's Ratings Services and its successors and assigns. "Securities Depositories means The Depository Trust Company. ;; Water Street. 50th Floor. New York. New York. 10041. Attn: CaII Notification Department. Fax (212) 855-72 32: and. in accordance with then current guidelines of the Securities and Exchange Commission. such other addresses or such other securities depositories as the Authority may designate in a Certificate of the Authority delivered to the Trustee. "Series 2006A Bonds means the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A. "Series 2006A Loan means the Series 2006A Loan. as defined in the Loan Agreement. made by the Authority to the Agency. "Series 2006A Loan Fundy means the fund by that name established and held by the Trustee pursuant to Section 3.02. "Series 2006B Bonds means the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B. "Series 2006B Loan means the Series 2006B Loan. as defined in the Loan Agreement. made by the Authority to the Agency. "Series 2006B Loan Fundy means the fund by that name established and held by the Trustee pursuant to Section 3.02. "State means the State of California. "Supplemental Indenture- means any indenture. agreement or other instrument hereafter duly executed by the Authority and the Trustee in accordance with the provisions of Section 7.01. "Tax Retzulations- means temporary and permanent regulations promulgated under or with respect to Section 103 and Sections 1 q 1 through 150. inclusive. of the Code. P6402. 1056\875 154.3 -8- "Trust Office means the corporate trust office of the Trustee at the address set forth in Section I I.13 or such other offices as may be specified to the Authority by the Trustee in writing. With respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or agency of the Trustee at which. at any particular time. its corporate trust business shall be conducted. "Trustee" means Wells Fargo Bank. National Association. and its successors and assigns. and any other corporation or association which may at any time be substituted in its place as provided in Article VI. "Underwriter- means Citigroup Global Markets Inc. Section 1.02. Rules of Construction. All references in this Indenture to "Articles." "Sections." and other subdivisions. unless indicated otherwise. are to the corresponding Articles. Sections or subdivisions of this Indenture: and the words "herein. "hereof. "hereunder. and other words of similar import refer to this Indenture as a whole and not to any particular Article. Section or subdivision hereof. Section I.0 3. Authorization and Purpose of Bonds. The Authority has reviewed all proceedings heretofore taken relative to the authorization of the Bonds and has found. as a result of such review. and hereby finds and determines that all things. conditions. and acts required by law to exist. happen and be performed precedent to and in the issuance of the Bonds do exist. have happened and have been performed in due time. form and manner as required by law. and the Authority is now authorized under the Bond Law and each and every requirement of law. to issue the Bonds in the manner and form provided in this Indenture. The Authority hereby authorizes the issuance of the Bonds pursuant to the Bond Law and this Indenture for the purpose of providing funds to make the Loans to the Agency pursuant to the Loan Agreement. Section 1.04. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof. this Indenture shall be deemed to be and shall constitute a contract among the Authority. the Trustee and the Owners of the Bonds: and the covenants and agreements herein set forth to be performed on behalf of the Authority shall be for the equal and proportionate benefit. security and protection of all Owners of the Bonds without preference. priority or distinction as to security or othenyise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale. execution or delivery thereof. or otherwise for any cause Nvhatsoeyer. except as expressly provided therein or herein. ARTICLE II ISSUANCE OF BONDS Section 2.01. Desitznation. The Series 2006A Bonds shall be designated the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A. and shall be issued in the original aggregate Principal Amount of $ . The Series 2006B Bonds shall be designated the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B and shall be issued in the aggregate Initial Principal Amount of Section 2.02. Terms of Bonds. P6402. I c 56\875 154.3 -9- (a) The Series 2006A Bonds shall be issued in fully registered form without coupons in denominations of $5.000 or any integral multiple thereof. so Tong as no Series 2006A Bond shall have more than one maturity date. The Series 2006A Bonds shall be dated the Closing Date. shall mature on April I in each of the years and in the amounts. and shall bear interest (calculated on the basis of a 360- day year of twelve 30-day months) at the rates. as follows: Maturity Date Principal Interest Maturity Date Principal Interest (April I) Amount Rate (April I) Amount Rate (to come) Each Series 2006A Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof. unless (i) it is authenticated during the period from the day after the Record Date for an Interest Payment Date to and including such Interest Payment Date. in which event it shall bear interest from such Interest Payment Date. or (ii) it is authenticated on or prior to the Record Date for the first Interest Payment Date. in which event it shall bear interest from the Closing Date: provided. however. that if. at the time of registration of any Series 2006A Bond interest with respect to such Series 2006A Bond is in default. such Series 2006A Bond shall bear interest from the Interest Payment Date to which interest has been paid or made available for payment with respect to such Series 2006A Bond. Interest on the Series 2006A Bonds shall be payable on each Interest Payment Date to the person wvhose name appears on the Registration Books as the Owner thereof as of the close of business on the Record Date. such interest to be paid by check or draft of the Trustee mailed by first class mail. postage prepaid. on each Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books on such Record Date: provided. how ever. that at the w ritten request of the Owner of at least $I.000.000 in aggregate principal amount of Outstanding Series 2006A Bonds filed with the Trustee prior to any Record Date. interest on such Series 2006A Bonds shall be paid to such Owner on each succeeding Interest Payment Date by \wire transfer of immediately available funds to an account in the United States designated in such written request (unless and until such request has been revoked in writing). Payments of defaulted interest with respect to the Series 2006A Bonds shall be paid by check or draft to the Owners as of a special record date to be fixed by the Trustee. notice of which special record date shall be given to the Owners not Tess than ten days prior thereto. Principal of and premium. if any. on any Series 2006A Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the Trust Office. The principal of and interest and premium. if any. on the Series 2006A Bonds shall be payable in lawful money of the United States of America. (b) The Series 2006B Bonds shall be issued in fully registered form in any denominations of Initial Principal Amount but shall reflect denominations of $5.000 Maturity Amount or any integral multiple thereof. No Series 2006B Bond shall have more than one maturity date. The Series 2006B Bonds shall be dated the Closing Date. shall mature on April I in each of the years and in the Maturity Amounts set forth in the following schedule. The Series 2006B Bonds shall be delivered on the Closing Date in the aggregate Initial Principal Amounts set forth below. Interest on the Initial Principal Amount of the Series 2006B Bonds shall accrue and compound at the yield to their maturity set forth below (such interest being equal to the difference between the Maturity Amounts and the Initial Principal Amounts thereof): P6402.1 c 56\87515-1.3 -10- Maturity Initial Initial Principal Yield to Date Maturity Principal Amount per $5.000 Maturity (April I) Amount Amount Maturity Amount Date Interest on each Series 2006B Bond shall be compounded semi-annually at the yield set forth above from the Closing Date on each April I and October I. commencing October I. 2006. until maturity or earlier redemption thereof. computed using a year of 360 days of tw elye 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. w ith respect to any Series 2006B Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the Trust Office. in lawful money of the United States of America. Section 2.03. Redemption of Bonds. (a) Series 2006A Bonds. (I) Redemption from Optional Loan Prepayment. In the event that the Agency shall exercise its option to prepay principal installments of the Series 2006A Loan pursuant to Section 2.4(a) of the Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Series 2006A Bonds maturing on or after April I. 2() . as a whole. or in part among maturities as designated in writing by the Authority and by lot within a maturity. in integral multiples of $5.000 principal amount. on any Interest Payment Date on or after April I. 2() . at the following respective redemption prices (expressed as a percentage of the principal amount of Series 2006A Bonds to be redeemed). plus accrued interest thereon to the date of redemption: Redemption Redemption Dates Price April I. 20 and October I. 2() 10_`%0 April I. 20 and October I. 2() 10_ April I. 20 and thereafter 100 The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(a)( I) at least 45 but not more than 90 days prior to the date fixed for such redemption. (2) Mandatory Sinking, Fund Redemption. The Series 2006A Bonds maturing on April I. 2() and April I. 2() shall also be subject to mandatory redemption by lot. on April I in each year commencing April I. 2() and April I. 2() . respectively. from sinking fund payments made by the Authority into the Principal Account pursuant to Section 4.02(b)(2). at a redemption price equal to the principal amount thereof to be redeemed. without premium. plus accrued interest to the date of redemption. in the aggregate respective principal amounts and on April I in the respective years as set forth in the following tables: provided. however. that (i) in Iicu of redemption thereof on April I in any year. the Series 2006A Bonds may be purchased by the Agency pursuant to Section 2.3 of the Loan Agreement and tendered to the Trustee for cancellation no later than the preceding January 15. and (ii) if some but all of the Series 2006A Bonds of a maturity have been P6402. I c 56\875 154.3 —1 1— redeemed pursuant to Paragraph (a) above. the total amount of all future sinking fund payments with respect to the Series 2006A Bonds of such maturity shall be reduced by the aggregate principal amount of such Series 2006A Bonds so redeemed. to be allocated among such sinking fund payments on a pro rata basis. Series 2006A Bonds Maturing, April I. 20 Sinking Fund Redemption Date (April I) +Maturity. Principal Amount to be Redeemed Series 2006A Bonds Maturing, April I. 20 Sinking Fund Redemption Date (April I) +Maturity. (b) Series 2006B Bonds. Principal Amount to be Redeemed (I) Optional Redemption. In the event that the Agency shall exercise its option to prepay installments of the Series 2006B Loan pursuant to Section 2.4(b) of the Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Series 2006B Bonds maturing on or after April I. 2() . as a whole. or in part among maturities as designated in writing by the Authority and by lot within a maturity. in integral multiples of $5.000 of Maturity Amount. on any October I or April Ion or after April I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Series 2006B Bonds on the date fixed for redemption): Redemption Redemption Dates Price April I. 20 and October I. 2() 10_`%0 April I. 20 and October I. 2() 10_ April I. 20 and thereafter 100 The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(b)( I) at least 45 but not more than 90 days prior to the date fixed for such redemption. (2) No Mandatory Sinking, Fund Redemption. The Series 2006B Bonds are not subject to mandatory sinking fund redemption prior to maturity. P6402. 1056\875 154.3 -I2- (c) General Redemption Provisions (I) Notice of Redemption. The Tnistcc on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books and. by such means acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the date fixed for redemption: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the series designation of the Bonds. the Bond numbers (but only if less than all of the Outstanding Bonds of such series are to be redeemed) and the maturity or maturities of the Bonds of such series (in the event of redemption of all of such Bonds of such maturity or maturities in NyhoIe) to be redeemed. and shall require such Bonds be then surrendered at the Trust Office of the Trustee in Los Angeles. California (or such other location as designated by the Trustee) for redemption at the redemption price. giving notice also that further interest on such Bonds Nvill not accrue from and after the redemption date. (2) Selection of Bonds for Redemption. With respect to the redemption of Bonds of either series. Nvheneyer provision is made in this Indenture for the redemption of less than all of such Bonds of any maturity. the Trustee shall select the Bonds to be redeemed from all Bonds of such series and maturity not previously called for redemption. by lot in any manner which the Trustee in its sole discretion shall deem appropriate under the circumstances. For purposes of selecting Series 2006A Bonds within a maturity for redemption. all Series 2006A Bonds shall be deemed to be comprised of separate $5.000 principal amount portions and such portions shall be treated as separate bonds which may be separately redeemed. For purposes of selecting Series 2006B Bonds within a maturity for redemption. all Series 2006B Bonds shall be deemed to be comprised of separate $5.000 Maturity Amount portions and such portions shall be treated as separate bonds which may be separately redeemed. (3) Partial Redemption of Bonds. In the event only a portion of any Bond is called for redemption. then upon surrender of such Bond the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof. at the expense of the Authority. a new Bond or Bonds of the same series. tenor and maturity date. of authorized denominations in aggregate Principal Amount or Maturity Amount. as the case may be. equal to the unredeemed portion of the Bond to be redeemed. (4) Effect of Redemption. From and after the date fixed for redemption. if funds available for the payment of the principal of. interest on and premium. if any. on the Bonds so called for redemption shall have been duly provided. such Bonds so called shall cease to be entitled to any benefit under this Indenture other than the right to receive payment of the redemption price. and no interest shall accrue thereon from and after the redemption date specified in such notice. All Bonds redeemed pursuant to this Section shall be destroyed. Section 2.04. Form of Bonds. The Series 2006A Bonds. the Trustee's certificate of authentication. and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit A attached hereto and by this reference incorporated herein. with necessary or appropriate variations. omissions and insertions. as permitted or required by this Indenture. The Series 2006B Bonds. the Trustees certificate of authentication. and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit B attached hereto and by this reference incorporated herein. Nvith necessary or appropriate variations. omissions and insertions. as permitted or required by this Indenture. P6402. 1056\875 154.3 -I 3- Section 2.05. Execution of Bonds. The Bonds shall be signed in the name and on behalf of the Authority with the manual or facsimile signatures of its President and attested with the manual or facsimile signature of its Secretary or any deputy duly appointed by the Authority Commission. and shall be delivered to the Trustee for authentication by it. In case any officer of the Authority wiho shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed shall have been authenticated or delivered by the Trustee or issued by the Authority. such Bonds may nevertheless be authenticated. delivered and issued and. upon such authentication. delivery and issue. shall be as binding upon the Authority as though the individual wiho signed the same had continued to be such officer of the Authority. Also. any Bond may be signed on behalf of the Authority by any individual NVho on the actual date of the execution of such Bond shall be the proper officer although on the nominal date of such Bond such individual shall not have been such officer. Only such of the Bonds as shall bear thereon a certificate of authentication in substantially the form set forth in Exhibit A or Exhibit B. as applicable. manually executed by the Trustee. shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture. and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.06. Transfer of Bonds. Any Bond may. in accordance with its terms. be transferred. upon the Registration Books. by the person in whose name it is registered. in person or by such Owner's duly authorized attorney. upon surrender of such Bond for cancellation. accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee. duly executed. Whenever any Bond shall be surrendered for transfer. the Authority shall execute and the Trustee shall thereupon authenticate and deliver to the transferee a new Bond or Bonds of the same series and of like tenor. maturity and aggregate principal amount. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection with any such transfer shall be paid by the Authority. except that the Trustee shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. The Trustee shall not be required to transfer. pursuant to this Section 2.06. either (i) any Bond during the period established by the Trustcc for the selection of Bonds for redemption. or (ii) any Bond selected for redemption pursuant to Section 2.03. Section 2.07. Exchantze of Bonds. Bonds may be exchanged at the Trust Office for the same aggregate Principal Amount or Maturity Amount. as applicable. of Bonds of the same series and of the same tenor and maturity and of other authorized denominations. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection with any such exchange shall be paid by the Authority. except that the Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be required to exchange. pursuant to this Section 2.07. either (i) any Bond during the period established by the Tnistcc for the selection of Bonds for redemption. or (ii) any Bond selected for redemption pursuant to Section 2.03. Section 2.08. Temporary Bonds. The Bonds may be issued initially in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be printed. lithographed or typewritten. shall be of such denominations as may be determined by the Authority and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and be registered and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds: provided that any temporary Bond need only be signed in the name and on behalf of the Authority with the manual or facsimile signature of the Secretary. or any deputy duly appointed by the Authority Commission. and need not be attested. If the Authority issues temporary Bonds. it NViII execute and furnish definitive P6402. 1056\875 154.3 -I4- Bonds Nvithout delay. and thereupon the temporary Bonds shall be surrendered. for cancellation. in exchange therefor at the Trust Office of the Trustee in Los Angeles. California (or such other location designated by the Trustee). and the Trustee shall authenticate and deliver in exchange for such temporary Bonds definitive Bonds of like series. term. maturity and aggregate Principal Amount or Maturity Amount. as applicable. in authorized denominations. Until so exchanged. the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.09. Registration Books. The Trustee Nvill keep or cause to be kept at its Trust Office sufficient records for the registration and transfer of the Bonds. Nvhich shall at all times during regular business hours be open to inspection by the Authority Nvith reasonable prior notice: and. upon presentation for such purpose. the Trustee shall. under such reasonable regulations as it may prescribe. register or transfer or cause to be registered or transferred. on such records. Bonds as hereinbefore provided. Section 2.10. Bonds Mutilated. Lost. Destroyed or Stolen. If any Bond shall become mutilated. the Authority. at the expense of the Owner of such Bond. shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like series. tenor. maturity and aggregate Principal Amount or Maturity Amount. as applicable. in authorized denominations in exchange and substitution for the Bond so mutilated. but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be cancelled by it and destroyed. If any Bond issued hereunder shall be lost. destroyed or stolen. evidence of such Toss. destruction or theft may be submitted to the Trustee and. if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given. the Authority. at the expense of the Owner, shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like series and tenor in lieu of and in substitution for the Bond so lost. destroyed or stolen (or if any such Bond shall have matured or shall have been called for redemption. instead of issuing a substitute Bond the Trustee may pay the same Nvithout surrender thereof upon receipt of indemnity satisfactory to the Trustee). The Trustee may require payment of a reasonable fee for each new Bond issued under this Section 2. I0 and of the expenses Nvhich may be incurred by the Authority and the Trustee. Any Bond issued under the provisions of this Section 2. I() in lieu of any Bond alleged to be lost. destroyed or stolen shall constitute an original contractual obligation on the part of the Authority Nyhether or not the Bond alleged to be lost. destroyed or stolen be at any time enforceable by anyone. and shall be equally and proportionately entitled to the benefits of this Indenture Nvith all other Bonds secured by this Indenture. ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS: ISSUANCE OF BONDS Section 3.01. Issuance of Bonds. Upon the execution and delivery of this Indenture. the Authority shall execute and deliver the Series 2006A Bonds and the Series 2006B Bonds in the respective aggregate Initial Principal Amounts set forth herein and shall deliver the Bonds to the Trustee for authentication and delivery to the original purchaser thereof upon the Request of the Authority. Section 3.02. Loan Funds: Application of Proceeds of Sale of Bonds. (a) The Trustee shall establish and maintain a separate fund to be known as the "Series 2006A Loan Fund." Upon the receipt of payment for the Series 2006A Bonds on the Closing Date. the Trustee shall deposit the proceeds of sale thereof in the amount of $ in the Series 2006A Loan Fund. The Trustee shall disburse all amounts in the Series 2006A Loan Fund pursuant to Section 2.2 of the Loan Agreement. P6402. 1056\875 154.3 -15- (b) The Trustcc shall establish and maintain a separate fund to be known as the "Series 2006B Loan Fund." Upon the receipt of payment for the Series 2006B Bonds on the Closing Date. the Trustee shall deposit the proceeds of sale thereof in the amount of $ in the Series 2006B Loan Fund. The Trustee shall disburse all amounts in the Series 2006B Loan Fund pursuant to Section 2.2 of the Loan Agreement. Section 3.03. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be affected in any Nvay by any proceedings taken by the Agency with respect to the application of the proceeds of the Loans. and the recital contained in the Bonds that the same are issued pursuant to the Bond Law shall be conclusive evidence of their validity and of the regularity of their issuance. ARTICLE IV REVENUES: FLOW OF FUNDS Section 4.01. PIedtze of Revenues: Assignment of Rights. Subject to the provisions of Section 6.03. the Bonds shall be secured by a first lien on and pledge (which shall be effected in the manner and to the extent hereinafter provided) of all of the Revenues. The Bonds shall be equally secured by a pledge. charge and Tien upon the Revenues without priority for series. number. date of Bonds. date of execution or date of delivery: and the payment of the interest on and principal of the Bonds and any premiums upon the redemption of any thereof shall be and are secured by an exclusive pledge. charge and Tien upon the Revenues. So Tong as any of the Bonds are Outstanding. the Revenues shall not be used for any other purpose: except that out of the Revenues there may be apportioned such sums. for such purposes. as are expressly permitted by Section 4.02. The Authority hereby transfers in trust and assigns to the Trustee. for the benefit of the Owners from time to time of the Bonds. all of the Revenues and all of the right. title and interest of the Authority in the Loan Agreement (other than the rights of the Authority under Section 5.04 thereof). The Trustcc shall be entitled to and shall receive all of the Revenues. and any Revenues collected or received by the Authority shall be deemed to be held. and to have been collected or received. by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and. subject to the provisions hereof. shall take all steps. actions and proceedings reasonably necessary in its judgment to enforce. either jointly with the Authority or separately. all of the rights of the Authority and all of the obligations of the Agency under the Loan Agreement. Section 4.02. Receipt. Deposit and Application of Rcycnues. (a) Deposit of Revenues. Revenue Fund. All Revenues described in clause (i) of the definition thereof in Section 1.0I shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the "Rcycnuc Fundy which the Trustee shall establish. maintain and hold in trust hereunder. (b) Application of Revenues: Accounts. On or before each Interest Payment Date. the Trustee shall transfer from the Rcycnuc Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Rcycnuc Fund). the following amounts in the following order of priority. the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: P6402. 1056\875 154.3 -I6- (I) Interest Account. On or before each Interest Payment Date. the Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest coming due and payable on such Interest Payment Date on all Outstanding Series 2006A Bonds. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest coming due and payable upon all Outstanding Series 2006A Bonds on the next succeeding Interest Payment Date. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Series 2006A Bonds as it shall become due and payable (including accrued interest on any Series 2006A Bonds redeemed prior to maturity). All amounts on deposit in the Interest Account on the first day of any Bond Year. to the extent not required to pay any interest then haying come due and payable on the Outstanding Series 2006A Bonds. shall be withdrawn therefrom by the Trustee and transferred to the Agency to be used for any lawful purposes of the Agency. (2) Principal Account. On or before each date on wvhich the principal of the Bonds shall be payable. the Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal (i) the Principal Amount of the Bonds coming due and payable on such date pursuant to Section 2.02. and (ii) the Principal Amount of the Bonds subject to mandatory sinking fund redemption on such date pursuant to Section 2.03(a)(2). All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the Principal Amount of the Bonds (i) at the maturity thereof. or (ii) upon mandatory sinking fund redemption thereof. All amounts on deposit in the Principal Account on the first day of any Bond Year. to the extent not required to pay the principal of any Outstanding Bonds then haying come due and payable. shall be withdrawn therefrom and transferred to the Agency to be used for any lawful purposes of the Agency. (3) Redemption Account. The Trustee. at any time that the Agency shall exercise its option to prepay principal installments of the Loans pursuant to Section 2.4 of the Loan Agreement. shall deposit the Revenues derived from such prepayment in the Redemption Account (which the Trustee shall also establish and maintain within the Rcycnuc Fund). to be used and withdrawn by the Trustee solely for the purpose of paying the Principal Amount and redemption premiums. if any. on the Bonds to be redeemed on their respective redemption dates. as directed by the Authority. Section 4.03. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to this Indenture or pursuant to the Loan Agreement shall be invested by the Trustee solely in Permitted Investments pursuant to the written direction of the Authority given to the Trustee two Business Days in advance of the making of such investments (and promptly confirmed in writing. as to any such direction given orally): provided that moneys in the Reserve Fund established pursuant to the Loan Agreement shall be invested in Permitted Investments which mature not more than five years from the date of such investment. In the absence of any such direction from the Authority. the Tnistcc shall invest any such moneys in Permitted Investments described in Paragraph D of the definition thereof. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the fund or account from which such investment was made. For purposes of acquiring any investments hereunder. the Trustee may commingle funds held by it hereunder. The Trustee may (but shall not be obligated to) act as principal or agent in the acquisition or disposition of any investment. The Trustee shall incur no liability for losses arising from any investments made at the direction of the Authority. or otherwise made pursuant to this Section. P6402. 1056\875 154.3 -17- The Trustee shall be entitled to rely conclusively upon the Nvritten instructions of the Authority directing investments in Permitted Investments as to the fact that each such investment is permitted by the laws of the State. and shall not be required to make further investigation xvith respect thereto. With respect to any restrictions set forth in the definition of Permitted Investments set forth in Section 1.01 which embody legal conclusions (e.g.. the existence. validity and perfection of security interests in collateral). the Trustee shall be entitled to rely conclusively on an opinion of counsel or upon a representation of the provider of such Permitted Investment obtained at the Authority's or the Agency's expense. Except as specifically provided in this Indenture. the Trustee shall not be liable to pay interest on any moneys received by it. but shall be liable only to account to the Authority and the Agency for earnings derived from funds that have been invested. The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur. the Authority specifically \valves receipt of such confirmations to the extent permitted by law. The Trustee NyiII furnish the Authority periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. The Trustee or any of its affiliates may act as sponsor. advisor or manager in connection with any investments made by the Trustee hereunder. Section 4.04. Valuation and Disposition of Investments. For the purpose of determining the amount in any fund or account established hereunder or under the Loan Agreement. any investments credited to such fund or account shall be valued at least annually. on or before July 1. at the market value thereof. In making any valuations hereunder the Trustee may utilize computerized securities pricing services that may be available to it. including those available through its regular accounting system. ARTICLE V COVENANTS OF THE AUTHORITY Section 5.01. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal. interest and premium. if any. to become due in respect of all the Bonds. in strict conformity with the terms of the Bonds and of this Indenture. according to the true intent and meaning thereof. but only out of Revenues and other assets pledged for such payment as provided in this indenture. Section 5.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement. and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended. such Bonds or claims for interest shall not be entitled. in case of any default hereunder. to the benefits of this Indenture. except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section 5.02 shall be deemed to limit the right of the Authority to issue bonds or other obligations for the purpose of refunding any Outstanding Bonds. and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Section 5.03. Against Encumbrances. The Authority shall not create. or permit the creation of. any pledge. lien. charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture Nvhile any of the Bonds are Outstanding. except the pledge and assignment P6-IO2. I().56\s7S I.54. 3 - 18- created by this Indenture. Subject to this limitation. the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes. including other programs under the Bond Law. and reserves the right to issue other obligations for such purposes. Section 5.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues. the Loan Agreement and other assets purported to be pledged and assigned. respectively. under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and Nyill be the legal. valid and binding special obligations of the Authority in accordance Nyith their terms. and the Authority shall at all times. to the extent permitted by law. defend. preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Owners under this Indenture against all claims and demands of all persons Nyhomsoeyer. Section 5.05. Accounting Records and Financial Statements. The Trustee shall at all times keep. or cause to be kept. proper books of record and account. prepared in accordance Nyith corporate trust industry standards. in Nyhich complete and accurate entries shall be made of all transactions made by the Trustee relating to the proceeds of Bonds. the Revenues. the Loan Agreement and all funds and accounts established pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority and the Agency. during regular business hours Nyith reasonable prior notice. Section 5.06. No Additional Indebtedness. Except for the Bonds. the Authority shall not incur any indebtedness payable out of the Revenues. (For clarification. this provision does not prohibit the Agency from incurring additional debt secured by Tax Revenues. so long as the incurrence of such debt is in compliance Nyith the Loan Agreement.) Section 5.07. Tax Covenants. (a) The Authority covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the interest on the Bonds. and for no other purpose. the Authority Nyill satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Authority agrees to comply Nyith such Nyritten instructions as may be provided by Bond Counsel. (b) The Authority covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nyould cause the Bonds to become arbitrage bonds. as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nyith the rebate requirements of Section 148 of the Code. the Authority further covenants that it Nyill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section 148(f) of the Code. and that it Nyill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nyith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Authority covenants that it Nyill not take any action or omit to take any action. Nyhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nyould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. (d) The Authority covenants that it Nyill not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in P6402. 1056\875 154.3 -I9- such manner or to such extent as Nyould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. (e) Notwithstanding any provision of this Indenture. and except as provided below. the Authority covenants that none of the moneys contained in any of the funds or accounts created pursuant to this Indenture Nyith respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested directly or indirectly in obligations guaranteed (in NyhoIe or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Rcycnuc Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 I I (a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under this Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 5.08. Loan Agreement. The Trustee. as assignee of the Authority's rights pursuant to Section 4.01. shall receive all amounts due from the Agency pursuant to the Loan Agreement and. upon an Event of Default. shall diligently enforce. and take all steps. actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations of the Agency thereunder. The Loan Agreement may be amended or modified pursuant to the applicable provisions thereof. but only Nyith the «rittcn consent of the Insurer (as Tong as the Insurance Policy is in full force and effect) and only: (i) if the Authority. the Agency or the Trustee first obtains the «rittcn consent of the Owners of a majority in aggregate Principal Amount of the affected Bonds then Outstanding to such amendment or modification. provided. however. that no such amendment or modification shall (a) extend the maturity of or reduce the amount of interest or principal payments on a Loan. or otherwise alter or impair the obligation of the Agency to pay the principal. interest or prepayment premiums on a Loan at the time and place and at the rate and in the currency provided therein. Nyithout the express «rittcn consent of the Owner of each affected Bond. (b) reduce the percentage of the Bonds required for the «rittcn consent to any such modification or amendment thereof or hereof. or (c) Nyithout its «rittcn consent thereto. modify any of the rights or obligations of the Trustee: or (ii) Nyithout the consent of any of the Owners. if such amendment or modification does not modify the rights or obligations of the Trustee Nyithout its prior «rittcn consent. and is for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency contained in the Loan Agreement other covenants and agreements thereafter to be observed. or to limit or surrender any rights or power therein reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: (b) to make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in the Loan Agreement. or in any other respect Nvhatsoever as the Agency and the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds: P6402. 1056\875 154.3 -20- (c) to amend any provision thereof relating to the Code. to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income for federal income tax purposes of interest on any of the Bonds under the Code. in the opinion of Bond Counsel: or (d) to provide for the issuance of Parity Debt under and in accordance with the provisions of the Loan Agreement. Nothing in this Section 5.08 shall prevent the Agency and the Authority. with the «rittcn consent of the Insurer (as Tong as the Insurance Policy is in full force and effect). from entering into any amendment or modification of the Loan Agreement which solely affects a particular Bond or Bonds all of the Owners of which shall have consented to such amendment or modification: provided. however. no such amendment or modification shall affect the rights or obligations of the Trustee without its prior «rittcn consent. The Tnistcc shall be entitled to rely upon the opinion of Bond Counsel stating that the requirements of this Section 5.08 have been met with respect to any amendment or modification of the Loan Agreement. Section 5.09. Further Assurances. The Authority will adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture. and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in this Indenture. ARTICLE VI THE TRUSTEE Section 6.01. Appointment of Trustee. Wells Fargo Bank. National Association. a national banking association organized and existing under and by virtue of the laws of the United States of America. with a corporate trust office in Los Angeles. California. is hereby appointed Trustee by the Authority for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate. use and apply the same as provided in this Indenture. The Authority agrees that it will maintain a Trustee which shall be a financial institution haying a corporate trust office in the State. with a combined capital and surplus of at least $75.000.000. and subject to supervision or examination by federal or State authority. so long as any Bonds are Outstanding. If such financial institution 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 6.01 the combined capital and surplus of such financial institution shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee is hereby authorized to pay the principal of and interest and redemption premium. if any. on the Bonds when duly presented for payment at maturity. or on redemption prior to maturity. and to cancel all Bonds upon payment thereof. The Trustee shall keep accurate records of all funds administered by it and of all Bonds paid and discharged. Section 6.02. Acceptance of Tnists. The Trustee hereby accepts the trusts imposed upon it by this Indenture. and agrees to perform said trusts. but only upon and subject to the following express terms and conditions: (a) The Trustee. prior to the occurrence of an Event of Default and after curing of all Events of Default which may have occurred. undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants. duties or obligations shall be read P6402. 1056\875 154.3 -2 I - into this Indenture against the Trustee. In case an Event of Default hereunder has occurred (which has not been cured or \valved). the Trustee may exercise such of the rights and powers vested in it by this Indenture. and shall use the same degree of care and skill and diligence in their exercise. as a prudent person would use in the conduct of its own affairs. (b) The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys. agents. or receivers. and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder. The Trustee may conclusively rely on an opinion of counsel as full and complete protection for any action taken or suffered by it hereunder. (c) The Trustee shall not be responsible for any recital herein. in the Loan Agreement or in the Bonds. or for any of the supplements hereto or thereto or instruments of further assurance. or for the validity of this Indenture or the Loan Agreement. or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby. or the tax status of the interest on the Bonds. and the Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants. conditions or agreements on the part of the Authority hereunder. (d) The Trustee (including its officers and employees) may become the Owner of Bonds secured hereby with the same rights which it would have if not the Trustee: may acquire and dispose of other bonds or evidences of indebtedness of the Authority with the same rights it would have if it \verc not the Trustee: and may act as a depositary 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 Owners of Bonds. Nvhether or not such committee shall represent the Owners of the majority in aggregate Principal Amount of the Bonds then Outstanding. The Trustee. either as principal or agent. may engage in or be interested in any financial or other transaction with the Authority. (e) The Trustee shall be protected in acting upon any Report. notice. request. consent. certificate. order. affidavit. letter. direction. telegram. facsimile transmission. electronic mail or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons and need not make any investigation into the facts or matters contained therein. Any action taken or omitted to be taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person \yho at the time of making such request or giving such authority or consent is the Owner of any Bond. shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. The Trustee shall not be bound to recognize any person as an Owner of any Bond or to take any action at his request unless the ownership of such Bond by such person shall be reflected on the Registration Books. (f) As to the existence or non-existence of any fact or as to the sufficiency or validity of any instrument. paper or proceeding. the Trustee shall be entitled to rely upon a Certificate of the Authority as sufficient evidence of the facts therein contained and prior to the occurrence of an Event of Default hereunder of which the Trustee has been given notice or is deemed to have notice. as provided in Section 6.02(h). shall also be at liberty to accept a Certificate of the Authority to the effect that any particular dealing. transaction or action is necessary or expedient. but may at its discretion secure such further evidence deemed by it to be necessary or advisable. but shall in no case be bound to secure the same. (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or �yillfuI misconduct. The immunities and exceptions from liability of the Trustee shall extend to its officers. directors. employees and agents. In the absence of negligence or misconduct. the Trustee shall not be liable for any error of judgment. P6462. 1056\875 154.3 -22- (h) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default hereunder except failure by the Authority to make any of the payments to the Trustee required to be made by the Authority pursuant hereto. unless the Trustee shall be specifically notified in writing of such default by the Authority. the Insurer or by the Owners of at least 25 percent in aggregate principal amount of the Bonds then Outstanding and all notices or other instruments required by this Indenture to be delivered to the Trustee must. in order to be effective. be delivered at the Trust Office of the Trustee in Los Angeles. California. and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default hereunder except as aforesaid. (i) At any and all reasonable times the Trustee. and its duly authorized agents. attorneys. experts. accountants and representatives. shall have the right. but not the obligation. fully to inspect all books. papers and records of the Authority pertaining to the Bonds. and to make copies of any of such books. papers and records such as may be desired but which is not privileged by statute or by law. (j) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises hereof. (k) Notwithstanding anything elsewhere in this Indenture with respect to the execution of any Bonds. the withdrawal of any cash. the release of any property. or any action whatsoever within the purview of this Indenture. the Trustee shall have the right. but shall not be required. to demand any showings. certificates. opinions. appraisals or other information. or corporate action or evidence thereof. as may be deemed desirable for the purpose of establishing the right of the Authority to the execution of any Bonds. the withdrawal of any cash. or the taking of any other action by the Trustee. (I) Before taking action referred to in Section 6.05. Section 8.02 or the first paragraph of Section 5.08. the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability. except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any such action. (m) All moneys received by the Trustee shall. until used or applied or invested as herein provided. be held in trust for the purposes for which they \were received but need not be segregated from other funds except to the extent required by law. (n) The Trustee shall have no liability or obligation to the Bond Owners with respect to the payment of debt service by the Authority or with respect to the observance or performance by the Authority of the other conditions. covenants and terms contained in this Indenture. or with respect to the investment of any moneys in any fund or account established. held or maintained by the Authority pursuant to this Indenture or otherwise. (o) The Trustee makes no covenant. representation or warranty concerning the current or future tax status of interest on the Bonds. The Trustee need only keep accurate records of all investments and funds. and send rebate payments to the United States in accordance with explicit instructions from the Authority. (p) The Trustee shall have no responsibility with respect to any information. statement. or recital in any official statement. offering memorandum or any other disclosure material prepared or distributed with respect to the issuance of the Bonds. (q) The Trustee in its capacity as Trustee is authorized and directed to execute the Loan Agreement. P6402. 1056\875 154.3 -2 3- (r) The Trustcc shall not be considered in broach of or in default in its obligations hereunder or progress in respect thereto in the cycnt of enforced delay ("unavoidable delay) in the performance of such obligations duo to unforeseeable causcs beyond its control and yithout its fault or negligence. including. but not Iimitcd to. Acts of God or of the public enemy or terrorists. acts of a government. acts of the other party. fires. floods. epidemics. quarantine restrictions. strikes. freight embargoes. earthquakes. explosion. mob violence. riot. inability to procure or general sabotage or rationing of labor. equipment. facilities. sources of energy. material or supplies in the open market. litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project. malicious mischief. condemnation. and unusually severe ycathcr or delays of suppliers or subcontractors duo to such causcs or any similar cycnt and/or occurrences beyond the control of the Trustcc: provided that. in the cycnt of any such unavoidable delay undcr this paragraph 6.02(r). the Trustcc notify the Authority and the Agency in «citing «ithin five business days after (i) the occurrcncc of the cycnt giving rise to the unavoidable delay. (ii) the Trustees actual knowledge of the impending unavoidable delay. or (iii) the Trustees knowledge of sufficient facts undcr which a rcasonablc person would conclude the unavoidable delay will occur. (s) The Trustcc agrees to accept and act upon facsimilc transmission of written instructions and/or dircctions pursuant to this Indenture provided. however. that: (i) subsequent to such facsimilc transmission of written instructions and/or dircctions the Trustcc shall forthwith receive the originally executed instructions and/or dircctions. (ii) such originally executed instructions and/or dircctions shall be signed by a person as may be dcsignatcd and authorized to sign for the party signing such instructions and/or dircctions. and (iii) the Trustcc shall have received a current incumbency certificate containing the specimen signature of such dcsignatcd person. Scction 6.03. Fccs. Charzes and Expenses of Trustcc. The Trustcc shall be entitled to payment and rcimburscmcnt for rcasonablc fccs for its services rendered hcrcundcr and all advances (with interest on such advances at the maximum rats allowed by lacy). counscl fccs and expenses (including those of in-house counscl to the extent they arc for services not duplicative of other counsels' work) and other expenses reasonably and necessarily made or incurrcd by the Trustcc in connection with such services. which payment and reimbursement shall not be Iimitcd by any provision of lacy in regard to the compensation of a trustee of an express trust. Upon the occurrcncc of an Eycnt of Dcfault hcrcundcr. but only upon an Eycnt of Dcfault. the Trustcc shall hays a first Iicn with right of payment prior to payment of any Bond upon the amounts hold hcrcundcr for the foregoing fccs. charges and expenses incurrcd by it respectively. which right to payment shall survive the resignation or removal of the Trustcc. Scction 6.04. Notice to Owners of Dcfault. If an Event of Dcfault hcrcundcr occurs with respect to any Bonds of which the Trustcc has bccn given or is deemed to have noticc. as provided in Scction 6.02(h). then the Trustcc shall promptly given «cittcn noticc thereof by first-class mail to the Owner of each such Bond. unlcss such Event of Dcfault shall have bccn cured before the giving of such noticc: provided. however. that unlcss such Event of Dcfault consists of the failure by the Authority to make any payment \yhen duo. the Trustcc may elect not to give such noticc if and so long as the Trustcc in good faith determines that such Event of Dcfault dots not materially adversely affect the interests of the Owners or that it is othenyisc not in the best interests of the Owners to give such noticc. Scction 6.05. Intervention by Trustcc. In any judicial proceeding to which the Authority is a party which. in the opinion of the Trustcc. has a substantial bearing on the interests of Owners of any of the Bonds. the Trustcc may intervene on behalf of such Owners. and subject to Scction 6.02(I). shall do so if requested in writing by the Owners of a majority in aggregate Principal Amount of such Bonds then Outstanding. P6402. 1056\875 154.3 -24- Section 6.06. Removal of Trustee. The Owners of a majority in aggregate Principal Amount of the Outstanding Bonds may at any time. and the Authority may (and at the request of the Agency shall) so long as no Event of Default shall have occurred and then be continuing. remove the Trustee initially appointed. and any successor thereto. by an instrument or concurrent instruments in writing delivered to the Tnistcc. «hereupon the Authority or such Owners. as the case may be. shall appoint a successor or successors thereto: provided that any such successor shall be a financial institution meeting the requirements set forth in Section 6.0I I. Section 6.07. Resignation by Trustee. The Trustee and any successor Trustee may at any time give written notice of its intention to resign as Trustee hereunder. such notice to be given to the Authority and the Agency by registered or certified mail. Upon receiving such notice of resignation. the Authority shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance. the Authority shall cause notice thereof to be given by first class mail. postage prepaid. to the Bond Owners at their respective addresses set forth on the Registration Books. Section 6.08. Appointment of Successor Trustee. In the event of the removal or resignation of the Trustee pursuant to Sections 6.06 or 6.07. respectively. with the prior written consent of Agency. the Authority shall promptly appoint a successor Trustee. In the event the Authority shall for any reason Nvhatsoeyer fail to appoint a successor Trustee within 60 days following the delivery to the Trustee of the instrument described in Section 6.06 or within 60 days following the receipt of notice by the Authority pursuant to Section 6.07. the Trustee may. at the expense of the Authority. apply to a court of competent jurisdiction for the appointment of a successor Trustee meeting the requirements of Section 6.0 I . Any such successor Trustee appointed by such court shall become the successor Trustee hereunder notwithstanding any action by the Authority purporting to appoint a successor Trustee following the expiration of such sixty-day period. Section 6.09. Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank or trust company resulting from any merger. conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business. provided such bank or trust company shall be eligible under Section 6.0I. shall be the successor to such Trustee without the execution or filing of any paper or further act. except as provided in Section 6.10. Section 6.10. Concerning any Successor Trustee. Every successor Trustee appointed hereunder shall execute. acknowledge and deliver to its predecessor and also to the Authority an instrument in writing accepting such appointment hereunder and thereupon such successor. without any further act. deed or conveyance. shall become fully vested with all the estates. properties. rights. powers. trusts. duties and obligations of its predecessors: but such predecessor shall. nevertheless. on the Request of the Authority. or of the Trustees successor. execute and deliver an instrument transferring to such successor all the estates. properties. rights. powers and trusts of such predecessor hereunder: and every predecessor Trustee shall deliver all securities and moneys held by it as the Trustee hereunder to its successor. Should any instrument in writing from the Authority be required by any successor Trustee for more fully and certainly vesting in such successor the estate. rights. powers and duties hereby vested or intended to be vested in the predecessor Trustee. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. Section 6. I I . Appointment of Co -Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or P6402.1056\875I54.3 -25- restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in the case of litigation under this Indenture. and in particular in case of the enforcement of the rights of the Trustee on default. or in the case the Trustee or the Authority deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers. rights or remedies herein granted to the Trustee or hold title to the properties. in trust. as herein granted. or take any other action which may be desirable or necessary in connection therewith. it may be necessary that the Trustcc or the Authority appoint an additional individual or institution as a separate co -trustee. The following provisions of this Section 6. I I are adopted to these ends. In the event that the Trustee or the Authority appoints an additional individual or institution as a separate or co -trustee. each and every remedy. power. right. claim. demand. cause of action. immunity. estate. title. interest and Tien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co -trustee but only to the extent necessary to enable such separate or co -trustee to exercise such powers. rights and remedies. and every covenant and obligation necessary to the exercise thereof by such separate or co - trustee shall run to and be enforceable by either of them. The Trustee shall not be liable for the acts or omissions of any separate or co -trustee appointed hereunder. Should any instrument in writing from the Authority be required by the separate trustee or co -trustee so appointed by the Trustee for more fully and certainly vesting in and conforming to it such properties. rights. powers. trusts. duties and obligations. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. In case any separate trustee or co - trustee. or a successor to either. shall become incapable of acting. resign or be removed. all the estates. properties. rights. powers. trusts. duties and obligations of such separate trustee or co -trustee. so far as permitted by law. shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co -trustee. Section 6.12. Indemnification: Limited Liability of Trustee. The Authority further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any loss. expense and liabilities which it may incur arising out of or in the exercise and performance of its powers and duties hereunder. including the costs of expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities which are due to the negligence or intentional misconduct of the Trustee. its officers. directors or employees. No provision in this Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability hereunder if it shall have reasonable grounds for believing repayment of such funds or adequate indemnity against such liability or risk is not assured to it. The Trustee shall not be liable for any action taken or omitted to be taken by it in accordance with the direction of the Insurer or the Owners of at least a majority in aggregate Principal Amount of Bonds Outstanding relating to the time. method and place of conducting any proceeding or remedy available to the Trustee under this Indenture in exercising any trust or power conferred on the Tnistcc by this Indenture. The obligations of the Authority under this Section shall survive the payment and discharge of the Bonds or the resignation or removal of the Trustee under this Indenture. ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE Section 7.0I I. Amendment Hereof. This Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental P6402. 1056\875 154.3 -26- Indenture Nvhich shall become binding upon adoption. Nyith the Nvritten consent of the Insurer (as Tong as the Insurance Policy is in full force and effect) but Nyithout consent of any Bond Owners. to the extent permitted by lacy but only for any one or more of the following purposes: (a) To add to the covenants and agreements of the Authority in this Indenture contained. other covenants and agreements thereafter to be observed. or to limit or surrender any rights or powers herein reserved to or conferred upon the Authority so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: or (b) To make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in this Indenture. or in any other respect Nvhatsoeyer as the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall either (i) conform to the original intention of the Authority. or (ii) not materially adversely affect the interests of the Owners of the Bonds in the reasonable judgment of the Authority: or (c) To amend any provision hereof relating to the Code. to any extent Nvhatsoeyer but only if and to the extent such amendment \\ill not adversely affect the exclusion from gross income of interest on any of the Bonds under the Code. in the opinion of Bond Counsel. Except as set forth in the preceding paragraphs of this Section 7.0I. this Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture Nvhich shall become binding \yhen the «rittcn consent of the Insurer (as long as the Insurance Policy is in full force and effect) and of the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding are filed Nyith the Trustee. No such modification or amendment shall (i) extend the maturity of or reduce the interest rate on any Bond or othenvise alter or impair the obligation of the Authority to pay the principal. interest or premiums. if any. at the time and place and at the rate and in the currency provided therein of any Bond Nyithout the express «rittcn consent of the Owner of such Bond or (ii) reduce the percentage of Bonds required for the «rittcn consent to any such amendment or modification. In no event shall any Supplemental Indenture modify any of the rights or obligations of the Trustee Nyithout its prior «rittcn consent. Section 7.02. Effect of Supplemental Indenture. From and after the time any Supplemental Indenture becomes effective pursuant to this Article VII. this Indenture shall be deemed to be modified and amended in accordance therewith. the respective rights. duties and obligations of the parties hereto or thereto and all Owners of Outstanding Bonds. as the case may be. shall thereafter be determined. exercised and enforced hereunder subject in all respects to such modification and amendment. and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 7.03. Endorsement or Replacement of Bonds After Amendment. After the effective date of any action taken as hereinaboye provided. the Authority may determine that the Bonds shall bear a notation. by endorsement in form approved by the Authority. as to such action. and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his bond for that purpose at the Trust Office of the Trustee. a suitable notation as to such action shall be made on such Bond at the expense of the Authority. If the Authority shall so determine. neW Bonds so modified as. in the opinion of the Authority. shall be necessary to conform to such Bond Owners" action shall be prepared and executed. and in that case upon demand of the Owner of any Bond Outstanding at such effective date such neW Bonds shall be exchanged at the Trust Office of the Trustee. at the expense of the Authority. for Bonds then Outstanding. upon surrender of such Outstanding Bonds. P6402. 1056\875 154.3 -27- ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN. SO LONG AS THE INSURANCE POLICY REMAINS IN EFFECT AND THE INSURER HAS NOT DEFAULTED WITH RESPECT TO ITS PAYMENT OBLIGATIONS UNDER THE INSURANCE POLICY. ALL PROVISIONS OF THIS ARTICLE VIII SHALL BE SUBJECT TO. AND QUALIFIED BY. THE PROVISIONS SET FORTH IN ARTICLE IX. INCLUDING. WITHOUT LIMITATION. THE INSURERS RIGHT TO CONSENT TO ACCELERATION OF THE BONDS. AND THE INSURERS RIGHT TO CONSENT TO OR DIRECT CERTAIN AUTHORITY. TRUSTEE OR OWNER ACTIONS. Section 8.0I I. Events of Default. The following events shall be Events of Default hereunder: (a) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable. whether at maturity as therein expressed. by proceedings for redemption. by declaration or otherwise. (b) Default in the due and punctual payment of any installment of interest on an Bond when and as such interest installment shall become due and payable. (c) Failure by the Authority to observe and perform any of the covenants. agreements or conditions on its part in this Indenture or in the Bonds contained. other than as referred to in the preceding Paragraphs (a) and (b). for a period of 30 days after written notice. specifying such a failure and requesting that it be remedied has been given to the Authority by the Trustee. or to the Authority and the Trustee by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds: provided. however. that if in the reasonable opinion of the Authority the failure stated in such notice can be corrected. but not within such 30 day period. such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30 day period and diligently pursued until such failure is corrected. (d) The filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America. or if a court of competent jurisdiction shall approve a petition. filed with or without the consent of the Authority. seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America. or if. under the provisions of any other law for the relief or aid of debtors. any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property. (e) The occurrence of any Event of Default under. and as that term is defined in. the Loan Agreement. Section 8.02. Remedies Upon Event of Default. Subject to the provisions of Article IX. if any Event of Default shall occur. then. and in each and every such case during the continuance of such Event of Default. the Trustee may. and at the written direction of the Owners of a majority in aggregate Principal Amount of the Bonds at the time Outstanding shall. upon notice in writing to the Authority and the Agency. declare the principal of all of the Bonds 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 P6402. 1056\875 154.3 -28- immediately due and payable. anything in this Indenture or in the Bonds contained to the contrary notwithstanding. Any such declaration is subject to the condition that if. at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the Authority or the Agency shall deposit Nyith the Trustee a sum sufficient to pay all the principal of and installments of interest on the Bonds payment of which is overdue. with interest on such overdue principal at the rate borne by the respective Bonds to the extent permitted by lacy. and the charges and expenses of the Trustee and its counsel (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). and any and all other Events of Default known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in every such case. the Owners of not Tess than a majority in aggregate Principal Amount of the Bonds then Outstanding. by Nyritten notice to the Authority. the Agency and the Trustee. or the Trustee if such declaration was made by the Trustee. may. on behalf of the Owners of all of the Bonds. rescind and annul such declaration and its consequences and \yaiye such Event of Default: but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default. or shall impair or exhaust any right or power consequent thereon. In addition. upon the occurrence and during the continuance of an Event of Default. the Trustee may pursue any available remedy at lacy or in equity to enforce the payment of the principal of and interest and premium. if any. on the Bonds. and to enforce any rights of the Trustee under or with respect to the Loan Agreement and this Indenture. If an Event of Default shall have occurred and be continuing and if requested so to do by the Owners of a majority in aggregate Principal Amount of Outstanding Bonds and indemnified as provided in Section 6.02(I). the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article VIII. as the Tnistcc. being advised by counsel. shall deem most expedient in the interest of the Bond Owners. No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Owners) is intended to be exclusive of any other remedy. but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Owners hereunder or now or hereafter existing at lacy or in equity. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a Nyaiyer of any such Event of Default or acquiescence therein: such right or power may be exercised from time to time as often as may be deemed expedient. Section 8.03. Application of Revenues and Other Funds After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Indenture shall be applied by the Trustee in the following order upon presentation of the several Bonds. and the stamping thereon of the amount of the payment if only partially paid. or upon the surrender thereof if fully paid - First. to the payment of the fees. costs and expenses of the Trustee. including reasonable compensation to its agents. attorneys and counsel (including the allocated costs and disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and P6402. 1056\875 154.3 -29- Second. to the payment of the Nvhole amount of interest on and principal of the Bonds then due and unpaid. Nyith interest on overdue installments of principal. and such interest to the extent permitted by lacy at the net effective rate of interest then borne by the Outstanding Bonds: provided. however. that in the event such amounts shall be insufficient to pav in full the full amount of such interest and principal. then such amounts shall be applied in the following order of priority: (i) first. to the payment of all installments of interest on the Bonds then due and unpaid. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. (ii) second. to the payment of principal of all installments of the Bonds then due and payable. on a pro rata basis in the event that the available amounts are insufficient to pav all such principal in full. and (iii) third. to the payment of interest on overdue installments of principal and interest. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. Section 8.04. Power of Trustee to Control Proceedings. Subject to the provisions of Article IX. in the event that the Trustee. upon the happening of an Event of Default. shall have taken an action. by judicial proceedings or otherwise. pursuant to its duties hereunder. Nvhether upon its own discretion or upon the request of the Owners of at least a majority in aggregate Principal Amount of the Bonds then Outstanding. it shall have full power. in the exercise of its discretion for the best interests of the Owners. Nyith respect to the continuance. discontinuance. Nvithdrawal. compromise. settlement or other disposal of such action: provided. however. that the Trustee shall not. unless there no longer continues an Event of Default. discontinue. Nvithdraw. compromise or settle. or othenvise dispose of an litigation pending at lacy or in equity. if at the time there has been filed Nyith it a Nvritten request signed by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds hereunder opposing such discontinuance. Nvithdrawal. compromise. settlement or other disposal of such litigation. Any suit. action or proceeding \yhich any Owner shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners similarly situated and the Trustee is hereby appointed (and the successive respective Owners. by taking and holding the same. shall be conclusively deemed so to have appointed it) the true and lawful attorney -in -fact of the respective Owners for the purpose of bringing any such suit. action or proceeding and to do and perform any and all acts and things for an on behalf of the respective Owners as a class or classes. as may be necessary or advisable in the opinion of the Trustee as such attorney -in -fact. Section 8.05. Appointment of Receivers. Upon the occurrence of an Event of Default hereunder. and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Owners under this Indenture. the Trustee shall be entitled. as a matter or right. to the appointment of a receiver or receivers of the Revenues and other amounts pledged hereunder. pending such proceedings. Nyith such powers as the court making such appointment shall confer. Section 8.06. Non -Waiver. Nothing in this Article VI I I or in any other provision of this Indenture. or in the Bonds. shall affect or impair the obligation of the Authority. \yhich is absolute and unconditional. to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity. as herein provided. out of the Revenues and other moneys herein pledged for such payment. A Nvaiyer of any default or breach of duty or contract by the Trustee or any Owners shall not affect any subsequent default or breach of duty or contract. or impair anv rights or remedies on anv P6402. 1056\875154.3 -30- such subsequent default or breach. No delay or omission of the Trustee or any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a Nvaiyer of any such default or any acquiescence therein: and every power and remedy conferred upon the Trustee or Owners by the Bond Law or by this Article VIII may be enforced and exercised. upon an Event of Default. from time to time and as often as shall be deemed expedient by the Trustee or the Owners. as the case may be. Section 8.07. Limitation on Rights and Remedies of Owners. No Owner shall have the right to institute any suit. action or proceeding at lacy or in equity. for any remedy under or upon this Indenture. unless (i) such Owner shall have previously given to the Trustee Nvritten notice of the occurrence of an Event of Default: (ii) the Owners of a majority in aggregate Principal Amount of all the Bonds then Outstanding shall have made «rittcn request upon the Trustee to exercise the powers hereinbefore granted or to institute such action. suit or proceeding in its own name: (iii) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs. expenses and liabilities to be incurred in compliance Nyith such request: and (iv) the Trustee shall have refused or omitted to comply Nyith such request for a period of 60 days after such «rittcn 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 Owner of any remedy hereunder: it being understood and intended that no one or more Owners shall have any right in any manner Nyhateyer by the Owner's or Owners" action to enforce any right under this Indenture. except in the manner herein provided. and that all proceedings at lacy or in equity to enforce any provision of this Indenture shall be instituted. had and maintained in the manner herein provided and for the equal benefit of all Owners. The right of any Owner of any Bond to receive payment of the principal of and interest and premium. if any. on such Bond as herein provided or to institute suit for the enforcement of any such payment. shall not be impaired or affected Nyithout the «rittcn consent of such Owner. notwithstanding the foregoing provisions of this Section or any other provision of this Indenture. Section 8.08. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or otherwise. and such proceedings shall have been discontinued or abandoned for any reason. or shall have been determined adversely. then and in every such case. the Authority. the Trustee and the Owners shall be restored to their former positions and rights hereunder. respectively. with regard to the property subject to this Indenture. and all rights. remedies and powers of the Tnistcc shall continue as if no such proceedings had been taken. P6402. 1056\875 154.3 ARTICLE IX BOND INSURANCE (to come) -3I- ARTICLE X BOOK -ENTRY SYSTEM Section 10.01 Book -Entry System: Limited Obligation of Authority. The Bonds shall be initially delivered in the form of a separate single fully registered Bond (which may be typewritten) for each of the maturities of the Bonds. Upon initial delivery. the ownership of each such Bond shall be registered in the registration books kept by the Trustee in the name of the Nominee as nominee of the Depository. Except as provided in Section 10.03. all of the Outstanding Bonds shall be registered in the registration books kept by the Trustee in the name of the Nominee. With respect to Bonds registered in the registration books kept by the Trustee in the name of the Nominee,. the Authority and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence. the Authority and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository. the Nominee. or any Participant with respect to any ownership interest in the Bonds. (ii) the delivery to any Participant or any other person. other than an Owner as shown in the registration books kept by the Trustee. of any notice with respect to the Bonds. including any notice of redemption. (iii) the selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed in the event the Bonds are redeemed in part. or (iv) the payment to any Participant or any other person. other than an Owner as shown in the registration books kept by the Trustee. of any amount with respect to principal of. premium. if any. or interest due with respect to the Bonds. The Authority and the Trustee may treat and consider the person in wvhose name each Bond is registered in the registration books kept by the Tnistcc as the holder and absolute owner of such Bond for the purpose of payment of principal. premium. if any. and interest with respect to such Bond. for the purpose of giving notices of redemption and other matters with respect to such Bond. for the purpose of registering transfers with respect to such Bond. and for all other purposes Nvhatsoeyer. The Trustee shall pay all principal of. premium. if any. and interest due with respect to the Bonds only to or upon the order of the respective Owners. as shown in the registration books kept by the Trustee. or their respective attorneys duly authorized in writing. and all such payments shall be valid and effective to satisfy and discharge fully the Authority's obligations with respect to payment of the principal. premium. if any. and interest due with respect to the Bonds to the extent of the sum or sums so paid. No person other than an Owner. as shown in the registration books kept by the Trustee. shall receive a Bond evidencing the obligation of the Authority to make payments of principal. premium. if any. and interest pursuant to this Indenture. Upon delivery by the Depository to the Trustee and the Authority of written notice to the effect that the Depository has determined to substitute a new nomincc in place of the Nominee. and subject to the provisions herein with respect to Record Dates. the word Nominee in this Indenture shall refer to such new nominee of the Depository. Section 10.02 Representation Letter. In order to qualify the Bonds for the Depository's book entry system. the Authority has heretofore executed and delivered to such Depository the Representation Letter. The execution and delivery of a Representation Letter shall not in any way impose upon the Authority or the Tnistcc any obligation wvhatsoeyer with respect to persons having interests in the Bonds other than the Owners. as shown on the registration books kept by the Trustee. The Trustee agrees to take all action necessary to continuously comply with the Representation Letter to the extent that such action is not inconsistent with this Indenture. In addition to the execution and delivery of the Representation Letter. the officers of the Authority are hereby authorized to take any other actions. not inconsistent with this Indenture. to qualify the Bonds for the Depository's book entry program. Section 10.03 Transfers Outside Book -Entry System. In the event (a) the Depository determines not to continue to act as securities depository for the Bonds. or (b) the Authority determines P6402. 1056\875 154.3 -32- that the Depository shall no longer so act. then the Authority NyiII discontinue the book -entry system Nyith the Depository. If the Authority fails to identify another qualified securities depository to replace the Depository. then the Bonds so designated shall no longer be restricted to being registered in the registration books kept by the Trustee in the name of the Nominee. but shall be registered in Nvhateyer name or names persons transferring or exchanging Bonds shall designate. in accordance Nyith the provisions of Section 2.09. Section 10.04 Payments to the Nominee. Notwithstanding any other provisions of this Indenture to the contrary. so Tong as any Bond is registered in the name of the Nominee. all payments Nyith respect to principal. premium. if any. and interest due Nyith respect to such Bond and all notices Nyith respect to such Bond shall be made and given. respectively. as provided in the Representation Letter or as otherwise instructed by the Depository. Section 10.05 Initial Depository and Nominee. The initial Depository under this Article shall be The Depository Trust Company. NON York. NON York. The initial Nominee shall be Cede & Co.. as Nominee of The Depository Trust Company. NON York. NON York. ARTICLE XI MISCELLANEOUS Section 11.01. Limited Liability of Authority. Notwithstanding anything in this Indenture contained. the Authority shall not be required to advance any moneys derived from any source of income other than the Revenues for the payment of the principal of or interest on the Bonds. or any premiums upon the redemption thereof. or for the performance of any covenants herein contained (except to the extent any such covenants are expressly payable hereunder from the Revenues or otherwise from amounts payable under the Loan Agreement). The Authority may. however. advance funds for any such purpose. provided that such funds are derived from a source legally available for such purpose and may be used by the Authority for such purpose without incurring indebtedness. The Bonds shall be revenue bonds. payable exclusively from the Revenues and other funds as in this Indenture provided. The general fund of the Authority is not liable. and the credit of the Authority is not pledged. for the payment of the interest and premium. if any. on or principal of the Bonds. The Owners of the Bonds shall never have the right to compel the forfeiture of any property of the Authority. The principal of and interest on the Bonds. and any premiums upon the redemption of any thereof. shall not be a legal or equitable pledge. charge. lien or encumbrance upon any property of the Authority or upon any of its income. receipts or revenues except the Revenues and other funds pledged to the payment thereof as in this Indenture provided. Section 11.02. Benefits of Indenture Limited to Parties. Nothing in this Indenture. expressed or implied. is intended to give to any person other than the Authority. the Trustee. the Agency. the Insurer. and the Owners of the Bonds. any right. remedy or claim under or by reason of this Indenture. Any covenants. stipulations. promises or agreements in this Indenture contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the Trustee. the Agency. the Insurer. and the Owners of the Bonds. Section 11.0 3. Dischartze of Indenture. If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following \Nays: (a) By \yell and truly paying or causing to be paid the principal of and interest and premium. if any. on such Bonds. as and Nyhen the same become due and payable: P6402. 1056\875 154.3 (b) By irrevocably depositing with the Trustee. in trust. at or before maturity. money which. together with the available amounts then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. is fully sufficient to pay such Bonds. including all principal. interest and premiums. if any: or (c) By irrevocably depositing with the Trustee or any other fiduciary. in trust. non -callable Defeasance Obligations in such amount as an Independent Accountant shall determine \gill. together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal. interest and redemption premiums) at or before their respective maturity dates: and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been mailed pursuant to Section 2.03 or provision satisfactory to the Trustee shall have been made for the mailing of such notice. then. at the Request of the Authority. and notwithstanding that any of such Bonds shall not have been surrendered for payment. the pledge of the Revenues and other funds provided for in this Indenture with respect to such Bonds. and all other pecuniary obligations of the Authority under this Indenture with respect to all such Bonds. shall cease and terminate. except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid. and all expenses and costs of the Trustee. Any funds held by the Trustee. following any payment or discharge of the Outstanding Bonds pursuant to this Section 11.03 and the payment of the Tnistee's and the Insurers expenses and costs. shall be paid over to the Authority. Section 11.04. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture or any Supplemental Indenture the Authority is named or referred to. such reference shall be deemed to include the successor to the powers. duties and functions. with respect to the management. administration and control of the affairs of the Authority. that are presently vested in the Authority. and all the covenants. agreements and provisions contained in this Indenture by or on behalf of the Authority shall bind and inure to the benefit of its successors whether so expressed or not. Section 11.05. Content of Certificates. Every Certificate of the Authority with respect to compliance with a condition or covenant provided for in this Indenture shall include (i) a statement that the person or persons making or giving such Certificate have read such covenant or condition and the definitions herein relating thereto: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Certificate are based: (iii) a statement that. in the opinion of the signers. they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with: and (iv) a statement as to whether. in the opinion of the signers. such condition or covenant has been complied with. Any such certificate made or given by an officer of the Authority may be based. insofar as it relates to legal matters. upon a certificate or opinion of or representations by counsel. unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate may be based. as aforesaid. are erroneous. or in the exercise of reasonable care should have known that the same \were erroneous. Any such certificate or opinion or representation made or given by counsel may be based. insofar as it relates to factual matters. on information with respect to which is in the possession of the Authority. or upon the certificate or opinion of or representations by an officer or officers of the Authority. unless such counsel knows that the certificate or opinion or representations with respect to the matters upon which his certificate. opinion or representation may be based. as aforesaid. are erroneous. P6402. I Oi6\875 154. 3 -34- Section I I.06. Execution of Documents by Owners. Any request. consent or other instrument required by this Indenture to be signed and executed by Bond Owners may be in any number of concurrent writings of substantially similar tenor and may be signed or executed by such Bond Owners in person or by their agent or agents duly appointed in writing. Proof of the execution of any such request. consent or other instrument or of a writing appointing any such agent. shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and of the Authority if made in the manner provided in this Section I I.06. The fact and date of the execution by any person of any such request. consent or other instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer of any jurisdiction. authorized by the laws thereof to take acknowledgments of deeds. certifying that the person signing such request. consent or other instrument or writing acknowledged to him the execution thereof. The ownership of Bonds shall be proved by the Registration Books. Any request. consent or vote of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of any Bond issued in exchange therefor or in Iicu thereof. in respect of anything done or suffered to be done by the Trustee or the Authority in pursuance of such request. consent or vote. In Iicu of obtaining any demand. request. direction. consent or Nvaiyer in writing. the Trustee may call and hold a meeting of the Bond Owners upon such notice and in accordance with such rules and obligations as the Trustee considers fair and reasonable for the purpose of obtaining any such action. Section I I.07. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand. request. direction. consent or Nvaiyer under this Indenture. Bonds which are owned or held by or for the account of the Agency or the Authority (but excluding Bonds held in any employees" retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. provided. however. only Bonds which a responsible officer of the Trustee actually knows to be so owned or held shall be disregarded. Section I I.08. Waiver of Personal Liability. No officer. agent or employee of the Authority shall be individually or personally liable for the payment of the interest on or principal of the Bonds: but nothing herein contained shall relieve any such officer. agent or employee from the performance of any official duty provided by law. Section I I.09. Partial Invalidity. If any one or more of the covenants or agreements. or portions thereof. provided in this Indenture on the part of the Authority (or of the Trustee) to be performed should be contrary to law. then such covenant or covenants. such agreement or agreements. or such portions thereof. shall be null and void and shall be deemed separable from the remaining covenants and agreements or portions thereof and shall in no way affect the validity of this Indenture or of the Bonds: but the Bond Owners shall retain all rights and benefits accorded to them under the Bond Law or any other applicable provisions of law. The Authority hereby declares that it would have entered into this Indenture and each and every other section. paragraph. subdivision. sentence. clause and phrase hereof and would have authorized the issuance of the Bonds pursuant hereto irrespective of the fact that any one or more sections. paragraphs. subdivisions. sentences. clauses or phrases of this Indenture or the application thereof to any person or circumstance may be held to be unconstitutional. unenforceable or invalid. Section I I.10. Destruction of Cancelled Bonds. Whenever in this Indenture provision is made for the surrender to the Trustee of any Bonds which have been paid or cancelled pursuant to the provisions of this Indenture. the Trustee shall. as permitted by law. destroy such cancelled Bonds and. upon Request of the Authority. provide to the Authority a certificate of destruction duly executed by the P6402.1056\875154.3 - 5- Trustee. and the Authority shall be entitled to rely upon any statement of fact contained in such certificate Nvith respect to the destruction of any such Bonds therein referred to: provided. however. the Authority shall reimburse the Trustee for the Trustees costs incurred in connection Nvith the microfilming or the required permanent recording. if any. related thereto. Section 1 1.1 1. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the accounting records of the Authority or the Trustee. as the case may be. either as a fund or an account. and may. for the purpose of such records. any audits thereof and any reports or statements Nvith respect thereto. be treated either as a fund or as an account. All such records Nvith respect to all such funds and accounts held by the Authority shall at all times be maintained in accordance Nvith generally accepted accounting principles and all such records Nvith respect to all such funds and accounts held by the Trustee shall be at all times maintained in accordance Nvith corporate trust industry practices. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the form of multiple funds. accounts or sub -accounts therein. Section 11.12. Payment on Business Days. Whenever in this Indenture any amount is required to be paid on a day Nyhich is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest shall not accrue from and after such day. Section 1 1.1 3. Notices. Any notice. request. complaint. demand or other communication under this Indenture shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below. or by telecopv or other form of telecommunication. confirmed by telephone at its number set forth below. Notice shall be effective either (i) upon transmission by telecopy or other form of telecommunication. (ii) 48 hours after deposit in the United States mail. postage prepaid. or (iii) in the case of personal delivery to any person. upon actual receipt. The Authority. the Agency or the Trustee may. by Nvritten notice to the other parties. from time to time modify the address or number to which communications are to be given hereunder. If to the Authority: Palm Desert Financing Authority 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Chief Administrative Officer Facsimile: (760) 340-0574 If to the Agency: Palm Desert Redevelopment Agency 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Executive Director Facsimile: (760) 340-0574 If to the Trustee: Wells Fargo Bank. National Association 707 Wilshire Boulevard. 17th Floor Los Angeles. California 90017 Attention: Corporate Trust Department Facsimile: (213) 6I4-3355 If to the Insurer: P6402. I c 56\875 154.3 -36- Attention: Facsimile: ( ) The Authority. the Agency. the Trustee and the Insurer may designate anv further or different addresses to \Vhich subsequent notices. certificates or other communications shall be sent. Notices to the Insurer shall be governed by Section 9.02. Section 11.14. Unclaimed Money s. Anything in this Indenture to the contrary notwithstanding. anv moneys held by the Trustee in trust for the payment and discharge of anv of the Bonds or the interest thereon which remain unclaimed for two years after the date when such Bonds or the interest thereon have become due and payable. either at their stated maturity dates or by call for earlier redemption. if such moneys \were held by the Trustee at such date. or for two years after the date of deposit of such moneys if deposited with the Trustee after said date when such Bonds or the interest thereon become due and payable. shall. at the Request of the Authority. be repaid by the Trustee to the Authority. as its absolute property and free from trust. and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the Authority for the payment of such Bonds: provided. however. that before making anv such payment to the Authority. the Trustee shall. at the Request and at the expense of the Authority. cause to be mailed to the Owners of all such Bonds. at their respective addresses appearing on the Registration Books. a notice that said moneys remain unclaimed and that. after a date named in said notice. which date shall not be less than 30 days after the date of mailing of such notice. the balance of such moneys then unclaimed will be returned to the Authority. Section I I.15. Governing Law. This Agreement shall be construed and governed in accordance with the laws of the State of California. P6402. 1056\875 154.3 -37- IN WITNESS WHEREOF. the PALM DESERT FINANCING AUTHORITY has caused this Indenture to be signed in its name by its duly authorized officer and WELLS FARGO BANK. NATIONAL ASSOCIATION. in token of its acceptance of the trust created hereunder. has caused this Indenture to be signed in its corporate name by its officer identified below. all as of the day and year first above Nvritten. P6402. 1056\875 154.3 PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By -38- Authorized Officer EXHIBIT A (FORM OF SERIES 2006A BONDS Unless this certificate is presented by an authorized representative of The Depository Trust Company. a NOV York corporation ("DTC). to the Authority or its agent for registration of transfer. exchange. or payment. and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC). ANY TRANSFER. PLEDGE. OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof. Cede & Co.. has an interest herein. No. PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE BOND (PROJECT AREA NO. 3) 2006 SERIES A RATE OF INTEREST MATURITY DATE ORIGINAL ISSUE DATE CUSIP April I. 20_ REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: The PALM DESERT FINANCING AUTHORITY. a joint powers authority organized and existing under the laws of the State of California (the "Authority"). for value received. hereby promises to pay (but only out of the Revenues. as defined in the Indenture hereinafter referred to. and certain other moneys) to the Registered Owner identified above or registered assigns (the "Registered Owner"). on the Maturity Date identified above or any earlier redemption date. the Principal Amount identified above in lawful money of the United States of America: and to pay interest thereon at the Rate of Interest identified above in like money from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Series 2006A Bond (unless this Series 2006A Bond is authenticated on or before an Interest Payment Date and after the fifteenth calendar day of the month preceding such Interest Payment Date. in which event it shall bear interest from such Interest Payment Date. or unless this Series 2006A Bond is authenticated on or prior to September 15. 2006. in which event it shall bear interest from the Original Issue Date identified above: provided. however. that if. at the time of authentication of this Series 2006A Bond. interest is in default on this Series 2006A Bond. this Series 2006A Bond shall bear interest from the Interest Payment Date to which interest hereon has previously been paid or made available for payment). payable semiannually on April I and October I in each year. commencing October I. 2006 (the "Interest Payment Dates) until payment of such Principal Amount in full. The Principal Amount hereof is payable upon presentation hereof upon maturity or earlier redemption at the corporate trust office of Wells Fargo Bank. National Association (the "Trustee) in Los Angeles. P6402. 1056\875 154.3 A- I California or such other location as the Trustee shall designate (the "Trust Office"). Interest hereon is payable by check or draft of the Trustee mailed by first class mail on each Interest Payment Date to the Registered Owner hereof at the address of the Registered Owner as it appears on the registration books of the Trustee as of the fifteenth calendar day of the month preceding such Interest Payment Date (except in the case of a Registered Owner of at least $ 1.000.000 in aggregate principal amount. such payment may. at such Registered Owners option. be made by \sire transfer of immediately available funds in accordance Nyith Nvritten instructions provided by such Registered Owner prior to the fifteenth calendar day of the month preceding such Interest Payment Date). This Series 2006A Bond is one of a duly authorized series of bonds of the Authority designated the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A (the "Series 2006A Bonds"). limited in principal amount to } . The Authority has issued another series of bonds designated the Palm Desert Financing Authority Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 3). 2006 Series B (the "Series 2006B Bonds." and together Nyith the Series 2006A Bonds. the "Bonds"). limited in initial principal amount to } . concurrently Nyith the issuance of the Series 2006A Bonds. Both the Series 2006A Bonds and the Series 2006B Bonds are secured by an Indenture of Trust. dated as of July I. 2006 (the "Indenture"). by and between the Authority and the Trustee. Unless the context clearly requires otherwise. capitalized terms used but not defined herein have the meanings ascribed to them in the Indenture. Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the rights thereunder of the owners of the Bonds. of the nature and extent of the Revenues. of the rights. duties and immunities of the Trustee and of the rights and obligations of the Authority thereunder: and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof. and to all of the provisions of which Indenture the Registered Owner hereof. by acceptance hereof. assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985. constituting Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Act"). The Bonds are special obligations of the Authority and. as and to the extent set forth in the Indenture. are payable solely from and secured by a first lien on and pledge of the Revenues and certain other moneys and securities held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of. and charge and Tien upon. all of the Revenues and such other moneys and securities. and the Revenues and such other moneys and securities constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if an) on the Bonds. The Bonds are not secured by a legal or equitable pledge of. or charge. lien or encumbrance upon. any of the property of the Authority or any of its income or receipts. except the Revenues and such other moneys and securities as provided in the Indenture. The Series 2006A Bonds have been issued for the purpose of making a loan (the "Series 2006A Loan) to the Palm Desert Redevelopment Agency (the "Agency) to finance certain public capital improvements with respect to a redevelopment project known and designated as Project Area No. 3. The Series 2006A Loan has been made by the Authority to the Agency pursuant to a Project Area No. 3 Loan Agreement (2006 Senior Loans). dated as of July I. 2006 (the "Loan Agreement"). by and among the Agency. the Authority and the Trustee. The Series 2006A Bonds maturing on or after April I. 2() are subject to redemption prior to their respective maturity dates as a Nvhole. or in part among maturities as designated by the Authority and by lot within a maturity. from prepayments of the Series 2006A Loan made at the option of the Agency pursuant to the Loan Agreement. on any Interest Payment Date on or after April I. 2() . at the following P6402. 1056\875 154.3 A-2 respective redemption prices (expressed as a percentage of the principal amount of Series 2006A Bonds to be redeemed). plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price April I. 20 and October I. 2() `Y0 April I. 20 and October I. 2() April I. 20 and thereafter 100 The Series 2006A Bonds maturing on April I. 20 and April I. 20 are also subject to mandatory sinking fund redemption by lot. on April I in each year commencing April I. 20 and April I. 20 . respectively. at a redemption price equal to the principal amount thereof to be redeemed. without premium. plus accrued interest to the date of redemption. in the aggregate respective principal amounts set forth in the Indenture: provided. however. that in Iicu of redemption thereof. such Series 2006A Bonds may be purchased by the Agency pursuant to the Loan Agreement. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Series 2006A Bonds designated for redemption. at their respective addresses appearing on the registration books maintained by the Trustee. and by such means as acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the redemption date: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Series 2006A Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the serial numbers of each maturity or maturities (except that if the event of redemption is of all of the Series 2006A Bonds of such maturity or maturities in whole. the Trustee shall designate such maturities or the maturity in NVhoIe without referencing each individual number) of the Series 2006A Bonds to be redeemed. and shall require that such Series 2006A Bonds be then surrendered at the Tnist Office for redemption at the redemption price. giving notice also that further interest on such Series 2006A Bonds will not accrue from and after the redemption date. Subject to the limitations and upon payment of the charges. if any. provided in the Indenture. this Series 2006A Bond may be exchanged at the Trust Office for a like aggregate principal amount and maturity of fully registered Series 2006A Bonds of other authorized denominations. This Series 2006A Bond is transferable by the Registered Owner hereof. in person or by the Registered Owners attorney duly authorized in writing. at the Trust Office. but only in the manner. subject to the limitations and upon payment of the charges provided in the Indenture. and upon surrender and cancellation of this Series 2006A Bond. Upon such transfer a new fully registered Series 2006A Bond or Series 2006A Bonds. of authorized denomination or denominations. for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of any Series 2006A Bond during the 15- day period preceding the selection of Series 2006A Bonds for redemption or any Series 2006A Bond selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes. and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority and of the owners of the Series 2006A Bonds and of the Trustee may be modified or amended from time to time and at any time in the P6402. 1056\875 154.3 A-3 manner. to the extent. and upon the terms provided in the Indenture: provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on an Series 2006A Bond or othenvise alter or impair the obligation of the Authority to pay the principal. interest or premiums at the time and place and at the rate and in the currency provided therein of any Series 2006A Bond Nvithout the express Nvritten consent of the Owner of such Series 2006A Bond. (b) reduce the percentage of Series 2006A Bonds required for the «rittcn consent to any such amendment or modification. or (c) Nyithout its «rittcn consent thereto. modify any of the rights or obligations of the Trustee. all as more fully set forth in the Indenture. It is hereby certified that all things. conditions and acts required to exist. to have happened and to have been performed precedent to and in the issuance of this Series 2006A Bond do exist. have happened and have been performed in due time. form and manner as required by the Constitution and statutes of the State of California and by the Act and the amount of this Series 2006A Bond. together Nvith all other indebtedness of the Authority. does not exceed any limit prescribed by the Constitution or statutes of the State of California or by the Act. This Series 2006A Bond shall not be entitled to any benefit under the Indenture. or become valid or obligatory for any purpose. until the certificate of authentication hereon shall have been signed by the Trustee. IN WITNESS WHEREOF. the Authority has caused this Series 2006A Bond to be executed in its name and on its behalf by the manual or facsimile signatures of its President and Secretary_ all as of the Original Issue Date identified above. PALM DESERT FINANCING AUTHORITY By Attest: Secretary President STATEMENT OF INSURANCE Ito coma P6402. 1056\875 154.3 A-4 (FORM OF TRUSTEES CERTIFICATE OF AUTHENTICATION' This is one of the Series 2006A Bonds described in the Nvithin-mentioned Indenture and registered on the Bond Registration Books. Date: WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Signatory (FORM OF ASSIGNMENT' For value received the undersigned do(es) hereby sell. assign and transfer unto Nyhose tax identification number is . the Nyithin-mentioned registered Series 2006A Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee Nyith full pomer of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond Nvith the name(s) as Nvritten on the face of the Nvithin Series 2006A Bond in every particular Nvithout alteration or enlargement or any change Nvhatsoeyer. NOTE: Signature(s) must be guaranteed by a member of an institution Nyhich is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. P6402. 1056\875 154.3 A-5 EXHIBIT B FORM OF SERIES 2006B BONDS Unless this certificate is presented by an authorized representative of The Depository Trust Company. a NOV York corporation ("DTC). to the Authority or its agent for registration of transfer. exchange. or payment. and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede K. Co. or to such other entity as is requested by an authorized representative of DTC). ANY TRANSFER. PLEDGE. OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof. Cede & Co.. has an interest herein. No. Maturity Amount: } PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE CAPTIAL APPRECIATION BOND (PROJECT AREA NO. 3) 2006 SERIES B YIELD TO MATURITY MATURITY DATE ORIGINAL ISSUE DATE CUSIP April I. 20_ REGISTERED OWNER: CEDE & CO. INITIAL PRINCIPAL AMOUNT: MATURITY AMOUNT: The PALM DESERT FINANCING AUTHORITY. a joint powers authority organized and existing under the laws of the State of California (the "Authority"). for value received. hereby promises to pay (but only out of the Revenues. as defined in the Indenture hereinafter referred to. and certain other moneys) to the Registered Owner identified above or registered assigns (the "Registered Owner'). in lawful money of the United States of America. either the Maturity Amount identified above on the Maturity Date or the Accreted Value. plus any applicable redemption premium. upon redemption prior to maturity. "Accreted Value." with respect to any Series 2006B Bond. means as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Original Issue Date at the stated Yield to Maturity thereof on each April I and October I. commencing October I. 2006. Interest on each Series 2006B Bond shall be computed using a year of 360 days of twelve 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. with respect to any Series 2006B Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the corporate trust office of Wells Fargo Bank. National Association (the B- 1 P6402. 10;6\875 154.3 "Trustee") in Los Angeles. California or such other location as the Trustee shall designate (the "Trust Office"). This Series 2006B Bond is one of a duly authorized series of bonds of the Authority designated the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B (the "Series 2006B Bonds"). limited in initial principal amount to $ The Authority has issued another series of bonds designated the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A (the "Series 2006A Bonds." and together Nyith the Series 2006B Bonds. the "Bonds"). limited in principal amount to } . concurrently Nyith the issuance of the Series 2006B Bonds. Both the Series 2006A Bonds and the Series 2006B Bonds are secured by an Indenture of Trust. dated as of July I. 2006 (the "Indenture"). by and between the Authority and the Trustee. Unless the context clearly requires otherwise. capitalized terms used but not defined herein have the meanings ascribed to them in the Indenture. Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the rights thereunder of the owners of the Bonds. of the nature and extent of the Revenues. of the rights. duties and immunities of the Trustee and of the rights and obligations of the Authority thereunder: and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof. and to all of the provisions of which Indenture the Registered Owner hereof. by acceptance hereof. assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985. constituting Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Act"). The Bonds are special obligations of the Authority and. as and to the extent set forth in the Indenture. are payable solely from and secured by a first lien on and pledge of the Revenues and certain other moneys and securities held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of. and charge and lien upon. all of the Revenues and such other moneys and securities. and the Revenues and such other moneys and securities constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if an) on the Bonds. The Bonds are not secured by a legal or equitable pledge of. or charge. lien or encumbrance upon. any of the property of the Authority or any of its income or receipts. except the Revenues and such other moneys and securities as provided in the Indenture. The Series 2006B Bonds have been issued for the purpose of making a loan (the "Series 2006B Loan") to the Palm Desert Redevelopment Agency (the "Agency") to finance certain public capital improvements with respect to a redevelopment project known and designated as Project Area No. 3. The Series 2006B Loan has been made by the Authority to the Agency pursuant to a Project Area No. 3 Loan Agreement (2006 Senior Loans). dated as of July I. 2006 (the "Loan Agreement"). by and among the Agency. the Authority and the Trustee. The Series 2006B Bonds maturing on or after April I. 2() are subject to redemption prior to their respective maturity dates as a Nvhole. or in part among maturities as designated by the Authority and by lot within a maturity. from prepayments of the Series 2006B Loan made at the option of the Agency pursuant to the Loan Agreement. on any April I or October I on or after April I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Series 2006B Bonds on the date fixed for redemption): B-2 P6402. 1056\875 154.3 Redemption Dates Redemption Price April I. 20 and October I. 2() 10_`%0 April I. 20 and October I. 2() 10_ April I. 20 and thereafter 100 The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Series 2006B Bonds designated for redemption. at their respective addresses appearing on the registration books maintained by the Trustee. and by such means as acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the redemption date: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Series 2006B Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the serial numbers of each maturity or maturities (except that if the event of redemption is of all of the Series 2006B Bonds of such maturity or maturities in whole. the Trustee shall designate such maturities or the maturity in wvhoIe without referencing each individual number) of the Series 2006B Bonds to be redeemed. and shall require that such Series 2006B Bonds be then surrendered at the Trust Office for redemption at the redemption price. giving notice also that further interest on such Series 2006B Bonds will not accrue from and after the redemption date. Subject to the limitations and upon payment of the charges. if any. provided in the Indenture. this Series 2006B Bond may be exchanged at the Trust Office for a like aggregate Maturity Amount and maturity of fully registered Series 2006B Bonds of other authorized denominations. This Series 2006B Bond is transferable by the Registered Owner hereof. in person or by the Registered Owners attorney duly authorized in writing. at the Trust Office. but only in the manner. subject to the limitations and upon payment of the charges provided in the Indenture. and upon surrender and cancellation of this Series 2006B Bond. Upon such transfer a new fully registered Series 2006B Bond or Series 2006B Bonds. of authorized denomination or denominations. for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of an Series 2006B Bond during the 15- day period preceding the selection of Series 2006B Bonds for redemption or any Series 2006B Bond selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes. and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority and of the owners of the Series 2006B Bonds and of the Trustee may be modified or amended from time to time and at any time in the manner. to the extent. and upon the terms provided in the Indenture: provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Series 2006B Bond or othenyise alter or impair the obligation of the Authority to pay the principal. interest or premiums at the time and place and at the rate and in the currency provided therein of any Series 2006B Bond without the express written consent of the Owner of such Series 2006B Bond. (b) reduce the percentage of Series 2006B Bonds required for the written consent to any such amendment or modification. or (c) without its written consent thereto. modify any of the rights or obligations of the Trustee. all as more fully set forth in the Indenture. B-3 P6402. 1056\875 154.3 It is hereby certified that all things. conditions and acts required to exist. to have happened and to have been performed precedent to and in the issuance of this Series 2006B Bond do exist. have happened and have been performed in due time. form and manner as required by the Constitution and statutes of the State of California and by the Act and the amount of this Series 2006B Bond. together Nvith all other indebtedness of the Authority. does not exceed any limit prescribed by the Constitution or statutes of the State of California or by the Act. This Series 2006B Bond shall not be entitled to any benefit under the Indenture. or become valid or obligatory for any purpose. until the certificate of authentication hereon shall have been signed by the Trustee. IN WITNESS WHEREOF. the Authority has caused this Series 2006B Bond to be executed in its name and on its behalf by the manual or facsimile signatures of its President and Secretary all as of the Original Issue Date identified above. PALM DESERT FINANCING AUTHORITY By Attest: Secretary President STATEMENT OF INSURANCE Ito coma B-4 P6402. 10;6\875 154.3 (FORM OF TRUSTEES CERTIFICATE OF AUTHENTICATION' This is one of the Series 2006B Bonds described in the Nyithin-mentioned Indenture and registered on the Bond Registration Books. Date: WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Signatory (FORM OF ASSIGNMENT' For value received the undersigned do(es) hereby sell. assign and transfer unto Nyhose tax identification number is the Nyithin-mentioned registered Series 2006B Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee Nyith full pomer of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond Nyith the name(s) as Nyritten on the face of the Nyithin Series 2006B Bond in every particular Nyithout alteration or enlargement or any change Nyhatsoeyer. NOTE: Signature(s) must be guaranteed by a member of an institution Nyhich is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. B-5 P6402. I c )56\875 154.3 Project Area No. 3 Loan Agreement (2006 Senior Loans) Nyith reference to Palm Desert Financing Authority Tax Allocation Rcycnuc Bonds (Project Area No. 3) 2006 Series A Palm Desert Financing Authority Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 3) 2006 Series B P64 2.0I56\875167.3 RWG DRAFT: 5/24/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 2 Section I.I. Definitions 2 Section 1.2. Rules of Construction iS ARTICLE II THE LOANS: APPLICATION OF LOAN PROCEEDS: PARITY DEBT iS Section 2.1. Authorization Section 2.2. Disbursement and Application of Loan Proceeds Section 2.3. Repayment of Loans 6 Section 2.4. Optional Prepayment 7 Section 2.5. Reserve Fund 7 Section 2.6. Costs of Issuance Fund 8 Section 2.7. Project Fund 8 Section 2.8. Parity Debt 9 Section 2.9. Issuance of Subordinate Debt 10 Section 2.10. Validity of Loans 10 ARTICLE III PLEDGE AND APPLICATION OF TAX REVENUES 10 Section 3.1. Pledge of Tax Revenues 10 Section 3.2. Special Fund: Deposit of Tax Revenues 10 Section 3.3. Transfer of Tax Revenues From Special Fund 1 1 Section 3.4. Investment of Moneys: Valuation of Investments 1 1 ARTICLE IV OTHER COVENANTS OF THE AGENCY 12 Section 4.1. Punctual Payment: Extension of Payments 12 Section 4.2. Limitation on Additional Indebtedness 12 Section 4.3. Payment of Claims 12 Section 4.4. Books and Accounts: Financial Statements 12 Section 4.5. Protection of Security and Rights 13 Section 4.6. Payments of Taxes and Other Charges 13 Section 4.7. Taxation of Leased Property 13 Section 4.8. Disposition of Property 13 Section 4.9. Maintenance of Tax Revenues 13 Section 4.10. Payment of Expenses: Indemnification 14 Section 4.1 1. Tax Covenants 14 Section 4.12. Redevelopment of Project Area 15 Section 4.13. Low and Moderate Income Housing Fund 15 Section 4.14. Annual Review of Tax Revenues 15 Section 4.15. Further Assurances 16 ARTICLE V EVENTS OF DEFAULT AND REMEDIES 16 Section 5.1. Events of Default and Acceleration of Maturities 16 Section 5.2. Application of Funds Upon Default 17 Section 5.3. No Waiver 17 Section 5.4. Agreement to Pay Attorneys' Fees and Expenses 18 Section 5.5. Remedies Not Exclusive 18 Section 5.6. Control of Remedies by Insurer 18 ARTICLE VI MISCELLANEOUS 18 Section 6.1. Benefits Limited to Parties 18 Section 6.2. Successor is Deemed Included in All References to Predecessor 18 Section 6.3. Discharge of Loan Agreement 18 Section 6.4. Amendment 19 P64 2.0I56\875I67.3 Section 6.5. Waiver of Personal Liability 19 Section 6.6. Payment on Business Days 19 Section 6.7. Notices 19 Section 6.8. Surety Bond 19 Section 6.9. Partial Invalidity 19 Section 6. ID. Article and Section Headings and References 20 Section 6.11. Execution of Counterparts 20 Section 6.12. Governing Law 20 Section 6.13. The Trustee 20 EXHIBIT A — Schedule of Series 2006A Loan Payments EXHIBIT B — Schedule of Series 2006B Loan Payments P64 2.0I56\875167.3 11 PROJECT AREA NO. 3 LOAN AGREEMENT (2006 Senior Loans) This Project Area No. 3 Loan Agreement (2006 Senior Loans) (this "Loan Agreement) is made and entered into as of Jule I. 2006. by and among the Palm Desert Redevelopment Agency. a public body. corporate and politic. duly organized and validly existing under the laws of the State of California (the "Agency"). the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority"). and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America (the "Trustee"). Recitals A. The Agency is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers. all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 3 of the Agency (the "Project Area) has been duly approved and adopted by the City. C. The Agency has determined to incur two loans (the "Loans) hereunder for the object and purpose of assisting in the financing of public capital improvements and redevelopment activities for the benefit of the Project Area. pursuant to the Redevelopment Law and the Marks -Roos Local Bond Pooling Act of 1985. Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Bond Law"). D. Concurrently with the execution and delivery of this Loan Agreement. the Authority has issued its Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A. in the principal amount of $ and its Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B. in the initial principal amount of $ (together. the "Bonds"). pursuant to the Bond Law and an Indenture of Trust. dated as of July I. 2006 (the "Indentures). by and between the Authority and the Trustee. for the purpose of providing funds to make the Loans to the Agency. E. The Authority has determined that there will be significant public benefits accruing from such borrowing. consisting of demonstrable savings in effective interest rates and financing costs associated with the issuance of the Bonds pursuant to the Bond Law. F. The Agency and the Authority have determined that all acts and proceedings required by law necessary to make this Loan Agreement. when executed by the Agency. the Authority and Trustee. the valid. binding and legal obligation of the Agency and the Authority. and to constitute this Loan Agreement a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms. have been done and taken. and the execution and delivery of this Loan Agreement have been in all respects duly authorized. NOW. THEREFORE. in consideration of the premises and the mutual agreements herein contained. the parties hereto do hereby agree as follows: P64 2.0I56\875167.3 1 ARTICLE I DEFINITIONS Section I. I. Definitions. Unless the contest clearly requires or unless othenvise defined herein. the capitalized terms in this Loan Agreement shall have the respective meanings Nyhich such terms are given in the Indenture. In addition. the following terms defined in this Section I. I shall. for all purposes of this Loan Agreement. have the respective meanings herein specified. "Additional Reyenues- means. as of the date of calculation. the amount of Tax Revenues which. as shown in the Report of an Independent Redevelopment Consultant. arc estimated to be receivable bv the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to either (i) construction which has been completed but which is not then reflected on the tax rolls. or (ii) transfer of ownership or anv other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition. the term "increases in the assessed valuation means the amount by which the assessed valuation of taxable property in the Project Area is estimated to increase above the assessed valuation of taxable property in the Project Area (as reported by an appropriate official of the County) as of the date on which such calculation is made. "Bonds means the Series 2006A Bonds and the Series 2006B Bonds. "Costs of Issuance means all expenses incurred in connection with the authorization. issuance. sale and delivery of the Bonds and the making of the Loans pursuant to this Loan Agreement. including but not limited to all compensation. fees and expenses (including but not limited to fees and expenses for legal counsel) of the Authority and anv trustee. compensation to anv financial advisors or underwriters and their counsel. legal fees and expenses. filing and recording costs. rating agency fees. credit enhancement fees (including insurance. surety bonds and letters of credit). costs of preparation and reproduction of documents and costs of printing. "Costs of Issuance Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.6. "Event of Default means any of the events described in Section 5. I. "Indenture' means the Indenture of Trust dated as of July I. 2006. bv and between the Authority and the Trustee. authorizing the issuance of the Bonds. as may from time to time be supplemented. modified or amended. "Independent Redevelopment Consultant means anv consultant or firm of such consultants appointed by or acceptable to the Agency. and \who. or each of whom: (i) is judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the financing of redevelopment projects: (ii) is in fact independent and not under the domination of the Agency: (iii) does not have any substantial interest. direct or indirect. with the Agency. other than as original purchaser of any obligations of the Agency: and (iv) is not connected with the Agency as an officer or employee of the Agency. but Nwho may be regularly retained to make reports to the Agency. "Loans means the Series 2006A Loan and the Series 2006B Loan. "Loan Agreements means this Project Area No. 3 Loan Agreement (2006 Senior Loans). as may from time to time be amended. modified or supplemented. P64 2.0I56\875I67.3 2 "Maximum Annual Debt Service" means. as of the date of calculation. the largest amount obtained by totaling. for the current or any future Bond Year. the sum of (i) the amount of interest payable on the Loans and all outstanding Parity Debt in such Bond Year. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. and (ii) the amount of principal payable on the Loans and all outstanding Parity Debt in such Bond Year. including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation. there shall be excluded a pro rata portion of each installment of principal of any Parity Debt. together Nyith the interest to accrue thereon. in the event and to the extent that the proceeds of such Parity Debt are deposited in an escrow fund from Nvhich amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year. plus at the option of the Agency the Additional Revenues. meet the coverage test set forth in Section 2.8(b). "Parity Debt means the 2003 Loan and any other loans. bonds. notes. advances. or indebtedness payable from Tax Revenues on a parity Nyith the Loans. issued or incurred pursuant to and in accordance Nyith the provisions of Section 2.8. "Parity Debt Instrument"' means the 2003 Loan Agreement and any resolution. indenture of trust. trust agreement or other instrument authorizing the issuance of any Parity Debt. "Pass-Throutzh Agreements means. collectively. the agreements entered into or approved by the Agency on or prior to the date hereof pursuant to Section 33401 of the Redevelopment Law Nyith (i) the County of Riverside. (ii) the Coachella Valley Mosquito Abatement District. (iii) the Coachella Valley Recreation and Park District. (iv) the Coachella Valley Water District. (v) the Desert Community College District. (vi) the Desert Sands Unified School District and (yii) the Riverside County Superintendent of Schools. "Plan Limitations"' means the limitations contained or incorporated in the Redevelopment Plan on (i) the aggregate principal amount of bonded indebtedness payable from Tax Revenues Nyhich may be outstanding at any time. (ii) the aggregate amount of taxes Nyhich may be divided and allocated to the Agency pursuant to the Redevelopment Plan. and (iii) the period of time for establishing loans. advances and indebtedness payable from Tax Revenues. "Project Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.7. "Qualified Reserve Fund Credit Instrument"' means a surety bond issued by an insurance company and deposited Nyith the Trustee pursuant to Section 2.5. provided that all of the following requirements are met at the time of deposit Nyith the Trustee: (i) either (a) the claims paying ability of such insurance company is rated Nyithin the highest rating category by Moody's and S&P. and if rated by A.M. Best & Company. Nyithin the highest rating category by A.M. Best & Company. at the time of delivery of such surety bond or (b) the Authority shall cause to be filed Nyith the Trustee Nvritten evidence from Moody's and S&P that the delivery of such surety bond Nvill not. of itself. cause a reduction or Nvithdrawal of any rating then assigned to the Bonds: (ii) such surety bond has a term of at least 12 months: (iii) such surety bond has a stated amount at least equal to the portion of the Reserve Requirement Nyith respect to Nyhich funds are proposed to be released pursuant to Section 2.5: and (iv) the Trustee is authorized pursuant to the terms of such surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time with respect to deposits required pursuant to Section 3.3(a). "Redevelopment Fundy means the Project Area No. 3 Redevelopment Fund. heretofore established and held by the Agency. P64 2.0I56\875I67.3 3 "Redevelopment Proiect- means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area. "Reserve Fund' means the fund by that name held by the Trustee pursuant to Section 2.5. "Reserve Requirement. means the least of (i) Maximum Annual Debt Service. (ii) 125 percent of average annual debt service on the Loans and all outstanding Parity Debt. and (iii) I0 percent of the proceeds of the Loans (i.e.. the original Principal Amount of the Bonds) and of the proceeds of an Parity Debt. The amount of the Reserve Requirement on any date is subject to confirmation by the Authority to the Trustee upon the Trustees Nvritten request. At the Closing Date. the Reserve Requirement shall be $ "Series 2006A Bonds means the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A. "Series 2006A Loan means the loan made by the Authority to the Agency pursuant to Section 2. I (a) from the proceeds of the Series 2006A Bonds in the initial principal amount of "Series 2006B Bonds means the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B. "Series 2006B Loan means the loan made by the Authority to the Agency pursuant to Section 2.1(b) from the proceeds of the Series 2006B Bonds in the initial principal amount of "Special Fund" means the fund by that name held by the Agency pursuant to Section 3.2. "Subordinate Debt means any loans. advances or indebtedness issued or incurred by the Agency in accordance Nyith the requirements of Section 2.9. \yhich are either: (i) payable from. but not secured by a pledge of or lien upon. the Tax Revenues: or (ii) secured by a pledge of or Tien upon the Tax Revenues Nyhich is subordinate to the pledge of and lien upon the Tax Revenues hereunder for the security of the Loans and any Parity Debt. "Surety Bondy means the Qualified Reserve Fund Credit Instrument issued by the Insurer guaranteeing certain payments into the Reserve Fund as provided therein and subject to the limitations set forth therein. "Tax Rcycnucs- means that portion of the taxes levied upon taxable property in the Project Area allocated and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the California Constitution. exclusive of amounts placed into the Low and Moderate Income Housing Fund of the Agency pursuant to Sections 33334.2 and 33334.3 of the Redevelopment Law. and excluding amounts payable to affected taxing agencies pursuant to the Pass -Through Agreements or pursuant to Section 33607.5 or 33607.7 of the Redevelopment Lary. "2003 Loan means the loan made by the Authority to the Agency pursuant to the 2003 Loan Agreement. "2003 Loan Aareement- means the Project Area No. 3 Loan Agreement dated as of July I. 2003. by and among the Agency. the Authority and BNY Western Trust Company. as prior trustee (as succeeded by Wells Fargo Bank. National Association. as trustee). P64 2.0156\875167.3 4 Section I.2. Rules of Construction. All references herein to "Articles." "Sections" and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement. and the words "herein. "hereof. "hereunder- and other words of similar import refer to this Loan Agreement as a whole and not to any particular Article. Section or subdivision hereof. ARTICLE II THE LOANS: APPLICATION OF LOAN PROCEEDS: PARITY DEBT Section 2. I . Authorization. (a) The Authority hereby agrees to lend to the Agency. from the proceeds of the sale of the Series 2006A Bonds deposited in the Series 2006A Loan Fund established under the Indenture. the principal amount of $ under and subject to the terms of this Loan Agreement. the Bond Law and the Redevelopment Law. (b) The Authority hereby agrees to lend to the Agency. from the proceeds of the sale of the Series 2006B Bonds deposited in the Series 2006B Loan Fund established under the Indenture. the initial principal amount of $ under and subject to the terms of this Loan Agreement. the Bond Law and the Redevelopment Law. (c) This Loan Agreement constitutes a continuing agreement to secure the full and final payment of the Loans. subject to the covenants. agreements. provisions and conditions herein contained. Section 2.2. Disbursement and Application of Loan Proceeds. (a) On the Closing Date. the Authority shall cause to be deposited into the Series 2006A Loan Fund the amount of $ which shall be held by the Trustee and which shall be disbursed as follows: (i) The Trustee shall transfer the amount of 2006A Account of the Costs of Issuance Fund. (ii) The Trustee shall transfer the remaining amount of Project Fund. to the Series to the On the Closing Date. the Authority shall also cause the amount of and the amount of $ to be paid to the Insurer for the costs of a portion of the premiums for the Insurance Policy and the Surety Bond. The Trustee may. in its discretion. establish a temporary fund or account to facilitate or account for the foregoing transfers. (b) On the Closing Date. the Authority shall cause to be deposited into the Series 2006B Loan Fund the amount of $ which shall be held by the Trustee and which shall be disbursed as follows: (i) The Trustee shall transfer the amount of 2006B Account of the Costs of Issuance Fund. to the Series P64 2.0I56\875I67.3 5 (ii) The Trustee shall transfer the remaining amount of $ to the Project Fund. On the Closing Date. the Authority shall also cause the amount of and the amount of $ to be paid to the Insurer for the costs of a portion of the premiums for the Insurance Policy and the Surety Bond. The Trustcc may. in its discretion. establish a temporary fund or account to facilitate or account for the foregoing transfers. Section 2.3. Repayment of Loans. The Agency shall. subject to prepayment as provided in Section 2.4(a). repay the principal of the Series 2006A Loan in installments on April I in each of the years and in the amounts. and shall pay interest on the unpaid principal balance of the Series 2006A Loan due on each Interest Payment Date not later than the fifth Business Day preceding such Interest Payment Date in the amounts set forth in Exhibit A attached hereto and by this reference incorporated herein. Such interest shall accrue from the Closing Date. Any installment of principal or interest \yhich is not paid Nvhen due shall continue to accrue interest from and including the date on Nvhich such principal or interest is payable to but not including the date of actual payment. In the event any unpaid principal installments of the Series 2006A Loan shall be prepaid pursuant to Section 2.4(a). or in the event the Series 2006A Bonds shall be redeemed pursuant to Section 2.0 3(a)(I) of the Indenture. the schedule of principal installments set forth in Exhibit A hereto shall be reduced as directed by the Agency to the Trustee. The Agency shall. subject to prepayment as provided in Section 2.4(b). repay the Series 2006B Loan in installments on April I in each of the years and in the amounts set forth in Exhibit B attached hereto and by this reference incorporated herein. Interest on the Series 2006B Loan shall accrue in the same manner as the interest accrues on the Scrics 2006B Bonds pursuant to the Indenture. The installments payable on the Series 2006B Loan on each April I set forth in Exhibit B correspond Nyith the aggregate Maturity Amount of Series 2006B Bonds coming due and payable on such date. Any installment of the Series 2006B Loan Nyhich is not paid Nvhen due shall continue to accrue interest from and including the date on Nvhich such installment is payable to but not including the date of actual payment. In the event any unpaid installments of the Series 2006B Loan shall be prepaid pursuant to Section 2.4(b). or in the event the Series 2006B Bonds shall be redeemed pursuant to Section 2.03(b)( I) of the Indenture. the schedule of installments set forth in Exhibit B hereto shall be reduced as directed by the Agency to the Trustee. The obligation of the Agency to repay the Loans is. subject to Section 3.1. absolute and unconditional. and such payments shall not be subject to reduction Nvhether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party to anv agreement for any cause Nvhatsoeyer. Principal of and interest on the Loans shall be payable by the Agency to the Trustee. as assignee of the Authority under the Indenture in (awful money of the United States. Payment of such principal and interest shall be secured. and amounts for the payment thereof shall be deposited Nvith the Trustee at the times. as set forth in Article III. Notwithstanding the foregoing provisions of this Section 2.3. in lieu of payment of any installment of principal of the Loans coming due and payable on April I in anv year in Nvhich any Bonds are subject to mandatory sinking fund redemption. the Agency shall have the right to purchase any of such Bonds in an amount not exceeding the amount thereof which is subject to mandatory sinking fund redemption on such April I. and tender such Bonds for cancellation. provided that such tender shall be made before the preceding January 15. P64 2.0I56\875I67.3 6 Section 2.4. Optional Prepayment (a) The Agency shall have the right to prepay principal installments of the Series 2006A Loan. in any integral multiple of $5.000. such prepayment to be allocated among such principal installments as the Agency may determine upon Request to the Authority and the Trustee provided not less than 45 days prior to the prepayment date. on any date on Nvhich the Series 2006A Bonds are subject to redemption pursuant to Section 2.03(a)( I) of the Indenture. by depositing Nvith the Trustee an amount sufficient to redeem a like aggregate principal amount of Series 2006A Bonds together Nvith the amount of accrued interest and premium. if any. required to be paid upon such redemption. (b) The Agency shall have the right to prepay installments of the Series 2006B Loan on any date on Nvhich the Series 2006B Bonds are subject to redemption pursuant to Section 2.03(b)( I) of the Indenture and effect a corresponding redemption of the Series 2006B Bonds. Such prepayment shall be allocated among such installments of the Series 2006B Loan as the Agency may determine upon Request to the Authority and the Trustee provided not Tess than 45 days prior to the prepayment date: provided that such prepayment shall cause redemption of Series 2006 Bonds in integral multiples of $5.000 Maturity Amount. To effect such prepayment. the Agency shall deposit Nvith the Trustee no later than the redemption date an amount sufficient to redeem the called Series 2006B Bonds (which amount shall include the Accreted Value of the called Series 2006B Bonds as of the date of redemption and the applicable redemption premium. if any). (c) Before making anv prepayment pursuant to this Section. the Agency shall give Nvritten notice to the Authority and the Trustee describing such event and specifying the date on which the prepayment Nvill be paid and the order thereof. which date shall be not Tess than 45 days from the date such notice is given: provided. that notwithstanding anv such prepayment. the Agency shall not be relieved of its obligations with respect to a Loan hereunder. including specifically its obligations under this Article. until such Loan shall have been fully paid (or provision for payment thereof shall have been made pursuant to Section 6.3). (d) The Authority agrees that upon payment by the Agency to the Trustee of such amount. the Authority shall take or cause to be taken any and all steps required under the Indenture to redeem such Outstanding Bonds of the applicable series on the redemption date designated by the Agency: provided. however. that such date shall be a date of redemption of such Bonds. for which notice has been timely given pursuant to the Indenture. Section 2.5. Reserve Fund. Pursuant to the 2003 Loan Agreement. there has heretofore been established a fund known as the "Project Area No. 3 Reserve Fund. which shall continue to be held by the Trustee in trust for the benefit of the Authority and the Owners of the Bonds and the registered owners of all other bonds issued by the Authority in connection with any Parity Debt. The Agency hereby pledges and grants a lien and a security interest in the Reserve Fund to the Trustee in order to secure the Agency's payment obligations under Sections 2.3 and 3.3(a). The amount on deposit in the Reserve Fund shall be maintained at the Reserve Requirement at all times. except to the extent required for the purposes set forth in this Section. In the event that the Agency shall fail to deposit with the Trustee the full amount required to be deposited pursuant to Section 3.3(a) on or before the third Business Day preceding any Interest Payment Date. the Trustee shall Nvithdraw from the Reserve Fund and transfer to the Interest Account and the Principal Account. in such order. an amount equal to the difference between (i) the amount required to be deposited pursuant to Section 3.3(a) and (ii) the amount actually deposited by the Agency. In the event that the amount on deposit in the Reserve Fund shall at any time be Tess than the Reserve Requirement. the Trustee shall notify the Agency as soon as practicable of the amount required to be deposited therein P64 2.0I56\875I67.3 7 to restore the balance to the Reserve Requirement. such notice to be given by telephone. telefax or other form of telecommunications promptly confirmed in writing. and the Agency shall thereupon transfer to the Trustee the amount needed to restore the Reserve Fund to the Reserve Requirement. In the event that the amount on deposit in the Reserve Fund on the 15th calendar day preceding any Interest Payment Date (other than the final Interest Payment Date) — provided that the deposits required by Section 3.3(a) have been made — exceeds the Reserve Requirement. the Trustee shall withdraw from the Reserve Fund all amounts in excess of the Reserve Requirement and apply such amounts toward the prepayment of the Loans pursuant to Section 2.4 or the prepayment of any Parity Debt. unless the Trustee shall have received prior Request of the Agency to pay such amounts to the Agency to be used for any lawful purpose relating to the Project Area. as specified in such Request of the Agency. Notwithstanding the foregoing provisions of this paragraph. however. no amounts shall be withdrawn from the Reserve Fund and transferred to the Agency pursuant to this paragraph during any period in which an Event of Default shall have occurred and be continuing hereunder. With the written consent of the Insurer (as long as the Insurance Policy is in full force and effect) and of the insurer of any Parity Debt (as long as the policy insuring such Parity Debt is in full force and effect). the Reserve Requirement may be satisfied by crediting to the Reserve Fund moneys or a Qualified Reserve Fund Credit Instrument or any combination thereof. which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement. Upon the deposit with the Trustee of such Qualified Reserve Fund Credit Instrument. the Trustee shall release moneys then on hand in the Reserve Fund to the Agency. to be used for any lawful purpose relating to the Project Area. in an amount equal to the face amount of the Qualified Reserve Fund Credit Instrument. If at any time the amount on deposit in. or credited to. the Reserve Fund includes both cash and the Surety Bond. any draw on the Surety Bond shall be made only after all cash in the Reserve Fund has been expended. If at any time the amount credited to the Reserve Fund includes the Surety Bond and one or more other Qualified Reserve Fund Credit Instruments issued by entities other than the issuer of the Surety Bond. any draw on the Surety Bond shall be made on a pro rata basis with draws on such other Qualified Reserve Fund Credit Instruments. based on the relative amounts of debt service covered by the Surety Bond and the debt service covered by such other Qualified Reserve Fund Credit Instruments in such Fiscal Year. Section 2.6. Costs of Issuance Fund. There is hereby established a fiend to be held by the Trustee known as the "Costs of Issuance Fundy and two accounts therein known as the "Series 2006A Account and the "Series 2006B Account." A portion of the proceeds of the Series 2006A Loan shall be deposited in the Series 2006A Account pursuant to Section 2.2(a). A portion of the proceeds of the Series 2006B Loan shall be deposited in the Series 2006B Account pursuant to Section 2.2(b). The moneys in each account of the Costs of Issuance Fund shall be used to pay Costs of Issuance of the related series of Bonds from time to time upon receipt of a Request of the Agency. On the 90th day after the Closing Date (or the first Business Day thereafter). or upon the earlier receipt by the Trustee of a Request of the Agency stating that all Costs of Issuance have been paid. the Trustee shall transfer all remaining amounts in the accounts of the Costs of Issuance Fund to the Revenue Fund. Section 2.7. Proiect Fund. There is hereby established a fund to be known as the "Project Fundy. which shall be held and maintained by the Trustee. Amounts on deposit in such fund shall be derived solely from the portion of the proceeds of the Loans transferred thereto and from earnings on the investment of amounts therein. Except as provided in this Section. the moneys set aside and placed in the Project Fund shall remain therein until expended from time to time for the purpose of paying any portion of the costs of P64 2.0I56\875I67.3 8 the Redevelopment Project. and other costs related thereto. Nyhich other costs may include. but are not limited to. (a) the cost of improvements and other costs \yhich may not benefit the Redevelopment Project exclusively but \yhich are necessary to the redevelopment of the Project Area and the disposition of land therein: (b) the repayment of any advances made by the City for the Redevelopment Project: and (c) to the extent not paid from the Costs of Issuance Fund. the necessary expenses in connection Nyith the issuance and sale of the Bonds. Before any payment of money is made from the Project Fund. the Agency shall file Nyith the Trustee a Request of the Agency showing with respect to each payment of money to be made: (a) the name and address of the person to whom payment is due: (b) the amount of money to be paid: (c) the purpose for which the obligation to be paid was incurred: and (d) that such amount has not been paid previously for such purpose from the Project Fund. Each such Request of the Agency shall state and shall be sufficient evidence to the Trustee: (i) that an obligation in the stated amount has been properly incurred under and pursuant to this Loan Agreement and that such obligation is a proper charge against the Project Fund: and (ii) that there has not been filed with or served upon the Agency a stop notice or any other notice of any Tien. right to lien or attachment upon. or claim affecting the right to receive payment of. any of the money payable to the person named in such Request of the Agency which has not been released or \\ill not be released simultaneously with the payment of such obligation. other than liens accruing by mere operation of law. Upon receipt of each such Request of the Agency. the Trustee shall pay the amount set forth in such Request of the Agency as directed by the terms thereof within three Business Days. If any moneys deposited in the Project Fund remain therein after the full accomplishment of the objects and purposes for which the Loans \sere made. said moneys shall be transferred to the Special Fund. Section 2.8. Parity Debt. From time to time. the Agency may issue or incur additional Parity Debt in such principal amount as shall be determined by the Agency. subject to the following specific conditions which are hereby made conditions precedent to the issuance and delivery of such Parity Debt issued under this Section 2.8: (a) No Event of Default shall have occurred and be continuing. and the Agency shall othenyise be in compliance with all covenants set forth in this Loan Agreement. (b) The amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Agency. based on assessed valuation of property in the Project Area as evidenced in the Nvritten records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to (i) 150 percent of Maximum Annual Debt Service so long as the assessed value of property within the Project Area is Tess than $ 360.000.000. (ii) 135 percent of Maximum Annual Debt Service so P64 2.0I56\875I67.3 9 Tong as the assessed value of property Nyithin the Project Area is equal to or greater than $ 360.000.000 and Tess than $ 395.000.000. and (iii) 125 percent of Maximum Annual Debt Service so Tong as the assessed value of property Nyithin the Project Area is equal to or greater than $ 395.000.000. (c) The related Parity Debt Instrument shall provide that the balance of the Reserve Fund shall be increased to the new Reserve Requirement effective after the incurrence of such Parity Debt. (d) The related Parity Debt Instrument shall provide that: (I) With respect to any Parity Debt \yhich bears current interest. interest on such Parity Debt shall not be payable on a date other than April I and October I of any year. and (2) The principal of such Parity Debt shall not be payable on any date other than the date on Nyhich principal of the Loans is payable. (e) The issuance of such Parity Debt shall not cause the Agency to exceed any applicable Plan Limitations. (f) The Agency shall deliver to the Trustee a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in Paragraphs (a) through (c) above have been satisfied. Section 2.9. Issuance of Subordinate Debt. In addition to the Loans and any Parity Debt. from time to time the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency. provided that the issuance of such Subordinate Debt shall not cause the Agency to exceed any applicable Plan Limitations. Section 2.10. Validity of Loans. The validity of the Loans shall not be dependent upon the completion of the Redevelopment Project or upon the performance by any person of any obligation Nyith respect to the Redevelopment Project. ARTICLE III PLEDGE AND APPLICATION OF TAX REVENUES Section 3. I. Pledize of Tax Revenues. The Loans and all Parity Debt shall be equally secured by a first pledge of and lien on all of the Tax Revenues and all of the moneys on deposit in the Special Fund. Nyithout preference or priority for series. issue. number. dated date. sale date. date of execution or date of deliver Except for the Tax Revenues and other funds pledged hereunder. no funds or properties of the Agency shall be pledged to. or otherwise liable for. the payment of principal of or interest on or prepayment premium. if any. on the Loans. Section 3.2. Special Fund: Deposit of Tax Revenues. The Agency has heretofore established a special fund known as the "Special Fund." which is and shall continue to be held by the Agency as a separate fund apart from all other funds and accounts of the Agency. The Agency shall deposit all Tax Revenues in the Special Fund promptly upon the receipt thereof. Except as may be otherwise provided in anv Parity Debt Instrument. anv Tax Revenues received during the Bond Year in excess of amounts required to be transferred to the Trustee pursuant to Section 3.3 shall be released from the pledge and lien hereunder and may be used for any lawful purposes of the Agency. Prior to the payment in full of the principal of and interest and prepayment premium. if any. on the Loans and all P6402.0 156\875167.3 10 Parity Debt and the payment in full of all other amounts payable hereunder and under any Parity Debt Instrument. the Agency shall not have any beneficial right or interest in the moneys on deposit in the Special Fund. except only as provided in this Loan Agreement and any Parity Debt Instrument. and such moneys shall be used and applied as set forth herein and in any Parity Debt Instrument. Section 3.3. Transfer of Tax Revenues From Special Fund. In addition to the transfers required to be made pursuant to any Parity Debt Instrument. the Agency shall Nvithdraw from the Special Fund and transfer to the Trustee the following amounts at the following times and in the following order of priority: (a) Interest and Principal Deposits. No later than the fifth Business Day preceding each date on \yhich the principal of or interest on the Loans or any Parity Debt shall become due and payable. including but not limited to the principal amounts of the Loans to be prepaid hereunder together Nyith any prepayment premium thereon. the Agency shall Nvithdraw from the Special Fund and transfer to the Trustee an amount Nvhich. together Nyith the amounts then held on deposit in the Interest Account. the Principal Account and the Rcycnuc Fund. is equal to the aggregate amount of such principal. interest and prepayment premium. (b) Reserve Fund Deposits. In the event that the Trustee shall notify the Agency pursuant to Section 2.5 that the amount on deposit in the Reserve Fund is Tess than the Reserve Requirement. the Agency shall immediately Nvithdraw from the Special Fund and transfer to the Tnistcc for deposit in the Reserve Fund an amount of money necessary to maintain the Reserve Requirement in the Reserve Fund (including repayment of any draw made under a Qualified Reserve Fund Credit Instrument. including the Surety Bond. prior to replenishing any cash in the Reserve Fund). (c) Surplus. Except as may be otherwise provided in any Parity Debt Instrument. the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Tax Revenues which. together with other available amounts in the Special Fund. exceeds the amounts required in such Bond Year pursuant to this Section 3.3. All Tax Revenues which are received by the Agency during any Bond Year in excess of the amounts required to be deposited in the Special Fund in such Bond Year shall be released from the pledge thereof and lien thereon which is established pursuant hereto. In the event that for any reason Nvhatsoever any amounts shall remain on deposit in the Special Fund on any April 2 after making all of the transfers theretofore required to be made pursuant to the preceding Paragraphs (a) and (b) and pursuant to any Parity Debt Instrument. the Agency may Nvithdraw such amounts from the Special Fund. to be used for any lawful purposes of the Agency. including but not limited to the payment of any Subordinate Debt or the payment of any amounts due and owing to the United States pursuant to Section 4.1 I. Section 3.4. Investment of Moneys: Valuation of Investments. Subject to Section 4.03 of the Indenture. all moneys in the Special Fund. the Project Fund. the Reserve Fund and the Costs of Issuance Fund shall be invested in Permitted Investments. Absent any prior «ritten instruction from the Agency or the Authority. moneys in any fund held by the Trustee hereunder or under the Indenture shall be invested in Permitted Investments described in clause D of the definition thereof. Obligations purchased as an investment of moneys in any fund or account established hereunder shall be credited to and deemed to be part of such fund or account. The Agency or the Trustee. as the case may be. may commingle any amounts in any of the funds and accounts held hereunder with any other amounts held by the Agency or the Trustee for purposes of making any investment: provided that the Agency and the Trustee shall maintain separate accounting procedures for the investment of all funds and accounts held hereunder. All interest. profits and other income received from the investment of moneys in any fund or account established hereunder shall be credited to such fund or account. Notwithstanding anything to the contrary contained in this Section. an amount of interest received with respect to any investment equal to P6402.0 156\875167.3 11 the amount of accrued interest. if any. paid as part of the purchase price of such investment shall be credited to the fund or account from which such accrued interest was paid. For the purpose of determining the amount in any fund or account established hereunder. any investments credited to such fund shall be valued at least annually at the market value thereof. ARTICLE IV OTHER COVENANTS OF THE AGENCY Section 4. I. Punctual Payment: Extension of Payments. The Agency shall punctually pay or cause to be paid the principal of and interest and prepayment premium. if any. on the Loans in strict conformity with the terms of this Loan Agreement. and it will faithfully observe and perform all of the conditions. covenants and requirements of this Loan Agreement. The Agency shall not directly or indirectly extend or assent to the extension of the maturity of any installment of principal of or interest or prepayment premium. if any. on the Loans. and in case the principal of or interest or premium. if any. on the Loans or the time of payment of any such claims therefor shall be extended. such principal. interest. premium or claims for interest shall not be entitled. in case of any Event of Default hereunder. to the benefits of this Loan Agreement except for payment of all amounts which shall not have been so extended. Section 4.2. Limitation on Additional Indebtedness. The Agency hereby covenants that it shall not issue any bonds. notes or other obligations. enter into any agreement or otherwise incur any indebtedness. which is in any case payable from all or any part of the Tax Revenues. excepting only the Loans. any Parity Debt. and any Subordinate Debt. and any other obligations permitted by this Loan Agreement. Section 4.3. Payment of Claims. The Agency shall pay and discharge. or cause to be paid and discharged. any and all lawful claims for labor. materials or supplies which. if unpaid. might become a lien or charge upon the properties owned by the Agency or upon the Tax Revenues or any part thereof. or upon any funds in the hands of the Trustee. or which might impair the security of the Loans. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims. Section 4.4. Books and Accounts: Financial Statements. The Agency shall keep. or cause to be kept. proper books of record and accounts. separate from all other records and accounts of the Agency and the City. in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project. the Tax Revenues. the Special Fund. the Reserve Fund. the Low and Moderate Income Housing Fund and the Redevelopment Fund. Such books of record and accounts shall at all times during business hours be subject. upon prior written request. to the reasonable inspection of the Authority. the Trustee and the Owners of not less than ten percent in aggregate Principal Amount of a series of Bonds then Outstanding. or their representatives authorized in writing. The Agency will cause to be prepared annually. within 180 days after the close of each Fiscal Year so long as any of the Bonds are Outstanding. complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues. all disbursements from the Special Fund and the Redevelopment Fund and the financial condition of the Redevelopment Project. including the balances in all funds and accounts relating to the Redevelopment Project. as of the end of such Fiscal Year. The Agency \ III furnish a copy of such statements. upon reasonable request. to any Owner. P6402.0 156\875167.3 12 Section 4.5. Protection of Security and Rights. The Agency Nvill preserve and protect the security of the Loans and the rights of the Trustee and the Owners Nyith respect to the Loans. From and after the Closing Date. the Loans shall be incontestable by the Agency. The Loans and the provisions of this Loan Agreement are and \\ill be the legal. valid and binding special obligations of the Agency enforceable in accordance Nyith their terms. and the Agency shall at all times. to the extent permitted by lacy. defend. preserve and protect all the rights of the Authority. the Trustee and the Owners under this Loan Agreement against all claims and demands of all persons Nyhomsoeyer. The Agency's obligations to the Trustee under this Section 4.5 shall survive the payment of the Bonds and the discharge of the Indenture. the removal or resignation of the Tnistcc pursuant to the Indenture or the payment of the Loans and the discharge of this Loan Agreement. Section 4.6. Payments of Taxes and Other Charzes. The Agency Nyill pay and discharge. or cause to be paid and discharged. all taxes. service charges. assessments and other governmental charges Nyhich may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area \yhen the same shall become due. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of such taxes. assessments or charges. The Agency \\ill duly observe and comply Nyith all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof. Section 4.7. Taxation of Leased Property. All ad valorem property taxes derived by the Agency pursuant to Section 33673 of the Redevelopment Law Nyith respect to the lease of property for redevelopment shall be treated as Tax Revenues for all purposes of this Loan Agreement. and shall be deposited by the Agency in the Special Fund promptly upon receipt. Section 4.8. Disposition of Property. The Agency \\ill not participate in the disposition of any land or real property in the Project Area to anyone Nyhich \\ill result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of this Loan Agreement) so that such disposition shall. Nyhen taken together Nyith other such dispositions. aggregate more than ten percent of the land area in the Project Area unless such disposition is permitted as hereinafter provided in this Section. If the Agency proposes to participate in such a disposition. it shall thereupon appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the Report of the Independent Redevelopment Consultant concludes that the security of the Loans or the rights of the Authority. the Owners and the Trustee hereunder \\ill not be materially impaired by said proposed disposition. the Agency may thereafter make such disposition. If such Report concludes that such security Nyill be materially impaired by such proposed disposition. the Agency shall disapprove said proposed disposition. Section 4.9. Maintenance of Tax Revenues. The Agency shall comply Nyith all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues. including Nyithout limitation the timely filing of any necessary statements of indebtedness Nyith appropriate officials of the County and (in the case of supplemental revenues and other amounts payable by the State) appropriate officials of the State. The Agency shall not amend the Redevelopment Plan (except for the purpose of extending or eliminating the time limit on the establishment of loans. advances. and indebtedness. extending the time limit on the effectiveness of the Redevelopment Plan. extending the time limit on the payment of indebtedness. extending the time limit for the receipt of tax increment. or increasing the limitation on the number of dollars of taxes to be allocated to the Agency) or any of the Pass -Through Agreements. or enter into any agreement Nyith the County or any other governmental unit. Nyhich Nyould have the effect of reducing the amount of Tax Revenues available to the Agency for payment of the Loans. unless the Agency shall first obtain (i) the Report of an Independent Redevelopment Consultant stating that the amount of Tax Revenues for the then current Fiscal Year P6402.0 156\875167.3 13 (calculated on the assumption that such reduction of Tax Revenues was in effect throughout such Fiscal Year). plus at the option of the Agency the Additional Revenues. shall meet the coverage test set forth in Section 2.8(b) and (ii). as long as the Insurance Policy is in full force and effect. the Nvritten consent of the Insurer. Nothing herein is intended or shall be construed in any Nvay to prohibit or impose any limitations on the entering into by the Agency of any such agreement. amendment or supplement Nyhich by its term is subordinate to the payment of the Loans and all Parity Debt. Section 4. ID. Payment of Expenses: Indemnification. The Agency shall pay to the Trustee from time to time all compensation for all services rendered under this Loan Agreement and the Indenture. including but not limited to all reasonable expenses. charges. legal and consulting fees and other disbursements and those of its attorneys. agents and employees. incurred in and about the performance of its powers and duties hereunder and thereunder. Upon the occurrence of an Event of Default. the Trustcc shall have a first Tien on the funds held by it under the Indenture to secure the payment to the Trustee of all fees. costs and expenses. including reasonable compensation to its experts. attorneys and counsel (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel) incurred in performing its duties under the Indenture and this Loan Agreement. The Agency further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any losses. expenses and liabilities Nyhich it may incur arising out of or in the exercise and performance of its powers and duties in accordance Nyith the Indenture and this Loan Agreement. including the costs and expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities Nyhich are due to the negligence or intentional misconduct of the Trustee. its officers. directors. agents or employees. The obligations of the Agency under this paragraph shall survive the resignation or removal of the Trustee under the Indenture. this Loan Agreement and payment of the Loans and the discharge of this Loan Agreement. Section 4. I I. Tax Covenants. (a) The Agency covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the interest on the Bonds. and for no other purpose. the Agency Nvill satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Agency agrees to comply Nyith such «rittcn instructions as may be provided by Bond Counsel. (b) The Agency covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nvould cause the Bonds to become arbitrage bonds as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nyith the rebate requirements of Section 148 of the Code. the Agency further covenants that it Nvill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section I48(f) of the Code. and that it Nvill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nyith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Agency covenants that it Nvill not take any action or omit to take any action. Nyhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nvould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. P6402.0 156\875167.3 14 (d) The Agency covenants that it not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as Nvould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. (e) Except as provided below. the Agency covenants that none of the moneys contained in any of the funds or accounts Nyith respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested directly or indirectly in obligations guaranteed (in NyhoIe or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Revenue Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 I I (a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under the Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 4.12. Redevelopment of Proiect Area. The Agency shall ensure that all activities undertaken by the Agency Nyith respect to the redevelopment of the Project Area are undertaken and accomplished in conformity Nyith all applicable requirements of the Redevelopment Plan and the Redevelopment Lary. The Agency shall manage and operate all properties oNyned by the Agency and comprising any part of the Redevelopment Project in a sound and business -like manner and in conformity with all valid requirements of any governmental authority. and Nyill keep such properties insured at all times in conformity with sound business practice. Section 4.1 3. Low and Moderate Income Housing Fund. The Agency covenants and agrees to use the moneys in the Low and Moderate Income Housing Fund in accordance Nyith Sections 33334.2 and 33334.3 of the Redevelopment Law. and further covenants and agrees to disburse. expend or encumber any "excess surplus" (as defined in Section 33334.12 of the Redevelopment Lary) in the Low and Moderate Income Housing Fund at such times and in such manner that the Agency shall not be subject to sanctions pursuant to subdivision (c) of said Section 3334.12. Section 4.14. Annual Review of Tax Revenues. The Agency hereby covenants that it will annually cause an Independent Redevelopment Consultant to review the total amount of Tax Revenues remaining available to be received by the Agency under the Redevelopment Plans cumulative tax increment limitation. as \yell as future cumulative annual debt service with respect to the Loans and all Parity Debt. The Agency Nyill not accept Tax Revenues greater than such annual debt service in any year. if such acceptance Nyill cause the amount remaining under the tax increment limit to fall below remaining cumulative annual debt service with respect to the Loans and all Parity Debt. except for the purpose of depositing such revenues in escrow for the payment of such debt service or for the prepayment or redemption of the Loans or any Parity Debt. Once it is determined that Tax Revenues available to be received by the Agency under the aforementioned tax increment limitation in an upcoming year «iII not exceed I I0 percent of aggregate remaining debt service on the Loans and all outstanding Parity Debt. the Agency shall escrow all current and future Tax Revenues and use such amounts solely for the purpose of paying (or prepaying) debt service on the Loans and all Parity Debt. P6402.0 156\875167.3 15 Section 4. 15. Further Assurances. The Agency NViII adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Loan Agreement and for the better assuring and confirming unto the Trustee. the Authority and the Owners of the Bonds of the rights and benefits provided in this Loan Agreement. ARTICLE V EVENTS OF DEFAULT AND REMEDIES Section 5. I. Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default hereunder: (a) Failure by the Agency to pay the principal of or interest or prepayment premium. if any. on the Loans or any Parity Debt when and as the same shall become due and payable. (b) Failure by the Agency to observe and perform any of the covenants. agreements or conditions on its part contained in this Loan Agreement. other than as referred to in the preceding Paragraph (a). for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the Agency by the Trustee: provided. however. that if the failure stated in such notice can be corrected. but not within such 30 day period. such failure shall not constitute an Event of Default if corrective action is instituted by the Agency within such 30 day period and thereafter is diligently pursued until such failure is corrected. (c) The filing by the Agency of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America. or if a court of competent jurisdiction shall approve a petition. filed with or without the consent of the Agency. seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America. or if. under the provisions of any other law for the relief or aid of debtors. any court of competent jurisdiction shall assume custody or control of the Agency or of the whole or any substantial part of its property. If an Event of Default has occurred and is continuing. the Authority or the Trustee may. and at the written direction of the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds the Authority or the Trustee shall. (i) declare the principal of the Loans. together with the accrued interest on all unpaid installments thereof. to be due and payable immediately. and upon any such declaration the same shall become immediately due and payable. anything in this Loan Agreement to the contrary notwithstanding. and (ii) subject to the receipt of indemnity as provided in the Indenture. exercise any other remedies available to the Trustee at law or in equity. Immediately upon becoming aware of the occurrence of an Event of Default. the Authority. or the Trustee as assignee of the Authority. shall give notice of such Event of Default to the Agency by telephone. telecopier or other telecommunication device. promptly confirmed in writing. This provision. however. is subject to the condition that if. at any time after the principal of the Loans shall have been so declared due and payable. and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the Agency shall deposit with the Trustee a sum sufficient to pay all installments of principal of the Loans matured prior to such declaration and all accrued interest thereon. with interest on such overdue installments of principal and interest at the net effective rate then borne by the Outstanding Bonds. and the reasonable expenses of the Trustee (including but not limited to attorneys fees). and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Loans due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in P6402.0 156\875167.3 16 every such case. the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds may. by Nvritten notice to the Trustee and the Agency. rescind and annul such declaration and its consequences. However. no such rescission and annulment shall extend to or shall affect any subsequent default. or shall impair or exhaust any right or power consequent thereon. Section 5.2. Application of Funds Upon Default. All amounts recek ed by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Loan Agreement. shall be applied by the Trustee in the following order: First. to the payment of the fees. costs and expenses of the Trustee. including reasonable compensation to its agents. attorneys and counsel (including the allocated costs and disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and Second. to the payment of the Nvhole amount of interest on and principal of the Loans then due and unpaid. Nvith interest on overdue installments of principal. and such interest to the extent permitted by lacy at the net effective rate of interest then borne by the Outstanding Bonds: provided. however. that in the CA ent such amounts shall be insufficient to pay in full the full amount of such interest and principal. then such amounts shall be applied in the following order of priority: (i) first. to the payment of all installments of interest on the Loans then due and unpaid. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. (ii) second. to the payment of all installments of principal of the Loans then due and payable. on a pro rata basis in the event that the available amounts are installments of principal in full. and (iii) third. to the payment of interest on overdue installments of principal and interest. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. Section 5.3. No Waiver. Nothing in this Article V or in any other provision of this Loan Agreement. shall affect or impair the obligation of the Agency. which is absolute and unconditional. to pay from the Tax Revenues and other amounts pledged hereunder. the principal of and interest and premium. if any. on the Loans to the Trustee when due. as herein provided. or affect or impair the right of action. which is also absolute and unconditional. of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in this Loan Agreement. A waiver of any default by the Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing upon any 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 conferred upon the Trustee by the Redevelopment Law or by this Article V may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee. If a suit. action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Trustee. the Agency. the Authority and the Trustee shall be restored to their former positions. rights and remedies as if such suit. action or proceeding had not been brought or taken. P6402.0 156\875167.3 17 Section 5.4. Agreement to Pay Attorneys" Fees and Expenses. In the event the Agency or the Authority should default under any of the provisions hereof and the nondefaulting party or the Trustee should employ attorneys or incur other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained. the defaulting party agrees that it NyiII on demand therefor pay to the nondcfaulting party or the Trustcc. as the case may be. the reasonable fees of such attorneys and such other expenses so incurred (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). Section 5.5. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustcc is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing. at lacy or in equity or by statute or otherwise. and may be exercised Nyithout exhausting and Nyithout regard to any other remedy conferred by the Redevelopment Law or any other lacy. Section 5.6. Control of Remedies by Insurer. Notwithstanding the provisions of Section 5. I and subject to any rights heretofore granted by the Authority or the Agency to any insurer of Parity Debt. as Tong as Insurance Policy is in full force and effect and the Insurer has not defaulted Nyith respect to its payment obligations thereunder. upon the occurrence and continuance of an Event of Default. the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Owners or the Trustee for the benefit of the Owners under this Loan Agreement. Any acceleration of the Loans or annulment thereof pursuant to Section 5. I shall be subject to the prior Nyritten consent of the Insurer. No Nyaiyer of a default shall be effective Nyithout the «rittcn consent of the Insurer. ARTICLE VI MISCELLANEOUS Section 6. I. Benefits Limited to Parties. Nothing in this Loan Agreement. expressed or implied. is intended to give to any person other than the Agency. the Tnistcc. the Insurer and the Authority. any right. remedy or claim under or by reason of this Loan Agreement. All covenants. stipulations. promises or agreements in this Loan Agreement contained by and on behalf of the Agency shall be for the sole and exclusive benefit of the Authority. the Trustee acting as trustee for the benefit of the Owners of the Bonds. and the Insurer so Tong as the Insurance Policy remains in full force and effect. Section 6.2. Successor is Deemed Included in All References to Predecessor. Whenever in this Loan Agreement. the Agency. the Authority. the Trustee or the Insurer is named or referred to. such reference shall be deemed to include the successors or assigns thereof. and all the covenants and agreements in this Loan Agreement contained by or on behalf of the Agency. the Authority. the Trustee or the Insurer shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 6.3. Discharne of Loan Agreement. If the Agency shall pay and discharge the indebtedness on the Loans or any portion thereof in any one or more of the following \Nays: (a) by \yell and truly paying or causing to be paid the principal of and interest and prepayment premiums. if any. on the Loans or such portion thereof. as and \yhen the same become due and payable: (b) by irrevocably depositing Nyith the Trustee. in trust. at or before maturity. cash in an amount Nyhich. together Nyith the available amounts then on deposit in any of the funds and accounts P6402.0 156\875167.3 18 established pursuant to the Indenture or this Loan Agreement. in the opinion or report of an Independent Accountant is fully sufficient to pay all principal of and interest and prepayment premiums. if any. on the Loans or such portion thereof: or (c) by irrevocably depositing Nyith the Trustee or any other fiduciary. in trust. non - callable Defeasance Obligations in such amount as an Independent Accountant shall determine \yill. together Nyith the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or this Loan Agreement. be fully sufficient to pay and discharge the indebtedness on the Loans or such portion thereof (including all principal. interest and prepayment premiums) at or before maturity: then. at the election of the Agency but only if all other amounts then due and payable hereunder shall have been paid or provision for their payment made. the pledge of and Tien upon the Tax Revenues and other funds provided for in this Loan Agreement and all other obligations of the Trustee. the Authority and the Agency under this Loan Agreement Nvith respect to the Loans or such portion thereof shall cease and terminate. except only the obligation of the Agency to pay or cause to be paid to the Trustee. from the amounts so deposited Nyith the Trustee or such other fiduciary. all sums due Nyith respect to the Loans or such portion thereof. and to pay all expenses and costs of the Trustee NVhcn and as such expenses and costs become due and payable. Notice of such election shall be filed Nyith the Authority and the Trustee. Any funds thereafter held by the Trustee hereunder. Nyhich are not required for said purpose. shall be paid over to the Agency. Section 6.4. Amendment. This Loan Agreement may be amended by the parties hereto but only under the circumstances set forth in. and in accordance Nyith. the provisions of Section 5.08 of the Indenture. The Authority and the Trustee covenant that the Indenture shall not be amended. nor shall the Authority agree or consent to any amendment of the Indenture. Nyithout the prior Nvritten consent of the Agency (except that such consent shall not be required in the event that an Event of Default shall have occurred and be continuing hereunder). Section 6.5. Waiver of Personal Liability. No member. officer. agent or employee of the Agency shall be individually or personally liable for the payment of the principal of or interest on the Loans: but nothing herein contained shall relieve any such member. officer. agent or employee from the performance of any official duty provided by law. Section 6.6. Payment on Business Days. Whenever in this Loan Agreement any amount is required to be paid on a day Nyhich is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest on such payment shall not accrue from and after such day. Section 6.7. Notices. Any notice. request. complaint. demand or other communication under this Loan Agreement shall be given in the same manner as provided in Section 11.13 of the Indenture. Nyhich is hereby incorporated. Section 6.8. Surety Bond. Ito coma Section 6.9. Partial Invalidity . If any Section. paragraph. sentence. clause or phrase of this Loan Agreement shall for any reason be held illegal. invalid or unenforceable. such holding shall not affect the validity of the remaining portions of this Loan Agreement. The Agency hereby declares that it Nyould have adopted this Loan Agreement and each and every other Section. paragraph. sentence. clause or phrase hereof and authorized the Loans irrespective of the fact that any one or more Sections. P6402.0 156\875167.3 19 paragraphs. sentences. clauses. or phrases of this Loan Agreement may be held illegal. invalid or unenforceable. Section 6.10. Article and Section Headings and References. The headings or titles of the several Articles and Sections hereof. and any table of contents appended to copies hereof. shall be solely for convenience of reference and shall not affect the meaning. construction or cffcct of this Loan Agreement. All references herein to "Articles."' "Sections and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement: the words "herein. "hereof. - "hereby.- "hereunder- and other words of similar import refer to this Loan Agreement as a «hole and not to any particular Article. Section or subdivision hereof: and words of the masculine gender shall mean and include words of the feminine and neuter genders. Section 6. 11. Execution of Counterparts. This Loan Agrccmcnt may be executed in any number of counterparts. each of which shall for all purposes be deemed to be an original and all of which shall together constitute but one and the same instrument. Section 6.12. Governing, Law. This Loan Agreement shall be construed and governed in accordance with the laws of the State. Section 6.1 3. The Trustee. The Trustee is entering into this Loan Agreement solely in its capacity as Trustee under the Indenture and all provisions of the Indenture relating to the rights. privileges. powers and protections of the Trustee shall apply with equal force and effect to all actions taken by the Trustee in connection with this Loan Agreement. The Trustee shall be responsible only for the duties of the Trustee expressly set forth herein. Mom -tinder of I'Uge Intentionally Leff /3lailk f P64 2.0I 56\875167. i 20 IN WITNESS WHEREOF. the AGENCY. the AUTHORITY and the TRUSTEE have caused this Loan Agreement to be signed by their respective officers. all as of the day and year first above «ritten. PALM DESERT REDEVELOPMENT AGENCY By Executive Director PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Officer P6402.0 156\875167.3 21 EXHIBIT A SCHEDULE OF SERIES 2006A LOAN PAYMENTS' Date Principal Interest Total * Payable semiannually on the fifth Business Day preceding each Interest Payment Date P64 2.0I56\875167.3 A-1 EXHIBIT B SCHEDULE OF SERIES 2006B LOAN PAYMENTS Date Total Pa\ meat * Payable on the fifth Business Day preceding each April 1st P6402.0 156\875167.3 B- Indenture of Trust Nyith reference to Palm Desert Financing Authority Subordinate Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 3) 2006 Series C P6402. 1056\889838.2 RWG DRAFT: 5/24/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY 2 Section 1.01. Definitions 2 Section 1.02. Rules of Construction 8 Section 1.03. Authorization and Purpose of Bonds 9 Section 1.04. Equal Security 9 ARTICLE II ISSUANCE OF BONDS 9 Section 2.01. Designation 9 Section 2.02. Terms of Bonds 9 Section 2.03. Redemption of Bonds 10 Section 2.04. Form of Bonds 1 1 Section 2.05. Execution of Bonds 1 1 Section 2.06. Transfer of Bonds 1 1 Section 2.07. Exchange of Bonds 12 Section 2.08. Temporary Bonds 12 Section 2.09. Registration Books 12 Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen 12 ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS: ISSUANCE OF BONDS 13 Section 3.01. Issuance of Bonds 13 Section 3.02. Loan Fund; Application of Proceeds of Sale of Bonds 13 Section 3.03. Validity of Bonds 13 ARTICLE IV REVENUES: FLOW OF FUNDS 1 3 Section 4.01. Pledge of Revenues; Assignment of Rights 13 Section 4.02. Receipt, Deposit and Application of Revenues 13 Section 4.03. Investments 14 Section 4.04. Valuation and Disposition of Investments 15 ARTICLE V COVENANTS OF THE AUTHORITY 15 Section 5.01. Punctual Payment 15 Section 5.02. Extension of Payment of Bonds 15 Section 5.03. Against Encumbrances 15 Section 5.04. Power to Issue Bonds and Make Pledge and Assignment 16 Section 5.05. Accounting Records and Financial Statements 16 Section 5.06. No Additional Indebtedness 16 Section 5.07. Tax Covenants 16 Section 5.08. Loan Agreement 17 Section 5.09. Further Assurances 18 ARTICLE VI THE TRUSTEE 18 Section 6.01. Appointment of Trustee 18 Section 6.02. Acceptance of Trusts 18 Section 6.03. Fees, Charges and Expenses of Trustee 21 Section 6.04. Notice to Owners of Default 21 Section 6.05. Intervention by Trustee 21 -i- P6402. 1056\S898 38.2 Section 6.06. Removal of Trustee 22 Section 6.07. Resignation by Trustee 22 Section 6.08. Appointment of Successor Trustee 22 Section 6.09. Merger or Consolidation 22 Section 6.10. Concerning any Successor Trustee 22 Section 6.11. Appointment of Co -Trustee 22 Section 6.12. Indemnification; Limited Liability of Trustee 23 ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE 23 Section 7.01. Amendment Hereof 23 Section 7.02. Effect of Supplemental Indenture 24 Section 7.03. Endorsement or Replacement of Bonds After Amendment 24 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES 25 Section 8.01. Events of Default 25 Section 8.02. Remedies Upon Event of Default 25 Section 8.03. Application of Revenues and Other Funds After Default 26 Section 8.04. Power of Trustee to Control Proceedings 27 Section 8.05. Appointment of Receivers 27 Section 8.06. Non -Waiver 27 Section 8.07. Limitation on Rights and Remedies of Owners 27 Section 8.08. Termination of Proceedings 28 ARTICLE IX BOND INSURANCE 28 ARTICLE X BOOK -ENTRY SYSTEM 28 SECTION 10.01 Book -Entry System; Limited Obligation of Authority 28 SECTION 10.02 Representation Letter 29 SECTION 10.03 Transfers Outside Book -Entry System 29 SECTION 10.04 Payments to the Nominee 29 SECTION 10.05 Initial Depository and Nominee 29 ARTICLE XI MISCELLANEOUS 30 Section 11.01. Limited Liability of Authority 30 Section 1 1.02. Benefits of Indenture Limited to Parties 30 Section 11.03. Discharge of Indenture 30 Section 1 1.04. Successor Is Deemed Included in All References to Predecessor 31 Section 11.05. Content of Certificates 31 Section 1 1.06. Execution of Documents by Owners 31 Section 1 1.07. Disqualified Bonds 32 Section 1 1.08. Waiver of Personal Liability 32 Section 11.09. Partial Invalidity 32 Section 11.10. Destruction of Cancelled Bonds 32 Section 1 1.1 1. Funds and Accounts 32 Section 11.12. Payment on Business Days 33 Section 11.13. Notices 33 Section 11.14. Unclaimed Moneys 33 Section 11.15. Governing Law 34 EXHIBIT A - FORM OF BOND P6402. 1056\8898 38.2 INDENTURE OF TRUST This Indenture of Trust (this "Indenture) is made and entered into as of Jule I. 2006. by and between the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority) and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America. haying a corporate trust office in Los Angeles. California. and being qualified to accept and administer the trusts hereby created (the "Trustee.). Recitals A. The Palm Desert Redevelopment Agency (the "Agency) is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers. all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 3 of the Agency (the "Project Area) has been duly approved and adopted by the City. C. The Authority is authorized to borrow money for the purpose of making loans to the Agency to provide financing for public capital improvements of the Agency. D. For the purpose of aiding in the financing of redevelopment projects for the Project Area. the Authority has determined to make a loan (the "Loan) to the Agency under and pursuant to the Project Area No. 3 Loan Agreement (2006 Subordinate Loan). dated as of July I. 2006 (the "Loan Agreement) by and among the Authority. the Agency and the Trustee. E. To provide the moneys required to make the Loan under the Loan Agreement. the Authority has determined to issue its Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C. in the aggregate initial principal amount of (the "Bonds.). pursuant to and secured by this Indenture in the manner provided herein. F. To provide for the authentication and delivery of the Bonds. to establish and declare the terms and conditions upon which the Bonds are to be issued and to secure the payment of the principal thereof. premium. if any. and interest thereon. the Authority has authorized the execution and delivery of this Indenture. NOW. THEREFORE. THIS INDENTURE WITNESSETH. that in order to secure the payment of the principal of. premium. if any. and interest on the Bonds at any time issued and Outstanding under this Indenture. according to their tenor. and to secure the performance and observance of all the covenants and conditions therein and herein set forth. and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received. and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof. and for other valuable considerations. the receipt whereof is hereby acknowledged. the Authority hereby covenants and agrees with the Trustee. for the benefit of the Owners of the Bonds. as follows: P6402. 1056\S898 38.2 -1- ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY Section 1.01. Definitions. The following terms shall for all purposes of this Indenture and of any Supplemental Indenture and of any certificate. opinion. request or other documents herein mentioned have the meanings ascribed thereby. In addition. the terms defined in Section 1.01 of the Loan Agreement and not otherwise defined in this Section 1.01 shall have the meanings ascribed thereby in the Loan Agreement. "Accreted Value means. Nvith respect to any Bond. as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Closing Date at the stated yield to maturity thereof on each April I and October I. assuming in any such semiannual period that such Accreted Value increases in equal daily amounts on the basis of a 360-day year of twelve 30-dav months. "Act means Articles I through 4 (commencing Nvith Section 6500) of Chapter 5. Division 7. Title I of the Government Code of the State. as in existence on the Closing Date or as thereafter amended from time to time. ..Agency.. means the Palm Desert Redevelopment Agency. a redevelopment agency. a public body corporate and politic. duly created. established and authorized to transact business and exercise its powers all under and pursuant to the Redevelopment Law. and any successor to its duties and functions. "Authority means the Palm Desert Financing Authority. a joint powers authority duly organized and existing under the Joint Exercise of Powers Agreement. dated January 26. 1989. by and between the City and the Agency. and under the lays of the State. "Authority Commission"' means the governing body of the Authority. "Bond Counsel means Richards. Watson & Gershon. A Professional Corporation. Los Angeles. California. or a firm of attorneys of favorable reputation in the field of municipal bond lacy. "Bond Lary means the Marks -Roos Local Bond Pooling Act of 1985. being Article 4 of the Act (commencing Nyith Section 6584). as in existence on the Closing Date or as thereafter amended from time to time. "Bond Year- means each twelve-month period extending from April 2 in one calendar year to April I of the succeeding calendar year. both dates inclusive. except that the first Bond Year shall begin on the Closing Date and extend to and include April I. 2007. "Bonds means the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C. "Business Day" means any day other than (i) a Saturday or a Sunday or (ii) any other day on Nyhich the New York Stock Exchange or banks are authorized or obligated by law or executive order to close in New York. New York. San Francisco. California. Los Angeles. California or any city in Nyhich the Trust Office is located. P6402. 1056\S898 38.2 -2- "Certificate"' means a certificate in writing signed by any officer of the designated public entity. duly authorized by its legislative body for that purpose. "City means the City of Palm Desert. a charter city and municipal corporation duly organized and validly existing under the laws of the State. purchaser. "Closing, Date means the date of delivery of the Bonds to the Underwriter as the original "Code" means the Internal Rcycnuc Code of 1986. as amended. "County" means the County of Riverside. "Defeasance Obligations" means (a) an obligations described in paragraph A (provided that stripped securities are only permitted if they have been stripped by the U.S. Treasury itself) or paragraph B (excluding the obligations described in subparagraphs B.4 and B.6) of the definition of "Permitted Investments' set forth in this Section. (b) bonds. debentures. notes or other evidences of indebtedness issued or guaranteed by the non -full faith and credit U.S. government agency Resolution Funding Corp. (REFCORP) (provided stripped securities and interest components thereof are only permitted if they have been stripped by request to the Federal Reserve Bank of NOV York in book entry form). or (c) pre -refunded municipal bonds rated "Aaa- by Moody's and "AAA' by S&P. provided if the issue is only rated by S&P. the pre -refunded bonds must have been pre -refunded with cash. direct U.S. or U.S. guaranteed obligations. or AAA rated pre -refunded municipal obligations. "Depository means The Depository Trust Company. New York. New York. and its successors and assigns as securities depository for the Bonds. or any other securities depository acting as Depository under Article X. "Event of Default means any of the events described in Section 8.0 I . "Fiscal Year- means any twelve-month period extending from July I in one calendar year to June 30 of the succeeding calendar year. both dates inclusive. or any other twelve-month period selected and designated by the Authority as its official fiscal year period. "Indenture means this Indenture of Trust. as may from time to time be supplemented. modified or amended by any Supplemental Indenture pursuant to the provisions hereof. "Independent Accountant means any certified public accountant or firm of certified public accountants appointed and paid by the Authority. and \vho. or each of whom (i) is in fact independent and not under domination of the Authority. the City or the Agency: (ii) does not have any substantial interest. direct or indirect. in the Authority. the City or the Agency: and (iii) is not connected with the Authority. the City or the Agency as an officer or employee of the Authority. the City or the Agency but whom may be regularly retained to make annual or other audits of the books of or reports to the Authority. the City or the Agency. "Information Services" means Financial Information. Inc.'s "Daily Called Bond Service." 30 Montgomery Street. I0th Floor. Jersey City. New Jersey 07302. Attention: Editor: Mergent's "Municipal and Government."' 5250 77 Center Drive. Suite 150. Charlotte. North Carolina 28217. Attention: Called Bond Department: and Kenny S&P. 55 Water Street. 45 Floor. New York. New York 1004I. Attention: Notification Department: or. in accordance with then -current guidelines of the P6402. 1056\889838.2 Securities and Exchange Commission. such other addresses and/or such other services providing information wvith respect to called bonds as the Agency may designate to the Trustee in writing. "Initial Principal Amount." with respect to any Bond. means the initial principal amount thereof as of the Closing Date. "Insurance Paying Agent means or its successors under the Insurance Policy. "Insurance Policy" means the municipal bond insurance policy issued by the Insurer insuring the payment when due of the principal of and interest on the Bonds. "Insurer"' means "Interest Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)( I). "Loan Agreement"' means the Project Area No. 3 Loan Agreement (2006 Subordinate Loan). dated as of July I. 2006. by and among the Authority. the Agency and the Trustee relating to the Loan. as may from time to time be supplemented. modified or amended. Agency. to Section 3.02. maturity "Loan means the Loan. as defined in the Loan Agreement. made by the Authority to the "Loan Fundy means the fund by that name established and held by the Trustee pursuant "Maturity Amount." with respect to any Bond. means the Accreted Value thereof at "Moody's"' means Moody's Investors Service. its successors and assigns. "Nominee" means the nominee of the Depository. which may be the Depository. as determined from time to time pursuant to Article X. "Outstanding."' when used as of any particular time with reference to Bonds. means (subject to the provisions of Section 11.07) all Bonds theretofore executed. issued and delivered by the Authority under this Indenture except (i) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation. (ii) Bonds paid or deemed to have been paid within the meaning of Section 11.0 3. and (iii) Bonds in Iicu of or in substitution for which other Bonds shall have been executed. issued and delivered pursuant to this Indenture. "Owner"' means the person in wvhose name the ownership of any Bond or Bonds shall be registered on the Registration Books. "Participants"' means those broker -dealers. banks and other financial institutions from time to time for which the Depository holds Bonds as securities depository. "Paying Agent means the Trustee. P6402. 1056\S89838.2 -4- "Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein: A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury. and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. For purposes of this paragraph A. 'obligations the principal of and interest on which are unconditionally guaranteed by the United States of America include without limitation tax exempt obligations of a state or a political subdivision thereof which have been defeased under irrevocable escrow instructions with non -callable obligations for which the full faith and credit of the United States of America are pledged for the payment of principal and interest and which are rated "Aaa- by Moody's and "AAA by S&P. B. Bonds. debentures. notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies. provided such obligations are backed by the full faith and credit of the United States of America (provided that stripped securities are only permitted if they have been stripped by the agency itself): I. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing, Bank 4. Federal Housing, Administration Debentures (FHA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae-) GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing, and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds. debentures. notes or other evidence of indebtedness issued or guaranteed P6402. 1056\S898 38.2 -5- by any of the following non -full faith and credit U.S. government agencies (provided that stripped securities are only permitted if they have been stripped by the agency itself): I . Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mace) Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae-) Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing, Association (SLMA or "Sallie Mae-) Senior debt obligations 5. Resolution Funding, Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds. including funds for «Vhich the Tnistee or its affiliates provide investment advisory or other management services. registered under the Investment Company Act of 1940. «hose shares are registered under the Securities Act of 1933. and having a rating by S&P of AAAm-G: AAAm: or AAm and. if rated by Moody's. rated Aaa. Aa I or Aa2. E. Certificates of deposit secured at all times by collateral described in A and/or B above: provided that such certificates must be issued by commercial banks (including the Trustee and its affiliates). savings and loan associations or mutual savings banks and provided further that the collateral must be held by a third party and the Trustee on behalf of the Owners must have a perfected first security interest in the collateral. F. Certificates of deposit. savings accounts. deposit accounts or money market deposits which are fully insured by the Federal Deposit Insurance Corporation. including those of the Trustee and its affiliates. G. Investment agreements. including guaranteed investment contracts (GICs). Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to the Insurer. H. Commercial paper rated. at the time of purchase. "Prime - I by Moody's and "A- I " or better by S&P. I. Bonds or notes issued by an state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of an bank (including the Trustee and its affiliates) which has an unsecured. uninsured and unguaranteed obligation rating of "Prime - I or "A3- or better by Moody's and "A -I.. or "A- or better by S&P. P6462. 1056\889838.2 -6- K. Repurchase Agreements which are approved by the Insurer and which provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee or third party custodian. as the case may be (buyer/lender). and the transfer of cash from the Tnistcc to the dealer bank or securities firm w ith an agreement that the dealer bank or securities firm w ill repay the cash plus a yield to the Trustee in exchange for the securities at a specified date. L. The Local Agency Investment Fund in the State Treasury or any similar pooled investment fund administered by the State. to the extent such investment is held in the name and to the credit of the Trustee. M. Medium -term notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Such notes shall have a minimum credit rating of "Aar by Moody's and "AA by S&P at time of purchase. and shall mature within three years or less. N. Shares of beneficial interest issued by the California Asset Management Trust. a common law trust established under the laws of the State. "Principal Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)(2). "Principal Amount" means. as of any date of calculation. with respect to any portion of the Bonds. the Accreted Value thereof "Project Area means. unless the context clearly requires otherwise, the project area described and defined in the Redevelopment Plan approved and adopted by the City by its Ordinance No. 652. "Redemption Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)(3). "Redevelopment Law means the Community Redevelopment Law. being California Health and Safety Code Section 33000. et seq.. and all future acts supplemental thereto or amendatory thereof. "Redevelopment Plane means the Redevelopment Plan for the Project Area. approved and adopted by the City by its Ordinance No. 652 and includes any amendment of the Redevelopment Plan heretofore or hereafter made pursuant to law. "Registration Books means the records maintained by the Trustee pursuant to Section 2.09 for the registration and transfer of ownership of the Bonds. "Report" means a document in writing signed by an Independent Redevelopment Consultant and including: (i) a statement that the person or firm making or giving such Report has read the pertinent provisions of the document or documents to which such Report relates: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based: and (iii) a statement that. in the opinion of such person or firm. sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report. P6402. 1056\S898 38.2 -7- "Representation Letter- means the Blanket Issuer Letter of Representations. dated July 1. 1997. from the Authority to the Depository. qualifying bonds issued by the Authority for the Depository's book -entry system. "Request" means a request in writing signed by any officer of the designated public entity duly authorized by its legislative body for that purpose. "Revenue Fundy means the fund by that name established and held by the Trustee pursuant to Section 4.02(a). "Reyenues- means (i) all amounts payable by the Agency pursuant to Section 2.3 or Section 2.4 of the Loan Agreement: (ii) any proceeds of the Bonds originally deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established hereunder: and (iii) income and gains with respect to the investment of amounts on deposit in the funds and accounts established hereunder. other than amounts payable to the United States of America pursuant to Section 5.07. "S&P- means Standard & Poor's Ratings Services and its successors and assigns. "Securities Depositories means The Depository Trust Company. ;; Water Street. 50th Floor. New York. New York. 10041. Attn: CaII Notification Department. Fax (212) 855-72 32: and. in accordance with then current guidelines of the Securities and Exchange Commission. such other addresses or such other securities depositories as the Authority may designate in a Certificate of the Authority delivered to the Trustee. "State means the State of California. "Supplemental Indenture- means any indenture. agreement or other instrument hereafter duly executed by the Authority and the Trustee in accordance with the provisions of Section 7.01. "Tax Retzulations- means temporary and permanent regulations promulgated under or with respect to Section 103 and Sections 141 through 150. inclusive. of the Code. "Trust Office- means the corporate trust office of the Trustee at the address set forth in Section 11.13 or such other offices as may be specified to the Authority by the Trustee in writing. With respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or agency of the Trustee at which. at any particular time. its corporate trust business shall be conducted. "Trustee" means Wells Fargo Bank. National Association. and its successors and assigns. and any other corporation or association which may at any time be substituted in its place as provided in Article VI. "Underwriter - means Citigroup Global Markets Inc. Section 1.02. Rules of Construction. All references in this Indenture to "Articles." "Sections." and other subdivisions. unless indicated otherwise. are to the corresponding Articles. Sections or subdivisions of this Indenture: and the words "herein. "hereof. "hereunder. and other words of similar import refer to this Indenture as a whole and not to any particular Article. Section or subdivision hereof. P6402. 1056\8898 38.2 -8- Section 1.03. Authorization and Purpose of Bonds. The Authority has reviewed all proceedings heretofore taken relative to the authorization of the Bonds and has found. as a result of such review. and hereby finds and determines that all things. conditions. and acts required by law to exist. happen and be performed precedent to and in the issuance of the Bonds do exist. have happened and have been performed in due time. form and manner as required by law. and the Authority is now authorized under the Bond Law and each and every requirement of law. to issue the Bonds in the manner and form provided in this Indenture. The Authority hereby authorizes the issuance of the Bonds pursuant to the Bond Law and this Indenture for the purpose of providing funds to make the Loan to the Agency pursuant to the Loan Agreement. Section 1.04. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof. this Indenture shall be deemed to be and shall constitute a contract among the Authority. the Trustee and the Owners of the Bonds: and the covenants and agreements herein set forth to be performed on behalf of the Authority shall be for the equal and proportionate benefit. security and protection of all Owners of the Bonds Nvithout preference. priority or distinction as to security or othenvise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale. execution or delivery thereof. or otherwise for any cause Nvhatsoeyer. except as expressly provided therein or herein. ARTICLE II ISSUANCE OF BONDS Section 2.0I I. Desitznation. The Bonds shall be designated the Palm Desert Financing Authority Tax Allocation Subordinate Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C and shall be issued in the aggregate Initial Principal Amount of Section 2.02. Terms of Bonds. The Bonds shall be issued in fully registered form in any denominations of Initial Principal Amount but shall reflect denominations of $5.000 Maturity Amount or any integral multiple thereof. No Bond shall have more than one maturity date. The Bonds shall be dated the Closing Date. shall mature on April I in each of the years and in the Maturity Amounts set forth in the following schedule. The Bonds shall be delivered on the Closing Date in the aggregate Initial Principal Amounts set forth below. Interest on the Initial Principal Amount of the Bonds shall accrue and compound at the yield to their maturity set forth below (such interest being equal to the difference between the Maturity Amounts and the Initial Principal Amounts thereof): Maturity Initial Initial Principal Yield to Date Maturity Principal Amount per $5.000 Maturity (April I) Amount Amount Maturity Amount Date Interest on each Bond shall be compounded semi-annually at the yield set forth above from the Closing Date on each April I and October I. commencing October I. 2006. until maturity or earlier redemption thereof. computed using a year of 360 days of twelve 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. with respect to any Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the Trust Office. in lawful money of the United States of America. P6402. 1056\S89838.2 -9- Section 2.03. Redemption of Bonds. (a) Optional Redemption. In the event that the Agency shall exercise its option to prepay installments of the Loan pursuant to Section 2.4(a) of the Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Bonds maturing on or after April I. 2() . as a whole. or in part among maturities as designated in writing by the Authority and by lot within a maturity. in integral multiples of $5.000 of Maturity Amount. on any October I or April Ion or after April I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Bonds on the date fixed for redemption): Redemption Redemption Dates Price April I. 20 and October I. 2() 10_`%0 April I. 20 and October I. 2() 10_ April I. 20 and thereafter 100 The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(a) at least 45 but not more than 90 days prior to the date fixed for such redemption. (b) 'Reseryedi. (c) General Redemption Provisions (I) Notice of Redemption. The Tnistcc on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books and. by such means acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the date fixed for redemption: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the Bond numbers (but only if less than all of the Outstanding Bonds are to be redeemed) and the maturity or maturities of the Bonds (in the event of redemption of all of the Bonds of such maturity or maturities in NVhoIc) to be redeemed. and shall require such Bonds be then surrendered at the Trust Office of the Trustee in Los Angeles. California (or such other location as designated by the Trustee) for redemption at the redemption price. giving notice also that further interest on such Bonds will not accrue from and after the redemption date. (2) Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of Tess than all of such Bonds of any maturity. the Trustee shall select the Bonds to be redeemed from all Bonds of such maturity not previously called for redemption. by lot in any manner which the Trustee in its sole discretion shall deem appropriate under the circumstances. For purposes of selecting Bonds within a maturity for redemption. all Bonds shall be deemed to be comprised of separate $5.000 Maturity Amount portions and such portions shall be treated as separate bonds which may be separately redeemed. P6402. 1056\8898 38.2 -10- (3) Partial Redemption of Bonds. In the event only a portion of any Bond is called for redemption. then upon surrender of such Bond the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof. at the expense of the Authority. a new Bond or Bonds of the like tenor and maturity date. of authorized denominations in aggregate Maturity Amount equal to the unredeemed portion of the Bond to be redeemed. (4) Effect of Redemption. From and after the date fixed for redemption. if funds available for the payment of the principal of. interest on and premium. if any. on the Bonds so called for redemption shall have been duly provided. such Bonds so called shall cease to be entitled to any benefit under this Indenture other than the right to receive payment of the redemption price. and no interest shall accrue thereon from and after the redemption date specified in such notice. All Bonds redeemed pursuant to this Section shall be destroyed. Section 2.04. Form of Bonds. The Bonds. the Trustees certificate of authentication. and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit A attached hereto and by this reference incorporated herein. Nyith necessary or appropriate variations. omissions and insertions. as permitted or required by this Indenture. Section 2.05. Execution of Bonds. The Bonds shall be signed in the name and on behalf of the Authority Nyith the manual or facsimile signatures of its President and attested Nyith the manual or facsimile signature of its Secretary or any deputy duly appointed by the Authority Commission. and shall be delivered to the Trustee for authentication by it. In case any officer of the Authority \yho shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed shall have been authenticated or delivered by the Trustee or issued by the Authority. such Bonds may nevertheless be authenticated. delivered and issued and. upon such authentication. delivery and issue. shall be as binding upon the Authority as though the individual \yho signed the same had continued to be such officer of the Authority. Also. any Bond may be signed on behalf of the Authority by any individual \yho on the actual date of the execution of such Bond shall be the proper officer although on the nominal date of such Bond such individual shall not have been such officer. Only such of the Bonds as shall bear thereon a certificate of authentication in substantially the form set forth in Exhibit A manually executed by the Trustee. shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture. and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.06. Transfer of Bonds. Any Bond may. in accordance Nyith its terms. be transferred. upon the Registration Books. by the person in Nvhose name it is registered. in person or by the Owners duly authorized attorney. upon surrender of such Bond for cancellation. accompanied by delivery of a Nvritten instrument of transfer in a form acceptable to the Trustee. duly executed. Whenever any Bond shall be surrendered for transfer. the Authority shall execute and the Trustee shall thereupon authenticate and deliver to the transferee a neW Bond or Bonds of the same series and of like tenor. maturity and aggregate principal amount. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection Nyith any such transfer shall be paid by the Authority. except that the Trustee shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid Nyith respect to such transfer. The Trustee shall not be required to transfer. pursuant to this Section 2.06. either (i) any Bond during the period established by the Trustee for the selection of Bonds for redemption. or (ii) any Bond selected for redemption pursuant to Section 2.03. P6—IU2.Ic156\8893x.2 -II- Section 2.07. Exchange of Bonds. Bonds may be exchanged at the Trust Office for the same aggregate Maturity Amount of Bonds of the same tenor and maturity and of other authorized denominations. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection Nvith any such exchange shall be paid by the Authority. except that the Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid Nvith respect to such exchange. The Trustee shall not be required to exchange. pursuant to this Section 2.07. either (i) any Bond during the period established by the Trustee for the selection of Bonds for redemption. or (ii) any Bond selected for redemption pursuant to Section 2.01 Section 2.08. Temporary Bonds. The Bonds may be issued initially in temporary form exchangeable for definitive Bonds Nvhen ready for delivery. The temporary Bonds may be printed. lithographed or typewritten. shall be of such denominations as may be determined by the Authority and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and be registered and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds: provided that any temporary Bond need only be signed in the name and on behalf of the Authority Nvith the manual or facsimile signature of the Secretary. or any deputy duly appointed by the Authority Commission. and need not be attested. If the Authority issues temporary Bonds. it NyiII execute and furnish definitive Bonds Nvithout delay. and thereupon the temporary Bonds shall be surrendered. for cancellation. in exchange therefor at the Trust Office of the Trustee in Los Angeles. California (or such other location designated by the Trustee). and the Trustee shall authenticate and deliver in exchange for such temporary Bonds definitive Bonds of like term. maturity and aggregate Maturity Amount in authorized denominations. Until so exchanged. the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.09. Registration Books. The Trustee Nvill keep or cause to be kept at its Trust Office sufficient records for the registration and transfer of the Bonds. Nvhich shall at all times during regular business hours be open to inspection by the Authority Nvith reasonable prior notice: and. upon presentation for such purpose. the Trustee shall. under such reasonable regulations as it may prescribe. register or transfer or cause to be registered or transferred. on such records. Bonds as hereinbefore provided. Section 2.10. Bonds Mutilated. Lost. Destroyed or Stolen. If any Bond shall become mutilated. the Authority. at the expense of the Owner of such Bond. shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like tenor. maturity and aggregate Maturity Amount in authorized denominations in exchange and substitution for the Bond so mutilated. but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be cancelled by it and destroyed. If any Bond issued hereunder shall be lost. destroyed or stolen. evidence of such Toss. destruction or theft may be submitted to the Trustee and. if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given. the Authority. at the expense of the Owner. shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like tenor in Iicu of and in substitution for the Bond so lost. destroyed or stolen (or if any such Bond shall have matured or shall have been called for redemption. instead of issuing a substitute Bond the Trustee may pay the same Nvithout surrender thereof upon receipt of indemnity satisfactory to the Trustee). The Trustee may require payment of a reasonable fee for each new Bond issued under this Section 2. I0 and of the expenses Nvhich may be incurred by the Authority and the Trustee. Any Bond issued under the provisions of this Section 2. I0 in Iicu of any Bond alleged to be lost. destroyed or stolen shall constitute an original contractual obligation on the part of the Authority Nvhether or not the Bond alleged to be lost. destroyed or stolen be at any time enforceable by anyone. and shall be equally and proportionately entitled to the benefits of this Indenture Nvith all other Bonds secured by this Indenture. P64U2. I ch6\8898 38.2 -I2- ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS: ISSUANCE OF BONDS Section 3.01. Issuance of Bonds. Upon the execution and delivery of this Indenture. the Authority shall execute and deliver the Bonds in the respective aggregate Initial Principal Amounts set forth herein and shall deliver the Bonds to the Trustee for authentication and delivery to the original purchaser thereof upon the Request of the Authority. Section 3.02. Loan Fund: Application of Proceeds of Sale of Bonds. The Trustee shall establish and maintain a separate fund to be known as the "Loan Fund." Upon the receipt of payment for the Bonds on the Closing Date. the Trustee shall deposit the proceeds of sale thereof in the amount of in the Loan Fund. The Trustee shall disburse all amounts in the Loan Fund pursuant to Section 2.2 of the Loan Agreement. Section 3.03. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be affected in any Nvay by any proceedings taken by the Agency with respect to the application of the proceeds of the Loan. and the recital contained in the Bonds that the same are issued pursuant to the Bond Law shall be conclusive evidence of their validity and of the regularity of their issuance. ARTICLE IV REVENUES: FLOW OF FUNDS Section 4.01. Pledtze of Revenues: Assignment of Rights. Subject to the provisions of Section 6.03. the Bonds shall be secured by a first lien on and pledge (which shall be effected in the manner and to the extent hereinafter provided) of all of the Revenues. The Bonds shall be equally secured by a pledge. charge and Tien upon the Revenues without priority for series. number. date of Bonds. date of execution or date of delivery: and the payment of the Principal Amount of the Bonds and any premiums upon the redemption of any thereof shall be and are secured by an exclusive pledge. charge and Tien upon the Revenues. So Tong as any of the Bonds are Outstanding. the Revenues shall not be used for any other purpose: except that out of the Revenues there may be apportioned such sums. for such purposes. as are expressly permitted by Section 4.02. The Authority hereby transfers in trust and assigns to the Trustee. for the benefit of the Owners from time to time of the Bonds. all of the Revenues and all of the right. title and interest of the Authority in the Loan Agreement (other than the rights of the Authority under Section 5.04 thereof). The Trustee shall be entitled to and shall receive all of the Revenues. and any Revenues collected or received by the Authority shall be deemed to be held. and to have been collected or received. by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and. subject to the provisions hereof. shall take all steps. actions and proceedings reasonably necessary in its judgment to enforce. either jointly with the Authority or separately. all of the rights of the Authority and all of the obligations of the Agency under the Loan Agreement. Section 4.02. Receipt. Deposit and Application of Revenues. (a) Deposit of Revenues. Revenue Fund. All Revenues described in clause (i) of the definition thereof in Section 1.0I shall be promptly deposited by the Trustee upon receipt thereof in a P6402. 1056\8898 38.2 -I 3- special fund designated as the "Revenue Fundy which the Trustee shall establish. maintain and hold in trust hereunder. (b) Application of Revenues: Accounts. At the times prescribed below. the Trustee shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Revenue Fund). the following amounts in the following order of priority. the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: ( I ) I Reseryedi. (2) Principal Account. On or before each maturity date of the Bonds shall be payable. the Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the Maturity Amount of the then Outstanding Bonds coming due and payable on such date pursuant to Section 2.02. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the Maturity Amount of the Bonds at the maturity thereof. All amounts on deposit in the Principal Account on the first day of any Bond Year. to the extent not required to pay the Maturity Amount of any Outstanding Bonds then haying come due and payable. shall be withdrawn therefrom and transferred to the Agency to be used for any lawful purposes of the Agency. (3) Redemption Account. The Trustee. at any time that the Agency shall exercise its option to prepay installments of the Loan pursuant to Section 2.4 of the Loan Agreement. shall deposit the Revenues derived from such prepayment in the Redemption Account (which the Tnistcc shall also establish and maintain within the Rcycnuc Fund). to be used and withdrawn by the Trustee solely for the purpose of paying the Principal Amount and redemption premiums. if any. on the Bonds to be redeemed on their respective redemption dates. as directed by the Authority. Section 4.03. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to this Indenture or pursuant to the Loan Agreement shall be invested by the Trustee solely in Permitted Investments pursuant to the written direction of the Authority given to the Trustee two Business Days in advance of the making of such investments (and promptly confirmed in writing. as to any such direction given orally): provided that moneys in the Reserve Fund established pursuant to the Loan Agreement shall be invested in Permitted Investments which mature not more than five years from the date of such investment. In the absence of any such direction from the Authority. the Tnistcc shall invest any such moneys in Permitted Investments described in Paragraph D of the definition thereof. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the fund or account from which such investment was made. For purposes of acquiring any investments hereunder. the Trustee may commingle funds held by it hereunder. The Tnistcc may (but shall not be obligated to) act as principal or agent in the acquisition or disposition of any investment. The Trustee shall incur no liability for losses arising from any investments made at the direction of the Authority. or otherwise made pursuant to this Section. The Trustcc shall be entitled to rely conclusively upon the written instructions of the Authority directing investments in Permitted Investments as to the fact that each such investment is permitted by the laws of the State. and shall not be required to make further investigation with respect P6402. 1056\8898 38.2 -I4- thereto. With respect to any restrictions set forth in the definition of Permitted Investments set forth in Section 1.0I Nyhich embody legal conclusions (e.g.. the existence. validity and perfection of security interests in collateral). the Trustee shall be entitled to rely conclusively on an opinion of counsel or upon a representation of the provider of such Permitted Investment obtained at the Authority's or the Agency's expense. Except as specifically provided in this Indenture. the Trustee shall not be liable to pay interest on any moneys received by it. but shall be liable only to account to the Authority and the Agency for earnings derived from funds that have been invested. The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur. the Authority specifically \valves receipt of such confirmations to the extent permitted by law. The Trustee Nvill furnish the Authority periodic cash transaction statements Nyhich include detail for all investment transactions made by the Trustee hereunder. The Trustee or any of its affiliates may act as sponsor. advisor or manager in connection Nyith any investments made by the Trustee hereunder. Section 4.04. Valuation and Disposition of Investments. For the purpose of determining the amount in any fund or account established hereunder or under the Loan Agreement. any investments credited to such fund or account shall be valued at least annually. on or before July I. at the market value thereof. In making any valuations hereunder the Trustee may utilize computerized securities pricing services that may be available to it. including those available through its regular accounting system. ARTICLE V COVENANTS OF THE AUTHORITY Section 5.0I I. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal. interest and premium. if any. to become due in respect of all the Bonds. in strict conformity Nyith the terms of the Bonds and of this Indenture. according to the true intent and meaning thereof. but only out of Revenues and other assets pledged for such payment as provided in this Indenture. Section 5.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement. and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended. such Bonds or claims for interest shall not be entitled. in case of any default hereunder. to the benefits of this Indenture. except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon Nvhich shall not have been so extended. Nothing in this Section 5.02 shall be deemed to limit the right of the Authority to issue bonds or other obligations for the purpose of refunding any Outstanding Bonds. and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Section 5.03. Aizainst Encumbrances. The Authority shall not create. or permit the creation of. any pledge. lien. charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture Nyhile any of the Bonds are Outstanding. except the pledge and assignment created by this Indenture. Subject to this limitation. the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes. including other programs under the Bond Law. and reserves the right to issue other obligations for such purposes. P6402. 1056\8898 38.2 -15- Section 5.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues. the Loan Agreement and other assets purported to be pledged and assigned. respectively. under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and Nvill be the legal. valid and binding special obligations of the Authority in accordance Nyith their terms. and the Authority shall at all times. to the extent permitted by law. defend. preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Owners under this Indenture against all claims and demands of all persons Nvhomsoeyer. Section 5.05. Accounting Records and Financial Statements. The Trustee shall at all times keep. or cause to be kept. proper books of record and account. prepared in accordance Nyith corporate trust industry standards. in Nyhich complete and accurate entries shall be made of all transactions made by the Trustee relating to the proceeds of Bonds. the Revenues. the Loan Agreement and all funds and accounts established pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority and the Agency. during regular business hours Nyith reasonable prior notice. Section 5.06. No Additional Indebtedness. Except for the Bonds. the Authority shall not incur any indebtedness payable out of the Revenues. (For clarification. this provision does not prohibit the Agency from incurring additional debt secured by Tax Revenues. so long as the incurrence of such debt is in compliance Nyith the Loan Agreement.) Section 5.07. Tax Covenants. (a) The Authority covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the Accreted Value of the Bonds Nyhich constitutes the interest thereon. and for no other purpose. the Authority Nvill satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Authority agrees to comply Nyith such Nvritten instructions as may be provided by Bond Counsel. (b) The Authority covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nvould cause the Bonds to become arbitrage bonds. as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nyith the rebate requirements of Section 148 of the Code. the Authority further covenants that it Nvill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section 148(f) of the Code. and that it Nvill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nyith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Authority covenants that it Nvill not take any action or omit to take any action. Nyhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nvould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. (d) The Authority covenants that it Nvill not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as Nvould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. P6402. 1056\8898 38.2 -16- (e) Notwithstanding any provision of this Indenture. and except as provided below. the Authority covenants that none of the moneys contained in any of the funds or accounts created pursuant to this Indenture with respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested directly or indirectly in obligations guaranteed (in Nvhole or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Rcycnuc Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 11(a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under this Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 5.08. Loan Agreement. The Trustee. as assignee of the Authority's rights pursuant to Section 4.01. shall receive all amounts due from the Agency pursuant to the Loan Agreement and. upon an Event of Default. shall diligently enforce. and take all steps. actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations of the Agency thereunder. The Loan Agreement may be amended or modified pursuant to the applicable provisions thereof. but only with the Nvritten consent of the Insurer (as Tong as the Insurance Policy is in full force and effect) and only: (i) if the Authority. the Agency or the Trustee first obtains the «rittcn consent of the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding to such amendment or modification. provided. however. that no such amendment or modification shall (a) extend the maturity of or reduce the amount of interest or principal payments on a Loan. or otherwise alter or impair the obligation of the Agency to pay the principal. interest or prepayment premiums on a Loan at the time and place and at the rate and in the currency provided therein. without the express «rittcn consent of the Owner of each affected Bond. (b) reduce the percentage of the Bonds required for the «rittcn consent to any such modification or amendment thereof or hereof. or (c) without its «rittcn consent thereto. modify any of the rights or obligations of the Trustee: or (ii) without the consent of any of the Owners. if such amendment or modification does not modify the rights or obligations of the Trustee without its prior «rittcn consent. and is for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency contained in the Loan Agreement other covenants and agreements thereafter to be observed. or to limit or surrender any rights or power therein reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: (b) to make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in the Loan Agreement. or in any other respect Nvhatsoeyer as the Agency and the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds: (c) to amend any provision thereof relating to the Code. to any extent whatsoever but only if and to the extent such amendment Nvill not adversely affect the exclusion from P6402. 1056\8898 38.2 -17- gross income for federal income tax purposes of interest on any of the Bonds under the Code. in the opinion of Bond Counsel: or (d) to provide for the issuance of Parity Debt under and in accordance with the provisions of the Loan Agreement. Nothing in this Section 5.08 shall prevent the Agency and the Authority. with the written consent of the Insurer (as Tong as the Insurance Policy is in full force and effect). from entering into any amendment or modification of the Loan Agreement which solely affects a particular Bond or Bonds all of the Owners of which shall have consented to such amendment or modification: provided. however. no such amendment or modification shall affect the rights or obligations of the Trustee without its prior «rittcn consent. The Tnistcc shall be entitled to rely upon the opinion of Bond Counsel stating that the requirements of this Section 5.08 have been met with respect to any amendment or modification of the Loan Agreement. Section 5.09. Further Assurances. The Authority will adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture. and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in this Indenture. ARTICLE VI THE TRUSTEE Section 6.0I I. Appointment of Trustee. Wells Fargo Bank. National Association. a national banking association organized and existing under and by virtue of the laws of the United States of America. with a corporate trust office in Los Angeles. California. is hereby appointed Trustee by the Authority for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate. use and apply the same as provided in this Indenture. The Authority agrees that it will maintain a Trustee which shall be a financial institution haying a corporate trust office in the State. with a combined capital and surplus of at least $75.000.000. and subject to supervision or examination by federal or State authority. so long as any Bonds are Outstanding. If such financial institution 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 6.0I the combined capital and surplus of such financial institution shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee is hereby authorized to pay the principal of and interest and redemption premium. if any. on the Bonds when duly presented for payment at maturity. or on redemption or purchase prior to maturity. and to cancel all Bonds upon payment thereof. The Trustee shall keep accurate records of all funds administered by it and of all Bonds paid and discharged. Section 6.02. Acceptance of Tnists. The Trustee hereby accepts the trusts imposed upon it by this Indenture. and agrees to perform said trusts. but only upon and subject to the following express terms and conditions: (a) The Trustee. prior to the occurrence of an Event of Default and after curing of all Events of Default which may have occurred. undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants. duties or obligations shall be read into this Indenture against the Trustee. In case an Event of Default hereunder has occurred (which has not been cured or \valved). the Trustee may exercise such of the rights and powers vested in it by this P6402. 1056\8898 38.2 -I8- Indenture. and shall use the same degree of care and skill and diligence in their exercise. as a prudent person Nyould use in the conduct of its own affairs. (b) The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys. agents. or receivers. and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder. The Trustee may conclusively rely on an opinion of counsel as full and complete protection for any action taken or suffered by it hereunder. (c) The Trustee shall not be responsible for any recital herein. in the Loan Agreement or in the Bonds. or for any of the supplements hereto or thereto or instruments of further assurance. or for the validity of this Indenture or the Loan Agreement. or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby. or the tax status of the interest on the Bonds. and the Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants. conditions or agreements on the part of the Authority hereunder. (d) The Trustee (including its officers and employees) may become the Owner of Bonds secured hereby Nvith the same rights Nyhich it Nvould have if not the Trustee: may acquire and dispose of other bonds or evidences of indebtedness of the Authority Nvith the same rights it Nvould have if it \sere not the Trustee: and may act as a depositary for and permit any of its officers or directors to act as a member of. or in any other capacity Nvith respect to. any committee formed to protect the rights of Owners of Bonds. Nvhether or not such committee shall represent the Owners of the majority in aggregate Principal Amount of the Bonds then Outstanding. The Trustee. either as principal or agent. may engage in or be interested in any financial or other transaction Nvith the Authority. (e) The Trustee shall be protected in acting upon any Report. notice. request. consent. certificate. order. affidavit. letter. direction. telegram. facsimile transmission. electronic mail or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons and need not make any investigation into the facts or matters contained therein. Any action taken or omitted to be taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person \yho at the time of making such request or giving such authority or consent is the Owner of any Bond. shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. The Trustee shall not be bound to recognize any person as an Owner of any Bond or to take any action at his request unless the ownership of such Bond by such person shall be reflected on the Registration Books. (f) As to the existence or non-existence of any fact or as to the sufficiency or validity of any instrument. paper or proceeding. the Trustee shall be entitled to rely upon a Certificate of the Authority as sufficient evidence of the facts therein contained and prior to the occurrence of an Event of Default hereunder of Nvhich the Trustee has been given notice or is deemed to have notice. as provided in Section 6.02(h). shall also be at liberty to accept a Certificate of the Authority to the effect that any particular dealing. transaction or action is necessary or expedient. but may at its discretion secure such further evidence deemed by it to be necessary or advisable. but shall in no case be bound to secure the same. (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or �yillfuI misconduct. The immunities and exceptions from liability of the Trustee shall extend to its officers. directors. employees and agents. In the absence of negligence or misconduct. the Trustee shall not be liable for any error of judgment. P6402. 1056\8898 38.2 -I9- (h) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default hereunder except failure by the Authority to make any of the payments to the Trustee required to be made by the Authority pursuant hereto. unless the Trustee shall be specifically notified in writing of such default by the Authority. the Insurer or by the Owners of at least 25 percent in aggregate principal amount of the Bonds then Outstanding and all notices or other instruments required by this Indenture to be delivered to the Trustee must. in order to be effective. be delivered at the Trust Office of the Trustee in Los Angeles. California. and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default hereunder except as aforesaid. (i) At any and all reasonable times the Trustee. and its duly authorized agents. attorneys. experts. accountants and representatives. shall have the right. but not the obligation. fully to inspect all books. papers and records of the Authority pertaining to the Bonds. and to make copies of any of such books. papers and records such as may be desired but which is not privileged by statute or by law. (j) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises hereof. (k) Notwithstanding anything elsewhere in this Indenture with respect to the execution of any Bonds. the withdrawal of any cash. the release of any property. or any action whatsoever within the purview of this Indenture. the Trustee shall have the right. but shall not be required. to demand any showings. certificates. opinions. appraisals or other information. or corporate action or evidence thereof. as may be deemed desirable for the purpose of establishing the right of the Authority to the execution of any Bonds. the withdrawal of any cash. or the taking of any other action by the Trustee. (I) Before taking action referred to in Section 6.05. Section 8.02 or the first paragraph of Section 5.08. the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability. except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any such action. (m) All moneys received by the Trustee shall. until used or applied or invested as herein provided. be held in trust for the purposes for which they \were received but need not be segregated from other funds except to the extent required by law. (n) The Trustee shall have no liability or obligation to the Bond Owners with respect to the payment of debt service by the Authority or with respect to the observance or performance by the Authority of the other conditions. covenants and terms contained in this Indenture. or with respect to the investment of any moneys in any fund or account established. held or maintained by the Authority pursuant to this Indenture or otherwise. (o) The Trustee makes no covenant. representation or warranty concerning the current or future tax status of interest on the Bonds. The Trustee need only keep accurate records of all investments and funds. and send rebate payments to the United States in accordance with explicit instructions from the Authority. (p) The Trustee shall have no responsibility with respect to any information. statement. or recital in any official statement. offering memorandum or any other disclosure material prepared or distributed with respect to the issuance of the Bonds. (q) The Trustee in its capacity as Trustee is authorized and directed to execute the Loan Agreement. P6402. 1056\8898 38.2 -20- (r) The Trustcc shall not be considered in broach of or in default in its obligations hereunder or progress in respect thereto in the cycnt of enforced delay ("unavoidable delay) in the performance of such obligations duo to unforeseeable causcs beyond its control and yithout its fault or negligence. including. but not Iimitcd to. Acts of God or of the public enemy or terrorists. acts of a government. acts of the other party. fires. floods. epidemics. quarantine restrictions. strikes. freight embargoes. earthquakes. explosion. mob violence. riot. inability to procure or general sabotage or rationing of labor. equipment. facilities. sources of energy. material or supplies in the open market. litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project. malicious mischief. condemnation. and unusually severe ycathcr or delays of suppliers or subcontractors duo to such causcs or any similar cycnt and/or occurrences beyond the control of the Trustcc: provided that. in the cycnt of any such unavoidable delay undcr this paragraph 6.02(r). the Trustcc notify the Authority and the Agency in «citing «ithin five business days after (i) the occurrcncc of the cycnt giving rise to the unavoidable delay. (ii) the Trustees actual knowledge of the impending unavoidable delay. or (iii) the Trustees knowledge of sufficient facts undcr which a rcasonablc person would conclude the unavoidable delay will occur. (s) The Trustcc agrees to accept and act upon facsimilc transmission of written instructions and/or dircctions pursuant to this Indenture provided. however. that: (i) subsequent to such facsimilc transmission of written instructions and/or dircctions the Trustcc shall forthwith receive the originally executed instructions and/or dircctions. (ii) such originally executed instructions and/or dircctions shall be signed by a person as may be dcsignatcd and authorized to sign for the party signing such instructions and/or dircctions. and (iii) the Trustcc shall have received a current incumbency certificate containing the specimen signature of such dcsignatcd person. Scction 6.03. Fccs. Charzes and Expenses of Trustcc. The Trustcc shall be entitled to payment and rcimburscmcnt for rcasonablc fccs for its services rendered hcrcundcr and all advances (with interest on such advances at the maximum rats allowed by lacy). counscl fccs and expenses (including those of in-house counscl to the extent they arc for services not duplicative of other counsels' work) and other expenses reasonably and necessarily made or incurrcd by the Trustcc in connection with such services. which payment and reimbursement shall not be Iimitcd by any provision of lacy in regard to the compensation of a trustee of an express trust. Upon the occurrcncc of an Eycnt of Dcfault hcrcundcr. but only upon an Eycnt of Dcfault. the Trustcc shall hays a first Iicn with right of payment prior to payment of any Bond upon the amounts hold hcrcundcr for the foregoing fccs. charges and expenses incurrcd by it respectively. which right to payment shall survive the resignation or removal of the Trustcc. Scction 6.04. Notice to Owners of Dcfault. If an Event of Dcfault hcrcundcr occurs with respect to any Bonds of which the Trustcc has bccn given or is deemed to have noticc. as provided in Scction 6.02(h). then the Trustcc shall promptly given «cittcn noticc thereof by first-class mail to the Owner of each such Bond. unlcss such Event of Dcfault shall have bccn cured before the giving of such noticc: provided. however. that unlcss such Event of Dcfault consists of the failure by the Authority to make any payment \yhen duo. the Trustcc may elect not to give such noticc if and so long as the Trustcc in good faith determines that such Event of Dcfault dots not materially adversely affect the interests of the Owners or that it is othenyisc not in the best interests of the Owners to give such noticc. Scction 6.05. Intervention by Trustcc. In any judicial proceeding to which the Authority is a party which. in the opinion of the Trustcc. has a substantial bearing on the interests of Owners of any of the Bonds. the Trustcc may intervene on behalf of such Owners. and subject to Scction 6.02(I). shall do so if requested in writing by the Owners of a majority in aggregate Principal Amount of such Bonds then Outstanding. P64U2. I056\S898 38.2 -2 I- Section 6.06. Removal of Trustee. The Owners of a majority in aggregate Principal Amount of the Outstanding Bonds may at any time. and the Authority may (and at the request of the Agency shall) so long as no Event of Default shall have occurred and then be continuing. remove the Trustee initially appointed. and any successor thereto. by an instrument or concurrent instruments in writing delivered to the Tnistcc. «hereupon the Authority or such Owners. as the case may be. shall appoint a successor or successors thereto: provided that any such successor shall be a financial institution meeting the requirements set forth in Section 6.0I I. Section 6.07. Resignation by Trustee. The Trustee and any successor Trustee may at any time give written notice of its intention to resign as Trustee hereunder. such notice to be given to the Authority and the Agency by registered or certified mail. Upon receiving such notice of resignation. the Authority shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance. the Authority shall cause notice thereof to be given by first class mail. postage prepaid. to the Bond Owners at their respective addresses set forth on the Registration Books. Section 6.08. Appointment of Successor Trustee. In the event of the removal or resignation of the Trustee pursuant to Sections 6.06 or 6.07. respectively. with the prior written consent of Agency. the Authority shall promptly appoint a successor Trustee. In the event the Authority shall for any reason Nvhatsoeyer fail to appoint a successor Trustee within 60 days following the delivery to the Trustee of the instrument described in Section 6.06 or within 60 days following the receipt of notice by the Authority pursuant to Section 6.07. the Trustee may. at the expense of the Authority. apply to a court of competent jurisdiction for the appointment of a successor Trustee meeting the requirements of Section 6.0 I . Any such successor Trustee appointed by such court shall become the successor Trustee hereunder notwithstanding any action by the Authority purporting to appoint a successor Trustee following the expiration of such sixty-day period. Section 6.09. Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank or trust company resulting from any merger. conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business. provided such bank or trust company shall be eligible under Section 6.0I. shall be the successor to such Trustee without the execution or filing of any paper or further act. except as provided in Section 6.10. Section 6.10. Concerning any Successor Trustee. Every successor Trustee appointed hereunder shall execute. acknowledge and deliver to its predecessor and also to the Authority an instrument in writing accepting such appointment hereunder and thereupon such successor. without any further act. deed or conveyance. shall become fully vested with all the estates. properties. rights. powers. trusts. duties and obligations of its predecessors: but such predecessor shall. nevertheless. on the Request of the Authority. or of the Trustees successor. execute and deliver an instrument transferring to such successor all the estates. properties. rights. powers and trusts of such predecessor hereunder: and every predecessor Trustee shall deliver all securities and moneys held by it as the Trustee hereunder to its successor. Should any instrument in writing from the Authority be required by any successor Trustee for more fully and certainly vesting in such successor the estate. rights. powers and duties hereby vested or intended to be vested in the predecessor Trustee. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. Section 6. I I . Appointment of Co -Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or P6402. 1056\S89838.2 -22- restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in the case of litigation under this Indenture. and in particular in case of the enforcement of the rights of the Trustee on default. or in the case the Trustee or the Authority deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers. rights or remedies herein granted to the Trustee or hold title to the properties. in trust. as herein granted. or take any other action which may be desirable or necessary in connection therewith. it may be necessary that the Trustcc or the Authority appoint an additional individual or institution as a separate co -trustee. The following provisions of this Section 6. I I are adopted to these ends. In the event that the Trustee or the Authority appoints an additional individual or institution as a separate or co -trustee. each and every remedy. power. right. claim. demand. cause of action. immunity. estate. title. interest and Tien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co -trustee but only to the extent necessary to enable such separate or co -trustee to exercise such powers. rights and remedies. and every covenant and obligation necessary to the exercise thereof by such separate or co - trustee shall run to and be enforceable by either of them. The Trustee shall not be liable for the acts or omissions of any separate or co -trustee appointed hereunder. Should any instrument in writing from the Authority be required by the separate trustee or co -trustee so appointed by the Trustee for more fully and certainly vesting in and conforming to it such properties. rights. powers. trusts. duties and obligations. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. In case any separate trustee or co - trustee. or a successor to either. shall become incapable of acting. resign or be removed. all the estates. properties. rights. powers. trusts. duties and obligations of such separate trustee or co -trustee. so far as permitted by law. shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co -trustee. Section 6.12. Indemnification: Limited Liability of Trustee. The Authority further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any loss. expense and liabilities which it may incur arising out of or in the exercise and performance of its powers and duties hereunder. including the costs of expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities which are due to the negligence or intentional misconduct of the Trustee. its officers. directors or employees. No provision in this Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability hereunder if it shall have reasonable grounds for believing repayment of such funds or adequate indemnity against such liability or risk is not assured to it. The Trustee shall not be liable for any action taken or omitted to be taken by it in accordance with the direction of the Insurer or the Owners of at least a majority in aggregate Principal Amount of Bonds Outstanding relating to the time. method and place of conducting any proceeding or remedy available to the Trustee under this Indenture in exercising any trust or power conferred on the Tnistcc by this Indenture. The obligations of the Authority under this Section shall survive the payment and discharge of the Bonds or the resignation or removal of the Trustee under this Indenture. ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE Section 7.0I I. Amendment Hereof. This Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental P6402. IO56\S89838.2 -23- Indenture Nvhich shall become binding upon adoption. Nyith the Nvritten consent of the Insurer (as Tong as the Insurance Policy is in full force and effect) but Nyithout consent of any Bond Owners. to the extent permitted by lacy but only for any one or more of the following purposes: (a) To add to the covenants and agreements of the Authority in this Indenture contained. other covenants and agreements thereafter to be observed. or to limit or surrender any rights or powers herein reserved to or conferred upon the Authority so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: or (b) To make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in this Indenture. or in any other respect Nvhatsoeyer as the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall either (i) conform to the original intention of the Authority. or (ii) not materially adversely affect the interests of the Owners of the Bonds in the reasonable judgment of the Authority: or (c) To amend any provision hereof relating to the Code. to any extent Nvhatsoeyer but only if and to the extent such amendment \\ill not adversely affect the exclusion from gross income of interest on any of the Bonds under the Code. in the opinion of Bond Counsel. Except as set forth in the preceding paragraphs of this Section 7.0I. this Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture Nvhich shall become binding \yhen the «rittcn consent of the Insurer (as long as the Insurance Policy is in full force and effect) and of the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding are filed Nyith the Trustee. No such modification or amendment shall (i) extend the maturity of or reduce the interest rate on any Bond or othenvise alter or impair the obligation of the Authority to pay the principal. interest or premiums. if any. at the time and place and at the rate and in the currency provided therein of any Bond Nyithout the express «rittcn consent of the Owner of such Bond or (ii) reduce the percentage of Bonds required for the «rittcn consent to any such amendment or modification. In no event shall any Supplemental Indenture modify any of the rights or obligations of the Trustee Nyithout its prior «rittcn consent. Section 7.02. Effect of Supplemental Indenture. From and after the time any Supplemental Indenture becomes effective pursuant to this Article VII. this Indenture shall be deemed to be modified and amended in accordance therewith. the respective rights. duties and obligations of the parties hereto or thereto and all Owners of Outstanding Bonds. as the case may be. shall thereafter be determined. exercised and enforced hereunder subject in all respects to such modification and amendment. and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 7.03. Endorsement or Replacement of Bonds After Amendment. After the effective date of any action taken as hereinaboye provided. the Authority may determine that the Bonds shall bear a notation. by endorsement in form approved by the Authority. as to such action. and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his bond for that purpose at the Trust Office of the Trustee. a suitable notation as to such action shall be made on such Bond at the expense of the Authority. If the Authority shall so determine. neW Bonds so modified as. in the opinion of the Authority. shall be necessary to conform to such Bond Owners" action shall be prepared and executed. and in that case upon demand of the Owner of any Bond Outstanding at such effective date such neW Bonds shall be exchanged at the Trust Office of the Trustee. at the expense of the Authority. for Bonds then Outstanding. upon surrender of such Outstanding Bonds. P6402. 1056\8898 38.2 -24- ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN. SO LONG AS THE INSURANCE POLICY REMAINS IN EFFECT AND THE INSURER HAS NOT DEFAULTED WITH RESPECT TO ITS PAYMENT OBLIGATIONS UNDER THE INSURANCE POLICY. ALL PROVISIONS OF THIS ARTICLE VIII SHALL BE SUBJECT TO. AND QUALIFIED BY. THE PROVISIONS SET FORTH IN ARTICLE IX. INCLUDING. WITHOUT LIMITATION. THE INSURERS RIGHT TO CONSENT TO ACCELERATION OF THE BONDS. AND THE INSURERS RIGHT TO CONSENT TO OR DIRECT CERTAIN AUTHORITY. TRUSTEE OR OWNER ACTIONS. Section 8.0I I. Events of Default. The following events shall be Events of Default hereunder: (a) Default in the due and punctual payment of the Principal Amount of any Bond when and as the same shall become due and payable. whether at maturity as therein expressed. by proceedings for redemption. by declaration or otherwise. (b) IReseryedI (c) Failure by the Authority to observe and perform any of the covenants. agreements or conditions on its part in this Indenture or in the Bonds contained. other than as referred to in the preceding Paragraph (a). for a period of 30 days after written notice. specifying such a failure and requesting that it be remedied has been given to the Authority by the Trustee. or to the Authority and the Trustee by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds: provided. however. that if in the reasonable opinion of the Authority the failure stated in such notice can be corrected. but not within such 30 day period. such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30 day period and diligently pursued until such failure is corrected. (d) The filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America. or if a court of competent jurisdiction shall approve a petition. filed with or without the consent of the Authority. seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America. or if. under the provisions of any other law for the relief or aid of debtors. any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property. (e) The occurrence of any Event of Default under. and as that term is defined in. the Loan Agreement. Section 8.02. Remedies Upon Event of Default. Subject to the provisions of Article IX. if any Event of Default shall occur. then. and in each and every such case during the continuance of such Event of Default. the Trustee may. and at the written direction of the Owners of a majority in aggregate Principal Amount of the Bonds at the time Outstanding shall. upon notice in writing to the Authority and the Agency. declare the Principal Amount of all of the Bonds then Outstanding. to be due and payable immediately. and upon any such declaration the same shall become and shall be immediately due and payable. anything in this Indenture or in the Bonds contained to the contrary notwithstanding. P6402. I Oi6\S89838.2 -25- Any such declaration is subject to the condition that if. at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the Authority or the Agency shall deposit Nvith the Trustee a sum sufficient to pay the Accreted Value of the Bonds of which payments are overdue (such Accreted Value. to the extent permitted by lacy. being calculated to but not including the date of payment by the Authority or the Agency to the Trustee). and the charges and expenses of the Trustee and its counsel (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). and any and all other Events of Default known to the Trustee (other than in the payment of Principal Amount of the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in every such case. the Owners of not less than a majority in aggregate Principal Amount of the Bonds then Outstanding. by Nyritten notice to the Authority. the Agency and the Trustee. or the Trustee if such declaration was made by the Trustee. may. on behalf of the Owners of all of the Bonds. rescind and annul such declaration and its consequences and yaiye such Event of Default: but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default. or shall impair or exhaust any right or power consequent thereon. In addition. upon the occurrence and during the continuance of an Event of Default. the Trustee may pursue any available remedy at lacy or in equity to enforce the payment of the Principal Amount of and premium. if any. on the Bonds. and to enforce any rights of the Trustee under or with respect to the Loan Agreement and this Indenture. If an Event of Default shall have occurred and be continuing and if requested so to do by the Owners of a majority in aggregate Principal Amount of Outstanding Bonds and indemnified as provided in Section 6.02(I). the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article VIII. as the Tnistcc, being advised by counsel. shall deem most expedient in the interest of the Bond Owners. No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Owners) is intended to be exclusive of any other remedy. but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Owners hereunder or now or hereafter existing at lacy or in equity. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a Nyaiyer of any such Event of Default or acquiescence therein: such right or power may be exercised from time to time as often as may be deemed expedient. Section 8.03. Application of Revenues and Other Funds After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Indenture shall be applied by the Trustee in the following order upon presentation of the several Bonds. and the stamping thereon of the amount of the payment if only partially paid. or upon the surrender thereof if fully paid - First. to the payment of the fees. costs and expenses of the Trustee. including reasonable compensation to its agents. attorneys and counsel (including the allocated costs and disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and Second. to the payment of the amount of Principal Amount of the Bonds then due and unpaid (such Principal Amount being Accreted Value of such Bonds calculated to but not including the P6462. 1056\8898 38.2 -26- date of payment by the Authority or the Agency to the Trustee. to the extent permitted by lacy): provided. however. that in the event such amounts shall be insufficient to pay the full amount. then such amounts shall be applied to the payment of the Principal Amount of all installments of the Bonds then due and payable on a pro rata basis. Section 8.04. PoNyer of Trustee to Control Proceedings. Subject to the provisions of Article IX. in the event that the Trustee. upon the happening of an Event of Default. shall have taken any action. by judicial proceedings or otherwise. pursuant to its duties hereunder. Nyhether upon its own discretion or upon the request of the Owners of at least a majority in aggregate Principal Amount of the Bonds then Outstanding. it shall have full power. in the exercise of its discretion for the best interests of the Owners. Nyith respect to the continuance. discontinuance. NyithdraWal. compromise. settlement or other disposal of such action: provided. however. that the Trustee shall not. unless there no longer continues an Event of Default. discontinue. Nyithdraw. compromise or settle. or othenvise dispose of any litigation pending at lacy or in equity. if at the time there has been filed Nyith it a Nyritten request signed by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds hereunder opposing such discontinuance. Nyithdrawal. compromise. settlement or other disposal of such litigation. Any suit. action or proceeding \yhich any Owner shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners similarly situated and the Trustee is hereby appointed (and the successive respective Owners hereunder. by taking and holding the same. shall be conclusively deemed so to have appointed it) the true and lawful attorney -in -fact of the respective Owners for the purpose of bringing any such suit. action or proceeding and to do and perform any and all acts and things for an on behalf of the respective Owners as a class or classes. as may be necessary or advisable in the opinion of the Trustee as such attorney -in -fact. Section 8.05. Appointment of Receivers. Upon the occurrence of an Event of Default hereunder. and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Owners under this Indenture. the Trustee shall be entitled. as a matter or right. to the appointment of a receiver or receivers of the Revenues and other amounts pledged hereunder. pending such proceedings. Nyith such powers as the court making such appointment shall confer. Section 8.06. Non -Waiver. Nothing in this Article VI I I or in any other provision of this Indenture. or in the Bonds. shall affect or impair the obligation of the Authority. \yhich is absolute and unconditional. to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity. as herein provided. out of the Revenues and other moneys herein pledged for such payment. A Nyaiyer of any default or breach of duty or contract by the Trustee or any Owners shall not affect any subsequent default or breach of duty or contract. or impair any rights or remedies on any such subsequent default or breach. No delay or omission of the Trustee or any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a Nyaiyer of any such default or any acquiescence therein: and every power and remedy conferred upon the Trustee or Owners by the Bond Law or by this Article VIII may be enforced and exercised. upon an Event of Default. from time to time and as often as shall be deemed expedient by the Trustee or the Owners. as the case may be. Section 8.07. Limitation on Rights and Remedies of Owners. No Owner shall have the right to institute any suit. action or proceeding at lacy or in equity. for any remedy under or upon this Indenture. unless (i) such Owner shall have previously given to the Trustee «rittcn notice of the occurrence of an Event of Default: (ii) the Owners of a majority in aggregate Principal Amount of all the Bonds then Outstanding shall have made «rittcn request upon the Trustee to exercise the powers hereinbefore granted or to institute such action. suit or proceeding in its own name: (iii) said Owners shall P6402. 1056\S89838.2 -27- have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs. expenses and liabilities to be incurred in compliance with such request: and (iv) 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 an Owner of an remedy hereunder: it being understood and intended that no one or more Owners shall have any right in any manner Nvhateyer by the Owners or Owners action to enforce any right under this Indenture. except in the manner herein provided. and that all proceedings at law or in equity to enforce any provision of this Indenture shall be instituted. had and maintained in the manner herein provided and for the equal benefit of all Owners. The right of any Owner of an Bond to receive payment of the principal of and interest and premium. if any. on such Bond as herein provided or to institute suit for the enforcement of any such payment. shall not be impaired or affected without the «rittcn consent of such Owner. notwithstanding the foregoing provisions of this Section or any other provision of this Indenture. Section 8.08. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or othenyise, and such proceedings shall have been discontinued or abandoned for any reason. or shall have been determined adversely. then and in even- such case. the Authority. the Trustee and the Owners shall be restored to their former positions and rights hereunder. respectively. with regard to the property subject to this Indenture. and all rights. remedies and powers of the Trustcc shall continue as if no such proceedings had been taken. ARTICLE IX BOND INSURANCE (to come) ARTICLE X BOOK -ENTRY SYSTEM Section 10.01 Book -Entry System: Limited Obligation of Authority. The Bonds shall be initially delivered in the form of a separate single fully registered Bond (which may be typewritten) for each of the maturities of the Bonds. Upon initial delivery. the ownership of each such Bond shall be registered in the registration books kept by the Trustee in the name of the Nominee as nominee of the Depository. Except as provided in Section 10.03. all of the Outstanding Bonds shall be registered in the registration books kept by the Trustee in the name of the Nominee. With respect to Bonds registered in the registration books kept by the Trustee in the name of the Nominee. the Authority and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence. the Authority and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository. the Nominee. or any Participant with respect to any ownership interest in the Bonds. (ii) the delivery to any Participant or any P6402. 1056\889838.2 -28- other person. other than an Owner as shown in the registration books kept by the Trustee. of any notice with respect to the Bonds. including any notice of redemption. (iii) the selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed in the event the Bonds are redeemed in part. or (iv) the payment to any Participant or any other person. other than an Owner as shown in the registration books kept by the Trustee. of any amount with respect to principal of. premium. if any. or interest due with respect to the Bonds. The Authority and the Trustee may treat and consider the person in whose name each Bond is registered in the registration books kept by the Trustee as the holder and absolute owner of such Bond for the purpose of payment of principal. premium. if any. and interest with respect to such Bond. for the purpose of giving notices of redemption and other matters with respect to such Bond. for the purpose of registering transfers with respect to such Bond. and for all other purposes Nvhatsoeyer. The Trustee shall pay all principal of. premium. if any. and interest due with respect to the Bonds only to or upon the order of the respective Owners. as shown in the registration books kept by the Trustee. or their respective attorneys duly authorized in writing. and all such payments shall be valid and effective to satisfy and discharge fully the Authority's obligations with respect to payment of the principal. premium. if any. and interest due with respect to the Bonds to the extent of the sum or sums so paid. No person other than an Owner. as shown in the registration books kept by the Trustee. shall receive a Bond evidencing the obligation of the Authority to make payments of principal. premium. if any. and interest pursuant to this Indenture. Upon delivery by the Depository to the Trustee and the Authority of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee. and subject to the provisions herein with respect to Record Dates. the word Nominee in this Indenture shall refer to such new nominee of the Depository. Section 10.02 Representation Letter. In order to qualify the Bonds for the Depository's book entry system. the Authority has heretofore executed and delivered to such Depository the Representation Letter. The execution and delivery of a Representation Letter shall not in any way impose upon the Authority or the Tnistcc any obligation Nvhatsoeyer with respect to persons having interests in the Bonds other than the Owners. as shown on the registration books kept by the Trustee. The Trustee agrees to take all action necessary to continuously comply with the Representation Letter to the extent that such action is not inconsistent with this Indenture. In addition to the execution and delivery of the Representation Letter. the officers of the Authority arc hereby authorized to take any other actions. not inconsistent with this Indenture. to qualify the Bonds for the Depository's book entry program. Section 10.03 Transfers Outside Book -Entry System. In the event (a) the Depository determines not to continue to act as securities depository for the Bonds. or (b) the Authority determines that the Depository shall no longer so act. then the Authority NViII discontinue the book -entry system with the Depository. If the Authority fails to identify_ another qualified securities depository to replace the Depository. then the Bonds so designated shall no longer be restricted to being registered in the registration books kept by the Trustee in the name of the Nominee. but shall be registered in Nvhateyer name or names persons transferring or exchanging Bonds shall designate. in accordance with the provisions of Section 2.09. Section 10.04 Payments to the Nominee. Notwithstanding any other provisions of this Indenture to the contrary. so long as any Bond is registered in the name of the Nominee. all payments with respect to principal. premium. if any. and interest due with respect to such Bond and all notices with respect to such Bond shall be made and given. respectively. as provided in the Representation Letter or as othenyise instructed by the Depository. Section 10.05 Initial Depository and Nominee. The initial Depository under this Article shall be The Depository Trust Company. NOV York. New York. The initial Nominee shall be Cede K. Co.. as Nominee of The Depository Trust Company. New York. NOV York. P64U2.I056\8893x.2 -29- ARTICLE XI MISCELLANEOUS Section 11.01. Limited Liability of Authority. Notwithstanding anything in this Indenture contained. the Authority shall not be required to advance any moneys derived from any source of income other than the Revenues for the payment of the principal of or interest on the Bonds. or any premiums upon the redemption thereof. or for the performance of any covenants herein contained (except to the extent any such covenants are expressly payable hereunder from the Revenues or otherwise from amounts payable under the Loan Agreement). The Authority may. however. advance funds for any such purpose. provided that such funds are derived from a source legally available for such purpose and may be used by the Authority for such purpose Nyithout incurring indebtedness. The Bonds shall be revenue bonds. payable exclusively from the Revenues and other funds as in this Indenture provided. The general fund of the Authority is not liable. and the credit of the Authority is not pledged. for the payment of the interest and premium. if any. on or principal of the Bonds. The Owners of the Bonds shall never have the right to compel the forfeiture of any property of the Authority. The principal of and interest on the Bonds. and any premiums upon the redemption of any thereof. shall not be a legal or equitable pledge. charge. Tien or encumbrance upon any property of the Authority or upon any of its income. receipts or revenues except the Revenues and other funds pledged to the payment thereof as in this Indenture provided. Section 11.02. Benefits of Indenture Limited to Parties. Nothing in this Indenture. expressed or implied. is intended to give to any person other than the Authority. the Trustee. the Agency. the Insurer. and the Owners of the Bonds. any right. remedy or claim under or by reason of this Indenture. Any covenants. stipulations. promises or agreements in this Indenture contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the Trustee. the Agency. the Insurer. and the Owners of the Bonds. Section 11.0 3. Dischartze of Indenture. If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following \Nays: (a) By \yell and truly paying or causing to be paid the principal of and interest and premium. if any. on such Bonds. as and when the same become due and payable: (b) By irrevocably depositing «ith the Trustee. in trust. at or before maturity. money which. together with the available amounts then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. is fully sufficient to pay such Bonds. including all principal. interest and premiums. if any: or (c) By irrevocably depositing «ith the Trustee or any other fiduciary. in trust. non -callable Defeasance Obligations in such amount as an Independent Accountant shall determine \yill. together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal. interest and redemption premiums) at or before their respective maturity dates: and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been sent pursuant to Section 2.03 or provision satisfactory to the Trustee shall have been made for the sending of such notice. then. at the Request of the Authority. and notwithstanding that any of such Bonds shall not have been surrendered for payment. the pledge of the Revenues and other funds provided for in this Indenture with respect to such Bonds. and all other pecuniary obligations of the Authority under this Indenture with respect to all such P6402. I Oi6\889838.2 -30- Bonds. shall cease and terminate. except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid. and all expenses and costs of the Trustee. Any funds held by the Trustee following any payment or discharge of the Outstanding Bonds pursuant to this Section 11.03 and the payment of the Trustee's and the Insurers expenses and costs shall be paid over to the Authority. Section 11.04. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture or any Supplemental Indenture the Authority is named or referred to. such reference shall be deemed to include the successor to the powers. duties and functions. with respect to the management. administration and control of the affairs of the Authority. that are presently vested in the Authority. and all the covenants. agreements and provisions contained in this Indenture by or on behalf of the Authority shall bind and inure to the benefit of its successors whether so expressed or not. Section l 1.05. Content of Certificates. Every Certificate of the Authority_ with respect to compliance with a condition or covenant provided for in this Indenture shall include (i) a statement that the person or persons making or giving such Certificate have read such covenant or condition and the definitions herein relating thereto: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Certificate are based: (iii) a statement that. in the opinion of the signers. they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with: and (iv) a statement as to whether. in the opinion of the signers. such condition or covenant has been complied with. Any such certificate made or given by an officer of the Authority may be based. insofar as it relates to legal matters. upon a certificate or opinion of or representations by counsel. unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate may be based. as aforesaid. arc erroneous. or in the exercise of reasonable care should have known that the same \were erroneous. Any such certificate or opinion or representation made or given by counsel may be based. insofar as it relates to factual matters. on information with respect to which is in the possession of the Authority. or upon the certificate or opinion of or representations by an officer or officers of the Authority. unless such counsel knows that the certificate or opinion or representations with respect to the matters upon which his certificate. opinion or representation may be based. as aforesaid. are erroneous. Section 11.06. Execution of Documents by Owners. Any request. consent or other instrument required bv this Indenture to be signed and executed bv Bond Owners may be in any number of concurrent writings of substantially similar tenor and may be signed or executed by such Bond Owners in person or by their agent or agents duly appointed in writing. Proof of the execution of any such request. consent or other instrument or of a writing appointing any such agent. shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and of the Authority if made in the manner provided in this Section 11.06. The fact and date of the execution by any person of any such request. consent or other instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer of any jurisdiction. authorized by the laws thereof to take acknowledgments of deeds. certifying that the person signing such request. consent or other instrument or writing acknowledged to him the execution thereof. The ownership of Bonds shall be proved by the Registration Books. Any request. consent or vote of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of any Bond issued in exchange therefor or in Iicu thereof. in respect of anything done or suffered to be P6402. I O56\S89838.2 -3 I - done by the Trustee or the Authority in pursuance of such request. consent or vote. In Iicu of obtaining any demand. request. direction. consent or Nvaiyer in writing. the Trustee may call and hold a meeting of the Bond Owners upon such notice and in accordance with such rules and obligations as the Trustee considers fair and reasonable for the purpose of obtaining an such action. Section 11.07. Disqualified Bonds. In determining \dhether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand. request. direction. consent or Nvaiyer under this Indenture. Bonds which are owned or held by or for the account of the Agency or the Authority (but excluding Bonds held in any employees' retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. provided. however. only Bonds which a responsible officer of the Trustee actually knows to be so owned or held shall be disregarded. Section 11.08. Waiver of Personal Liability. No officer. agent or employee of the Authority shall be individually or personally liable for the payment of the interest on or principal of the Bonds: but nothing herein contained shall relieve any such officer. agent or employee from the performance of any official duty provided by law. Section 11.09. Partial Invalidity. If any one or more of the covenants or agreements. or portions thereof. provided in this Indenture on the part of the Authority (or of the Trustee) to be performed should be contrary to law. then such covenant or covenants. such agreement or agreements. or such portions thereof. shall be null and void and shall be deemed separable from the remaining covenants and agreements or portions thereof and shall in no way affect the validity of this Indenture or of the Bonds: but the Bond Owners shall retain all rights and benefits accorded to them under the Bond Law or any other applicable provisions of law. The Authority hereby declares that it would have entered into this Indenture and each and every other section. paragraph. subdivision. sentence. clause and phrase hereof and would have authorized the issuance of the Bonds pursuant hereto irrespective of the fact that any one or more sections. paragraphs. subdivisions. sentences. clauses or phrases of this Indenture or the application thereof to any person or circumstance may be held to be unconstitutional. unenforceable or invalid. Section 1 1.10. Destruction of Cancelled Bonds. Whenever in this Indenture provision is made for the surrender to the Trustee of any Bonds which have been paid or cancelled pursuant to the provisions of this Indenture. the Trustee shall. as permitted by law. destroy such cancelled Bonds and. upon Request of the Authority. provide to the Authority a certificate of destruction duly executed by the Trustcc. and the Authority shall be entitled to rely upon any statement of fact contained in such certificate with respect to the destruction of any such Bonds therein referred to: provided. however. the Authority shall reimburse the Trustee for the Trustees costs incurred in connection with the microfilming or the required permanent recording. if any. related thereto. Section 1 1.1 1. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the accounting records of the Authority or the Trustee. as the case may be. either as a fund or an account. and may. for the purpose of such records. any audits thereof and any reports or statements with respect thereto. be treated either as a fund or as an account. All such records with respect to all such funds and accounts held by the Authority shall at all times be maintained in accordance with generally accepted accounting principles and all such records with respect to all such funds and accounts held by the Trustee shall be at all times maintained in accordance with corporate trust industry practices. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the form of multiple funds. accounts or sub -accounts therein. P6402. 1056\S898 38.2 -32- Section 1 1.12. Payment on Business Days. Whenever in this Indenture any amount is required to be paid on a day Nyhich is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest shall not accrue from and after such day. Section 1 1.1 3. Notices. Any notice. request. complaint. demand or other communication under this Indenture shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below. or by telecopv or other form of telecommunication. confirmed by telephone at its number set forth below. Notice shall be effective either (i) upon transmission by telecopy or other form of telecommunication. (ii) 48 hours after deposit in the United States mail. postage prepaid. or (iii) in the case of personal delivery to any person. upon actual receipt. The Authority. the Agency or the Trustee may. by Nvritten notice to the other parties. from time to time modify the address or number to which communications are to be given hereunder. If to the Authority: Palm Desert Financing Authority 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Chief Administrative Officer Facsimile: (760) 340-0574 If to the Agency: Palm Desert Redevelopment Agency 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Executive Director Facsimile: (760) 340-0574 If to the Trustee: Wells Fargo Bank. National Association 707 Wilshire Boulevard. 17th Floor Los Angeles. California 90017 Attention: Corporate Trust Department Facsimile: (213) 6I4-3355 If to the Insurer: Attention: Facsimile: ( ) The Authority. the Agency. the Trustee and the Insurer may designate any further or different addresses to which subsequent notices. certificates or other communications shall be sent. Notices to the Insurer shall be governed by Section 9.02. Section 11.14. Unclaimed Money s. Anything in this Indenture to the contrary notwithstanding. any moneys held by the Trustee in trust for the payment and discharge of any of the Bonds or the interest thereon which remain unclaimed for two years after the date Nyhen such Bonds or the interest thereon have become due and payable. either at their stated maturity dates or by call for earlier redemption. if such moneys \sere held by the Trustee at such date. or for two years after the date of deposit of such moneys if deposited with the Trustee after said date Nyhen such Bonds or the interest thereon become due and payable. shall. at the Request of the Authority. be repaid by the Trustee to the Authority. as its absolute property and free from trust. and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the Authority for the payment of such P6402. I O56\S89838.2 -33- Bonds: provided. however. that before making any such payment to the Authority. the Trustee shall. at the Request and at the expense of the Authority. cause to be mailed to the Owners of all such Bonds. at their respective addresses appearing on the Registration Books. a notice that said moneys remain unclaimed and that. after a date named in said notice. which date shall not be less than 30 days after the date of mailing of such notice. the balance of such moneys then unclaimed will be returned to the Authority. Section I I.15. Governing, Law. This Agreement shall be construed and governed in accordance with the laws of the State of California. P6402. 1056\8898 38.2 -34- IN WITNESS WHEREOF. the PALM DESERT FINANCING AUTHORITY has caused this Indenture to be signed in its name by its duly authorized officer and WELLS FARGO BANK. NATIONAL ASSOCIATION. in token of its acceptance of the trust created hereunder. has caused this Indenture to be signed in its corporate name by its officer identified below. all as of the day and year first above Nvritten. P6402. 1056\889838.2 PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By _5- Authorized Officer EXHIBIT A IFORM OF BONDS Unless this certificate is presented by an authorized representative of The Depository Trust Company. a NOV York corporation ("DTC). to the Authority or its agent for registration of transfer. exchange. or payment. and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC). ANY TRANSFER. PLEDGE. OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof. Cede & Co.. has an interest herein. No. Maturity Amount: } PALM DESERT FINANCING AUTHORITY SUBORDINATE TAX ALLOCATION REVENUE CAPTIAL APPRECIATION BOND (PROJECT AREA NO. 3) 2006 SERIES C YIELD TO MATURITY MATURITY DATE ORIGINAL ISSUE DATE CUSIP April I. 20_ REGISTERED OWNER: CEDE & CO. INITIAL PRINCIPAL AMOUNT: MATURITY AMOUNT: The PALM DESERT FINANCING AUTHORITY. a joint powers authority organized and existing under the laws of the State of California (the "Authority"). for value received. hereby promises to pay (but only out of the Revenues. as defined in the Indenture hereinafter referred to. and certain other moneys) to the Registered Owner identified above or registered assigns (the "Registered Owner"). in lawful money of the United States of America. either the Maturity Amount identified above on the Maturity Date or the Accreted Value. plus any applicable redemption premium. upon redemption prior to maturity. "Accreted Value." with respect to any Bond. means as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Original Issue Date at the stated Yield to Maturity thereof on each April I and October I. commencing October I. 2006. Interest on each Bond shall be computed using a year of 360 days of twelve 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. with respect to any Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the corporate trust office A-1 P6402. 1056\8898 38.2 of Wells Fargo Bank. National Association (the "Trustee") in Los Angeles. California or such other location as the Trustee shall designate (the "Trust Office"). This Bond is one of a duly authorized series of bonds of the Authority designated the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C (the "Bonds"). limited in initial principal amount to } . The Bonds are secured by an Indenture of Trust. dated as of July I. 2006 (the "Indenture"). by and between the Authority and the Trustee. Unless the context clearly requires otherwise. capitalized terms used but not defined herein have the meanings ascribed to them in the Indenture. Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the rights thereunder of the owners of the Bonds. of the nature and extent of the Revenues. of the rights. duties and immunities of the Trustee and of the rights and obligations of the Authority thereunder: and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof. and to all of the provisions of which Indenture the Registered Owner hereof. by acceptance hereof. assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985. constituting Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Act"). The Bonds are special obligations of the Authority and. as and to the extent set forth in the Indenture. are payable solely from and secured by a first lien on and pledge of the Revenues and certain other moneys and securities held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of. and charge and lien upon. all of the Revenues and such other moneys and securities. and the Revenues and such other moneys and securities constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if an) on the Bonds. The Bonds are not secured by a legal or equitable pledge of. or charge. lien or encumbrance upon. any of the property of the Authority or any of its income or receipts. except the Revenues and such other moneys and securities as provided in the Indenture. The Bonds have been issued for the purpose of making a loan (the "Loan") to the Palm Desert Redevelopment Agency (the "Agency") to finance certain public capital improvements with respect to a redevelopment project known and designated as Project Area No. 3 (the "Project Area"). The Loan has been made by the Authority to the Agency pursuant to a Project Area No. 3 Loan Agreement (2006 Subordinate Loan). dated as of July I. 2006 (the "Loan Agreement"). by and among the Agency. the Authority and the Trustee. Repayment of the Loan is secured by Subordinate Tax Revenues (as defined in the Loan Agreement). consisting of certain tax revenues received by the Agency with respect to the Project Area. less the amount required to pay certain obligations of the Agency which rank senior to the Loan. The Bonds maturing on or after April I. 2() are subject to redemption prior to their respective maturity dates as a Nyhole. or in part among maturities as designated by the Authority and by lot within a maturity. from prepayments of the Loan made at the option of the Agency pursuant to the Loan Agreement. on any April I or October I on or after April I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Bonds on the date fixed for redemption): Redemption Dates Redemption Price April I. 20 and October I. 2() 10_`%0 April I. 20 and October I. 2() 10_ A-2 P6402. 1056\8898 38.2 April I. 20 and thereafter 100 The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Bonds designated for redemption. at their respective addresses appearing on the registration books maintained by the Trustee. and by such means as acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the redemption date: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the serial numbers of each maturity or maturities (except that if the event of redemption is of all of the Bonds of such maturity or maturities in whole. the Trustee shall designate such maturities or the maturity in NVhoIe without referencing each individual number) of the Bonds to be redeemed. and shall require that such Bonds be then surrendered at the Trust Office for redemption at the redemption price. giving notice also that further interest on such Bonds will not accrue from and after the redemption date. Subject to the limitations and upon payment of the charges. if any. provided in the Indenture. this Bond may be exchanged at the Trust Office for a like aggregate Maturity Amount and maturity of fully registered Bonds of other authorized denominations. This Bond is transferable by the Registered Owner hereof. in person or by the Registered Owners attorney duly authorized in writing. at the Trust Office. but only in the manner. subject to the limitations and upon payment of the charges provided in the Indenture. and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Bond or Bonds. of authorized denomination or denominations. for the same aggregate Maturity Amount and of the same maturity will be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of an Bond during the 15-day period preceding the selection of Bonds for redemption or any Bond selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes. and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority and of the owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time in the manner. to the extent. and upon the terms provided in the Indenture: provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or othenyise alter or impair the obligation of the Authority to pay the principal. interest or premiums at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond. (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification. or (c) without its written consent thereto. modify any of the rights or obligations of the Trustee. all as more fully set forth in the Indenture. It is hereby certified that all things. conditions and acts required to exist. to have happened and to have been performed precedent to and in the issuance of this Bond do exist. have happened and have been performed in due time. form and manner as required by the Constitution and statutes of the State of California and by the Act and the amount of this Bond. together with all other indebtedness of the Authority. does not exceed any limit prescribed by the Constitution or statutes of the State of California or by the Act. A-3 P6-IU2. I (156\xx9x 3x.2 This Bond shall not be entitled to any benefit under the Indenture. or become valid or obligatory for any purpose. until the certificate of authentication hereon shall have been signed by the Trustee. IN WITNESS WHEREOF. the Authority has caused this Bond to be executed in its name and on its behalf by the manual or facsimile signatures of its President and Secretary all as of the Original Issue Date identified above. PALM DESERT FINANCING AUTHORITY By Attest: Secretary President STATEMENT OF INSURANCE Ito coma A-4 P6402. 1056\8898 38.2 (FORM OF TRUSTEES CERTIFICATE OF AUTHENTICATION' This is one of the Bonds described in the Nvithin-mentioned Indenture and registered on the Bond Registration Books. Date: WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Signatory (FORM OF ASSIGNMENT' For value received the undersigned do(es) hereby sell. assign and transfer unto Nvhose tax identification number is the Nvithin-mentioned registered Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee Nvith full power of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond Nvith the name(s) as Nvritten on the face of the Nyithin Bond in every particular Nvithout alteration or enlargement or any change Nyhatsoeyer. NOTE: Signature(s) must be guaranteed by a member of an institution Nyhich is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. A-5 P6402. 1056\S898 38.2 Project Area No. 3 Loan Agreement (2006 Subordinate Loan) Nyith reference to Palm Desert Financing Authority Subordinate Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 3) 2006 Series C P6402. O156\889991.2 RWG DRAFT: 5/24/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 2 Section I.I. Definitions 2 Section 1.2. Rules of Construction iS ARTICLE II THE LOAN: APPLICATION OF LOAN PROCEEDS: INCURRENCE OF ADDITIONAL DEBT Section 2. I. Authorization Section 2.2. Disbursement and Application of Loan Proceeds iS Section 2.3. Repayment of Loan 6 Section 2.4. Optional Prepayment 6 Section 2.5. Reserve Fund 7 Section 2.6. Costs of Issuance Fund 8 Section 2.7. Project Fund 8 Section 2.8. Parity Debt 9 Section 2.10. Issuance of Additional Senior Debt 9 Section 2.10. Issuance of Subordinate Debt I0 Section 2. I I . Validity of Loan I0 ARTICLE III PLEDGE AND APPLICATION OF SUBORDINATE TAX REVENUES 10 Section 3. I . Pledge of Subordinate Tax Revenues I0 Section 3.2. Special Fund: Deposit of Tax Revenues I() Section 3.3. Transfer of Subordinate Tax Revenues From Special Fund I0 Section 3.4. Investment of Moneys: Valuation of Investments I I ARTICLE IV OTHER COVENANTS OF THE AGENCY I2 Section 4. I . Punctual Payment: Extension of Payments I2 Section 4.2. Limitation on Additional Indebtedness I2 Section 4.3. Payment of Claims I2 Section 4.4. Books and Accounts: Financial Statements I2 Section 4.5. Protection of Security and Rights I2 Section 4.6. Payments of Taxes and Other Charges 13 Section 4.7. Taxation of Leased Property I3 Section 4.8. Disposition of Property I3 Section 4.9. Maintenance of Tax Revenues 13 Section 4.10. Payment of Expenses: Indemnification 14 Section 4.1 I. Tax Covenants 14 Section 4.12. Redevelopment of Project Area 15 Section 4.1 3. Low and Moderate Income Housing Fund 15 Section 4.14. Annual Review of Tax Revenues 15 Section 4.1 5. Further Assurances 15 ARTICLE V EVENTS OF DEFAULT AND REMEDIES I6 Section 5. I . Events of Default and Acceleration of Maturities I6 Section 5.2. Application of Funds Upon Default 17 Section 5.3. No Waiver 17 Section 5.4. Agreement to Pay Attorneys' Fees and Expenses 17 Section 5.5. Remedies Not Exclusive I7 Section 5.6. Control of Remedies by Insurer I8 ARTICLE VI MISCELLANEOUS I8 Section 6. I . Benefits Limited to Parties I Section 6.2. Successor is Deemed Included in All References to Predecessor I8 P6402. c 0156\889991.2 Section 6.3. Discharge of Loan Agreement 18 Section 6.4. Amendment 19 Section 6.5. Waiver of Personal Liability 19 Section 6.6. Payment on Business Days 19 Section 6.7. Notices 19 Section 6.8. Partial Invalidity 19 Section 6.9. Article and Section Headings and References 19 Section 6.10. Execution of Counterparts 19 Section 6.1 1. Governing Law 19 Section 6.12. The Trustee 20 EXHIBIT A — Schedule of Loan Payments P6402. c 0156\889991.2 11 PROJECT AREA NO. 3 LOAN AGREEMENT (2006 SUBORDINATE LOAN) This Project Area No. 3 Loan Agreement (2006 Subordinate Loan) (this "Loan Agreement") is made and entered into as of Jule I. 2006. by and among the Palm Desert Redevelopment Agency. a public body. corporate and politic. duly organized and validly existing under the laws of the State of California (the "Agency"). the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority"). and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America (the "Trusted. Recitals A. The Agency is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers, all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 3 of the Agency (the "Project Area") has been duly approved and adopted by the City. C. The Agency has determined to incur a loan (the "Loan") hereunder for the object and purpose of assisting in the financing of public capital improvements and redevelopment activities for the benefit of the Project Area. pursuant to the Redevelopment Law and the Marks -Roos Local Bond Pooling Act of 1985. Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Bond Law"). D. Concurrently with the execution and delivery of this Loan Agreement. the Authority has issued its Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C. in the initial principal amount of $ (the "Bonds"). pursuant to the Bond Law and an Indenture of Trust. dated as of July I. 2006 (the "Indenture.). by and between the Authority and the Trustee. for the purpose of providing funds to make the Loan to the Agency E. The Authority has found and determined that there will be significant public benefits accruing from such borrowing. consisting of demonstrable savings in effective interest rates and financing costs associated with the issuance of the Bonds pursuant to the Bond Law. F. The Agency and the Authority have determined that all acts and proceedings required by law necessary to make this Loan Agreement. when executed by the Agency. the Authority and Trustee. the valid. binding and legal obligation of the Agency and the Authority. and to constitute this Loan Agreement a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms. have been done and taken. and the execution and delivery of this Loan Agreement have been in all respects duly authorized. NOW. THEREFORE. in consideration of the premises and the mutual agreements herein contained. the parties hereto do hereby agree as follows: P6402.0156\889991.2 1 ARTICLE I DEFINITIONS Section I. I. Definitions. Unless the contest clearly requires or unless othenvise defined herein. the capitalized terms in this Loan Agreement shall have the respective meanings Nyhich such terms are given in the Indenture. In addition. the following terms defined in this Section I. I shall. for all purposes of this Loan Agreement. have the respective meanings herein specified. "Additional Reyenues- means. as of the date of calculation. the amount of Tax Revenues which. as shown in the Report of an Independent Redevelopment Consultant. are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to either (i) construction which has been completed but which is not then reflected on the tax rolls. or (ii) transfer of ownership or an other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition. the term "increases in the assessed valuation means the amount by which the assessed valuation of taxable property in the Project Area is estimated to increase above the assessed valuation of taxable property in the Project Area (as reported by an appropriate official of the County) as of the date on which such calculation is made. "Bonds means the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C. "Costs of Issuance means all expenses incurred in connection with the authorization. issuance. sale and delivery of the Bonds and the making of the Loan pursuant to this Loan Agreement. including but not limited to all compensation. fees and expenses (including but not limited to fees and expenses for legal counsel) of the Authority and any trustee. compensation to any financial advisors or underwriters and their counsel. legal fees and expenses. filing and recording costs. rating agency fees. credit enhancement fees (including insurance. surety bonds and letters of credit). costs of preparation and reproduction of documents and costs of printing. "Costs of Issuance Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.6. "Event of Default means any of the events described in Section 5.1. "Indenture- means the Indenture of Trust dated as of July I. 2006. by and between the Authority and the Trustee. authorizing the issuance of the Bonds. as may from time to time be supplemented. modified or amended. "Independent Redevelopment Consultant means any consultant or firm of such consultants appointed by or acceptable to the Agency. and \who. or each of whom: (i) is judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the financing of redevelopment projects: (ii) is in fact independent and not under the domination of the Agency: (iii) does not have any substantial interest. direct or indirect. with the Agency. other than as original purchaser of any obligations of the Agency: and (iv) is not connected with the Agency as an officer or employee of the Agency. but \who may be regularly retained to make reports to the Agency. "Loan means the loan made by the Authority to the Agency pursuant to Section 2.1 from the proceeds of the Bonds in the initial principal amount of P6402. O156\889991.2 2 "Loan Agreements means this Project Area No. 3 Loan Agreement (2006 Subordinate Loan). as may from time to time be amended. modified or supplemented. "Maximum Annual Debt Service" means. as of the date of calculation. the largest amount obtained by totaling. for the current or any future Bond Year. the sum of (i) the amount of interest payable on the Loan and all outstanding Parity Debt in such Bond Year. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. and (ii) the amount of principal payable on the Loan and all outstanding Parity Debt in such Bond Year. including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation. there shall be excluded a pro rata portion of each installment of principal of any Parity Debt. together Nvith the interest to accrue thereon. in the event and to the extent that the proceeds of such Parity Debt are deposited in an escrow fund from Nvhich amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year. plus at the option of the Agency the Additional Revenues. meet the coverage test set forth in Section 2.8(b). "Maximum Combined Annual Debt Service" means. as of the date of calculation. the largest amount obtained by totaling. for the current or any future Bond Year. the sum of (i) the amount of interest payable on the Loan. all outstanding Parity Debt and all outstanding Senior Debt in such Bond Year. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. and (ii) the amount of principal payable on the Loan. all outstanding Parity Debt and all outstanding Senior Debt in such Bond Year. including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation. there shall be excluded a pro rata portion of each installment of principal of any Senior Debt or Parity Debt. together Nvith the interest to accrue thereon. in the event and to the extent that the proceeds of such Senior Debt or Parity Debt are deposited in an escrow fund from Nyhich amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year. plus at the option of the Agency the Additional Revenues. meet the coverage test set forth in (a) Nvith respect to the release of Senior Debt proceeds from any such escrow fund. Section 2.9(b) or (b) Nvith respect to the release of Parity Debt proceeds from any such escrow fund. Section 2.8(b). "Parity Debt" means any loans. bonds. notes. advances. or indebtedness payable from Tax Revenues on a parity Nvith the Loan. issued or incurred pursuant to and in accordance Nvith the provisions of Section 2.8. "Parity Debt Instrument"' means any resolution. indenture of trust. trust agreement or other instrument authorizing the issuance of any Parity Debt. "Pass-Throutzh Agreements means. collectively. the agreements entered into or approved by the Agency on or prior to the date hereof pursuant to Section 33401 of the Redevelopment Law Nyith (i) the County of Riverside. (ii) the Coachella Valley Mosquito Abatement District. (iii) the Coachella Valley Recreation and Park District. (iv) the Coachella Valley Water District. (v) the Desert Community College District. (vi) the Desert Sands Unified School District and (yii) the Riverside County Superintendent of Schools. "Plan Limitations"' means the limitations contained or incorporated in the Redevelopment Plan on (i) the aggregate principal amount of bonded indebtedness payable from Tax Revenues Nvhich may be outstanding at any time. (ii) the aggregate amount of taxes Nvhich may be divided and allocated to the Agency pursuant to the Redevelopment Plan. and (iii) the period of time for establishing loans. advances and indebtedness payable from Tax Revenues. P6402. O156\889991.2 3 "Project Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.7. "Qualified Reserve Fund Credit Instrument means a surety bond issued by an insurance company and deposited Nvith the Trustee pursuant to Section 2.5. provided that all of the following requirements are met at the time of deposit with the Trustee: (i) either (a) the claims paying ability of such insurance company is rated within the highest rating category by Moody's and S&P. and if rated by A.M. Best & Company. within the highest rating category by A.M. Best & Company. at the time of delivery of such surety bond or (b) the Authority shall cause to be filed with the Trustee Nvritten evidence from Moody's and S&P that the delivery of such surety bond will not. of itself. cause a reduction or Nyithdrawal of any rating then assigned to the Bonds: (ii) such surety bond has a term of at least 12 months: (iii) such surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released pursuant to Section 2.5: and (iv) the Trustee is authorized pursuant to the terms of such surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time with respect to deposits required pursuant to Section 3.3(a). "Redevelopment Fundy means the Project Area No. 3 Redevelopment Fund. heretofore established and held by the Agency. "Redevelopment Project means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area. "Reserve Fundy means the Project Area No. 3 Subordinate Reserve Fund held by the Trustee pursuant to Section 2.5. "Reserve Requirement. means the least of (i) Maximum Annual Debt Service. (ii) 125 percent of average annual debt service on the Loans and all outstanding Parity Debt. and (iii) 10 percent of the proceeds of the Loans (i.e.. the original Principal Amount of the Bonds) and of the proceeds of any Parity Debt. The amount of the Reserve Requirement on any date is subject to confirmation by the Authority to the Trustee upon the Trustees «rittcn request. At the Closing Date. the Reserve Requirement shall be $ "Senior Debt means the Senior 2003 Loan and the Senior 2006 Loans and any other loans. bonds. notes. advances. or indebtedness payable from Tax Revenues which rank senior to the Loan and the Parity Debt. issued or incurred pursuant to and in accordance with the provisions of Section 2.9. "Senior Debt Instrument means the Senior 2003 Loan Agreement. the Senior 2006 Loan Agreement and any other resolution. indenture of trust. trust agreement or other instrument authorizing the issuance of any Senior Debt. "Senior Debt Service" means. for any period of time. the sum of (i) the amount of interest payable during such period on all outstanding Senior Debt. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. (ii) the amount of principal payable during such period on all outstanding Senior Debt. including any principal required to be prepaid by operation of mandatory sinking fund payments. and (iii) amounts. if any. required to be deposited in the debt service reserve funds maintained under the Senior Debt Instruments or paid to the issuers of surety bonds (or other qualified reserve fund instruments) deposited in the reserve fund relating to any Senior Debt in lieu of cash pursuant to the agreements between the Agency and such issuers. P6402. c 0 l 56\889991.2 4 "Senior 2006 Loans means the outstanding balance of the loans made by the Authority to the Agency pursuant to the Senior 2006 Loan Agreement. "Senior 2006 Loan Agreement- means the Project Area No. 3 Loan Agreement (2006 Senior Loans). dated as of Jule I. 2006. by and among the Agency. the Authority and Wells Fargo Bank. National Association. as trustee. "Senior 2003 Loan means the outstanding balance of the loan made by the Authority to the Agency pursuant to the Senior 2003 Loan Agreement. "Senior 2003 Loan Agreement- means the Project No. 3 Loan Agreement dated as of July I. 2003. by and among the Agency. the Authority and BNY Western Trust Company. as prior trustee (as succeeded by Wells Fargo Bank. National Association. as trustee).. "Special Fundy means the fund by that name held by the Agency pursuant to Section 3.2. "Subordinate Debt means any loans. advances or indebtedness issued or incurred by the Agency in accordance Nyith the requirements of Section 2.10. Nyhich are either: (i) payable from. but not secured by a pledge of or lien upon. the Tax Revenues: or (ii) secured by a pledge of or lien upon the Subordinate Tax Revenues Nyhich is subordinate to the pledge of and lien upon the Subordinate Tax Revenues hereunder for the security of the Loan and any Parity Debt. "Subordinate Tax Rcycnucs- means. for any period of time. the Tax Revenues for such period. Tess the Senior Debt Service payable during such period. "Tax Rcycnucs- means that portion of the taxes levied upon taxable property in the Project Area allocated and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the California Constitution. exclusive of amounts placed into the Low and Moderate Income Housing Fund of the Agency pursuant to Sections 33334.2 and 33334.3 of the Redevelopment Lary. and excluding amounts payable to affected taxing agencies pursuant to the Pass -Through Agreements or pursuant to Section 33607.5 or 33607.7 of the Redevelopment Lary. Section I.2. Rules of Construction. All references herein to "Articles." "Sections" and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement. and the Nyords "herein. "hereof. "hereunder- and other Nyords of similar import refer to this Loan Agreement as a Nyholc and not to any particular Article. Section or subdivision hereof. ARTICLE II THE LOAN: APPLICATION OF LOAN PROCEEDS: INCURRENCE OF ADDITIONAL DEBT Section 2. I . Authorization. The Authority hereby agrees to lend to the Agency. from the proceeds of the sale of the Bonds deposited in the Loan Fund established under the Indenture. the initial principal amount of $ under and subject to the terms of this Loan Agreement. the Bond Law and the Redevelopment Lary. This Loan Agreement constitutes a continuing agreement to secure the full and final payment of the Loan. subject to the covenants. agreements. provisions and conditions herein contained. Section 2.2. Disbursement and Application of Loan Proceeds. P6402. O156\889991.2 5 On the Closing Date. the Authority shall cause to be deposited into the Loan Fund the amount of $ which shall be held by the Trustee and which shall be disbursed as follows: Issuance Fund. (i) The Trustee shall transfer the amount of $ to the Costs of (ii) The Trustee shall transfer the amount of $ to the Project Fund (iii) The Trustee shall transfer the amount of (which amount shall equal the initial Reserve Requirement). to the Reserve Fund On the Closing Date. the Authority shall also cause the amount of to be paid to the Insurer for the costs of the premium for the Insurance Policy. The Trustee may. in its discretion. establish a temporary fund or account to facilitate or account for the foregoing transfers. Section 2.3. Repayment of Loan. The Agency shall. subject to prepayment as provided in Section 2.4(a). repay the Loan in installments on April I in each of the years and in the amounts set forth in Exhibit A attached hereto and by this reference incorporated herein. Interest on each installment of the Loan shall accrue in the same manner as the interest accrues on the Bonds pursuant to the Indenture. The installments payable on the Loan on each April I set forth in Exhibit A correspond with the aggregate Maturity Amount of the Bonds coming due and payable on such date. Any installment of the Loan which is not paid Nvhcn due shall continue to accrue interest from and including the date on which such installment is payable to but not including the date of actual payment. In the event any unpaid installments of the Loan shall be prepaid pursuant to Section 2.4(a). or in the event the Bonds shall be redeemed pursuant to Section 2.03(a) of the Indenture. the schedule of installments set forth in Exhibit A hereto shall be reduced as directed by the Agency to the Trustee. The obligation of the Agency to repay the Loan is. subject to Section 3.1. absolute and unconditional. and such payments shall not be subject to reduction wvhether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party to any agreement for any cause Nvhatsoeyer. Installments of the Loan shall be payable by the Agency to the Trustee. as assignee of the Authority under the Indenture in lawful money of the United States. Payment of such installments shall be secured. and amounts for the payment thereof shall be deposited with the Trustee at the times. as set forth in Article III. Section 2.4. Optional Prepayment (a) The Agency shall have the right to prepay installments of the Loan on any date on which the Bonds are subject to redemption pursuant to Section 2.03(a) of the Indenture and effect a corresponding redemption of the Bonds. Such prepayment shall be allocated among such installments of the Loan as the Agency may determine upon Request to the Authority and the Trustee provided not less than 45 days prior to the prepayment date: provided that such prepayment shall cause redemption of Bonds in integral multiples of $5.000 Maturity Amount. To effect such prepayment. the Agency shall deposit with the Trustee no later than the redemption date an amount sufficient to redeem the called Bonds (which amount shall include the Accreted Value of the called Bonds as of the date of redemption and the applicable redemption premium. if any). P6402. O156\889991.2 6 (b) Before making any prepayment pursuant to this Section. the Agency shall give written notice to the Authority and the Trustee describing such event and specifying the date on wvhich the prepayment will be paid and the order thereof. which date shall be not less than 45 days from the date such notice is given: Droyided. that notwithstanding any such prepayment. the Agency shall not be relieved of its obligations with respect to a Loan hereunder. including specifically its obligations under this Article. until such Loan shall have been fully paid (or provision for payment thereof shall have been made pursuant to Section 6.3). (c) The Authority agrees that upon payment by the Agency to the Trustee of such amount. the Authority shall take or cause to be taken any and all steps required under the Indenture to redeem such Outstanding Bonds on the redemption date designated by the Agency: provided. however. that such date shall be a date of redemption of such Bonds. for which notice has been timely given pursuant to the Indenture. Section 2.5. Reserve Fund. There is hereby established a separate fund known as the "Project Area No. 3 Subordinate Reserve Fund." which shall be held by the Trustee in trust for the benefit of the Authority and the Owners of the Bonds and the registered owners of all other bonds issued by the Authority in connection with any Parity Debt. The Agency hereby pledges and grants a Tien and a security interest in the Reserve Fund to the Trustee in order to secure the Agency-s payment obligations under Sections 2.3 and 3.3(a). The amount on deposit in the Reserve Fund shall be maintained at the Reserve Requirement at all times. except to the extent required for the purposes set forth in this Section. In the event that the Agency shall fail to deposit with the Trustee the full amount required to be deposited pursuant to Section 3.3(a) on or before the third Business Day preceding any scheduled repayment date with respect to the Loan. the Trustee shall withdraw from the Reserve Fund and transfer to the Principal Account an amount equal to the difference between (i) the amount required to be deposited pursuant to Section 3.3(a) and (ii) the amount actually deposited by the Agency. In the event that the amount on deposit in the Reserve Fund shall at any time be Tess than the Reserve Requirement. the Trustee shall notify the Agency as soon as practicable of the amount required to be deposited therein to restore the balance to the Reserve Requirement. such notice to be given by telephone. telefax or other form of telecommunications promptly confirmed in writing. and the Agency shall thereupon transfer to the Trustee the amount needed to restore the Reserve Fund to the Reserve Requirement. In the event that the amount on deposit in the Reserve Fund on the 15th calendar day preceding any date of repayment of the Loan (other than the final payment date) — provided that the deposits required by Section 3.3(a) have been made — exceeds the Reserve Requirement. the Trustee shall withdraw from the Reserve Fund all amounts in excess of the Reserve Requirement and apply such amounts toward the prepayment of the Loan pursuant to Section 2.4 or the prepayment of any Parity Debt. unless the Trustee shall have received prior Request of the Agency to pay such amounts to the Agency to be used for any lawful purpose relating to the Project Area. as specified in such Request of the Agency. Notwithstanding the foregoing provisions of this paragraph. however. no amounts shall be withdrawn from the Reserve Fund and transferred to the Agency pursuant to this paragraph during any period in which an Event of Default shall have occurred and be continuing hereunder. With the written consent of the Insurer (as long as the Insurance Policy is in full force and effect) and of the insurer of any Parity Debt (as long as the policy insuring such Parity Debt is in full force and effect). the Reserve Requirement may be satisfied by crediting to the Reserve Fund moneys or a Qualified Reserve Fund Credit Instrument or any combination thereof. which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement. Upon the deposit with the Trustee of such Qualified Reserve Fund Credit Instrument. the Trustee shall release moneys then on hand P6402. O156\889991.2 7 in the Reserve Fund to the Agency. to be used for any lawful purpose relating to the Project Area. in an amount equal to the face amount of the Qualified Reserve Fund Credit Instrument. If at any time the amount on deposit in. or credited to. the Reserve Fund includes both cash and a debt service reserve surety bond. any draw on such surety bond shall be made only after all cash in the Reserve Fund has been expended. If at any time the amount credited to the Reserve Fund includes more than one Qualified Reserve Fund Credit Instruments. any draw on the Qualified Reserve Fund Credit Instrument shall be on a pro rata basis based on the relative amounts of debt service covered by such Qualified Reserve Fund Credit Instruments in such Fiscal Year. Section 2.6. Costs of Issuance Fund. There is hereby established a fiord to be held by the Trustee known as the "Costs of Issuance Fund. A portion of the proceeds of the Loan shall be deposited in the Costs of Issuance Fund pursuant to Section 2.2. The moneys in the Costs of Issuance Fund shall be used to pay Costs of Issuance from time to time upon receipt of a Request of the Agency. On the 90th day after the Closing Date (or the first Business Day thereafter). or upon the earlier receipt by the Trustee of a Request of the Agency stating that all Costs of Issuance have been paid. the Trustee shall transfer all remaining amounts in the Costs of Issuance Fund to the Revenue Fund. Section 2.7. Proiect Fund. There is hereby established a fund to be known as the "Project Fundy. which shall be held and maintained by the Trustee. Amounts on deposit in such fund shall be derived solely from the portion of the proceeds of the Loan transferred thereto and from earnings on the investment of amounts therein. Except as provided in this Section. the moneys set aside and placed in the Project Fund shall remain therein until expended from time to time for the purpose of paying any portion of the costs of the Redevelopment Project. and other costs related thereto. which other costs may include. but are not limited to. (a) the cost of improvements and other costs which may not benefit the Redevelopment Project exclusively but which are necessary to the redevelopment of the Project Area and the disposition of land therein: (b) the repayment of any advances made by the City for the Redevelopment Project: and (c) to the extent not paid from the Costs of Issuance Fund. the necessary expenses in connection with the issuance and sale of the Bonds. Before any payment of money is made from the Project Fund. the Agency shall file with the Trustee a Request of the Agency showing with respect to each payment of money to be made: Fund. Trustee: (a) the name and address of the person to whom payment is due: (b) the amount of money to be paid: (c) the purpose for which the obligation to be paid was incurred: and (d) that such amount has not been paid previously for such purpose from the Project Each such Request of the Agency shall state and shall be sufficient evidence to the (i) that an obligation in the stated amount has been properly incurred under and pursuant to this Loan Agreement and that such obligation is a proper charge against the Project Fund: and P6402. O156\889991.2 8 (ii) that there has not been filed NVith or served upon the Agency a stop notice or any other notice of any lien. right to lien or attachment upon. or claim affecting the right to receive payment of. an of the money payable to the person named in such Request of the Agency Nvhich has not been released or Nvill not be released simultaneously xvith the payment of such obligation. other than liens accruing by mere operation of lacy. Upon receipt of each such Request of the Agency. the Trustee shall pay the amount set forth in such Request of the Agency as directed by the terms thereof within three Business Days. If any moneys deposited in the Project Fund remain therein after the full accomplishment of the objects and purposes for which the Loan was made. said moneys shall be transferred to the Special Fund. Section 2.8. Parity Debt. From time to time. the Agency may issue or incur additional Parity Debt in such principal amount as shall be determined by the Agency. subject to the following specific conditions which are hereby made conditions precedent to the issuance and delivery of such Parity Debt issued under this Section 2.8: (a) No Event of Default shall have occurred and be continuing. and the Agency shall othenvise be in compliance with all covenants set forth in this Loan Agreement. (b) The amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Agency. based on assessed valuation of property in the Project Area as evidenced in the Nyritten records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to 1 I I ()I percent of Maximum Combined Annual Debt Service. (c) The related Parity Debt Instrument shall provide that the balance of the Reserve Fund shall be increased to the new Reserve Requirement effective after the incurrence of such Parity Debt. (d) The related Parity Debt Instrument shall provide that: (I) With respect to any Parity Debt which bears current interest. interest on such Parity Debt shall not be payable on a date other than April I and October I of any year. and (2) The principal of such Parity Debt shall not be payable on any date other than the date on which principal of the Loan is payable. (c) The issuance of such Parity Debt shall not cause the Agency to exceed any applicable Plan Limitations. (f) The Agency shall deliver to the Trustee a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in Paragraphs (a) through (c) above have been satisfied. The Agency shall also furnish a cope of an Independent Redevelopment Consultants report evidencing compliance with the condition set forth in Paragraph (b). Section 2.9. Issuance of Additional Senior Debt. From time to time. the Agency may issue or incur additional Senior Debt in such principal amount as shall be determined by the Agency. but solely if the following conditions are satisfied: P6402.0156\889991.2 9 (a) The incurrence of such proposed Senior Debt shall not cause the Agency to be in violation of anv Senior Debt Instrument. (b) The Agency shall have delivered the Trustee a Certificate of the Agency which certifying that the amount of Tax Revenues for the then current Fiscal Year. based on assessed valuation of property in the Project Area as evidenced in the written records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to percent of Maximum Combined Annual Debt Service. (c) The Agency shall have filed with the Trustee a report of an Independent Redevelopment Consultant which shows that the projected Tax Revenues available to be received by the Agency under the Plan Limitations in each upcoming year will be at least I I0 percent of aggregate remaining debt service on the Loan and all outstanding Parity Debt and Senior Debt. Section 2.10. Issuance of Subordinate Debt. From time to time the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency. provided that the issuance of such Subordinate Debt shall not cause the Agency to exceed any applicable Plan Limitations. Section 2. I I . Validity of Loan. The validity of the Loan shall not be dependent upon the completion of the Redevelopment Project or upon the performance by any person of any obligation with respect to the Redevelopment Project. ARTICLE III PLEDGE AND APPLICATION OF SUBORDINATE TAX REVENUES Section 3. I . Pledtze of Subordinate Tax Revenues. The Loan and all Parity Debt shall be equally secured by a first pledge of and lien on all of the Subordinate Tax Revenues and all of the moneys on deposit in the Special Fund to the extent that such moneys are not required to pay Senior Debt Service. without preference or priority for series. issue. number. dated date. sale date. date of execution or date of delivery. Except for the Subordinate Tax Revenues and other funds pledged hereunder. no funds or properties of the Agency shall be pledged to. or othenyise liable for. the payment of principal of or interest on or prepayment premium. if any. on the Loan. Section 3.2. Special Fund: Deposit of Tax Revenues. The Agency has heretofore established a special fund known as the "Special Fund." which is and shall continue to be held by the Agency as a separate fund apart from all other funds and accounts of the Agency. The Agency shall deposit all Tax Revenues in the Special Fund promptly upon the receipt thereof. Except as may be otherwise provided in anv Senior Debt Instrument or Parity Debt Instrument. any Subordinate Tax Revenues received during the Bond Year in excess of amounts required to be transferred to the Trustee pursuant to Section 3.3 shall be released from the pledge and Tien hereunder and may be used for any lawful purposes of the Agency. Prior to the payment in full of the principal of and interest and prepayment premium. if any. on all Senior Debt. the Loan and all Parity Debt and the payment in full of all other amounts payable under anv Senior Debt Instrument. this Loan Agreement and anv Parity Debt Instrument. the Agency shall not have anv beneficial right or interest in the moneys on deposit in the Special Fund. except only as provided in any Senior Debt Instrument. this Loan Agreement and anv Parity Debt Instrument. and such moneys shall be used and applied as set forth in any Senior Debt Instrument. this Loan Agreement and anv Parity Debt Instrument. Section 3.3. Transfer of Subordinate Tax Revenues From Special Fund. The Agency shall withdraw Subordinate Tax Revenues to make transfers. as required to be made pursuant to any P6402. c 0156\889991.2 10 Parity Debt Instrument and to the Trustee the following amounts at the following times and in the following order of priority: (a) Interest and Principal Deposits. No later than the fifth Business Day preceding each date on which an installment on the Loan (in accordance with Exhibit A) or the principal of or interest on any Parity Debt shall become due and payable. including but not limited to the installment of the Loan to be prepaid hereunder together with any prepayment premium thereon (provided that the transfers from the Special Fund for payment of principal. interest. prepayment premium. and replenishment of reserve fund. if any. with respect to all Senior Debt shall have been made pursuant to the Senior Debt Instruments). the Agency shall Nvithdraw from the Special Fund and transfer to the Trustee an amount which. together with the amounts then held on deposit in the Principal Account and the Rcycnuc Fund. is equal to the aggregate amount of the installment of the Loan (in accordance with Exhibit A). the principal of and interest on the Parity Debt and prepayment premium with respect to the Loan and the Parity Debt coming due. (b) Reserve Fund Deposits. In the event that the Trustee shall notify the Agency pursuant to Section 2.5 that the amount on deposit in the Reserve Fund is Tess than the Reserve Requirement. the Agency shall immediately Nvithdraw from the Special Fund and transfer to the Tnistcc for deposit in the Reserve Fund an amount of money necessary to maintain the Reserve Requirement in the Reserve Fund (including repayment of any draw made under a Qualified Reserve Fund Credit Instrument prior to replenishing any cash in the Reserve Fund). (c) Surplus. Except as may be otherwise provided in any Senior Debt Instrument or any Parity Debt Instrument. the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Subordinate Tax Revenues which. together with other available amounts in the Special Fund. exceeds the amounts required in such Bond Year pursuant to this Section 3.3. All Subordinate Tax Revenues which are received by the Agency during any Bond Year in excess of the amounts required to be deposited in the Special Fund in such Bond Year pursuant to the Senior Debt Instruments. this Loan Agreement and Parity Debt Instruments shall be released from the pledge thereof and lien thereon which is established pursuant hereto. In the event that for any reason Nvhatsoeyer any amounts shall remain on deposit in the Special Fund on any April 2 after making all of the transfers theretofore required to be made pursuant to the preceding Paragraphs (a) and (b) and pursuant to any Senior Debt Instrument or Parity Debt Instrument. the Agency may Nvithdraw such amounts from the Special Fund. to be used for any lawful purposes of the Agency. including but not limited to the payment of any Subordinate Debt or the payment of any amounts due and owing to the United States pursuant to Section 4.1 I . Section 3.4. Investment of Moneys: Valuation of Investments. Subject to Section 4.03 of the Indenture. all moneys in the Special Fund. the Project Fund. the Reserve Fund and the Costs of Issuance Fund shall be invested in Permitted Investments. Absent any prior Nvritten instruction from the Agency or the Authority. moneys in any fund held by the Trustee hereunder or under the Indenture shall be invested in Permitted Investments described in clause D of the definition thereof. Obligations purchased as an investment of moneys in any fund or account established hereunder shall be credited to and deemed to be part of such fund or account. The Agency or the Trustee. as the case may be. may commingle any amounts in any of the funds and accounts held hereunder with any other amounts held by the Agency or the Trustee for purposes of making any investment: provided that the Agency and the Trustee shall maintain separate accounting procedures for the investment of all funds and accounts held hereunder. All interest. profits and other income received from the investment of moneys in any fund or account established hereunder shall be credited to such fund or account. Notwithstanding anything to the contrary contained in this Section. an amount of interest received with respect to any investment equal to the amount of accrued interest. if any. paid as part of the purchase price of such investment shall be credited to the fund or account from which such accrued interest was paid. P6402. c 0156\889991.2 11 For the purpose of determining the amount in any fund or account established hereunder. any investments credited to such fund shall be valued at least annually at the market value thereof. ARTICLE IV OTHER COVENANTS OF THE AGENCY Section 4. I. Punctual Payment: Extension of Payments. The Agency shall punctually pay or cause to be paid the installments and prepayment premium. if any. on the Loan in strict conformity with the terms of this Loan Agreement. and it \ III faithfully observe and perform all of the conditions. covenants and requirements of this Loan Agreement. The Agency shall not directly or indirectly extend or assent to the extension of the maturity of any installment of or prepayment premium. if any. on the Loan. and in case the installment or premium. if any. on the Loan or the time of payment of any such claims therefor shall be extended. such principal. interest. premium or claims for interest shall not be entitled. in case of any Event of Default hereunder. to the benefits of this Loan Agreement except for payment of all amounts which shall not have been so extended. Section 4.2. Limitation on Additional Indebtedness. The Agency hereby covenants that it shall not issue any bonds. notes or other obligations. enter into any agreement or otherwise incur any indebtedness. which is in any case payable from all or any part of the Tax Revenues. excepting only the Loan. any Parity Debt. any Senior Debt and any Subordinate Debt. and any other obligations permitted by this Loan Agreement. Section 4.3. Payment of Claims. The Agency shall pay and discharge. or cause to be paid and discharged. any and all lawful claims for labor. materials or supplies which. if unpaid. might become a lien or charge upon the properties owned by the Agency or upon the Tax Revenues or any part thereof. or upon any funds in the hands of the Trustee. or which might impair the security of the Loan. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims. Section 4.4. Books and Accounts: Financial Statements. The Agency shall keep. or cause to be kept. proper books of record and accounts. separate from all other records and accounts of the Agency and the City. in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project. the Tax Revenues. the Special Fund. the Reserve Fund. the Low and Moderate Income Housing Fund and the Redevelopment Fund. Such books of record and accounts shall at all times during business hours be subject. upon prior written request. to the reasonable inspection of the Authority. the Trustee and the Owners of not less than ten percent in aggregate Principal Amount of a series of Bonds then Outstanding. or their representatives authorized in writing. The Agency will cause to be prepared annually. within 180 days after the close of each Fiscal Year so long as any of the Bonds are Outstanding. complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues. all disbursements from the Special Fund and the Redevelopment Fund and the financial condition of the Redevelopment Project. including the balances in all funds and accounts relating to the Redevelopment Project. as of the end of such Fiscal Year. The Agency \ III furnish a copy of such statements. upon reasonable request. to any Owner. Section 4.5. Protection of Security and Ritzhts. The Agency will preserve and protect the security of the Loan and the rights of the Trustee and the Owners with respect to the Loan. From and after the Closing Date. the Loan shall be incontestable by the Agency. The Loan and the provisions of this Loan Agreement are and will be the legal. valid and binding special obligations of the Agency enforceable in accordance with their terms. and the Agency shall at all times. to the extent permitted by P6402.01 56\889991.2 12 lacy. defend. preserve and protect all the rights of the Authority. the Trustee and the Owners under this Loan Agreement against all claims and demands of all persons Nyhomsoeyer. The Agency's obligations to the Trustee under this Section 4.5 shall survive the payment of the Bonds and the discharge of the Indenture. the removal or resignation of the Tnistcc pursuant to the Indenture or the payment of the Loan and the discharge of this Loan Agreement. Section 4.6. Payments of Taxes and Other Charges. The Agency Nyill pay and discharge. or cause to be paid and discharged. all taxes. service charges. assessments and other governmental charges Nyhich may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area NVhcn the same shall become due. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of such taxes. assessments or charges. The Agency \\ill duly observe and comply Nyith all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof. Section 4.7. Taxation of Leased Property. All ad valorem property taxes derived by the Agency pursuant to Section 33673 of the Redevelopment Law Nyith respect to the lease of property for redevelopment shall be treated as Tax Revenues for all purposes of this Loan Agreement. and shall be deposited by the Agency in the Special Fund promptly upon receipt. Section 4.8. Disposition of Property. The Agency Nyill not participate in the disposition of any land or real property in the Project Area to anyone Nyhich Nyill result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of this Loan Agreement) so that such disposition shall. NVhcn taken together Nyith other such dispositions. aggregate more than ten percent of the land area in the Project Area unless such disposition is permitted as hereinafter provided in this Section. If the Agency proposes to participate in such a disposition. it shall thereupon appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the Report of the Independent Redevelopment Consultant concludes that the security of the Loan or the rights of the Authority. the Owners and the Tnistcc hereunder Nyill not be materially impaired by said proposed disposition. the Agency may thereafter make such disposition. If such Report concludes that such security \\ill be materially impaired by such proposed disposition. the Agency shall disapprove said proposed disposition. Section 4.9. Maintenance of Tax Revenues. The Agency shall comply Nyith all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues. including Nyithout limitation the timely filing of any necessary statements of indebtedness Nyith appropriate officials of the County and (in the case of supplemental revenues and other amounts payable by the State) appropriate officials of the State. The Agency shall not amend the Redevelopment Plan (except for the purpose of extending or eliminating the time limit on the establishment of loans. advances. and indebtedness. extending the time limit on the effectiveness of the Redevelopment Plan. extending the time limit on the payment of indebtedness. extending the time limit for the receipt of tax increment. or increasing the limitation on the number of dollars of taxes to be allocated to the Agency) or any of the Pass -Through Agreements. or enter into any agreement Nyith the County or any other governmental unit. Nyhich Nyould have the effect of reducing the amount of Subordinate Tax Revenues available to the Agency for payment of the Loan. unless the Agency shall first obtain (i) the Report of an Independent Redevelopment Consultant stating that the amount of Tax Revenues for the then current Fiscal Year (calculated on the assumption that such reduction of Tax Revenues was in effect throughout such Fiscal Year). plus at the option of the Agency the Additional Revenues. shall meet the coverage test set forth in Section 2.8(b) and (ii). as long as the Insurance Policy is in full force and effect. the Nyritten consent of the Insurer. Nothing herein is intended or shall be construed in any Nyay to prohibit or impose any limitations P6402.01 56\889991.2 13 on the entering into by the Agency of any such agreement. amendment or supplement Nyhich by its term is subordinate to the payment of the Loan and all Parity Debt. Section 4. ID. Payment of Expenses: Indemnification. The Agency shall pay to the Trustee from time to time all compensation for all services rendered under this Loan Agreement and the Indenture. including but not limited to all reasonable expenses. charges. legal and consulting fees and other disbursements and those of its attorneys. agents and employees. incurred in and about the performance of its powers and duties hereunder and thereunder. Upon the occurrence of an Event of Default. the Trustcc shall have a first Tien on the funds held by it under the Indenture to secure the payment to the Trustee of all fees. costs and expenses. including reasonable compensation to its experts. attorneys and counsel (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel) incurred in performing its duties under the Indenture and this Loan Agreement. The Agency further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any losses. expenses and liabilities \yhich it may incur arising out of or in the exercise and performance of its powers and duties in accordance Nvith the Indenture and this Loan Agreement. including the costs and expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities Nvhich are due to the negligence or intentional misconduct of the Trustee. its officers. directors. agents or employees. The obligations of the Agency under this paragraph shall survive the resignation or removal of the Trustee under the Indenture. this Loan Agreement and payment of the Loan and the discharge of this Loan Agreement. Section 4. I I. Tax Covenants. (a) The Agency covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the portion of the Accreted Value of the Bonds Nvhich constitute interest thereon. and for no other purpose. the Agency NyiII satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Agency agrees to comply Nvith such Nvritten instructions as may be provided by Bond Counsel. (b) The Agency covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nvould cause the Bonds to become arbitrage bonds as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nvith the rebate requirements of Section 148 of the Code. the Agency further covenants that it Nvill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section I48(f) of the Code. and that it Nvill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nvith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Agency covenants that it Nvill not take any action or omit to take any action. Nvhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nvould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. (d) The Agency covenants that it Nvill not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as Nvould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. P6402.01 56\889991.2 14 (e) Except as provided below. the Agency covenants that none of the moneys contained in any of the funds or accounts Nyith respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested directly or indirectly in obligations guaranteed (in Nyhole or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Revenue Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 I I (a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under the Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 4.12. Redevelopment of Proiect Area. The Agency shall ensure that all activities undertaken by the Agency Nyith respect to the redevelopment of the Project Area are undertaken and accomplished in conformity Nyith all applicable requirements of the Redevelopment Plan and the Redevelopment Lary. The Agency shall manage and operate all properties owned by the Agency and comprising any part of the Redevelopment Project in a sound and business -like manner and in conformity Nyith all valid requirements of any governmental authority. and Nyill keep such properties insured at all times in conformity Nyith sound business practice. Section 4.1 3. Low and Moderate Income Housing Fund. The Agency covenants and agrees to use the moneys in the Low and Moderate Income Housing Fund in accordance Nyith Sections 33334.2 and 33334.3 of the Redevelopment Law. and further covenants and agrees to disburse. expend or encumber any "excess surplus" (as defined in Section 33334. 12 of the Redevelopment Lary) in the Low and Moderate Income Housing Fund at such times and in such manner that the Agency shall not be subject to sanctions pursuant to subdivision (c) of said Section 3334.12. Section 4.14. Annual Review of Tax Revenues. The Agency hereby covenants that it will annually cause an Independent Redevelopment Consultant to review the total amount of Tax Revenues remaining available to be received by the Agency under the Redevelopment Plans cumulative tax increment limitation. as \yell as future cumulative annual debt service with respect to all Senior Debt. the Loan and all Parity Debt. Subject to any limitations set forth in the Senior Debt Instruments. the Agency Nyill not accept Tax Revenues greater than such annual debt service in any year. if such acceptance Nyill cause the amount remaining under the tax increment limit to fall below remaining cumulative annual debt service with respect to all Senior Debt. the Loan and all Parity Debt. except for the purpose of depositing such revenues in escrow for the payment of such debt service or for the prepayment or redemption of any Senior Debt. the Loan and any Parity Debt. Section 4. 15. Further Assurances. The Agency NyiII adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Loan Agreement and for the better assuring and confirming unto the Trustee. the Authority and the Owners of the Bonds of the rights and benefits provided in this Loan Agreement. P6402.01 56\889991.2 15 ARTICLE V EVENTS OF DEFAULT AND REMEDIES Section 5. I. Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default hereunder: (a) Failure by the Agency to pay the principal of or interest or prepayment premium. if any. on the Loan. any Parity Debt or any Senior Debt when and as the same shall become due and payable. (b) Failure by the Agency to observe and perform any of the covenants. agreements or conditions on its part contained in this Loan Agreement. other than as referred to in the preceding Paragraph (a). for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the Agency by the Trustcc: provided. however. that if the failure stated in such notice can be corrected. but not within such 30 day period. such failure shall not constitute an Event of Default if corrective action is instituted by the Agency within such 30 day period and thereafter is diligently pursued until such failure is corrected. (c) The filing by the Agency of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America. or if a court of competent jurisdiction shall approve a petition. filed with or without the consent of the Agency. seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America. or if. under the provisions of any other law for the relief or aid of debtors. any court of competent jurisdiction shall assume custody or control of the Agency or of the whoI or any substantial part of its property. If an Event of Default has occurred and is continuing. the Authority or the Trustee may. and at the written direction of the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds the Authority or the Trustee shall. (i) declare the Loan (in the amount equal to the corresponding Principal Amount of the Bonds being declared due and payable under the Indenture) to be due and payable immediately. and upon any such declaration the same shall become immediately due and payable. anything in this Loan Agreement to the contrary notwithstanding. and (ii) subject to the receipt of indemnity as provided in the Indenture. exercise anv other remedies available to the Trustee at law or in equity. Immediately upon becoming aware of the occurrence of an Event of Default. the Authority. or the Trustee as assignee of the Authority. shall give notice of such Event of Default to the Agency by telephone. tciccopier or other telecommunication device. promptly confirmed in writing. This provision. however. is subject to the condition that if. at any time after the Loan shall have been so declared due and payable. and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the Agency shall deposit with the Trustee a sum sufficient to pay all unpaid installments of the Loan matured prior to such declaration (such sum being equal to the Accreted Value. calculated to but not including the date of payment by the Agency to the Trustee. of the corresponding portion of the Outstanding Bonds that matured prior to such declaration). and the reasonable expenses of the Trustee (including but not limited to attorneys fees). and anv and all other defaults known to the Trustee (other than in the payment of the installments of the Loan due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in every such case. the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds may. by written notice to the Trustee and the Agency. rescind and annul such declaration and its consequences. However. no such rescission and annulment shall extend to or shall affect any subsequent default. or shall impair or exhaust any right or power consequent thereon. P6402. c 0156\889991.2 16 Section 5.2. Application of Funds Upon Default. Subject to the payment of funds Nyith respect to the Senior Debt under the Senior Debt Instruments. all amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Loan Agreement. shall be applied by the Trustee in the following order: First. to the payment of the fees. costs and expenses of the Trustee. including reasonable compensation to its agents. attorneys and counsel (including the allocated costs and disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and Second. to the payment of the installments of the Loan then due and unpaid (being equal to the Accreted Value of the Bonds declared due and payable calculated to but not including the date of payment by the Authority or the Agency to the Trustee. to the extent permitted by lacy): provided. however. that in the event such amounts shall be insufficient to pay the full amount. then such amounts shall be applied to the payment of all installments of the Loan then due and payable on a pro rata basis. Section 5.3. No Waiver. Nothing in this Article V or in any other provision of this Loan Agreement. shall affect or impair the obligation of the Agency. which is absolute and unconditional. to pay from the Subordinate Tax Revenues and other amounts pledged hereunder. the installments of and premium. if any. on the Loan to the Trustee when due. as herein provided. or affect or impair the right of action. which is also absolute and unconditional. of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in this Loan Agreement. A Nyaiyer of any default by the Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a Nyaiyer of any such default or an acquiescence therein. and every power and remedy conferred upon the Trustee by the Redevelopment Law or by this Article V may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee. If a suit. action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Trustee. the Agency. the Authority and the Trustee shall be restored to their former positions. rights and remedies as if such suit. action or proceeding had not been brought or taken. Section 5.4. Agreement to Pay Attorneys" Fees and Expenses. In the event the Agency or the Authority should default under any of the provisions hereof and the nondefaulting party or the Trustee should employ attorneys or incur other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained. the defaulting party agrees that it will on demand therefor pay to the nondcfaulting party or the Trustcc. as the case may be. the reasonable fees of such attorneys and such other expenses so incurred (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). Section 5.5. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing. at lacy or in equity or by statute or otherwise. and may be exercised without exhausting and without regard to any other remedy conferred by the Redevelopment Law or any other lacy. P6402. c 0156\889991.2 17 Section 5.6. Control of Remedies by Insurer. Notwithstanding the provisions of Section 5. I and subject to any rights heretofore granted by the Authority or the Agency to any insurer of Parity Debt. as long as Insurance Policy is in full force and effect and the Insurer has not defaulted with respect to its payment obligations thereunder. upon the occurrence and continuance of an Event of Default. the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Owners or the Trustee for the benefit of the Owners under this Loan Agreement. Any acceleration of the Loan or annulment thereof pursuant to Section 5. I shall be subject to the prior \written consent of the Insurer. No \yaiyer of a default shall be effective without the «rittcn consent of the Insurer. ARTICLE VI MISCELLANEOUS Section 6. I. Benefits Limited to Parties. Nothing in this Loan Agreement. expressed or implied. is intended to give to any person other than the Agency. the Tnistcc. the Insurer and the Authority. any right. remedy or claim under or by reason of this Loan Agreement. All covenants. stipulations. promises or agreements in this Loan Agreement contained by and on behalf of the Agency shall be for the sole and exclusive benefit of the Authority. the Trustee acting as trustee for the benefit of the Owners of the Bonds. and the Insurer so Tong as the Insurance Policy remains in full force and effect. Section 6.2. Successor is Deemed Included in All References to Predecessor. Whenever in this Loan Agreement. the Agency. the Authority. the Trustee or the Insurer is named or referred to. such reference shall be deemed to include the successors or assigns thereof. and all the covenants and agreements in this Loan Agreement contained by or on behalf of the Agency. the Authority. the Trustee or the Insurer shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 6.3. Discharze of Loan Agreement. If the Agency shall pay and discharge the indebtedness on the Loan or any portion thereof in any one or more of the following \Nays: (a) by \yell and truly paying or causing to be paid the principal of and interest and prepayment premiums. if any. on the Loan or such portion thereof. as and \yhen the same become due and payable: (b) by irrevocably depositing with the Trustee. in trust. at or before maturity. cash in an amount which. together with the available amounts then on deposit in any of the funds and accounts established pursuant to the Indenture or this Loan Agreement. in the opinion or report of an Independent Accountant is fully sufficient to pay all principal of and interest and prepayment premiums. if any. on the Loan or such portion thereof: or (c) by irrevocably depositing with the Trustee or any other fiduciary. in trust. non - callable Defeasance Obligations in such amount as an Independent Accountant shall determine \gill. together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or this Loan Agreement. be fully sufficient to pay and discharge the indebtedness on the Loan or such portion thereof (including all principal. interest and prepayment premiums) at or before maturity: then. at the election of the Agency but only if all other amounts then due and payable hereunder shall have been paid or provision for their payment made. the pledge of and lien upon the Subordinate Tax Revenues and other funds provided for in this Loan Agreement and all other obligations of the Trustee. the Authority and the Agency under this Loan Agreement with respect to the Loan or such portion thereof P6402. c 0156\889991.2 18 shall cease and terminate. except only the obligation of the Agency to pay or cause to be paid to the Trustee. from the amounts so deposited with the Trustee or such other fiduciary. all sums due with respect to the Loan or such portion thereof. and to pay all expenses and costs of the Trustee when and as such expenses and costs become due and payable. Notice of such election shall be filed with the Authority and the Trustee. Any funds thereafter held by the Trustee hereunder. which are not required for said purpose. shall be paid over to the Agency. Section 6.4. Amendment. This Loan Agreement may be amended by the parties hereto but only under the circumstances set forth in. and in accordance with. the provisions of Section 5.08 of the Indenture. The Authority and the Trustee covenant that the Indenture shall not be amended. nor shall the Authority agree or consent to any amendment of the Indenture. without the prior written consent of the Agency (except that such consent shall not be required in the event that an Event of Default shall have occurred and be continuing hereunder). Section 6.5. Waiver of Personal Liability. No member. officer. agent or employee of the Agency shall be individually or personally liable for the repayment of the Loan: but nothing herein contained shall relieve any such member. officer. agent or employee from the performance of any official duty provided by law. Section 6.6. Payment on Business Days. Whenever in this Loan Agreement any amount is required to be paid on a day which is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest on such payment shall not accrue from and after such day. Section 6.7. Notices. Any notice. request. complaint. demand or other communication under this Loan Agreement shall be given in the same manner as provided in Section I I. 13 of the Indenture. which is hereby incorporated. Section 6.8. Partial Invalidity . If any Section. paragraph. sentence. clause or phrase of this Loan Agreement shall for any reason be held illegal. invalid or unenforceable. such holding shall not affect the validity of the remaining portions of this Loan Agreement. The Agency hereby declares that it would have adopted this Loan Agreement and each and every other Section. paragraph. sentence. clause or phrase hereof and authorized the Loan irrespective of the fact that any one or more Sections. paragraphs. sentences. clauses. or phrases of this Loan Agreement may be held illegal. invalid or unenforceable. Section 6.9. Article and Section Headings and References. The headings or titles of the several Articles and Sections hereof. and any table of contents appended to copies hereof. shall be solely for convenience of reference and shall not affect the meaning. construction or effect of this Loan Agreement. All references herein to "Articles." "Sections" and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement: the words "herein. "hereof. "hereby. "hereunder- and other words of similar import refer to this Loan Agreement as a whole and not to any particular Article. Section or subdivision hereof: and words of the masculine gender shall mean and include words of the feminine and neuter genders. Section 6.10. Execution of Counterparts. This Loan Agreement may be executed in any number of counterparts. each of which shall for all purposes be deemed to be an original and all of which shall together constitute but one and the same instrument. Section 6. I I. Governing, Law. This Loan Agreement shall be construed and governed in accordance with the laws of the State. P6402.01 56\889991.2 19 Section 6.12. The Trustcc. The Trustcc is entering into this Loan Agrccmcnt solely in its capacity as Trustcc under the Indenture and all provisions of the Indenture relating to the rights. privileges. powers and protections of the Trustee shall apply Nvith equal force and effect to all actions taken by the Trustee in connection Nvith this Loan Agreement. The Trustee shall be responsible only for the duties of the Trustee expressly set forth herein. Mom -tinder of I'Uge Intentionally Leff /3lailk f P6402. O156\889991.2 20 IN WITNESS WHEREOF. the AGENCY. the AUTHORITY and the TRUSTEE have caused this Loan Agreement to be signed by their respective officers. all as of the day and year first above «ritten. PALM DESERT REDEVELOPMENT AGENCY By Executive Director PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Officer P6402. c 0156\889991.2 21 EXHIBIT A SCHEDULE OF LOAN PAYMENTS Date Pa\ meat * Payable on the fifth Business Day preceding each April 1st P6402. c 0156\889991.2 A- 1.&.1 DRAFT #3 05/23/06 PRELIMINARY OFFICIAL STATEMENT DATED JUNE , 2(1(16 NEW ISSUE - BOOK -ENTRY ONLY INSURED RATINGS: S&P: UNINSURED RATINGS: S&P: (See "R.\ I IS; ;s" herein) In the opinion of:Richatds, t t ctisott & (,'ershon, : l Professional ('otporation, Los Angeles, ('alifo nia, Bond ('ounsel, based on cram*, lair and assuming compliance u'idt certain covenants set_/orth in the documu'nis pertaining to the 2006 Series Bonds and requirements o/ the lntental Reretnu' ('axle o/ / 986, as amended (the "( 'axle'' as described herein, interest on the 2006 Series Bonds is not included in gross income o/ du' o im'ts du'reo//or i,dend income tax purposes. In the opinion of Bond Counsel, interest on the 2006 .Series Bonds is not treated as an item o/ fax pie/ei once in calculating the /i'dend altentatire minimum taxable income of individuals and coupon Lions. btien's, on the 2006 Series Bonds May be subject to certain ji'dend taxes imposed out cot7ron Lions, including the cot7ron to altentcnire minimum tax out a portion o/ that interest. In the _/urf/u'r opinion of Bond ('ounsel, interest on the Bonds is exempt ji'om persatal income taxes imposed by the State o/Tali/hntia. See " 1'.\x M.\ ri I.Rs" herein. Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A * Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B * Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C Dated: Date of Deliver) Due: April 1, as shown on the inside cover page This cover page contains certain in/inmation JO. quick rcjrrence only. It is not a sumunan' oftIris issue. hn'estor c are advised to read the entire Official Statement to obtain in/otmation essential to the making of an in/otmed investment decision. The Palm 1)esert Financing Authority (the "Financing Authority") is issuing $ * principal amount of Palm 1)esert Financing Authority lax Allocation Revenue 13onds (Project Area No. 3) 2006 Series A (the "Current Interest Bonds") and $ * principal amount of Palm 1)esert Financing_ Aut horitTax Allocation Revenue Capital Appreciation 13onds (Project Area No. 3) 2006 Series 13 (the "Capital Appreciation 13onds" and together yvith the Current Interest 13onds. the "2006 Senior Parity Bonds") to make tyu> loans. one \with respect to each Series 012006 Senior Parity 13onds (collectiveh. the "2006 Senior Parity Loans"). to the Palm Desert Redevelopment Agency (the "Redevelopment Agency") pursuant to the terns of a Project Area No. 3 Loan Agreement dated as of,lu1 I. 2006 (the "2006 Senior Parity Loan Agreement") by and among the Financing Authority. the Redevelopment Agency and Wells Fargo 13ank. National Association (the " I rnstee"). 'the Redevelopment Agency \will apph the proceeds of the 2006 Senior Parity Loans to: (i) finance various redevelopment activities within the Palm 1)esert Redevelopment Agency Project Arca No. 3 (the "Project Area'): (ii) purchase a reserve Iind surety policy 14 a deposit into the Senior Parity Reserve Fund: and (iii> pay the costs associated with the issuance of the 2006 Senior Parit 13onds. The 2006 Senior Parit 13onds are issued pursuant to an Indenture of (rust. dated as of,lu1 I. 2006 (the "2006 Senior Parity Indenture"). by and bet yveen the Financing Authority and the Trustee. 'the Financing Authority is also issuing $ * principal amount of Palm 1)esert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation 13onds (Project Area No. 3) 2006 Series C (the "2006 Subordinate Capital Appreciation 13onds" and together \with the 2006 Senior Parity 13onds. the "2006 Series Bonds") to make a loan (the "2006 Subordinate Loan" and together \with the 2006 Senior Parity Loans. the "2006 Loans") to the Redevelopment Agency pursuant to the terns of a Project Arca No. 3 Loan Agreement (Subordinate Loan) dated as of,lu1 I. 2006 (the "2006 Subordinate Loan Agreement" and together yvith the 2006 Senior Parity Loan Agreement. the "2006 Loan Agreements") by and among the Financing Authority. the Redevelopment Agency and the I nastcc. 'the Redevelopment Agency \will apph the proceeds of the 2006 Subordinate Loan to: (i) finance various redevelopment activities within the Project Arca: (ii) Iimd a deposit into the Subordinate Reserve Fund: and ( iii) pay the costs associated yvith the issuance of the 2006 Subordinate Capital Appreciation 13onds. 'the 2006 Subordinate Capital Appreciation 13onds are issued pursuant to a separate Indenture of Tmst. dated as of,lu1 I. 2006 (the "2006 Subordinate Indenture" and together \with the 2006 Senior Parity Indenture. the "2006 Indentures'), by and between the Financing Authorit and the Trustee. ustee. 'Ihc 2006 Series Bonds \\ill be issued in hook -entry limn, initialh registered in the name of Cede & Co. as nominee of the Depository I mast Company. Nev. York. Nev, York ("1)I C"). yvho \\ill act as securities depositor 14 the 2006 Series 13onds. Individual purchases of the 2006 Series 13onds \\ill be in hook -entry limn onh. and in denominations of: (i) $5.000 or any integral multiple thereof \with respect to the Current Interest 13onds and (ii) $5.000 Maturity Amount (as defined herein) or any integral multiple thereof \with respect to the Capital Appreciation 13onds and the 2006 Subordinate Capital Appreciation Bonds. Purchasers \\ill not receive physical certificates representing their interests in the 2006 Series Bonds. Principal of interest on and redemption premium. if am, on the Current Interest 13onds and Accreted Value of the Capital Appreciation 13onds and the 2006 Subordinate Capital Appreciation Bonds \\ill be paid bthe I nastcc directh to IYI C. yvhich in turn is obligated to remit such principal. interest. Accreted Value and redemption premium. if any. to IYI C Participants 14 subsequent disbursement to the Beneficial (Milers of the applicable 2006 Series Bonds. See Ai'i'I.\I Ix G—"IYI C .y\n I I II.13(x )K—Em i O\I.' S' I7.y1. Interest on the Current Interest 13onds \\ill be payable on each April I and October I ()leach year. commencing October I. 2006 at the respective rates set fimh on the inside cover page. and principal of the Current Interest 13onds is payable on April I ()leach year. commencing April I. 20 in the amounts set forth on the inside cover page. the Capital Appreciation 13onds and the 2006 Subordinate Capital Appreciation 13onds \will accrete in value from the Date of 1)eliver at the respective Accreted Value Rate set I rrth on the inside cover page. compounded semiannualh. on April I and October I of each year. commencing October I. 2006 to the respective maturity dates thereof No payments \will be made on the 2006 Capital Appreciation 13onds prior to the respective maturity date thereof The Current Interest Bonds are subject to optional and sinking account redemption as described herein. Sox "Tttf:2006 SERIES BONDS — Current Interest Bonds —Redemption Provisions." The Capital Appreciation Bonds and the 2(1(16 Subordinate Capital Appreciation Bonds are subject to optional redemption as described herein. See "—Capital Appreciation Bonds —Redemption Provisions" and "-2006 Subordinate Capital Appreciation Bonds —Redemption Provisions." For a discussion of'some of the risks associated vith the purchase of the 2006 Series Bonds. see " CI.iz i.\i\ Risk i ( )13( )x.nn( )i.ni.itS... the 2006 Senior Parih Bonds are special obligations of the Financing Authont pa\ able from and secured b\ Revenues (as defined herein). consisting primarih of amounts pa\ able b\ the Redevelopment Agenc\ under the 2006 Senior Pait\ Loan Agreement. the 2006 Senior Pait\ Loan Agreement is secured and pabable from tax increment revenues derived from propert in the Project Area and allocated to the Redevelopment Agencb pursuant to the Redevelopment Law the 2006 Senior Pwith Loan Agreement is pa\ able on a parib basis \\ith the obligations of the Redevelopment Agenc\ ( the "2003 Loan..) made wider a loan agreement entered into in 2003 (the "2003 Loan Agreement..). the Redevelopment Agenc\ ma\, pursuant to the terms of the 2006 Senior Parith Loan Agreement and the 2006 Senior Parith Indenture secure additional obligations on a pari1 \\ith the 2006 Loans and the 2003 Loan. No finds or properties of the Redevelopment Agenc\. other than the Tax Revenues secure pa\ ment of the 2006 Senior Parih Loan Agreement. Sec "SI.c.i -RI i ti .\\I) Sc x Rc 1'.S ( )1. P.\Y\ u.\ i I.( )R i i u..13( )Ni )S—Parith 1)ebt and Subordinate 1)ebt." the 2006 Subordinate Capital Appreciation Bonds are special obligations of the Financing Authotib from and secured b\ Subordinate Revenues (as defined herein). consisting primarih of amounts pabable b\ the Redevelopment Agenc\ wider the 2006 Subordinate Loan Agreement. the 2006 Subordinate Loan Agreement is secured b\ and pa\ able from subordinate tax increment revenues derived from propert\ in the Project Area and allocated to the Redevelopment Agency pursuant to the Redevelopment Law the 2006 Subordinate Loan Agreement is pa\ able on a subordinate basis to the obligations of the Redevelopment Agenc\ under the 2006 Senior Parih Loan Agreement and the 2003 Loan Agreement. No hinds or properties of the Redevelopment Agenc. other than the Subordinate Tax Revenues secure pa\ menu of the 2006 Subordinate Loan Agreement. See " Si,c t -izi i ti . xi) Sea-RcI'.SOI. PAY I.( )12. iiu..13Oxi)s—Subordinatc Revenues... the scheduled pa\ment of the principal and Accreted Value of and interest on the 2006 Series Bonds \\hen due \\ill he guaranteed uidcr a financial guaraniinsurance polic\ to he issued concurenth \\ith the deliver\ oldie 2006 Series Bonds b\ 'Insurer I,ogo1 1111: 2006 SERIES BONDS ART: NOT A DEBT OF THE CITY OF PALM DESERT (1111: "CITY"). 1111: STATE OF CALIFORNIA (1111: "STATE—) OR ANY OF ITS POLIIICAI, SUBDIVISIONS. O"I TIER 11IAN 1111: FINANCING All"I11ORIlY. AND NONE OF 1111: CITY. 1111: STATE OR ANY OF ITS POLIIICAI, SUBDIVISIONS. 0"I111:R 11IAN 1111: FINANCING Alill10RIIY. IS LIABLE 11II:RI:F0R. 1111: 2006 LOANS ART: NOT A D1:13T OF 1111: FINANCING All"I11ORIlY OR 1111: STATE OR ANY OF ITS POLITICAL 51113DIVISIONS. AND NONE OF 111: FINANCING AIYIiIRO"IIY OR 1111: STATE OR ANY OF ITS POLIIICAI, SUBDIVISIONS. IS LIABLE 1111:RI:F0R. NONE OF 1111: MEMBERS OF 1111: FINANCING A11"I11ORIlY. 1111: CITY COUNCIL. 1111: REDEVELOPMENT AGENCY OR ANY PERSONS EXECUTING 111: 2006 SERIES BONDS OR 1111: 2006 LOAN AGREEMENTS ARF LIABLE PERSONALLY WI ll l RESPECT TO 1111: 2006 SERIES BONDS OR 1111: 2006 LOANS. THE OBLIGATIONS OF 1111: REDEVELOPMENT AGENCY WFFI I RESPECT TO 1111: 2006 SENIOR PARITY LOANS ART: PAYABLE SOLELY FROM 1111: TAX REVENUES (AS I)I:FINI:I) HEREIN) AS SIT FORM IN 1111: 2006 SENIOR PARITY LOAN AGREEMENT. 1111: OBLIGATIONS OF 1111: REDEVELOPMENT AGENCY WITH RESPECT TO 1111: 2006 511130RDINATE CAPITAI, APPRECIATION BONDS ART: PAYABLE SOLELY FROM 1111: S11130RDINAII: TAX RI:VI:NIII:S (AS I)I:FINI:I) HEREIN) AS SIT F0RI11 IN 111: 2006 511130RDINATE LOAN AGREEMENT. NEITHER 1111: FINANCING Al l"I11ORIlY NOR 1111: RI:DI:VI:LOPMI:N I AGENCY I IAS TAXING POWER. 'the 2006 Series Bonds are offered \\hen. as and ifissued b\ the Financing Authorith and received the l lndenvriter. subject to the approval as to their legalih b\ Richards. Watson & Gershon. A Professional Corporation Los Angeles. California. 13ond Counsel. Certain legal matters \\ill he passed upon Icy the Financing Authorith b\ the Cith Attome\ and b\ Lofton & Jennings. San Francisco. California. Disclosure Counsel. It is anticipated that the 2006 Series Bonds in book-entrn onh limn \\ill he available Icy deliver\ through the facilities of DTC in Nev. York. Nev. York on or about Jul . 2006. CITIGROUP I )aced: . 2006 * I reliminarn. subject to change. Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A Maturity Date (April I) Principal Interest Amount* Rate Maturity Date (April I ) * Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B Price or Yield Maturity Schedule * Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C * Current Interest Bonds, 2006 Series A CUSIP No.+ (6966I7) Maturity Date Principal (April I) Amount* Interest Price or Rate Yield % Term Bonds due April I. 20 - Price: `%rCUSIP No.+ 6966I 7 % Term Bonds due April I. 20 - Price: `%rCUSIP No.+ 6966I 7 % Term Bonds due April I. 20 - Price: `%rCUSIP No.+ 6966I 7 $ * Capital Appreciation Bonds, 2006 Series B Issue Amount* CUSIP No.+ (6966I7) Yield to Accreted Value CUSIP No.+ Maturity at Maturity (6966I7) + Cop\right 2006. American Bankers Association. Cl1SIP data herein is provided b\ Standard and Poor's. Cl1SIP Service Bureau. a division of 1'he Mc(ira\\-I till Companies. Inc. 'Ibis data is not intended to create a database and does not serve in an \Ya\ as a substitute tirr the Cl NIP Service. Cl NIP numbers are provided tirr convenience of reference onh. None of the Financing Authority. the Redevelopment Agcnc\ or the llndcnvritcr take an res}xmsibilit\ tirr the accurac\ of such Cl NIP numbers. "Ihc Cl1SIP number tirr a specific maturith is subject to being changed after the issuance of the 2006 Series Bonds as a result of various subsequent actions including. but not limited to. a refunding in \\ hole or in part of such matunith. * Preliminary. subject to change. 06012 pos-3 $ * 2006 Subordinate Capital Appreciation Bonds, 2006 Series C Maturity Date (April I ) Issue Amount Yield to Accreted Value CUSIP No.+ Maturity at Maturity (6966I7) t Cop\right 2006. American Bankers Association. CI ISIP data herein is provided b\ Standard and Poor's. CI ISIP Service Bureau. a division of l he Mc(ira\\-I lill Companies. Inc. 'Ibis data is not intended to create a database and does not serve in an \\a\ as a substitute Icy the CI NIP Service. CI NIP numbers are provided Iirr convenience of reference onh. None of the Financing Authont . the Redevelopment Agcnc\ or the I lndeniitcr take am res}xmsibilit\ for the accunacof such CUSIP numbers. 'the Cl1SIP number Iirr a specific matunith is subject to being changed after the issuance of the 2006 Series Bonds as a result of various subsequent actions including. but not limited to. a refunding in \\hole or in part of such matunith. * Prcliminansubject to change. 06012 pos-3 No dealer. broker. salesperson or other person has been authorized to give any information or to make any representations in connection with the offer or sale of the 2006 Series Bonds by the Financing Authority. the Redevelopment Agency or the Undenyriter. other than those contained in this Official Statement. and. if given or made. such other information or representations must not be relied upon as having been authorized by the Financing Authority and the Redevelopment Agency. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy. nor shall there be any sale of the 2006 Series Bonds by any person in any jurisdiction in \Vhich it is unlawful for such person to make such an offer. solicitation or sale. The information set forth herein has been furnished by the Financing Authority. the Redevelopment Agency and the City and includes information which has been obtained from other sources which are believed to be reliable. The information and expressions of opinion contained herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Financing Authority and the Redevelopment Agency since the date hereof. Any statement made in this Official Statement involving any forecast or matter of estimates or opinion. whether or not expressly so stated. is intended solely as such and not as a representation of fact. Certain statements included or incorporated by reference in this Official Statement constitute "forward - looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Section 2 I E of the United States Securities Exchange Act of 1934. as amended. and Section 27A of the United States Securities Act of 1933. as amended (the "Securities Act.). Such statements are generally identifiable by the terminology used. such as "plan. "expect. "estimate. "budget or other similar words. Such forward -looking statements include. but are not limited to. certain statements contained in the information under the caption "Ti 11: PRO.IECI AREA" and contained in APPENDIX A—"RI:PoRT 01 1111: FISCAI, CONSULTANT:* The achievement of certain results or other expectations contained in such fonyard-looking statements involves known and unknown risks. uncertainties and other factors which may cause actual results. performance or achievements described to be materially different from any future results. performance or achievements expressed or implied by such fonyard-looking statements. The Financing Authority and the Redevelopment Agency does not plan to issue any updates or revisions to those forward -looking statements if or w hen their expectations. or events. conditions or circumstances on which such statements are based occur. The Undenyriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance NVith. and as part of. its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction. but the Undenyriter does not guaranty the accuracy or completeness of such information. The 2006 Series Bonds have not been registered under the Securities Act of 1933. as amended. in reliance upon an exemption from the registration requirements contained in such Act. The 2006 Series Bonds have not been registered or qualified under the securities laws of any state. In connection with the offering of the 2006 Series Bonds. the Underwriter may overallot or effect transactions that stabilize or maintain the market price of the 2006 Series Bonds at a level above that which might othenwise prevail in the open market. Such stabilizing. if commenced. may be discontinued at any time. The Undcn ritcr may offer and sell the 2006 Scrics Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriter. 06012 pos-3 ii PALM DESERT FINANCING AUTHORITY PALM DESERT REDEVELOPMENT AGENCY and CITY OF PALM DESERT Riverside County, California FINANCING AUTHORITY COMMISSION Jim Ferguson. President Richard S. Kelly. Vice President Jean M. Benson. ('onnnissioner Buford A. Crites. ('ommissioner Robert A. Spiegel. ('ommissioner REDEVELOPMENT AGENCY BOARD AND CITY COUNCIL Jim Ferguson. Chairman Mc)vr Richard S. Kelly. Vice Chairman Manor Pro /em Jean M. Benson. Member ('ouncilmemher Buford A. Crites. Member Cannel'member Robert A. Spiegel. Member ('ouncilmemher FINANCING AUTHORITY, REDEVELOPMENT AGENCY AND CITY STAFF Carlos L. Ortega. City Manager kivecutive Director Justin McCarthy. Assistant City Manager Redevelopment Sheila R. Gilligan. Assistant City Manager ('onvminiiv Services Paul S. Gibson. Finance Director Treasurer David L. Yrigoven. Director ofRedevelopment in Housing David J. Envin. City Attorney Rachelle D. Klassen. City (jerk Arla Scott. Senior Financial Analyst Veronica Tapia. Redevelopment Accountant SPECIAL SERVICES Richards. Watson & Gershon Los Angles. California Bond ('(mnsel Wells Fargo Bank. National Association Los Angeles. California Trustee Lofton K. Jennings San Francisco. California Disclosure ('ounsel Del Rio Advisors. LLC Modesto. California / 'financial Advisor Roseno« Spevacek Group Inc. Santa Ana. California /''/seal ('onsuhant 06012 pos-3 TABLE OF CONTENTS PAGE INTRODUCTION 1 General: Authority for Issuance 1 Purpose 1 The City 2 The Financing Authority 2 The Redevelopment Agency 2 The Project Area 3 Security for the 2006 Series Bonds 3 Bond Insurance Report of the Fiscal Consultant iS Certain Risks to Bondholders Continuing Disclosure Additional Information 6 ESTIMATED SOURCES AND USES OF FUNDS 7 THE 2006 SERIES BONDS 8 Terms Applicable to all 2006 Series Bonds 8 Current Interest Bonds 8 Capital Appreciation Bonds 10 2006 Subordinate Capital Appreciation Bonds 11 Redemption Procedures 11 DEBT SERVICE SCHEDULE 13 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS 16 Revenues and Loan Agreements 16 Tax Revenues and Subordinate Tax Revenues 16 Tax Allocation Financing 18 Redevelopment Plan Limitations 18 SB 1206 19 Allocation of Taxes 20 Reserve Funds 21 Parity Debt and Subordinate Debt 21 Investment of Funds 24 BOND INSURANCE 24 LIMITATIONS ON TAX REVENUES 24 Article XIII A of State Constitution 24 Article XIII B of the State Constitution: Appropriation Limitations 26 PAGE Articles XIII C and XIII D of the State Constitution 27 Taxation of Unitary Property 27 Property Tax Collection Procedures 27 Property Tax Administrative Costs 28 Housing Set -Aside 29 Certification of Redevelopment Agency Indebtedness 29 Pass -Through Agreements and Tax Sharing Payments 30 Limitation of Tax Revenues from Certain Increased Tax Rates 31 Ballot Initiatives and Legislative Matters 31 THE FINANCING AUTHORITY 32 THE REDEVELOPMENT AGENCY 32 Authority. Members and Personnel 32 Powers 34 Redevelopment Agency Finances 34 THE PROJECT AREA General ; i5 Redevelopment Plan Limits Controls. Land Use and Building Restrictions 36 Summary of Development 37 Principal Taxpayers 38 Tax Rates 38 Historical. Current and Projected Tax Revenues 39 Debt Service Coverage Projections 42 Assessment Appeals 44 Tax Levies. Collections and Delinquencies 45 CERTAIN RISKS TO BONDHOLDERS 46 Accuracy of Assumptions 46 Reduction of Tax Revenues 46 Reductions in Unitary Values 47 Appeals to Assessed Values 47 Reduction in Inflation Rate 48 Bankniptcy and Foreclosure 48 Delinquencies 48 State Budget 48 Natural Disasters 50 Hazardous Substances iS I 06012 pos-3 iv Loss of Tax Exemption iS I Risk of Tax Audit iS I Secondary Market iS2 TAX MATTERS iS2 APPROVAL OF LEGAL PROCEEDINGS 54 CONTINUING DISCLOSURE isiS UNDERWRITING iSiS Current Interest Bonds Capital Appreciation Bonds 2006 Subordinate Capital Appreciation Bonds ABSENCE OF MATERIAL LITIGATION 54 RATINGS iS6 General i54 Other Matters 54 FINANCIAL STATEMENTS iS6 FINANCIAL ADVISOR 54 MISCELLANEOUS iS7 City Location Map vi Project Area Map yii Table I - Summary of Redevelopment Plan Limit Amendments Table 2 - Land Uses by Category 36 Table 3 - Principal Taxpayers 37 Table 4 - Breakdown of Tax Rate 38 Table 5 - Historical and Current Values 40 Table 6- Projection of Incremental Taxable Value and Tax Increment Tax Revenues 41 Table 7- Debt Service Coverage Projections 42 Table 8 - Assessment Appeals 44 Table 9 - Outstanding Appeals by the Top Ten Taxpayers �4iS APPENDIX A - APPENDIX B - APPENDIX C - APPENDIX D - APPENDIX E - REPORT OF THE FISCAL CONSULTANT A -I REDEVELOPMENT AGENCY AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30. 2005 B-I GENERAL INFORMATION CONCERNING THE CITY OF PALM DESERT C-I SUMMARY OF CERTAIN PROVISIONS OF THE 2006 INDENTURES D-I PROPOSED FORM OF BOND COUNSEL OPINION E-I APPENDIX F - FORM OF CONTINUING DISCLOSURE AGREEMENT F-I APPENDIX G - DTC AND THE BOOK -ENTRY ONLY SYSTEM G-I APPENDIX H — SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY H-I APPENDIX I — SPECIMEN RESERVE FUND SURETY POLICY H-I APPENDIX J — TABLE OF ACCRETED VALUES I-1 06012 pos-3 City Location Map 06012 pos-3 vi Project Area Map 06012 pos-3 vii Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A * Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B INTRODUCTION * Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C This introchwtion contains only a brief summary of certain of'the lerms of the 2006 .S'erie.s Bonds being offered and Cr fill/ review should he made of the entire Official .S'tcrten7ent including the cover page. the sable of contents and the appendices fur a more complete description of the teri7is of the 2006 Series Bonds. A// statements contained in This inlrochiclion are qualified in their entirety by rekrence to the entire Official .Statement. References 1o. and s11/77/77arieS of provisions of Crn1' other documents referred 10 herein do not purport to he complete and such references are qualified in their entirety by reference to the complete provisions of .filch documents. General; Authority for Issuance The purpose of this Official Statement. including the cover page and the appendices hereto. is to fitrnish information in connection «ith the sale and delivery by the Palm Desert Financing Authority (the "Financing Authority) of $ * aggregate principal amount of Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Arca No. 3) 2006 Series A (the "Current Interest Bonds") and $ principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 3) 2006 Series B (the "Capital Appreciation Bonds and together «ith the Current Interest Bonds. the "2006 Senior Parity Bonds"): and $ * principal amount of Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 3) 2006 Series C (the "2006 Subordinate Capital Appreciation Bonds and together Nvith the 2006 Senior Parity Bonds. the "2006 Series Bonds"). The 2006 Series Bonds are issued pursuant to the provisions of the Mark -Roos Local Bond Pooling Act of 1985. consisting of Article 4 of Chapter 5 of Division 7 of Title 1 (commencing «ith Section 658 4) of the California Government Code (the "Bond Law"). 2006 Senior Parity Bonds. The 2006 Senior Parity Bonds «ill be issued pursuant to an Indenture of Trust. dated as ofJuly 1. 2006 (the "2006 Senior Parity Indenture"). by and between the Financing Authority and Wells Fargo Bank. National Association (the "Trustee"). 2006 Subordinate Capita! Appreciation Bonds. The 2006 Subordinate Capital Appreciation Bonds are issued pursuant to a separate Indenture of Trust. dated as of July 1. 2006 (the "2006 Subordinate Indenture'' and together «ith the 2006 Senior Parity Indenture. the "2006 Indentures'). by and between the Financing Authority and the Trustee. Purpose 2006 Senior Parity Bonds The proceeds of the 2006 Series Bonds Nvill be used by the Financing Authority to make two loans. one Nvith respect to each Series of 2006 Senior Parity Bonds (the "2006 Series A Loan and the "2006 Series B Loan" and collectively. "2006 Senior Parity Loans"). to Palm Desert Redevelopment Agency (the "Redevelopment Agency") pursuant to a Project Area No. 3 Loan * Prcliminars, subject to change. 06012 pos-3 Agreement made and entered into as of July I. 2006 by and among the Financing Authority. the Redevelopment Agency and the Trustee (the "2006 Senior Parity Loan Agreement"). The Redevelopment Agency will apply the proceeds of the 2006 Senior Parity Loans to: (i) finance certain redevelopment activities within or of benefit to the Project Area: (ii) purchase a reserve fund surety policy for a deposit into the Senior Parity Reserve Fund (defined below): and (iii) pay costs of issuance of the 2006 Senior Parity Bonds. 2006 Subordinate Capital Appreciation Bonds. The proceeds of the 2006 Subordinate Capital Appreciation Bonds will be used by the Financing Authority to make a loan (the "2006 Subordinate Loan and together with the 2006 Senior Parity Loans. the "2006 Loans) to the Redevelopment Agency pursuant to the terms of a Project Area No. 3 Loan Agreement (Subordinate Loan) made and entered into as of July I. 2006 (the "2006 Subordinate Loan Agreement"' and together with the 2006 Senior Parity Loan Agreement. the "2006 Loan Agreements) by and among the Financing Authority. the Redevelopment Agency and the Trustee. The Redevelopment Agency will apply the proceeds of the 2006 Subordinate Loan to: (i) finance various redevelopment activities within the Project Area: (ii) fund a deposit into the Subordinate Reserve Fund (defined below): and (iii) pay the costs associated with the issuance of the 2006 Subordinate Capital Appreciation Bonds. See " Es! IMA11:D SoIJRCI:s ANI) Usl:s of )NDs"" and "THE PRoj1:CT AREA -Summary of Development."' The 2006 Series Bonds will mature in the years and amounts and bear interest at the rates set forth on the inside cover page. The City The City of Palm Desert (the "City) is located in the Coachella Valley and is approximately mid- way between the cities of Indio and Palm Springs. 117 miles east of Los Angeles. 118 miles northeast of San Diego and 5 1 5 miles southeast of San Francisco. According to the State Department of Finance. the City population as of January I. 2006 was approximately 49.5 39. The Series 2006 Bonds are not an obligation of the City. For certain information regarding the City. see APPENDIX C-"GI:NI:RAI. INI:oRMAIIoN CONCERNING Ti CITY OF PAI,M DESERT:* The Financing Authority The Financing Authority is a joint exercise of powers agency organized under the laws of the State of California (the "State) and composed of the City and the Redevelopment Agency. The Financing Authority was formed pursuant to a Joint Exercise of Powers Agreement. dated January 26. 1989 by and between the City and the Redevelopment Agency to assist in the financing of public capital improvements. See "Till.: FINANCING AUI11012IIY.- The Redevelopment Agency The Redevelopment Agency was activated by the City in 1974 and is authorized to exercise the powers granted by the Community Redevelopment Law of the State of California (constituting Part I of Division 24 of the Health and Safety Code of the State of California. commencing with Section 33000) (the "Redevelopment Law) and. by an ordinance. the City Council of the City (the "City Council") declared itself to be the Redevelopment Agency. Although the Redevelopment Agency is an entity distinct from the City. certain City personnel provide staff support for the Redevelopment Agency. See "THE RI:DI:VI:L(I MI:N I AGI:NCY.- 06012 pos-3 2 The Project Area The Project Area was formally established Nyith the adoption by the City Council of a redevelopment plan for approximately 764 acres by Ordinance No. 652. adopted on July 17. 1991. as amended (the "Redevelopment Plane). See "Ti II: PROJECT AREA." Security for the 2006 Series Bonds Tax Allocation Financing. The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of property taxes collected Nyithin a project area. Subject to the more detailed discussion contained under the caption " SI:CiJRIIY ANI) SOURCES OF PAYMENT FOR 111I: BONDS. the taxable valuation of a project area last equalized prior to adoption of the redevelopment plan. or base roll. is established and. except for any period during Nvhich the taxable valuation drops below the base year level. or as may otherwise be agreed to among taxing agencies. the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (except such portion generated by rates levied to pay voter -approved bonded indebtedness after January 1. 1989 for the acquisition or improvement of real property). generally referred to as tax increment revenues. are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. See " SE0112I1'Y ANI) SOURCES OF PAYMENT FOR I111: BONDS. - Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes described above. Any future decrease in the taxable valuation in the Project Area or in the applicable tax rates Nvill reduce the Tax Revenues and Subordinate Tax Revenues allocated to the Redevelopment Agency from the Project Area and consequently may have an adverse impact on the ability of the Redevelopment Agency to pay debt service on the 2006 Series Bonds. See "CERTAIN RISKS'10 BONDI IOI,DI:RS .. Pledge of fax Revenues. The 2006 Series Bonds are limited obligations of the Redevelopment Agency payable solely from and secured solely by a pledge of Revenues consisting primarily of amounts paid by the Redevelopment Agency to the Financing Authority pursuant to the 2006 Loan Agreement and certain other fiends held by the Trustcc pursuant to the applicable 2006 Indenture. The Redevelopment Agency is obligated under the 2006 Senior Parity Loan Agreement and under a loan agreement made and entered into as of July 1. 2003 (the "2003 Loan Agreement) «ith respect to the loan made thereunder (the "2003 Loan) to pay from Tax Revenues (defined below) the amounts set forth in the 2006 Series Parity Loan Agreement and the 2003 Loan Agreement. The Redevelopment Agency is obligated under the 2006 Subordinate Loan Agreement to pay from Subordinate Tax Revenues (defined below) the amounts set forth in the 2006 Subordinate Loan Agreement. See " SI:CiJRIIY ANI) SOIIRCI:S OF PAYMENT FOR 11 II: BONDS .. 2006 Senior Parity Bonds. The obligations of the Redevelopment Agency under the 2006 Senior Parity Loan Agreement are on a parity «ith the obligations under the 2003 Loan Agreement. The 2003 Loan secures repayment of $4.410.000 outstanding principal amount of Palm Desert Financing Authority Tax Allocation Bonds (Project Area No. 3). Series 2003 (the "Series 2003 Bonds.). Nyhich \vere issued pursuant to an Indenture of Trust dated as of July 1. 2003 (the "2003 Indenture) by and between the Financing Authority and the Trustcc. No funds or properties of the Redevelopment Agency. other than the Tax Revenues secure payment of the obligations under the 2006 Senior Parity Loan Agreement or the 2003 Loan Agreement. The 2006 Senior Parity Loan Agreement and the 2003 Loan Agreement are referred to collectively as the "Senior Parity Loan Agreements.). The 2006 Senior Parity Loans and the 2003 Loan are referred to collectively as the "Senior Parity Loans. 06012 pos-3 The Redevelopment Agency has pledged for the repayment of the 2006 Senior Parity Loans and the 2003 Loan (defined below) monies allocated or paid to the Redevelopment Agency derived from: (a) that portion of taxes levied upon assessable property Nyithin the Project Area allocated to the Redevelopment Agency pursuant to the Redevelopment Law and the Constitution of the State of California (the "State.). and (b) reimbursements. subventions. including payments to the Redevelopment Agency Nyith respect to personal property Nyithin the Project Area pursuant to the Government Code of the State. or other payments made by the State Nyith respect to any property taxes that Nvould otherwise be due on real or personal property but for an exemption of such property from such taxes (collectively. the "Tax Revenues.). Tax Revenues do not include (x) amounts payable to the United States under Section 148 of the Code. (y) taxes allocated to the Redevelopment Agency that are required by Sections 33334.2 or 33334.6 of the Redevelopment Law to be used by the Redevelopment Agency for increasing and improving the supply of low and moderate income housing. and (z) amounts payable by the Redevelopment Agency under Section 3607.5 of the Redevelopment Law unless such amounts have been subordinated to the payment of debt service on the Parity Bonds (defined below). See "SF:Ci1121 I'Y AND SOIIRCI;S OF PAYMENT FOR THE BONDS. "LIMITATIONS ON TAX RI:VI:NIII:S- and "CERTAIN RISKS TO BONDI IOI,DI:RS .. The Project Area has an aggregate Base Year Value that was established based on the assessed value for 1990-91 Fiscal Year. Nyhich was last equalized prior to the effective date of the ordinance approving the redevelopment plan and the amendment thereto. See "LIMITATIONS ON TAX REVENUES -Redevelopment Plan Limitations"' and "TI IF: PROJECT AREA -Redevelopment Plan -Redevelopment /'Ian /,emits. 2006 Subordinate Capital Appreciation Bonds. The Redevelopment Agency has pledged for the repayment of the 2006 Subordinate Loan the Tax Revenues remaining after payment of all amounts due Nyith respect to the 2006 Series Loan and the 2003 Loan (the "Subordinate Tax Revenues.). No funds or properties of the Redevelopment Agency. other than the Subordinate Tax Revenues secure payment of the obligations under the 2006 Subordinate Loan Agreement. Reserve Funds. As additional security for the payment of the 2003 Loan and the 2006 Senior Parity Loans by the Redevelopment Agency. a reserve fiind (the "Senior Parity Reserve Fundy) was established under the 2003 Loan Agreement. As additional security for payment of the 2006 Subordinate Loan. a reserve fiind (the "Subordinate Reserve Fundy) was established under the 2006 Loan Agreement. Each such Reserve Fund is required to be maintained in an amount equal to the Reserve Requirement (as defined in each 2006 Loan Agreement). Amounts on deposit in each Reserve Fund Nvill be used for the payment of debt service on the related 2006 Series Bonds in the event that amounts on deposit in the applicable Interest Account or the Principal Account held under the related 2006 Indenture are insufficient therefor. See " SECURITY AND SOURCES OF PAYMENT FOR THE BONUS -Reserve Funds and APPENDIX I -"SPECIMEN RI:SI:RVI: FUND Sl1RI I'Y Poi icY.- 2006 Senior Parity Bonds. On the date of issuance of the 2006 Series Bonds. the Redevelopment Agency \Nell use a portion of the proceeds from the sale of the 2006 Senior Parity Bonds to purchase. la reserve fund surety policy in the amount of $ / two reserve fiind surety policies in the aggregate amount of } 1 to be issued by (the "Bond Insurer-) for deposit into the Senior Parity Reserve Fund. Nyhich together Nyith the amounts on deposit therein in the amount of . Nvill equal the Reserve Requirement of 2006 Subordinate Capital Appreciation Bonds. On the date of issuance of the 2006 Subordinate Capital Appreciation Bonds. the Redevelopment Agency «iII deposit sale in the amount of $ into the Reserve Fund. Nyhich is equal to the Reserve Requirement. THE 2006 SERIES BONDS ARE NOT A DEBT OF THE CITY. THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS. OTHER THAN THE FINANCING AUTHORITY. AND NONE OF THE CITY. THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS. OTHER THAN THE FINANCING 06012 pos-3 4 AUTHORITY. IS LIABLE THEREFOR. THE 2006 LOANS ARE NOT A DEBT OF THE FINANCING AUTHORITY OR THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS. AND NONE OF THE FINANCING AUTHROTIY OR THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS. IS LIABLE THEREFOR. NONE OF THE MEMBERS OF THE FINANCING AUTHORITY. THE CITY COUNCIL. THE REDEVELOPMENT AGENCY OR ANY PERSONS EXECUTING THE 2006 SERIES BONDS OR THE 2006 LOAN AGREEMENTS ARE LIABLE PERSONALLY WITH RESPECT TO THE 2006 SERIES BONDS OR THE 2006 LOANS. THE OBLIGATIONS OF THE REDEVELOPMENT AGENCY WITH RESPECT TO THE 2006 SENIOR PARITY LOANS ARE PAYABLE SOLELY FROM THE TAX REVENUES (AS DEFINED HEREIN) AS SET FORTH IN THE 2006 SENIOR PARITY LOAN AGREEMENT. THE OBLIGATIONS OF THE REDEVELOPMENT AGENCY WITH RESPECT TO THE 2006 SUBORDINATE CAPITAL APPRECIATION BONDS ARE PAYABLE SOLELY FROM THE SUBORDINATE TAX REVENUES (AS DEFINED HEREIN) AS SET FORTH IN THE 2006 SUBORDINATE LOAN AGREEMENT. NEITHER THE FINANCING AUTHORITY NOR THE REDEVELOPMENT AGENCY HAS TAXING POWER. Bond Insurance Payment of the principal and interest on the 2006 Series Bonds «.hen due Nvill be insured by a Financial Guaranty Insurance Policy (the "Insurance Policy) to be issued simultaneously Nyith the execution and delivery of the 2006 Series Bonds by the Bond Insurer. See "B0NI INSURANCI:* and APPENDIX H- "SPI:CIMI:N FINANCIAI, GIIARAN IY INSURANCI: POLICY.* Report of the Fiscal Consultant Included as Appendix A to this Official Statement is a report (the "Report of the Fiscal Consultant) prepared by Rosenow Spevacek Group Inc. (the "Fiscal Consultant- «hich. among other things. analyzes the Tax Revenues generated from taxable property Nyithin the Project Area and pledged to the repayment of the Bonds. The findings and projections in the Report of the Fiscal Consultant are subject to a number of assumptions that should be reviewed and considered by prospective investors. No assurances can be given that the projections and expectations discussed in the Report of the Fiscal Consultant «iI be achieved. Actual results may differ materially from the projections described therein. See APPENDIX A-" RI:P0R! 01: n 1E: FISCAI, CONSUI:! AN ! ... Certain Risks to Bondholders Investment in the 2006 Series Bonds involves risk. For a discussion of certain considerations relevant to an investment in the 2006 Series Bonds. see "C►:R•I'AIN RISKS TO BOND11o1,DI:Rs.- Continuing Disclosure The Redevelopment Agency has agreed to provide. or cause to be provided. to each nationally recognized municipal securities information repository or the Municipal Securities Rulemaking Board and any public or private repository or entity designated by the State as a state repository for purposes of Rule I iSc2- I2(b)(is) adopted by the Securities and Exchange Commission certain annual financial information and operating data and. in a timely manner. notice of certain material events. These covenants have been made in order to assist the Undenvriter in complying Nvith the Securities and Exchange Commission Rule I5c2-I2(b)(5). See "CoN!INIJING DIscIosl1Rl:- and APPENDIX F-"FORM OE CoN!INIJING DISCIosIJR1: AGRI :I :MI :N 1.. for a description of the specific nature of the annual report and notices of material events and a summary description of the terms of the disclosure agreement pursuant to \yhich such reports are to be made. The Redevelopment Agency has never failed to comply in all material respects «ith any previous undertakings Nvith regard to said Rule to provide annual reports or notices of material events. 06012 pos-3 Additional Information This Official Statement contains summaries of the 2006 Series Bonds. the security for the 2006 Series Bonds. the 2006 Indentures. the 2006 Loan Agreements. the Redevelopment Law. the Redevelopment Agency. the Project Area and certain other information relevant to the issuance of the 2006 Series Bonds. All references herein to the 2006 Indentures are qualified in their entirety by reference to the complete text thereof and all references to the 2006 Series Bonds are filrther qualified by reference to the form thereof contained in the applicable 2006 Indenture. The audited financial statements of the Redevelopment Agency for the Fiscal Year ended June 30. 2005 are included in APPENDIX B. The proposed form of legal opinion of Bond Counsel for the 2006 Series Bonds is set forth in APPENDIX E. See APPENDIX D-"SUMMARY OF CERTAIN PRovlsloNS OF THE 2006 INDI:N.I 11RIs for definitions of certain words and terms used herein. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meanings as in the applicable 2006 Indenture. The information set forth herein and in the Appendices hereto has been filrnished by the Redevelopment Agency and the City and includes information wvhich has been obtained from other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness by the Financing Authority or the Undenvriter and is not to be construed as a representation by the Underwriter. Copies of documents referred to herein and information concerning the 2006 Series Bonds are available upon written request from the of the Redevelopment Agency. 73-5 I0 Fred Waring Drive. Palm Desert. California 92260-2578: telephone: (760) 346-061 I. The Redevelopment Agency may impose a charge for copying. mailing and handling. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 6 ESTIMATED SOURCES AND USES OF FUNDS The anticipated sources and uses of fiords relating to the 2006 Series Bonds are as follows: 2006 Senior Parity Bonds 2006 Subordinate Current Interest Bonds Capital Appreciation Bonds Capital Appreciation Bonds Total Sources: Principal Amount of the 2006 Series Bonds Phis: Net Original Issue Premium' 'Less: Original Issue Discount Too AI. Sot JRCI :s Uses: Deposit to Project Fund''' Deposit to Costs of Issuance Fund',' Deposit to Reserve Fund Undenyriter's Discount TolAI. Usi:s (2) * * Prcliminar\, subject to change. To be used to Iinancc redevelopment activities in the Project Area. See " Il u%. PR( )JI'.(' I \—Summar\ or Development." Includes the Ices and expenses or Bond Counsel. Disclosure Cotutscl and Counsel to the Redevelopment AgcncIces and expenses or the I ntstcc. the Financial Advisor and the Fiscal Consultant. printing costs. rating agcnc\ Ices. bond insurance and reserve Fund sttret\ premiums. and other costs related to the issuance or the 2006 Series Bonds. Represents the amount or the reserve Fund sttret\ polio. THE 2006 SERIES BONDS Terms Applicable to all 2006 Series Bonds The 2006 Series Bonds will be dated the date of issuance and delivery. issued in fully registered form. without coupons. and. when issued will be registered in the name of Cede K. Co.. as nominee for The Depository Trust Company. NOV York. NOV York ("DTC"). as registered owner of all 2006 Series Bonds. Ownership interests in the 2006 Series Bonds may be purchased in book -entry form only. Purchasers will not receive certificates representing their interests in the 2006 Series Bonds purchased. Payments of principal and Accreted Value of the interest on the 2006 Series Bonds. as applicable NViII be paid by the Trustee to DTC. \Vhich is obligated in turn to remit such principal. Accreted Value and interest. as applicable to its DTC Participants for subsequent disbursement to the beneficial owners of the 2006 Series Bonds. See APPENDIX G—"DTC ANI) I111: B(x)K-EN IRY ONI,Y SYSTEM:* Ownership may be changed only upon the registration books maintained by the Trustee as provided in each 2006 Indenture. Current Interest Bonds General. The 2006 Series A Bonds (the "Current Interest Bonds) will be issued only in fully registered form in denominations of $5.000 and any integral multiple thereof and shall mature on the dates and in the principal amounts and bear interest at the rates as set forth on the inside cover of this Official Statement. Interest on the Current Interest Bonds shall be payable semiannually on April I and October I of each year. commencing I. 2006 (each. an "Interest Payment Date"). Interest on the Current Interest Bonds NViII be payable on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the close of business on the Record Date. such interest to be paid by check or draft of the Trustee mailed by first class mail. postage prepaid. on each Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books on such Record Date: provided. however. that at the written request of the Owner of at least $1.000.000 in aggregate principal amount of Outstanding 2006 Series A Bonds filed with the Trustee prior to any Record Date. interest on such 2006 Series A Bonds shall be paid to such Owner on each succeeding Interest Payment Date by \wire transfer of immediately available fiends to an account in the United States designated in such «rittcn request (unless and until such request has been revoked in writing). Redemption Provisions. Redemption for Optional Loan Prepayment. If the Redevelopment Agency exercises its option to prepay principal installments of the 2006 Series A Loan pursuant to the 2006 Senior Parity Loan Agreement. the Revenues derived from such prepayment will be applied to the redemption of the Current Interest Bonds maturing on or after April I. 20 . as a whole. or in part among maturities as designated in writing by the Financing Authority and by lot within a maturity. in integral multiples of $5.000 principal amount. on any Interest Payment Date on or after April I. 2() . at the following respective redemption prices (expressed as a percentage of the principal amount of Current Interest Bonds to be redeemed). plus accrued interest thereon to the date of redemption: Redemption Redemption Dates Price April I. 20 and October I. 2() I0_`%0 April I. 20 and October I. 2() I0_ April I. 2() and thereafter I00 The Financing Authority is required to provide written notice to the Trustee of any Redemption for Optional Loan Prepayment at least 45 but not more than 90 days prior to the date fixed for such redemption. 06012 pos-3 8 Mandatory Sinking, Fund Redemption. The Current Interest Bonds maturing on April I. 2031. April I. 2036 and April I. 2041 are also be subject to mandatory redemption by lot. on April I in each year commencing April I. 2027. April I. 2030 and April I. 2037. respectively. from sinking fund payments made by the Financing Authority into the Principal Account. at a redemption price equal to the principal amount thereof to be redeemed. Nvithout premium. plus accrued interest to the date of redemption. in the aggregate respective principal amounts and on April I in the respective years as set forth below: Current Interest Bonds Maturing, April I. 2031* Sinking Fund Redemption Date (April I) Maturit . Principal Amount to be Redeemed* Current Interest Bonds Maturing, April I. 2036* Sinking Fund Redemption Date (April I) Matwith. Principal Amount to be Redeemed* Current Interest Bonds Maturing, April I. 2041 * Sinking Fund Redemption Date (April I) +Final Matuit. * Prcliminar�, subject to change. Principal Amount to be Redeemed* 06012 pos-3 9 Purchase in Lieu of Redemption. In lieu of Mandatory Sinking Fund redemption of the Current Interest Bonds on April I in any year. the Current Interest Bonds may be purchased by the Redevelopment Agency pursuant to the 2006 Senior Parity Loan Agreement and tendered to the Tnistcc for cancellation no later than the preceding January 15. and (ii) if some but all of the Current Interest Bonds of a maturity have been redeemed. the total amount of all future sinking fiend payments with respect to the Current Interest Bonds of such maturity shall be reduced by the aggregate principal amount of such Current Interest Bonds so redeemed. to be allocated among such sinking fund payments on a pm 'vier basis. Capital Appreciation Bonds General. The 2006 Series B Bonds (the "Capital Appreciation Bonds") will be issued in amounts shown on the inside cover (the "Initial Principal Amount-) and will have a value on the stated maturity date thereof equal to $5.000 or any integral multiple thereof (the "Accreted Value-). The Capital Appreciation Bonds of each maturity will accrete in value from their Date of Delivery and will mature on dates. all as indicated on the inside cover of this Official Statement. compounded semi-annually on April I and October I of each year. commencing I. 2006 until maturity or earlier redemption date. Such compounding will be calculated on the basis of a 360-day year comprised of twelve 30-day months. and the Accreted Value shall be payable only at maturity. 'The Accreted Value on any date other than April I and October I of any year shall be calculated by straight-line interpolation'. No payments with respect to the Capital Appreciation Bonds will be made prior to the respective maturity dates thereof. See APPENDIX J- "TAuI,I: car ACCRETED ED VALIJI:S-Capital Appreciation Bonds for the Accreted Values as of each April I and October I for each Maturity Amount. Such Table of Accreted Values is presented for illustrative purposes only. Any Accreted Value determined in accordance with terms of the applicable 2006 Indenture shall control over any different Accreted Value determined by reference to such Table. Redemption Provisions. Optional Redemption. In If the Redevelopment Agency exercises its option to prepay principal installments of the 2006 Series B Loan pursuant to the 2006 Senior Parity Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Capital Appreciation Bonds maturing on or after April I. 20 . as a whole. or in part among maturities as designated in writing by the Financing Authority and by lot within a maturity. in integral multiples of $5.000 of Maturity Amount. on any October I or April I on or after April I. 2() . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called 2006 Series B Bonds on the date fixed for redemption): Redemption Redemption Dates Price April I. 20 and October I. 2() I0_`%0 April I. 20 and October I. 2() I0_ April I. 2() and thereafter I00 The Financing Authority is required to provide written notice to the Tnistcc of any Redemption for Optional Loan Prepayment at least 45 but not more than 90 days prior to the date fixed for such redemption. No Mandatory Sinking, Fund Redemption. The Capital Appreciation Bonds are not subject to mandatory sinking fund redemption prior to maturity. 06012 pos-3 I0 2006 Subordinate Capital Appreciation Bonds General. The 2006 Series C Bonds (the "2006 Subordinate Capital Appreciation Bonds") will be issued in amounts shown on the inside cover (the "Initial Principal Amount) and will have a value on the stated maturity date thereof equal to $5 000 or any integral multiple thereof (the "Accreted Value.). The 2006 Subordinate Capital Appreciation Bonds of each maturity will accrete in value from their Date of Delivery and will mature on dates. all as indicated on the inside cover of this Official Statement. compounded semi-annually on April I and October I of each year. commencing I. 2006 until maturity or earlier redemption date. Such compounding will be calculated on the basis of a 360-day year comprised of twelve 30-day months. and the Accreted Value shall be payable only at maturity. 'The Accreted Value on any date other than April I and October I of any year shall be calculated by straight-line interpolation'. No payments with respect to the 2006 Subordinate Capital Appreciation Bonds will be made prior to the respective maturity dates thereof. See APPENDIX J—"TAuI,I: cm, ACCRETED VALUES —Capital Appreciation Bonds for the Accreted Values as of each April I and October I for each Maturity Amount. Such Table of Accreted Values is presented for illustrative purposes only. Any Accreted Value determined in accordance with terms of the applicable 2006 Indenture shall control over any different Accreted Value determined by reference to such Table. Redemption Provisions. Optional Redemption. In If the Redevelopment Agency exercises its option to prepay principal installments of the 2006 Series C Loan pursuant to the 2006 Subordinate Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the 2006 Subordinate Capital Appreciation Bonds maturing on or after April I. 2() . as a whole. or in part among maturities as designated in writing by the Financing Authority and by lot within a maturity. in integral multiples of $5.000 of Maturity Amount. on any October I or April Ion or after April I. 2() . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called 2006 Subordinate Capital Appreciation on the date fixed for redemption): Redemption Redemption Dates Price April I. 20 and October I. 2() I0_`%0 April I. 20 and October I. 2() I0_ April I. 2() and thereafter I00 The Financing Authority is required to provide written notice to the Trustcc of any Redemption for Optional Loan Prepayment at least 45 but not more than 90 days prior to the date fixed for such redemption. No Mandatory Sinking. Fund Redemption. The 2006 Subordinate Capital Appreciation are not subject to mandatory sinking fiend redemption prior to maturity. Redemption Procedures Notice of Redemption. The Trustcc on behalf and at the expense of the Financing Authority will mail (by first class mail) notice of any redemption to the respective Owners of any 2006 Series Bonds designated for redemption at their respective addresses appearing on the Registration Books and. by such means acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the date fixed for redemption: provided. however. that neither failure to receive any such notice so mailed nor any defect therein will affect the validity of the proceedings for the redemption of such 2006 Series Bonds or the cessation of the accrual or accretion of interest thereon. Such notice is required to state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the series designation of the 2006 06012 pos-3 II Series Bonds. the 2006 Series Bond numbers (but only if less than all of the Outstanding Bonds of such series are to be redeemed) and the maturity or maturities of the 2006 Series Bonds of such series (in the event of redemption of all of such Bonds of such maturity or maturities in Nyhole) to be redeemed. and require such Bonds to be surrendered at the Trust Office of the Tnistcc in Los Angeles. California (or such other location as designated by the Tnistcc) for redemption at the redemption price. giving notice also that further interest on such 2006 Series Bonds Nvill not accrue or accrete. as applicable. from and after the redemption date. Selection of Bonds for Redemption. If less than all of the 2006 Series Bonds of a series and a maturity are called for redemption. the Trustee NyiII select the 2006 Series Bonds to be redeemed from all 2006 Series Bonds of such series and maturity not previously called for redemption. by lot in any manner Nvhich the Trustee in its sole discretion deems appropriate under the circumstances. Partial Redemption of Bonds. In the event only a portion of any 2006 Series Bond is called for redemption. then upon surrender of such 2006 Series Bond the Financing Authority is required to execute and the Trustee is required to authenticate and deliver to the Owner thereof. at the expense of the Financing Authority. a new 2006 Series Bond or 2006 Series Bonds of the same series. tenor and maturity date. of authorized denominations in aggregate Principal Amount or Maturity Amount. as the case may be. equal to the unredeemed portion of the 2006 Series Bond to be redeemed. Effect of Redemption. From and after the date fixed for redemption. if funds available for the payment of the principal of. interest on and premium. if any. or Accreted Value. as applicable. on the 2006 Series Bonds so called for redemption shall have been duly provided. such 2006 Series Bonds so called NyiII cease to be entitled to any benefit under the 2006 Senior Parity Indenture or 2006 Subordinate Indenture. as applicable. other than the right to receive payment of the redemption price. and no interest shall accrue thereon from and after the redemption date specified in such notice. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 I2 DEBT SERVICE SCHEDULE The following table shows scheduled semiannual debt service on the 2006 Series Bonds. w ithout regard to any optional redemption. See also " PRO.IEc r AREA —Debt Service Coverage Projections -Table 7.- 2O(6 Senior Parith Bonds Subordinate Current Interest 13onds Capital Appreciation 13onds Capital Appreciation 13onds Total Senior Total Patih 13ond Total Pa\ment Date Series2003 13onds Principal* Interest Principal* Interest 1)cht Service 1)cht Service Principal* Interest 1)cht Service October 1, 2006 April I. 2007 October I.2007 April I. 2008 October I.2008 April I. 2009 October I.20O9 April I. 2010 October I.2010 April I. 2011 October I.2011 April I. 2012 October I. 2012 April I.2013 October I. 2013 April I. 2014 October 1. 2014 April I. 2015 October I.2015 April I. 2016 October I. 2016 April I. 2017 October I. 2017 April I. 2018 October I.20I8 April I. 2019 October I.20I9 April I. 2020 October I.2020 April I. 2021 06012 pos-3 2006 Senior Parith Bonds Subordinate Current Interest 13onds Capital Appreciation 13onds Capital Appreciation 13onds Total Senior Total Parit 13ond Total Pa\mein Date Series 2003 13onds Principal* Interest Principal* Interest 1)cht Service 1)cht Service Principal* Interest 1)cht Service October 1.2021 April 1. 2022 October 1.2022 April 1. 2023 October 1.202 3 April 1. 2024 October 1. 2024 April 1. 202 i October 1. 2025 April 1. 2026 October 1. 2026 April 1. 2027 October 1.2027 April 1. 2028 October 1.2028 April 1.2029 October 1.2029 April 1. 2030 October 1.2030 April 1. 2031 October 1. 2O 31 April 1. 2032 October 1.2032 April 1. 2033 October 1. 20 3 3 April 1. 2034 October 1. 20 34 April 1. 2035 October 1. 20 35 April 1. 2036 October 1. 20 36 April 1. 2037 October 1.2037 April 1. 2038 06012 pos-3 2006 Senior PantBonds Subordinate Current Interest Bonds Capital Appreciation 13onds Capital Appreciation 13onds Total Senior Total Patih 13ond Total Pa\ment Date Series2003 13onds principal* Interest principal* Interest 1)cht Service 1)cht Service principal* Interest 1)cht Service October 1. 2038 April 1. 2039 October 1. 2039 April 1. 20-I0 October 1. 2U-4O April 1. 20-11 * Preliminan, subject to change. 06012 pos-3 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Revenues and Loan Agreements 2006 Senior Parity Bonds. The 2006 Senior Parity Bonds are secured by a first lien on and pledge of the Revenues. \yhich are defined in the 2006 Senior Parity Indenture to include (i) all amounts payable by the Redevelopment Agency as payments or prepayments for the 2006 Loans pursuant to the 2006 Senior Parity Loan Agreement and the 2003 Loan pursuant to the 2003 Loan Agreement: (ii) any proceeds of the 2006 Senior Parity Bonds originally deposited Nyith the Trustee and all moneys deposited and held from time to time in the funds and accounts established under the 2006 Senior Parity Indenture: and (iii) income and gains Nyith respect to the investment of amounts on deposit in the fiends and accounts established under the 2006 Senior Parity Indenture. other than amounts payable to the United States of America pursuant to the tax covenants contained in the 2006 Senior Parity Indenture. The primary security for the 2006 Senior Parity Bonds. therefore. consists of amounts payable by the Redevelopment Agency under the 2006 Senior Parity Loan Agreement. amounts held in the Reserve Fund and amounts held by the Trustee under the 2006 Senior Parity Indenture. The 2006 Loans are secured by a first pledge of and Tien on the Tax Revenues 011 a parity «ith the pledge of and Tien of the 2003 Loan. as more filth- described under "-Tax Revenues and Subordinate Tax Revenues —Tax Revenues:* The Redevelopment Agency may. pursuant to the terms of the 2006 Senior Parity Loan Agreement. the 2006 Senior Parity Indenture. the 2003 Loan Agreement and the 2003 Indenture. issue additional obligations secured by Tax Revenues 011 a parity «ith the 2006 Loans and the 2003 Loan. See "-Parity Debt and Subordinate Debt. 2006 Subordinate Capital Appreciation Bonds. The 2006 Subordinate Capital Appreciation Bonds are secured by a Tien on and pledge of the Revenues. Nyhich are defined in the 2006 Subordinate Indenture to include (i) all amounts payable by the Redevelopment Agency as payments or prepayments for the 2006 Subordinate Loan pursuant to 2006 Subordinate Loan Agreement: (ii) any proceeds of the 2006 Subordinate Capital Appreciation Bonds originally deposited «ith the Trustee and all moneys deposited and held from time to time in the fiords and accounts established under the 2006 Subordinate Indenture: and (iii) income and gains Nyith respect to the investment of amounts on deposit in the fiords and accounts established under the 2006 Subordinate Indenture. other than amounts payable to the United States of America pursuant to the tax covenants contained in the 2006 Subordinate Indenture. The primary security for the 2006 Subordinate Capital Appreciation Bonds. therefore. consists of amounts payable by the Redevelopment Agency under the 2006 Subordinate Loan Agreement. amounts held in the Reserve Fund and amounts held by the Trustcc under the 2006 Subordinate Indenture. The 2006 Subordinate Loan is secured by a subordinate pledge of and lien on the Tax Revenues remaining after payment of all amounts due under the 2006 Senior Parity Loan Agreement and the 2003 Loan Agreement (the "Subordinate Tax Revenues.). as more fully described under "-Tax Revenues and Subordinate Tax Revenues -.Subordinate Tax Revenues:* The Redevelopment Agency may. pursuant to the terms of the 2006 Subordinate Loan Agreement and the 2006 Subordinate Indenture. issue additional obligations secured by Subordinate Tax Revenues 011 a parity «ith the 2006 Subordinate Loan. See "-Parity Debt and Subordinate Debt. Tax Revenues and Subordinate Tax Revenues Tax Revenues. The 2006 Senior Parity Bonds are and \\ill be equally secured by a first pledge of. security interest in and lien on all of the Tax Revenues derived by the Redevelopment Agency from the Project Area and moneys held pursuant to the 2006 Senior Parity Indenture. and on a parity «ith the 2003 Bonds and any Senior Parity Debt (defined below) at any time issued by the Redevelopment Agency. Except for the Tax Revenues and such moneys. no other funds or properties of the Redevelopment Agency is pledged to. or otherwise liable for. the payment of principal of or interest or redemption premium (if any) on the 2006 Senior Parity Bonds. Under the 2006 Senior Parity Indenture. the Redevelopment Agency may incur additional loans. advances or indebtedness issued or incurred by the Redevelopment Agency on a parity «ith the 2006 Senior Parity Bonds and the 2003 Bonds ("Senior Parity Debt.). \yhich Senior Parity Debt 06012 pos-3 I6 shall be equally secured. on a parity Nyith the 2006 Senior Parity Bonds and the 20003 Bonds. by a pledge of. security interest in and Tien on all of the Tax Rcycnucs. See "-Parity Debt and Subordinate Debt. See also APPENDIX D—"SIIMMARY OI CI:12I AIN PROVISIONS OI 1111:2006 INDENTURES:* "Tax Rcycnucs- is defined in the 2006 Senior Parity Loan Agreement to mean monies allocated or paid to the Redevelopment Agency derived from (i) that portion of taxes levied upon taxable property Nyithin the Project Area allocated and paid into the Special Fund of the Redevelopment Agency pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State. exclusive of amounts laced in the Low and Moderate Income Housing Fund of the Redevelopment Agency pursuant to Sections 33334.2 and 33334.6 of the Redevelopment Law. and excluding amounts payable to affected taxing agencies pursuant the Pass -Through Agreements or pursuant to Section 33607.5 or 33607.7 of the Redevelopment Law. The Redevelopment Agency's receipt of Tax Revenues Nyith respect to the Project Area is subject to certain limitations (the "Plan Limitations") contained in the Redevelopment Plan on the dollar amount of taxes \yhich may be divided and allocated to the Redevelopment Agency pursuant to the Redevelopment Plan. as such limitation is prescribed by Section 33333.4 of the Redevelopment Lary. See "LIMITATIONS ON TAX RI:vI:NUIa." Pursuant to the 2006 Senior Parity Loan Agreement. the Redevelopment Agency covenants to comply Nyith all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues. and fiirther covenants not to enter into any agreement Nyith the County or any other governmental unit \yhich Nyould have the effect of reducing the amount of Tax Revenues available to the Redevelopment Agency for payment of the 2006 Senior Parity Bonds. unless in the «rittcn opinion of an Independent Redevelopment Consultant (filed Nyith the Trustee.( such reduction «iII not adversely affect the interests hereunder of or the security granted hereunder to the Bond Owners. The Redevelopment Agency has no power to Icyy and collect property taxes. and any property tax limitation. legislative measure. voter initiative or provisions of additional sources of income to taxing agencies having the effect of reducing the property tax rate. could reduce the amount of Tax Revenues that Nyould otherwise be available to pay debt service on the 2006 Senior Parity Bonds and. consequently. the principal of. and interest on. the 2006 Senior Parity Bonds. Likewise. broadened property tax exemptions or successful assessment appeals could have a similar effect. See "LIMITATIONS ON TAX REVENUES.* and --CERTAIN AIN RISKS TO BONDI IOI,I)I:RS .. THE 2006 SERIES BONDS ARE NOT A DEBT OF THE CITY. THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE. AND NONE OF THE CITY. THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS. OTHER THAN THE FINANCING AUTHORITY. IS LIABLE THEREFOR. THE PRINCIPAL OF. PREMIUM. IF ANY. AND INTEREST ON THE 2006 SERIES BONDS ARE PAYABLE SOLELY FROM REVENUES CONSISTING PRIMARILY OF AMOUNTS PAYABLE BY THE REDEVELOPMENT AGENCY UNDER THE 2006 LOAN AGREEMENT. WHICH ARE PAYABLE FROM TAX REVENUES ALLOCATED TO THE FINANCING AUTHORITY. FROM THE PROJECT AREA AND CERTAIN OTHER FUNDS PLEDGED THEREFOR UNDER THE 2006 LOAN AGREEMENTS. NONE OF THE MEMBERS OF THE FINANCING AUTHORITY. THE CITY COUNCIL. OR ANY PERSONS EXECUTING THE 2006 SERIES BONDS. ARE LIABLE PERSONALLY ON THE 2006 SERIES BONDS BY REASON OF THEIR ISSUANCE. NEITHER THE FINANCING AUTHORITY NOR THE REDEVELOPMENT AGENCY HAS TAXING POWER. 06012 pos-3 17 Subordinate Tax Revenues. The 2006 Subordinate Capital Appreciation Bonds are and will be equally secured by a first pledge of. security interest in and lien on all remaining Tax Revenues following the payment of the 2006 Senior Parity Loan. the 2003 Loan and Senior Parity Debt (such remaining amount is referred to as the "Subordinate Tax Revenues.). Tax Allocation Financing The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a project area. The taxable valuation of a project area last equalized prior to adoption of the redevelopment plan. or base roll. is established and. except for any period during which the taxable valuation drops below the base year level and for certain exceptions described below. the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (except such portion generated by rates levied to pay bonded indebtedness approved by the voters on or after January 1. 1989. for the acquisition or improvement of real property) are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Tax Revenues consist of a portion of such taxes. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as indicated above. Redevelopment Plan Limitations The State Legislature has in the past enacted legislation altering spending limitations or establishing minimum funding provisions for particular activities. The Redevelopment Agency cannot predict whether the State Legislature will enact other legislation requiring additional or increased future shifts of tax increment revenues to the State and/or to schools. whether through an arrangement similar to the local County Education Revenue Augmentation Funds (the " ERAF-) or by other arrangements. and. if so. the effect of such legislation on future Tax Revenues. A description of such legislation is summarized below. AB 1290. Pursuant to Section 33607.7 of the State Health and Safety Code added by Assembly Bill ("AB") 1290 (Statutes of 1993). Chapter 942) a redevelopment plan amendment for any redevelopment plan adopted prior to January 1. 1994 that increases the limitation on the number of dollars to be allocated to the redevelopment agency or the time limit on the establishing of loans. advances and indebtedness. must begin making statutory payments to affected taxing entities that do not have existing pre -AB 1290 tax sharing agreements. These payments are to begin once any of the original redevelopment plan limitations would have taken effect. The first limit encountered or to be encountered in the Project Area is the debt establishment limit. The AB 1290 payments are computed using the increase in revenue. if any. over the amount of revenue generated by a project area in the year that the debt establishment limit would have been reached. In effect. the year in which the debt establishment limit is met becomes a new "base year - for purposes of calculating payments. AB 1290 payments are paid from revenues resulting from the growth in the new tax base year. ISee APPENDIX A-" RI:PoRT 0I 1111: FISCAI, CONSULTANT"' "' for a detailed discussion of the formulas upon which calculation of the AB 1290 payments is based.' Among other amendments to the Law. AB 1290 limits the time for: (i) establishing indebtedness in a project area to the later of 20 years from the date of adoption of the redevelopment plan or January 1. 2004: (ii) the life of existing redevelopment plans to the later of 40 years from the date of adoption or January 1. 2009: (iii) paying indebtedness with tax increment beyond 10 years after the expiration of the redevelopment plan. except to fiend deferred Low and Moderate Income Housing Fund (the "Housing Set -Aside) requirements and to repay indebtedness incurred prior to January 1. 1994. The time limits imposed by 06012 pos-3 18 AB 1290 apply individually to each plan as well as to specific territory added by amendments to a redevelopment plan. On Febnlary 27. 2003. the City Council adopted Ordinance No. 1036 eliminating the time limit to incur debt within the Project Area. See --Ti II: PROJECT AREA -Redevelopment Plan -Redevelopment /'/an /,imits Table 1- for a summary of the plan amendment and limitations. For a summary of the plan amendments and limitations. see "Till.: PROJEc i AREA -Redevelopment Plan -Redevelopment /'/an /,imits-Table I.-- For additional legislation affecting plan limits. see ---.S73 211- and ---.SB /096.-- SB 211. Senate Bill 21 I (Chapter 741. Statutes of 2001) (--SB 21 I--) was adopted by the California Legislature and became law on January I. 2002. Among other things. SB 21 I authorizes a redevelopment agency that adopted a redevelopment plan prior to January I. 1994. to amend that plan in accordance with specified procedures to extend its effectiveness and receive tax increment revenues with respect to the plan for not more than I() years if certain specified findings are made. !fa plan is so amended. the requirement for allocating tax increment revenues to low and moderate income housing is increased from 20`%0 to 30`%0. However. such elimination also triggers statutory tax sharing with those taxing entities that do not have tax sharing agreements for the period commencing in the year the eliminated plan limit NvouId have taken effect. Tax sharing will be calculated based on the increase in assessed valuation after the year in which the time limit NvouId have otherwise become effective. SB 211 also allows redevelopment agencies to amend redevelopment plans to eliminate the time limit for the establishment of loans. advances and indebtedness within project areas. However. such an amendment NvouId also require a redevelopment agency to begin making statutory tax sharing payments to affected taxing entities. See -'-AB l 290.-- SB 1045. Senate Bill 1045 (Chapter 260. Statutes of 2003) (--SB 1045--) was enacted as part of the State Fiscal Year 2003-04 budget legislation and required redevelopment agencies Statewide to contribute $135 million to the ERAF in order to reduce the amount of State funding for schools. (See also "CERTAIN AIN RISKS TO BONDIIoI,DI:RS-State Budget -Fiscal Year 2003-04--). In accordance with SB 1045. the Redevelopment Agency transferred $ to the County by the May 10. 2004 deadline. In addition. SB 1045 amended the Redevelopment Law to permit redevelopment agencies to use a simplified methodology to amend the redevelopment plans to extend by one year the effectiveness of the plan and the time during which a redevelopment agency may repay debt with tax increment revenues. and permitted a redevelopment agency to deduct the amount of ERAF payments in Fiscal Year 2003-04 and in prior years from the amount of the cumulative tax increment revenues for a project area. On December 9- 2004. the City Council adopted Ordinance No. 1084 extending by one year the expiration date of the Redevelopment Plan and the time limit to repay debt in the Project Area. SB 1206 Senate Bill 1206 (--SB I206-). introduced by the Chair of the Senate Committee on Local Government in January 2006. would amend sections of the Redevelopment Law to. among other things. revise the conditions that characterize a blighted area: standardize the standards for mergers of project areas: and prohibit a redevelopment agency from establishing any bonded indebtedness to be paid with tax increment revenues after the I 1 th fiscal year in which such agency receives tax increment revenues unless the redevelopment agency finds that both significant blight remains within the project area and that the blight cannot be eliminated without the issuance of the bonded indebtedness. In its current form. SB 1206 does not contain any effective dates for the application of these provisions. The City is unable to predict whether this legislation will be enacted in its current form- or at all. 06012 pos-3 I9 Allocation of Taxes As provided in the Redevelopment flan. and pursuant to Article 6 of Chapter 6 of the Redevelopment Law (commencing with .Section 33670 of the ('crlifurnicr Health and Safety Code) and .S'ection 16 of Article XI/1 of the .S'tate Constitution. saxes levied upon taxable property in the Project Area each year by or fur the benefit of the .S'tcrte. Riverside ('ounty (the "County.). the City. any district or other public corporation (herein collectively referred to as "taxing agencies') for each Fiscal Year beginning after" the effective date's of the ordinance approving the redevelopment plans and any arnendrnenls adding territory thereto COY' divided as follows: 1. To other taxing agencies: That portion of the taxes «hick \youId be produced by the rate upon Nvhich the tax is levied each year by or for each of said taxing agencies upon the total sum of the assessed value of the taxable property in the Project Area as shown upon the assessment roll used in connection xvith the taxation of such property by such taxing agency last equalized prior to the effective date of the applicable ordinance adopting the redevelopment plan or amending the redevelopment plan to add property into the Project Area. shall be allocated to. and -hen collected shall be paid into the funds of the respective taxing agencies as taxes by or for said taxing agencies on all other property are paid: and 2. To the Redevelopment Agency: Except for taxes which are attributable to a tax rate levy by a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1. 1989. which shall be allocated to and ben collected shall be paid to the respective taxing agency and except for statutory pass -through payments. that portion of the levied taxes each year in excess of the amounts provided for in paragraph (1) above. shall be allocated to. and ben collected. shall be paid into a special fund of the Redevelopment Agency to pay the principal of and interest on bonds. loans. moneys advanced to. or indebtedness (whether funded. refunded. assumed. or othenyise) incurred by the Redevelopment Agency to finance or refinance. in whole or in part. projects and programs for the Project Arca. When said bonds. loans. advances. and indebtedness. if any. and interest thereon. have been paid. all moneys thereafter received from taxes upon the taxable property in the Project Arca. shall be paid into the fiends of the respective taxing agencies as taxes on all other property are paid. The portion of taxes divided and allocated to the Redevelopment Agency from the Project Area pursuant to paragraph (2) above shall not exceed a total of $ 360 million except by amendment of the Redevelopment Plan. This limit does not apply to. include or prevent the Redevelopment Agency from incurring debt to be paid from the Housing Set -Aside. or any amounts required to fulfill the Redevelopment Agency's obligations under section 33413 of the Redevelopment Law. The Redevelopment Agency is authorized to make pledges of the portion of taxes mentioned in paragraph (2) above as to specific advances. loans and indebtedness as appropriate in carrying out the Redevelopment Plan in the Project Area. subject to the limitations on allocation of taxes. debt creation. and bonded indebtedness contained in the State Health and Safety Code and other applicable laws. Under the provisions of the Redevelopment Plan. the Redevelopment Agency shall not establish or incur loans. advances. or indebtedness to finance in Nvhole or in part activities in the Project Area beyond the dates for the areas indicated in "Ti 1I: PROJECT AREA -Redevelopment Plan -Redevelopment Plan Limits -Table 1." Loans. advances. or indebtedness may be repaid over a period of time beyond said time limits. These limits. however. shall not prevent the Redevelopment Agency from incurring debt to be paid from the Housing Fund established pursuant to Section 333343 of the Redevelopment Law and the Redevelopment Plan. or establishing more debt in order to fulfill the Redevelopment Agency's obligations under Section 33413 of the Redevelopment Law and the Redevelopment Plan. This limit shall not prevent the Redevelopment Agency from refinancing. refunding or restructuring indebtedness 06012 pos-3 20 after the time limit if the indebtedness is not increased and the time during Nvhich the indebtedness is to be repaid is not extended beyond the time limits contained in the Redevelopment Plan. The Redevelopment Agency may not receive and shall not repay indebtedness Nyith the proceeds from property taxes received pursuant to Section 33670 of the Redevelopment Law and the Redevelopment Plan beyond the dates for the areas indicated in Table 1. except to repay debt to be paid from the Housing Fund cstablishcd pursuant to the Section 33334.3 of the Redevelopment Law and the Redevelopment Plan. or debt cstablishcd in order to fulfill the Redevelopment Agency's obligations under Section 33413 of the Redevelopment Law and the Redevelopment Plan. Reserve Funds General. As additional security for the 2006 Series Bonds. the Redevelopment Agency is required to maintain a Reserve Fund for each series of 2006 Series Bonds pursuant to the respective 2006 Loan Agrccmcnt that will be maintained by the Trustcc in the amount of the "Reserve Requirement. The Reserve Rcquircmcnt is defined in each 2006 Loan Agrccmcnt. as of any date of calculation. as the least of: (i) Maximum Annual Dcbt Service: (ii) 125% of average annual debt service on the Loans and all outstanding Parity Dcbt: and (iii) 10% of the procccds of the applicable 2006 Loan (i.e. the original Principal Amount of the applicable 2006 Series Bonds) and the procccds of any Parity Dcbt. The Redevelopment Agency pledges and grants a lien and security interest to the Trustcc in each Reserve Fund to secure the payment obligations of the Redevelopment Agency under each 2006 Loan Agrccmcnt. Amounts on deposit in a Reserve Fund may be used solely for the purpose of making transfers to the applicable Interest Account. Principal Account. in such order. in the event of a deficiency at any time in any such accounts Nyith respect to the amounts due on the applicable series of 2006 Series Bonds. 2006 Senior Parity Bonds. Following the issuance of the 2006 Senior Parity Bonds. the Reserve Rcquircmcnt Nvill be $ . In connection with the issuance of the 2006 Series Bonds. the Redevelopment Agency Nvill deposit 'two debt service reserve surety policies' in the aggregate amount of into the Reserve Fund. which together with the amounts on deposit therein in the amount of will equal the Reserve Rcquircmcnt. 2006 Subordinate Capital Appreciation Bonds. Following the issuance of the 2006 Subordinate Capital Appreciation Bonds. the Reserve Rcquircmcnt Nvill be $ . In connection with the issuance of the 2006 Subordinate Capital Appreciation Bonds. the Redevelopment Agency Nvill deposit procccds in the amount of $ into the Reserve Fund. Parity Debt and Subordinate Debt Issuance of Parity Debt. In addition to the 2006 Senior Parity Bonds and the 2006 Subordinate Capital Appreciation Bonds. the Redevelopment Agency may. by supplemental indenture. issue or incur other loans. advances or indebtedness payable from Tax Revenues or Subordinate Tax Revenues. respectively. on a parity with the 2006 Senior Parity Bonds and the Series 2003 Bonds ("Parity Senior Debt") and the 2006 Subordinate Capital Appreciation Bonds ("Parity Subordinate Debt-) and refunding bonds issued solely to finance and refinance redevelopment activities with respect to the Project Area in such principal amount as shall be determined by the Redevelopment Agency. 06012 pos-3 2I 2006 Senior Parity Bonds. Parity Debt. The Redevelopment Agency covenants in the 2006 Senior Parity Loan Agreement that it will not incur anv indebtedness payable from all or any part of the Tax Revenues other than: (i) the 2006 Senior Parity Loans: (ii) additional Parity Debt subject to the conditions described below. and (iii) an debt secured by a pledge of Tax Revenues \Vhich is subordinate to the pledge of Tax Revenues created by the 2006 Loan Agreement. The Redevelopment Agency has fiirther covenanted in the 2006 Loan Agreement that it will not amend the Redevelopment Plan (except for the purpose of extend or eliminating the time limit for the receipt of tax increment. or increasing the limitation on the number of dollars of taxes to be allocated to the Redevelopment Agency) or an of the Pass -Through Agreements. or enter into any agreement with the County or any other governmental unit. \Vhich would have the effect of reducing the amount of Tax Revenues available to the Redevelopment Agency for payment of the 2006 Loan unless the Redevelopment Agency has first obtained: (i) a report of an Independent Redevelopment Consultant stating that the amount of Tax Revenues for the then current Fiscal Year (calculated on the assumption that such reduction of Tax Revenues was in effect throughout such Fiscal Year). plus. at the option of the Redevelopment Agency. the Additional Revenues. «iII meet the coverage test set forth in paragraph (b) below. and (ii) the permission of the Bond Insurer. Pursuant to the 2006 Senior Parity Loan Agreement. the Redevelopment Agency may issue or incur additional Senior Parity Debt subject to the following specific conditions: (a) No Event of Default has occurred and is continuing under and as defined in the 2006 Senior Parity Loan Agreement. and the Redevelopment Agency is otherwise in compliance with all covenants set forth in the 2006 Senior Parity Loan Agreement. (b) The amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Redevelopment Agency. based on assessed valuation of property in the Project Arca as evidenced in the written records of the County. plus at the option of the Redevelopment Agency the Additional Revenues. shall be at least equal to (i) 150`) of Maximum Annual Debt Service so Tong as the assessed value of property within the Project Area is Tess than $360.000.000. (ii) 135 of Maximum Annual Debt Service so Tong as the assessed value of property within the Project Area is equal to or greater than 360.000.000 and Tess than $395.000.000. and (iii) 12iS% of Maximum Annual Debt Service so Tong as the assessed value of property within the Project Area is equal to or greater than $395.000.000. (c) The related Senior Parity Debt Instrument provides that the balance of the Reserve Fund will be increased to the new Reserve Requirement effective after the incurrence of such Senior Parity Debt. (d) The related Senior Parity Debt Instrument provides that anv Senior Parity Debt that bears current interest is payable on April I and October I of any year: and the principal on such Senior Parity Debt is payable on the same date as principal and interest on the 2006 Senior Parity Loans are payable. (c) The issuance of such Senior Parity Debt will not cause the Redevelopment Agency to exceed any applicable limitations contained in the Redevelopment Plan. (f) The Redevelopment Agency delivers to the Tnistcc a written certificate certifying that the conditions precedent to the issuance of such Senior Parity Debt set forth in subparagraphs (a) through (c) above have been satisfied. 06012 pos-3 22 Subordinate Debt. In addition to the 2006 Senior Parity Loans and any Senior Parity Debt. the Redevelopment Agency may from time to time issue or incur Subordinate Debt in such principal amount as determined by the Redevelopment Agency. provided that the issuance of such Subordinate Debt «iII not cause the Redevelopment Agency to exceed any applicable limitations contained in the Redevelopment Plan. 2006 Subordinate Capital Appreciation Bonds and 2006 Senior Parity Bonds. Parity Debt. The Redevelopment Agency covenants in the 2006 Subordinate Loan Agreement that it Nyill not incur any indebtedness payable from all or any part of the Subordinate Tax Revenues other than: (i) the 2006 Subordinate Loan: (ii) additional Subordinate Parity Debt subject to the conditions described below. and (iii) an debt secured by a pledge of Subordinate Tax Revenues Nyhich is subordinate to the pledge of Subordinate Tax Revenues created by the 2006 Subordinate Loan Agreement. The Redevelopment Agency has further covenanted in the 2006 Subordinate Loan Agreement that it «iII not amend the Redevelopment Plan (except for the purpose of extend or eliminating the time limit for the receipt of tax increment. or increasing the limitation on the number of dollars of taxes to be allocated to the Redevelopment Agency) or any of the Pass -Through Agreements. or enter into any agreement Nyith the County or any other governmental unit. Nyhich Nvould have the effect of reducing the amount of Tax Revenues available to the Redevelopment Agency for payment of the 2006 Loan unless the Redevelopment Agency has first obtained: (i) a report of an Independent Redevelopment Consultant stating that the amount of Tax Revenues for the then current Fiscal Year (calculated on the assumption that such reduction of Tax Revenues was in effect throughout such Fiscal Year). plus. at the option of the Redevelopment Agency. the Additional Revenues. Nyill meet the coverage test set forth in paragraph (b) below. and (ii) the permission of the Bond Insurer. Pursuant to the 2006 Senior Parity Loan Agreement. the Redevelopment Agency may issue or incur additional Senior Parity Debt subject to the following specific conditions: (a) No Event of Default has occurred and is continuing under and as defined in the 2006 Subordinate Loan Agreement. and the Redevelopment Agency is otherwise in compliance with all covenants set forth in the 2006 Subordinate Loan Agreement. (b) The amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Redevelopment Agency. based on assessed valuation of property in the Project Area as evidenced in the Nvritten records of the County. plus at the option of the Redevelopment Agency the Additional Revenues. shall be at least equal 1110`%,I of the principal of. interest on and any mandatory sing fund payments due on the 2006 Senior Parity Loans. Senior Parity Debt. the 2006 Subordinate Loan and Subordinate Parity Debt (the "Maximum Combined Annual Debt Service"). (c) The related Subordinate Parity Debt Instrument provides that the balance of the Reserve Fund Nvill be increased to the new Reserve Requirement effective after the incurrence of such Subordinate Parity Debt. (d) The related Subordinate Parity Debt Instrument provides that any Subordinate Parity Debt that bears current interest is payable on April I and October I of any year: and the principal on such Subordinate Parity Debt is payable on the same date as principal and interest on the 2006 Subordinate Loans are payable. (e) The issuance of such Subordinate Parity Debt «iII not cause the Redevelopment Agency to exceed any applicable limitations contained in the Redevelopment Plan. 06012 pos-3 23 (f) The Redevelopment Agency delivers to the Tnistcc a Nvritten certificate certifying that the conditions precedent to the issuance of such Subordinate Parity Debt set forth in subparagraphs (a) through (c) above have been satisfied. Subordinate Debt. In addition to the 2006 Subordinate Loan and any Subordinate Parity Debt. the Redevelopment Agency may from time to time issue or incur Subordinate Debt in such principal amount as determined by the Redevelopment Agency. provided that the issuance of such Subordinate Debt Nvill not cause the Redevelopment Agency to exceed any applicable limitations contained in the Redevelopment Plan. Investment of Funds All funds held by the Trustee under the 2006 Indentures are required to be invested in Permitted Investments. See APPENDix D attached hereto for the definition of Permitted Investments. All funds held by the Redevelopment Agency. including the Special Fund into Nvhich all Tax Revenues and Subordinate Tax Revenues are initially deposited. may be invested by the Redevelopment Agency in any investment authorized by law. See the audited financial statements of the Redevelopment Agency for the year ended June 30. 2005 attached hereto as APPENDIX B for a description of the Redevelopment Agency's investment policy at June 30. 2005. All investments. including the Permitted Investments and those authorized by law from time to time for investments by municipalities. contain a certain degree of risk. Such risks include. but are not limited to. a Tower rate of return than expected and Toss or delayed receipt of principal. The occurrence of these events «ith respect to amounts held under the 2006 Indentures or the Special Funds could have a material adverse affect on the security for the 2006 Series Bonds. BOND INSURANCE The JOIlowing infor/nalion has been furnished by the Bond Insurer lbr use in lhi.s Official S'1Crld'//7d'nl. Reference is made to APP \7)LV H, fur Cl .specimen of the Financial Guaranty Insurance Policy to he issued by the Bond Insurer. The Redevelopment Agency makes no representations as to the accuracy or completeness of this information or as to the absence of material ad/verse changes in this information subsequent to the elate hereof. The Bond Insurer accepts no responsibility for the accuracy or completeness of this Official S'tcrtement or any other information or disclosure contained herein. or omitted hererom. other than with respect to the accuracy of the information regarding the Bond Insurer and its affiliates set f )rth under this heading. In addition. the Bond Insurer makes no representation regarding the 2006 Series Bonds' or she advisability of investing in the 2006 .S'erie.s Bonds. PTO COMET LIMITATIONS ON TAX REVENUES Article XIII A of State Constitution On June 6. 1978. California voters approved Proposition 13 ("Proposition I3"). Nyhich added Article XIII A to the State Constitution ("Article XIII A-). Article XIII A. as amended. limits the amount of any ad valorem tax on real property to one percent of the full cash value thereof. except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1. 1978. (ii) (as a result of an amendment to Article XIII A approved by State voters on June 3. 1986) on bonded indebtedness for the acquisition or improvement of real property Nyhich has been approved on or after July 1. 1978 by two-thirds of the voters on such indebtedness. and (iii) bonded indebtedness incurred by a school 06012 pos-3 24 district or community college district for the construction. reconstruction. rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities. approved by 55% of the voters of the district. but only if certain accountability measures are included in the proposition. Article XIII A. among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean "the county assessor's valuation of real property as shown on the 1975-76 tax bill under -full cash value'. or thereafter. the appraised value of real property when purchased. newly constructed. or a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year. a reduction in the consumer price index or comparable local data. or declining property value caused by damage. destruction or other factors including a general economic downturn. In the general elections of 1986. 1988 and 1990. California voters approved various measures which further amended Article XIII A. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $ 1.000.000 of the full cash value of other real property between parents and children. do not constitute a "purchase" or "change of ownership" triggering reassessment under Article XIII A. This amendment reduces the property tax revenues of the City and the tax increment of the Redevelopment Agency. Other amendments permitted the Legislature to allow persons over ;; \yho sell their residence and on or after November 5. 1986. buy or build another residence of equal or lesser value within two years in the same county. to transfer the old residence's assessed value to the new residence. and permitted the Legislature to authorize each county under certain circumstances to adopt an ordinance making such transfer or assessed value applicable to situations in Nyhich the replacement dwelling purchased or constructed after November 8. 1988. is located within that county and the original property is located in another county within the State. In the June 1990 election. the voters of the State approved additional amendments to Article XIII A permitting the California Legislature to extend the replacement dwelling provisions applicable to persons over ;; to severely disabled homeowners for replacement dwellings purchased or newly constructed on or after June 5. 1990. and to exclude from the definition of "new construction" triggering reassessment improvements to certain dwellings for the purpose of making the dwelling more accessible to severely disabled persons. In the November 1990 election. the voters approved the amendment to Article XIII A to permit the State Legislature to exclude from the definition of "new construction'. seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6. 1990. Both the California Supreme Court and the United States Supreme Court have upheld the constitutionality of Article XIII A. Challenges to Article XIII A. On September 22. 1978. the California Supreme Court upheld the amendment over challenges on several state and federal constitutional grounds (Aniaclor Galled Joint Union High .S'chool District v..S'tate Bocrcl of Equalization). The Court reserved certain constitutional issues and the validity of legislation implementing the amendment for future determination in proper cases. Since 1978. several cases have been decided interpreting various provisions of Article XIII A: however. none of them have questioned the ability of redevelopment agencies to use tax allocation financing. The United States Supreme Court upheld the validity of the assessment procedures of Article XIII A in Norcllinger v. Hahn. The Redevelopment Agency cannot predict Ivhether there Ivill be any future challenges to California's present system of property tax assessment and cannot evaluate the ultimate effect on the Redevelopment Agency's receipt of Tax Revenues should a future decision hold unconstitutional the method of assessing property. 06012 pos-3 25 Implementing; Legislation. Legislation enacted by the California Legislature to implement Article XIII A provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure. all taxable property value included in this Official Statement (except as noted) is shown at 100`% of assessed value and all general tax rates reflect the $ 1 per $ 100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value. Future assessed valuation growth allowed under Article XIII A (new construction. change of ownership. 2% annual value growth) will be allocated on the basis of "situs- among the jurisdictions that serve the tax rate area within which the growth occurs. except for certain utility property assessed by the State Board of Equalization. Local agencies and school districts will share the growth of "base revenue from the tax rate area. Each years growth allocation becomes part of each agency's allocation the following year. The Redevelopment Agency is unable to predict the nature or magnitude of future revenue sources which may be provided by the State to replace lost property tax revenues. Article XIII A effectively prohibits the levying of any other crcl valorem property tax above the I % limit except for taxes to support indebtedness approved by the voters as described above. See "CERTAIN AIN RISKS TO BONUI IOI,UI:RS-Reduction in Inflationary Rate regarding certain litigation relating to property assessments and the provision of Article XIII A limiting the annual inflation adjustment to two percent when the assessor tried to "recapture"' the tax value of the property by increasing its assessed value by approximately four percent in a single year. Litigation Regarding 2% Limitation. Section 5 I of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters. economic downturns or other factors. to subsequently "recapture"' such value (up to the pre -decline value of the property) at an annual rate higher than 2`N. depending on the assessors measure of the restoration of value of the damaged property. The constitutionality of this procedure was challenged in a lawsuit brought in the Orange County Superior Court entitled County of Orange v. Orange County Assessment Appeals Bocrcl No. 3 and in similar lawsuits brought in other counties. on the basis that the decrease in assessed value creates a new "base year Value" for purposes of Proposition 13 and that subsequent increases in the assessed value of a property by more than TN) in a single year violate Article XIII A. In 2001. the Orange County Superior Court issued an order declaring the recapture practice to be unconstitutional as applied to the plaintiff taxpayer. On March 26. 2004. the Court of Appeal held that the trial court erred in ruling that assessed value determinations are always limited to no more than 2`) of the previous years assessed value and reversed the judgment of the trial court. On July 2I. 2004. the California State Supreme Court denied a petition to review the decision of the Court of Appeal. Article XIII B of the State Constitution; Appropriation Limitations An initiative to amend the State Constitution was approved on September 6. 1979 thereby adding Article XIII B to the State Constitution ("Article XIII B-). Article XIII B limits the annual appropriations from the proceeds of taxes of the State and any city. county. school district. authority or other political subdivision of the State to the level of appropriations for the prior fiscal year. as adjusted for changes in the cost of living. population and services rendered by the governmental entity. Article XIII B includes a requirement that if an entity's revenues in any year exceed the amount permitted to be spent. the excess would have to be returned by revising tax or fee schedules over the subsequent two years. Effective September 30. 1980. the State Legislature added Section 33678 to the Redevelopment Law which provides that the allocation of taxes to a redevelopment agency for the purpose of paying principal of. or interest on. loans. advances or indebtedness incurred for redevelopment activity shall not be deemed the receipt by such agency of proceeds of taxes within the meaning of Article XIII B. nor shall such portion of 06012 pos-3 26 taxes be deemed receipt of proceeds of taxes by. or any appropriation subject to the limitation of. any other public bode within the meaning or the purpose of the Constitution and laws of the State. including Section 33678 of the Redevelopment Law. Two State appellate court decisions have upheld the constitutionality of Section 33678. and in the one case in which a petition for review was filed in the California Supreme Court. such petition was denied. Articles XIII C and XIII D of the State Constitution On November 5. 1996. California voters approved Proposition 218—Voter Approval for Local Government Taxes —Initiative Constitutional Amendment. Proposition 218 added Articles XIII C and XIII D to the California Constitution. imposing certain vote requirements and other limitations on the imposition of new or increased taxes. assessments and property -related fees and charges. The Bonds are secured by sources of revenues that are not subject to limitation by Proposition 218. Taxation of Unitary Property AB 454 (Statutes of 1987. Chapter 921) provides a revised method of reporting and allocating property tax revenues generated from most State -assessed unitary properties commencing with Fiscal Year 1988-89. Under AB 454. the State reports to each county auditor -controller on the county -wide unitary taxable value of each utility. without an indication of the distribution of the value among tax rate areas. AB 454 provides two formulas for auditor -controllers to use in order to determine the allocation of unitary property taxes generated by the county -wide unitary value. which are: (i) for revenue generated from the 1 `%0 tax rate. each jurisdiction is to receive up to 102% of its prior year unitary property tax increment revenue. however. if county -wide revenues generated for unitary properties are greater than 102% of prior year revenues. each jurisdiction receives a perccntagc share of the excess unitary revenues equal to the perccntagc of each jurisdictions share of sccurcd property tax revenues: or (ii) for revenue generated from the application of the debt service tax rate to county -wide unitary taxable value. each jurisdiction is to receive a percentage share of revenue based on the jurisdictions annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. The provisions of AB 454 apply to all State -assessed property. except railroads and non -unitary properties the valuation of which will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination or reversion of the method of assessing utilities by the State Board of Equalization. AB 454 allows. generally. valuation growth or decline of State -assessed unitary property to be shared by all jurisdictions within a county. The unitary revenue allocation made by the County Auditor -Controller to the Project Area for Fiscal Year 2004-05 was $ . For Fiscal Year 2005-06. the aggregate amount of unitary revenue is estimated to be $ Property Tax Collection Procedures Liassifications. In California. property which is subject to ad valorem taxes is classified as "secured" or "unsecured. Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The sccurcd classification includes property on which any property tax Ie\ied by the County becomes a lien on that property sufficient. in the opinion of the county assessor. to secure payment of the taxes. Every tax which becomes a lien on sccurcd property has priority over all other liens on the sccurcd property. regardless of the time of the creation of other liens. A tax Ie\ied on unsccurcd property does not become a lien against the property. but may become a lien on certain other property owned by the taxpayer. 06012 pos-3 27 Collections. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four \Nays of collecting unsecured property taxes in the absence of timely payment by the taxpayer: ( I ) a civil action against the taxpayer: (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer: (3) filing a certificate of delinquency for record in the county recorders office. in order to obtain a lien on certain property of the taxpayer: and (4) seizure and sale of the personal property. improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes Nyith respect to property on the secured roll is the sale of property securing the taxes to the State for the amount of taxes Nvhich are delinquent. Current tax payment practices by the County provide for payment to the Redevelopment Agency of Tax Revenues monthly throughout the fiscal year. Nyith the majority of Tax Revenues derived from secured property paid to the Redevelopment Agency in mid -December and mid -April. and the majority of Tax Revenues derived from unsecured property paid to the Redevelopment Agency by mid -November. A final reconciliation is made after the close of the fiscal year to incorporate all adjustments to previously reported current year taxable values. The difference between the final reconciliation and Tax Revenues previously allocated to the Redevelopment Agency is allocated mid -August. Penalties. A 10`) penalty is added to delinquent taxes \yhich have been levied Nyith respect to property on the secured roll. In addition. property on the secured roll on \yhich taxes are delinquent is sold to the State on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty. plus a redemption penalty of I `% per month to the time of redemption and a $ 15 Redemption Fee. If taxes are unpaid for a period of five years or more. the property is deeded to the State and then is subject to sale by the county tax collector. A 10`) penalty also applies to the delinquent taxes on property on the unsecured roll. and further. an additional penalty of 1`%0 per month accrues Nyith respect to such taxes beginning the first day of the third month following the delinquency date. Delinquencies. The valuation of property is determined as of January I each year and equal installments of taxes levied upon secured property become delinquent after the following December I0 and April 10. Taxes on unsecured property are due April I. Unsecured taxes enrolled by July 3 I. if unpaid. are delinquent August 3 I at 5:00 p.m. and are subject to penalty: unsecured taxes added to the roll after July 3 I. if unpaid. are delinquent on the last day of the month succeeding the month of enrollment. Supplemental Assessments. A bill enacted in 1983. SB 813 (Statutes of 1983. Chapter 498). provides for the supplemental assessment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previously. statutes enabled the assessment of such changes only as of the next January I tax lien date following the change and thus delayed the realization of increased property taxes from the neW assessments for up to 14 months. As enacted. Chapter 498 provides increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of neW construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the January I lien date. To the extent such supplemental assessments occur within the Project Area. Tax Revenues may increase. Property Tax Administrative Costs Legislation enacted by the State Legislature authorizes county auditors to determine property tax administrative costs proportionately attributable to local jurisdictions and to submit invoices to the jurisdictions for such costs. Subsequent legislation specifically includes redevelopment agencies among the entities that are subject to such charges. Specifically. in 1990 the State legislature enacted SB 2557 06012 pos-3 28 (Chapter 466. Statutes of 1990) authorizing counties to charge for the cost of assessing. collecting and allocating property tax revenues to local governments jurisdictions in proportion to the tax derived revenues allocated to each. SB 1559 (Chapter 697. Statutes of 1992) explicitly includes redevelopment agencies among the jurisdictions which are subject to such charges. The County collects property tax administration costs from the Redevelopment Agency by deducting such costs from tax revenues prior to delivering such amounts to the Redevelopment Agency. For Fiscal Year 2004-05 the Countv's administrative fee was I.4i% of the gross tax increment revenues from the Project Area or $20.379. and for Fiscal Year 2005-06. the County administrative fee is estimated to be $ 3. 364. For purposes of projecting Tax Revenues. the Fiscal Consultant assumes that this administrative fee «ill remain at 1.4i`%o. See also APPENDIX A-" REPORT OF 1111: FISCAI, CONSUI:I AN I ... Housing Set -Aside Sections 33334.2 and 33334.3 of the Redevelopment Law (added by Chapter 1337. Statutes of 1976) require redevelopment agencies to set aside 20`%0 of all tax increment derived from redevelopment project areas established after December 3I. 1976 in a low- and moderate -income housing fund. Section 33334.2 provides that this low- and moderate -income housing requirement can be reduced or eliminated if a redevelopment agency finds annually by resolution. consistent with the housing element of the community's general plan. the following: (a) that no need exists in the community to improve. increase. or preserve the supply of low- and moderate -income housing. including its share of the regional housing needs of very low income households and persons and families of low or moderate income: (b) that some stated percentage less than 20`)/0 of the tax increment is sufficient to meet the housing needs of the community. including its share of the regional housing needs of persons and families of low or moderate income and very low income households: or (c) that the community is making substantial efforts. consisting of direct financial contributions of funds from state. local and federal sources for low- and moderate -income housing of equivalent impact. to meet its existing and projected housing needs (including its share of regional housing needs). The Redevelopment Agency currently deposits the 20`%0 of gross tax increment revenues in its Low and Moderate Income Housing Fund. Such funds are not Tax Revenues and arc not pledged to the repayment of the 2006 Series Bonds. Pursuant to the Redevelopment Law. housing set -aside funds may be pledged to the repayment of bonds only to the extent proceeds of such bonds are used (or are used to refund bonds. the proceeds of which vere used) to finance low and moderate income housing purposes. See " SI:CiJRIIY ANI) SOIIRCI:S OF PAYMI:NI FOR I111: BONDS -Allocation ofTaxes.- As amended by AB 315 (Chapter 872. Statutes of 1991). Section 33334.2 has additional restrictions on the ability to reduce or eliminate the low and moderate income housing requirement. A community can claim that no need exists. or can claim that less than 20`) of tax increment revenue is sufficient. only if that claim is consistent with the housing element of the community's general plan. The authority for communities to claim an "equivalent effort exemption was repealed as of June 30. 1993. except for obligations incurred prior to May I. 1991. which vere entered into with the understanding that the "equivalent effort- exemption \youId remain intact. The Redevelopment Agency has made no such findings. Certification of Redevelopment Agency Indebtedness Under the Redevelopment Law. redevelopment agencies must file with the county auditor a statement of indebtedness for each project area not later than the first day of October of each year. As described below. the statement of indebtedness controls the amount of tax increment revenue that will be paid to the Redevelopment Agency in each fiscal year. Each statement of indebtedness is filed on a form prescribed by the State Controller and specifies. among other things: (i) the total amount of principal and interest payable on all loans. advances or indebtedness (the "Debt.). both over the life of the Debt and for the current fiscal year. and (ii) the amount of 06012 pos-3 29 "available revenue" as of the end of the previous fiscal year. "Available revenue" is calculated by subtracting the total payments on Debt during the previous fiscal year from the total revenues (both tax increment revenues and other revenues) received during the previous fiscal year. plus any carry fonvard from the prior fiscal year. Available revenues include amounts held by the Redevelopment Agency and irrevocably pledged to the payment of Debt. but do not include amounts set aside for low and moderate income housing. The county auditor may only pay tax increment revenue to the redevelopment agency in any fiscal year to the extent that the total remaining principal and interest on all Debt exceeds the amount of available revenues as shown on the statement of indebtedness. The statement of indebtedness constitutes prima facie evidence of the indebtedness of the redevelopment agency: however. the county auditor may dispute the statement of indebtedness in certain cases Section 33675 provides for certain time limits controlling any dispute of the statement of indebtedness. and allows for Superior Court determination of such dispute in the event it cannot be resolved by the redevelopment agency and the county. Any such action may only challenge the amount of the Debt as shown on the statement. and not the validity of any Debt or related contract or the expenditures related thereto. No challenge can be made to payments to a fiscal agent in connection with a bond issue or payments to a public agency in connection with payments by that public agency with respect to a lease or bond issue. Pass -Through Agreements and Tax Sharing Payments Pass -Through Agreements. The Redevelopment Agency has entered into agreements with each of the County. the Desert Sands Unified School District. the Desert Community College District. the Coachella Valley Mosquito Abatement District. the Coachella Valley Water District and the Riverside County Superintendent of Schools District to pay tax increment revenues with each taxing entity. other than the City that has territory located within the Project Area in the amount which the Redevelopment Agency determines is appropriate to alleviate any financial burden or detriment caused to such taxing entity as a result of redevelopment activities within the Project Area. Each of these agreements (each a Pass -Through Agreement--) provides for a pass -through of tax increment revenue directly to the related taxing entity. For a description of the Pass -Through Agreements. see APPENDIX A-" REPORT OF 111I: FISCAI, CONSULTANT - Payments to Other Taxing Entities." Statutory dux Sharing Payments. The Redevelopment Plan for the Project Area was amended after January 1. 1994 and therefore are subject to the statutory tax -sharing payments mandated in the Law. as amended by AB 1290. requiring that a portion of the tax increment revenues be shared with taxing entities. See also "SECURITY ANI) SOURCES OF PAYMENT FOR 'I111: BONUS -Redevelopment Plan Limitations -AB 1290.- These tax -sharing payments are set by statute and are not negotiated. The County Auditor -Controller allocates all tax increment revenue to the Redevelopment Agency for payment of tax -sharing payments. This defined tax sharing amount has three Tiers. Tier 1: Commences with the first year that each of Expansion Areas. respectively. receives tax increment revenue and continues for the life of each such Expansion Area. The Tier I tax - sharing amount is equal to 2iS% of the gross tax increment revenue allocated from the respective Expansion Area net of the Housing Set -Aside Requirement. The City may chose to forgo this Tier of taxing -sharing payments. Tier 2: Commences in the I Ith year after the Agency first receives tax increment revenue. and is in an amount equal to 21 `%0 of the tax increment revenue net of the Housing Set -Aside Requirement. derived from the growth in assessed value that is in excess of the assessed value of the Project Area in the tenth year. The City may not receive any portion of the Tier 2 tax -sharing payments. 06012 pos-3 30 Tier 3: Commences in the 31st year after the Redevelopment Agency first receives tax increment revenues and is an amount equal to 14% of the tax increment revenue net of Housing Set - Aside derived from the growth in assessed value that is in excess of the assessed value of the Project Area in the 30th year. The City may not receive any portion of the Tier 3 tax -sharing payments. These three tiers of tax sharing are calculated independent of one another and continue from their inception through the life of the Project Area. SB 211 fax Sharing Payments. On Febnlary 27. 2003. the City Council adopted Ordinance No. 1036 eliminating the time limit to incur debt in the Project Area. Pursuant to SB 211. the adoption of such an ordinance requires the Redevelopment Agency to begin making statutory tax sharing payments in the Fiscal Year following the expiration of the original time limit for the incurrence of new indebtedness. See also "SI:Cl1RIlY ANI) SOl1RCI:S OF PAYMENT FOR 11 II: BONUS —Redevelopment Plan Limitations—SB 211... The limit for incurrence of new indebtedness for the Project Area was extended by one year. By extending this limit to July 17. 201 1. the Redevelopment Agency caused statutory tax sharing payments to commence with Fiscal Year 2012-13. The assessed values in the last Fiscal Year prior to initiation of the statutory tax sharing payments are used as the base value for calculation of the tax sharing payments. The projections of the Fiscal Consultant assume that the City NViII elect to receive its share of these payments. however. currently. if the City elects not to receive its share of these tax sharing payments. that portion of the statutory tax sharing payment will remain with the Redevelopment Agency for its use. The County Auditor - Controller allocates all tax increment revenue to the Redevelopment Agency and it is the responsibility of the Redevelopment Agency to make the required tax sharing payments. IThe Redevelopment Agency has determined at this time not to seek subordination of these statutory tax sharing payments from the taxing agencies. Limitation of Tax Revenues from Certain Increased Tax Rates An initiative to amend the California Constitution entitled "Property Tax Revenues —Redevelopment Agencies" was approved by California voters at the November 8. 1988 general election. This initiative amends the California Constitution to allow the California Legislature to prohibit redevelopment agencies from receiving any of the property tax revenue raised by increased property tax rates imposed by local governments to make payments on their bonded indebtedness. The initiative applies to tax rates levied to finance bonds approved by the voters on or after January 1. 1989. The Redevelopment Agency does not currently project receiving any tax revenues as a result of general obligation bonds which may have been approved on or after January 1. 1989. Ballot Initiatives and Legislative Matters Articles XIIIA. XIIIB. XIIIC and XIIID \were each adopted pursuant to a measure qualified for the ballot pursuant to the States constitutional initiative process: the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities under the Redevelopment Law. From time to time. other initiative measures could be adopted by voters of the State or legislation enacted by the State Legislature. The adoption of any such initiative measures or legislation might place limitations on the ability of the State. the Redevelopment Agency or local districts to increase revenues. to increase appropriations or on the ability of a landowner to complete the development of property. 06012 pos-3 31 THE FINANCING AUTHORITY The Financing Authority is duly organized and existing under a Joint Exercise of Powers Agreement dated January 26. 1989. by and between the City and the Redevelopment Agency. and under the provisions of Chapter 5 of Division 7 of Title 1 of the State Government Code. The members of the City Council serve as the Commission members of the Financing Authority. The Financing Authority has no taxing power and no source of revenue to pay debt service on the Bonds other than the Revenues. The Financing Authority has no taxing power. See "SI:0112I'1'Y ANI) SOl1RCI;S OF PAYMENT FOR THE BONDS. - THE REDEVELOPMENT AGENCY Authority, Members and Personnel The Redevelopment Agency was established pursuant to the Redevelopment Law. and was activated in 1974. The Redevelopment Agency adopted the redevelopment plan for the Project area in July 1991. The Project Area is the only project area of the Redevelopment Agency. The Redevelopment Agency has no taxing power. Members of the City Council of the City serve as members of the Redevelopment Agency. The City Council members are elected at large for four-year overlapping terms. The current members of the Redevelopment Agency are set forth on the inside cover page of this Official Statement. The Redevelopment Agency is administered by a staff selected from the employees of the City and is under the overall direction of Mr. Ortega. Brief resumes of the professional staff of the Redevelopment Agency is set forth below: Carlos L. Ortega, Executive Director. Mr. Ortega has served as Executive Director of the Redevelopment Agency since 1983. He was also appointed City Manager in August 2000. From 1980 to 1995. Mr. Ortega served as Assistant City Manager. and from 1977 to 1980 as Assistant to the City Manager. Prior to 1977. he served as Interim City Manager (one year) and Assistant City Manager/Finance Director (five years) for the City of Coachella. California. Mr. Ortega received a Bachelor of Science degree in Economics from University of California. Riverside. and has completed graduate studies in Public Administration and Management at University of California. Riverside and University of Redlands. Justin McCarthy, Assistant Cite Manager for Redevelopment. Mr. McCarthy has served as Assistant City Manager for Redevelopment since November 2001. Prior to joining the City in . Mr. McCarthy was an analyst in the City of Long Beach implementing redevelopment projects in the downtown central business district. the port industrial area and Long Beach Airport. From to he served as the Redevelopment Manager for the San Diego Southeast Economic Development Corporation managing industrial and commercial projects and from to he served as the Deputy Executive Director and Community Development Director for the City of Commerce. Mr. McCarthy received a degree in from 06012 pos-3 32 Arla K. Scott, Senior Financial Analyst for Redevelopment. Ms. Scott was appointed as Senior Financial Analyst for Redevelopment in January 2006 and is responsible for the review. analysis and budget monitoring of the finances and bond issues of the Redevelopment Agency. From 1990 to 2006. she was employed by JPMorgan Chase Bank. where she began in the Trust Operations Department and was later promoted to the Treasury and Security Services Department as a Relationship Manager. In that position she worked in the Municipal and Corporate Debt Department. where she worked with various municipalities and corporations serving as a bond trustee. She was later promoted to the Trust Compliance Department where she was responsible for reviewing documents. laws and regulations in order to mitigate risk. She received a Bachelor of Business Administration degree in Finance from University of Houston. Sheila R. Gilligan, Assistant City Manager for Community Services. Ms. Gilligan has served as the Assistant City Manager for Community Services since 2000. She is responsible for the areas of Administration (including grants and franchise agreements). Human Resources. City Clerk. Civic Arts. Marketing and Promotion. Public Information. the Visitors Information Center. and special events for the City. Prior to appointment to her current position. Ms. Gilligan served as the Director of Community Affairs while also serving as the City Clerk. Ms. Gilligan served as City Clerk from 1976 to June. 2001. Paul S. Gibson, treasurer/Finance Director. Mr. Gibson has served as Treasurer/Finance Director of the Redevelopment Agency since 1988 where he is responsible for . He has also served as the Treasurer/Finance Director of the City since 1988. Mr. Gibson has been employed by the City since . when he was hired as the Accounting Supervisor. Prior to joining the City. he served from to as the Accountant -Auditor for the Imperial County Auditor -Controllers office. Mr. Gibson holds a Bachelor of Science degree in Accounting from San Diego State University. David L. Yrigoyen, Director of Redevelopment in Housing. Mr. Yrigoyen was appointed as Director of Redevelopment in Housing and is responsible for all housing and redevelopment activities within the City. He has been employed with the City since 1985 when he served as the Senior Administrative Assistant to the Redevelopment Agency and then was promoted to Redevelopment Manager. From. 1982 to 1985. Mr. Yrigoyen worked with the City of Coachella. as the Economic Development Coordinator. Mr. Yrigoyen received a Bachelor of Arts degree in Political Science from University of California. Berkeley. and a Master of Arts degree in Management from National University. San Diego. Rachelle D. Klassen. Secretary. Ms. Klassen has been Secretary of the Redevelopment Agency and City Clerk since July I. 2002. She has been employed by the City since 1995 when she was hired as a in the Finance Department. In 1997. she began working in City Clerks Office: initially as the Records Technician. was appointed Deputy City Clerk in 1998. and then City Clerk. She received Certified Municipal Clerk status from the International Institute of Municipal Clerks in October. 200I. As City Clerk. she also serves as Secretary to Housing Authority and the Finance Authority. with responsibilities of preparing and presenting all agendas and minutes for same. maintaining all official City/Agency/Authority records. as well as the related duties of the City elections and being available to the public for information on legislative and administrative actions. Ms. Klassen holds an Associate in Arts Degree. with honors. from Waldorf College. Forest City. Iowa. with continuing units obtained at College of the Desert. Veronica Tapia, Redevelopment Accountant. Ms. Tapia has been employed by the City for more than nine years. and for the last two years has served as the Accountant for the Redevelopment Agency. Ms. Tapia is responsible for compiling the federal and State mandated reports. the administration of the outstanding bond issues of the Redevelopment Agency. and the overall accounting duties for both the Redevelopment Agency and the Housing Department. Ms. Tapia received a Bachelor of Science degree. graduating Summa Cum Laude. in Business and Management from the University of Redlands and currently is completing graduate studies in Management at the University of Redlands. 06012 pos-3 33 Powers All powers of the Redevelopment Agency are vested in its five -member Board. They are charged Nvith the responsibility of eliminating blight through the process of redevelopment. Generally. this process culminates Nvhen the Redevelopment Agency disposes of land for development by the private sector. In order to accomplish this. the Redevelopment Agency has broad authority to acquire. develop. administer. sell or lease property. including the right of eminent domain and the authority to issue bonds and expend their proceeds. Prior to disposing of land for redevelopment. the Redevelopment Agency must complete the process of acquiring and assembling the necessary sites. relocating residents and businesses. In addition. the Redevelopment Agency may demolish deteriorated improvements. undertake environmental mitigation. grade and prepare sites for purchase. and in connection Nvith any development can cause streets. highways and sidewalks to be constructed or reconstructed and public utilities to be installed. Redevelopment in the State of California is carried out pursuant to the Community Redevelopment Law (Section 33000 et seq. of the Health and Safety Code). Section 33020 of the Redevelopment Law defines redevelopment as the planning. development. replanning. redesign. clearance. reconstruction or rehabilitation. or any combination of these. of all or part of a survey area and the provision of such residential. commercial. industrial. public or other structures or spaces as may be appropriate or necessary in the interest of the general Nvelfare. including recreational and other facilities incidental or appurtenant to them. The Redevelopment Agency may. out of the funds available to it for such purposes. pay for all or part of the value of the land and the cost of buildings. facilities. structures or other improvements to be publicly owned and operated to the extent that such improvements are of benefit to the project area and no other reasonable means of financing is available. The Redevelopment Agency must sell or lease remaining property Nvithin a project area for redevelopment by others in strict conformity Nvith the redevelopment plan. and may specify a period Nyithin Nvhich such redevelopment must begin and be completed. In accordance Nvith these criteria. the Redevelopment Agency has adopted a Redevelopment Plan. as amended. in the Project Area that authorizes the use of the redevelopment process and procedures. Redevelopment Agency Finances Financial Statements. The accounts of the Redevelopment Agency are organized on the basis of fiends and account groups. The operations of each fund are accounted for Nvith a separate set of self -balancing accounts that comprise its assets. liabilities. fund equity. revenues and expenditures. The audited financial statements of the Redevelopment Agency for the Fiscal Year ending June 30. 2005 are set forth in All I:NDIx B. Retirement Plan. Substantially all fiill-time City employees. including employees of the Redevelopment Agency. are eligible to participate in retirement benefit plans through a contract Nvith the California Public Employees" Retirement System ("PERS"). a multiple -employer public sector employee defined benefit pension plan. PERS provides retirement and disability benefits. annual cost -of -living adjustments and death benefits to PERS members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities Nvithin the State. PERS is a contributory plan deriving fiends from employee contributions as \yell as from employer contributions and earnings from investments. 06012 pos-3 34 PERS maintains two pension plans for the City. a Safety Plan (the "Safety Plan") and a Miscellaneous Plan (the "Miscellaneous Plane and. together Nvith the Safety Plan. the "PERS Plans.). The City contributes to PERS amounts equal to the recommended rates for the PERS Plans multiplied by the payroll of those current employees of the City. including the Redevelopment Agency. yho are eligible under PERS. There are positions in the Redevelopment Agency eligible to participate in PERS. For information concerning PERS. including information relating to its financial position and investments contact PERS directly at CalPERS. Lincoln Plaza. 400 P Street. Sacramento. California 95814. telephone: 888-225-7 377. Information regarding the contributions made by the City to PERS for the PERS Plans is available in the City's Comprehensive Annual Financial Report copies of which are available upon request from the City of Palm Desert Department 73-510 Fred Waring Drive. Palm Desert. California 92260-2578: telephone: 760-346-061I or may be obtained electronically from the Citv's Nvebsite at Nvww.cityofpalmdesert.org/content/0iSCAFR.pdf. Other Post Employment Benefits. The City offers the PERS Health Care Program to its retirees. The City contributes $48 per month on behalf of each retiree eligible for PERS and makes an additional contribution towards certain retirees premiums under a Retiree Service Stipend program. If the retiree retires from both the City and PERS simultaneously. has attained the age of 50 and completed a minimum of I0 years of service with the City and satisfies any other requirements specified in such program continued coverage for eligible retirees. spouses and/or eligible dependents for the lifetime of the retiree upon satisfaction of the above -referenced criteria. The Retiree Service Stipend is not actuarially fimded and the assets are accounted for in an agency fiord. An actuarial valuation completed for the Retiree Service Stipend program as of July I. 2002 indicated that the amount of the actuarial liability to current and future liabilities for the City to be $9.761.065. THE PROJECT AREA General The Project Area is located in the City and includes approximately 764 acres. comprising zoned for residential. office. commercial. industrial. public and open space uses. The Project Area is generally bounded by Portola Avenue and Cook Street to the west. and Carlotta Dive to the east. Hovelv Lane and Running Springs Drive to the north and the Whitewater River Channel to the south. The Portola Country Club is not within the Project Arca. For a map of the Project Area see page yi. For certain information regarding the City. see APPI.NI)IX C—"GI:NI:RAI, INF)RMA ! IoN CoNCI:RNING THE CITY OF PAI,M DESERT:* Redevelopment Plan Limits The Redevelopment Plan for Project Area No. 3 was adopted by the City on July 17. 1991. The Project Area includes approximately 764 acres of Residential. office. commercial. industrial. public and open space uses. 06012 pos-3 35 Table 1 summarizes the Redevelopment Plan Limits for the Project Area. Table l Palm Desert Redevelopment Agency Project Area No. 3 Summary of Redevelopment Plan Limit Amendments Revenue Limits Area Plan Limit Termination Size Base Debt Plan Debt Total Tax Amount (acres) Year Incurrence Expiration Repayment Increment Received+ 764 1990-91 None',' 07/17/32 07/17/42 S360.000.000 $13.065.652 Limitation on Outstanding Bonded Debt: t 100 million (1) Represents gross tax increment revenues received as (Whine 30, 2005. (2) The limit previoush established as Jul 17. 201 I. \\as eliminated h\ the adoption of Ordinance 1036 on Fchntar\ 27. 2003. Source: Rrdrrelopnu'nt .Agency. Controls, Land Use and Building Restrictions The Redevelopment Plan for the Project Area sets forth the principal land uses permitted and the building restrictions to be imposed in project development. It also assigns the Redevelopment Agency and the City their respective responsibilities in carrying out the Redevelopment Plan. Provision is made for rehabilitation as yell as new construction and sets forth conditions and procedures required under both approaches. Construction is required to comply Nvith all applicable State and local laws in effect. including Nvithout limitation. building. electrical. heating and ventilating. housing and plumbing codes of the City. The information in Table 2 is based on land use designations as provided by Riverside County Office of the Auditor Controller through tax roll data. however. County land use designations do not necessarily parallel City land use and zoning designations. Unsecured and SBE non -unitary values are connected Nvith parcels that are already accounted for in other categories. Table 2 Palm Desert Redevelopment Agency Project Area No. 3 Land Uses by Category 2005-06 Assessed Value Land Use Number of Parcels Amount Percent Residential 691 S 192.610.854 46.4`%0 Industrial 167 121.818.490 29.4 Professional/Office 13 52.699.862 12.7 Commercial 42 24.984.387 6.0 Vacant Land 92 17.41 1.641 4.2 Recreational 4 5.2> 3.043 1.3 Government 1 211.202 0.1 Miscellaneous Transportation 1 595 0.0 TOTAI . 1.016 $414.970.074 100.0% Source: Metro Scan TRW based upon information from the Cowin Assessor. 06012 pos-3 36 Summary of Development Redevelopment Agenci' Projects. The primary objective of the Redevelopment Plan is to correct infrastructure and traffic circulation deficiencies. eliminate and prevent the reoccurrence of blighted conditions and foster development Nvithin the Project Area through the construction of certain public roadway. sever and landscaping improvements. To date the Redevelopment Agency has completed the following projects «ithin the Project Area: construction and installation of certain sever and storm drain improvements: the construction. improvement and rehabilitation of approximately miles of streets: and the construction and installation of landscaping surrounding the public area of certain residential improvements and of sidewalks. The Redevelopment Agency expects to use proceeds from the 2006 Series Bonds to Private Development. In addition to the projects directly sponsored by the Redevelopment Agency and described above. there have been a number of private projects developed within the Project Area including: Canterra Luxury Apartments. This development consists of the construction of an approximately 612 unit apartment complex. Construction is underway and expected to be completed in nter 2008. Lakeside Properties. This approximately 27.1 1 5 square foot commercial development is expected to consist of two separate buildings of approximately the same size. Construction has commenced and is expected to be completed in winter 2006. McCov K. Valentine. This development consists of the construction of an approximately 10.000 square foot office and Nvarehouse building. Construction is underway and is expected to be completed in winter 2006. Yankee Workshop. The construction of this approximately 5.580 square foot industrial Nvarehouse has commenced and is expected to be completed in winter 2006. There are also two non-residential developments and one 94 unit single family residential development that been approved for construction within the Project Area. None of these the projects have commenced construction. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 37 Principal Taxpayers The top 10 taxpayers Nyithin the Project Area for Fiscal Year 2005-06 own property Nvith an aggregate value of $ I 15.262.59 I. representing 26.60% of the assessed value and represents `%% of the total incremental value of the Project Area. Table 3 lists the principal taxpayers and primary land use in the Project Area based on the Fiscal Year 2005-06 assessed valuation. Table 3 Palm Desert Redevelopment Agency Project Area No. 3 Principal Taxpayerst11 Fiscal Year 2005-06 ON ner Canterra Apartment Homes Fountain Senior Properties of California Time Warner Entertainment SAG Palm Desert/42 Avenue Storage GHA Paloma Group II Northern Trust Bank of California Palm Desert Disposal Services. Inc. SMG 17 Lakes County Club Association Lakeside Investment Properties To AI, Toi TEN Other Property ON\ners Too A►, 2 5 54 962 1.016 No. of Parcels Primary Land Use Apartment Complex Conyalescent/Nursing Home Commercial/Retail Industrial/Storage 29 SFR Residential Development 8 Commercial 5 Commercial/Industrial Commercial/Industrial Offices (Guthev Renker) Golf Course Commercial/Industrial Various (I) Includes secured value ($385. 3 3 3.31 3) and unsecured value ($50.081.784). (2) Does not reflect homeowners exemption. Sources: Riverside ('mintyAssessor's Office 2005-06 Equalized Loco! Assessment Roll. Tax Rates 2005-06 `%% of Assessed 2005-06 Value-) Total Roll $30.390.982 7.0 I % 24.388.164 5.63 15.419.515 3.56 8.035.050 I.85 7.503.563 I.73 7. 165.200 I.65 6. 193.303 I.43 5.833.183 1.35 5.233.043 I.2 I 5.I00.588 I . I 8 I I5.262.59I 26.60%) 3I8.099.853 73.40 $433.362.444 100.00` ) Within the State tax rates vary from area to area. as yelI as Nyithin a community and a project area. The tax rate for any particular parcel is based upon the jurisdictions levying the tax rate for the area (a "Tax Rate Area-) in hich the parcel is located. The tax rate applied to incremental taxable values consist of two components: (i) the general Icyy rate Nyhich may not exceed $1.00 per $ 100 of taxable values in accordance Nvith Article XIII A of the State Constitution and (ii) the over -ride tax rate that is levied to pay voter approved indebtedness or contractual obligations that existed prior to the enactment of Proposition XIII. See " LIMI I A IIoN ON TAX REVENUES"' and "CERTAIN AIN RISKS TO BONDowNI:RS-Reduction in Assessed Value." The over -ride tax rates can decline each year as increasing property values reduce the over -ride rate needed to be levied by the taxing entities to satisfy voter approved debt service obligations and as the voter approved debts is retired over time. 06012 pos-3 38 The Project Arca contains a total of 16 Tax Rate Areas. The taxing entities Nyithin a Tax Rate Arca each receive a prorated share of the general levy and the revenues resulting from any voter approved over- ride tax rates. 'Any over-rides?I The components that make up the tax rate applicable to the Project Area are set forth in Table 4 below: Table 4 Palm Desert Redevelopment Agency Project Area No. 3 Breakdown of Tax Rate Fiscal Year 2005-06 General Purpose Le\V Rate County General 0.2560% County Library 0.0282 County Fire 0.0607 City of Palm Dcscrt 0.0424 Dcscrt Sands Unified School 0.3741 Dcscrt Community College 0.0777 County Superintendent of Schools 0.0423 Riverside County Regional Park and Open Space 0.0039 Coachella Valley Public Cemetery 0.0035 Dcscrt Hospital 0.0107 Coachella Valley Mosquito Abatement 0.0141 Coachella Valley Recreation and Park 0.0214 Coachella Valley Water District 0.0283 Coachella Valley Water District 80 0.0007 Coachella Valley Resource Center 0.0003 Coachella Valley Water District Storm Water Unit 0.0358 To I AI 1.0000`' Source: /?osenow .Speracek (iron') Inc. Historical, Current and Projected Tax Revenues The Redevelopment Agency's primary source of funds to make the Loan Payments under the 2006 Loan Agreements is the Redevelopment Agency's share of acl valorem property tax revenues Nyhich generally result from the completion of nc« real estate developments and a general reassessment of properties Nyithin the Project Arca. The purpose of redevelopment is to revitalize deteriorated or underdeveloped areas Nyithin a community. As nc« construction progresses. property values normally increase and the ultimate result is a proportionate increase in acl valorem property tax revenues. The total taxable value of all properties Nyithin a given project area on the property asscssmcnt roll last equalized prior to the effective date of the ordinance adopting the redevelopment plan for such project area and related amendment areas. if any. establishes a base from \yhich increases in taxable value are computed. The base so established for the Project Arca is the Fiscal Year 1992-93 asscssmcnt roll. Under the Redevelopment Law. property taxes levied based upon the amount shown on the base year asscssmcnt rolls NyiII continue to be paid to and retained by all taxing agencies levying property taxes in the Project Area. Taxes levied by the respective taxing agencies on any increases in taxable value realized in the Project Area Nvill be allocated to the Redevelopment Agency. 06012 pos-3 39 It should be understood that this procedure does not involve the levy of any additional taxes. but provides that revenues produced by the tax rates in effect from year to year are apportioned to the taxing agencies levying the taxes and to the Redevelopment Agency on the basis described above. After all loans. advances and other indebtedness. including interest. incurred by the Redevelopment Agency in connection Nyith the Project Area have been paid. the tax revenues \\ill be paid to and retained by the respective taxing agencies in the normal manner. See also "CERTAIN RISKS TO BONI)llol.UI:RS—Reduction in Taxable Values." Table 5 presents the aggregate taxable value of all property Nyithin the Project Area and the tax increment revenues received for Fiscal Years ended June 30. 2002 through June 30. 2006 (Projected). Assessed Value''' Local Sccurcd Utilih (SBE) Unsecured TOT.u. ASSESSED V.u,i 1: Base Year Value Incremental Value Tax Rate Estimated Revenue Tax Increment Revenue Unitary Utility Revenue County Administration Charge Tui.u, Esri\i.vni) Ritvitxt.� Actual Receipts Secured and Unitary Utility Supplemental Payments County Administration Charge Tt)t.\t, Acrt R1.cr.trrs Table 5 Palm Desert Redevelopment Agency Project Area No. 3 Historical and Current Values 2001-02 $237.162.155 0 32.762.000 $269.924.155 2002-03 2003-04 $251.593.562 0 33.885.278 $285.478.840 $149.523.255 $149.523.255 120.400.900 135.955.585 1.00`%c 1.00`' : $1.204.009 723 (19.405) $1.185.327 $1.204.732 130.497 (19.405) $1.315.824 $1.359.556 731 (20.379) $1.3 39.908 $1.360.287 79.744 (20.379) $1.419.653 2004-05 2005-06' 2 $303.623.640 $318.385.414 $383.280.660 0 0 0 49.987.025 44.912.824 50.081.784 $353.610.665 $36 3.298.2 38 $4 3 3.362.444 $149.523.255 $149.523.255 $149.523.255 204.087.410 213.774.983 28 3.8 39.189 1.00% 1.00% 1.00% $2.040.874 1.001 (29.324) $2.012.55 I $2.041.875 150.716 (29.324) $2.192.591 (I) Secured values include homeo\\1(er exemption value. (2) Assessed values are based on actual data. all remaining intimnation is projected. $2.137.750 763 (28.204) $2.1 10.309 $2.1 38.51 3 261.539 (28.204) $2.371.848 Sources: J?irerside ('minty Office o/due leditor-('onfroNrrand ('iir al Palm Desert Finance Department. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) $2.838.392 763 (33.364) $2.805.791 06012 pos-3 40 Table 6 summarizes the projected Tax Revenues to be received by the Project Area based on fiscal years ending June 30. 2007. through June 30. 201 I. To date. the County has paid to the Redevelopment Agency the full amount of Tax Revenues expected to be received by the Redevelopment Agency. «ithout regard to delinquencies in tax collection. See "-Tax Levies. Collections and Delinquencies."' Table 6 Palm Desert Redevelopment Agency Project Area No. 3 Projection of Incremental Taxable Value and Tax Increment Tax Revenue Taxable Values Secured Unsecured Total Value Base Year Value Taxable Value over Base Gross Tax Increment Revenue Unitary Tax Rcycnuc Gross Revenues Less: SB 2557 Admin. Fcc Housing Set Aside Requirement Statutory Tax Sharing Payments Tax Revenues 2006-07 2007-08 2008-09 t Assessed values are based on actual data. all remaining intimnation is projected. Sources: Ringside('mum'Officeo/du'.luditor-('o,,trolh'rcuedRosenow.Speracek(iroupInc. 2009-10 2010-11 + (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 4 I Debt Service Coverage Projections The following Table 7 shows scheduled debt service on the Series 2003 Bonds and 2006 Series Bonds. without regard to any optional redemption and estimated coverage. See "DEBT SI:RvICI: Sci II:UUI,I:- for the scheduled semiannual debt service on the 2006 Series Bonds. Table 7 Palm Desert Redevelopment Agency Project Area No. 3 Debt Service Coverage Projections ($ in 000's) Senior Parity Bonds Debt Service 2006 Subordinate Capital Appreciation Bonds Fiscal Year Estimated Estimated Ending Projected Net Series 2006 Senior Debt Service Total Debt Service June 30 Tax Rcvcnucs' I 2003 Bonds Parity Bonds Total Coverag,e',' Debt Service Coverage"' Senior Parity Bonds Debt Service 2006 Subordinate Capital Appreciation Bonds Fiscal Year Estimated Estimated Ending Projected Net Series 2006 Senior Debt Service Total Debt Service June 30 Tax Revenues''' 2003 Bonds Parity Bonds Total Coyeratre',' Debt Service Coyeratre"' ' 1' Projcctcd Net Tax Revenues is net of. the I lousing Set -Aside. Pass-1hrough Pa\ ments and Cowih administrative tees. \\ hich administrative tees are projected to cqu l 1.45% of. annual Gross "I as Revenues. 'Ibis table assumes that propert\ values in the Project Arca \\ill increase based upon nc\\ development \vithin the Project Arca (see "Il u. I)ROIL(' I /�RI..� Status of 1)evelopment" and "—Recent I)evelopment." and fly inflation at the rate o1.2%annual] . ''' C'alculatcd as Projcctcd Net Tax Revenues divided b\ total Senior Pant Bonds 1)ebt Sen'icc. 'i' C'alculatcd as Projcctcd Net Tax Revenues less total Senior Parit\ Bonds 1)ebt Sen'icc divided b\ total 20(6 Subordinate Capital Appreciation Bonds 1)ebt Service. Source: Kosenou•.Speracek (iroup /iic. Assessment Appeals Property tax values determined by the County Assessor may be subject to an appeal by the property owners. Assessment appeals are annually filed Nvith the Assessment Appeals Board for a hearing and resolution. The resolution of an appeal may result in a reduction to the County Assessors original taxable value and a tax refund to the applicant/property owner. The reduction in fitture Project Area taxable values and the rcfitnd of taxes affects all taxing entities. including the Redevelopment Agency. Each assessment appeal could result in a reduction of the taxable value of the real property. personal property or possessory interest of the property \yhich is the subject of the appeal. A reduction in such taxable value Nvould result in a reduction of the revenues of the Redevelopment Agency available for Tax Revenues Nvith respect to the 2006 Series Bonds. Alternatively. an appeal may be Nvithdrawn by the applicant or the Appeals Board may deny or modify the appeal at a hearing or by stipulation. Between Fiscal Year 2001-02 through . 2006 there have been 3 1 assessment appeals filed Nvithin the Project Area. Of the appeals filed. two resulted in a reduction in value. 18 \yere Nvithdrawn and I I are pending. The pending appeals have a combined assessed value of $ 1.49 3.966.3 15 under appeal and include assessment appeals of value for Fiscal Years 2001-02 and 2005-06. Within the Project Area. it is unclear exactly how much of this value is at risk because some of the owners have not stated owner opinions of value. Of the ten principal taxpayers in the Project Area shown in Table 3. two SAG Palm Desert ("SAG) and Waste Management Inc. ("Waste Management) had appeals outstanding and unresolved with the County Assessor as of . 2006. SAG owns one parcel in the Project Area and is seeking an adjustment to the Fiscal Year 2005-06 value on the basis that Waste Management owns two parcels in the Project Area and has appeals pending on all both of its parcels for Fiscal year 2003-04 seeking a reduction of the assessed values in the amount equal to 100% of the Fiscal Year 2003-04 value. Table 8 summarizes the appeals filed in the Project Area since Fiscal Year 200I -02. Table 8 Palm Desert Redevelopment Agency Project Area No. 3 Assessment Appeals Fiscal Years 2000-01 through 2005-06 Pending Appeals Actual Actual Reduction Total Withdrawn/ Appeals Total Reduction Reduction Pending ` o of # of No Adjusted/ Secured Total in % of total Reduction Total Roll Appeals Appearance/ Reduced/ Appeals Assessed Requested Assessed Assessed in Assessed Assessed Year Filed Late File Stipulated Pending Value Reduction Value Value Value Value 2005-06 i O O i $383.280,660 $18.411.140 SO 0.00`%o $18.411.140 4.80% 2004-05 8 2 O 6 318.385.414 15.428.167 O 0.0O 14,008,279 4.-10 200 3-1)4 10 10 O O 303. i4-1.524 19.6 S4.397 O CH M O CH M 2002-03 3 3 O O 251.593 562 1,606,924 O 0.0O O 0.0 2001-1)2 i 3 2 O 237.162.115 4-12.011 257.739 0.11 0 O.O I H u .\I. 31 18 2 II $1.493,966,315 $55.542.6 39 $257.739 0.1 I% $ 32.419,419 9.20% Sources: Ringside('ounty qfice Office of t/u' -ludinn•-('ontrolh'rcuidJosenow.Speracek(iroupInc. 06012 pos-3 44 Table 9 lists the principal taxpayers (see Table 3 above) \yho have filed such appeals. the assessed value. the reduction requested and the status of the appeal. Table 9 Palm Desert Redevelopment Agency Project Area No. 3 Outstanding Appeals by the Top Ten Taxpayers Fiscal Years 2000-01 through 2005-06 Applicant `%% of Appeal Total No. Opinion Potential Assessed Applicant Year Parcels Value Roll Value Reduction Value SAG Palm Desert 2005 I $4.820.000 $8.0 35.050 $ 3.2 15.050 40.0` ) Waste Management Inc. 2004 4 0 483.279 483.279 100.0 SimToTAI. 5 $4.820.000 $8.5 18. 329 $ 3.698. 329 4 3.4`%, All Others Various TG! A►. Sources: Kirerside('ouu;tvOfficeo/the .luduo,-('amollerand Kosenmi .Speracek(iroupInc. Tax Levies, Collections and Delinquencies The County does not track secured tax charges and delinquencies by Project Area. The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plane). as provided for in Section 4701 et. seq. of the State Revenue and Taxation Code. Under the Teeter Plan. each participating local agency. including cities. levying property taxes in its county may receive the amount of uncollected taxes credited to its fiend in the same manner as if the amount credited had been collected. In return. the county Nvould receive and retain delinquent payments. penalties and interest. as collected. that Nvould have been due to the local agency. However. although a local agency could receive the total levy for its property taxes Nvithout regard to actual collections. funded from a reserve established and held by the county for this purpose. the basic legal liability for property tax deficiencies at all times remains Nvith the local agency. The Teeter Plan remains in effect unless the County Board of Supervisors orders its discontinuance or unless. prior to the commencement of any fiscal year of the County (which commences on July I ). the County Board of Supervisors receives a petition for its discontinuance joined in by resolutions adopted by two-thirds of the participating revenue districts in the County. in which event. the County Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. The County Board of Supervisors may. by resolution adopted not later than July 15 of the fiscal year for which it is to apply. after holding a public hearing on the matter. discontinue the procedures under the Teeter Plan with respect to any tax levying agency in the county. The City is a participant in the Teeter Plan. See " LIMI I A 1 IONS ON TAX RI:vI:NUI:s—Property Tax Collection Procedures."' 06012 pos-3 45 CERTAIN RISKS TO BONDHOLDERS The following information should he considered by prospective investors in evaluating the 2006 Series Bonds.. However. the.following,' does not purport to he an exhaustive listing of risks and other considerations which /77a1' he relevant to making C7n investment decisions with re.lpec1 to the 2006 Series Bonds. In addition. 117e order in which the following information i.v presented /s not intended to reflect the relative importance of any such risks. Accuracy of Assumptions To estimate the revenues available to pay debt service on the Bonds. the Redevelopment Agency has made certain assumptions NVith regard to the assessed valuation of taxable property in the Project Area. future tax rates. percentage of taxes collected. the amount of funds available for investment and the interest rate at Nvhich those funds Nvill be invested. The Redevelopment Agency believes these assumptions to be reasonable. but to the extent that the assessed valuation. the tax rates and the percentages collected. are less than the Redevelopment Agency's assumptions. the Tax Revenues available to make the Loan Payments and the resulting debt service on the Bonds viII. in all likelihood. be Tess than those projected herein. See "DEBT SI:RvICI: Sci II:UUI,I:"' and Ti"II: PROJECT ARIA -Debt Service Coverage Projections."' Reduction of Tax Revenues Tax Revenues allocated to the Redevelopment Agency. \yhich constitute the primary security for the Bonds. are determined by the incremental assessed value of taxable property in the Project Area. the current rate or rates at \yhich property in the Project Area is taxed. and the percentage of taxes collected in the Project Area. Several types of events \yhich are beyond the control of the Redevelopment Agency could occur and cause a reduction in available Tax Rcvcnucs. A reduction of taxable values of property in the Project Area or a reduction of the rate of increase in taxable values of property in the Project Area caused by economic or other factors beyond the control of the Redevelopment Agency (such as a successful appeal by a property owner for a reduction in a property's assessed value. a reduction of the general inflationary rate. a reduction in value. or the destniction of property caused by natural or other disasters) could occur. thereby causing a reduction in the Tax Rcvcnucs that secure the Bonds. Such a reduction in Tax Rcvcnucs could have an adverse impact on the Redevelopment Agency's ability to make timely payment of principal of and interest on the Bonds. Moreover. in addition to the other limitations on Tax Rcvcnucs described under "LIMITATIONS ON TAX REVENUES.- the State electorate or Legislature could adopt a constitutional or legislative property tax decrease NVith the effect of reducing Tax Rcvcnucs payable to the Redevelopment Agency. There is no assurance that the State electorate or Legislature Nvill not at some fixture time approve additional limitations that could reduce Tax Rcvcnucs and adversely affect the security of the Bonds. Additionally. the Redevelopment Agency has no power to levy and collect property taxes. The receipt of tax revenues by the Redevelopment Agency is dependent on the timely payment of property taxes by landowners NVithin the Project Area. Substantial delinquencies or other reductions in the payment of property taxes on real property in the Project Area by a large number of landowners could have an adverse effect on the Redevelopment Agency's ability to make timely debt service payments on the Bonds secured by Tax Rcvcnucs derived from the Project Area. Tax revenues allocated to the Redevelopment Agency are distributed throughout the fiscal year in installments. NVith a first installment in December and the second installment in June of the same fiscal year. The payments are adjusted to reflect actual collections. 06012 pos-3 46 Reductions in Unitary Values As the result of the adoption of AB 454 (Chapter 921. Statutes of 1986). a portion of the County- wide unitary values assigned to public utilities was allocated to the Project Area. In Fiscal Year. 2005-06. approximately `%% of the Tax Revenues in the Project Area are attributable to such unitary values. Any substantial reduction in the values of public utility properties. either because of deregulation of a utility industry or for any other reason. will have an adverse impact on the amount of Tax Revenues. However. any such impact with respect to utility properties within the Project Area will be lessened because the impact will be spread on a County -wide basis. For fiirther information concerning unitary values. see " L►MI ! A ! IoNs ON TAX RI:vI:NUIa-Property Tax Collection Procedures"' and "—Taxation of Unitary Property. Appeals to Assessed Values There are two basic types of assessment appeals provided for under State law. The first type of appeal. commonly referred to as a base year assessment appeal. involves a dispute on the valuation assigned by the County assessor immediately subsequent to an instance of a change in ownership or completion of new construction. If the base year value assigned by the County assessor is reduced. the valuation of the property cannot increase ill subsequent years more than two percent annually unless and until another change in ownership and/or additional new constriction activity occurs. The second type of appeal. commonly referred to as a Proposition 8 appeal. can result if factors occur causing a decline in the market value of the property to a level below the property's then current taxable value (escalated base year value). Pursuant to California law. a property owner may apply for a Proposition 8 reduction of the property tax assessment for such owners property by filing a written application. in form prescribed by the State Board of Equalization. with the appropriate county board of equalization or assessment appeals board. In the County. a property owner desiring a Proposition 8 reduction of the assessed value of such owners property in any one year must submit an application to the Riverside County Assessment Appeals Board (the "Appeals Board.). Applications for any tax year must be submitted by September 15 of such tax year. Following a review of the application by the Riverside County Assessors Office (the "County Assessor). the County Assessor may offer to the property owner the opportunity to stipulate to a reduced assessment. or may confirm the assessment. If no stipulation is agreed to. and the applicant elects to pursue the appeal. the matter is brought before the Appeals Board (or. in some cases. a hearing examiner) for a hearing and decision. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeals filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre -reduction level (escalated to the inflation rate of no more than two percent) following the year for which the reduction application is filed. However. the County Assessor has the power to grant a reduction not only for the year for which application was originally made. but also for the then current year and any intervening years as well. In practice. such a reduced assessment may and often does remain in effect beyond the year in which it is granted. See "LIMITATIONS ON TAX REVENUES -Property Tax Collection Procedures"' and Ti"II: PROJEc i AREA —Assessment Appeals. An appeal may result in a reduction to the County Assessors original taxable value and a tax refund to the applicant property owner. A reduction in taxable values within the Project Area and the refimd of taxes which may arise out of successful appeals by these owners will affect the amount of Tax Revenues and Subordinate Tax Revenues available to pay debt service on the 2006 Senior Parity Bonds and the 2006 Subordinate Capital Appreciation Bonds. respectively. 06012 pos-3 47 Reduction in Inflation Rate As described in greater detail above. Article XIII A of the California Constitution provides that the frill cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflation rate. not to exceed a two percent increase for any given year. or may be reduced to reflect a reduction in the consumer price index. comparable local data or any reduction in the event of declining property value caused by damage. destruction or other factors (as described above). Such measure is computed on a calendar year basis. Any resulting reduction in the full cash value base over the term of the 2006 Series Bonds could reduce Tax Revenues. See " LIMrI A I IoNs ON TAX Rl:vl:Nl ll:S—Article XIII A of the State Constitution."' Bankruptcy and Foreclosure The rights of the Owners of the 2006 Series Bonds and the enforceability of the obligation to make payments on the Bonds may be subject to bankruptcy. insolvency. reorganization. moratorium and other similar laws affecting creditors" rights under currently existing law or laws enacted in the future and may also be subject to the exercise of judicial discretion under certain circumstances. The opinions of Bond Counsel as to the enforceability of the obligation to make payments on the 2006 Series Bonds will be qualified as to bankruptcy and such other legal events. See APPENDIX E—"PRoPosl;D FORM OF BOND COIJNSl:1, OPINION.* Further. the payment of the tax increment revenues and the ability of the County to timely foreclose the lien of a delinquent unpaid tax may be limited by bankruptcy. insolvency. or other laws generally affecting creditors" rights or by the laws of the State relating to judicial foreclosure. Any delay in prosecuting superior court foreclosure proceedings \youId increase the likelihood of a delay or default in payment of the principal of and interest on the 2006 Series Bonds and the possibility of delinquent tax installments not being paid in full. Delinquencies Delinquencies in the payment of property taxes and the impact of bankruptcy proceedings on the legal ability to collect property taxes could have an adverse impact on the ability of the Redevelopment Agency to make timely payments under the 2006 Loan Agreement. The valuation of property is determined as of the January I lien date as equalized in August of each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due April I and become delinquent August 31. See "THE PROJECT AREA —Tax Levies. Collections and Delinquencies."' State Budget /he.follou•ing information concerning the .S'tate Is 200-1-05 and 2005-06 fiscal Year Budgets and the 2006-07 Governor's Budget has been obtained from publicly available lnformatlon on the .S'tate Department of Finance. the .S'tate Treasurer and the California Legislative Analyse Office u•ebsites. The estimates and projections provided below are based upon various assumptions as updated in the 2006-07 Governor's Budges. 11'hiCh 'nay he affected by ntl// ero11S liwtors. including liiture economic conditions in the .S'iclte and the nation. and there can he no assurance that the esiinlales will he achieved For liirther informal/on and discussion of.fiwtors underlying the.S'ta1e S projections. See the aforementionecl U'L'bsi1L's. the Redevelopment Agency believes such information to he reliable. however. the Redevelopment Agency takes no responsibility as to the cwcurcicv or completeness thereof and has not independently verified such information. In connection with its approval of the budget for Fiscal Years 1992-93. 1993-94. 1994-95. 2002-03. 2003-04. 2004-05 and 2005-06. the State Legislature enacted legislation which. among other things. reallocated finds from redevelopment agencies to school districts by shifting a portion of each redevelopment 06012 pos-3 48 agency's tax increment. net of amounts due to other taxing agencies. to school districts for such fiscal years for deposit in the Education Revenue Augmentation Fund ("ERAF-). The amount required to be paid by a redevelopment agency under such legislation is apportioned among all of its redevelopment project areas on a collective basis. and was not allocated separately to individual project areas. In Fiscal Ycar 2002-03. the aggregate amount transferred by redevelopment agcncics into ERAF was $1.3 billion. was $250 million for Fiscal Ycar 2004-05 and $250 million for Fiscal Ycar 2005-06. Based on the tax incrcmcnt revenues shown in of the State Controller's Annual Report as being retained by the Redevelopment Agency. the Redevelopment Agency was rcquircd to pay } into ERAF in Fiscal Ycar 2003-04 of \Vhich was attributable for the Project Arca. $ 3.887.133 in Fiscal Ycar 2004-05 of wIhich 1 117.698 was attributable for the Project Area. and $ 3.995.04 I in Fiscal Ycar 2005-06 of which $560.859 is attributable for the Project Arca. Fiscal Year 2004-05. The 2004-05 Budget Act (the "State 2004 Budget Act") was adopted by the Lcgislaturc on July 29. 2004. along with a number of implementing measures. and signed by Governor Schwarzenegger on July 3 I. 2004. Under the State 2004 Budget Act. General Fund revenues «vcrc projcctcd to increase 3.6`Yo. from $74.6 billion in Fiscal Year 2003-04 (including approximately $2.3 billion in tobacco sccuritization bond proceeds) to $77.3 billion in Fiscal Ycar 2004-05. The revenue projections assumed a continuing rebound in California's economy as reflected in several key indicators. Excluding the impact of the economic recovery bonds. General Fund expenditures «vcrc cstimatcd to increase by 6.7`Yo. from $75.6 billion in Fiscal Ycar 2003-04 to $80.7 billion in Fiscal Year 2004-05. The Junc 30. 2005 reserve was projcctcd to be $768 million. compared to an cstimatcd Junc 30. 2004 reserve of $2.198 billion. The State 2004 Budget Act and related legislation dramatically changed the State -local fiscal relationship. Pursuant to Proposition I A. the VLF was rcduccd from 2`)/0 to 0.6iS% of the value of the vehicle. In order to protect local governments. the reduction in VLF revenue to cities and counties from this rate change was to be replaced by an increase in the amount of property tax they receive. Redevelopment agcncics were again rcquircd to make transfers to the applicable ERAF in the aggregate amount of $250 million as implemented by SB I096. The transfers rcquircd under SB I096 to the ERAF were subordinate to payments on bonds secured by tax incrcmcnt revenues. For a more dctailcd description of SB 1096. sec "SI:CIIRI I Y ANI) S011RCI:S 01 PAYMI:N.I 01 I1 II: BONDS -Redevelopment Plan Limitations-.S73 1096.- Under Proposition I A. for Fiscal Years 2004-05 and 2005-06 only. the replacement property taxes that cities and counties receive would be rcduccd by $700 million. In future years. local governments would receive the frill value of the VLF revenue that they would hays received under current law. Also for these two Fiscal Years. Proposition I A would require redevelopment agcncics to shift $250 million in property tax revenue they would otherwise receive to schools. and special districts would shift $ 50 million to schools. For a more dctailcd description of Proposition I A. see "CONS I I I I I"I1ONAI, ANI) S I A I111 ORY LIMI I A 1 IONS ON TAXIS. RI:VI:NIII:S ANI) APPROPRIA 1 IONS -Proposition I A.- Fiscal Year 2005-06. The 2005-06 Budget Act (the "State 2005 Budget Act") was adopted by the Lcgislaturc on July 7. 2005. along with a number of implementing measures. and signed by Governor Schwarzenegger on July I I. The 2005 State Budget Act reflected an improving State fiscal picture brought about by better- than-expected growth in Gcncral Fund revenues. The 2005 State Budget Act funds the Proposition 42 transfer of general fund sales taxes to transportation special funds. and included significant increases in both K- I2 and higher education. The 2005 State Budget Act did not use any of the remaining $ 3.7 billion in deficit -financing bonds authorized by Proposition 57. and the State prepaid the 1I.2 billion VLF "gape loan that was due to local governments in Fiscal Ycar 2006-07 in August 2005. 06012 pos-3 49 At the same time. 2005 State Budget Act included approximately $6 billion in savings and related budget solutions in order to maintain budgetary balance. including. among other solutions. the ERAF transfer from redevelopment agencies in the aggregate amount of $250 million After taking into account the higher revenues and other offsetting factors (including higher Proposition 98 funding requirements under current law) the resulting operating shortfall for Fiscal Year 200i-06 was estimated at $4.9 billion. 2006-07 Governor's Budget. The 2006-07 Governor's Budget (the "2006 Governors Budget.). released on January 10. 2006. estimates that the State operating deficit for Fiscal Year 2006-07 will be $6.3 billion. The 2006 Governors Budget is balanced by using a large part of the Fiscal Year 2005-06 ending fiend balance. After taking into consideration the adjustments of $1.6 billion for the repayment or prepayment of prior obligations. including $460 million to prepay the economic recovery bonds. the effective operating deficit for Fiscal Year 2006-07 is $4.7 billion. The 2006-07 Governor's Budget projects to end Fiscal Year 2006-07 with a $613 million total reserve. including $460 million in the newly created Budget Stabilization Account pursuant to Proposition 58 (enacted in 2004). State General Fund revenues and transfers for Fiscal Year 2006-07 are projected at $91.5 billion. an increase of $3.9 billion compared with revised estimates for Fiscal Year 2005-06. State General Fund expenditures for Fiscal Year 2006-07 are projected at $97.9 billion. an increase of $7.6 billion. or 8.4` compared with revised estimates for Fiscal Year 2005-06. No ERAF transfers from redevelopment agencies are included in the 2006 Governors Budget. 2006-07 May Revision. On May 13. 2006. the Governor released a revision to the 2006 Governors Budget (the "2006 May Revision.). The May Revision is based upon stronger than expected income tax collection in the amount of approximately $7.5 billion since the release of the 2006 Governors Budget in January 2006. Among other things. the 2006 May Revision proposes to (i) allocate nearly 40`) of the $7.5 billion increase in revenues to K-I2 and community college education: with the balance for prepayment of budget debt: (ii) build up the reserve: (iii) make one-time and ongoing augmentations to health. resources. corrections and local governments (including an $87 million prepayment of the Fiscal Year 2007-08 obligation of the State for prior -year mandate costs): and (iv) make a proposed settlement to a lawsuit involving school funding resulting in added annual out -year obligations averaging more than $400 million for seven years. The 2006 May Revision does not include any ERAF transfers from redevelopment agencies. The Fiscal Year 2006-07 State Budget is expected to be subject to significant negotiation and revision prior to adoption by the Legislature of the State. There can be no assurances that the final Fiscal Year 2006-07 State Budget will not place additional burdens on local governments. including the Redevelopment Agency. or will not reallocate or reduce revenues to local governments. The Redevelopment Agency cannot predict whether the State Legislature will enact future legislation requiring additional or increased future shifts of tax increment revenues to the Sate and/or to schools. whether through an arrangement similar to ERAF or by other arrangements. and. if so. the effect on ftrture Tax Revenues. Natural Disasters Flooding. Flood zones are identified by the Federal Emergency Management Agency ("FEMA-). FEMA designates land located in a low- to moderate -risk flood zone (i.e. not in a floodplain) as being within a Non -Special Flood Hazard Area (a "NSFHA-). A NSFHA is an area that is in a low- to moderate -risk flood zone (i.e. not in a floodplain) and has less than a 1% chance of flooding each year. While the City is 06012 pos-3 50 located Nyithin a NSFHA. severe. concentrated rainfall could result in localized flooding and river overflows. The City can make no representation that fixture maps Nvill not be revised to include the Cite Nyithin an area deemed subject to flooding. The occurrence of flooding in the Project Area could result in a reduction in Tax Revenues and Subordinate Tax Revenues. Such a reduction of Tax Revenues or Subordinate Tax Revenues could have an adverse effect on the ability of the Redevelopment Agency ability to make timely payments of principal and interest on the 2006 Loans. Seismic Factors. Generally. seismic activity occurs on a regular basis in the State. Periodically. the magnitude of a single seismic event can cause significant ground shaking and potential damage to property located at or near the center of such seismic activity. The occurrence of severe seismic activity in the City could result in damage to roads. infrastnlcture and other property Nyithin the Project Area. The occurrence of such a severe seismic could have a negative impact on assessed values of taxable values of property in the Project Area and could result in a reduction in Tax Revenues and Subordinate Tax Revenues. Such a reduction of Tax Revenues or Subordinate Tax Revenues could have an adverse cffcct on the ability of the Redevelopment Agency ability to make timely payments of principal and interest on the 2006 Loans. Hazardous Substances An additional environmental condition that may result in the reduction in the assessed value of property \youId be the discovery of a hazardous substance that NyouId limit the beneficial use of taxable property Nyithin the Project Area. In general. the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner or operator may be required to remedy a hazardous substance condition of property Nvhether or not the owner or operator has anything to do Nyith creating or handling the hazardous substance. The effect. therefore. should any of the property Nyithin the Project Area be affected by a hazardous substance. could be to reduce the marketability and value of the property by the costs of remedying the condition. Loss of Tax Exemption In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds. the Redevelopment Agency has covenanted in the Indenture to comply Nyith the applicable requirements of the Internal Rcycnuc Code of 1986. as amended. The interest on the 2006 Series Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of such 2006 Series Bonds as a result of acts or omissions of the Redevelopment Agency in violation of this or other covenants in the Indenture applicable to the 2006 Series Bonds. The 2006 Series Bonds are not subject to redemption or any increase in interest rates should an event of taxability occur and Nvi11 remain outstanding until maturity or prior redemption in accordance Nyith the provisions contained in the Indenture. See "TAX MA I'I1:Rs .. Risk of Tax Audit In December 1999. as a part of a larger reorganization of the Internal Rcycnuc Service (the "IRS"). the IRS commenced operation of its Tax Exempt and Government Entities Division (the "TE/GE Division.). as the successor to its Employee Plans and Exempt Organizations division. The new TE/GE Division has a subdivision that is specifically devoted to tax-exempt bond compliance. Public statements by IRS officials indicate that the number of tax-exempt bond examinations (which NyouId include the issuance of securities such as the 2006 Series Bonds) is expected to increase significantly under the new TE/GE Division. There is no assurance that if an IRS examination of the 2006 Series Bonds vas undertaken that it would not adversely affect the market value of the 2006 Series Bonds. See "TAX MATTERS:* 06012 pos-3 The Redevelopment Agency has not been contacted by the IRS regarding the examination of an of its bond transactions. Secondary Market There can be no guarantee that there \\ill be a secondary market for the 2006 Series Bonds or. if a secondary market exists. that the 2006 Series Bonds can be sold for an particular price. Occasionally. because of general market conditions or because of adverse history or economic prospects connected Nyith a particular issue. secondary marketing practices are suspended or terminated. Additionally. prices of issues for \yhich a market is being made Nvill depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. TAX MATTERS In the opinion of Richards. Watson K. Gershon. A Professional Corporation. Bond Counsel. under existing lacy interest on the 2006 Series Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Rcycnuc Code of 1986. as amended (the "Code"). and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Bond Counsel \\ill express no opinion as to any other federal tax consequences regarding the 2006 Series Bonds. The opinion on federal tax matters Nvill be based on and Nvill assume the accuracy of certain representations and certifications. and continuing compliance Nyith certain covenants. of the Agency and the Authority that are intended to assure the foregoing. including that the 2006 Series Bonds are and \\ill remain obligations. the interest on \yhich is excluded from gross income for federal income tax purposes. Bond Counsel Nvill not independently verify the accuracy of those representations and certifications. The Code prescribes a number of qualifications and conditions for the interest on state and local government obligations to be and to remain excluded from gross income for federal income tax purposes. Some of these qualifications and conditions require future or continued compliance after issuance of the obligations for the interest to be and to continue to be excluded from the date of issuance. Noncompliance Nyith these qualifications and conditions by the Authority or the Agency may cause the interest on the 2006 Series Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the 2006 Series Bonds. The Authority and the Agency have covenanted to take the actions required of them for the interest on the 2006 Series Bonds to be and to remain excluded from gross income for federal income tax purposes. and not to take any actions that Nvould adversely affect that exclusion. Under the Code. a portion of the interest on the 2006 Series Bonds earned by certain corporations may be subject to a corporate alternative minimum tax. In addition. interest on the 2006 Series Bonds may be subject to a branch profits tax imposed on certain foreign corporations doing business in the United States and to a tax imposed on excess net passive income of certain S corporations. Under the Code. the exclusion of interest from gross income for federal income tax purposes may have certain adverse federal income tax consequences on items of income. deduction or credit for certain taxpayers. including financial institutions. certain insurance companies. recipients of Social Security and Railroad Retirement benefits. those that are deemed to incur or continue indebtedness to acquire or carry tax- exempt obligations. and individuals othenyise eligible for the earned income tax credit. The applicability and extent of these and other tax consequences \\ill depend upon the particular tax status or other tax items of the owners of the 2006 Series Bonds. Bond Counsel \\ill express no opinion regarding those consequences. 06012 pos-3 52 Any excess of the stated redemption price at maturity of the 2006 Series Bonds over the initial offering price to the public of the 2006 Series Bonds set forth on the inside cover of this Official Statement is "original issue discount. Such original issue discount accruing on a 2006 Series Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and exempt from California personal income tax. Original issue discount on any 2006 Series Bond purchased at such initial offering price and pursuant to such initial offering Nvill accrue on a semiannual basis over the term of the 2006 Series Bond on the basis of a constant yield method and. «ithin each semiannual period. «ill accrue on a ratable daily basis. The amount of original issue discount on such a 2006 Series Bond accruing during each period is added to the adjusted basis of such 2006 Series Bond to determine taxable gain upon disposition (including sale. redemption or payment on maturity) of such 2006 Series Bond. The Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers of the 2006 Series Bonds \yho purchase the 2006 Series Bonds other than at the initial offering price and pursuant to the initial offering. Any person considering purchasing a 2006 Series Bond should consult his or her own tax advisors «ith respect to the tax consequences of ownership of bonds Nvith original issue discount. including the treatment of purchasers \yho do not purchase in the original offering and the original offering price. the allowance of a deduction for any loss on a sale or other disposition. and the treatment of accnied original issue discount on such bonds under federal individual and corporate alterative minimum taxes. If the 2006 Series Bonds \sere offered and sold to the public at a price in excess of their stated redemption price (the principal amount) at maturity. that excess constitutes "premium. For federal income tax purposes. that premium is amortized over the period to maturity of the 2006 Series Bonds. based on the yield to maturity of the 2006 Series Bonds. compounded semiannually. No portion of that premium is deductible by the owner of a 2006 Series Bond. For purposes of determining the owners gain or loss on the sale. redemption (including redemption at maturity) or other disposition of a 2006 Series Bond. the owners tax basis in the 2006 Series Bond is reduced by the amount of premium that accrues during the period of ownership. As a result. an owner may realize taxable gain for federal income tax purposes from the sale or other disposition of a 2006 Series Bond for an amount equal to or less than the amount paid by the owner for that 2006 Series Bond. A purchaser of a 2006 Series Bond in the initial public offering at the price for that 2006 Series Bond stated on the inside cover of this Official Statement \yho holds that 2006 Series Bond to maturity «iII realize no gain or loss upon the retirement of that 2006 Series Bond. Owners of the 2006 Series Bonds should consult their own tax advisers as to the determination for federal income tax purposes of the amount of premium properly accruable in any period «ith respect to the 2006 Series Bonds and as to other federal tax consequences and the treatment of premium for purposes of state and local taxes on. or based on. income. Purchasers of the 2006 Series Bonds at other than their original issuance at the respective prices indicated on the inside cover of this Official Statement should consult their own tax advisers regarding other tax considerations such as the consequences of market discount or premium. In the further opinion of Bond Counsel. interest on the 2006 Series Bonds is exempt from personal income taxation imposed by the State of California. A cope of the proposed form of Bond Counsels final approving opinion «ith respect to the 2006 Series Bonds is attached hereto as APPI:NDix E. 06012 pos-3 53 APPROVAL OF LEGAL PROCEEDINGS Certain legal matters incident to the authorization. issuance and sale of the 2006 Series Bonds are subject to the approval of Richards. Watson & Gershon. A Professional Corporation Los Angeles. California. Bond Counsel. A cope of the proposed form of Bond Counsel's opinion is contained in APPENDIX E to this Official Statement. and the final opinion will be made available to the owners of the 2006 Series Bonds at the time of delivery of the 2006 Series Bonds. Certain legal matters will be passed upon for the Redevelopment Agency by . and by Lofton & Jennings. San Francisco. California. Disclosure Counsel. Bond Counsel will also deliver a supplemental opinion as to the accuracy in all material respects of the descriptions contained in this Official Statement of the Bonds. and Bond Counsel's federal and State tax opinions. Except as expressly described in said opinion. Bond Counsel is not passing upon and undertakes no responsibility for the accuracy. completeness or fairness of the information contained in this Official Statement. Bond Counsel and Disclosure Counsel will each receive compensation from the Redevelopment Agency that is contingent upon the sale and delivery of the 2006 Series Bonds. ABSENCE OF MATERIAL LITIGATION General There is no litigation pending concerning the validity of the 2006 Indentures or the 2006 Series Bonds or the issuance and delivery thereof. the existence of the Financing Authority or the Redevelopment Agency. the title of the officers thereof who shall execute the 2006 Series Bonds to their respective offices. the pledge of Revenues to the payment of the 2006 Senior Parity Bonds. the pledge of Subordinate Revenues to the payment of the 2006 Subordinate Capital Appreciation Bonds. the pledge of Tax Revenues to the payment of the 2006 Senior Parity Loan or the pledge of Subordinate Tax Revenues to the payment of the 2006 Subordinate Loan. Other Matters In the regular course of the business. the Financing Authority and the Redevelopment Agency are each parties to a variety of pending and threatened lawsuits and administrative proceedings. in addition to those specifically discussed herein. Neither the Financing Authority nor the Redevelopment Agency believes that any such lawsuits or proceedings vilI have a material adverse effect on the operations or financial condition of the Financing Authority and the Redevelopment Agency. respectively. FINANCIAL ADVISOR Del Rio Advisors. LLC. Modesto. California. has served as Financial Advisor to the Financing Authority and the Redevelopment Agency with respect to the sale of the 2006 Series Bonds. The Financial Advisor has assisted the Financing Authority and the Redevelopment Agency in the review of this Official Statement and in other matters relating to the planning. structuring. execution and delivery of the 2006 Series Bonds. The Financial Advisor has not independently verified any of the data contained herein or conducted a detailed investigation of the affairs of the Financing Authority and the Redevelopment Agency to determine the accuracy or completeness of this Official Statement. Due to their limited participation. the Financial Advisor assumes no responsibility for the accuracy or completeness of any of the information contained herein. 06012 pos-3 54 The Financial Advisor will receive compensation from the Redevelopment Agency contingent upon the sale and delivery of the 2006 Series Bonds. CONTINUING DISCLOSURE The Redevelopment Agency has covenanted in the Continuing Disclosure Agreement dated Jule . 2006. by and among the Redevelopment Agency. the Tnistcc. and MuniFinancial Inc.. as Dissemination Agent for the benefit of the holders and beneficial owners of the 2006 Series Bonds to provide certain financial information and operating data relating to the Redevelopment Agency each year by not later than the date \Vhich is six months following the end of the Fiscal Year. commencing with the report for the 2005-06 Fiscal Year (the "Annual Report"). and to provide notices of the occurrence of certain enumerated events. if material. The Annual Report and notices of material events will be filed by the Tnistcc as Dissemination Agent with each nationally Recognized Municipal Securities Information Repository and with any then existing State Repository. if any. Currently. there is no State Repository. The covenants set forth in the Continuing Disclosure Agreement have been made by the Redevelopment Agency in order to assist the Undenyriters in complying with Securities and Exchange Commission Rule I iSc2-12(b)(is). The specific nature of the information to be contained in the Annual Report and the notices of material events is set forth in APPENDIX F-"FORM c)E CONTINUING DISCLosuRI: AGRI:I:MI:NT.- The Redevelopment Agency has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. UNDERWRITING Pursuant to the terms of a Bond Purchase Agreement dated . 2006 (the "Purchase Agreement"). among the Financing Authority. the Redevelopment Agency and Citigroup Global Markets. Inc. (the "Undenyriter"). the Undenyriter will purchase all of the 2006 Series Bonds. if any are purchased. however. the obligation of the Underwriter to make such purchase is subject to certain terms and conditions set forth in the Purchase Agreement. The public offering prices of the 2006 Series Bonds may be changed from time to time by the Underwriter. The Underwriter may offer and sell 2006 Series Bonds to certain dealers and others at a price lower than the offering price stated on the inside cover page hereof. Current Interest Bonds The Undenyriter purchased the Current Interest Bonds. at a price of $ (representing the principal amount of the Current Interest Bonds less an Undenyriter's discount in the amount of ). Capital Appreciation Bonds The Underwriter purchased the Capital Appreciation Bonds. at a price of $ (representing the principal amount of the Capital Appreciation Bonds Tess an Undenyriter's discount in the amount of $ ). 2006 Subordinate Capital Appreciation Bonds The Underwriter purchased the 2006 Subordinate Capital Appreciation Bonds. at a price of (representing the principal amount of the 2006 Subordinate Capital Appreciation Bonds less an Undenyriter's discount in the amount of $ ). 06012 pos-3 55 RATINGS Standard & Poor's Ratings Services. a division of the McGraw Hill Companies ("S&P-) and Fitch Inc. ("Fitch) have assigned their ratings of " and " respectively. to the 2006 Series Bonds with the understanding that upon delivery of the 2006 Series Bonds the Insurance Police will be issued by the Bond Insurer. See " BoND INSURANCE"' and APPENDIX H-"SPECIMEN FINANCIAI, GUARANTY INSURANCE POLICY.* S&P and Fitch have also assigned uninsured ratings of " and " respectively. to the 2006 Series Bonds. A rating reflects only the view of the agency giving such rating and is not a recommendation to buy. sell or hold the 2006 Series Bonds. An explanation of the significance of the rating may be obtained from S&P at Standard & Poor's. 55 Water Street. New York. New York 10041 and from Fitch at Fitch Ratings. One State Street Pla7z. New York. New York 10041. There is no assurance that such ratings will continue for anv given period of time or that they NViII not be reduced or withdrawn entirely by S&P or Fitch. if ill their individual judgment circumstances so «arrant. The Redevelopment Agency has not undertaken anv responsibility to oppose an such proposed revision or Nvithdra«al. Any such revision or withdrawal ofa rating may have an adverse effect on the marketability or market price of the 2006 Series Bonds. FINANCIAL STATEMENTS The audited financial statements of the Redevelopment Agency for Fiscal Year 2004-05. prepared by Lance. Soll and Lunghard LLP. independent certified public accountants. in accordance with Governmental Accounting Standards Board guidelines. are included as APPENDIX B attached hereto. Lance. Soll and Lunghard LLP Ihas/bas not' consented to the inclusion of its report in APPENDIX B. but has not undertaken to update its report or take any action intended or likely to elicit information concerning the accuracy. completeness or fairness of statements made in this Official Statement and no opinion is expressed by Lance. Soll and Lunghard LLP with respect to anv event subsequent to the date of its report. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 56 MISCELLANEOUS All of the preceding summaries of the 2006 Series Bonds. the 2006 Indentures. the 2006 Loan Agreements. the Redevelopment Law. the Redevelopment Plan. the Project Area. other applicable legislation. agreements and other documents are made subject to the provisions of the 2006 Series Bonds and such documents. respectively. and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file Nyith the Redevelopment Agency for fiirther information in connection therewith. Any statements made in this Official Statement involving matters of opinion or of estimates. «-hether or not expressly stated. are set forth as such and not as representations of fact. and no representation is made that any of the estimates will be realized. The execution and delivery of this Official Statement by the 'Executive Director' of the Financing Authority has been duly authorized by the Financing Authority. PALM DESERT FINANCING AUTHORITY By: (Carlos L. Ortega. Executive Director' 06012 pos-3 57 APPENDIX A REPORT OF THE FISCAL CONSULTANT 06012 pos-3 A- I APPENDIX B REDEVELOPMENT AGENCY AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2005 06012 pos-3 B- I APPENDIX C GENERAL INFORMATION CONCERNING THE CITY OF PALM DESERT The .fullo i in,,' infurmalion concerning the City of Palm Desert. the ('ounIy of Riverside and surrounding areas i.1' included only for the purpose of .1'11/)/)I17ng general info/illation regarding the community. Overview The City of Palm Desert (the "City"). incorporated in November 26. 1973 as a general law city. became a charter city through the adoption of Ordinance 858 by the City Council on January 8. I998. The City is located in the Coachella Valley and is approximately mid -way between the cities of Indio and Palm Springs. 117 miles east of Los Angeles. 118 miles northeast of San Diego and 5 15 miles southeast of San Francisco. The City occupies an area of approximately 26 square miles. Elevation of the City is 243 feet and the mean temperature is 73. I degrees. Except in summer. the Nveather is mild and annual average rainfall is 3.38 inches. According to the State Department of Finance. the City population as of January I. 2006 was approximately 49.5 39. an increase of approximately 19.5`%0 since 2000. attributable in part to territorial annexation. Government The City Council is comprised of five members. elected at large for four-year staggered terms every two years. The City Council selects one of its members to serve as Mayor for a one-year term and appoints a City Manager to conduct the day to day business of the City and the City Clerk. The City Attorney is appointed by . The City operates as "Contract City utilizing. primarily. agreements Nvith other governmental entities. private companies and individuals to provide services. Contracted services include police and fire protection provided through the County. animal control. health services. legal services and landscape maintenance. The City Council also serves as the governing board of the Financing Authority. the Redevelopment Agency. the Housing Authority and the Parking Authority and the City Manger serves as the Executive Director of the Financing Authority. the Redevelopment Agency. the Housing Authority and the Parking Authority. The City Attorney and the City Clerk also serve as the General Counsel and Secretary. respectively. of the Redevelopment Agency and these Authorities. The current members of the City Council and key administrative personnel of the City are listed in Table C- I and Table C-2. respectively: Name Jim Ferguson Richard S. Kelly Jean M. Benson Buford A. Crites Robert A. Spiegel TABLE C-1 CITY OF PALM DESERT City Council Members Office Mayor Mayor Pro Tem Councilmcmbcr Councilmcmbcr Councilmcmbcr Term Expires November 2006 November 2008 November 2006 November 2008 November 2008 Occupation Attorney Retired GTE Executive Retired Travel Industry Professional College Professor Retired Retail Industry Executive 06012 pos-3 C-1 Name Carlos L. Ortega Justin McCarthy Paul S. Gibson David L. Yrigoyen Rachelle D. Klassen Population TABLE C-2 CITY OF PALM DESERT Key Administrative Personnel Position City Manager Assistant City Manager Treasurer/Finance Director Redevelopment Director City Clerk Between 2000 and 2006. the City's population increased by a total of 8.089 or approximately 19.5%. In addition to permanent residents. the City has approximately 15. 000 seasonal residential residents NV110 live three to six month in the City. primarily during the Nvinter months. Table C-3 illustrates the population of the City. the County and the State for 2000 through 2006. Table C-3 CITY OF PALM DESERT AND RIVERSIDE COUNTY AND STATE OF CALIFORNIA POPULATION Year (January 1) 2000 2001 2002 2003 2004 2005 2006 City of Palm Desert 41.450 41.900 42.900 44.300 45.610 59.595 49.539 Riverside County 1.557.800 1.583.600 1.645.300 1.719.000 1.807.858 1.888.311 1.953.330 State of California 34.207.000 34.385.000 3 i.03 7.000 35.591.000 36.271.091 36.728.196 37.172.015 Sources: ( iriird States Department par•Oru'nt of ('omnu'ree, Bureau of the ( 'ensus.lbr 2000 and .Stale of ( 'ali/imria Department of l'inanc e for rrnrairrirr�; v'ars. Labor Force and Employment The main sources of revenue in the City are derived from tourism and sales tax. Historically. the unemployment rate in the City has been lower than that for the County and the State. 06012 pos-3 C-2 Table C-4 table represents the labor patterns in the City. the County. the State. and the United States from 200I through 2005. Table C-4 CITY OF PALM DESERT, RIVERSIDE COUNTY, STATE OF CALIFORNIA AND UNITED STATES CIVILIAN LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT 2001 through 2005 Unemploment Year and Area Labor Force Employment Unemployment Rate 2001 City 20.000 19.400 600 3. I `%0 County 7I1.200 672.500 38.700 5.4 State 17.150.100 16.217.500 932.600 5.4 United States I4I.8I5.000 I35.073.000 6.742.000 4.8 2002 City 21.100 20.300 800 3.6 County 749.800 702.300 47.500 6.3 State I7.326.900 I6.I65.100 I.I61.800 6.7 United States 144.863.000 I36.485.000 8.378.000 5.8 2003 City 2I.900 2I.I00 800 3.6 County 781.600 732.300 49.300 6.3 State 17.414.000 16.223.500 1.190.500 6.8 United States I46.5I0.000 I37.736.000 8.774.000 6.0 2004 City 22.800 22.I00 700 3.3 County 8I2.000 764.900 47.I00 5.8 State I7.552.300 I6.459.900 1.092.400 6.2 United States 147.401.000 139.252.000 8.149.000 5.5 2005 City 24.000 23.300 700 2.8 County 849.600 806.700 42.900 5.1 State I7.695.600 I6.746.900 948.700 5.4 United States I49.32I.000 I4I.730.000 7.59I.000 5.1 Sources: ('alifoniia .Stair Lmplotnu'nt Development Department and 11.S. Department of Labor, Bureau of Labor Statistics. 06012 pos-3 C-3 Table C-5 describes the largest employers in the City. Cornball\ JW Marriott Desert Springs Resort Securitas Security Svc USA Inc. College of the Desert Marriott's Desert Spas Villas Sunshine Landscape Desert Valley Industries Marriott Ownership Resorts Inc. Sunrise Colony Co. Foundation For the Retarded Time Warner Cable Bighorn Golf Club Springs At the Fountains Macy's West Monterey Palms Health Care Fountains At the Carlotta Indian Ridge Country Club Williams Mechanical Inc. Palm Valley Country Club Koala Tee Printing Table C-5 CITY OF PALM DESERT+ LARGEST EMPLOYERS (As of January 1, 2006) Product/Ser\ice Hospitality Security Services Education Hospitality Landscaping Services Business Support Services Hospitality Golf Course Community Social Services Telecommunications Golf Resort Convalescent and Nursing Care Retail Healthcare Convalescent and Nursing Care Golf Course Community Plumbing Golf Course Community Screen Printing Federal and State Government not included. Source: America's Labor Market Information S\stem(Al MIS). Commercial Activity Number of Emblo\ees I.300 700 630 500 500 400 300 250 236 220 220 200 200 200 200 200 200 200 200 A sales tax is imposed on retail sale or consumption of personal property. Sales tax revenues are determined by the total taxable transactions within a jurisdiction and distributed by the State Board of Equalization to the jurisdiction \dhere the sale took place. Sales taxes collected from merchants with no permanent place of business (i.e.. manufacturers. construction contractors. etc.) are accumulated to a Countywide or State-wide (out-of-state businesses) pool and distributed to cities and counties in proportion to their collections from all sales taxpayers. The value and volume of these taxable transactions are dependent on economic conditions and other factors. Such factors included the level of inflation affecting the price of goods and services subject to the sales tax. the rate of population growth in the general area. the characteristics of retail developments. such as the relative size of market service areas. the sensitivity of the types of businesses within the City to changes in the economy. and competing retail establishments outside the City. A deterioration of economic conditions and other factors influencing taxable sales generated in the City. may reduce the City's sales tax revenues. 06012 pos-3 C4 Table C-6 summarizes taxable transactions in the City for calendar years 2000 through 2004. TABLE C-6 CITY OF PALM DESERT Taxable Retail Sales Data Calendar Years 2000 to 2004 ($ in 000's) 2000 2001 2002 2003 2004+ R► ! A►►. SroRI:s Apparel Stores $92. 192 $9 3.792 $97.924 $ 108.829 $1 32.83 I General Merchandise 269.776 272.856 278.583 307.186 340.277 Food Stores 55.817 52.282 51.738 52.461 47.455 Eating K. Drinking Places 153.970 155.911 148.228 152.508 167.315 Home Furnishings and Appliances 128.899 125.130 129.623 135.694 155.921 Building Materials and Farm Implements 57.865 64.25I 54.III 56.I80 68.737 Auto Dealers and Auto Supplies 8.108 8.825 6.904 8.2 I I 5.862 Service Stations 25.807 22.633 2 3.9 30 39.146 45.585 Other Retail Stores 227.59 I 220.252 228.286 243.474 264.129 TOTAL RI !AII, STORES 1.020.025 1.0I5.932 1.0I9.327 I.I03.689 1.228.I I All Other Outlets 197.961 195.137 190.058 I9 3.041 205. 18 4 TOTAL AI. Al.i, OI J i i i i s $1.2 17.986 $1.2 11.069 $1.209. 385 $1.296.7 30 $1.433.296 Most recent annual data available. Source: State Board ofLqualization. Construction Activity In Fiscal Year 2004-05. the City issued construction permits valued in excess of $ 170 million. This total amount. approximately 27.i`%0 consisted of new single family construction and approximately I0. % consisted of new multifamily construction. A five-year history of building permits and valuation appears in Table C-7. Table C-7 CITY OF PALM DESERT BUILDING PERMITS AND VALUATIONS 2001-2005 Residential Number of Units Nonresidential Valuation Valuation Year Sintzle Family Multifamily ($ in 000-s)+ ($ in 000-s)+ Total 200 I 255 4 I I $ I20.073.2 $36.3 I9.0 $ I56.392.0 2002 22 I 310 100.486.0 41.41 3.7 14 I.899.7 2003 237 101 86.387.6 20.123.0 106.510.6 2004 325 III I 03.738.2 43. 112. I 146.850.3 2005 I00 I 35 78.I30.9 92.535.4 I70.663.3 t Includes value of individual units. alterations and additions. Source: ('onstruction /iithusnv Researcli l3ow d, Budding Pe nni, Sunvrr. 06012 pos-3 C Effective Buying Income "Effective buying income" ("EBI-) is a classification developed exclusively by Sales & Marketing Management magazine to distinguish it from other sources reporting income statistics. EBI is defined as "money income Icss personal tax and nontax payments - a number often referred to as "disposable"' or "after-tax income. Money income is the aggregate of Nvages and salaries. net farm and nonfarm self- employment income. interest. dividends. net rental and royalty income. Social Security and railroad retirement income. other retirement and disability income. public assistance income. unemployment compensation. Veterans Administration payments. alimony and child support. military family allotments. net winnings from gambling and other periodic income. Money income does not include money received from the sale of property (unless the recipient is engaged in the business of selling property): the value of "in -kind - income such as food stamps. public housing subsidies. medical care. employer contributions for persons. etc.: Nvithdra«al of bank deposits: money borrowed: tax refunds: exchange of money between relatives living in the same household: gifts and lump -sum inheritances. insurance payments. and other types of lump -sum receipts. EBI is computed by deducting from money income all personal income taxes (federal. state and local). personal contributions to social insurance (Social Security and federal retirement payroll deductions). and taxes on owner -occupied nonbusincss real estate. The total EBI for the City. as reported by Sales & Marketing Management in its 2005 Survey of Buying Power. was $1.295.785 and the median household EBI was $42.769. The 200i City median household EBI of $42.769 compares that of $33. 57 for the City of Palm Springs: $ 39.287 for the City of Ontario: $51.803 for the City of Corona: $5 3.205 for the City of Temecula: and $ 39.414 for the City of Los Angeles. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 C-6 Table C-8 presents the latest available total effective buying income and median household effective buying income for the City. the County. the State and the nation. Table C-8 CITY OF PALM DESERT, RIVERSIDE COUNTY, STATE OF CALIFORNIA, AND UNITED STATES EFFECTIVE BUYING INCOME Total Effective Median Household Year Buying Income Effective and Area (} in 000-s) Buying, Income 2005 City $1.295.785 $42.769 County 29.468.208 40.275 State 705.108.41() 43.915 United States 5.692.909.567 39.324 2004 City 1.238.323 41.699 County 27.623.743 39.321 State 674.721.020 42.924 United States 5.466.880.008 38.201 2003 City 1.184.128 42.299 County 25.180.040 38.691 State 647.879.427 42.484 United States 5.340.682.818 38.035 2002 City 1.008.568 37.975 County 23.617.301 37.480 State 650.521.407 43.532 United States 5.303.481.498 38.365 2001 City 1.109.327 46.046 County 25. I44. 12() 39.293 State 652.190.282 44.464 United States 5.230.824.904 39.129 Sources: Sales & Marketing Management, 200 I through 2005 Suurrrs of l3u iing Power. Utilities Water. sewage treatment and \vastmat er disposal are provided by the Coachella Valley Water District. Southern California Gas Company supplies natural gas to the City and electric power is provided by the Southern California Edison Company. Telephone service is available through Verizon. Cable television service is provided by Time Warner. 06012 pos-3 C-7 Transportation Inter -City transportation is provided by Greyhound Bus «hich provides service from its connection points in the City to its lines outside of the City in addition to the community owned and operated Sunline Bus System Nvhich provides service throughout the entire Coachella Valley. Intra-City transportation is provided by Tel -a -Ride and local taxi firms. The City's central highways are California Highway I I I and 74 Nvhich connect to US Interstate 10 and to California Highway 63 and 86. Shipping is provided by numerous truck carriers Nvhich have overnight service to Los Angeles. San Francisco. San Diego and Phoenix. Rail transportation is provided by the Southern Pacific Railroad located in Indio. 10 miles east of the City. and by Amtrak. Nvhich has two stations located in Coachella Valley. A frill service airport is located in Palm Springs. 12 miles northwest of the City. with approximately seven carriers providing service. The airport has an 8.500 foot runway and general aviation facilities. There is also a private airport in Bermuda Dunes. eight miles northeast of the City. Community Services The City of Palm Desert provides both police and fire protection through contracts Nvith the County of Riverside. The Riverside County Public Library System provides library services to the City. The City also operates a 43.000 square foot public library on the College of the Desert campus \yhich is jointly used by the public and the College of the Desert. Education, Culture and Recreation Public school education is provided by the Desert Sands Unified School District (the "School District"). The School District provides preschool through grade 12 education to students living in the City and the communities of Indian Wells. Indio. La Quinto. Rancho Mirage and Bermuda Dunes. The School District and operates 17 elementary schools. six middle schools. three comprehensive high schools. one independent study/alternative school and a continuation high school. The College of the Desert. the Coachella Valley Community College is located in the City. A satellite campus of California State University. San Bernardino is also located on the College of the Desert Campus. Cultural facilities in the City include the 1.127 seat McCallum Theater for the Performing Arts located in Bob Hope Cultural Center. the 1.200 acre Living Desert Zoo and Gardens. and the Art in Public Places (a museum Nyithout \galls featuring more than 130 Nvorks of art throughout the City). Recreation programs for residents of the City and other neighboring communities are offered through the Coachella Valley Recreation and Park District (the "Park District"). The Park District provides recreational activities and programs ranging from tiny tots programs. kids clubs and summer day camp. to dance. health and fitness and music instruction. to the senior games. The Desert Willow Golf Resort. a 36 hole. public golf course. is located on acres in the area of the City. This golf course also features a 33.000 square foot clubhouse. and dining and banquet facilities. The City also is home to five other public golf courses and resorts and 20 private or semi -private golf clubs and resorts. 06012 pos-3 C-8 APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE 2006 INDENTURES 06012 pos-3 D- I APPENDIX E PROPOSED FORM OF BOND COUNSEL OPINION 06012 pos-3 E-I APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT 06012 pos-3 F-I APPENDIX G DTC AND THE BOOK -ENTRY ONLY SYSTEM The infol'mahon In this Appendix G concerning The l )epositoly trust ('ompany. New York. New York ("MC') and /)i("s book -entry .si'siem has been obtained i-om l)i(' and the Redevelopment Agency takes no responsibilih'.for the completeness or accuracy thereof. The Redevelopment Agency cannot and does not ,give any assurances that /)/('. MC Participants or Indirect Participants will distribute to the Beneficial Owners (a) pal'nwnts of interest. principal or prcnli l/n. if any. with respect to the 2006 Series Bonds, (b) certificate's repre.venling ownership interest in or other" confirmation or ownership interest in the 2006 Series Bonds. or (c) redemption or other" notices sent to /)/C or Cede & Co.. its nominee. as the registered owner of the 2006 Series Bonds. or that they will so do on a timely basis. or that /)7('. MC Participants or l)7(' Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to MC are on file with the .S'ecuri1ies and Exchange ('ommission and the current "l'rocechrres" ()WIC to he.fullou•ed in dealing with l)7(' Participants are ()Ole with PI('. The Depository Trust Company ("DTC). New York. NY. «ill act as securities depository for the 2006 Series Bonds. The 2006 Series Bonds «ill be issued as fillly-registered securities registered in the name of Cede K. Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered security certificate «ill be issued for each maturity of the 2006 Series Bonds. each in the aggregate principal amount of such maturity. and «ill be deposited Nvith DTC. DTC. the vorld's largest depository. is a limited -purpose trust company organized under the New York Banking Law. a 'tanking organization"' Nvithin the meaning of the New York Banking Law. a member of the Federal Reserve System. a "clearing corporation"' «ithin the meaning of the New York Uniform Commercial Code. and a "clearing agency registered pursuant to the provisions of Section I 7A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity issues. corporate and municipal debt issues. and money market instruments from over 100 countries that DTC's participants ("Direct Participants) deposit Nvith DTC. DTC also facilitates the post - trade settlement among Direct Participants of sales and other securities transactions in deposited securities. through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers. banks. trust companies. clearing corporations. and certain other organizations. DTC is a «holly -owned subsidiary of The Depository Trust K. Clearing Corporation ("DTCC-). DTCC. in turn. is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation. Government Securities Clearing Corporation. MBS Clearing Corporation. and Emerging Markets Clearing Corporation. (respectively. " NSCC-. " GSCC-. "MBSCC-. and " EMCC-. also subsidiaries of DTCC). as \yell as by the New York Stock Exchange. Inc.. the American Stock Exchange LLC. and the National Association of Securities Dealers. Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers. banks. trust companies. and clearing corporations that clear through or maintain a custodial relationship Nvith a Direct Participant. either directly or indirectly ("Indirect Participants.). DTC has Standard K. Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file Nvith the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of the 2006 Series Bonds under the DTC system must be made by or through Direct Participants. \yhich Nyill receive a credit for the 2006 Series Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner-) is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners «iII not receive Nvritten confirmation from DTC of their purchase. Beneficial Owners are. however. expected to receive «rittcn confirmations providing details of the transaction. as \yell as periodic statements of their holdings. from the Direct or Indirect Participant through Nvhich the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2006 Series 06012 pos-3 G- I Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2006 Series Bonds. except in the event that use of the book -entry system for the 2006 Series Bonds is discontinued. To facilitate subsequent transfers. all 2006 Series Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee. Cede K. Co.. or such other name as may be requested by an authorized representative of DTC. The deposit of the 2006 Series Bonds with DTC and their registration in the name of Cede K. Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2006 Series Bonds: DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited. which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants. by Direct Participants to Indirect Participants. and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them. subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the 2006 Series Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2006 Series Bonds. such as redemptions. tenders. defaults. and proposed amendments to the Indenture. For example. Beneficial Owners of the 2006 Series Bonds may wish to ascertain that the nominee holding the 2006 Series Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative. Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. The conveyance of notices and other communications by DTC to DTC Participants. by DTC Participants to Indirect Participants and by DTC Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them. subject to any statutory or regulatory requirements as may be in effect from time to time. Any failure of DTC to advise any DTC Participant. or of any DTC Participant or Indirect Participant to notify a Beneficial Owner. of any such notice and its content or effect will not affect the validity of the redemption of the 2006 Series Bonds called for redemption or of any other action premised on such notice. Redemption of portions of the 2006 Series Bonds by the Redevelopment Agency will reduce the outstanding principal amount of Bonds held by DTC. In such event. DTC will implement. through its book -entry system. a redemption by lot of interests in the 2006 Series Bonds held for the account of DTC Participants in accordance with its own Hiles or other agreements with DTC Participants and then DTC Participants and Indirect Participants will implement a redemption of the 2006 Series Bonds for the Beneficial Owners. Any such selection of Bonds to be redeemed will not be governed by the Indenture and will not be conducted by the Redevelopment Agency or the Trustee. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the 2006 Series Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures. DTC mails an Omnibus Prosy to the issuer as soon as possible after the record date. The Omnibus Prosy assigns Cede K. Co.'s consenting or voting rights to those Direct Participants to whose accounts the 2006 Series Bonds are credited on the record date (identified in a listing attached to the Omnibus Prosy). Payments of principal of. premium. if any. and interest evidenced by the 2006 Series Bonds will be made to Cede & Co.. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of fiends and corresponding detail information from the Redevelopment Agency or the Trustee. on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices. as is the case with securities held for the accounts 06012 pos-3 G-2 of customers in bearer form or registered in "street name." and NyiII be the responsibility of such Participant and not of DTC (nor its nominee). the Tnistcc. or the Redevelopment Agency. subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of. premium. if any. and interest evidenced by the 2006 Series Bonds to Cede K. Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Redevelopment Agency or the Tnistcc. disbursement of such payments to Direct Participants NyiII be the responsibility of DTC. and disbursement of such payments to the Beneficial Owners NyiII be the responsibility of Direct and Indirect Participants. NEITHER THE REDEVELOPMENT AGENCY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS. INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS. INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF BONDS FOR REDEMPTION. Neither the Redevelopment Agency nor the Trustee can give any assurances that DTC. DTC Participants. Indirect Participants or others NyiII distribute payments of principal of. premium. if any. and interest on the 2006 Series Bonds paid to DTC or its nominee. as the registered Owner. or any redemption or other notice. to the Beneficial Owners or that they NyiII do so on a timely basis or that DTC «iII serve and act in a manner described in this Official Statement. DTC may discontinue providing its services as depository Nvith respect to the 2006 Series Bonds at any time by giving reasonable notice to the Redevelopment Agency or the Tnustcc. Under such circumstances. in the event that a successor depository is not obtained. Bond certificates are required to be printed and delivered. The Redevelopment Agency may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event. Bond certificates NyiII be printed and delivered. In the event that the book -entry system is discontinued as described above. the requirements of the Indenture Nvill apply. The foregoing information concerning DTC concerning and DTC's book -entry system has been provided by DTC. and neither the Redevelopment Agency nor the Tnustcc take any responsibility for the accuracy thereof. The Redevelopment Agency and the Tnustcc cannot and do not give any assurances that DTC. the Participants or others NyiII distribute payments of principal. interest or premium. if any. evidenced by the 2006 Series Bonds paid to DTC or its nominee as the registered owner. or NyiII distribute any redemption notices or other notices. to the Beneficial Owners. or that they NyiII do so on a timely basis or NyiII serve and act in the manner described in this Official Statement. Neither the Redevelopment Agency nor the Tnustcc are responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner Nvith respect to the 2006 Series Bonds or an error or delay relating thereto. 06012 pos-3 G-3 APPENDIX H SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY 06012 pos-3 H- I APPENDIX J TABLE OF ACCRETED VALUES Capital Appreciation Bonds, 2006 Series B 06012 pos-3 2006 Subordinate Capital Appreciation Bonds, 2006 Series C 06012 pos-3 G-2 Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B ROND PURCHASE ACRF.F.MF.NT . 2006 Palm Desert Financing Authority 7 3-5 I() Fred Waring Drive Palm Desert. California 92260-2578 Ladies and Gentlemen: L&J DRAFT # I 0i/22/06 Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C Citigroup Global Markets Inc. (the "Underwriter.). offers to enter into this Bond Purchase Agreement (the "Purchase Agreement-) with the Palm Desert Financing Authority (the "Financing Authority-) " ). a joint powers authority created by a Joint Exercise of Powers Agreement dated January 26. 1989 (the '.IPA Agreement-) between the City of Palm Desert and the Palm Desert Redevelopment Agency (the "Redevelopment Agency'). which upon acceptance and approval. will be binding upon the Financing Authority and the Undenvriter. This offer is made subject to acceptance by the Financing Authority and approval by the Redevelopment Agency by execution of this Purchase Agreement and delivery of the same to the Underwriter on or before 11:59 p.m. (California time) on the date hereof. and. if not so accepted and approved. NviII be subject to NvithdraWal by the Underwriter upon notice delivered to the Financing Authority at any time prior to such acceptance and approval. Capitalized terms used in this Purchase Agreement and not otherwise defined herein shall have the respective meanings set forth for such terms in the 2006 Indentures (defined below) and if not otherwise defined therein. shall have the meanings given to such terms as set forth in the Official Statement (defined below). Section 1. Purchase and Sale of the 2006 Bonds. Upon the terms and conditions and upon the basis of the representations set forth in this Purchase Agreement. the Underwriter agrees to purchase from the Financing Authority. and the Financing Authority agrees to sell and deliver to the Underwriter. all (but not less than all) of the $ aggregate principal amount of the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A (the "Current Interest Bonds") and principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B (the "Capital Appreciation Bonds" and together with the Current Interest Bonds. the ".Senior Bonds-): and all (but not Tess than all) of the aggregate principal amount of the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C (the "Subordinate Capital Appreciation Bonds- and together «ith the Senior Bonds. the "2006 Bonds.). 234-06012 pc-1 The Senior Bonds shall be dated the date of delivery and shall have the maturities. bear interest at the rates per annum. have the yields and be subject to mandatory sinking fund redemption all as set forth on Schedule I attached hereto. The purchase price for the Senior Bonds shall be $ (calculated as the principal amount of the Senior Bonds. less an original issue discount in the amount of $ and Tess an Undenvriter's discount in the amount of } ). The Subordinate Capital Appreciation Bonds shall be dated the date of delivery and shall have the maturities. bear interest at the rates per annum. have the yields and be subject to mandatory sinking fund redemption all as set forth on Schedule I attached hereto. The purchase price for the Subordinate Capital Appreciation Bonds shall be $ (calculated as the principal amount of the Subordinate Capital Appreciation Bonds. Tess an original issue discount in the amount of $ and Tess an Undenvriter's discount in the amount of } ). Section 2. Preliminary Official Statement. The Financing Authority has delivered to the Undenyriter a Preliminary Official Statement. dated June . 2006 (the "Preliminary Official .S'tatement "). and \\ill deliver to the Undenyriter a final Official Statement dated the date hereof as provided in Section 5 of this Purchase Agreement (as amended and supplemented from time to time pursuant to Section 6(k) of this Purchase Agreement. the "Official .S'tcrtement " ). The Financing Authority and the Redevelopment Agency have each delivered to the Undenyriter a certificate pursuant to Securities and Exchange Commission Rule I i5c2-12 ("Rule I i5c2-12-) relating to the Preliminary Official Statement. in substantially the forms attached hereto as Exhibit A-1 and Exhibit A-7 respectively. Section 3. Description of the 2006 Bonds. The 2006 Bonds are issued pursuant to the Community Redevelopment Law of the State of California. constituting Part I of Division 24 of the Health and Safety Code. commencing with Section 33000 (the "Redevelopment Lau .) and Resolution No. adopted by the Financing Authority on . 2006 (the "Financing Authority Resolution.). The 2006 Bonds shall be payable and subject to redemption as provided in the 2006 Indentures (defined herein) and as set forth in the Official Statement. The 2006 Bonds are legal. valid and binding limited obligations of the Financing Authority. and are payable solely from and secured by a pledge of Revenues (as defined in the 2006 Indentures) derived primarily from loan payments made by the Redevelopment Agency pursuant to the 2006 Loan Agreements (defined herein). The Senior Bonds shall be substantially in the form described in. shall be issued and secured under the provisions of. and shall be payable as provided in. the Indenture of Trust. dated as of July I. 2006 (the "Senior Indenture.). by and between the Financing Authority and Wells Fargo Bank. National Association (the "Trustee.). The Financing Authority is issuing the Senior Bonds to make two loans. one with respect to the Current Interest Bonds and one with respect to the Capital Appreciation Bonds (collectively. the ".Senior Loans.). to the Palm Desert Redevelopment Agency (the "Redevelopment Agency) pursuant to the terms of a Project Area No. 3 Loan Agreement made and executed as of July I. 2006 (the ".Senior Loan Agreement") by and among the Financing Authority. the Redevelopment Agency and the Trustee. The Redevelopment Agency «iII apply the proceeds of the Senior Loans to: (i) finance various redevelopment activities «ithin Project Area No. 3 located in the City of Palm Desert (the "Project Area"): (ii) purchase a reserve fund surety policy (the "Reserve Policy.) for deposit into the Reserve Fund for the Senior Bonds: and (iii) pay the costs associated with the issuance of the Senior Bonds. The Subordinate Capital Appreciation Bonds shall be substantially in the form described in. shall be issued and secured under the provisions of. and shall be payable as provided in a separate Indenture of Trust. dated as of July I. 2006 (the ".S'rrhorc/incrte Indenture"' and together «ith the Senior Indenture. the "2006 Indentures.). by and between the Financing Authority and the Trustee. The Financing Authority is issuing the Subordinate Capital Appreciation Bonds to make a loan (the ".S'rrhorc/incrte Loan and together 234-06012 pc-1 2 with the Senior Loans. the "2006 Loans .) to the Redevelopment Agency pursuant to the terms of a Project Area No. 3 Loan Agreement (Subordinate Loan) made and entered into as of July I. 2006 (the ".S'iihorclinate Loan Agreement"' and together with the Senior Loan Agreement. the "2006 Loan Agreements .) by and among the Financing Authority. the Redevelopment Agency and the Trustee. The Redevelopment Agency will apply the proceeds of the Subordinate Loan to: (i) finance various redevelopment activities within the Project Area: (ii) fund a deposit into the Reserve Fund for the Subordinate Capital Appreciation Bonds: and (iii) pay the costs associated with the issuance of the Subordinate Capital Appreciation Bonds. The payment of principal of and interest on the 2006 Bonds when due will be insured by municipal bond insurance (policy/policies' (the "Mond Insurance Policy"Boncl Insurance Policies "/) to be issued by (the " Roncl Insurer.). simultaneously with the delivery of the 2006 Bonds. The Bond Insurer will also issue the Reserve Policy with respect to the Senior Bonds upon the delivery of the Senior Bonds. Section 4. Public Offering. The Underwriter agrees to make a bona fide public offering of all the 2006 Bonds at not in excess of the initial public offering prices or yields set forth in Schrdulc I attached hereto. plus interest accrued thereon. if applicable. from the date of the 2006 Bonds. The Underwriter reserves the right to make concessions to dealers and to change such initial public offering prices or yields as the Undenvriter reasonably deems necessary in connection with the marketing of the 2006 Bonds. The Underwriter also reserves the right (i) to over -allot or effect transactions that stabilize or maintain the market price of the 2006 Bonds at a level above that which might otherwise prevail in the open market and (ii) to discontinue such stabilizing. if commenced. at any time. Section 5. Delivery of Official Statement. The Financing Authority shall deliver to the Undenvriter. as promptly as practical but in no event later than the Closing Date (as defined herein). such number of copies of the final Official Statement. as the Underwriter may reasonably request in order to comply with the Securities and Exchange Commission Rule IiSc2-I2(b) and the rules of the Municipal Securities Rulemaking Board (the "MS'RR The Financing Authority hereby authorizes the Undenvriter to use the Official Statement and the information contained therein in connection with the offering and sale of the 2006 Bonds and ratifies and confirms the authorization of the use by the Undenvriter prior to the date hereof of the Preliminary Official Statement. furnished to the Underwriter by the Financing Authority in connection with such offering and sale. The Undenvriter agrees that from the time the Official Statement becomes available until the earlier of (i) the "End of'the Underwriting Period.- as defined in Section 6(j) herein. or (ii) the time when the Official Statement is available to any person from a nationally recognized municipal securities information repository. but in no case Tess than 25 days following the End of the Underwriting Period. the Undenvriter shall send no later than the next business day following a request for a copy thereof. by first class mail or other equally prompt means. to any Potential Customer. as defined in Rule IiSc2-12. on request. a single copy of the Official Statement. The Underwriter agrees to file as soon as reasonably practicable a copy of the Official Statement with a nationally recognized municipal securities information repository and take any and all actions necessary to comply with applicable Securities and Exchange Commission rules and MSRB rules governing the offering. sale and delivery of the 2006 Bonds to ultimate purchasers. At the time of pricing. the Undenvriter shall deliver to the Financing Authority a summary of the orders by maturity. 234-06012 pc-1 Section 6. Representations, Warranties and Covenants of the Financing Authority. The Financing Authority represents. warrants and covenants with the Undenyriter that: (a) the governing board of the Financing Authority has by the Financing Authority Resolution adopted by a majority of its members at a meeting duly called. noticed and conducted. at which a quorum was present and acting throughout on . 2006. taken all action necessary for the execution. delivery and due performance of the 2006 Indentures. the 2006 Loan Agreements. the Tax Certificate of the Financing Authority dated as of the date of the initial delivery of the 2006 Bonds (the "Tax Certificate ") and this Purchase Agreement (collectively. the "Financing Authority Agreements-) and the authorization and approval of the Preliminary Official Statement and the Official Statement: the Financing Authority Resolution is in full force and effect and has not been amended. modified or rescinded: the adoption of the Financing Authority Resolution constitutes all necessary action to be taken by the Financial Authority for the execution. issuance and delivery of the 2006 Bonds and the execution delivery and due performance of the Financing Authority Agreements. (b) the Financing Authority is and will be on the Closing Date a joint exercise of powers authority duly organized and existing under the laws of the State of California (the ".S'tate ") and the JPA Agreement and has all necessary power and authority to adopt the Financing Authority Resolution. to enter into and perform its duties under the Financing Authority Agreements: and. wlhen executed and delivered by the respective parties thereto. the Financing Authority_ Agreements will each constitute legal. valid and binding obligation of the Financing Authority enforceable in accordance with its respective terms. except as enforcement may be limited by bankruptcy. insolvency. reorganization. moratorium or similar laws or equitable principles relating to or affecting creditors" rights generally. (c) this Purchase Agreement has been duly executed and delivered by the Financing Authority. and constitutes. and upon their execution and delivery. the Financing Authority Agreements and the 2006 Bonds will constitute. legal. valid and binding obligations of the Financing Authority enforceable in accordance with their terms. except as enforceability may be limited by bankrnptcy. insolvency. moratorium or creditors" rights generally: and the execution and delivery of the Purchase Agreement does not and the execution and delivery of the Financing Authority Agreements and the 2006 Bonds and compliance with the provisions of each thereof will not conflict with or constitute a breach of or a default under any applicable law or administrative regulation of the State or the United States. or any applicable judgment. decree. agreement or other instrument to which the Financing Authority is a party or is otherwise subject: (d) at the time of acceptance hereof by the Financing Authority. and (unless an event occurs of the nature described in Section 6(k)) at all times during the period from the date of this Purchase Agreement to and including the date which is 25 days following the End of the Underwriting Period for the 2006 Bonds (as determined in accordance with Section 6(j)). the statements and information contained in the Preliminary Official Statement as of its date. and the Official Statement as of its date (excluding the information under the captions "Ml1NICIPAI. BONI) INSURANCE:* and "UNDERWRITING.- and contained in APPENDIX G-"DTC AND 1111: BOOK -ENTRY SYSII:M.- and APPENDIX H-"SPECIMEN MUINICIPAI. BOND INS11RANC1: POLICY.* and APPENDIX I -"SPECIMEN RI:sl;RVI: Pm) S11R1:IY POLICY-) are true. correct and complete in all material respects and such statements with respect to the Preliminary Official Statement do not. and with respect to the Official Statement will not. omit to state any material fact necessary to make such statements. in Tight of the circumstances under which they \were made. not misleading: (e) to the best of its knowledge. the Financing Authority is not in violation or breach of or default under any applicable constitutional provision. law or administrative rule or regulation of the State of California or the United States of America. or any agency or instrumentality of either of them. or any applicable judgment or decree. or any loan agreement. indenture. bond. note. resolution. agreement or other 234-06012 pc-1 4 instrument to which the Financing Authority is a party or is otherwise subject. \Vhich would constitute a default under any of the Financing Authority Agreements or the 2006 Bonds. and no event has occurred and is continuing which. with the passage of time or the giving of notice. or both would constitute a violation or a breach of or a default under any such loan agreement. indenture. bond. note. resolution. agreement or other instrument to which the Financing Authority is a party or is othenvise subject: (f) at the date hereof and on the Closing Date. the Financing Authority will be in compliance in all respects with the material covenants and agreements contained in the Financing Authority Agreements and no event of default and no event has occurred and is continuing which. with the passage of time or giving of notice. or both. would constitute an event of default thereunder shall have occurred and be continuing: (g) to the best knowledge of the Financing Authority. after due investigation. other than as set forth in the Official Statement or as the Financing Authority has otherwise disclosed in writing to the Undenyriter. there is no action. suit. proceeding. inquiry or investigation. at law or in equity. or by or before any court. governmental agency. public board or body. pending or threatened against the Financing Authority. (i) wherein an unfavorable decision. ruling or finding would adversely affect the existence of the Financing Authority or the title of any official of the Financing Authority to such persons office. or (ii) seeking to restrain or enjoin the issuance. sale or delivery of the 2006 Bonds. or the assignment by the Financing Authority of its rights under the 2006 Indentures. or (iii) in any way contesting or affecting the validity or enforceability of the Financing Authority Agreements or the 2006 Bonds. or (iv) contesting in any way the completeness or accuracy of the Preliminary Official Statement. or (v) contesting the power of the Financing Authority or its authority with respect to the 2006 Bonds or the Financing Authority Agreements. or (vi) contesting the exclusion of interest on the 2006 Bonds from gross income for federal and State income wherein an unfavorable decision. ruling or finding would materially adversely affect the validity of the Financing Authority Agreements or the authorization. execution. delivery or performance by the Financing Authority of the 2006 Bonds or the Financing Authority Agreements: (h) the Financing Authority will furnish such information. execute such instruments and take such other action not inconsistent with law in cooperation with the Undenyriter which the Undenyriter may reasonably request in order for the Undenyriter to qualify the 2006 Bonds for offer and sale under the Blue Sky or other securities Taws and regulations of such states and other jurisdictions of the United States as the Undenyriter may designate and to determine the eligibility of the 2006 Bonds for investment under the Taws of such states and other jurisdictions: provided. however. that in no event shall the Financing Authority be required to take any action which would subject it to service of process in any jurisdiction in which it is not now subject: (i) to the best of knowledge of the Financing Authority. all approvals. consents and orders of any governmental authority or agency haying jurisdiction in the matter which would constitute a condition precedent to the due performance by the Financing Authority of its obligations under the Financing Authority Agreements or the 2006 Bonds have been duly obtained or made. and are. and will be on the Closing Date. in full force and effect: (I) as used in this Purchase Agreement. the term "End of'the Underwriting Period- for the 2006 Bonds shall mean the earlier of (i) the Closing Date unless the Financing Authority shall have been notified in writing to the contrary by the Underwriter on or prior to the Closing Date or (ii) the date on which the End of the Underwriting Period for the 2006 Bonds has occurred under Rule 15c2- 12. provided. however. that the Financing Authority may treat as the End of the Underwriting Period for the 2006 Bonds the date specified as such in a notice from the Underwriter stating the date which is the End of the Underwriting Period: 234-06012 pc-1 (k) if between the date hereof and the date \Vhich is 25 days after the End of the Underwriting Period for the 2006 Bonds. an event occurs. or facts or conditions become known to the Financing Authority wihich. in the reasonable opinion the City Attorney. as Counsel to the Financing Authority or Lofton & Jennings. San Francisco. California ("Disclosure Counsel"). might or would cause the information contained in the Official Statement. as then supplemented or amended. to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein. in the light of the circumstances under \Vhich it was made. not misleading in any material respect. the Financing Authority will notify the Undenvriter. and if in the opinion of the Undenvriter such event requires the preparation and publication of a supplcmcnt or amendment to the Official Statement. the Financing Authority will forthwith prepare and furnish to the Underwriter (at the expense of the Financing Authority) a reasonable number of copies of an amendment of or supplcmcnt to the Official Statement (in the form and substance satisfactory to the Underwriter) \Vhich will amend or supplcmcnt the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein. in the light of the circumstances existing at the time the Official Statement is delivered to prospective purchasers. not misleading in any material respect with respect to the information of the Financing Authority. If such notification shall be subsequent to the Closing Date. the Financing Authority shall forthwith provide to the Underwriter such legal opinions. certificates. instruments and other documents as the Underwriter may reasonably deem necessary to evidence the truth and accuracy of such supplcmcnt or amendment to the Official Statement. For the purposes of this subsection. between the date hereof and the date which is 25 days after the End of the Undenvriting Period for the 2006 Bonds. the Financing Authority will furnish such information with respect to itself as the Undenvriter may from time to time reasonably request: (I) if the information contained in the Official Statement relating to the Financing Authority is amended or supplemented pursuant to Section 6(k). at the time of such supplcmcnt or amendment thereto and (unless subsequently again supplemented or amended pursuant to such subparagraph) at all times subsequent thereto up to and including the date which is 25 days after the End of the Underwriting Period for the 2006 Bonds. the portions of the Official Statement so supplemented or amended (including any financial and statistical data contained therein). will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information therein. in the light of the circumstances under which it was made. not misleading: (m) any certificate signed by any officer of the Financing Authority and delivered to the Undenvriter pursuant to the 2006 Indentures or this Purchase Agreement or any document contemplated thereby shall be deemed a representation and warranty by the Financing Authority to the Undenvriter as to the statements made therein and that such officer shall have been duly authorized to execute the same: (n) to the best knowledge of the Financing Authority. there is no public vote or referendum pending or proposed. the results of which could materially adversely affect the transactions contemplated by the Official Statement or the Financing Authority Agreements or the 2006 Bonds. or the validity or enforceability of the 2006 Bonds: (o) the Financing Authority will comply with the requirements of the tax certificate executed by the Financing Authority in connection with the delivery of the 2006 Bonds: and (p) the Financing Authority will apply the proceeds from the sale of the 2006 Bonds for the purposes specified in the 2006 Indentures. Section 7. Representations, Warranties and Covenants of the Redevelopment Agency. The Redevelopment Agency represents. warrants and covenants with the Undenvriter that: 234-06012 pc-1 6 (a) the Redevelopment Agency is a public body corporate and politic. organized and existing under the laws of the State. including the Redevelopment Law. with full right. power and authority to execute. deliver and perform its obligations under the 2006 Loan Agreements. the Continuing Disclosure Certificate Agreement among the Redevelopment Agency. the Trustee and MuniFinancial. Inc.. as Dissemination Agent. dated the Closing Date and substantially in the form attached to the Official Statement as Exhibit F (the "Continuing Disclosure Agreement.). and to approve this Purchase Agreement (collectively. the "Redevelopment Agency Agreements.). and to carry out all transactions contemplated by each of the Redevelopment Agency Agreements and the Official Statement. (b) the Redevelopment Agency has by Resolution No. (the "Redevelopment Agency Resolution") adopted by a majority of its members at a meeting duly called. noticed and conducted. at which a quorum was present and acting throughout. on . 2006. taken all action necessary to be taken by it to authorize and approve the execution. delivery of and the performance by the Redevelopment Agency of the obligations contained in the Redevelopment Agency Agreements: the Redevelopment Agency Resolution is in full force and effect and has not been amended. modified or rescinded: and the adoption of the Redevelopment Agency Resolution constitutes all action necessary to be taken by the Redevelopment Agency for the execution. delivery and due performance of the Redevelopment Agency Agreements: (c) when executed and delivered by the respective parties thereto. each of the Redevelopment Agency Agreements will constitute a legally valid and binding obligation of the Redevelopment Agency enforceable in accordance with their respective terms. except as enforcement may be limited by bankruptcy. insolvency. reorganization. moratorium or similar laws or equitable principles relating to or affecting creditors" rights generally: the Redevelopment Agency has complied. and will at the Closing be in compliance in all material respects. with the terms of the Redevelopment Agency Agreements: (d) at the time of acceptance hereof by the Redevelopment Agency. and (unless an event occurs of the nature described in Section 7(k)) at all times during the period from the date of this Purchase Agreement to and including the date which is 25 days following the End of the Underwriting Period for the 2006 Bonds (as determined in accordance with Section 7(j)). the statements and information contained in the Preliminary Official Statement as of its date. and the Official Statement as of its date under the captions "THE REDEVELOPMENT r AGENCY" and "THE PROJECT AREA" and contained in APPENDIX 13- "RI:DI:VI:LOPMI:NT AGENCY AUDITED FINANCIAI, STATEMENTS FOR 1111: FISCAI, YEAR ENDED JUNI: 30. 2005- are true. correct and complete in all material respects and such statements do not with respect to the Preliminary Official Statement. and NViII not with respect to the Official Statement. omit to state any material fact necessary to make such statements. in Tight of the circumstances under which they \were made. not misleading: 234-06012 pc-1 7 (e) to the best of its knowledge. the Redevelopment Agency is not in violation or breach of or default under any applicable constitutional provision. law or administrative rule or regulation of the State or the United States of America. or any agency or instrumentality of either of them. or any applicable judgment or decree. or any loan agreement. indenture. bond. note. resolution. agreement or other instrument to which the Redevelopment Agency is a party or is othenvise subject. which would constitute a default under any of the Redevelopment Agreements. no event has occurred and is continuing which. with the passage of time or the giving of notice. or both would constitute a violation or a breach of or a default under an such loan agreement. indenture. bond. note. resolution. agreement or other instrument to which the Redevelopment Agency is a party or is othenvise subject: and compliance with the provisions of the Redevelopment Agency Agreements will not materially conflict with or constitute a breach of or default under an applicable constitutional provision. law. administrative regulation. court order or consent decree or an applicable judgment or decree or an loan agreement. note. resolution. indenture. agreement or other instrument to which the Redevelopment Agency is a party or may be othenvise subject: (0 at the date hereof and on the Closing Date. the Redevelopment Agency NViII be in compliance in all respects with the material covenants and agreements contained in the Redevelopment Agency Agreements and no event of default and no event has occurred and is continuing which. with the passage of time or giving of notice. or both. would constitute an event of default thereunder shall have occurred and be continuing: (g) to the best knowledge of the Redevelopment Agency. after due investigation. other than as set forth in the Official Statement or as the Redevelopment Agency has otherwise disclosed in writing to the Undenwriter. there is no action. suit. proceeding. inquiry or investigation. at law or in equity. or by or before an court. governmental agency. public board or body. pending or threatened against the Redevelopment Agency. (i) wherein an unfavorable decision. ruling or finding would adversely affect the existence of the Redevelopment Agency or the title of any official of the Redevelopment Agency to such persons office. or (ii) in any way contesting or affecting the validity or enforceability of the Redevelopment Agency Agreements or the 2006 Bonds. or (iii) contesting in any way the completeness or accuracy of the information in the Preliminary Official Statement contained under the captions "THE RI:DI:V1 1 OPMI:M AGENCY" and "TI11: PROJECT AREA- and contained in APPENDIX B-"REDEVELOPMENT AGENCY AUDITED FINANCIAI, STATEMENTS FOR 1111: FISCAI, YEAR ENDED JUN1: 30. 200i.' or (iv) contesting the power of the Redevelopment Agency or its authority with respect to the Redevelopment Agency Agreements: wherein an unfavorable decision. ruling or finding would materially adversely affect the validity of the Redevelopment Agency Agreements or the authorization. execution. delivery or performance by the Redevelopment Agency of the Redevelopment Agency Agreements: (h) the Redevelopment Agency NViII furnish such information. execute such instruments and take such other action not inconsistent with law in cooperation with the Underwriter which the Underwriter may reasonably request in order for the Underwriter to qualify the 2006 Bonds for offer and sale under the Blue Sky or other securities Taws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate and to determine the eligibility of the 2006 Bonds for investment under the Taws of such states and other jurisdictions: provided. however. that in no event shall the Redevelopment Agency be required to take any action which would subject it to service of process in any jurisdiction in which it is not now subject: (i) to the best of knowledge of the Redevelopment Agency. all approvals. consents and orders of any governmental authority or agency haying jurisdiction in the matter which would constitute a condition precedent to the due performance by the Redevelopment Agency of its obligations under the Redevelopment Agency Agreements have been duly obtained or made. and are. and NViII be on the Closing Date. in full force and effect: 234-06012 pc-1 8 (I) as used in this Purchase Agreement. the term "End of'the Underwriting Period- for the 2006 Bonds shall mean the earlier of (i) the Closing Date unless the Redevelopment Agency shall have been notified in writing to the contrary by the Underwriter on or prior to the Closing Date or (ii) the date on which the End of the Underwriting Period for the 2006 Bonds has occurred under Rule 15c2- 12. provided. however. that the Redevelopment Agency may treat as the End of the Underwriting Period for the 2006 Bonds the date specified as such in a notice from the Underwriter stating the date \Vhich is the End of the Underwriting Period: (k) if between the date hereof and the date \Vhich is 25 days after the End of the Underwriting Period for the 2006 Bonds. an event occurs. or facts or conditions become known to the Redevelopment Agency wilich. in the reasonable opinion of the City Attorney. as Counsel to the Redevelopment Agency or Disclosure Counsel. might or would cause the information contained in the Official Statement. as then supplemented or amended. to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein. in the Tight of the circumstances under which it was made. not misleading in any material respect. the Redevelopment Agency will notify the Undenvriter. and if in the opinion of the Underwriter such event requires the preparation and publication of a supplement or amendment to the Official Statement. the Redevelopment Agency will forthwith prepare and furnish to the Undenvriter (at the expense of the Redevelopment Agency) a reasonable number of copies of an amendment of or supplement to the Official Statement (in the form and substance satisfactory to the Undenvriter) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein. in the Tight of the circumstances existing at the time the Official Statement is delivered to prospective purchasers. not misleading in any material respect with respect to the information of the Redevelopment Agency. If such notification shall be subsequent to the Closing Date. the Redevelopment Agency shall forthwith provide to the Undenvriter such legal opinions. certificates. instruments and other documents as the Undenvriter may reasonably deem necessary to evidence the truth and accuracy of such supplement or amendment to the Official Statement. For the purposes of this subsection. between the date hereof and the date which is 25 days after the End of the Underwriting Period for the 2006 Bonds. the Redevelopment Agency will furnish such information with respect to itself as the Undenvriter may from time to time reasonably request: (I) if the information contained in the Official Statement relating to the Redevelopment Agency is amended or supplemented pursuant to Section 7(k). at the time of such supplcmcnt or amendment thereto and (unless subsequently again supplemented or amended pursuant to such subparagraph) at all times subsequent thereto up to and including the date which is 25 days after the End of the Underwriting Period for the 2006 Bonds. the portions of the Official Statement so supplemented or amended (including any financial and statistical data contained therein). will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information therein. in the Tight of the circumstances under which it was made. not misleading: (m) any certificate signed by any officer of the Redevelopment Agency and delivered to the Undenvriter pursuant to the Redevelopment Agency Agreements or this Purchase Agreement or any document contemplated thereby shall be deemed a representation and warranty by the Redevelopment Agency to the Undenvriter as to the statements made therein and that such officer shall have been duly authorized to execute the same: (n) to the best knowledge of the Redevelopment Agency. there is no public vote or referendum pending or proposed. the results of which could materially adversely affect the transactions contemplated 234-06012 pc-1 9 by the Official Statement or the Redevelopment Agency Agreements or the validity or enforceability of the 2006 Bonds: (o) the Redevelopment Agency will apply the proceeds from the sale of the 2006 Bonds for the purposes specified in the 2006 Loan Agreements: (p) the financial statements of the Redevelopment Agency contained in the Official Statement as Appendix B fairly present the financial positions and results of operations thereof as of the dates and for the periods therein set forth. and the Redevelopment Agency has no reason to believe that such financial statements have not been prepared in accordance with generally accepted accounting principles consistently applied: and (q) the Redevelopment Agency is in compliance with all of its prior continuing disclosure undertakings entered into pursuant to Rule I iSc2-12 and at or prior to the Closing Date. the Redevelopment Agency shall have duly authorized. executed and delivered the Continuing Disclosure Certificate Agreement. Section 8. Closing. At 8:00 A.M.. California time. on . 2006. or on such earlier or later date as may be mutually agreed upon by parties hereto (the "Closing losing Date.). the Financing Authority. will deliver or cause to be delivered to the Underwriter the duly executed Bonds through the facilities of The Depository Trust Company in NOV York. NOV York (--DTC-) by the initial deposit with the Trustee (in care of DTC) through the Fast Automated Securities Transfer System. and will deliver or cause to be delivered at the offices of Richards. Watson & Gershon. A Professional Corporation ("Bond Counsel-) in Los Angeles. California. or such other place as shall have been mutually agreed upon by the parties. the other documents described herein: and the Undenvriter shall pay the purchase price of each Series of 2006 Bonds as set forth in Section I of this Purchase Agreement. less the premium for the 'Bond Insurance Policy / Bond Insurance Policies' in the amount of $ and the premium for the Reserve Policy Bond in the amount of } . which the Underwriter will \Vire directly to the Bond Insurer. The 2006 Bonds shall be issued in fully registered form. It is anticipated that CUSIP identification numbers will be inserted on the 2006 Bonds. but neither the failure to provide such numbers nor any error with respect thereto shall constitute a cause for failure or refusal by the Undenwritcr to accept delivery of the 2006 Bonds in accordance with the terms of this Purchase Agreement. Section 9. Termination. The Underwriter shall have the right to terminate the obligations of the underwriters under this Purchase Agreement to purchase. to accept delivery of and to pay for the 2006 Bonds by notifying the Financing Authority of its election to do so if. after the execution hereof and prior to the Closing Date: (I) legislation (including any amendments thereto). resolution. rule or regulation (including any amendments thereto) shall be introduced in. considered by or be enacted by any governmental body. department or political subdivision of the State. or a decision by any court of competent jurisdiction within the State shall be rendered which. in the reasonable opinion of the Underwriter. would make it impracticable or inadvisable to proceed with the offer. sale or delivery of the 2006 Bonds on the terms and in the manner contemplated in the Official Statement: (2) the outbreak or declaration of wear. institution of a police action. engagement in or escalation of military hostilities by or against the United States. or any escalation of any existing conflict or hostilities in which the United States is involved or the occurrences of any other national emergency or calamity or crisis or any change in financial markets resulting from the foregoing. which. in the reasonable opinion of the Underwriter. would make it impracticable or inadvisable to proceed with the offer. sale or delivery of the 2006 Bonds on the terms and in the manner contemplated in the Official Statement: (3) the declaration of a general banking moratorium by federal. New York or California authorities. or the general suspension or material limitation 234-06012 pc-1 10 of trading on any national securities exchange \Vhich materially adversely affects the market price of the 2006 Bonds: (4) the imposition by the New York Stock Exchange or other national securities exchange. or any governmental authority. of any material restrictions not now in force with respect to the 2006 Bonds or obligations of the general character of the 2006 Bonds or securities generally. or the material increase of an such restrictions now in force. including those relating to the extension of credit by. or the charge to the net capital requirements of. the Undenyriter \dhich. in the reasonable opinion of the Undenyriter would make it impracticable or inadvisable to proceed with the offer. sale or delivery of the 2006 Bonds on the terms and in the manner contemplated in the Official Statement: (5) legislation enacted (or resolution passed) by or introduced or pending legislation amended in the Congress or recommended for passage by the President of the United States. or an order. decree or injunction issued by an court of competent jurisdiction. or an order. ruling. regulation (final. temporary or proposed) issued or made by or on behalf of the Securities and Exchange Commission. or any other governmental agency having jurisdiction of the subject matter. to the effect that securities of the general character of the 2006 Bonds. or the 2006 Bonds. including any or all underlying arrangements. are not exempt from registration under the Securities Act of 1933. as amended. or that the 2006 Indentures are not exempt from qualification under the Trust Indenture Act of 1939. as amended. or that the execution. offering or sale of obligations of the general character of the 2006 Bonds. including any or all underlying arrangements. as contemplated hereby or by the Official Statement. otherwise is or would be in violation of the federal securities laws as amended and then in effect: (6) action by or on behalf of the State or the California Franchise Tax Board. with the purpose or effect. directly or indirectly. of imposing California personal income taxation upon such interest as would be received by the Owners of the 2006 Bonds: (7) (i) legislation (including any amendment thereto) shall have been introduced in or adopted by either House of the Congress of the United States or recommended to the Congress or otherwise endorsed for passage by the President of the United States. the Treasury Department of the United States. the Internal Revenue or the chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives. or legislation is proposed for consideration by either such committee by an member thereof or presented as an option for consideration by either such committee by the staff of such committee. or by the staff of the Joint Committee on Taxation of the Congress of the United States. or a bill to amend the Internal Revenue Code shall be filed in either house. or (ii) a decision shall have been rendered by any federal or state court. or (iii) an order. filing. ruling or regulation shall have been issued or proposed by or on behalf of the Treasury Department of the United States or the Internal Revenue Service or an other agency of the United States. or (iv) a release or official statement shall have been issued by the President of the United States or by the Treasury Department of the United States or by the Internal Revenue Service. the effect of which. in an such case described in clause (i). (ii). (iii). or (iv). would be to impose. directly or indirectly. federal income taxation upon interest received on obligations of the general character of the 2006 Bonds or upon income of the general character to be derived by the Financing Authority. other than as imposed on the 2006 Bonds and income therefrom under the federal tax laws in effect on the date hereof. in such a manner as in the judgment of the Underwriter would make it impracticable or inadvisable to proceed with the offer. sale or delivery of the 2006 Bonds on the terms and in the manner contemplated in the Official Statement: (8) the withdrawal or downgrading or any notice of an intended or potential downgrading of any rating of the obligations of the Financing Authority (including the rating to be issued with respect to the 2006 Bonds) by a "nationally recognized statistical rating organization. as such term is defined for purposes of Rule 436(g)(2) under the Securities Act of 1933. as amended which. in the reasonable opinion of the Underwriter. would make it impracticable or inadvisable to proceed with the offer. sale or delivery of the 2006 Bonds on the terms and in the manner contemplated in the Official Statement: (9) any event occurring. or information becoming known which. in the reasonable judgment of the Undenvriter. makes untrue in any material respect any statement or information contained in the Official Statement. or has the effect that the Official Statement contains any untrue statement of a material fact or omits to state a material fact to be stated therein or necessary in order to make the statements therein. in the light of the circumstances under which they \were made. not misleading: (I0) any change or 234-06012 pc-1 development involving a prospective change in the condition of the Financing Authority. financial or othenvise. or in the operations of the Financing Authority from those set forth in the Official Statement that makes the 2006 Bonds. in the reasonable judgment of the Underwriter. impracticable or inadvisable to offer. sell or deliver the 2006 Bonds on the terms and in the manner contemplated by the Official Statement: (I I) (i) trading generally shall have been suspended or materially limited on or by. as the case may be. any of the NOV York Stock Exchange or the Nasdaq National Market: (ii) trading of any securities of the Financing Authority shall have been suspended on any exchange or in any over-the-counter market: (iii) a material disruption in securities settlement. payment or clearance services in the United States shall have occurred: or (iv) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities: or (12) the purchase of and payment for the 2006 Bonds by the Underwriter. or the resale of the 2006 Bonds by the Underwriter. on the terms and conditions herein provided shall be prohibited by any applicable law. governmental authority. board. agency or commission. Section 10. Closing Conditions. The Undenwriter hereby enters into this Purchase Agreement in reliance upon the representations and warranties of the Financing Authority and the Redevelopment Agency contained herein and the representations and warranties to be contained in the documents and instruments to be delivered on the Closing Date and upon the performance by the Financing Authority. the Redevelopment Agency and the Trustee of their respective obligations both on and as of the date hereof and as of the Closing Date. Accordingly. the obligations of the Underwriter under this Purchase Agreement to purchase. to accept delivery of and to pay for the 2006 Bonds shall be subject. at the option of the Undenwriter. to the accuracy in all material respects of the representations and warranties of the Financing Authority and the Redevelopment Agency contained herein as of the date hereof and as of the Closing Date. to the accuracy in all material respects of the statements of the officers and other officials of the Financing Authority. the Redevelopment Agency and the Trustee made in any certificate or document furnished pursuant to the provisions hereof. to the performance by the Financing Authority. the Redevelopment Agency and the Trustee of their respective obligations to be performed hereunder and under the Financing Authority Agreements and the Redevelopment Agency Agreements. at or prior to the Closing Date. and also shall be subject to the following additional conditions: (a) the Undenwriter shall receive. within seven business days after the date hereof. copies of the Official Statement (including all information permitted to have been omitted from the Preliminary Official Statement by the Rule I iSc2- I2 and any amendments or supplements as have been approved by the Undenwriter). in such reasonable quantity as the Undenwriter shall have requested: (b) on the Closing Date. the Financing Authority Agreements and the Redevelopment Agency Agreements shall have been duly authorized. executed and delivered by the parties thereto. all in substantially the forms heretofore submitted to the Undenwriter. with only such changes as shall have been agreed to in writing by the Undenwriter. and such agreements shall be in full force and effect: and there shall be in full force and effect such resolutions of the governing boards of the Financing Authority and the Redevelopment Agency as. in the opinion of Bond Counsel. shall be necessary or appropriate in connection with the transactions contemplated hereby: (c) on the Closing Date. all necessary action of the Financing Authority relating to the execution and delivery of the 2006 Bonds will have been taken and will be in full force and effect and will not have been amended. modified or supplemented: (d) at or prior to the Closing Date. the Undenwriter shall have received the following documents. in each case satisfactory in form and substance to the Undenwriter: 234-06012 pc-1 12 (i) the Financing Authority Agreements. the Redevelopment Agency Agreements and the Official Statement. each duly executed and delivered by the respective parties thereto. and certified copies of the Financing Authority Resolution and the Redevelopment Agency Resolution: (ii) the approving opinion of Bond Counsel. dated the Closing Date and addressed to the Financing Authority. in substantially the form attached to the Official Statement as Appendix E. together with a letter of Bond Counsel. addressed to the Underwriter to the effect that such opinion may be relied upon by the Undenvriter to the same extent as if such opinion \were addressed to it: (iii) the supplemental opinion of Bond Counsel. dated the Closing Date and addressed to the Undenvriter. substantially to the effect that: (A) this Purchase Agreement has been duly authorized. executed and delivered by the Financing Authority and is a valid and binding agreement of the Financing Authority. enforceable in accordance with its terms. except as enforcement thereof may be limited by bankruptcy. insolvency or other laws affecting the enforcement of creditors. rights and by the application of equitable principles if equitable remedies are sought: (B) the 2006 Bonds are not subject to the registration requirements of the Securities Act of 1933. as amended. and the 2006 Indentures are each exempt from qualification under the Trust Indenture Act of 1939. as amended: (C) the Continuing Disclosure Certificate Agreement has been duly authorized. executed and delivered by the Financing Authority: (D) the statements contained in the Official Statement under the captions "THE 2006 BONDS.- "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS" and "TAX MA ! rl:Rs" and contained in Appendix E. insofar as such statements expressly summarize certain provisions of the 2006 Bonds. the 2006 Indentures. and the final opinion of Bond Counsel concerning certain federal tax matters relating to the 2006 Bonds. are accurate in all material respects: and (E) that. on the basis of the information made available to them. no facts came to their attention in connection with the preparation of the Official Statement which cause them to believe that the Official Statement as of its date (excluding therefrom financial engineering and statistical data. forecasts. projections. estimates. assumptions and expressions of opinions. statements relating to DTC. Cede K. Co. and the operation of the book -entry system and Appendices A. B. C. F. G. H. I. and J as to all of which no view need be expressed) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein. in the Tight of the circumstances under which they were made. not misleading in any material respect: (iv) the opinion of the City Attorney. as counsel to the Financing Authority. dated the Closing Date and addressed to the Financing Authority and the Underwriter. in substantially the form of Fxhihit R. (w) the opinion of the City Attorney. as counsel to the Redevelopment Agency. dated the Closing Date and addressed to the Financing Authority and the Underwriter in substantially the form of Exhibit C. (vi) the opinion of Disclosure Counsel. dated the Closing Date and addressed to the Financing Authority and the Undenvriter. to the effect that. on the basis of the information made available to them. no facts came to their attention in connection with the preparation of the Official Statement which cause them to believe that the Official Statement as of its date (excluding therefrom financial. engineering and statistical data. forecasts. projections. estimates. assumptions and expressions of opinions. statements relating to DTC. Cede K. Co. and the operation of the book -entry system. the Bond Insurer and the Bond Insurance Policy and the appendices (except for Appendix F). as to all of which no view need be expressed) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein. in the Tight of the circumstances under which they \were made. not misleading in any material respect. the 2006 Bonds are not subject to the registration requirements of the Securities Act of 1933. as amended. and the 2006 Indentures are each exempt from qualification under the Trust Indenture 234-06012 pc-1 13 Act of 1939. as amended. and the Continuing Disclosure Certificate Agreement provides a suitable basis for the Underwriter. in connection with the Offering (as defined in Rule I5c2-12) of the 2006 Bonds to make a reasonable determination as required by section (b)(iS) of such Rule. (wii) the opinion of counsel to the Trustee. dated the Closing Date and addressed to the Undenvriter and the Financing Authority. to the effect that: (A) the Trustee has been duly incorporated as a national banking association. duly organized and validly existing and in good standing under the laws of the United States of America and the State. having the legal authority to exercise trust powers in the State and having full power and authority to enter into and to perform its duties as Trustee under the 2006 Indentures: (B) the Trustee has duly authorized. executed and delivered each 2006 Indenture. and by all proper corporate action has authorized the acceptance of the trusts of each 2006 Indenture: (C) each 2006 Indenture constitutes a legally valid and binding agreement of the Trustee. enforceable against it in accordance with its respective terms: (D) the 2006 Bonds have been validly authenticated. registered and delivered by the Trustee: (E) no authorization. approval. consent or other order of the State or any other governmental authority or agency within the State haying jurisdiction over the Trustee. or. to such counsel's knowledge after reasonable investigation. any other person or corporation. is required for the valid authorization. execution. delivery and performance by the Trustee of the 2006 Indentures: and (F) the execution and delivery of the 2006 Indentures. and compliance by the Trustee with the provisions of each 2006 Indenture under the circumstances contemplated thereby. does not and will not in any material respect conflict with or constitute on the part of the Trustee a breach or default under any agreements or other instrument to which the Trustee is a party (and of which such counsel is aware after reasonable investigation) or by which it is bound (and of which such counsel is aware after reasonable investigation) or any existing law. regulation. court order or consent decree to which the Trustee is subject: (wiii) a certificate of the Financing Authority dated the Closing Date. signed by a duly authorized official. in form and substance satisfactory to the Underwriter. to the effect that. to the best of such official's knowledge: (A) the representations and warranties of the Financing Authority contained in the Purchase Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date: (B) the Financing Authority has complied with the requirements of the Financing Authority Agreements required to be complied with on and as of the Closing Date with respect to the 2006 Bonds: and (C) no event materially adversely affecting the Financing Authority has occurred since the date of the Official Statement: (ix) a certificate of the Redevelopment Agency dated the Closing Date. signed by a duly authorized official. in form and substance satisfactory to the Underwriter. to the effect that. to the best of such official's knowledge: (A) the representations and warranties of the Redevelopment Agency contained in the Purchase Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date: (B) the Redevelopment Agency has complied with the requirements of the Redevelopment Agency Agreements required to be complied with on and as of the Closing Date: (C) no event materially adversely affecting the Redevelopment Agency has occurred since the date of the Official Statement: and (D) that the financial statements of the Redevelopment Agency contained in the Official Statement fairly present the financial positions and results of operations thereof as of the dates and for the periods therein set forth. and such officer has no reason to believe that such financial statements have not been prepared in accordance with generally accepted accounting principles consistently applied: (x) a certificate of the Trustee dated the Closing Date. signed by a duly authorized official. in form and substance satisfactory to the Underwriter. to the effect that: (A) the Trustee is a national banking association organized and existing under and by virtue of the laws of the United States. having the full power and being qualified to enter into and perform its duties under the 2006 Indentures and to authenticate and deliver the 2006 Bonds to the Underwriter: (B) the Trustee is duly authorized to enter 234-06012 pc-1 I4 into the 2006 Indentures and to execute and deliver the 2006 Bonds to the Underwriter pursuant to the 2006 Indentures: (C) the 2006 Bonds will have been duly authenticated and delivered by the Trustee: (D) the execution and delivery of the 2006 Indentures and compliance with the provisions on the part of the Trustee contained in each 2006 Indenture. will not conflict with or constitute a breach of or default under any law. administrative regulation. judgment. decree. loan agreement. indenture. note. resolution. agreement or other instrument to which the Trustee is a party or is othenvise subject (except that no representation or warranty is made with respect to any federal or state securities or blue skv laws or regulations). nor will any such execution. delivery. adoption or compliance result in the creation or imposition of any lien. charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets held bv the Trustee pursuant to the lien created bv each 2006 Indenture under the terms of any such law. administrative regulation. judgment. decree. loan agreement. indenture. bond. note. resolution. agreement or other instrument. except as provided by each 2006 Indenture: and (E) to the best of the knowledge of the Trustee. it has not been served with any action. suit. proceeding. inquiry or investigation in law or in equity. before or by any court. governmental agency. public board or body. nor is any such action or other proceeding threatened against it. affecting its existence. or the titles of its officers to their respective offices or seeking to prohibit. restrain. or enjoining the execution and delivery of the 2006 Bonds or the collection of revenues to be applied to pay the principal. premium. if any. and interest with respect to the 2006 Bonds. or the pledge thereof. or in any way contesting or affecting the validity or enforceability of each 2006 Indenture or contesting the powers of the Trustee or its authority to enter into. adopt or perform its obligations under any of the foregoing to which it is a party. wherein an unfavorable decision. ruling or finding would materially adversely affect the validity or enforceability of the 2006 Bonds or each 2006 Indenture or the power and authority of the Trustee to enter into and perform its respective duties under the 2006 Indentures and to authenticate and deliver the 2006 Bonds to the Under writer: (xi) a certificate of the City signed by an authorized officer of the City dated the Closing Date to the effect that the information relating to the City in APPENDIX C-"G►:NI:RAI. INF)RMAII0N CoNCI:RNING I111: CITY 01, PALM DESERT- to the Official Statement. as of its date and as of the date of the Closing. is true and correct in all material respects: (xii) evidence of an insured rating of " by Standard K. Poor's Ratings Services. a division of the McGraw Hill Companies and an uninsured rating of " -being in full force and effect as of the Closing Date: (xiii) the Bond Insurance Policy / Bond Insurance Policies) and the Reserve Policy issued by the Bond Insurer: (xiv) an opinion of Counsel to the Bond Insurer. dated the Closing Date and addressed to the Financing Authority and the Undenwriter to the effect that (a) the' Bond Insurance Policy / Bond Insurance Policies' and the Reserve Policy described in the Official Statement are each legal. valid and binding obligations of the Bond Insurer enforceable in accordance with its terms. and (b) the statements in the Preliminary Official Statement and the Official Statement under the caption "MUNICIPAL. BOND INSURANCI:* and contained in APPENDIX H-"SPI:CIMI:N FINANCIAL, GUARANTY INSURANCI: P0I,ICY- and APPENDIX I -"SPECIMEN RI:sI:RVI: FUND SURETY P0I,ICY" accurately reflect and fairly represent the information purported to be shown therein: (xv) a certificate of Rosenow Spevacek Group Inc. (the "Fisc a/ ('ons/dont ) to the effect that the report of the Fiscal Consultant dated . 2006 (the "Report ") contained in the Official Statement does not contain any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein. in the light of the circumstances under which they \erc made. not misleading in any material respect. and consenting to the use of the Report in the Preliminary and Final Official Statements: 234-06012 pc-1 I(xvi) a letter of Lance. Soll and Lunghard consenting to the inclusion of its report in the Preliminary Official Statement and the Official Statement as APPENDIX B—"REDEVELOPMENT AGENCY AUDI I I:D FINANCIAI. S ! A ! I M1:N•I'S FOR 1111: FISCAI, YEAR ENDED JUNI: 30. 2005:1 (xvii) the Certificate as to Arbitrage and the Certificate Regarding Use of Proceeds of the Financing Authority in form and substance acceptable to Bond Counsel: (xviii) evidence that the federal tax information form 8038-G has been prepared for filing: (xix) the Notices of Sale required to be delivered to the California Debt and Investment Advisory Commission pursuant to Section 8855(g) and 5 583 of the California Government Code: and (xx) the Blanket Letter of Representations of the Financing Authority to the Depositor_ Trust Company. NOV York. NOV York. relating to the book -entry only system for the 2006 Bonds: and (xxi) such additional legal opinions. certificates. instruments or evidences thereof and other documents as the Disclosure Counsel or Bond Counsel may reasonably request to evidence the due authorization. execution and delivery of the 2006 Bonds and the conformity of the 2006 Bonds and the 2006 Indentures Nvith the terms of the 2006 Bonds and as summarized in the Official Statement. All of the opinions. letters. certificates. instruments and other documents mentioned above or elsewhere in this Purchase Agreement will be deemed to be in compliance Nvith the provisions hereof if and only if they are in form and substance satisfactory to the Undenvriter. If the Financing Authority shall be unable to satisfy the conditions to the Underwriters obligations contained in this Purchase Agreement or if the Undenvriter. obligations shall be terminated for any reason permitted herein. all obligations of the Underwriter hereunder may be terminated by the Underwriter at. or at any time prior to. the Closing Date by Nwritten notice to the Financing Authority and none of the Undenvriter the Financing Authority shall have any further obligations hereunder. except that the respective obligations of the parties set forth in Section 10 Section 11. Expenses. (a) The Underwriter shall be under no obligation to pay. and the Financing Authority shall pay the following expenses incident to the performance of the Financing Authority's obligations hereunder: (i) the fees and disbursements of Bond Counsel and Disclosure Counsel: (ii) the cost of printing and delivering the 2006 Bonds. the Preliminary Official Statement and the Official Statement (and any amendment or supplement prepared pursuant to this Purchase Agreement): (iii) the fees and disbursements of Del Rio Advisors. LLC. as Financial Advisor to the Financing Authority. the Trustee and its counsel. the Fiscal Consultant. accountants. advisers and of any other experts or consultants retained by or for the Financing Authority: and (iv) any other expenses and costs of the Financing Authority incident to the performance of their respective obligations in connection with the authorization. issuance and sale of the 2006 Bonds. including out-of-pocket expenses and regulatory expenses. and any other expenses agreed to by the parties. (b) The Undenvriter shall pay all expenses incurred by them in connection with the public offering and distribution of the 2006 Bonds including. but not limited to: (i) all advertising expenses in connection with the offering of the 2006 Bonds: and (ii) all out-of-pocket disbursements and expenses incurred by the Undenvriter in connection with the offering and distribution of the 2006 Bonds (including travel and other expenses. fees of the California Debt and Investment Advisory Commission. CUSIP Service Bureau fees 234-06012 pc-1 16 and any other fees and expenses). except as provided in (a) above or as otherwise agreed to by the Underwriter and the Financing Authority. Section 12. Notices Anv notice or other communication to be given to the Financing Authority or the Financing Authority under this Purchase Agreement may be given by delivering the same in writing at the address of the Financing Authority set forth above. and any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to the Underwriter: Citigroup. One Sansome Street. Citigroup Center. Suite 2800. San Francisco. California 94104: Attention: Nikolai Sklaroff. Director. Section 13. Parties in Interest. This Purchase Agreement is made solely for the benefit of the Financing Authority and the Undenvriter (including the successors or assigns of the Undenvriter) and no other person shall acquire or have any right hereunder or by virtue hereof. All the representations and warranties of the parties hereto contained in this Purchase Agreement shall remain operative and in full force and effect. regardless of (a) any investigations made by or on behalf of the Undenvriter or the Financing Authority or (b) delivery of and payment for the 2006 Bonds. The agreements contained ill Section 10 herein shall survive any termination of this Purchase Agreement. Section 14. Severability. In the event any provision of this Purchase Agreement shall be held or deemed to be invalid. inoperative or unenforceable by any court of competent jurisdiction. such holding shall not invalidate or render unenforceable any other provision hereof. Section 15. Governing Law; Venue. This Purchase Agreement shall be governed and interpreted exclusively by and construed in accordance with the laws of the State applicable to contracts made and to be performed in the State. Any and all disputes or legal actions or proceedings arising out of this Purchase Agreement or any document related hereto shall be filed and maintained in a court of competent jurisdiction for matters arising in Riverside County. California. By execution of and delivery of this Purchase Agreement. the parties hereto accept and consent to the aforesaid jurisdiction. Section 16. Execution in Counterparts. This Purchase Agreement may be executed in any number of counterparts. all of which taken together shall constitute one agreement. and any of the parties hereto may execute the Purchase Agreement by signing any such counterpart. Section 17. Entire Agreement. The parties agree that the terms and conditions of this Purchase Agreement supersede those of all previous agreements between the parties. and that this Purchase Agreement contains the entire agreement between the parties hereto. In the event of a dispute between the parties under this Purchase Agreement. the losing party in such dispute shall pay all reasonable costs and expenses incurred by the prevailing party in connection therewith. including but not limited to attorneys" fees. 234-06012 pc-1 I7 Section 18. Effectiveness. This Purchase Agreement shall be effective as of the date set forth above upon the execution of the acceptance hereof by authorized officers of the Financing Authority and approval by the Redevelopment Agency shall be valid and enforceable as of the time of such acceptance and approval. Accepted: PALM DESERT FINANCING AUTHORITY By: (Name'. (Title' Approved: PALM DESERT REDEVELOPMENT AGENCY Bv: (Name'. (Title' Very truly yours. CITIGROUP GLOBAL MARKETS INC. Bv: Nikolai Sklaroff. Director 234-06012 pc-1 I8 SCHEDULE I SINKING FUND PAYMENT DATES, AMOUNTS, RATES, YIELDS AND PRICES (March I ) 234-06012 pc-1 Principal Interest Amount Rate Yield Price Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A EXHIBIT A-1 Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C FORM OF THE CERTIFICATE OF THE FIANCING AUTHORITY REGARDING PRELIMINARY OFFICIAL STATEMENT The undersigned hereby states and certifies: I . That he is the duly appointed. qualified and acting Executive Director of the Palm Desert Financing Authority (the "Authority) and as such. is familiar Nyith the facts herein certified and is authorized and qualified to certify the same: 2. That there has been delivered to Citigroup Global Markets Inc. (the " Undenyriter) of the captioned Bonds. a Preliminary Official Statement. relative to the captioned Bonds. dated June . 2006 (including the cover page and all appendices thereto. the "Preliminary Official Statement"). \yhich the Financing Authority. deems final as of its date for purposes of Rule IiSc2-12 promulgated under the Securities Exchange Act of 1934. as amended ("Rule 15c2- 12"). except for information permitted to be omitted therefrom by Rule I iSc2- 12: and 3. The Financing Authority hereby approves the use and distribution by the Underwriter of the Preliminary Official Statement. Dated: June .2006 PALM DESERT FINANCING AUTHORITY Bv: Executive Director 234-06012 Pc-1 A -I -I Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A EXHIBIT A-2 Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C FORM OF THE CERTIFICATE OF THE REDEVELOPMENT AGENCY REGARDING PRELIMINARY OFFICIAL STATEMENT The undersigned hereby states and certifies: I . That he is the duly appointed. qualified and acting Executive Director of the Palm Desert Redevelopment Agency (the "Redevelopment Agency) and as such. is familiar with the facts herein certified and is authorized and qualified to certify the same: 2. That there has been delivered to Citigroup Global Markets Inc. (the " Undenyriter) of the captioned Bonds. a Preliminary Official Statement. relative to the captioned Bonds. dated June . 2006 (including the cover page and all appendices thereto. the "Preliminary Official Statement.). \yhich Nvith respect to the statements contained under the captions "TIII: RI:DI V1 1 OPMI:M AGENCY" and "TIII: PRoJEc AREA" and contained in APPENDIX 13—"REDEVELOPMENT AGENCY AUDITED FINANCIAI, SIAlI:M1:NTs FOR 1111: FISCAI, YEAR ENDED JUNI: 30. 2005* are true. correct and complete in all material respects and such statements do not omit to state a material fact necessary to make such statements. in light of the circumstances under \yhich they \sere made. not misleading. Dated: June .2006 PALM DESERT REDEVELOPMENT AGENCY By: Executive Director 234-06012 pc-1 A-2- I EXHIBIT B FORM OF OPINION OF FINANCIAL AUTHORITY COUNSEL Letterhead of Counsel to the Financing Authority' . 2006 Palm Desert Financing Authority Palm Desert. California Citigroup Global Markets Inc. San Francisco. California Re: Palm Desert Financing Authority Tax Allocation Revenues Bonds (Project Area No. 3). 2006 Series Ladies and Gentlemen: Our office has acted as counsel to the Palm Desert Financing Authority (the "Financing Authority-) in connection Nyith the issuance. sale and delivery of $ aggregate principal amount of the Palm Desert Financing Authority Tax Allocation Rcycnuc Bonds (Project Area No. 3) 2006 Series A (the "Current Interest Bonds"). } principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B (the "Capital Appreciation Bonds and together Nyith the Current Interest Bonds. the "Senior Bonds"): and $ aggregate principal amount of the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B (the "Subordinate Capital Appreciation Bonds and together Nyith the Senior Bonds. the "2006 Bonds"). In connection Nyith the 2006 Bonds. we have reviewed: (i) those documents relating to the existence. organization and operation of the Financing Authority: (ii) Resolution No. of the Financing Authority adopted . 2006 (the "Resolution) authorizing the issuance. execution and delivery of the 2006 Bonds: (iii) the Indenture of Trust dated as of July I. 2006 Nyith respect to the Senior Bonds (the "Senior Indenture"). by and between the Financing Authority and Wells Fargo Bank. National Association. as trustee (the "Trustee"): (iv) the Indenture of Trust dated as of July I. 2006 Nyith respect to the Subordinate Bonds (the "Subordinate Indenture"' and together Nyith the Senior Indenture. the "2006 Indentures"). by and between the Financing Authority and the Trustee: (v) the Project Area No. 3 Loan Agreement made and executed as of July I. 2006 (the "Senior Loan Agreement"). by and among the Financing Authority. the Palm Desert Redevelopment Agency (the "Redevelopment Agency) and the Trustee Nyith respect to the loan of the proceeds of the Senior Bonds by the Financing Authority to the Redevelopment Agency. one Nyith respect to the Current Interest Bonds and one Nvith respect to the Capital Appreciation Bonds (collectively. the "Senior Loans"): (vi) the Project Area No. 3 Loan Agreement (Subordinate Loan) made and executed as of July I. 2006 (the "Subordinate Loan Agreement"' and together Nyith the Senior Loan Agreement. the "2006 Loan Agreements"). by and among the Financing Authority. the Redevelopment Agency and the Trustee Nyith respect to the loan of the proceeds of the Subordinate Bonds by the Financing Authority to the 234-06012 pc-1 B- I Redevelopment Agency (the "Subordinate Loan and together Nvith the Senior Loans. the "2006 Loans"): (yii) the Bond Purchase Agreement. dated as of . 2006 (the "Purchase Agreement"). between the Financing Authority and Citigroup Global Markets Inc.. as underwriter (the " Undenyriter). and approved by the Redevelopment Agency: and (wiii) the Preliminary Official Statement. dated . 2006. (the "Preliminary Official Statement"). Nwith such changes and amendments thereto as of the date of this opinion (the "Official Statement"). The 2006 Indentures. the 2006 Loan Agreements. the 2006 Loans and the Purchase Agreement are collectively referred to herein as the "Financing Authority Agreements."' An capitalized term used herein and not othenvise defined shall have the meanings given to such terms as specified in the Official Statement. Based on the foregoing. Nwe are of the opinion that: I. The Financing Authority is a joint exercise of power authority duly created. organized and existing under the laws of the State of California pursuant to an Agreement entitled "Joint Exercise of Powers Agreement"' dated January 26. 1989. between the City of Palm Desert and the Redevelopment Agency. and has full legal right. power. and authority to issue the 2006 Bonds. 2. The Resolution approving and authorizing the issuance. execution. and delivery of the 2006 Bonds. and the execution and delivery of the Financing Authority Agreements and the Official Statement has been duly adopted. and is in frill force and effect and has not been modified. amended or rescinded. 3. The Financing Authority has the frill legal right. power and authority to execute. deliver and perform its obligations and duties under the 2006 Bonds and Financing Authority Agreements. and the Financing Authority has complied Nwith the provisions of applicable law in all matters relating to the transactions contemplated by the 2006 Bonds and the Financing Authority Agreements. 4. The Financing Authority Agreements have each been duly authorized. executed and delivered by the Financing Authority. each is in frill force and effect and. assuming due authorization. execution. and delivery by the other parties thereto. constitute legal. valid and binding agreements of the Financing Authority enforceable against the Financing Authority in accordance Nwith their respective terns. subject in each case to laws relating to bankruptcy. insolvency. or other laws affecting the enforcement of creditors" rights generally and to the application of equitable principles if equitable remedies are sought. 5. No approval. consent. or authorization of any governmental or public agency. authority. or person is required for the execution and delivery by the Financing Authority of the Financing Authority Agreements or the Official Statement. or the performance by the Financing Authority of its obligations thereunder or for the issuance. sale and delivery of the 2006 Bonds. except as such approval. consent or authorization may have been obtained. and except as may be required under State securities or blue sky laws in connection Nwith the purchase and distribution of the 2006 Bonds by the Underwriter. 6. The execution and delivery of the Financing Authority Agreements by the Financing Authority. and compliance Nwith the provisions thereof. under the circumstances contemplated thereby. does not in any material respect conflict Nwith or constitute a breach of. or default under. any instalment relating to the organization. existence or operation of the Financing Authority. or any commitment. agreement or other instrument to Nwhich the Financing Authority is a party. or by \which it is bound. or any existing law. ruling. regulation. ordinance. judgment. order or decree to Nwhich the Financing Authority is subject. Nwhich breach or default has or may have a material adverse effect on the ability of the Financing Authority to perform its obligations under the Financing Authority Agreements. 234-06012 pc-1 B-2 7. To the best of our knowledge. except as otherwise disclosed in the Official Statement. there is no action. suit. proceeding. inquiry or investigation. at law or in equity. or before any court. public board or body pending or threatened against the Financing Authority. challenging the creation. organization. existence or powers of the Financing Authority. or challenging the capacity of its officers. or the validity of the 2006 Bonds. the Financing Authority Agreements or the transactions contemplated thereby. or the proceedings taken by the Financing Authority in connection with the authorization. execution or delivery of the 2006 Bonds or the Financing Authority Agreements. wherein any unfavorable decision. ruling or finding NvouId adversely affect the transactions contemplated thereby or by the Official Statement. or which. in any way. NvouId adversely affect the validity or enforceability of the 2006 Bonds or the Financing Authority Agreements or. in any material respect. the ability of the Financing Authority to perform its obligations thereunder. Very truly yours. 234-06012 pc-1 B-3 EXHIBIT C FORM OF OPINION OF REDEVELOPMENT AGENCY COUNSEL Letterhead of Counsel to the Redevelopment AgencvI . 2006 Palm Desert Financing Authority Palm Desert. California Citigroup Global Markets Inc. San Francisco. California Re: Palm Desert Financing Authority Tax Allocation Revenues Bonds (Project Area No. 3). 2006 Series Ladies and Gentlemen: Our office has acted as counsel to the Palm Desert Redevelopment Agency (the "Redevelopment Agency") in connection with the issuance. sale and delivery of $ aggregate principal amount of the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A (the "Current Interest Bonds"). } principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B (the "Capital Appreciation Bonds and together with the Current Interest Bonds. the "Senior Bonds"): and $ aggregate principal amount of the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C (the "Subordinate Capital Appreciation Bonds and together with the Senior Bonds. the "2006 Bonds"). In connection with the 2006 Bonds. we have reviewed: (i) those documents relating to the existence. organization and operation of the Redevelopment Agency: (ii) Resolution No. of the Redevelopment Agency adopted . 2006 (the "Resolution) authorizing the execution and delivery of the Redevelopment Agency Agreements (defined below): (iii) the Project Area No. 3 Loan Agreement made and executed as of July I. 2006 (the "Senior Loan Agreement"). by and among the Palm Desert Financing Authority (the "Financing Authority"). the Redevelopment Agency and Wells Fargo Bank. National Association (the "Trustee) with respect to the loan of the proceeds of the Senior Bonds by the Financing Authority to the Redevelopment Agency. one with respect to the Current Interest Bonds and one with respect to the Capital Appreciation Bonds (collectively. the "Senior Loans"): (iv) the Project Area No. 3 Loan Agreement (Subordinate Loan) made and executed as of July I. 2006 (the "Subordinate Loan Agreement"' and together with the Senior Loan Agreement. the "2006 Loan Agreements) by and among the Financing Authority. the Redevelopment Agency and the Trustee with respect to the loan of the proceeds of the Subordinate Bonds by the Financing Authority to the Redevelopment Agency (the "Subordinate Loan- and together with the Senior Loans. the "2006 Loans"): (v) the Bond Purchase Agreement. dated as of . 2006 (the "Purchase Agreement"). between the Financing Authority and Citigroup Global Markets Inc.. as underwriter (the " Undenyriter'). and approved by the Redevelopment Agency: and (vi) the Preliminary Official Statement. dated 234-06012 pc-1 c-I . 2006. (the "Preliminary Official Statement.). with such changes and amendments thereto as of the date of this opinion (the "Official Statement.): and the Continuing Disclosure Agreement. dated . 2006 (the "Continuing Disclosure Agreement.). by and among the Redevelopment Agency. the Tnistce and MuniFinancial. Inc.. as dissemination agent. The 2006 Loan Agreements. the 2006 Loans. the Purchase Agreement and the Continuing Disclosure Agreement are collectively referred to herein as the "Redevelopment Agency Agreements."' Any capitalized tens used herein and not otherwise defined shall have the meanings given to such teens as specified in the Official Statement. Based on the foregoing. w-e, are of the opinion that: I. The Redevelopment Agency is duly organized and validly existing under the Constitution and laws of the State of California. 2. The Resolution approving and authorizing the execution and delivery of the Redevelopment Agency Agreements was duly adopted at a meeting of the Redevelopment Agency which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout. and is in full force and effect and has not been amended or repealed: 3. No material litigation is pending. with service of process haying been accomplished or. to the knowledge of the Redevelopment Agency. threatened. concerning the validity of the Redevelopment Agency Agreements. the corporate existence of the Redevelopment Agency. or the title of the officers of the Redevelopment Agency wllo NViII execute the Redevelopment Agency Agreements as to their respective offices: 4. The adoption of the Resolution. the execution and delivery of the Redevelopment Agency Agreements. and compliance by the Redevelopment Agency with the provisions of the foregoing. under the circumstances contemplated thereby. do not and will not in any material respect conflict with or constitute on the part of the Redevelopment Agency a breach or default under any agreement or other instrument to which the Redevelopment Agency is a party (and of which such counsel is aware after reasonable investigation) or by which it is bound (and of which such counsel is aware after reasonable investigation) or by any existing law. regulation. court order or consent decree to which the Redevelopment Agency is subject: 5. The Redevelopment Agency Agreements each have been duly authorized. executed and delivered by the Redevelopment Agency and. assuming due authorization. execution and delivery by the other parties thereto. constitute legal. valid and binding agreements of the Redevelopment Agency enforceable in accordance with the respective terms. subject to laws relating to bankruptcy. insolvency or other laws affecting the enforcement of creditors. rights generally and the application of equitable principles if equitable remedies are sought. 6. No authorization. approval. consent. or other order of the State of California or any other governmental authority or agency within the State of California having jurisdiction over the Redevelopment Agency is required for the valid authorization. execution. delivery and performance by the Redevelopment Agency of the Redevelopment Agency Agreements. or for the adoption of the Resolution which has not been obtained. 234-06012 pc-1 C-2 7. To the best of our knowledge. except as otherwise disclosed in the Official Statement. there is no action. suit. proceeding. inquiry or investigation. at law or in equity. or before any court. public board or body pending or threatened against the Redevelopment Agency. challenging the creation. organization. existence or powers of the Redevelopment Agency. or challenging the capacity of its officers. or the validity of the Redevelopment Agency Agreements or the transactions contemplated thereby. or the proceedings taken by the Redevelopment Agency in connection with the authorization. execution or delivery of the Redevelopment Agency Agreements. wherein any unfavorable decision. ruling or finding NvouId adversely affect the transactions contemplated thereby or by the Official Statement. or which. in any way. NvouId adversely affect the validity or enforceability of the Redevelopment Agency Agreements or. in any material respect. the ability of the Redevelopment Agency to perform its obligations thereunder. Very truly yours. 234-06012 pc-1 C-3 L&J DRAFT #2 05/I8/06 CONTINUING DISCLOSURE AGREEMENT The Continuing Disclosure Agreement (the "Disclosure Agreement) is executed and delivered by the Palm Desert Redevelopment Agency (the "Redevelopment Agency.). Wells Fargo Bank. National Association (the " Tnustee-) and MuniFinancial. Inc. (the "Dissemination Agent) in connection with the issuance of the $ aggregate principal amount of Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A. $ principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B (the "Senior Parity Bonds) and } principal amount of Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 3) 2006 Series C (the "Subordinate Bonds and together with the Senior Parity Bonds. the "Bonds.). The Senior Parity Bonds are being executed and delivered pursuant to an Indenture of Trust dated as of July I. 2006 (the "Senior Parity Indenture.). by and between the Palm Desert Financing Authority (the "Financing Authority) and the Trustee. The Financing Authority will loan the proceeds of the Senior Parity Bonds to the Redevelopment Agency pursuant to a Loan Agreement made and entered into as of July I. 2006. The Subordinate Bonds are being executed and delivered pursuant to an Indenture of Trust dated as of July I. 2006 (the "Subordinate Indenture.). by and between the Financing Authority (and the Trustee. The Financing Authority NViII loan the proceeds of the Subordinate Bonds to the Redevelopment Agency pursuant to a Loan Agreement made and entered into as of July I. 2006. The Redevelopment Agency covenants and agrees as follows: SECTION I. Purpose of this Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Redevelopment Agency for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission ("SEC) Rule I5c2-I2(b)(5). The Redevelopment Agency acknowledges that the Financing Authority has undertaken no responsibility with respect to any reports. notices or disclosures provided or required under this Disclosure Agreement. and has no liability to any person. including the owners of the Bonds. with respect to any reports. notices or disclosures. SECTION 2. Definitions. In addition to the definitions set forth in the Indenture. which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section. the following capitalized terms shall have the following meanings: "Annual Report shall mean any annual report provided by the Redevelopment Agency pursuant to. and as described in. Sections 3 and 4 of this Disclosure Agreement. "Beneficial Owner - shall mean any person which (a) has the powver. directly or indirectly. to vote or consent with respect to. or to dispose of ownership of. any Bonds (including persons holding Bonds through nominees. depositories or other intermediaries) or (b) is treated as the owner of any Bonds for federal income tax purposes. "Dissemination Agent- shall mean MuniFinancial. Inc.. acting in its capacity as Dissemination Agent hereunder. or any successor Dissemination Agent designated in writing by the Redevelopment Agency and w bich has filed with the Trustee a written acceptance of such designation. "Fiscal Year- shall mean with respect to the Redevelopment Agency. the period beginning on July I of each year and ending on the nest succeeding June 30. or any twelve month or fifty-two week period thereafter selected by the Redevelopment Agency with notice of such selection of change in fiscal year to be provided as set forth herein. 06012 CD.\-2 "Holders" shall mean either the registered oNyners of the Bonds. or. if the Bonds are registered in the name of The Depository Trust Company or another recognized depository. any applicable participant in its depository system. "Listed Event- shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. A list of the current National Repositories approved by the S.E.C. may be found at the S.E.C. Nyebsite: http://www.sec..zov/info/municipal/nrmsir.htm. "Participating Undenyriter - shall mean Citigroup Global Markets. Inc.. as the original undenyriter of the Bonds required to comply Nyith the Rule in connection Nvith offering of the Bonds. "Repository shall mean each National Repository and each State Repository. if any. "Rule" shall mean Rule I5c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934. as the same may be amended from time to time. "State shall mean the State of California. "State Repository shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement. there is no State Repository. SECTION 3. Provision of Annual Reports. (a) The Redevelopment Agency shall. not later than six months after the end of the Redevelopment Agency's Fiscal Year (which currently is June 30). commencing with the report for the 2005-06 Fiscal Ycar. provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package. and may include by reference other information as provided in Section 4 of this Disclosure Agreement: provided that the audited financial statements of the Redevelopment Agency may be submitted separately from the balance of the Annual Report. The Redevelopment Agency shall provide a «ritten certification with each Annual Report furnished to the Dissemination Agent and the Trustee to the effect that such Annual Report constitutes the Annual Report required to be furnished by the Redevelopment Agency hereunder. The Dissemination Agent and the Trustee may conclusively rely upon such certification of the Redevelopment Agency. If the Redevelopment Agency's Fiscal Ycar changes. it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) If the Dissemination Agent is other than the Redevelopment Agency. then not later than fifteen (15) Business Days prior to said date. the Redevelopment Agency shall provide the Annual Report to the Dissemination Agent. If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repositories by the date required in subsection (a). the Dissemination Agent shall send a notice to the Municipal Securities Rulemaking Board and the State Repository. if any. in substantially the form attached as Exhibit A to this Disclosure Agreement. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each Repository: 06012 CD.\-2 F-2 (ii) file the Annual Report with each Repository by the date required therefor by Section 3(a) and file anv notice of a listed Event. if requested by the Redevelopment Agency. as soon as practicable following receipt from the Redevelopment Agency of such notice: and (iii) if the Dissemination Agent is other than the Redevelopment Agency. file a report with the Redevelopment Agency certifying that the Annual Report has been provided pursuant to this Disclosure Agreement. stating the date it was provided and listing all the Repositories to which it was provided. SECTION d. Content of Annual Reports. The Redevelopment Agency's Annual Report shall contain or incorporate bv reference the following: (a) The audited financial statements of the Redevelopment Agency. presented in accordance with generally accepted accounting principles as promulgated to apply to governmental entities Commission from time to time. If the audited financial statements of the Redevelopment Agency are not available by the time the Annual Report is required to be filed as described above. the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement. and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Unless othenvise provided in the audited financial statements filed on or prior to the annual filing deadline for Annual Reports provided in Section 3 above. financial information and operating data with respect to the Redevelopment Agency for the preceding Fiscal Year. substantially similar to that provided in the following tables and charts in the Official Statement: (i) Table 3—"Palm Desert Redevelopment Agency Project Area No. 3—Principal Taxpayers."' and I(ii) Table 4—"Palm Desert Redevelopment Agency —Historical and Current Values: (iii) Table 5—"Palm Desert Redevelopment Agency —Tax Revenues Received:1 and (c) The percent by which Tax Revenues have provided coverage for Maximum Annual Debt Service for the most current completed Fiscal Ycar. (d) The outstanding principal amount of Bonds. the calculation of the Reserve Requirement and the balance in the Reserve Fund for the preceding Fiscal Ycar. Such annual information and operating data described above may be included by specific reference to other documents. including official statements of debt issues of the Redevelopment Agency or related public entities. which have been submitted to each of the Repositories or the Securities and Exchange Commission: provided. that if the documents included bv reference is a final official statement. it must be available from the Municipal Securities Rulemaking Board: and provided.Jiurther. that the Redevelopment Agency shall clearly identify each such other document so included by reference. SECTION 5. Reporting, of Significant Events. (a) Pursuant to the provisions of this Section 5. the Redevelopment Agency shall give. or cause to be given. notice of the occurrence of any of the following events with respect to the Bonds. if material: (i) principal and interest payment delinquencies. 06012 C D. \-2 (ii) non-payment related defaults. (iii) modifications to rights of Bondholders. (iv) optional. contingent or unscheduled bond calls. (v) defeasances. (vi) rating changes. (yii) adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds. (yiii) unscheduled draws on the Reserve Fund reflecting financial difficulties. (ix) unscheduled draws on the credit enhancements reflecting financial difficulties. (x) substitution of the credit or liquidity providers or their failure to perform. (xi) release. substitution or sale of property securing repayment of the Bonds. (xii) Significant amendments to the land use regulations or entitlements of the City of Palm Desert within the Project Area which would adversely affect development of property therein. (b) The Tnistee shall. promptly upon obtaining actual knowledge of the occurrence of any of the Listed Events contact the Disclosure Representative. inform such person of the event. and request that the Redevelopment Agency promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly notify the Trustee in writing whether or not to report the event to the Owners (unless notice to the Owners is required by the Indenture). For purposes of this Disclosure Agreement. "actual knowledge"' of the occurrence of such Listed Events shall mean actual knowledge by the officer at the Trust Office of the Trustee with regular responsibility for the administration of the Indenture. (c) Whenever the Redevelopment Agency obtains knowledge of the occurrence of a Listed Event. whether because of a notice from the Tnistee pursuant to Section is(b) or othenyise. the Redevelopment Agency shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the Redevelopment Agency determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws. the Redevelopment Agency shall promptly notify the Dissemination Agent and the Trustee in writing. Such notice shall instruct the Dissemination Agent to file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository. if any. Notwithstanding the foregoing. notice of Listed Events described in subsections (a)(iv) and (a)(v) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Indenture. (e) If in response to a request under subsection (b). the Redevelopment Agency determines that the Listed Event is not material. the Redevelopment Agency shall so notify the Dissemination Agent and the Trustee in writing and instruct the Dissemination Agent and the Trustee not to report the occurrence. SECTION 6. Termination of Reporting Obligation. The obligations of the Redevelopment Agency under this Disclosure Agreement shall terminate upon the legal defeasance. prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds. the 06012 C1).\-2 4 Redevelopment Agency shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). SECTION 7. Dissemination Atzent. The Redevelopment Agency may. from time to time. appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement. and may discharge any such Dissemination Agent. Nyith or Nvithout appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Redevelopment Agency pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be the MuniFinancial. Inc. The Dissemination Agent may resign its duties hereunder at any time upon «rittcn notice to the Redevelopment Agency. SECTION 8. Amendment. Notwithstanding any other provision of this Disclosure Agreement. the parities may amend this Disclosure Agreement (and the Tnistee and the Dissemination Agent shall agree to any amendment so requested by the Redevelopment Agency provided that neither the Tnistee nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder) only if: (a) the amendment is made in connection Nyith a change in circumstances that arises from a change in legal requirements. change in law. or change in identity. nature. or status of the Redevelopment Agency. or type of business conducted: (b) this Disclosure Agreement. as amended. Nyould have compiled Nyith the requirements of the Rule at the time of sale of the Bonds. after taking into account any amendments or interpretations of the Rule. as Nyell as any change in circumstances: (c) the amendment does not materially impair the interests of the Owners. as determined by parties unaffiliated Nyith the Redevelopment Agency (such as. but Nyithout limitation. the Redevelopment Agency's bond counsel) or by Owner's consent pursuant to Section 7.0I of the Indenture: and (d) the annual financial information containing (if applicable) the amended operating data or financial information vgill explain. in narrative form. the reasons for the amendment and the "impact" (as that Nvord is used in the letter from the staff of the Securities and Exchange Commission to the National Association of Bond Lawyers dated June 23. 1995) of the change in the type of operating data or financial information being provided. SECTION 9. Additional Information. (a) The Redevelopment Agency agrees to provide public information concerning the Bonds and the Redevelopment Agency to any Holder or Beneficial Owner making a «rittcn request therefor. (b) Nothing in this Disclosure Agreement shall be deemed to prevent the Redevelopment Agency from disseminating any other information. using the means of dissemination set forth in this Disclosure Agreement or any other means of communication. or including any other information in any Annual Report or notice of occurrence of a Listed Event. in addition to that Nyhich is required by this Disclosure Agreement. If the Redevelopment Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that Nyhich is specifically required by this Disclosure Agreement. the Redevelopment Agency shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. 06012 C D. \-2 SECTION ID. Default. In the even to a failure of the Redevelopment Agency to comply with any provision of this Disclosure Agreement. the Trustee shall. at the written direction of any Participating Undenyriter or the Owners of a majority in aggregate principal amount of Outstanding Bonds (but only to the extent fiends have been provided to it or it has been othenyise indemnified to its satisfaction from any cost. liability. expense or additional charges of the Trustee whatsoever. including. without limitation. fees and expenses of its attorneys). or any Owner may. take such actions as may be necessary and appropriate. including seeking mandate or specific performance by court order. to cause the Redevelopment Agency. the Trustee or the Dissemination Agent. as the case may be. to comply with its obligations under this Disclosure Agreement: provided that anv such action may be instituted only in the Federal or State Court located in the County of Los Angeles. State of California and no remedy other than specific performance may be sought or granted. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture or the Loan Agreement. and the sole remedy under this Disclosure Agreement in the event of a failure of the Redevelopment Agency. the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties. Immunities and Liabilities of Dissemination Atzent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement. and the Redevelopment Agency agrees to indemnify and save the Dissemination Agent and the Trustee. their officers. directors. employees and agents. harmless against any Toss. expense and liabilities Which it may incur arising out of or in the exercise or performance of its powers and duties hereunder. including the costs and expenses (including attorneys fees) of defending against any claim of liability. but excluding liabilities due to the Dissemination Agents or Trustees negligence or w illfuI misconduct. The Dissemination Agent may rely on and shall be protected in acting or refraining from acting upon any direction from the Issuer or an opinion of nationally recognized bond counsel. The Dissemination Agent and the Trustee shall be paid compensation by the Redevelopment Agency for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses. legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Trustee shall have no duty or obligation to review any information provided to them by the Redevelopment Agency hereunder and shall not be deemed to be acting in a fiduciary capacity for the Financing Authority. the Redevelopment Agency. the Owners. or any other party. The obligations of the Redevelopment Agency under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking anv remedy other than to compel specific performance of this Disclosure Agreement. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach of this Disclosure Agreement. SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the Redevelopment Agency. the Participating Undenyriter. the Dissemination Agent and Holders Owners from time to time of the Bonds. and shall create no rights in any other person or entity. SECTION 13. Notices. Notices should be sent in writing to the following addresses. information may be conclusively relied upon until changed in writing. Redevelopment Agency: Palm Desert Redevelopment Agency 7 3-510 Fred Waring Drive Palm Desert. California 92260 (760) 346-061 1 (760) 346-0574 Fax benefit of the and Beneficial The following 06012 CD.\-2 6 Dissemination Agency: Trustee: MuniFinancial. Inc. 27 368 Via Industrial. Suite I0 Temecula. California 92590 (909) 587- 500 (909) 587- 5I0 Fax Wells Fargo Bank. National Association 700 South Flower Street. Suite 500 Los Angeles. California 900 17-d I04 (213) 630-6237 (2 13) 6 30-62 15 Fax SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts. each of which shall be an original and all of which shall constitute but one and the same instrument. Date: July .2006 PALM DESERT REDEVELOPMENT AGENCY OF By: Authorized Officer 06012 CD.\-2 7 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Palm Desert Redevelopment Agency Name of Bond Issue: Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A. Palm Dcscrt Financing Authority Tax Allocation Rcvcnuc Capital Appreciation Bonds (Project Arca No. 3) 2006 Series B and Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 3) 2006 Series C Date of Issuance: July . 2006 NOTICE IS HEREBY GIVEN that the Palm Desert Redevelopment Agency (the "Redevelopment Agency) has not provided an Annual Report Nyith respect to the above -named Bonds as required by Section 3 of the Continuing Disclosure Agreement dated July . 2006. by and among the Redevelopment Agency. the Tnistee and the Dissemination Agent executed by the Dissemination Agent for the benefit of the Holders and Beneficial Owners of the above -referenced bonds. The Redevelopment Agency anticipates that the Annual Report Nvill be filed by Dated: MUNIFINANCIAL. INC.. on behalf of the Palm Dcscrt Redevelopment Agency By: Its: 06012 CI).\-2 A-1 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Palm Desert Financing Authority Name of Bond Issue: Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A. Palm Desert Financing Authority Tax Allocation Rcvcnuc Capital Appreciation Bonds (Project Arca No. 3) 2006 Series B and Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 3) 2006 Series C Date of Issuance: July . 2006 NOTICE IS HEREBY GIVEN that the Palm Desert Financing Authority (the "Financing Authority) has not provided an Annual Report Nyith respect to the above -named Bonds as required by Section 3 of the Continuing Disclosure Agreement dated July 2006 executed by the Financing Authority for the benefit of the Holders and Beneficial Owners of the above -referenced bonds. The Financing Authority anticipates that the Annual Report Nvill be filed by Dated: 06012 CI).\-2 PALM DESERT FINANCING AUTHORITY By: Its: A-1