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HomeMy WebLinkAboutRevenue Bonds PA4/Res 06-77/Res FA-58/Res 530/PA4CITY OF PALM DESERT PALM DESERT FINANCING AUTHORITY PALM DESERT REDEVELOPMENT AGENCY STAFF REPORT REQUEST: APPROVAL OF RESOLUTION NO. 06-77 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 REFUNDING REVENUE BONDS (PROJECT AREA NO. 4), 2006 SERIES A, AND TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 4), 2006 SERIES B APPROVAL OF RESOLUTION NO. FA-58 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 REFUNDING REVENUE BONDS (PROJECT AREA NO. 4), 2006 SERIES A, AND TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 4), 2006 SERIES B, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO APPROVAL OF RESOLUTION NO. 530 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 REFUNDING REVENUE BONDS (PROJECT AREA NO. 4), 2006 SERIES A, AND TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 4), 2006 SERIES B, 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. 06-77 (2) PALM DESERT FINANCING AUTHORITY RESOLUTION NO. FA58 (3) PALM DESERT REDEVELOPMENT AGENCY RESOLUTION NO.530 (4) INDENTURE OF TRUST (5) PROJECT AREA NO. 4 LOAN AGREEMENT (6) ESCROW AGREEMENT (7) PRELIMINARY OFFICIAL STATEMENT (8) BOND PURCHASE AGREEMENT (9) CONTINUING DISCLOSURE AGREEMENT Staff Report Approval of Agency/PDFA Resolutions — PA#4 Tax Allocation Refunding Revenue Bonds 2006 Series A and B Page 2of4 June 8, 2006 Recommendation: By Minute Motion: 1. That the City Council approve Resolution No. 06-77 , making (i) findings of significant public benefit in connection with the issuance and sale of two series of bonds (the "Bonds") by the Palm Desert Financing Authority: (A) Tax Allocation Refunding Revenue Bonds (Project Area No. 4), 2006 Series A (the "Series 2006A Bonds"), and (B) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4), 2006 Series B (the "Series 2006B Bonds"), and (ii) findings pursuant to Sections 33679 and 33445 of the Califomia 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-58 , 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. 530 , 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 the identified projects. Background and discussion: Staff recommends the issuance of two series of Bonds relating to the financing and refinancing of projects for the Agency's Project Area No. 4. The Bonds will be issued as tax-exempt bonds. The net proceeds of the Series 2006A Bonds will be used to refund a portion of certain Authority bonds issued in 1998 to finance projects for the Project Area No. 4. The remaining portion of the net proceeds of the Series 2006A Bonds, along with the net proceeds of the Series 2006E Bonds will be used to pay all or a portion of the costs of certain Agency projects benefiting Project Area No. 4. Based on current estimates by the Financing Advisor and the Underwriter, the sale of the two series of Bonds is expected to generate approximately $16,300,000 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. 4. The Bonds will rank on a parity with the outstanding bonds previously issued for Project Area No. 4. The Series 2006A Bonds will be current interest bonds. The Series 2006B Bonds will be capital appreciation bonds. Staff Report Approval of Agency/PDFA Resolutions — PA#4 Tax Allocation Refunding Revenue Bonds 2006 Series A and B Page 3 of 4 June 8, 2006 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 Wedbush Morgan Securities, Inc., Solana Beach, CA — Underwriter Rosenow Spevacek Group, Inc., Santa Ana, CA — Fiscal Consultant MuniFinancial, Inc., Temecula, CA — Dissemination Agent SUMMARY OF DOCUMENTS TO BE APPROVED: Indenture of Trust The 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. As presented, the Indenture is in substantially final form, except that final dollar amounts and interest rates will be added after the Bonds have been priced and sold and that provisions may be added, deleted or otherwise modified to accommodate the bond insurer requirements. Loan Agreement Pursuant to the Loan Agreement, the Authority agrees to lend the Agency funds that would be used by the Agency to refund the 1998 bonds and fund capital projects for benefit to Project Area No. 4. 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 Agreement 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 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 Staff Report Approval of Agency/PDFA Resolutions — PA#4 Tax Allocation Refunding Revenue Bonds 2006 Series A and B Page 4 of 4 June 8, 2006 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. 4. 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. Escrow Aareement The Escrow Agreement is an agreement among the Agency, the Authority and the Trustee. Redemption and final payment of the refunded 1998 Bonds will not occur until some time after the issuance of the Bonds. During this interim period, money derived from the proceeds of the Bonds to be used for the payment and redemption of the 1995 Bonds will be held by the Escrow Agent in an escrow fund. The Escrow Agreement provides for the establishment and maintenance of such escrow fund and the release of money on the appropriate payment and redemption dates. 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 ofliorTlttedbtaffif Yrigoyen r of Redevelopmen Housing Approval: Carlos f Or'teega v � City Manager/CAO/Executi t ta;Lw, APPROVED RECEIVED 0(4-77 MEETING DATE AYES : (0)956), NOES: 'V( ABSENT: ABSTAIN: Af VERIFIED4 elopment Paul S. G rei . BY RDA VERIFIED BY '2 Original on file with City Clerk's Office ON VERIFIED BY: �)rn 7 ' Original on file with City Clerk's Office ION: DENIED OTHER -SR).x hid 4 1-Cr s6Yx 5 C ty Clerk's Office Finance/Treasurer BY FIN AUTH (�4&-up RESOLUTION NO. 06-77 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 REFUNDING REVENUE BONDS (PROJECT AREA NO. 4), 2006 SERIES A, AND TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 4), 2006 SERIES B RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") has proposed to sell and issue two series of bonds (collectively, "the Bonds"): (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 4), 2006 Series A, and (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4), 2006 Series B; and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making two loans to the Palm Desert Redevelopment Agency (the "Agency") for the object and purpose of, among other things, assisting in (i) effecting a refunding of a portion of the Authority's remaining outstanding Tax Allocation Revenue Bonds (Project Area No. 4), Series 1998, and (ii) the financing of certain public capital improvements (the "Projects") of benefit to Project Area No. 4, of the Agency (the "Project Area"), including : (A) a sound attenuation wall along Fred Waring Drive, and (B) undergrounding of utilities throughout the Project Area; and WHEREAS, 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 concerning 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 purpose for which such taxes are being used to pay for the installation and construction; P6402.1057\893624.1 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 and refinancing 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 Public Capital Improvements of Benefit to Project Area No. 4," 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 neighborhood 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. Section 6. Effective Date. This Resolution shall take effect immediately upon adoption. P6402.1057'\893624.1 2 vote, to wit: APPROVED and ADOPTED this 8th day of June 2006 by the following AYES: NOES: ABSENT: ABSTAIN: ATTEST: Rachelle D. Klassen, City Clerk Jim Ferguson, Mayor P6402.1057\893624.1 3 RESOLUTION NO. 530 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 REFUNDING REVENUE BONDS (PROJECT AREA NO. 4), 2006 SERIES A, AND TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 4), 2006 SERIES B, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") has determined to sell and issue two series of bonds: (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 4), 2006 Series A (the "Series 2006A Bonds"), and (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4), 2006 Series B (the "Series 2006B Bonds," and together with the Series 2006A Bonds, the "Bonds"); and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making two loans (the "Loans") to the Palm Desert Redevelopment Agency (the "Agency") pursuant to a certain Loan Agreement (as defined below) for the object and purpose of, among other things, (i) assisting in the financing of certain public capital improvements of benefit to Project Area No. 4, of the Agency, and (ii) effecting a refunding of a portion of the Authority's remaining outstanding Tax Allocation Revenue Bonds (Project Area No. 4), Series 1998; 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. Loan Aareement. The Project Area No. 4 Loan Agreement (the "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 behalf of the Agency, to execute and deliver the 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). P6402.105 7\893646.1 Section 3. Escrow Aareement. The Escrow Agreement (Project Area No. 4), proposed to be entered into by and among the Agency, the Authority and the Escrow Agent, in the form presented to 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 Escrow 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 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 Aareement. The Bond Purchase Agreement (the "Purchase Agreement") proposed to be entered into by the Authority, the Agency and Wedbush Morgan Securities, 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 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 necessary or advisable in order to effectuate the purposes of this Resolution, the Loan Agreement, the Escrow Agreement, the Continuing Disclosure Agreement and the Purchase Agreement, and any such actions previously taken by such officers are hereby ratified and confirmed. P6402.1057\893646.1 2 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: Jim Fergson, Chairman ATTEST: Rachelle D. Klassen, Secretary P6402.1057\893646.1 3 RESOLUTION NO. FA- 58 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 REFUNDING REVENUE BONDS (PROJECT AREA NO. 4), 2006 SERIES A, AND TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 4), 2006 SERIES B, 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 Government 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 two series of bonds: (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 4), 2006 Series A (the "Series 2006A Bonds"), and (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4), 2006 Series B (the "Series 2006B Bonds," and together with the Series 2006A Bonds, the "Bonds"); and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making two loans to the Agency pursuant to a certain Loan Agreement (as defined below) for the object and purpose of, among other things, (i) assisting in the financing of certain public capital improvements of benefit to Project Area No. 4, of the Agency, and (ii) effecting a refunding of a portion of the Authority's remaining outstanding Tax Allocation Revenue Bonds (Project Area No. 4), Series 1998; 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; P6402.1057\893631.1 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 Bonds; Indenture. The Indenture of Trust (the "Indenture"), proposed to be entered into by and between the Authority and the Trustee (defined in Section 4 below) relating to the 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 $17,000,000, and the Series 2006B Bonds in an aggregate initial principal amount not exceeding $7,000,000, pursuant to the Indenture is hereby approved. Subject to Section 10 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 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.ADDointment of Trustee and Escrow Agent. The appointment of Wells Fargo Bank, National Association, as trustee (the 'Trustee") under the Indenture and as escrow agent (the "Escrow Agent") under the Escrow Agreement described in Section 6 is hereby approved. Section 5.Loan Agreement. The Project Area No. 4 Loan Agreement (the "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 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 6.Escrow Agreement. The Escrow Agreement (Project Area No. 4) (the "Escrow Agreement"), proposed to be entered into by and among the Agency, the Authority and the Escrow Agent, in the form presented to 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 Escrow Agreement in substantially said form, with such P6402.1057\893631.1 2 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. 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 Wedbush Morgan Securities, Inc. (the "Underwriter") of copies of the Preliminary Official Statement to potential purchasers of the Bonds is hereby approved. Section 8. 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 9. 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 12 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 12 hereof (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof). Section 10. 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 $17,000,000, and (ii) with respect to the Series 2006B Bonds shall not exceed $7,000,000; (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, and (ii) the true interest cost with respect to the Series 2006B Bonds shall not exceed 6.25 percent; P6402.1057\893631.1 3 (d) the Underwriter's compensation (Le., 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, and (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 (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 10 shall be valid for a period of 120 days from the date of adoption of this Resolution. Section 11. 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 Indenture, the Loan Agreement, the Escrow Agreement, the Purchase Agreement and the Official Statement, and any such actions previously taken by such officers are hereby ratified and confirmed. Section 12. 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: ATTEST: Rachelle D. Klassen, Secretary Jim Ferguson, President P6402.1057\893631.1 4 Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 4) 2006 Series A L&J DRAFT # I Oi/22/06 Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) 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: Wedbush Morgan Securities Inc. (the "Underwriter.). offers to enter into this 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 ' J/'A 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 I I :59 p.m. (California time) on the date hereof. and. if not so accepted and approved. will 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 Indenture (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 Rcvcnuc Bonds (Project Area No. 4) 2006 Series A (the "Current Interest Bonds.) and principal amount of Palm Desert Financing Authority Tax Allocation Rcvcnuc Capital Appreciation Bonds (Project Area No. 4) 2006 Series B (the "Capital Appreciation Bonds" and together with the Current Interest Bonds. the "2006 Bonds.). The 2006 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 2006 Bonds shall be $ (calculated as 234-06013 pc-1 the principal amount of the 2006 Bonds. less an original issue discount in the amount of $ and Tess an Underwriter's discount in the amount of } ). Section 2. Preliminary Official Statement. The Financing Authority has delivered to the Underwriter a Preliminary Official Statement. dated July . 2006 (the "Preliminary Official .S'tatement "). and will deliver to the Underwriter 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'tatement " ). The Financing Authority and the Redevelopment Agency have each delivered to the Underwriter 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- I 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 Law-) 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 Indenture (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 Indenture) derived primarily from loan payments made by the Redevelopment Agency pursuant to the 2006 Loan Agreement (defined herein). The 2006 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 "2006 Indenture.). by and between the Financing Authority and Wells Fargo Bank. National Association (the "Trustee.). The Financing Authority is issuing the 2006 Bonds to make two loans. one with respect to the Current Interest Bonds and one with respect to the Capital Appreciation Bonds (collectively. the "2006 Loans.). to the Palm Desert Redevelopment Agency (the "Redevelopment Agency) pursuant to the terms of a Project Area No. 4 Loan Agreement made and executed as of July I. 2006 (the "2006 Loan Agreement") by and among the Financing Authority. the Redevelopment Agency and the Trustee. The Redevelopment Agency will apply the proceeds of the 2006 Loans to: (i) refinance certain outstanding obligations of the Redevelopment Agency under a loan agreement dated as of March I. 1998 (the "Prior Loan Agreement"): (ii) finance various redevelopment activities within Project Area No. 4 located in the City of Palm Desert (the "Project Area"): and (iii) pay the costs associated with the issuance of the 2006 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 -I) to be issued by (the "Boncl Insurer.). simultaneously with the delivery of the 2006 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 Underwriter reasonably deems necessary in connection with the marketing of the 2006 Bonds. The Undenvriter 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. 234-06013 pc-1 2 Section 5. Delivery of Official Statement. The Financing Authority shall deliver to the Undenyriter. 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 Undenyriter 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 Undenyriter 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 Undenyriter prior to the date hereof of the Preliminary Official Statement. furnished to the Undenyriter by the Financing Authority in connection with such offering and sale. The Undenyriter 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 less than 25 days following the End of the Undenyriting Period. the Undenyriter 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 Undenyriter 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 Undenyriter shall deliver to the Financing Authority a summary of the orders by maturity. 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 \Vhich a quorum was present and acting throughout on . 2006. taken all action necessary for the execution. delivery and due performance of the 2006 Indenture. the 2006 Loan Agreement. the Escrow Agreement dated as of July I. 2006 (the " /scrou• Agreement"). by and among the Financing Authority. the Redevelopment Agency and Wells Fargo Bank. National Association. as escrow bank (the "Escrow Ban-) regarding the refimding of $ outstanding principal amount of Palm Desert Financing Authority Tax Rcycnuc Bonds (Project Area No. 4). Series 1998 (the "Prior Bonds"). 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 frill 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'iaie ") 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. when executed and delivered by the respective parties thereto. the Financing Authority Agreements will each constitute legal. valid and binding obligation of the 234-06013 pc-1 Financing Authority enforceable in accordance w ith 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 bankruptcy. 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 othenvise 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 "Ml1NICIP/1, BOND INSURANCE:* and " UNDI:RWRIIING.- and contained in APPENDIX G-"DTC AND THE BOOK -ENTRY SYS•II:M.- and APPENDIX H-"SPECIMEN MUINICIPAI. BOND INSIIRANCI: POLICY"' and APPENDIX I -"SPECIMEN RI;sI:RVI: FIIND SiJR1aY POI,ICY-) 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: (c) 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 instrument to which the Financing Authority is a party or is otherwise subject. which 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 othenwise 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 Undenvriter. 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 person's 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 Indenture. or (iii) in any way contesting or affecting the 234-06013 pc-1 4 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 Nvhcrein 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 Undenvriter which the Undenvriter may reasonably request in order for the Undenvriter to qualify the 2006 Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Undenvriter may designate and to determine the eligibility of the 2006 Bonds for investment under the laws 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 ()I. 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 Undenvriter 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- I2. 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 Undenvriter stating the date which is the End of the Underwriting Period: (k) if between the date hereof and the date which 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 which. in the reasonable opinion the City Attorney. as Counsel to the Financing Authority or Lofton K. 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 Tight of the circumstances under which 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 supplement 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 supplement to the Official Statement (in the form and substance satisfactory to the Underwriter) 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 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 supplement or amendment to the Official Statement. 234-06013 pc-1 For the purposes of this subsection. between the date hereof and the date \Vhich is 25 days after the End of the Undenvriting Period for the 2006 Bonds. the Financing Authority will furnish such information Nvith 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 supplement 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 supplcmcntcd 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 \Vhich it was made. not misleading: (m) any certificate signed by any officer of the Financing Authority and delivered to the Underwriter pursuant to the 2006 indenture 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 «ill 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 Indenture. Section 7. Representations, Warranties and Covenants of the Redevelopment Agency. The Redevelopment Agency represents. warrants and cowcnants with the Undenvriter that: (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 Agreement. the Escrow Agreement. 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: 234-06013 pc-1 6 (c) when executed and delivered by the respective parties thereto. each of the Redevelopment Agency Agreements NViII 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 AIII)I11:I) FINANCIAI, STATEMENTS FOR 1111: FISCAI, YEAR ENDED J11N1: 30. 2005- are true. correct and complete in all material respects and such statcmcnts do not with respect to the Preliminary- Official Statement. and will 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: (c) 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 anv applicable judgment or decree. or anv 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 any 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 any applicable constitutional provision. law. administrative regulation. court order or consent decree or any applicable judgment or decree or any loan agreement. note. resolution. indenture. agreement or other instrument to which the Redevelopment Agency is a party or may be othenvise subject: (f) at the date hereof and on the Closing Date. the Redevelopment Agency will 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 Undenvriter. 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 bode. 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 an official of the Redevelopment Agency to such persons office. or (ii) in an 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:I,OPMI:N I AGENCY" and "THE PROJECT AREA" and contained in APPENDIX B-"REDEVELOPMENT AGENCY AUDITED FINANCIAI, STATEMENTS FOR 1111: FISCAI, YEAR ENDED J11N1: 30. 2005. or (iv) contesting the 234-06013 pc-1 7 power of the Redevelopment Agency or its authority with respect to the Redevelopment Agency Agreements: wherein an unfavorable decision. ruling or finding NvouId 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 will furnish such information. execute such instruments and take such other action not inconsistent with law in cooperation with the Underwriter wIhich 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 laws and regulations of such states and other jurisdictions of the United States as the Underwriter mav designate and to determine the eligibility of the 2006 Bonds for investment under the laws of such states and other jurisdictions: provided. however. that in no event shall the Redevelopment Agency be required to take an action which NvouId subject it to service of process in anv jurisdiction in which it is not now subject: (i) to the best of knowledge of the Redevelopment Agency-. all approvals. consents and orders of an governmental authority or agency having jurisdiction in the matter which NvouId 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 will be on the Closing Date. in full force and effect: (I) as used in this Purchase Agreement. the term "End uf'ihe 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 which is the End of the Underwriting Period: (k) if between the date hereof and the date which 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 which. in the reasonable opinion of the Cite 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 anv material respect. the Redevelopment Agency will notify the Underwriter. 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 anv material respect with respect to the information of the Redevelopment Agencv. If such notification shall be subsequent to the Closing Date. the Redevelopment Agencv shall forthwith provide to the Undenvriter such legal opinions. certificates. instruments and other documents as the Undenvriter mav 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: 234-06013 pc-1 8 (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 supplement 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 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 Agreement: (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 "Having 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. Tess the premium for the 'Bond Insurance Policy / Bond Insurance Policies' 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 234-06013 Pc-1 9 with respect thereto shall constitute a cause for failure or refusal by the Underwriter 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 undenvriters 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. NOV York or California authorities. or the general suspension or material limitation of trading on any national securities exchange which materially adversely affects the market price of the 2006 Bonds: (4) the imposition by the NOV 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 any such restrictions now in force. including those relating to the extension of credit by. or the charge to the net capital requirements of. the Underwriter 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: (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 any 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 haying 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 Indenture 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 Rcycnuc 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 any 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 Rcycnuc 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 Rcycnuc Service or any other 234-06013 pc-1 10 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 \dhich. 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 Undenvriter 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 Undenvriter. 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) anv 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 anv 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 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 Nev 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 anv 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 Underwriter 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 Nvarrantics 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 Undenvriter. 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 anv 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 Undenvriter 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 234-06013 pc-1 Official Statement by the Rule 1 iSc2-12 and any amendments or supplements as have been approved by the Undenvriter). in such reasonable quantity as the Undenvriter 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 Undenvriter. with only such changes as shall have been agreed to in writing by the Undenvriter. 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 Undenvriter shall have received the following documents. in each case satisfactory in form and substance to the Undenvriter: (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 Indenture 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 Indenture. 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: 234-06013 pc-1 12 (iv) an opinion of Bond Counsel with respect to the Prior Bonds. dated the Closing Date and addressed to the Financing Authority. the Redevelopment Agency and the Undenyriter. to the effect that all of the liability of the Financing Authority with respect to the Prior Bonds has ceased and been completely discharged (except that the holders thereof shall be entitled to the payment of the principal. interest and premium with respect to the Prior Bonds from moneys deposited in the applicable Escrow Fund). and the Prior Bonds NViII no longer be considered outstanding under the Trust Agreement pursuant to which each such Prior Bonds were issued (v) the opinion of the City Attorney. as counsel to the Financing Authority. dated the Closing Date and addressed to the Financing Authority and the Undenyriter. in substantially the form of Exhibit R. (vi) the opinion of the City Attorney. as counsel to the Redevelopment Agency. dated the Closing Date and addressed to the Financing Authority and the Undenyriter in substantially the form of Fxhihit C. (yii) the opinion of Disclosure Counsel. dated the Closing Date and addressed to the Financing Authority and the Undenyriter. 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 & 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 anv material respect. the 2006 Bonds are not subject to the registration requirements of the Securities Act of 1933. as amended. and the 2006 Indenture are each exempt from qualification under the Trust Indenture 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)(5) of such Rule. (wiii) the opinion of counsel to Wells Fargo Bank. National Association ( "Wells Fargo .). dated the Closing Date and addressed to the Underwriter and the Financing Authority. to the effect that: (A) Wells Fargo 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 Fargo under the 2006 Indenture and as Escrow Bank under the Escrow Agreement: (B) Wells Fargo has duly authorized. executed and delivered the each of the 2006 Indenture and the Escrow Agreement. and by all proper corporate action has authorized the acceptance of the trusts of the 2006 Indenture: (C) each of the 2006 Indenture and the Escrow Agreement constitutes a legally valid and binding agreement of Wells Fargo. enforceable against it in accordance with its respective terms: (D) the 2006 Bonds have been validly authenticated. registered and delivered by Wells Fargo. as Trustee: (E) no authorization. approval. consent or other order of the State or anv other governmental authority or agency within the State having jurisdiction over Wells Fargo. or. to such counsels knowledge after reasonable investigation. any other person or corporation. is required for the valid authorization. execution. delivery and performance by Wells Fargo of the 2006 Indenture or the Escrow Agreement: and (F) the execution and delivery of the 2006 Indenture and the Escrow Agreement. and compliance by Wells Fargo with the provisions of each of the 2006 Indenture and the Escrow Agreement under the circumstances contemplated thereby. does not and will not in any material respect conflict with or constitute on the part of Wells Fargo a breach or default under any agreements or other instrument to which 234-06013 pc-1 13 Wells Fargo 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 Wells Fargo is subject: (ix) 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: (x) 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: (xi) a certificate of Wells Fargo dated the Closing Date. signed by a duly authorized official. in form and substance satisfactory to the Underwriter. to the effect that: (A) Wells Fargo 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 Indenture and the Escrow Agreement and to authenticate and deliver the 2006 Bonds to the Underwriter: (B) Wells Fargo is duly authorized to enter into the 2006 Indenture and the Escrow Agreement and to execute and deliver the 2006 Bonds to the Underwriter pursuant to the 2006 Indenture: (C) the 2006 Bonds have been duly authenticated and delivered by Wells Fargo. as Trustee: (D) the execution and delivery of the 2006 Indenture and the Escrow Agreement and compliance with the provisions on the part of Wells Fargo contained in each of the 2006 Indenture and the Escrow Agreement. 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 Wells Fargo is a party or is otherwise subject (except that no representation or warranty is made with respect to any federal or state securities or blue sky laws or regulations). nor will any such execution. delivery. adoption or compliance result in the creation or imposition of anv lien. charge or other security interest or encumbrance of anv nature whatsoever upon anv of the properties or assets held by Wells Fargo pursuant to the lien created by the 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 the 2006 Indenture: and (E) to the best of the knowledge of Wells Fargo. 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 Indenture. the 2006 Bonds or the Escrow 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 234-06013 pc-1 I4 contesting or affecting the validity or enforceability of the 2006 Indenture or the Escrow- Agreement or contesting its powers or its authority to enter into. adopt or perform its obligations under any of the foregoing to \yhich it is a party. Nvherein an unfavorable decision. ruling or finding Nvould materially adversely affect the validity or enforceability of the 2006 Indenture. the 2006 Bonds or the Escrow Agreement or the power and authority of Wells Fargo to enter into and perform its respective duties under the 2006 Indenture or the Escrow Agreement and to authenticate and deliver the 2006 Bonds to the Undenvriter: (xii) 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. INFoRMAII0N CoNCI:RNING 1111: CITY OF 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: (xiii) a certificate of (the i erification Agent.). independent certified public accountants. dated the Closing Date. to the effect that it has verified the accuracy of the mathematical computations of the adequacy of the maturing principal amounts of the Escrow Securities with respect to the Prior Bonds to be held by the Escrow Bank. together with the interest earned and to be earned thereon to make full and timely payment of all principal and interest due with respect to the Prior Bonds as are then outstanding. and on the specified dates at the then applicable redemption prices: (xiv) 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: (xv) the [Bond Insurance Policy / Bond Insurance Policies' and the Reserve Policy_ issued by the Bond Insurer: (xvi) an opinion of Counsel to the Bond Insurer. dated the Closing Date and addressed to the Financing Authority and the Undenvriter 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 INSURANCE.* and contained in APPENDIX H-"SPECIMEN FINANCIAL, GIJARAN•I'Y INSURANCE PoLICY- and APPENDIX I—"SPI:CIMI:N RESERVE FUND SIJRIi y P0I.ICr accurately reflect and fairly represent the information purported to be shown therein: (xvii) a certificate of Rosenow Spevacek Group Inc. (the " /'isc al Consultant ) 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 \sere made. not misleading in any material respect. and consenting to the use of the Report in the Preliminary and Final Official Statements: I(xviii) 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—"RI:DI:VI:LOPMEN AGENCY AIJDI I I:D FINANCIAL, STAl l M1:N S FOR 1111: FISCAL, YEAR ENDED JIJNI: 30. 2005:1 (xix) the Certificate as to Arbitrage and the Certificate Regarding Use of Proceeds of the Financing Authority in form and substance acceptable to Bond Counsel: 234-06013 Pc-1 (xx) evidence that the federal tax information form 8038-G has been prepared for filing: (xxi) 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 (xxii) 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 (xxiii) 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 Indenture with 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 with the provisions hereof if and only if they are in form and substance satisfactory- to the Underwriter. If the Financing Authority shall be unable to satisfy the conditions to the Underwriter's obligations contained in this Purchase Agreement or if the Underwriter. 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 written notice to the Financing Authority and none of the Underwriter 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 anv 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. the Verification Agent. accountants. advisers and of any other experts or consultants retained by or for the Financing Authority: and (iv) anv 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 Underwriter 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 Underwriter 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 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 Any 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 234-06013 pc-1 I6 Undenyriter: Wedbush Morgan Securities Inc.. 201 Lomas Santa Fe Drive. Suite 500. Solaro Beach. California 92075: Attention: Mike Cavanaugh. Vice President. Section 13. Parties in Interest. This Purchase Agreement is made solely for the benefit of the Financing Authority and the Undenyriter (including the successors or assigns of the Undenyriter) 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 Undenyriter or the Financing Authority or (b) delivery of and payment for the 2006 Bonds. The agreements contained in Section 10 herein shall survive anv 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 anv 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. 234-06013 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. WEDBUSH MORGAN SECURITIES INC. Bv: Mike Cavanaugh. Vice President 234-06013 pc-1 I8 SCHEDULE I SINKING FUND PAYMENT DATES, AMOUNTS, RATES, YIELDS AND PRICES (October I ) 234-06013 pc-1 Principal Interest Amount Rate Yield Price EXHIBIT A-1 Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 4) 2006 Series A Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) 2006 Series B 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 Wedbush Morgan Securities 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 234-06013 Pc-1 A -I -I EXHIBIT A-2 Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 4) 2006 Series A Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) 2006 Series B 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 Wedbush Morgan Securities 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"). «hick Nvith respect to the statements contained under the captions "TiII: RI:DI:VITOPMI:M AGENCY.* and "Ti PROJECT 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 «vcrc made. not misleading. Dated: June .2006 PALM DESERT REDEVELOPMENT AGENCY By: Executive Director 234-06013 Pc-1 A-2- I EXHIBIT B FORM OF OPINION OF FINANCING AUTHORITY COUNSEL Letterhead of Counsel to the Financing Authority' . 2006 Palm Desert Financing Authority Palm Desert. California Wedbush Morgan Securities Inc. Solano Beach. California Re: Palm Desert Financing Authority Tax Allocation Revenues Bonds (Project Area No. 4). 2006 Series Ladies and Gentlemen: Our office has acted as counsel to the Palm Desert Financing Authority (the "Financing Authoritri ") 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. 4) 2006 Series A (the "Current Interest Bonds") and $ principal amount of Palm Desert Financing Authoritv Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) 2006 Series B (the "Capital Appreciation Bonds and together with the Current Interest 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 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 with respect to the 2006 Bonds (the "2006 Indenture"). by and between the Financing Authority and Wells Fargo Bank. National Association. as trustee (the " Trustee): (iv) the Escrow Agreement dated as of July I. 2006 (the "Escrow Agreement"). by and among the Financing Authority. the Redevelopment Agency and Wells Fargo Bank. National Association. as Escrow Bank: (v) the Project Area No. 4 Loan Agreement made and executed as of July I. 2006 (the "2006 Loan Agreement"). by and among the Financing Authority. the Palm Desert Redevelopment Agency (the "Redevelopment Agencv") and the Trustee with respect to the loan of the proceeds of the 2006 Bonds by the Financing Authoritv to the Redevelopment Agencv. one with respect to the Current Interest Bonds and one with respect to the Capital Appreciation Bonds (collectively. the "2006 Loans"): (vi) the Purchase Agreement. dated as of . 2006 (the "Purchase Agreement"). between the Financing Authority and Wedbush Morgan Securities Inc.. as Underwriter. and approved by the Redevelopment Agency: and (yii) the Preliminary Official Statement. dated . 2006. (the "Preliminary Official Statement"). with such changes and amendments thereto as of the date of this opinion (the "Official Statement"). The 2006 Indenture. the Escrow Agreement. the 2006 Loan Agreement. the 2006 Loans and the Purchase Agreement are collectively referred to herein as the "Financing Authority Agreements."' Any capitalized term used herein and not otherwise defined shall have the meanings given to such terms as specified in the Official Statement. 234-06013 pc-1 B- I Based on the foregoing. w-e, 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 frill 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 with 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 with their respective team. 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 with 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 with the provisions thereof. under the circumstances contemplated thereby. does not in any material respect conflict with or constitute a breach of. or default under. any instrument relating to the organization. existence or operation of the Financing Authority. or any commitment. agreement or other instrument to which the Financing Authority is a party. or by which it is bound. or any existing law. ruling. regulation. ordinance. judgment. order or decree to which the Financing Authority is subject. which 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. 234-06013 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. 234-06013 pc-1 B-3 EXHIBIT C FORM OF OPINION OF REDEVELOPMENT AGENCY COUNSEL Letterhead of Counsel to the Redevelopment Agency . 2006 Palm Desert Financing Authority Palm Desert. California Wedbush Morgan Securities Inc. Solano Beach. California Re: Palm Desert Financing Authority Tax Allocation Revenues Bonds (Project Area No. 4). 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. 4) 2006 Series A (the "Current Interest Bonds"). and `} principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) 2006 Series B (the "Capital Appreciation Bonds and together with the Current Interest 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 Escrow Agreement dated as of July I. 2006 (the "Escrow Agreement"). by and among the Financing Authority. the Redevelopment Agency and Wells Fargo Bank. National Association. as Escrow Bank: (iv) the Project Area No. 4 Loan Agreement made and executed as of July I. 2006 (the "2006 Loan Agreement"). by and among the Palm Desert Financing Authority (the "Financing Authority"). the Redevelopment Agency and Wells Fargo Bank. National Association. as Trustee. with respect to the loan of the proceeds of the 2006 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 "2006 Loans"): (v) the Purchase Agreement. dated as of 2006 (the "Purchase Agreement). between the Financing Authority and Wedbush Morgan Securities Inc.. as Underwriter. and approved by the Redevelopment Agency: and (vi) the Preliminary Official Statement. dated . 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 Trustee and MuniFinancial. Inc.. as dissemination agent. The Escrow Agreement. the 2006 Loan Agreement. the 2006 Loans. the Purchase Agreement and the Continuing Disclosure Agreement are collectively referred to herein as 234-06013 pc-1 c-1 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. 234-06013 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. 234-06013 pc-1 C-3 L&J DRAFT # I 05/ 18/06 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 "Trustee) and MuniFinancial. Inc. (the "Dissemination Agent) in connection with the issuance of the $ aggregate principal amount of Palm Dcscrt Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 4) 2006 Series A and $ aggregate principal amount of Palm Dcscrt Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 4) 2006 Series B (the "Bonds.). The Bonds are being executed and delivered pursuant to an Indenture of Trust dated as of July I. 2006 (the "Indenture"). by and between the Palm Dcscrt Financing Authority (the "Financing Authority) and the Trustee. The Financing Authority will loan the proceeds of the Bonds to the Redevelopment Agency pursuant to a Loan Agreement made and entered into as of July 1. 2006. The Redevelopment Agency covenants and agrees as follows: SECTION 1. 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 Undenyriter in complying with Securities and Exchange Commission ("SEC) Rule I5c2-12(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 power. 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 which has filed with the Trustcc a written acceptance of such designation. "Fiscal Year- shall mean with respect to the Redevelopment Agency. the period beginning on July 1 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. "Holders" shall mean either the registered owners of the Bonds. or. if the Bonds are registered in the name of The Depository Trust Company or another recognized dcpositon_ any applicable participant in its depository system. "Listed Event" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. 06013 cda-1 "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: httD://w\\\y.sec.lroy/info/municipal/nrmsir.htm. "Participating Underwriter shall mean Citigroup Global Markets. Inc.. as the original underwriter of the Bonds required to comply Nyith the Rule in connection Nyith offering of the Bonds. "Repository shall mean each National Repository and each State Repository. if any. "Rule shall mean Rule I5c2-I2(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 Nvritten 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 Trustcc 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 Rcpositon_ 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: (ii) file the Annual Report with each Repository by the date required therefor by Section 3(a) and file any 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 06013 cda-1 2 Disclosure Agreement. stating the date it was provided and listing all the Repositories to « hich it was provided. SECTION d. Content of Annual Reports. The Redevelopment Agency's Annual Report shall contain or incorporate by 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 «hen they become available. (b) Unless otherwise 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 4—"Palm Desert Redevelopment Agency Project Area No. 4—Principal Taxpayers."' (ii) Table 6—"Palm Desert Redo clopment Agency —Historical and Current Values: and (iii) Table 7—"Palm Desert Redevelopment Agency —Tax Revenues Received: and (c) The percent by which Tax Revenues have provided coverage for Maximum Annual Debt Service for the most current completed Fiscal Year. (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 by reference is a final official statement. it must be available from the Municipal Securities Rulemaking Board: and provided liirther. 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. (ii) non-payment related defaults. (iii) modifications to rights of Bondholders. 06013 Ldr1 Bonds. (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 (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 Trustee 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 Trustee pursuant to Section is(b) or otherwise. 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 Redevelopment Agency shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). 06013 .d-1 4 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 Trustee and the Dissemination Agent shall agree to any amendment so requested by the Redevelopment Agency provided that neither the Trustcc 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. Nvould 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 well 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 O« ner's consent pursuant to Section 7.01 of the Indenture: and (d) the annual financial information containing (if applicable) the amended operating data or financial information vyill 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 ONyner 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. 06013 .d-1 SECTION ID. Default. In the even to a failure of the Redevelopment Agency to comply with any provision of this Disclosure Agreement. the Tnistee shall. at the written direction of any Participating Underwriter or the Owners of a majority in aggregate principal amount of Outstanding Bonds (but only to the extent funds have been provided to it or it has been otherwise 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 Trustcc 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 Trustcc or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION I I. 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 Trustcc. 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 Trustcc 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 Trustcc shall have no dutv or obligation to review anv 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 any 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 benefit of the Redevelopment Agency. the Participating Underwriter. the Dissemination Agent and Holders and Beneficial Owners from time to time of the Bonds. and shall create no rights in anv other person or entity. SECTION 13. Notices. Notices should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing. Redevelopment Agency: Palm Desert Redevelopment Agency 73-5 I() Fred Waring Drive Palm Desert. California 92260 (760) 346-061 I (760) 346-0574 Fax 06013 .d-1 6 Dissemination Agency: Trustee: MuniFinancial. Inc. 27 368 Via Industrial. Suite I0 Temecula. California 92590 (909) 587- 500 (909) 587- 51() Fax Wells Fargo Bank. National Association 700 South Flower Street. Suite 500 Los Angeles. California 900 I 7-4 I04 (213) 630-6237 (213) 630-6215 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 06013 .d-1 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 Dcscrt Financing Authority Tax Allocation Refunding Rcycnuc Bonds (Project Area No. 4) 2006 Series A and Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 4) 2006 Series B 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 Trustee 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 Nyill be filed by Dated: MUNIFINANCIAL. INC.. on behalf of the Palm Dcscrt Redevelopment Agency By: Its: 06013 cda-1 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 Refunding Rcycnuc Bonds (Project Area No. 4) 2006 Series A and Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 4) 2006 Series B Date of Issuance: July . 2006 NOTICE IS HEREBY GIVEN that the Palm Desert Financing Authority (the "Financing Authority) has not provided an Annual Report Nvith 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: 06013 pus-1 PALM DESERT FINANCING AUTHORITY By: Its: A-1 ESCROW AGREEMENT (PROJECT AREA NO. 4) by and among PALM DESERT FINANCING AUTHORITY and PALM DESERT REDEVELOPMENT AGENCY and WELLS FARGO BANK, NATIONAL ASSOCIATION as Escrow Agent Dated as of July 1, 2006 Relating to the Refunding of the portion of Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 4) Series 1998 maturing on P6-IO2.IU57\89I682.1 RAW DRAFT: 5/I0/2006 TABLE OF CONTENTS Paue Section 1. Definitions 2 Section 2. Appointment of Escrow Agent 2 Section 3. Escrow Fund 3 Section 4. Deposit to Escrow Fund 3 Section 5. Investment of Escrow Fund 3 Section 6. Reinvestment; Payment of Refunding Requirements 3 Section 7. Verification 4 Section 8. Compliance with Agreement 4 Section 9. [Reserved] 4 Section 10. Notices 4 Section 1 1. Defeasance of Prior Bonds 5 Section 12. Nature of Lien 5 Section 13. Amendments 5 Section 14. Compensation of Escrow Agent 5 Section 15. Resignation or Removal of Escrow Agent; Appointment of Successor 6 Section 16. Limitation of Powers and Duties 7 Section 17. Indemnification 7 Section 18. Limitation of Liability 8 Section 19. Termination 8 Section 20. Governing Law 9 Section 21. Severability 9 Section 22. Counterparts 9 SCHEDULE A REFUNDING REQUIREMENTS SCHEDULE B ESCROW SECURITIES EXHIBIT A FORM OF DEFEASANCE NOTICE P6402. 1057\89 1682. I ESCROW AGREEMENT (Project Area No. 4) This Escrow Agreement (Project Area No. 4) (this "Agreement") is made and entered into as of July 1, 2006, by and among the Palm Desert Financing Authority, a joint powers authority duly organized and existing pursuant to the laws of the State of California (the "Authority"), the Palm Desert Redevelopment Agency, a public body corporate and politic organized and existing pursuant to the laws of the State of California (the "Agency"), and Wells Fargo Bank, National Association, a national banking association duly organized and existing under the laws of the United States of America, as Escrow Agent (together with any successors and assigns, the "Escrow Agent"). RECITALS: A. The Authority has heretofore issued its Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 4), Series 1998 (the "Series 1998 Bonds"), pursuant to the Indenture of Trust, dated as of March 1, 1998 (the "Prior Indenture"), by and between the Authority and First Trust of California, National Association, as the prior trustee, as succeeded by Wells Fargo Bank, National Association, as the trustee (the "Prior Bonds Trustee"). B. The Series 1998 Bonds are secured by revenues consisting of amounts payable to the Authority by the Agency with respect to a loan (the "Prior Loan") pursuant to the Loan Agreement (Project Area No. 4), dated as of March 1, 1998 (the "Prior Loan Agreement"), by and among the Agency, the Authority and the Prior Bonds Trustee. C. The Agency and the Authority have determined to refund the portion of the Series 1998 Bonds maturing on (the "Prior Bonds"). D. The Authority has determined to issue its Tax Allocation Refunding Revenue Bonds (Project Area No. 4) 2006 Series A (the "Series 2006A Bonds"), pursuant to the Indenture of Trust, dated as of even date herewith, by and between the Authority and Wells Fargo Bank, National Association, as trustee (together with any successors and assigns, the "2006 Trustee"). E. Proceeds of the Series 2006A Bonds will be used to make a loan (the "Series 2006A Loan") to the Agency pursuant to the Loan Agreement, dated as of event date herewith (the "2006 Loan Agreement"), by and among the Agency, the Authority and the 2006 Trustee. F. Pursuant to the 2006 Loan Agreement, a portion of the proceeds derived from the Series 2006A Loan will be deposited in escrow with the Escrow Agent and applied to the purchase of noncallable direct obligations of, or noncallable obligations guaranteed by, the United States of America. P6402.1057\89 1682. I 1 G. In accordance with the Prior Indenture, if the Authority will pay or cause to be paid, or will have made provisions to pay, or there will have been set aside in trust funds to pay, to the holders of any portion of the Series 1998 Bonds, the principal and interest and premium, if any, to become due thereon, then with respect to such portion of the Series 1998 Bonds the lien of the Prior Indenture will thereupon cease, terminate and become void and be discharged and satisfied. I. In order to provide for the proper and timely application of the moneys deposited in said escrow to the payment of the Prior Bonds, it is necessary to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth, the parties hereto agree as follows: Section 1. Definitions. Unless the context clearly requires otherwise, capitalized terms used in this Agreement shall have the meanings ascribed to them in the introductory paragraph and the Recitals hereof. In addition, as used herein, the following terms shall have the following meanings: "Escrow Fund" means the Escrow Fund established and held by the Escrow Agent pursuant to Section 3. "Escrow Securities" means the Investment Securities set forth in Schedule B hereto. "Investment Securities" means noncallable direct obligations of the United States of America, or bonds or other obligations which are noncallable and for which the full faith and credit of the United States of America are pledged for the payment of principal and interest, to mature or be withdrawable, as the case may be, not later than the time when needed for the payment or redemption of the Prior Bonds in order to discharge the pledge and lien securing the Prior Bonds. "Refunding, Requirements" means an amount sufficient to pay all installments of principal and interest of the Prior Bonds on their earliest available optional redemption date, as set forth in Schedule A attached hereto. Section 2. Appointment of Escrow Ag,ent. The Authority and the Agency hereby appoint Wells Fargo Bank, National Association, as Escrow Agent under this Agreement for the benefit of the holders of the Prior Bonds. The Escrow Agent hereby accepts the duties and obligations of Escrow Agent under this Agreement and agrees that the irrevocable instructions to the Escrow Agent herein provided are in a form satisfactory to it. The applicable and necessary provisions of the Prior Indenture, including particularly redemption provisions set forth in Article II thereof, are incorporated herein by reference. Reference herein to, or citation herein of, any provisions of the Prior Indenture shall be deemed to incorporate the same as a part hereof in the same manner and with the same effect as if the same were fully set forth herein. P6402.1057\89 1682. I 2 Section 3. Escrow Fund. There is hereby created and established with the Escrow Agent a special and irrevocable trust fund designated the "Escrow Fund" (the "Escrow Fund") to be held by the Escrow Agent separate and apart from all other funds of the Agency, the Authority or the Escrow Agent and used only for the purposes and in the manner provided in this Agreement. Section 4. Deposit to Escrow Fund. Upon the issuance of the Series 2006A Bonds, the Authority and the Agency shall cause to be transferred to the Escrow Agent, for deposit in the Escrow Fund, the following: (i) a portion of the sale proceeds of the Series 2006A Bonds, in the amount of $ and (ii) money to be released from the Reserve Fund in the amount of $ . Moneys on deposit in the Escrow Fund shall be held in irrevocable trust by the Escrow Agent and applied solely as provided in this Escrow Agreement. Section 5. Investment of Escrow Fund. The Escrow Agent, upon receipt of the moneys described in Section 4, shall immediately invest $ of such moneys in the Escrow Securities, to deposit such Escrow Securities in the Escrow Fund and to deposit the remaining $ in the Escrow Fund to hold uninvested. The Escrow Agent is hereby authorized and empowered to deposit uninvested monies held hereunder from time to time in demand deposit accounts, without payment for interest thereon as provided hereunder, established at commercial banks that are corporate affiliates of the Escrow Agent. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, at the written request of the Agency and upon compliance with the conditions hereinafter set forth, the Escrow Agent shall have the power to sell, transfer, request the redemption of or otherwise dispose of some or all of the Escrow Securities in the Escrow Fund and to substitute Investment Securities. The foregoing may be effected only if: (a) the substitution of Investment Securities for the substituted Escrow Securities occurs simultaneously; (b) the amounts of and dates on which the anticipated transfers from the Escrow Fund to the Prior Bonds Trustee for the payment of the principal of, or interest on the Prior Bonds will not be diminished or postponed thereby, as shown in the certification (described below) of an independent certified public accountant; (c) the Escrow Agent shall receive the unqualified opinion of counsel to the effect that the Agency has the right and power to effect such disposition and substitution; and (d) the Escrow Agent shall receive from an independent certified public accountant a certification that, immediately after such transaction, the principal of and interest on the Investment Securities in the Escrow Fund will, together with other moneys available for such purpose, be sufficient to pay the Refunding Requirements. Any cash received from the disposition and substitution of Escrow Securities pursuant to this Section to the extent that, as shown in such certification, such cash will not be required, in accordance with the Prior Indenture and this Agreement, at any time for the payment when due as provided in Section 6, shall be transferred to the Agency. Section 6. Reinvestment; Payment of Refunding, Requirements. As the principal of the Escrow Securities shall mature and be paid, and the investment income and earnings thereon are paid, the Escrow Agent shall reinvest such moneys in Investment Securities in P6402.1057\89 1682. I 3 accordance with the written instructions of the Agency. On the redemption date of the Prior Bonds as set forth Schedule A. the Escrow Agent shall transfer an amount sufficient to pay the Refunding Requirements from the Escrow Fund to the Prior Bonds Trustee. Such amounts shall be applied by the Prior Bonds Trustee to the payment of the Refunding Requirements for the equal and ratable benefit of the holders of the Prior Bonds. Section 7. Verification. The Agency has caused schedules to be prepared relating to the sufficiency of the anticipated receipts from the Escrow Securities to pay the Refunding Requirements. The Agency shall furnish the Escrow Agent with the report of verifying the mathematical accuracy of the computations contained in such schedules. Section 8. Compliance with Agreement and Prior Indenture. The Authority and the Agency hereby direct, and the Escrow Agent, in its capacities as escrow agent hereunder and as the Prior Bonds Trustee, hereby agrees that the Escrow Agent will take all the actions required to be taken by it hereunder, including the timely transfer of moneys for the payment of principal and interest with respect to the Prior Bonds, in order to effectuate this Agreement. The liability of the Escrow Agent for the payment of the Refunding Requirements, pursuant to this Section and, in its capacity as Prior Bonds Trustee, the Prior Indenture, shall be limited to the application, in accordance with this Agreement, of moneys and the Escrow Securities in the Escrow Fund (including interest earnings thereon, if any) available for the purposes of and in accordance with this Agreement. Section 9. Tax Covenant. Notwithstanding any other provision of this Agreement, the Agency and the Authority hereby covenant that no part of the proceeds of the Series 2006A Bonds or of the moneys or funds held by the Escrow Agent hereunder shall be used, and that it shall not direct the Escrow Agent to use any of such moneys or funds at any time, directly or indirectly, in a manner that would cause any of the Series 2006A Bonds to be an "arbitrage bond" under Section 148 of the Code and the regulations of the Treasury Department thereunder proposed or in effect at the time of such use and applicable to obligations issued on the date of issuance of the Series 2006A Bonds. None of the Authority, the Agency nor the Escrow Agent shall, except as set forth in this Agreement, sell, transfer or otherwise dispose of the Escrow Securities; provided that the Escrow Agent may effectuate the transfer of such Escrow Securities to a successor escrow agent in accordance with the provisions of Section 14 relating to the transfer of rights and property to successor escrow agents. Section 10. Notices. The Authority hereby instructs the Escrow Agent, in its capacity as the Prior Bonds Trustee, to mail to the registered owners of the Prior Bonds, as soon as practicable upon receipt of the deposit of moneys in the Escrow Fund pursuant to Section 4, a notice substantially in the form set forth in Exhibit A attached hereto. The Authority also hereby instructs the Escrow Agent, in its capacity as the Prior Bonds Trustee, to send redemption notices, at least 30 days but no more than 60 days before the redemption date set forth in Schedule A (i.e., October 1, 2007), to the registered owners of the Prior Bonds, the Securities Depositories and to one or more Information Services (as defined in the Prior Indenture) in the form and manner prescribed by Section 2.03(e) of the Prior Indenture. The Escrow Agent shall P6402.1057\89 1682. I 4 provide copies of the notices described in this Section 10 to MBIA Insurance Corporation, the insurer of Prior Bonds. Section 1 1. Defeasance of Prior Bonds. The Agency and the Authority represent and agree that, concurrently with the initial deposit of the Escrow Securities pursuant to Section 5, (i) the Prior Bonds will no longer be deemed to be outstanding and unpaid within the meaning and with the effect expressed in the Prior Indenture, and (ii) all principal installments of the Prior Loan scheduled to be due on or after (including any interest thereon) will be deemed paid and will no longer be deemed to be outstanding within the meaning and with the effect expressed in the Prior Loan Agreement. Section 12. Nature of Lien. The trust hereby created shall be irrevocable and the holders of the Prior Bonds shall have an express lien on all moneys and Escrow Securities in the Escrow Fund, including the interest earnings thereon, until paid out, used and applied in accordance with this Agreement. Section 13. Amendments. This Agreement is made pursuant to and in furtherance of the Prior Indenture and for the benefit of the Agency, the Authority and the holders from time to time of the Prior Bonds and it shall not be repealed, revoked, altered, amended or supplemented without the written consent of all such holders and the written consent of the Escrow Agent, the Authority and the Agency; provided, however, that the Agency, the Authority and the Escrow Agent may, without the consent of, or notice to, such holders, enter into such agreement supplemental to this Agreement as shall not materially adversely affect the rights of such holders and as shall not be inconsistent with the terms and provisions of this Agreement, for any one or more of the following purposes: (a) To cure any ambiguity or formal defect or omission in this Agreement; (b) To grant to, or confer upon, the Escrow Agent for the benefit of the holders of the Prior Bonds, any additional rights, remedies, powers or authority that may lawfully be granted to, or conferred upon, such holders or the Escrow Agent; (c) To transfer to the Escrow Agent and make subject to this Agreement additional funds, securities or properties; and (d) To make any other change determined by the Authority and the Agency to be not materially adverse to the holders of the Prior Bonds. The Escrow Agent shall be entitled to rely exclusively upon an opinion of counsel with respect to compliance with this Section, including the extent, if any, to which any change, modification or addition affects the rights of the holders of the Prior Bonds, or that any instrument executed hereunder complies with the conditions and provisions of this Section. Section 14. Compensation of Escrow Aizent. In consideration of the services rendered by the Escrow Agent under this Agreement, the Agency agrees to and shall pay to the P6402.1057\89 1682. I 5 Escrow Agent its proper fees and expenses in accordance with the agreement therefor reached by the Escrow Agent and the Agency, including all reasonable expenses, charges, counsel fees and other disbursements incurred by it or by its attorneys, agents and employees in and about the performance of their powers and duties hereunder, from any moneys of the Agency lawfully available therefor and the Escrow Agent shall have no lien whatsoever upon any of the moneys or Escrow Securities in the Escrow Fund for the payment of such proper fees and expenses. Section 15. Resig,nation or Removal of Escrow Aizent; Appointment of Successor. The Escrow Agent at the time acting hereunder may at any time resign and be discharged from the trusts hereby created by giving written notice to the Agency, the Authority and the Prior Bonds Trustee (if different from the Escrow Agent) specifying the date when such resignation will take effect, but no such resignation shall take effect unless a successor Escrow Agent shall have been appointed by the holders of the Prior Bonds or by the Agency as hereinafter provided and such successor Escrow Agent shall have accepted such appointment, in which event such resignation shall take effect immediately upon the appointment and acceptance of a successor Escrow Agent. The Escrow Agent may be removed at any time by an instrument or concurrent instruments in writing, delivered to the Escrow Agent and to the Agency and the Authority and signed by the registered holders of a majority in principal amount of each series of the Prior Bonds. The Escrow Agent may also be removed at any time by the Agency with not less than 30 days' written notice to the Escrow Agent, the Authority, the Prior Bonds Trustee (if different from the Escrow Agent) and the registered holders of the Prior Bonds. In the event the Escrow Agent hereunder shall resign or be removed, or be dissolved, or shall be in the course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case the Escrow Agent shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor Escrow Agent may be appointed by the holders of a majority in principal amount of the Prior Bonds, by an instrument or concurrent instruments in writing, signed by such holders, or by their attorneys in fact, duly authorized in writing; provided, nevertheless, that in any such event, the Agency shall appoint a temporary Escrow Agent to fill such vacancy until a successor Escrow Agent shall be appointed by the holders of a majority in principal amount of each series of the Prior Bonds, and any such temporary Escrow Agent so appointed by the Agency shall immediately and without further act be superseded by the Escrow Agent so appointed by such holders. The Agency shall give written notice of any such appointment made by it to the Authority and the Prior Bonds Trustee. In the event that no appointment of a successor Escrow Agent or a temporary successor Escrow Agent shall have been made by such holders or the Agency pursuant to the foregoing provisions of this Section within 60 days after written notice of the removal or resignation of the Escrow Agent has been given to the Agency, the holder of any of the Prior Bonds or any retiring Escrow Agent may apply to any court of competent jurisdiction for the appointment of a successor Escrow Agent, and such court may thereupon, after such notice, if any, as it shall deem proper, appoint a successor Escrow Agent. No successor Escrow Agent shall be appointed unless such successor Escrow Agent shall be a corporation with trust powers organized under the banking laws of the United P6402.1057\89 1682. I 6 States or any state, and shall have at the time of appointment capital and surplus of not less than $75,000,000. Every successor Escrow Agent appointed hereunder shall execute, acknowledge and deliver to its predecessor and to the Agency, an instrument in writing accepting such appointment hereunder and thereupon such successor Escrow Agent without any further act, deed or conveyance, shall become fully vested with all the rights, immunities, powers, trusts, duties and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request of such successor Escrow Agent or the Agency execute and deliver an instrument transferring to such successor Escrow Agent all the estates, properties, rights, powers and trusts of such predecessor hereunder; and every predecessor Escrow Agent shall deliver all securities and moneys held by it to its successor. Should any transfer, assignment or instrument in writing from the Agency be required by any successor Escrow Agent for more fully and certainly vesting in such successor Escrow Agent the estates, rights, powers and duties hereby vested or intended to be vested in the predecessor Escrow Agent, any such transfer, assignment and instrument in writing shall, on request, be executed, acknowledged and delivered by the Agency. Any entity into which the Escrow Agent, or any successor to it in the trusts created by this Agreement, may be merged or converted or with which it or any successor to it may be consolidated, or any entity resulting from any merger, conversion, consolidation or tax- free reorganization to which the Escrow Agent or any successor to it shall be a party, shall, if it meets the qualifications set forth in the fifth paragraph of this Section, and if it is otherwise satisfactory to the Agency, be the successor Escrow Agent under this Agreement without the execution or filing of any paper or any other act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 16. Limitation of Powers and Duties. The Escrow Agent shall have no power or duty to invest any funds held under this Agreement except as provided in Sections 5 and 6. The Escrow Agent shall have no power or duty to transfer or otherwise dispose of the moneys held hereunder except as provided in this Agreement. Section 17. Indemnification. To the extent permitted by law, the Agency hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep harmless the Escrow Agent and its respective successors, assigns, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Agent at any time (whether or not also indemnified against the same by the Agency or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of this Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the funds and securities deposited therein, the purchase of any securities to be purchased pursuant thereto, the retention of such securities or the proceeds thereof and any payment, transfer or other application of moneys or securities by the Escrow Agent in accordance with the provisions of this Agreement; provided, however, that the Agency P6402.1057\89 1682. I 7 shall not be required to indemnify the Escrow Agent against the Escrow Agent's own negligence or willful misconduct or the negligence or willful misconduct of the Escrow Agent's employees. In no event shall the Authority, the Agency or the Escrow Agent be liable to any person by reason of the transactions contemplated hereby other than as set forth in this Section. The indemnities contained in this Section shall survive the termination of this Agreement and removal or resignation of the Escrow Agent. Section 18. Limitation of Liability. The Escrow Agent and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract, or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys or any securities deposited therein, the purchase of the securities to be purchased pursuant hereto, the retention of such securities or the proceeds thereof, the sufficiency of the securities or any uninvested moneys held hereunder to accomplish the payment and redemption of the Prior Bonds, or any payment, transfer or other application of moneys or securities by the Escrow Agent in accordance with the provisions of this Agreement or by reason of any non -negligent act, non -negligent omission or non -negligent error of the Escrow Agent made in good faith in the conduct of its duties. The recitals of fact contained in the Recitals of this Agreement shall be taken as the statements of the Agency or the Authority, and the Escrow Agent assumes no responsibility for the correctness thereof. The Escrow Agent makes no representation as to the sufficiency of the securities to be purchased pursuant hereto and any uninvested moneys to accomplish the payment and redemption of the Prior Bonds pursuant to the Prior Indenture or to the validity of this Agreement as to the Agency or the Authority and, except as otherwise provided herein, the Escrow Agent shall incur no liability in respect thereof. The Escrow Agent shall not be liable in connection with the performance of its duties under this Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Agent shall be determined by the express provisions of this Agreement. The Escrow Agent may consult with counsel, who may or may not be counsel to the Agency, and in reliance upon the written opinion or advice of such counsel shall have full authorization and protection in respect of any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Agent shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Agreement, such matter (except the matters set forth herein as specifically requiring a certificate of a nationally recognized firm of independent certified public accountants or an opinion of nationally recognized bond counsel) may be deemed to be conclusively established by a written certification of the Agency or the Authority, as applicable. Whenever the Escrow Agent shall deem it necessary or desirable that a matter specifically requiring a certificate of a nationally recognized firm of independent certified public accountants or an opinion of nationally recognized bond counsel be proved or established prior to taking, suffering, or omitting any such action, such matter may be established only by such a certificate or such an opinion. No provision of this Agreement shall require the Escrow Agent to expend or risk its own funds or otherwise incur any financial liability in the performance or exercise of any of its duties in accordance with this Agreement, or in the exercise of its rights or powers. Section 19. Termination. This Agreement shall terminate when moneys have P6402. 1057\89 1682. I 8 been transferred pursuant to Section 6 to the Prior Bonds Trustee sufficient to pay all Prior Bonds. Upon such termination, all moneys remaining in the Escrow Fund after payment of any amounts due the Escrow Agent hereunder shall be released to the Agency. Section 20. Governing, Law. This Agreement shall be governed by the law of the State of California. Section 21. Severability. If any one or more of the covenants or agreements provided in this Agreement on the part of the Agency, the Authority or the Escrow Agent to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenant or agreement shall be deemed and construed to be severable from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. All the covenants, promises and agreements in this Agreement contained by or on behalf of the Agency, the Authority or the Escrow Agent shall bind and inure to the benefit of their respective successors and assigns, whether so expressed or not. Section 22. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. P6402.1057\89 1682. I 9 (Escrow Agreement) IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly authorized officers and appointed or elected officials as of the date first written above. P6402.1057\89 1682. I PALM DESERT FINANCING AUTHORITY By: Chief Administrative Officer PALM DESERT REDEVELOPMENT AGENCY By: Executive Director WELLS FARGO BANK, NATIONAL ASSOCIATION, as Escrow Agent By: Authorized Officer 10 SCHEDULE A REFUNDING REQUIREMENTS Redemption Redemption Escrow Date Principal Interest Premium Requirement October 1, 2006 April 1, 2007 October 1, 2007 * Consists of the following Prior Bonds to be paid or optionally redeemed on October I. 2007: Maturity Date (October I) P6402. 1057\89 1682. I Principal Interest Redemption Rate Price Schedule A-1 P6402. 1057\89 1682. I SCHEDULE B ESCROW SECURITIES Schedule B-1 EXHIBIT A [FORM OF DEFEASANCE NOTICE] PALM DESERT FINANCING AUTHORITY Notice to the Holders of Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 4) Series 1998 maturing on October 1, CUSIP No. NOTICE IS HEREBY GIVEN on behalf of the Palm Desert Financing Authority (the "Authority"), that pursuant to Section 10.03 of the Indenture of Trust, dated as of March 1, 1998 (the "Indenture"), pertaining to the above -captioned Bonds with the maturity dates of , the lien of such Indenture has been discharged through the irrevocable deposit in escrow of cash and Federal Securities. P6402. 1057\89 1682. I DATED this day of , 2006 WELLS FARGO BANK, NATIONAL ASSOCIATION, as Escrow Agent Exhibit A Indenture of Trust with reference to Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 4) 2006 Series A Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) 2006 Series B P64U2.0)57 875187.3 RWG DRAFT: 5/24/2006 TABLE OF CONTENTS Paue ARTICLE I DEFINITIONS; AUTHORIZATION AND PURPOSE OF BONDS; EQUAL SECURITY 2 Section 1.01. Definitions 2 Section 1.02. Rules of Construction 10 Section 1.03. Authorization and Purpose of Bonds 10 Section 1.04. Equal Security 10 ARTICLE II ISSUANCE OF BONDS 11 Section 2.01. Designation 11 Section 2.02. Terms of Bonds 11 Section 2.03. Redemption of Bonds 13 Section 2.04. Form of Bonds 15 Section 2.05. Execution of Bonds 16 Section 2.06. Transfer of Bonds 16 Section 2.07. Exchange of Bonds 16 Section 2.08. Temporary Bonds 17 Section 2.09. Registration Books 17 Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen 17 ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS; ISSUANCE OF BONDS 18 Section 3.01. Issuance of Bonds 18 Section 3.02. Loan Funds; Application of Proceeds of Sale of Bonds 18 Section 3.03. Validity of Bonds 18 ARTICLE IV REVENUES; FLOW OF FUNDS 18 Section 4.01. Pledge of Revenues; Assignment of Rights 18 Section 4.02. Receipt, Deposit and Application of Revenues 19 Section 4.03. Investments 20 Section 4.04. Valuation and Disposition of Investments 21 ARTICLE V COVENANTS OF THE AUTHORITY 21 Section 5.01. Punctual Payment 21 Section 5.02. Extension of Payment of Bonds 21 Section 5.03. Against Encumbrances 22 Section 5.04. Power to Issue Bonds and Make Pledge and Assignment 22 Section 5.05. Accounting Records and Financial Statements 22 Section 5.06. No Additional Indebtedness 22 Section 5.07. Tax Covenants 22 Section 5.08. Loan Agreement 23 Section 5.09. Further Assurances 24 P6-102.1057 875187.3 ARTICLE VI THE TRUSTEE 25 Section 6.01. Appointment of Trustee 25 Section 6.02. Acceptance of Trusts 25 Section 6.03. Fees, Charges and Expenses of Trustee 28 Section 6.04. Notice to Owners of Default 29 Section 6.05. Intervention by Trustee 29 Section 6.06. Removal of Trustee 29 Section 6.07. Resignation by Trustee 29 Section 6.08. Appointment of Successor Trustee 29 Section 6.09. Merger or Consolidation 30 Section 6.10. Concerning any Successor Trustee 30 Section 6.11. Appointment of Co -Trustee 30 Section 6.12. Indemnification; Limited Liability of Trustee 31 ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE 31 Section 7.01. Amendment Hereof 31 Section 7.02. Effect of Supplemental Indenture 32 Section 7.03. Endorsement or Replacement of Bonds After Amendment 32 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES 33 Section 8.01. Events of Default 33 Section 8.02. Remedies Upon Event of Default 34 Section 8.03. Application of Revenues and Other Funds After Default 35 Section 8.04. Power of Trustee to Control Proceedings 35 Section 8.05. Appointment of Receivers 36 Section 8.06. Non -Waiver 36 Section 8.07. Limitation on Rights and Remedies of Owners 36 Section 8.08. Termination of Proceedings 37 ARTICLE IX BOND INSURANCE 37 ARTICLE X BOOK -ENTRY SYSTEM 37 Section 10.01 Book -Entry System; Limited Obligation of Authority 37 Section 10.02 Representation Letter 38 Section 10.03 Transfers Outside Book -Entry System 38 Section 10.04 Payments to the Nominee 38 Section 10.05 Initial Depository and Nominee 39 ARTICLE XI MISCELLANEOUS 39 Section 11.01. Limited Liability of Authority 39 Section 1 1.02. Benefits of Indenture Limited to Parties 39 Section 11.03. Discharge of Indenture 39 Section 1 1.04. Successor Is Deemed Included in All References to Predecessor 40 Section 11.05. Content of Certificates 40 Section 1 1.06. Execution of Documents by Owners 41 Section 11.07. Disqualified Bonds 41 1)6402.1(157 875187. 3 ii Section 1 1.08. Waiver of Personal Liability 41 Section 11.09. Partial Invalidity 42 Section 11.10. Destruction of Cancelled Bonds 42 Section 1 1.1 1. Funds and Accounts 42 Section 11.12. Payment on Business Days 42 Section 11.13. Notices 42 Section 1 1.14. Unclaimed Moneys 43 Section 11.15. Governing Law 44 EXHIBIT A FORM OF SERIES 2006A BOND EXHIBIT B FORM OF SERIES 2006B BOND P6-102.1057 875187.3 iii Indenture of Trust This Indenture of Trust (this "Indenture") is made and entered into as of July 1, 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, having 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. 4 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 and refinancing for public capital improvements of the Agency. D. For the purpose of aiding in the financing and refinancing of redevelopment projects for the Project Area, the Authority has made two loans (the "Loans") to the Agency under and pursuant to the Project Area No. 4 Loan Agreement, dated as of July 1, 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 Refunding Revenue Bonds (Project Area No. 4), 2006 Series A, in the aggregate principal amount of $ (the "Series 2006A Bonds"), and its Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4), 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 P6-1U2. I057 875187.3 -1- 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: 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, with 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 1 and October 1, 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-day months "Act" means Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 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 laws 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 law. P6-102.1057 875187.3 -2- "Bond Law" means the Marks -Roos Local Bond Pooling Act of 1985, being Article 4 of the Act (commencing with 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 October 2 in one calendar year to October 1 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 October 1, 2006. "Bonds" means the Series 2006A Bonds and the Series 2006B Bonds. "Business Day" means any day other than (i) a Saturday or Sunday or (ii) any other day on which 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 which the Trust Office is located. "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. "Closing. Date" means the date of delivery of the Bonds to the Underwriter as the original purchaser. "Code" means the Internal Revenue Code of 1986, as amended. "County" means the County of Riverside. "Deoositorv" 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 8.01. "Federal Securities" means any obligations described in paragraph A or B of the definition of "Permitted Investments" set forth in this Section. "Fiscal Year" means any twelve-month period extending from July 1 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. "Fitch" means Fitch, Inc., its successors and assigns. P6-102. I057 875187.3 "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 who, 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, 10th 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 10041, Attention: Notification Department; or, in accordance with then - current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds 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 Paving. Aizent" 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)(1). "Interest Payment Date" means April 1 and October 1 of each year, commencing October 1, 2006. "Loan Agreement" means the Project Area No. 4 Loan Agreement, dated as of July 1, 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. P6-102. I057 875187.3 -4- "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 1 1.07) 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 1 1.03, and (iii) Bonds in lieu of or in substitution for which other Bonds shall have been executed, issued and delivered pursuant to this Indenture. "Owner" means the person in whose 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 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): P6-102.1 U57 875187.3 1. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership -5- 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 Mortizage 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): P6-102. I057 875187.3 1 Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage -backed securities and senior debt obligations -6- 4. Student Loan Marketing, Association (SLMA or "Sallie Mae") Senior debt obligations 5. Resolution Funding, Corp. (REFCORP) obligations D. Money market funds, including funds for which the Trustee or its affiliates provide investment advisory or other management services, registered under the Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and having a rating by S&P of AAAm-G; AAAm; or AAm. 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, forward purchase agreements and reserve fund put agreements acceptable to the Insurer. H. Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's and "A-1" or better by S&P. I. Bonds or notes issued by any 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 any bank (including the Trustee and its affiliates) which has an unsecured, uninsured and unguaranteed obligation rating of"Prime - 1" or "A3" or better by Moody's and "A-1" or "A" or better by S&P. 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 Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will 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. P6-102. I057 875187.3 -7- 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 "Aa3" 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 (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 territory within the project area described and defined in the Redevelopment Plan approved and adopted by the City by its Ordinance No. 724. "Rating, Ag,encv" means Fitch, Moody's or S&P. "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 Plan" means the Redevelopment Plan for the Project Area, approved and adopted by the City by its Ordinance No. 724 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 P6402. I057 875187.3 -8- 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. "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 Fund" means the fund by that name established and held by the Trustee pursuant to Section 4.02(a). "Revenues" means (i) all amounts payable by the Agency pursuant to Section 2.03 or Section 2.04 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, 55 Water Street, 50th Floor, New York, New York, 10041, Attn: Call Notification Department, Fax (212) 855- 7232; 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 Refunding Revenue Bonds (Project Area No. 4), 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 Fund" 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. 4), 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 Fund" means the fund by that name established and held by the Trustee pursuant to Section 3.02. P6-102.1057 875187.3 -9- "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 Reizulations" 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 Wedbush Morgan Securities, 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 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 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 otherwise of any of the Bonds over any of the others by reason of the number or date P6-102. I057 875187.3 -10- thereof or the time of sale, execution or delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein or herein. ARTICLE II ISSUANCE OF BONDS Section 2.01. Desig,nation. The Series 2006A Bonds shall be designated the Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 4), 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. 4), 2006 Series B and shall be issued in the aggregate Initial Principal Amount of $ Section 2.02. Terms of Bonds. (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 long 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 October 1 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 (October 1) Amount Rate (October 1) 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 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 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 P6-102.1057 875187.3 -11- 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 less 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 October 1 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): Maturity Initial Initial Principal Yield to Date Maturity Principal Amount per $5,000 Maturity (October 1) 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 1 and October 1, commencing October 1, 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 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. P6-102. I057 875187.3 -12- Section 2.03. Redemption of Bonds. (a) Series 2006A Bonds. (1) 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 2.04(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 October 1, 20, 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 October 1, 20, 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 October 1, 20 and April 1, 20 10_% October 1, 20 and April 1, 20 10 October 1, 20 and thereafter 100 The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(a)(1) 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 October 1, 20 and October 1, 20 shall also be subject to mandatory redemption by lot, on October 1 in each year commencing October 1, 20 and October 1, 20, 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 October 1 in the respective years as set forth in the following tables; provided, however. that (i) in lieu of redemption thereof on October 1 in any year, the Series 2006A Bonds may be purchased by the Agency pursuant to Section 2.03 of the Loan Agreement and tendered to the Trustee for cancellation no later than the preceding July 15, and (ii) if some but all of the Series 2006A Bonds of a maturity have been 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. October 1. 20 Sinking Fund Redemption Date P6-102.1057 875187.3 -13- Principal Amount (October 1) to be Redeemed +Maturity. Series 2006A Bonds Maturing October 1, 20 Sinking Fund Redemption Date (October 1) +Maturity. (b) Series 2006B Bonds. Principal Amount to be Redeemed (1) Optional Redemption. In the event that the Agency shall exercise its option to prepay installments of the Series 2006B Loan pursuant to Section 2.04(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 October 1, 20, 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 April 1 or October 1 on or after October 1, 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 October 1, 20 and April 1, 20 10_% October 1, 20 and April 1, 20 10_ October 1, 20 and thereafter 100 The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(b)(1) 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. (c) General Redemption Provisions. (1) Notice of Redemption. 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 P6-102. I057 875187.3 -14- 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 whole) 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. With respect to the redemption of Bonds of either series, whenever 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 P6402. I057 875187.3 -15- Indenture. The Series 2006B 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 B attached hereto and by this reference incorporated herein, with 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 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 who 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 who 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 who 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 Trustee for the selection of Bonds for redemption, or (ii) any Bond selected for redemption pursuant to Section 2.03. Section 2.07. Exchamze 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 P6402. I057 875187.3 -16- 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 Trustee 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 will execute and furnish definitive Bonds without 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 will keep or cause to be kept at its Trust Office sufficient records for the registration and transfer of the Bonds, which shall at all times during regular business hours be open to inspection by the Authority with 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 loss, 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 without 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 2.10 and of the expenses which may be incurred by the Authority and the Trustee. Any Bond issued under the provisions of this Section 2.10 in lieu of P6-102. I057 875187.3 -17- any Bond alleged to be lost, destroyed or stolen shall constitute an original contractual obligation on the part of the Authority whether 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 with 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 2.02 of the Loan Agreement. (b) The Trustee 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 2.02 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 way 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. Pledize of Revenues; Assig,nment of Rig,hts. 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 lien 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 lien upon the Revenues. So long as any of P6402. I057 875187.3 -18- 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 1.01 shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the "Revenue Fund" 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 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: (1) 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 having 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. P64U2. I057 875187.3 -19- (2) Principal Account. On or before each date on which 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 having 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 2.04 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 Revenue 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 Trustee 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. The Trustee 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 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 P6402. I057 875187.3 -20- 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 waives receipt of such confirmations to the extent permitted by law. The Trustee will 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. P6-1U2. I057 875187.3 -21- Section 5.03. Ag,ainst 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 while 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. Section 5.04. Power to Issue Bonds and Make Pledg,e and Assig,nment. 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 will be the legal, valid and binding special obligations of the Authority in accordance with 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 whomsoever. 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 with corporate trust industry standards, in which 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 with 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 with 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 will 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 with such written 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 which would 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 with the rebate requirements of Section 148 of the Code, the Authority further covenants that it will 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 will P6-102. I057 875187.3 -22- 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 with the requirements of Section 148 of the Code, such covenants to survive the defeasance of the Bonds. (c) The Authority covenants that it will not take any action or omit to take any action, which action or omission, if reasonably expected on the date of initial execution and delivery of the Bonds, would result in a loss 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 will not use or permit the use of any property financed with the proceeds of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as would result in a loss 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 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 whole 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 21B(d)(3) of the Federal Home Loan Bank Act, as amended by Section 511(a) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, (e) investments permitted under regulations issued pursuant to Section 149(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 written consent of the Insurer (as long as the Insurance Policy is in full force and effect) and only: (i) if the Authority, the Agency or the Trustee first obtains the written 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 P6-102. I057 875187.3 -23- 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 written consent of the Owner of each affected Bond, (b) reduce the percentage of the Bonds required for the written consent to any such modification or amendment thereof or hereof, or (c) without its written 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 written 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 whatsoever 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 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 written consent of the Insurer (as long 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 written consent. The Trustee 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. P64U2. I057 875187.3 -24- 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 having 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 Trusts. 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 waived), 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 P64U2. I057 875187.3 -25- 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 were 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, whether 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 who 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 willful 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 willful misconduct, the Trustee shall not be liable for any error of judgment. (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 P64U2. I057 875187.3 -26- 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. (1) 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. P6-1U2. I057 875187.3 -27- (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 Loan Agreement. The Trustee in its capacity as Trustee is authorized and directed to execute (r) The Trustee shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of enforced delay ("unavoidable delay") in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited 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 weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee; provided that, in the event of any such unavoidable delay under this paragraph 6.02(r), the Trustee notify the Authority and the Agency in writing within five business days after (i) the occurrence of the event giving rise to the unavoidable delay, (ii) the Trustee's actual knowledge of the impending unavoidable delay, or (iii) the Trustee's knowledge of sufficient facts under which a reasonable person would conclude the unavoidable delay will occur. (s) The Trustee agrees to accept and act upon facsimile transmission of written instructions and/or directions pursuant to this Indenture provided, however, that: (i) subsequent to such facsimile transmission of written instructions and/or directions the Trustee shall forthwith receive the originally executed instructions and/or directions, (ii) such originally executed instructions and/or directions shall be signed by a person as may be designated and authorized to sign for the party signing such instructions and/or directions, and (iii) the Trustee shall have received a current incumbency certificate containing the specimen signature of such designated person. Section 6.03. Fees. Charizes and Expenses of Trustee. The Trustee shall be entitled to payment and reimbursement for reasonable fees for its services rendered hereunder and all advances (with interest on such advances at the maximum rate allowed by law), counsel fees and expenses (including those of in-house counsel to the extent they are for services not duplicative of other counsels' work) and other expenses reasonably and necessarily made or incurred by the Trustee in connection with such services, which payment and reimbursement shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust. Upon the occurrence of an Event of Default hereunder, but only upon an Event of Default, the Trustee shall have a first lien with right of payment prior to payment of any Bond upon the amounts held hereunder for the foregoing fees, charges and expenses incurred by it respectively, which right to payment shall survive the resignation or removal of the Trustee. P6-102. I057 875187.3 -28- Section 6.04. Notice to Owners of Default. If an Event of Default hereunder occurs with respect to any Bonds of which the Trustee has been given or is deemed to have notice, as provided in Section 6.02(h), then the Trustee shall promptly given written notice thereof by first-class mail to the Owner of each such Bond, unless such Event of Default shall have been cured before the giving of such notice; provided, however, that unless such Event of Default consists of the failure by the Authority to make any payment when due, the Trustee may elect not to give such notice if and so long as the Trustee in good faith determines that such Event of Default does not materially adversely affect the interests of the Owners or that it is otherwise not in the best interests of the Owners to give such notice. Section 6.05. Intervention by Trustee. In any judicial proceeding to which the Authority is a party which, in the opinion of the Trustee, has a substantial bearing on the interests of Owners of any of the Bonds, the Trustee may intervene on behalf of such Owners, and subject to Section 6.02(1), shall do so if requested in writing by the Owners of a majority in aggregate Principal Amount of such Bonds then Outstanding. 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 Trustee, whereupon 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 6.01. Section 6.07. Resig,nation 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 whatsoever 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 6.01. 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. P6-102.1057 875187.3 -29- Section 6.09. Merg,er 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 6.01, 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, anv 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 Trustee's 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 6.11. 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 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 Trustee or the Authority appoint an additional individual or institution as a separate co -trustee. The following provisions of this Section 6.11 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 lien 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. P6-102. I057 875187.3 -30- 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 Trustee 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 7.01. 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 Indenture which shall become binding upon adoption, with the written consent of the Insurer (as long as the Insurance Policy is in full force and effect) but without consent of any Bond Owners, to the extent permitted by law 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 P6-102. I057 875187.3 -3 1 - (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 whatsoever 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 whatsoever but only if and to the extent such amendment will 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 7.01, 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 which shall become binding when the written 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 with the Trustee. No such modification or amendment shall (i) extend the maturity of or reduce the interest rate on any Bond or otherwise 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 without the express written consent of the Owner of such Bond or (ii) reduce the percentage of Bonds required for the written consent to any such amendment or modification. In no event shall any Supplemental Indenture modify any of the rights or obligations of the Trustee without its prior written 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 hereinabove 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. I057 875187.3 -32- 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 INSURER'S RIGHT TO CONSENT TO ACCELERATION OF THE BONDS, AND THE INSURER'S RIGHT TO CONSENT TO OR DIRECT CERTAIN AUTHORITY, TRUSTEE OR OWNER ACTIONS. Section 8.01. 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 any 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 60 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 60 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 60 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. P64U2. I057 875187.3 ,n 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 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 with 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 law, 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 less than a majority in aggregate Principal Amount of the Bonds then Outstanding, by written 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 waive 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 law 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(1), the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article VIII, as the Trustee, 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 law 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 waiver of any such P6-102. I057 875187.3 -34- 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 whole amount of interest on and principal of the Bonds then due and unpaid, with interest on overdue installments of principal, and such interest to the extent permitted by law 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 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 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 pay 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 any action, by judicial proceedings or otherwise, pursuant to its duties hereunder, whether 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, with respect to the continuance, discontinuance, withdrawal, 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, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds hereunder opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Any suit, action or proceeding which P6-102.1 U57 875187.3 -35- 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, with such powers as the court making such appointment shall confer. Section 8.06. Non -Waiver. Nothing in this Article VIII or in any other provision of this Indenture, or in the Bonds, shall affect or impair the obligation of the Authority, which 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 waiver 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 waiver 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 Rig,hts and Remedies of Owners. No Owner shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon this Indenture, unless (i) such Owner shall have previously given to the Trustee written 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 written 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 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 any Owner of any remedy hereunder; it being understood and intended that no one or more Owners shall have any right in P6402. I057 875187.3 -36- any manner whatever 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 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 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 without the written 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 Trustee 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 Obliization 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 P6402. I057 875187.3 -3 7- 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 whatsoever. 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 Trustee any obligation whatsoever 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 that the Depository shall no longer so act, then the Authority will 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 whatever 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 P6402.1057 875187.3 -38- and all notices with 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, New York, New York. The initial Nominee shall be Cede & Co., as Nominee of The Depository Trust Company, New York, New 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 1 1.02. 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 11.03. Discharize of Indenture. If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following ways: (a) By well 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; P6-102.1057 875187.3 -39- (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 Federal Securities in such amount as an Independent Accountant shall determine will, 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 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 Insurer's expenses and costs, shall be paid over to the Authority. Section 1 1.04. 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, P6-102. I057 875187.3 -40- 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. Section 1 1.06. 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 1 1.06. 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 lieu 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 lieu of obtaining any demand, request, direction, consent or waiver 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 1 1.07. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver 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 1 1.08. 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. P6-1U2. I057 875187.3 -41- 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 11.10. 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 Trustee, 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, that the Authority shall reimburse the Trustee for the Trustee's 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. Section 11.12. Payment on Business Days. Whenever in this Indenture 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 shall not accrue from and after such day. Section 1 1.13. 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 telecopy or other form of telecommunication, confirmed by telephone at its number set forth below. Notice shall be P6-102.1057 875187.3 -42- 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 written 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 73-510 Fred Waring Drive Palm Desert, California 92260 Attention: Chief Administrative Officer Facsimile: (760) 340-0574 If to the Agency: Palm Desert Redevelopment Agency 73-510 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) 614-3355 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 1 1.14. Unclaimed Moneys. 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 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 any such payment to the Authority, the Trustee shall, at the Request and at the expense of P6-102. I057 875187.3 -43- 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 1 1.15. Governing, Law. This Agreement shall be construed and governed in accordance with the laws of the State of California. P6402.1057 875187.3 -44- 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 written. P64U2. I057 875187.3 PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By -45- Authorized Officer EXHIBIT A [FORM OF SERIES 2006A BOND] Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New 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 REFUNDING REVENUE BOND (PROJECT AREA NO. 4) 2006 SERIES A RATE OF MATURITY DATE ORIGINAL ISSUE CUSIP INTEREST DATE October 1, 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 P64U2. I057 875187.3 A-1 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 1 and October 1 in each year, commencing October 1, 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, 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 Owner's option, be made by wire transfer of immediately available funds in accordance with written 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 Refunding Revenue Bonds (Project Area No. 4), 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 Revenue Capital Appreciation Bonds (Project Area No. 4), 2006 Series B (the "Series 2006B Bonds," and together with the Series 2006A Bonds, the "Bonds"), limited in initial principal amount to $ , concurrently with 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 1, 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 1 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 any) on the Bonds. The Bonds are not P6-1U2. I057 875187.3 A-2 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 and refinance certain public capital improvements with respect to a redevelopment project known and designated as Project Area No. 4. The Series 2006A Loan has been made by the Authority to the Agency pursuant to a Project Area No. 4 Loan Agreement, dated as of July 1, 2006 (the "Loan Agreement"), by and among the Agency, the Authority and the Trustee. The Series 2006A Bonds maturing on or after October 1, 20 are subject to redemption prior to their respective maturity dates as a whole, 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 October 1, 20, 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 Dates Redemption Price October 1, 20 and April 1, 20 October 1, 20 and April 1, 20 October 1, 20 and thereafter 100 The Series 2006A Bonds maturing on October 1, 20 and October 1, 20 are also subject to mandatory sinking fund redemption by lot, on October 1 in each year commencing October 1, 20 and October 1, 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 lieu 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 whole without referencing P6-102. I057 875187.3 A-3 each individual number) of the Series 2006A Bonds to be redeemed, and shall require that such Series 2006A Bonds be then surrendered at the Trust 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 Owner's 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 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 2006A Bond or otherwise 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 without the express written consent of the Owner of such Series 2006A Bond, (b) reduce the percentage of Series 2006A 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 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 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. 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. P64U2. I057 875187.3 A-4 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 [to come] P64U2. I057 875187.3 A-5 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Series 2006A Bonds described in the within -mentioned Indenture and registered on the Bond Registration Books. WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee Date: By Authorized Signatory [FORM OF ASSIGNMENT] For value received the undersigned do(es) hereby sell, assign and transfer unto whose tax identification number is the within -mentioned registered Series 2006A Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee with full power of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Series 2006A Bond in every particular without alteration or enlargement or any change whatsoever. NOTE: Signature(s) must be guaranteed by a member of an institution which is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. P64U2. I057 875187.3 A-6 EXHIBIT B [FORM OF SERIES 2006B BOND] Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New 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 TAX ALLOCATION REVENUE CAPTIAL APPRECIATION BOND (PROJECT AREA NO. 4) 2006 SERIES B YIELD TO MATURITY MATURITY DATE ORIGINAL ISSUE CUSIP DATE October 1, 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 1 and October 1, commencing October 1, 2006. Interest on each Series 2006B Bond shall be P6-1U2. I057 875187.3 B-1 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 "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. 4), 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 Refunding Revenue Bonds (Project Area No. 4), 2006 Series A (the "Series 2006A Bonds," and together with the Series 2006B Bonds, the "Bonds"), limited in principal amount to $ concurrently with 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 ofJuly 1, 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 1 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 any) 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. 4. The Series 2006B Loan has been made by the Authority to the Agency pursuant to a Project Area No. 4 Loan Agreement, dated as ofJuly 1, 2006 (the "Loan Agreement"), by and among the Agency, the Authority and the Trustee. P6-102. I057 875187.3 B-2 The Series 2006B Bonds maturing on or after October 1, 20 are subject to redemption prior to their respective maturity dates as a whole, 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 1 or October 1 on or after October 1, 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 Dates October 1, 20 and April 1, 20 October 1, 20 and April 1, 20 October 1, 20 and thereafter Redemption Price 10_% 10_ 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 whole 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 Owner's 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 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 any 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. P6-102. I057 875187.3 B-3 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 otherwise 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. 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 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. 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 [to come] P64U2. I057 875187.3 B-4 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the Series 2006B Bonds described in the within -mentioned Indenture and registered on the Bond Registration Books. WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee Date: By Authorized Signatory [FORM OF ASSIGNMENT] For value received the undersigned do(es) hereby sell, assign and transfer unto whose tax identification number is , the within -mentioned registered Series 2006B Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee with full power of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Series 2006B Bond in every particular without alteration or enlargement or any change whatsoever. NOTE: Signature(s) must be guaranteed by a member of an institution which is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. P6402.1057 875187.3 B-5 Proiect Area No. 4 Loan Agreement with reference to Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 4) 2006 Series A Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) 2006 Series B P6-102.1057 875181.; RWG I)RA1 1 : 5/24/2006 TABLE OF CONTENTS Paue ARTICLE I DEFINITIONS 2 Section 1.01. Definitions 2 Section 1.02. Rules of Construction 6 ARTICLE II THE LOANS; APPLICATION OF LOAN PROCEEDS; PARITY DEBT 6 Section 2.01. Authorization 6 Section 2.02. Disbursement and Application of Loan Proceeds 6 Section 2.03. Repayment of Loans 7 Section 2.04. Optional Prepayment 8 Section 2.05. Reserve Fund 9 Section 2.06. Costs of Issuance Fund 10 Section 2.07. Project Fund 10 Section 2.08. Parity Debt 12 Section 2.09. Issuance of Subordinate Debt 12 Section 2.10. Validity of Loans 12 ARTICLE III PLEDGE AND APPLICATION OF TAX REVENUES 13 Section 3.01. Pledge of Tax Revenues 13 Section 3.02. Special Fund; Deposit of Tax Revenues 13 Section 3.03. Transfer of Tax Revenues From Special Fund 13 Section 3.04. Investment of Moneys; Valuation of Investments 14 ARTICLE IV OTHER COVENANTS OF THE AGENCY 14 Section 4.01. Punctual Payment; Extension of Payments 14 Section 4.02. Limitation on Additional Indebtedness 15 Section 4.03. Payment of Claims 15 Section 4.04. Books and Accounts; Financial Statements 15 Section 4.05. Protection of Security and Rights 15 Section 4.06. Payments of Taxes and Other Charges 16 Section 4.07. Taxation of Leased Property 16 Section 4.08. Disposition of Property 16 Section 4.09. Maintenance of Tax Revenues 16 Section 4.10. Payment of Expenses; Indemnification 17 Section 4.1 1. Tax Covenants 17 Section 4.12. Redevelopment of Project Area 18 Section 4.13. Low and Moderate Income Housing Fund 19 Section 4.14. Annual Review of Tax Revenues 19 Section 4.15. Further Assurances 19 ARTICLE V EVENTS OF DEFAULT AND REMEDIES 19 Section 5.01. Events of Default and Acceleration of Maturities 19 Section 5.02. Application of Funds Upon Default 20 Section 5.03. No Waiver 21 Section 5.04. Agreement to Pay Attorneys' Fees and Expenses 21 Section 5.05. Remedies Not Exclusive 22 P6-1U2. I U57 875181.3 -i- Section 5.06. Control of Remedies by Insurer 22 ARTICLE VI MISCELLANEOUS 22 Section 6.01. Benefits Limited to Parties 22 Section 6.02. Successor is Deemed Included in All References to Predecessor 22 Section 6.03. Discharge of Loan Agreement 22 Section 6.04. Amendment 23 Section 6.05. Waiver of Personal Liability 23 Section 6.06. Payment on Business Days 23 Section 6.07. Notices 24 Section 6.08. Bond Insurance 24 Section 6.09. Surety Bond. 24 Section 6.10. Partial Invalidity 24 Section 6.11. Article and Section Headings and References 24 Section 6.12. Execution of Counterparts 24 Section 6.13. Governing Law 24 Section 6.14. The Trustee 24 EXHIBIT A — Schedule of Series 2006A Loan Payments EXHIBIT B — Schedule of Series 2006B Loan Payments P6-102. 1057 875181.3 Proiect Area No. 4 Loan A��reement This Project Area No. 4 Loan Agreement is made and entered into as ofJuly 1, 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. 4 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 1 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 Refunding Revenue Bonds (Project Area No. 4), 2006 Series A, in the principal amount of $ and its Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4), 2006 Series B, in the initial principal amount of $ (together, the "Bonds"), pursuant to the Bond Law and an Indenture of Trust, dated as ofJuly 1, 2006 (the "Indenture"), 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. P6402.1057 875181.3 1 NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. Unless the context clearly requires or unless otherwise defined herein, the capitalized terms in this Loan Agreement shall have the respective meanings which such terms are given in the Indenture. In addition, the following terms defined in this Section 1.01 shall, for all purposes of this Loan Agreement, have the respective meanings herein specified. "Additional Revenues" 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 any 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 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 Fund" means the fund by that name established and held by the Trustee pursuant to Section 2.06. "Escrow Fund" means the fund by that name established under the Escrow Agreement (Project Area No. 4), dated as of even date herewith, by and among the Authority, the Agency and Wells Fargo Bank, National Association, as escrow agent, relating to the refunding of a portion of the Authority's Tax Allocation Revenue Bonds (Project Area No. 4), Series 1998. P6402.1057 875181.3 2 "Event of Default" means any of the events described in Section 5.01. "Indenture" means the Indenture of Trust, dated as of July 1, 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. "Loans" means the Series 2006A Loan and the Series 2006B Loan. "Loan Agreement" means this Project Area No. 4 Loan Agreement, 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 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 on 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 with 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 which amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year (as evidenced in the written records of the County), plus at the option of the Agency the Additional Revenues, at least equals 115 percent of the amount of Maximum Annual Debt Service. "1998 Loan" means the loan made by the Authority to the Agency pursuant to the 1998 Loan Agreement. "1998 Loan Agreement" means the Project Area No. 4 Loan Agreement, dated as of March 1, 1998, by and among the Agency, the Authority and First Trust of California, National Association, as prior trustee (as succeeded by Wells Fargo Bank, National Association, as trustee). "Parity Debt" means the 1998 Loan, the 2001 Loan and any other loans, bonds, notes, advances, or indebtedness payable from Tax Revenues on a parity with the Loans, issued or P6-IU2 1057 875181.3 3 incurred pursuant to and in accordance with the provisions of Section 2.09. "Parity Debt Instrument" means the 1998 Loan Agreement, the 2001 Loan Agreement and any resolution, indenture of trust, trust agreement or other instrument authorizing the issuance of any Parity Debt. "Pass-Throui.zh A zreements" means, collectively, the agreements heretofore entered into or approved by the Agency pursuant to Section 33401 of the Redevelopment Law with (i) the Desert Sands Unified School District, (ii) the Desert Community College District, (iii) the Coachella Valley Mosquito Abatement District, (iv) the Coachella Valley Recreation and Park District, (v) the Coachella Valley Water District, (vi) the Coachella Valley Resource Conservation Center and (vii) the Riverside County Superintendent of Schools District (sic). "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 which may be outstanding at any time, (ii) the aggregate amount of taxes which 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. "Proiect Fund" means the fund by that name established and held by the Trustee pursuant to Section 2.07. "Qualified Reserve Fund Credit Instrument" means an irrevocable standby or direct -pay letter of credit or surety bond issued by a commercial bank or insurance company and deposited with the Trustee pursuant to Section 2.05, provided that all of the following requirements are met: (i) either (a) the long-term credit rating of such bank is within the highest rating category by Moody's or S&P, or the claims paying ability of such insurance company is rated within the highest rating category by Moody's or S&P at the time of delivery of such letter of credit or surety bond or (b) the Authority shall cause to be filed with the Trustee written evidence from Moody's and S&P that the delivery of such letter of credit or surety bond will not, of itself, cause a reduction or withdrawal of any rating then assigned to the Bonds; (ii) such letter of credit or surety bond has a term of at least 12 months; (iii) such letter of credit or 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 2.05; and (iv) the Trustee is authorized pursuant to the terms of such letter of credit or 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 3.03(a). "Redevelopment Fund" means the Project Area No. 4 Redevelopment Fund heretofore established and held by the Agency. "Redevelopment Proiect" means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area. P6402.1057 875181.3 4 "Reserve Fund" means the fund by that name held by the Trustee pursuant to Section 2.05. "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 Trustee's written request. At the Closing Date, the Reserve Requirement shall be $ "Series 2006A Bonds" means the Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 4), 2006 Series A. "Series 2006A Loan" means the loan made by the Authority to the Agency pursuant to Section 2.01(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. 4), 2006 Series B. "Series 2006B Loan" means the loan made by the Authority to the Agency pursuant to Section 2.01(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 3.02. "Subordinate Debt" means any loans, advances or indebtedness issued or incurred by the Agency in accordance with the requirements of Section 2.09, which 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 Tax Revenues which is subordinate to the pledge of and lien upon the Tax Revenues hereunder for the security of the Loans and any Parity Debt. "Surety Bond" 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 Revenues" 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 Law. P6402.1057 875181.3 5 "2001 Loan" means the loan made by the Authority to the Agency pursuant to the 2001 Loan Agreement. "2001 Loan Agreement" means the Project Area No. 4 Loan Agreement dated as of November 1, 2001, 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). Section 1.02. 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 2.01. 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 2.02. 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 $ Series 2006A Account of the Costs of Issuance Fund. (ii) The Trustee shall transfer the amount of $ Escrow Fund. to the to the P6402. I057 875181.3 6 (iii) 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 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. (ii) The Trustee shall transfer the remaining amount of $ the Project Fund. to the Series to 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.. Section 2.03. Repayment of Loans. The Agency shall, subject to prepayment as provided in Section 2.04(a), repay the principal of the Series 2006A Loan in installments on October 1 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 which is not paid when due shall continue to accrue interest from and including the date on which 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 2.04(a), or in the event the Series 2006A Bonds shall be redeemed pursuant to Section 2.03(a)(1) 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 2.04(b), repay the Series 2006B Loan in installments on October 1 in each of the years and in the amounts set forth P6402.1057 875181.3 7 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 Series 2006B Bonds pursuant to the Indenture. The installments payable on the Series 2006B Loan on each October 1 set forth in Exhibit B correspond with the aggregate Maturity Amount of Series 2006B Bonds coming due and payable on such date. Any installment of the Series 2006B Loan which is not paid when 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 Series 2006B Loan shall be prepaid pursuant to Section 2.04(b), or in the event the Series 2006B Bonds shall be redeemed pursuant to Section 2.03(b)(1) 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 3.01, absolute and unconditional, and such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party to any agreement for any cause whatsoever. 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 lawful money of the United States. Payment of such principal and interest shall be secured, and amounts for the payment thereof shall be deposited with the Trustee at the times, as set forth in Article III. Notwithstanding the foregoing provisions of this Section 2.03, in lieu of payment of any installment of principal of the Loans coming due and payable on October 1 in any year in which 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 October 1, and tender such Bonds for cancellation, provided that such tender shall be made before the preceding July 15. Section 2.04. 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 which the Series 2006A Bonds are subject to redemption pursuant to Section 2.03(a)(1) of the Indenture, by depositing with the Trustee an amount sufficient to redeem a like aggregate principal amount of Series 2006A Bonds together with 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 which the Series 2006B Bonds are subject to redemption pursuant to Section 2.03(b)(1) 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 P6402.1057 875181.3 8 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 Series 2006 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 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 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 which 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; provided, 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). (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 2.05. Reserve Fund. Pursuant to the 1998 Loan Agreement, there has heretofore been established a separate fund known as the "Project Area No. 4 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 Section 2.03 and Section 3.03(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 3.03(a) on or before the l 5th calendar day preceding any Interest Payment Date, the Trustee shall withdraw 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 3.03(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 less 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. P6402.1057 875181.3 9 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 (so long as the policy 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 2.06. Costs of Issuance Fund. There is hereby established a fund to be held by the Trustee known as the "Costs of Issuance Fund" 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 2.02(a). A portion of the proceeds of the Series 2006B Loan shall be deposited in the Series 2006B Account pursuant to Section 2.02(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 2.07. Proiect Fund. There is hereby established a fund to be known as P6-102.1057 875181.3 10 the "Project Fund", 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 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: (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: (e) 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 (f) that there has not been filed with 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, any of the money payable to the person named in such Request of the Agency which has not been released or will 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 P6-102.1057 875181.3 11 accomplishment of the objects and purposes for which the Loans were made, said moneys shall be transferred to the Special Fund. Section 2.08. 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 2.08: (a) No Event of Default shall have occurred and be continuing, and the Agency shall otherwise 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, assuming a tax rate of one percent of assessed value and based on assessed valuation of property in the Project Area as evidenced in the written records of the County, shall be at least equal to 125 percent of Maximum 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: (1) 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 1 and October 1 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 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 (e) above have been satisfied. Section 2.09. Issuance of Subordinate Debt. In addition to the Loan 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 with respect to the Redevelopment Project. P6-102.1057 875181.3 12 ARTICLE III PLEDGE AND APPLICATION OF TAX REVENUES Section 3.01. 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, without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery. 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 3.02. Special Fund; Deposit of Tax Revenues. The Agency has heretofore established a special fund known as the "Special Fund", which shall 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 any Parity Debt Instrument, any Tax Revenues received during the Bond Year in excess of amounts required to be transferred to the Trustee pursuant to Section 3.03 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 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 3.03. 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 withdraw 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 third Business Day preceding each date on which 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 with any prepayment premium thereon, the Agency shall withdraw from the Special Fund and transfer to the Trustee an amount which, together with the amounts then held on deposit in the Interest Account, the Principal Account and the Revenue 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 2.05 that the amount on deposit in the Reserve Fund is less than the Reserve Requirement, the Agency shall immediately withdraw from the Special Fund and transfer to the Trustee 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 any P6-IU2 1057 875181.3 13 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 3.03. 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 whatsoever 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 withdraw 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 1. Section 3.04. 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 written 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 3.04, 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. 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 4.01. 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, P6-IU2 1057 875181.3 14 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 4.02. 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 4.03. 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 4.04. 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, the Project 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 will furnish a copy of such statements, upon reasonable request, to any Owner. Section 4.05. Protection of Security and Rig,hts. The Agency will preserve and protect the security of the Loans and the rights of the Trustee and the Owners with 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 will be the legal, valid and binding P6-IU2 1057 875181.3 15 special obligations of the Agency enforceable in accordance with their terms, and the Agency shall at all times, to the extent permitted by law, 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 whomsoever. The Agency's obligations to the Trustee under this Section 4.05 shall survive the payment of the Bonds and the discharge of the Indenture, the removal or resignation of the Trustee pursuant to the Indenture or the payment of the Loans and the discharge of this Loan Agreement. Section 4.06. Payments of Taxes and Other Charizes. The Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area, when 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 will duly observe and comply with all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof. Section 4.07. Taxation of Leased Property. All ad valorem property taxes derived by the Agency pursuant to Section 33673 of the Redevelopment Law with 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 4.08. Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Project Area, to anyone which will 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, when taken together with 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 4.08. 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 will not be materially impaired by said proposed disposition, the Agency may thereafter make such disposition. If such Report concludes that such security will be materially impaired by such proposed disposition, the Agency shall disapprove said proposed disposition. Section 4.09. Maintenance of Tax Revenues. The Agency shall comply with all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues, including without limitation the timely filing of any necessary statements of indebtedness with 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 or any of the Pass -Through Agreements, or enter into any agreement with the County or any other governmental unit, which would have the effect of P6-102.1057 875181.3 16 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 (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 be at least equal to 115 percent of Maximum Annual Debt Service, and (ii), as long as the Insurance Policy is in full force and effect, the written consent of the Insurer. Nothing herein is intended or shall be construed in any way to prohibit or impose any limitations on the entering into by the Agency of any such agreement, amendment or supplement which by its term is subordinate to the payment of the Loans and all Parity Debt. Section 4.10. 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 Trustee shall have a first lien 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 which it may incur arising out of or in the exercise and performance of its powers and duties in accordance with 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 which 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 4.11. 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 will 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 with such written 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 which would 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 with the rebate requirements of Section 148 of P6-102.1057 875181.3 17 the Code, the Agency further covenants that it will 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 will 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 with the requirements of Section 148 of the Code, such covenants to survive the defeasance of the Bonds. (c) The Agency covenants that it will not take any action or omit to take any action, which action or omission, if reasonably expected on the date of initial execution and delivery of the Bonds, would result in a loss 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 will not use or permit the use of any property financed with the proceeds of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as would result in a loss 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 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 whole 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 21 B(d)(3) of the Federal Home Loan Bank Act, as amended by Section 51 1(a) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, (e) investments permitted under regulations issued pursuant to Section 149(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 with respect to the redevelopment of the Project Area, are undertaken and accomplished in conformity with all applicable requirements of the Redevelopment Plan and the Redevelopment Law. 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 with all valid requirements of any governmental authority, and will keep such properties insured at all times in conformity with sound business practice. P6-102.1057 875181.3 18 Section 4.13. 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 with 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 Law) 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 (e) of said Section 33334.12. 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 Plan's cumulative tax increment limitation, as well as future cumulative annual debt service with respect to the Loans and all Parity Debt. The Agency will not accept Tax Revenues greater than such annual debt service in any year, if such acceptance will 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 will not exceed 110 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. Section 4.15. Further Assurances. The Agency 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 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 5.01. 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 60 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 60 day P6-102.1057 875181.3 19 period, such failure shall not constitute an Event of Default if corrective action is instituted by the Agency within such 60 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 Loan, 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 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. Section 5.02. Application of Funds Upon Default. 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 P6-102.1057 875181.3 20 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 whole amount of interest on and principal of the Loans then due and unpaid, with interest on overdue installments of principal, and such interest to the extent permitted by law 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 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 5.03. 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. Section 5.04. Aizreement 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 P6-IU2 1057 875181.3 21 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 nondefaulting party or the Trustee, 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 5.05. 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 law 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 law. Section 5.06. Control of Remedies by Insurer. Notwithstanding the provisions of Section 5.1 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 Loans or annulment thereof pursuant to Section 5.01 shall be subject to the prior written consent of the Insurer. No waiver of a default shall be effective without the written consent of the Insurer. ARTICLE VI MISCELLANEOUS Section 6.01. Benefits Limited to Parties. Nothing in this Loan Agreement, expressed or implied, is intended to give to any person other than the Agency, the Trustee, 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 long as the Insurance Policy remains in full force and effect. Section 6.02. 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 6.03. Discharize of Loan Aizreement. If the Agency shall pay and P6-IU2 1057 875181.3 22 discharge the indebtedness on the Loans or any portion thereof in any one or more of the following ways: (a) by well 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 when 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 Loans or such portion thereof; or (c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, non -callable Federal Securities in such amount as an Independent Accountant shall determine will, 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 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 lien 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 with 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 with the Trustee or such other fiduciary, all sums due with respect to the Loans 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 6.04. 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 6.05. 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 6.06. Payment on Business Days. Whenever in this Loan Agreement any P6-IU2 1057 875181.3 23 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 6.07. 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, which is hereby incorporated. Section 6.08. Bond Insurance. As long as the Insurance Policy is in full force and effect with respect to the Bonds, the Agency shall, on an annual basis, furnish the Insurer with copies of its audited financial statements and its annual budget; and shall deliver to the Insurer a copy of the disclosure document, if any, circulated with respect to any Parity Debt. Section 6.09. Surety Bond. [to come] Section 6.10. 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 Loans 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 6.11. 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 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 6.12. 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 6.13. Governing, Law. This Loan Agreement shall be construed and governed in accordance with the laws of the State. Section 6.14. 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. P6-102.1057 875181.3 24 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 written. 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 P6-IU2 1057 875181.3 25 EXHIBIT A SCHEDULE OF SERIES 2006A LOAN PAYMENTS' Date Principal Interest Total * Payable semiannually on the fifth Business Day preceding each Interest Payment Date P6402.1057 875181.3 A- I EXHIBIT B SCHEDULE OF SERIES 2006B LOAN PAYMENTS Date Total Pa\ meat * Payable on the fifth Business Day preceding each October 1st P6402.1057 875181.3 B- I.&.I DRAFT #3 05/2 3/06 PRELIMINARY OFFICIAL STATEMENT DATED JUNE , 2006 NEW ISSUE - BOOK -ENTRY ONLY INSURED RATINGS: S&P: UNINSURED RATINGS: S&P: (See "RA I INGs- herein) bn the opinion o/Richards, Gershon, . l l'ro/essional ('on/�o,atioii. Los. Inge/es, ('all/onnia, Bond ('ounce!, based on existing, law and assuming, compliance with certain covenants .wt / rth in the docunh'nts pertaining to the 2006.Series Boiids and i•('quii•('nu'nts of du' Internal Revenue ('cxle of ! 986, as amended (the ' ('cxle"), as described herein, interest on the 2006 Series Bonds is not included in gross income o/ t h' ouiu'ns thereof /i•ji'denn income tax pni/)os('s. In the opinion o/ Bond Counsel, ini('n•('s( on the 2006 .Series Bonds is not treated as an item o/ tax prr/i'rence in calculating the fedend alternative minimum tumble income o/ individuals and coipomtions. bnien's( on the 2006 Series Bonds may be subject to certainfederal taxes imposed on corporations, including, the coponne alternative minimum tax on a portion o/that inier'si. In dh'_/ 1rt/u'r opinion o/ Bond ("ounce!, inheres( on the 2006 .Series Bonds is exempt ji•om personal income taxes imposed by the .State o/Tali/hnnia. See "I'.\X M.\ I n'.Rs" herein. PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 4) 2006 SERIES A * PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 4) 2006 SERIES B Dated: Date of Delivers Due: October 1, as shown on the inside cover page This corer page contains certain inlinmation_/or quick ,e/e,ence only. It is not a summon' of this issue. bmestors are advised to read the entire (//icial.Statenh'nt to obtain inn/on nation essential to the making o/ cm inn/hrnu'd investment decision. The Palm 1)escrt Financing Authotith (the "Financing Authority'') is issuing $ * principal amowit of Palm 1)escrt Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 4) 2006 Series A (the "Current Interest Bonds") and $ * principal aumowtt of Palm 1)escrt Financing Authotith Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) 2006 Series 13 (the "2006 13 Capital Appreciation Bonds" and together vith the Current Interest Bonds. the "2006 Series Bonds-) to make tyu> loans. one vith respect to each series 012006 Series Bonds (collectiveh. the "2006 Loans") to the Palm Ihrscrt Redevelopment Agenc\ (the "Redevelopment Agenc\") pursuant to the terns of a Project Area No. 4 Loan Agreement dated as of,lu1 I. 2006 (the "2006 Loan Agreement") h\ and among the Financing Authotith, the Redevelopment Agency and Wells Fargo Bank. National Association (the "Trustee-). rnstee"). 'the Redevelopment Agenc\ apph the proceeds of the 2006 Loans to: (i) refinance certain outstanding obligations of the Redevelopment Agency under a loan agreement dated as of March I. 1998 (the "Prior Loan Agreement"): (ii) finance various redevelopment activities within the Palm I)escrt Redevelopment Agency Project Area No. 4 (the "Project Area-Y. and (iii) pa\ the costs associated vith the issuance of the 2006 Series Bonds. See "Pi ..\\ c n Fix..\\c'i.... the 2006 Series Bonds are issued pursuant to an Indenture of I rust. dated as of Jul I . 2006 (the "2006 Indenture-). h\ and betveen the Financing Authority and the Trustee. 'the 2006 Series Bonds sill be issued in hook-entn limn. initial] registered in the name of Cede & Co. as nominee of the I)epositorn Trust C'ompam. Nev. York. Nev. York ("1),I C"), act as securities depositor\ fly the 2006 Series Bonds. Individual purchases of the 2006 Series Bonds sill be in hook-entn limn onh. and in denominations of: (i) $S.000 or am integral multiple thereof with respect to the Current Interest Bonds and (ii) $5,000 Maturity Amount (as defined herein) or am integral multiple thereof vith respect to the Capital Appreciation Bonds. Purchasers sill not receive ph\sical certificates representing their interests in the 2006 Series Bonds. Principal of: interest on and redemption premium. iIan \. on the Current Interest Bonds and Accreted Value ofthc Capital Appreciation Bonds be paid h\ the Trustee direct] to I)I C. vhich in turn is obligated to remit such principal. interest. Accreted Value and redemption premium. ifam. to IYI C Participants fly subsequent disbursement to the Beneficial Demers of the applicable 2006 Series Bonds. Sce Arri.\nIxG-" I)IC .n iiu.l3(x)K-I:\IRY O\i.ti Stisn.\L... Interest on the Current Interest Bonds be payable on each April I and October I ()leach \car. commencing October I. 2006 at the respective rates set !brill on the inside cover page, and principal of the Current Interest Bonds is pa\ able on April I ()leach \car. commencing October I. 20_ in the amowits set forth on the inside cover page. .I'he Capital Appreciation Bonds accrete in value from the Date of I)elivcrn at the respective Accreted Value Rate set !brill on the inside cover page. compowtded semiannualh, on April I and (ktober I of each \ear. commencing October I. 2006 to the respective mattuit\ dates thereof No payments be made on the Capital Appreciation Bonds prior to the respective mattuit\ date thereof The Current Interest Bonds are subject to optional and sinking account redemption as described herein. Sce "TIIN:2006 SERIES BONDS - Current Interest Bonds -Redemption Provisions." The Capital Appreciation Bonds are subject to optional redemption as described herein. Sec "-Capital Appreciation Bonds -Redemption Provisions." For a discussion of some ofthc risks associated with the purchase ofthc 2006 Series Bonds. see "Ct.tt tAn RISKS IO13c,\rnun.nl.rs... 'the 2006 Series Bonds are special obligations of the Financing Authority pa\ able from and secured hRevenues (as defined herein). consisting primarih of amounts pa�ahlc hthe Redevelopment Agency wider the 2006 Loan Agreement. the 2006 Loan Agreement is secured h\ and payable from tax increment revenues derived from propert\ in the Project Area and allocated to the Redevelopment Agency pursuant to the Redevelopment I,a\\. 'Ihc Redevelopment Agency ma\. pursuant to the terns of the 2006 Loan Agreement and the 2006 Indenture secure additional obligations on a parity with the 2006 Loans. No thuds or properties of the Redevelopment Agency, other than the Tax Revenues secure pa\ment of the 2006 Loan Agreement. See "S(..('1-RI 1 \ .\\I ) S( R('I.s ( )I' P.\Y \ u.\ i I.( )R i ni..13O\ns-Parih 1)ebt and Subordinate 1)ebt... the scheduled pabment of the principal and Accreted Value of and interest on the 2006 Series Bonds \\hen due \vill be guaranteed under a financial guarani\ insurance polic\ to be issued concu renth \\ith the deliver\ oldie 2006 Series Bonds b\ 'Insurer I,ogol I I I1: 2006 SI:1211:S BONDS A121: NOT A 1)1:131 OI 1.111: CITY OI PALM 1)1:S1:121 (I 1 I1: "CITY'). 1111: SI ATI: OI CA1,11 ORNIA (1.111: "SIAIF) OR ANY OI ITS POI,II ICAI, SI1131)IVISIONS. 011I1:12 11IAN 1.111: FINANCING A11111IO1211Y. ANI) NONE O1 I1II: CITY. 1.111: S I A I I: OR ANY OI ITS POI,II ICAI, SI1131)IVISIONS. OI 1 II:R 11 IAN 1.111: FINANCING A1111 IO1211 Y. IS I,IA131,1: 1.111:RI:FO12. 1.111: 2006 LOANS A121: NOT A 1)1:131 OI 1.111: FINANCING Al111 IORII Y OR 11 I1: S I A II: OR ANY OF ITS POI,II ICAI, SI1131)IVISIONS. ANI) NONE OI 1.111: FINANCING A11111 IO1211 Y OR 1.111: SI A I1: OR ANY OI hI S POI,II ICAI, SI1131)IVISIONS. IS I,IA131,1: 111E12E1 012. NONE O1 I 1 I1: MEMBERS OI I 1 I1: FINANCING A11111 IO1211 Y. 1.111: CITY COUNCIL. I 1 I1: RI:1)I:VI:LOPMI:N 1 AGENCY OR ANY PERSONS I:XI:CII"I1NG 1.111: 2006 SI:1211:S BONDS OR 11II: 2006 LOAN AGRI:I:MI:N I A121: I,IA131,1: PERSONALLY W1111 121:SPECI TO 1.111: 2006 SI:1211:S BONDS OR 11 I1: 2006 LOANS. 11 IE 01311GA IIONS OI 1111: RI:DI :VI :LOPMI:N I AGENCY WITH 121:SPEC I I O 1111: 2006 LOANS ARI: PAYA131,1: SOLELY 1120M 1.111: TAX RI:VI:NIII:S (AS 1)I:I IN1:1) III:RI:IN) AS SI:I 1012111 IN 1111: 2006 LOAN AG121:EMEN1. NI:iIIII:12 1111: FINANCING AIITI IO121 I Y NOR 1111: RI:DI :VI :LOPMI:N I AGENCY I IAS TAXING POWI:12. the 2006 Series Bonds are offered \\hen. as and ifissucd bthe Financing Authont and received bthe l lnden\ritcr. subject to the approval as to their legalih bRichards. Watson & Gershon. A Professional Corporation Los Angeles. California. Bond Counsel. Certain legal matters \vill be passed upon tirr the Financing Authont bthe Cif Attornc\ and bLofton & Jennings. San Francisco. Calitbmia. Disclosure Counsel. It is anticipated that the 2006 Series Bonds in book-entr onh time \vill be available tirr deliver n through the facilities of DTC in Nc\\ York. Nc\\ York on or about Juh . 2006. WEDBUSH MORGAN SECURITIES INC. Dated: . 2006 * Prcliminan, subject to change. 06013 pos-2 * PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 4) 2006 SERIES A Maturity Date (October I ) Principal Interest Amount* Rate Maturity Date (October I ) Price or Yield * PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 4) 2006 SERIES B Maturity Schedule * Current Interest Bonds, 2006 Series A CUSIP No.+ (6966I7) Maturity Date (October I ) Principal Interest Amount* Rate Price or Yield % Term Bonds due October I. 20 - Price: %-CUSIP No.+ 6966I 7 % Term Bonds due October I. 20 - Price: %-CUSIP No.+ 6966I 7 % Term Bonds due October I. 20 - Price: %-CUSIP No.+ 6966I 7 $ * Capital Appreciation Bonds, 2006 Series B Issue Amount* Yield to Accreted Value CUSIP No.+ Maturity at Maturity (6966I7) CUSIP No.+ (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. 06013 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. 06013 pos-3 PALM DESERT FINANCING AUTHORITY PALM DESERT REDEVELOPMENT AGENCY and CITY OF PALM DESERT Riverside County, California FINANCING AUTHORITY COMMISSION Jim Ferguson. /'resiclenl Richard S. Kelly. Vice /'resiclenl Jean M. Benson. ('onnnissioner Buford A. Crites. ('ommissioner Robert A. Spiegel. ('ommissioner REDEVELOPMENT AGENCY BOARD AND CITY COUNCIL Jim Ferguson. Chairman Mcn'or 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 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 7rusiee and /scrou• Agent Roseno« Spevacek Group Inc. Santa Ana. California Fiscal ('onsultant Lofton K. Jennings San Francisco. California Disclosure ('ounsel Del Rio Advisors. LLC Modesto. California / (nanc(al Advisor l'eri/wation Agent 06013 pos-3 TABLE OF CONTENTS PAGE INTRODUCTION General: Authority for Issuance 1 Purpose 1 The City 2 The Financing Authority 2 The Redevelopment Agency 2 The Project Area 2 Security for the 2006 Series Bonds 2 Bond Insurance 4 Report of the Fiscal Consultant 4 Certain Risks to Bondholders 4 Continuing Disclosure Additional Information PLAN OF FINANCE Refunding of Prior Bonds iS Redevelopment Projects 6 ESTIMATED SOURCES AND USES OF FUNDS 7 THE 2006 SERIES BONDS 7 Terms Applicable to Both Series of 2006 Series Bonds 7 Current Interest Bonds 7 Capital Appreciation Bonds 9 Redemption Procedures 10 DEBT SERVICE SCHEDULE 12 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS 14 Revenues and Loan Agreements 14 Tax Revenues and Subordinate Tax Revenues 14 Tax Allocation Financing 15 Redevelopment Plan Limitations 15 SB 1206 17 Allocation of Taxes 17 Reserve Fund 18 Parity Debt and Subordinate Debt 19 Investment of Funds 20 BOND INSURANCE 20 LIMITATIONS ON TAX REVENUES 20 Article XIII A of State Constitution 20 PAGE Article XIII B of the State Constitution: Appropriation Limitations 22 Articles XIII C and XIII D of the State Constitution 23 Taxation of Unitary Property 23 Property Tax Collection Procedures 23 Property Tax Administrative Costs 24 Housing Set -Aside 25 Certification of Redevelopment Agency Indebtedness 25 Tax Sharing Agreements and Payments 26 Limitation of Tax Revenues from Certain Increased Tax Rates 27 Ballot Initiatives and Legislative Matters 27 THE FINANCING AUTHORITY 28 THE REDEVELOPMENT AGENCY 28 Authority. Members and Personnel 28 Powers 29 Redevelopment Agency Finances 30 THE PROJECT AREA 31 General 31 Redevelopment Plan Limits 31 Controls. Land Use and Building Restrictions 32 Summary of Development 33 Principal Taxpayers 33 Tax Rates 34 Historical. Current and Projected Tax Revenues Debt Service Coverage Projections 38 Assessment Appeals 39 Tax Levies. Collections and Delinquencies 40 CERTAIN RISKS TO BONDHOLDERS 41 Accuracy of Assumptions 41 Reduction of Tax Revenues 41 Reductions in Unitary Values 42 Appeals to Assessed Values 42 Reduction in Inflation Rate 42 Bankruptcy and Foreclosure 43 Delinquencies 43 State Budget 43 Natural Disasters 45 Hazardous Substances 46 06013 pos-3 iii Loss of Tax Exemption 46 CONTINUING DISCLOSURE 49 Risk of Tax Audit 46 Secondary Market 47 VERIFICATION OF MATHEMATICAL COMPUTATIONS �0 TAX MATTERS 47 UNDERWRITING �0 APPROVAL OF LEGAL PROCEEDINGS 48 Current Interest Bonds iS0 Capital Appreciation Bonds iS0 ABSENCE OF MATERIAL LITIGATION 49 General 49 RATINGS iS 1 Other Matters 49 FINANCIAL STATEMENTS MISCELLANEOUS iS2 City Location Map yi Project Area Map yii Table I - Prior Bonds 6 FINANCIAL ADVISOR 49 Table 2 - Summary of Redevelopment Plan Limit Amendments 32 Table 3 - Land Uses by Category 32 Table 4 - Principal Taxpayers 34 Table 5 - Breakdown of Tax Rate 35 Table 6 - Historical and Current Revenues 36 Table 7- Projection of Incremental Taxable Value and Tax Increment Revenue 37 Table 8- Debt Service Coverage Projections 38 Table 9 - Assessment Appeals 39 Table 10 - Outstanding Appeals by the Top Ten Taxpayers 40 APPENDIX A - APPENDIX B - APPENDIX C - 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 APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE 2006 INDENTURE D-I APPENDIX E - 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 06013 pos-3 iv City Location Map 06013 pos-3 Project Area Map 06013 pos-3 vi PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 4) 2006 SERIES A * PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 4) 2006 SERIES B INTRODUCTION This introchwilon contains only a brief srunnurllr 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 table of contents and the appendices fur a more complete description of the ter177s of the 2006 Series Bonds. A// statements contained in lhi.v inlrochiclion are qualified in their entirety by reference to the entire Official .Statement. References to. and s71177177ClrWs of provisions of any other documents referred to herein do not purport to he complete and such references are qualified in their entirety by reference to the complete proVision.v 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 Bonds Refunding Revenue Bonds (Project Area No. 4) 2006 Series A (the "Current Interest Bonds) and $ * principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 4) 2006 Series B (the "Capital Appreciation Bonds" and together Nvith the Current Interest 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 I (commencing «ith Section 658 4) of the California Government Code (the "Bond Law.). The 2006 Series Bonds «iII be issued pursuant to an Indenture of Trust. dated as of July I. 2006 (the "2006 Indenture.). by and between the Financing Authority and Wells Fargo Bank. National Association (the "Trustee.). Purpose 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 Series Bonds (the "2006 Series A Loan and the "2006 Series B Loan" and collectively. the "2006 Loans) to Palm Desert Redevelopment Agency (the "Redevelopment Agency) pursuant to a Project Area No. 4 Loan Agreement made and entered into as of July I. 2003 by and among the Financing Authority. the Redevelopment Agency and the Trustee (the " 2006 Loan Agreement.). The Redevelopment Agency Nvill apply the proceeds of the 2006 Loans to: (i) refinance all outstanding obligations of the Redevelopment Agency under a loan agreement dated as of March I. 1998 (the "Prior Loan Agreement.): (ii) finance various redevelopment activities Nvithin the Palm Desert Redevelopment Agency Project Area No. 4 (the "Project Area.): and (iii) pay the costs associated Nvith the issuance of the 2006 Series Bonds. See "PLAN OF FINANCE:* "ESTIMATED ED SOl1RCI:S ANI) USES oi: Fl1NDs- and "Ti II: PRojEci AREA -Summary of Development. The 2006 Series Bonds Nvill mature in the years and amounts and bear interest at the rates set forth on the inside cover page. * Prcliminars, subject to change. 06013 pos-3 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 1. 2006 was approximately 45.5 39. The Series 2006 Bonds are not an obligation of the City. For certain information regarding the City. see APPENDIX C-"GI:NI:RAI. INFoRMAIIoN CONCERNING 1111: 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 "TI11: FINANCING All"Ii IORIIY.- 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 1 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 Ti"II: RI:DI;vl;I I MI:N I AGI:NCY.- The Project Area The Project Area was formally established with the adoption by the City Council of a redevelopment plan for approximately 2.260 acres by Ordinance No. 724. adopted on July 19. 1993. as amended (the "Redevelopment Plane). See "Ti 11: 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 within a project area. Subject to the more detailed discussion contained under the caption "SECURITY ANI) SOURCES OF PAYMENT I:oR 1111: 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 which 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 "SECURITY ANI) SOURCES OF PAYMENT FOR 1111: BONDS. - Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes described above. 06013 pos-3 2 An future decrease in the taxable valuation in the Project Area or in the applicable tax rates \\ill 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 TO 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 fiords held by the Trustee pursuant to the 2006 Indenture. The Redevelopment Agency is obligated under the 2006 Loan Agreement made and entered into as of November I. 2001 (the "2001 Loan Agreement) and under a Loan Agreement made and entered into as of March I. 1998 (the "I998 Loan Agreement and together «ith the 2006 Loan Agreement and the 2001 Loan Agreement. the "Parity Loan Agreements) to pay from Tax Revenues (defined below) the amounts set forth in the Parity Loan Agreements. See "SI:CIIRIIY ANI) SOIIRCI;S OF PAYMENT FOR THE BONDS. - The obligations of the Redevelopment Agency under the 2006 Loan Agreement are on a parity «ith the loan obligations under the 2001 Loan Agreement and the 1998 Loan Agreement (collectively «ith the 2006 Parity Loans. the "Parity Loans"). The 2001 Loan secures repayment of $ outstanding principal amount of Palm Desert Financing Authority Tax Allocation Bonds (Project Area No. 4). Series 2001 (the "Series 2001 Bonds"). «hich \vere issued pursuant to an Indenture of Trust dated as of November I. 2001 (the "2001 Indenture) by and between the Financing Authority and the Trustee. The 1998 Loan secures repayment of $ Outstanding principal amount of Palm Desert Financing Authority Tax Allocation Bonds (Project Area No. 4). Series 1998 (the "Series 1998 Bonds"). «hick \vere issued pursuant to an Indenture of Trust dated as of March I. 1998 (the "1998 Indenture-) by and between the Financing Authority and the Trustee. No fiends or properties of the Redevelopment Agency. other than the Tax Revenues secure payment obligations under the Parity Loan Agreements. The Redevelopment Agency has pledged for the repayment of the 2006 Loans. the 2001 Loan and the 1998 Loan monies allocated or paid to the Redevelopment Agency derived from: (a) that portion of taxes levied upon assessable property «ithin 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 «ith respect to any property taxes that Nvould othenyise 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 "SECURITY ANI) SOURCES OF PAYMENT FOR I111: BONDS. "LIMITATIONS ON TAX REVENUES"' 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 1992-93 Fiscal Year. \yhich 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 11: PROJECT AREA -Redevelopment Plan -Redevelopment /'Ian /,emits. Reserve Fund. As additional security for the payment of the Parity Loans by the Redevelopment Agency. a Reserve Fund is established under the 1998 Loan Agreement in an amount equal to the Reserve Requirement (as defined herein). Amounts on deposit in the Reserve Fund \\ill be used for the payment of debt service on the Parity Bonds in the event that amounts on deposit in the applicable Interest Account or the 06013 pos-3 Principal Account held under the respective Indenture are insufficient therefor. See "SI:cURII'Y ANI) SOURCES OF PAYMENT FOR I111: BONDS -Reserve Fundy and APPENDIX I-"SPI:CIMI:N RI:sl;RVI: FIIND SIJRPoi .1cY.- On the date of issuance of the 2006 Series Bonds. the Redevelopment Agency purchase Nvith a portion of the proceeds from the sale of the 2006 Series Bonds. la reserve fiend surety policy in the amount of / two reserve fund surety policies in the aggregate amount of } I to be issued by (the "Bond Insurer-) for deposit into the Reserve Fund. Nvhich together Nvith the $ on deposit therein equal the Reserve Requirement of 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 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 AUTHORITY 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 AGREEMENT 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 LOANS ARE PAYABLE SOLELY FROM THE TAX REVENUES (AS DEFINED HEREIN) AS SET FORTH IN THE 2006 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 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 "BOND INSURANCE.* and APPENDIX H- "SPECIMI:N FINANCIAI, GIIARAN IY INSIJRANCl: 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) vhich. among other things. analyzes the Tax Revenues generated from taxable property Nvithin 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 be achieved. Actual results may differ materially from the projections described therein. See APPENDIX A-" RI:PORI OF THE FISCAI, CONSULTANT... 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 "CI ATAIN RISKS "I O BONDI I0I,I)1:12S .. 06013 pos-3 4 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 iSc2-12(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 Nyith the Securities and Exchange Commission Rule 15c2-12(b)(5). See "CONTINUING DISCLOSURE"' and APPENDIX F—"FORM OF CONTINUING DISCLOSUREAGRI:I:MI:NI .. 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 Nyith any previous undertakings Nyith regard to said Rule to provide annual reports or notices of material events. Additional Information This Official Statement contains summaries of the 2006 Series Bonds. the security for the 2006 Series Bonds. the 2006 Indenture. the 2006 Loan Agreement. 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 Indenture are qualified in their entirety by reference to the complete text thereof and all references to the 2006 Series Bonds are further 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 PROVISIONS OF THE 2006 INDI:MURC for definitions of certain Nyords 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 Nwhich has been obtained from other sources Nwhich 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 Nwritten request from the of the Redevelopment Agency. 73-5 I0 Fred Waring Drive. Palm Desert. California 92260-2578: telephone: (760) 346-0611. The Redevelopment Agency may impose a charge for copying. mailing and handling. PLAN OF FINANCE Refunding of Prior Bonds The Financing Authority wwill loan the proceeds of the 2006 Bonds to the Redevelopment Agency. The Redevelopment Agency \will use a portion of the proceeds of the 2006 Series A Loan to prepay certain amounts due Nwith respect to the Prior Loan Agreement. The Financing Authority \will use those prepaid loan amounts to refimd certain of the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 4). Series 1998 in the outstanding principal amount of $ (the "Prior Bonds"). Such proceeds of the 2006 Series A Bonds \will be deposited in an escrow- fund (the "Escrow- Fundy) to be held by Wells Fargo Bank. National Association. as escrow- bank (the "Escrow- Bank) pursuant to an Escrow Agreement dated as of July I. 2006 (the "Escrow Agreement"). by and among the Financing Authority. the Redevelopment Agency and the Escrow Bank. Following the refimding of the Prior Bonds $ principal amount of Series 1998 Bonds will remain outstanding. 06013 pos-3 The amounts deposited under the Escrow- Agreement Nvill be held by the Escrow- Bank and invested in noncallable direct obligations of the United States of America. or bonds or other obligations Nvhich are nocallable and for Nvhich the full faith and credit of the United States of America are pledged for the payment of principal and interest. to mature or be «ithdra«able. as the case may be. not later than the time when needed for the payment or redemption of the Prior Bonds in order to discharge the pledge of the lien securing the Prior Bonds (collectively. "Escrow Securities"). The principal of and interest on such Escrow Securities. hen received. will be sufficient to pay the principal or redemption price of. including premium. and interest on the Prior Bond upon redemption thereof. Upon delivery of the 2006 Bonds. the Prior Bonds will be irrevocably called for redemption on . See also "VI:RIFICA I ioN 01: MATHEMATICAL COMPUTATIONS. — The Prior Bonds to be refunded consist of the following: Table 1 S1,785,000 Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 4), Series 1998 Dated Date: March 1, 1998 Payment or Maturity Date Interest CUSIP Redemption Date Redemption (October I) Amount Rate (6966 17)+ (October I) Price 2006 $I05.000 5.00`) GU7 2() `N 2007 I10.000 5.00 GVS 20 2008 115.000 5.00 GW3 2() 2009 I25.000 4.45 GX I 2() 2013 1.330.000 4.80 GY9 20 t Cop\ right 2006. American Bankers Association. CUSIP data herein is provided b\ Standard and Poor's. CUSIP Service 13ureau. a division of 'the Mc(ira\\-I lill Companies. Inc. 'Ibis data is not intended to create a database and does not serve in am \\a\ as a substitute lirr the CI NIP Service. CI NIP numbers are provided lirr convenience ol'reference onh. None ol'the Authorith, the Cith or the l lndenvriter take an responsibilith lirr the accurac\ ol'such numbers. Redevelopment Projects A portion of the remaining proceeds of the 2006 Series A Loan and the 2006 Series B Loan «ill be used by the Redevelopment Agency to finance certain redevelopment activities within the Project Area. See "Ti I1: PRo.li:cI' AREA -Summary of Development -Redevelopment Agency /'ryjects.- (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06013 pos-3 6 ESTIMATED SOURCES AND USES OF FUNDS The anticipated sources and uses of fluids relating to the 2006 Series Bonds are as follows: 2006 Series Bonds Current Interest Bonds Capital Appreciation Bonds Total Sources: Principal Amount of the 2006 Series Bonds IMits: Net Original Issue Premium' 'Less: Original Issue Discount To! AI. SoIJRCI:s $ $ Uses: Deposit to Project Fund''' Deposit to Escrow Fund Deposit to Costs of Issuance Fund',' Deposit to Reserve Fund Undenyriter's Discount Too AI. USES $ $ * Pre1iminar\. subject to change. * To be used to finance redevelopment activities in the Project Area. See -I'm PRc)1I.c 1 ARI..\-Summar\ of I )evelopment." ''' Includes the tees and expenses of Bond Counsel. Disclosure Counsel and Counsel to the Redevelopment Agenc\. tees and expenses of the Trustee. the Financial Advisor. the Fiscal Consultant and the Verification Agent. printing costs. rating agenc\ tees. bond insurance and reserve find suret\ premiums. and other costs related to the issuance of the 2006 Series Bonds. 'i' Represents the amount of the reserve find suret\ polic\. THE 2006 SERIES BONDS Terms Applicable to Both Series of 2006 Series Bonds The 2006 Series Bonds will be dated the date of issuance and delivery. issued in fully registered form. without coupons. and. wlhen issued will be registered in the name of Cede K. Co.. as nominee for The Depository Trust Company. New York. New 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 will be paid by the Trustee to DTC. which 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) Ti11: &x)K-EN IRY ONI,Y SYS11:M.- Ownership may be changed only upon the registration books maintained by the Trustee as provided in the 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.). 06013 pos-3 7 Interest on the Current Interest Bonds \\ill be payable on each Interest Payment Date to the person Nyhose 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 Tntstee 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 Nvritten request of the Owner of at least $ 1.000.000 in aggregate principal amount of Outstanding 2006 Series A Bonds filed Nyith 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 \vire transfer of immediately available finds to an account in the United States designated in such «rittcn request (unless and until such request has been revoked in «citing). Redemption Provisions. Redemption for Optional Loan Prepayment. If the Redevelopment Agency exercises its option to prepay principal installments of the 2006 Series TWO loans pursuant to the 2006 Loan Agreement. the Revenues derived from such prepayment \\ill be applied to the redemption of the Current Interest Bonds maturing on or after October I. 20 . as a \\hole. or in part among maturities as designated in «citing by the Financing Authority and by lot Nyithin a maturity. in integral multiples of $5.000 principal amount. on any Interest Payment Date on or after October 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 October I. 20 and April I. 2() I0_`%0 October I. 20 and April I. 2() I() October 1. 2() and thereafter I00 The Financing Authority is required to provide «rittcn notice to the Tntstcc of any Redemption for Optional Loan Prepayment at least 45 but not more than 90 days prior to the date fixed for such redemption. Mandatory Sinking, Fund Redemption. The Current Interest Bonds maturing on October I. 20 . October I. 2() and October I. 2() are also be subject to mandatory redemption by lot. on October I in each year commencing October I. 20 . October I. 2() and October I. 2() . respectively. from sinking find payments made by the Financing Authority into the Principal Account. 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 October I in the respective years as set forth below: Current Interest Bonds Maturing, October I. 20 Sinking Fund Redemption Date (October I ) Matu ih. Principal Amount to be Redeemed* 06013 pos-3 8 Current Interest Bonds Maturing, October I. 20 Sinking Fund Redemption Date (October I ) Matuith. Principal Amount to be Redeemed* Current Interest Bonds Maturing, October I. 20 Sinking Fund Redemption Date (October I ) +Final Matuit. Principal Amount to be Redeemed* Purchase in Lieu of Redemption. In lieu of Mandatory Sinking Fund redemption of the Current Interest Bonds on October I in any year. the Current Interest Bonds may be purchased by the Redevelopment Agency pursuant to the 2006 Loan Agreement and tendered to the Tntstee 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 fitture sinking fund payments Nvith 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 pro 'vier basis. Capital Appreciation Bonds General. The 2006 Series B Bonds (the "Capital Appreciation Bonds") II be issued in amounts shown on the inside cover (the "Initial Principal Amount-) and II 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 II accrete in value from their Date of Delivery and II 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 II 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. 06013 pos-3 9 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 Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Capital Appreciation Bonds maturing on or after October I. 20 . as a whole. or in part among maturities as designated in «citing 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 October I. 20 . 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 October I. 20 and April I. 2() I0_`%0 October I. 20 and April I. 2() I() October 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. No Mandatory Sinking, Fund Redemption. The Capital Appreciation Bonds are not subject to mandatory sinking fund 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 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 whole) to be redeemed. and require such Bonds to be surrendered at the Trust Office of the Trustcc in Los Angeles. California (or such other location as designated by the Trustcc) for redemption at the redemption price. giving notice also that further interest on such 2006 Series Bonds will 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 Trustcc will 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 which the Trustcc 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 Trustcc 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. 06013 pos-3 I0 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 «iII cease to be entitled to any benefit under the 2006 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. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06013 pos-3 II DEBT SERVICE SCHEDULE The following table shows scheduled semiannual debt service on the 2006 Series Bonds. without regard to any optional redemption. See also " PRoJEc r AREA -Debt Service Coverage Projections -Table 7.- 2006 Series13onds Current Interest Bonds Capital Appreciation 13onds Total Pa\ment 1)atc 1998 Series 13onds 2OO1 Series 13onds principal* Interest principal* Interest 1)cbt Service October 1. 2O(6 April 1, 2007 October 1. 2007 April 1, 2008 October 1. 2008 April 1, 2009 October 1. 2009 April 1. 2010 October 1.201O April 1. 201 1 October 1.201 1 April 1. 2012 October 1.2012 April I. 2013 October 1. 201 3 April 1. 2014 October 1. 2014 April I. 201; October 1. 201 5 April 1. 2016 October 1.2016 April I. 2017 October 1.2017 April 1. 2018 October 1. 2018 April 1. 2019 October 1. 2019 April 1. 2020 October 1. 2020 April 1. 2021 October 1.2021 April 1. 2022 October 1.2022 April 1. 2023 October 1. 202 3 April 1. 2024 2006 series Bonds Current Interest Bonds Capital Appreciation 13onds Total Pa\ment Date 1998 Series 13onds 2OO1 Series 13onds principal* Interest principal* Interest 1)ebt Service October 1.2024 April 1. 202 5 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. 20 0 April 1. 2031 October 1. 2O 3 1 April 1. 2032 October 1.2032 April 1. 2033 October 1. 20 3 3 April 1. 2034 October 1.2034 April 1. 2035 October 1. 2O S April 1. 206 October 1. 2036 April 1. 2037 October 1.2037 April 1. 2038 October 1.2038 April 1. 2039 October 1.2039 April 1. 20-4( ) October 1. 20 4O April 1. 2041 - * Preliminan, subject to change. SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Revenues and Loan Agreements The 2006 Series Bonds are secured by a first Tien on and pledge of the Revenues. Nyhich are defined in the 2006 Indenture to include (i) all amounts payable by the Redevelopment Agency as payments or prepayments for the 2006 Loans pursuant to the 2006 Loan Agreement. the 2001 Loan pursuant to the 2001 Loan Agreement and the 1998 Loan pursuant to the 1998 Loan Agreement: (ii) any proceeds of the Parity Bonds originally deposited Nyith the Trustcc and all moneys deposited and held from time to time in the funds and accounts established under the 2006 Indenture: and (iii) income and gains Nyith respect to the investment of amounts on deposit in the funds and accounts established under the 2006 Indenture. other than amounts payable to the United States of America pursuant to the tax covenants contained in the 2006 Indenture. The primary security for the 2006 Series Bonds. therefore. consists of amounts payable by the Redevelopment Agency under the 2006 Loan Agreement. amounts held in the Reserve Fund and amounts held by the Trustee under the 2006 Indenture. The 2006 Loans are secured by a first pledge of and lien on the Tax Revenues on a parity Nyith the pledge of and Tien of the 2001 Loan and the 1998 Loan. as more fillly described under "-Tax Revenues and Subordinate Tax Revenues —Tax Revenues.* The Redevelopment Agency may. pursuant to the terms of the 2006 Loan Agreement. the 2006 Indenture. the 2001 Loan Agreement. the 2001 Indenture. the 1998 Loan Agreement and the 1998 Indenture. issue additional obligations secured by Tax Revenues on a parity Nyith the 2006 Loans. See "-Parity Debt and Subordinate Debt. Tax Revenues and Subordinate Tax Revenues Tax Revenues. The 2006 Series Bonds are and Nvill be equally secured by a first pledge of. security interest in and Tien on all of the Tax Revenues derived by the Redevelopment Agency from the Project Area and moneys held pursuant to the 2006 Indenture. and on a parity with the 2003 Bonds. the 1998 Bonds and any Parity Debt (defined below) at any time issued by the Redevelopment Agency. Except for the Tax Revenues and such moneys. no other fiends 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 Series Bonds. Under the 2006 Indenture. the Redevelopment Agency may incur additional loans. advances or indebtedness issued or incurred by the Redevelopment Agency on a parity with the 2006 Series Bonds. the 2003 Bonds and the 1998 Bonds ("Parity Debt-). which Parity Debt shall be equally secured. on a parity with the 2006 Series Bonds. the 2003 Bonds and the 1998 Bonds. by a pledge of. security interest in and Tien on all of the Tax Revenues. See "-Parity Debt and Subordinate Debt. See also APPENDIX D-"Sl1MMARY c)F CERTAIN PROVISIONS OF THE 2006 INUI:N.11112I:.- "Tax Revenues is defined in the 2006 Loan Agreement to mean monies allocated or paid to the Redevelopment Agency derived from (i) that portion of taxes levied upon taxable property within 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 3607.5 or 33607.7 of the Redevelopment Lary. The Redevelopment Agency's receipt of Tax Revenues with respect to the Project Area is subject to certain limitations (the "Plan Limitations") contained in the Redevelopment Plan on the dollar amount of taxes which 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." 06013 pos-3 I4 Pursuant to the 2006 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 ftlrther covenants not to 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 Series Bonds. unless in the Nvritten opinion of an Independent Redevelopment Consultant (filed Nyith the Trustee.' such reduction Nvill not adversely affect the interests hereunder of or the security granted hereunder to the Bond Owners. The Redevelopment Agency has no power to Ieyy and collect property taxes. and any property tax limitation. legislative measure. voter initiative or provisions of additional sources of income to taxing agencies haying the effect of reducing the property tax rate. could reduce the amount of Tax Revenues that Nvould otherwise be available to pay debt service on the 2006 Series Bonds and. consequently. the principal of. and interest on. the 2006 Series Bonds. Likewise. broadened property tax exemptions or successful assessment appeals could have a similar effect. See "LIMITATIONS A"IIONS ON TAX REVENUES"' and "CERTAIN AIN RISKS 'I O BONI)I I(I,UI:RS " 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 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 AUTHORITY 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 AGREEMENT 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 LOANS ARE PAYABLE SOLELY FROM THE TAX REVENUES (AS DEFINED HEREIN) AS SET FORTH IN THE 2006 LOAN AGREEMENT. NEITHER THE FINANCING AUTHORITY NOR THE REDEVELOPMENT AGENCY HAS TAXING POWER. Tax Allocation Financing The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected Nyithin 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 Nyhich 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 Nvhether the State Legislature will enact other legislation requiring additional or increased future shifts of tax increment revenues to the State and/or to schools. Nvhether through an arrangement similar to the local 06013 pos-3 15 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 I. 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 .-ear-* for purposes of calculating payments. AB I290 payments are paid from revenues resulting from the growth in the new tax base year. ISee APPENDIX A-" RI:PoRT 0I I111: FISCAI, CONSULTANT"' for a detailed discussion of the formulas upon which calculation of the AB I290 payments is based.' Among other amendments to the Law. AB I290 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 I. 2004: (ii) the life of existing redevelopment plans to the later of 40 years from the date of adoption or January I. 2009: (iii) paying indebtedness with tax increment beyond I0 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 I. 1994. The time limits imposed by AB 1290 apply individually to each plan as \yell as to specific territory added by amendments to a redevelopment plan. For a summary of the plan amendments and limitations. see "TI II: PROJECT AREA -Redevelopment Plan Limits -Table I For additional legislation affecting plan limits. see "-.SB 211- and "-.SB 1096." SB 211. Senate Bill 21 I (Chapter 741. Statutes of 200I) ("SB 2I 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`) to 30` ). 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 would have taken effect. Tax sharing will be calculated based on the increase in assessed valuation after the year in which the time limit would 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 would also require a redevelopment agency to begin making statutory tax sharing payments to affected taxing entities. See "-AB 1290." On March I I. 2004. the City Council adopted Ordinance No. 1063 eliminating the time limit to incur debt within the Project Area. Scc "Ti I1: PROJECT AREA -Redevelopment Plan Limits Table I.. for a summary of the plan amendment and limitations. SB 1045. Scnatc 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. (Scc also "CERTAIN 06013 pos-3 I6 RISKS !o BONI)I IoI,I)I:RS-State Budget -fiscal Year 2003-0-1"). In accordance Nvith SB 1045. the Redevelopment Agency transferred $ to the County by the May ID. 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 Nvhich a redevelopment agency may repay debt Nvith 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. 1085 extending by one year the expiration date of the Redevelopment Plan and the time limit to repay debt in the Project Area. See "THE PROJECT AREA - Redevelopment Plan Limits -Table I.- SB 1206 Senate Bill 1206 ("SB I206"). introduced by the Chair of the Senate Committee on Local Government in January 2006. NvouId 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 an bonded indcbtcdncss to be paid Nvith tax increment revenues after the I I th fiscal year in Nvhich such agency receives tax increment revenues unless the redevelopment agency finds that both significant blight remains NVithin the project area and that the blight cannot be eliminated NVithout the issuance of the bonded indcbtcdncss. In its current form. SB 1206 does not contain any effective dates for the application of these provisions. The City is unable to predict Nvhether this legislation be enacted in its current form. or at all. Allocation of Taxes As provided in the Redevelopment Ilan. and pursuant to Article 6 of Chapter 6 of the Redevelopment La'i (commencing with .Section 33670 of the Cal/f/'n/a Health and .Saf l'h' Code) and .S'ection 16 of Article XVI of the .S'1ate Constitution. taxes levied upon taxable property in the Project Area each year by or fur the benefit of the .S'1crte. Riverside ('ounh' (the "County.). the ('ih'. any district or other public corporation (herein collectively referred to as "taxing agencies') for each /'fiscal Year beginning after the 0e'c1ive dales of the ordinance approving the redevelopment plans and any a/ne'nd/ne'nls adding territon' thereto are divided as follows: I. To other taxing, agencies: That portion of the taxes NvouId be produced by the rate upon yhich the tax is levied each year by or for each of said taxing agcncics upon the total sum of the assessed value of the taxable property in the Project Arca as shown upon the assessment roll used in connection Nyith 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 Arca. shall be allocated to. and Nvhen collcctcd shall be paid into the funds of the respective taxing agcncics as taxes by or for said taxing agcncics on all other property are paid: and 2. To the Redo cloumcnt Agency: Except for taxes hich are attributable to a tax rate Ie\y by a taxing agency for the purpose of producing revenues to repay bonded indcbtcdncss approved by the voters of the taxing agency on or after January I. 1989. hich shall be allocated to and hen collcctcd shall be paid to the respective taxing agency and except for statutory pass -through payments. that portion of the Ie\ied taxes each year in excess of the amounts provided for in paragraph ( I ) above. shall be allocated to. and hen collcctcd. 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 indcbtcdncss (whether funded. refunded. assumed. or otherwise) incurred by the Redevelopment Agency to finance or refinance. in whole or in part. projects and programs for the Project Area. When said bonds. loans. advances. and indcbtcdncss. if any. and interest thereon. have been 06013 pos-3 17 paid. all moneys thereafter received from taxes upon the taxable property in the Project Area. 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 $600 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 whole or in part activities in the Project Area beyond the dates for the areas indicated in "Ti II: PROJECT ARIA —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 333 343 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 after the time limit if the indebtedness is not increased and the time during which 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 with 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 Fund Pursuant to the 1998 Loan Agreement. a Reserve Fund was cstablishcd as additional security for the payment by the Redevelopment Agency of amounts due under the Parity Loan Agreements. The Reserve Fund is required to be maintained by the Tnistcc in the amount of the "Reserve Requirement. The Reserve Requirement is defined in the Parity Loan Agreements. as of any date of calculation. as the least of: (i) Maximum Annual Dcbt Service: (ii) 125%) of average annual debt service on the Parity Loans and all outstanding Parity Dcbt: and (iii) 10% of the proceeds of the applicable Parity Loans (i.e. the original Principal Amount of the Parity Bonds) and the proceeds of any Parity Dcbt. The Redevelopment Agency pledges and grants a lien and security interest to the Tnistcc in the Reserve Fund to secure the payment obligations of the Redevelopment Agency under the Parity Loan Agreements. 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 with respect to the amounts due on the applicable series of Parity Bonds. 06013 pos-3 18 Following the issuance of the 2006 Series Bonds. the Reserve Requirement Nyill be } . In connection Nyith the issuance of the 2006 Series Bonds. the Redevelopment Agency NyiII deposit a debt service reserve surety policy in the aggregate amount of $ into the Reserve Fund. \yhich together Nyith the amounts on deposit therein in the amount of $ NyiII equal the Reserve Requirement. Parity Debt and Subordinate Debt Issuance of Parity Debt. In addition to the 2006 Series Bonds. the Redevelopment Agency may. by supplemental indenture. issue or incur other loans. advances or indebtedness payable from Tax Revenues or Subordinate Tax Revenues. on a parity Nyith the 2006 Series Bonds. the 2001 Series Bonds and the 1998 Series Bonds ("Parity Debt) and refunding bonds issued solely to finance and refinance redevelopment activities Nyith respect to the Project Area in such principal amount as shall be determined by the Redevelopment Agency. The Redevelopment Agency covenants in the 2006 Loan Agreement that it will not incur any indebtedness payable from all or any part of the Tax Revenues other than: (i) the Parity Loans: (ii) additional Parity Debt subject to the conditions described below. and (iii) any debt secured by a pledge of Tax Revenues which is subordinate to the pledge of Tax Revenues created by the Parity Loan Agreements. The Redevelopment Agency has further covenanted in the 2006 Loan Agreement that it Nyill 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 with the County or any other governmental unit. which would have the effect of reducing the amount of Tax Revenues available to the Redevelopment Agency for payment of the Parity Loans 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. NyiII meet the coverage test set forth in paragraph (b) below. and (ii) the permission of the Bond Insurer. Pursuant to the 2006 Loan Agreement. the Redevelopment Agency may issue or incur additional 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 Loan Agreement. and the Redevelopment Agency is otherwise in compliance with all covenants set forth in the 2006 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 to 125% of Maximum Annual Debt Service. (c) The related Debt Instrument provides that the balance of the Reserve Fund Nvill be increased to the new Reserve Requirement effective after the incurrence of such Parity Debt. (d) The related Debt Instrument provides that any Parity Debt that bears current interest is payable on April 1 and October 1 of any year: and the principal on such Parity Debt is payable on the same date as principal and interest on the 2006 Loans are payable. (e) The issuance of such Parity Debt Nvill not cause the Redevelopment Agency to exceed any applicable limitations contained in the Redevelopment Plan. 06013 pos-3 I9 (f) The Redevelopment Agency delivers to the Tnistcc a Nvritten certificate certifying that the conditions precedent to the issuance of such Parity Debt set forth in subparagraphs (a) through (c) above have been satisfied. Subordinate Debt. In addition to the Parity Loans and any 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 Tnistcc under the 2006 Indenture 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 Nyhich 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 Indenture 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 infurmcrtion or as to the absence of material ad/verse changes in this informallon subsequent to the elate hereof. The Bond Insurer accepts no responsibility for the accuracy or completeness of this Official S'tcrtement or any other infurmcrtion or disclosure contained herein. or omitted hererom. other than with respect to the accuracy of the infurmcrtion 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'). \yhich 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 \yhich 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 06013 pos-3 20 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 assessors 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 $ I.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 ;; NV110 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 residences 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 which 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 Galley Joint Union Hi,,'h .S'chool District v..S'taie 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 Nvhether there will 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. 06013 pos-3 21 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`)/0 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. -i 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 I3 and that subsequent increases in the assessed value of a property by more than 2`N 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 taxes be deemed receipt of proceeds of taxes by. or any appropriation subject to the limitation of. any other 06013 pos-3 22 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 propertics 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 propertics 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 cnuc 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 rcvcnuc 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 ally 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 bccomcs 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 Tien against the property. but may become a lien on certain other property owned by the taxpayer. 06013 pos-3 23 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 assessce. 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 \yhich 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 Nyhich 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`h 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 constniction. 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 constn►ction 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 (Chapter 466. Statutes of 1990) authorizing counties to charge for the cost of assessing. collecting and 06013 pos-3 24 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 Nvhich 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 County's administrative fee was 1.224iS(Y0 of the gross tax increment revenues from the Project Area or $ 118.954. and for Fiscal Year 2005- 06. the County administrative fee is estimated to be $ 126.380. For purposes of projecting Tax Revenues. the Fiscal Consultant assumes that this administrative fee Nvill remain at 11.22451%. See also APPENDIX A- "RI;IoR! of THE FISCAI. CONSlll; rnN r... 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`) of all tax increment derived from redevelopment project areas established after December 3I. 1976 in a logy- and moderate -income housing fund. Section 33334.2 provides that this logy- and moderate -income housing rcquircmcnt can be reduced or eliminated if a redevelopment agency finds annually by resolution. consistent Nyith the housing clement of the community's general plan. the following: (a) that no nccd exists in the community to improve. increase. or preserve the supply of logy- and moderate -income housing. including its share of the regional housing nccds of very logy income households and persons and families of logy or moderate income: (b) that some stated percentage Icss than 20`) of the tax incrcmcnt is sufficient to meet the housing nccds of the community. including its share of the regional housing nccds of persons and families of logy or moderate income and very logy income households: or (c) that the community is making substantial efforts. consisting of direct financial contributions of fiends from state. local and federal sources for logy- and moderate -income housing of equivalent impact. to meet its existing and projected housing nccds (including its share of regional housing nccds). The Redevelopment Agency currently deposits the 20`) of gross tax incrcmcnt revenues in its Low and Moderate Income Housing Fund. Such funds are not Tax Revenues and are not plcdgcd to the repayment of the 2006 Series Bonds. Pursuant to the Redevelopment Law. housing set -aside funds may be plcdgcd to the repayment of bonds only to the extent procccds of such bonds are used (or are used to refund bonds. the procccds of which \ycrc used) to finance logy and moderate income housing purposes. See "SI:011211'Y AND SOl1RCI:S c)F PAYMI:N I 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 logy and moderate income housing rcquircmcnt. A community can claim that no nccd exists. or can claim that Icss than 20`) of tax incrcmcnt revenue is sufficient. only if that claim is consistent with the housing clement 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 \ycrc entered into with the understanding that the "equivalent effort- exemption would remain intact. The Redevelopment Agency has made no such findings. Certification of Redevelopment Agency Indebtedness Under the Redevelopment Lary. 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 incrcmcnt 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 specifics. among other things: (i) the total amount of principal and interest payable on all loans. advances or indebtedness (the "Debt). both oycr the life of the Dcbt and for the current fiscal year. and (ii) the amount of "available revenue as ofthc end ofthc previous fiscal year. "ANailablc revenue is calculated by subtracting the total payments on Dcbt during the previous fiscal year from the total revenues (both tax incrcmcnt 06013 pos-3 25 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. Tax Sharing Agreements and 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 Recreation and Park District. the Coachella Valley Resource Conservation Center. the Coachella Valley Water District and the Riverside County Superintendent of Schools District to pay tax increment revenues to 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-" Rl;I oR"I ° I1 II: FISCAI, CONSI II; I AN I .- Statutory fax Sharing Payments. The Redevelopment Plan for the Project Area was amended March I I. 2004 and therefore is subject to the statutory tax -sharing payments mandated in the Redevelopment Law. as amended by AB 1290. requiring that a portion of the tax increment revenues be shared with taxing entities. See also "SI:CiJRI IY ANI) SoIIRCI;s oF PAYMENT FOR 'II IF: BONDS - 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 tali -sharing payments. This defined tax sharing amount has three Tiers. Tier 1: Commences with the first year that the Project Area receive tax increment revenue and continues for the life of the Project Area. The Tier I tax -sharing amount is equal to 2i`%0 of the gross tax increment revenue allocated from the Project Area net of the Housing Set -Aside Requirement. The City may chose to forgo its share of this tier of tax -sharing payments. Tier 2: Commences in the I Ith year after the Redevelopment Agency first receives tax increment revenue (i.e. Fiscal Year 2024-25). and is in an amount equal to 2I %) 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 receic any portion of the Tier 2 tax -sharing payments. 06013 pos-3 26 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 far Sharing Payments. On March II. 2004. the City Council adopted Ordinance No. 1063 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 -.SR 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 2014-15. 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. 06013 pos-3 27 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 are 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 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 06013 pos-3 28 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 vhen 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 velI 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. Powers All powers of the Redevelopment Agency are vested in its five -member Board. They are charged with the responsibility of eliminating blight through the process of redevelopment. Generally. this process culminates when 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. 06013 pos-3 29 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 «ithin a project area for redevelopment by others in strict conformity Nyith the redevelopment plan. and may specify a period «ithin which such redevelopment must begin and be completed. In accordance Nyith 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 fiinds 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 full-time City employees. including employees of the Redevelopment Agency. are eligible to participate in retirement benefit plans through a contract «ith 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. PERS maintains two pension plans for the City. a Safety Plan (the "Safety Plan") and a Miscellaneous Plan (the "Miscellaneous Plane and. together Nyith 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 CaIPERS. Lincoln Plaza. 400 P Street. Sacramento. California 95814. telephone: 888-225-7 377. 06013 pos-3 30 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: 760-346-061 I or may be obtained electronically from the City_ 's website 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 1. 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 2.260 acres. comprising zoned for residential. office. commercial. industrial. public and open space uses. The Project Area is generally bounded by Eldorado Drive to the west. running southward to the boundary of the City of Indian Wells. then eastward to the corner boundary between the county line and the City_ of Indian Wells. The western boundary follows this line southward to Fred Waring Drive. which is also the southern boundary of the City limits. The eastern boundary is Washington Street and the northern boundary is Country Club Drive. For a map of the Project Area see page vi. For certain information regarding the City. see APPENDIX C—"GI:NI:RAI, INFORMATION ION CONCERNING I111: CITY OF PAI,M DI:SI:R I :* Redevelopment Plan Limits The Redevelopment Plan for Project Area No. 4 was adopted by the City on July 19. 1993. The Project Area includes approximately 2.260 acres of residential. office. commercial. industrial. public and open space uses. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06013 pos-3 31 Table 2 summarizes the Redevelopment Plan Limits for the Project Area. Table 2 Palm Desert Redevelopment Agency Project Area No. 4 Summary of Redevelopment Plan Limit Amendments Area Plan Limit Termination RCN cnuc Limits Size Base Debt Plan Debt Total Tax Amount (acres) Year Incurrence Expiration Repayment Increment Received''' 2.260 1992-93 None' 7/ 19/ 34 7/ 19/44 $600.000.000 $49.822.890 Limitation on Outstanding Bonded Debt: } 100 million (I) Represents gross tax increment revenues received as (Whine 30, 2005. (2) The limit previous] established as Jul 19. 2013. \\as eliminated h\ the adoption of (hdinance 1063 on March 11. 2004. 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 Nyith all applicable State and local laws in effect. including Nyithout limitation. building. electrical. heating and ventilating. housing and plumbing codes of the City. The information in Table 3 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 Nyith parcels that are already accounted for in other categories. Table 3 Palm Desert Redevelopment Agency Project Area No. 4 Land Uses by Category 2005-06 Assessed Value Land Use Number of Parcels Amount Percent Residential 5.772 $ I.557.6I9.4I 1 94.50` ) Recreational 86 43.878.053 2.66 Vacant Land 386 22.912.488 1.39 Industrial 1 12.235.614 0.74 Professional/Office 2 4.522.535 0.27 Commercial 5 4.460.421 0.27 Unknown 5 2.678.878 0.16 Institutional 10 — — To! AI. 6.267 $1.648.307.400 I00.00% Source: Metro Scan TRW based upon information from the Cowih Assessor. 06013 pos-3 32 Summary of Development Redevelopment Agency Projects. The primary objective of the Redevelopment Plan is to correct infrastructure and traffic circulation def►ciencics and promote the rehabilitation of property within the Project Area through the construction of certain public. recreational and open space improvements. To date the Redevelopment Agency has completed the following projects within the Project Area: construction and installation of certain sever and storm drain improvements: the undcrgrounding of certain utilities: the construction. improvement and rehabilitation of approximately miles of streets: the construction and installation of traffic signal improvements: and finding of a portion of the Interstate 10 interchange improvements. The Redevelopment Agency expects to use proceeds from the 2006 Series Bonds to extend the soundwall on Fred Waring Drive. and underground neighborhood and arterial utilities. Private Development. In addition to the projects directly sponsored by the Redevelopment Agency and described above. the following private projects are in various stages of development within the Project Area including: Palm Desert Country Club. This development consists of the construction of approximately 136 single family residential homes on approximately acres within the Palm Desert Country Club. Construction is expected co commence in and be completed in Nvinter 2007. Freedom Community Park. This - acre park will be located on and is a [joint development with 1. Construction commenced and is expected to be completed in Wendy's Restaurant. Construction of this casual dining restaurant to be located on is expected to commence in and be completed in Nvinter 2006. Principal Taxpayers The top 10 taxpayers within the Project Arca for Fiscal Year 2005-06 own property with an aggregate value of $ 114.817.866. representing 7.07% of the assessed value and represents `%% of the total incremental value of the Project Area. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06013 pos-3 33 Table 4 lists the principal taxpayers and primary land uses in the Project Area based on the Fiscal Year 2005-06 assessed valuation. Owner Indian Ridge Country Club Inc. Ashford Park Holdings Cherokee Investments Palm Desert SPE Desert Breezes Associates PD Villas on the Green Redevelopment Agency Palm Desert Resort County Club Corp Toscana LP Dahoon Investment Co. Inc. St uior.0 ToP TEN Other Property Owners T(rI.u, Table 4 Palm Desert Redevelopment Agency Project Area No. 4 Principal Taxpayers(1) Fiscal Year 2005-06 No. of Parcels 37 1 2 4 22 3 26 22 119 6.148 6.267 Primary Land Use Golf Course Apartments Commercial Apartments Residential Properties Apartments Apartments/Vacant Vacant Miscellaneous Structures/Clubhouse Commercial/Golf Course Various (1) Includes secured value ($1.6I 1.773.032) and unsecured value ($ I I,883,784). (2) Does not reflect homeowners exemption. Source: ('minty. lssessor's Office 2005-06 Equalized Load Assessment Rol!. Tax Rates 2005-06 % of Assessed 2005-06 Value',' Total Roll $28.582.223 1.76% 27.237.883 1.68 12.240.000 0.75 11.573.238 0.71 7.676.8(17 0.47 7.471.000 0.46 5.856.891 0.36 5.679.683 0.35 5.398.033 0.33 4.346.9(18 0.28 $1 16.279.324 7.07 1.5(17.377.492 92.82 $1.62 3.656.816 100.00% Within the State tax rates vary from area to area. as yyelI as within 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 which the parcel is located. The tax rate applied to incremental taxable values consist of two components: (i) the general levy rate which may not exceed $1.00 per $ 100 of taxable values in accordance with 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 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. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06013 pos-3 34 The Project Arca contains a total of 15 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 5 below: Table 5 Palm Desert Redevelopment Agency Project Area No. 4 Breakdown of Tax Rate Fiscal Year 2005-06 General Purpose Le\y Rate County General Fund 0.2 I92 I `%% County Library 0.02830 County Fire 0.06092 City of Palm Dcscrt 0.08657 Dcscrt Sands Unified School 0.37571 Dcscrt Community College 0.07807 County Superintendent of Schools 0.04247 Riverside County Regional Park and Open Space 0.00442 Coachella Valley Public Cemetery 0.00353 Coachella Valley Mosquito Abatement 0.01421 Coachella Valley Recreation and Park 0.02149 Coachella Valley Water District 0.00036 Coachella Valley Water District I -Debt Service 0.00003 Coachella Valley Resource Center 0.02879 Coachella Valley Water District Storm Water Unit 0.03593 TO ! AI, 1.00000% 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. 06013 pos-3 35 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 \yith the Project Area have been paid. the tax revenues \gill be paid to and retained by the respective taxing agencies in the normal manner. See also "CERTAIN RISKS I O BONDHOLDERS —Reduction in Taxable Values. Table 6 presents the aggregate taxable value of all property \yithin the Project Area and the tax increment revenues received for Fiscal Years ended June 30. 2002 through June 30. 2006 (Projected). Assessed Value' I Local Sccurcd Utilih (SBE) Unsecured TO1.\I. ASsl:ssl:D V.\IA I: Base Year Value Incremental Value Tax Rate Estimated Revenue Tax Increment Revenue Unitas Utilih Rcycnuc Counh Administration Charge Toi.\I. Es 'I 1\1.\'I ED RI: \'HNI Actual Receipts Sccurcd and Unitary Utility Supplemental Payments County Administration Charge Tutu. Acri .\1, Ri:ci:iv s Table 6 Palm Desert Redevelopment Agency Project Area No. 4 Historical and Current Revenues 2001-02 $1.197.7 30.257 0 10.002.105 $1.207.7 32.362 $587.192.218 620.540.140 1.00% $6.205.401 1.930 (99.981) $6.107.351 $6.207.332 854.021 (99.981) $6.961.3 72 2002-03 2003-04 $1. 306. 31 3.080 0 8.401.416 $ I.3 14.714.496 $587.192.218 727.522.278 1.00% $7.275.223 1.952 (109.024) $7.168.151 $7.280.946 411.994 (109.024) $7.583.916 $1.387.0 34.821 0 4.61 1.528 $1. 391.646. 349 $587.192.218 804.454.131 1.00% $8.044.541 3.641 (115.583) $7.932.599 $8.044.541 318.307 (115.583) $8.247.266 2004-05 2005-06'2 $ I.482.254.586 $ I.607.187.667 0 0 6.683.359 1 1.88 3.784 $ I.488.9 37.945 $1.619.071.451 $587.192.218 $587.192.218 901.745.727 1.031.879.233 1.00% 1.00% (I) Secured values include homeo\\1 er exemption value. (2) Assessed Values are based on actual data. all remaining intimnation is projected. Sources: J?irerside('many Officeo/du' ludito,-('onfroNrrand ('itrofPalm Desert Finance Department. $9.017.457 2.036 (118.954) $8.900.539 $9.019.49 3 694.864 (118.954) $9.595.403 (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) $ I0.318.792 2.036 (126.380) $10.194.448 06013 pos-3 36 Table 7 summarizes the projected Tax Revenues received by the Project Area based on fiscal years ending June 30. 2007. through June 30. 200_. To date. the County has paid to the Redevelopment Agency the frill amount of Tax Revenues expected to be received by the Redevelopment Agency. Nyithout regard to delinquencies in tax collection. See "-Tax Levies. Collections and Delinquencies."' Table 7 Palm Desert Redevelopment Agency Project Area No. 4 Projection of Incremental Taxable Value and Tax Increment Revenue Taxable Values Secured Unsecured Total Value Base Year Value Taxable Value over Base Gross Tax Increment Revenue Unitary Tax Rcycnuc Gross Revenues Less: SB 2557 Admin. Fcc Housing Set Aside Requirement Statutory Tax Sharing Payments Tax Revenues t Assessed values are based on actual data. all remaining intimnation is projected. Sources: Ringside ( 'mum' Office qf the . l uditor-('o,,t, olh'r cued Rosenow .Speracek (iron') Inc. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06013 pos-3 37 Debt Service Coverage Projections The following Table 8 shows schcdulcd debt service on the 2006 Series Bonds. without regard to am optional redemption and estimated coverage. See "D►;in S►:Rv►c►: Sc►►► DiJI.:" for the scheduled semiannual debt service on the 2006 Series Bonds. Table 8 Palm Desert Redevelopment Agency Project Area No. 4 Debt Service Coverage Projections ($ in 000's) Fiscal Year Ending Projected Net I998 2003 2006 June 30 Tax Revenues''' Series Bonds Series Bonds Series Bonds Total Estimated Debt Service Coverate'' Projected Net Tax Revenues is net of the I lousing Set -Aside. Pass-1'hrough Pamenls and Count administrative tees. which administrative tees are projected to equal 1.2245% of annual Gross "Ias Revenues. 'Ibis table assumes that propert\ values in the Project Area will increase based upon new development within the Project Area. See "Ilu. I'ROn'.(•I /RI..\—Sununan of 1)cvelopmenl" and 14 inflation at the rate o1.2%annual] . '' Calculated as Projected Net 'Fax Revenues divided b\ total 2006 Series Bonds 1)ebt Service. '' Calculated as Projected Net Tax Revenues less total 20(6 Series Bonds 1)ebt Sen'icc divided b\ total Subordinate Capital Appreciation Bonds 1)ebt Sen'icc. Source: /?ose'now Speracek (iron') Inc. 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 xvith 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 \Vhich 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 NVithdra'sVn 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 November 2005 there have been 75 assessment appeals filed NVithin the Project Area. Of the appeals filed. one resulted in a reduction in value. 62 \Vere NVithdrawn and 12 are pending. The pending appeals have a combined assessed value of $ 3.07 3.95 3.596 under appeal and include assessment appeals of value for Fiscal Years 2004-05 and 2005-06. Of the ten principal taxpayers in the Project Area shown in Table 3. two Palm Desert SPE ("Palm Desert) and PD Villas on the Green ("PD Villas) had appeals outstanding and unresolved with the County Assessor as of January 2006. Palm Desert owns four parcels in the Project Area and is seeking an adjustment of $5.57 3.2 38 (representing a 48.2`%% reduction request) to the Fiscal Year 2004-05 Value. PD Villas owns one parcel in the Project Area and is seeking a reduction of the assessed values of 1.971.000 (representing a 26.4% reduction request) to the Fiscal Year 2004-05 Value. Table 9 summarizes the appeals filed in the Project Area since Fiscal Year 200I -02. Table 9 Palm Desert Redevelopment Agency Project Area No. 4 Assessment Appeals Fiscal Years 2000-01 through 2005-06 Pending Appeals Actutrl Actutrl Reduction Total Withdramil Appeals Total Reduction Reduction Pending ` o of # of No Adjusted/ Secured Total in `%o of total Reduction Total Roll Appeals Appearance/ Reduced/ Appeals Assessed Requested Assessed Asscssxd in Assessed Assessed Year Filed Late File Stipulated Pending Value Reduction Value Value Value Value 2005-06 7 () () 7 $1.607,782,216 $7.576,970 $0 0.00000% $7.576,970 0.47% 200-I-05 IO i () i 1,466,171.386 I3,802.554 () ()MOM 18,705,00-4 1.28 2003-04 38 37 1 () 1.371,002,021 2.059,989 79,000 0.00576 O (UM 2002-03 7 7 () () 1.291.151,080 631.656 () O.00000 0 (UM 200I-1)2 13 13 () () 1.183.125,457 1,650,094 () O.00000 0 (UM IHI.\I. 75 62 1 12 $6.919.232.I6O $25.721.263 $79,000 0.00576% $26,281,974 1.75% Sources: Ringside ('ounrt Office the . ludinn-('oniroller (Ind Kosriunr.Speracek (iron') Inc. 06013 pos-3 39 Table 10 lists the principal taxpayers (see Table 4 above) \yho have filed such appeals. the assessed value. the reduction requested and the status of the appeal. Table 10 Palm Desert Redevelopment Agency Project Area No. 4 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 Palm Desert SPE 2005 4 $6.000.000 $ 11.57 3.2 38 7 3.2 38 48.2% PD Villas on the Green 2005 I 5.500.000 I.97I.000 I.97I.000 26.4 SuuT(n AI. 5 11.500.000 $19.044.2 38 $7.544.2 38 39.6`%, All Others Various 7 8.640.243 13.12 3.029 4.482.786 34.2 T(n AI. 12 $20. I40.243 $ 32. 167.267 $ I2.027.024 37.4`%, Sources: Kirerside('ouu;tvOfficeo/the .luduo,-('amollerand J?osenow.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 Rcycnuc 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 Nyithout 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 Nyith 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 "LIMIIAIIoNs ON TAX RI:vI:NUI:S—Property Tax Collection Procedures."' 06013 pos-3 40 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. 06013 pos-3 4 I 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 was 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 filrther 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 refund 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 Series Bonds. Reduction in Inflation Rate As described in greater detail above. Article XIII A of the California Constitution provides that the full 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 06013 pos-3 42 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 " LIMA A I1ONs ON TAX RI:VI:NI JI:S—Article XI II 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 fixture 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 COINSF], 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 would 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 frill. 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 I0 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 2004-05 and 2005-06 fiscal Year Budgets and the 2006-07 Governor's Budget has been obtained from publicly available information on the .S'tate Department of Finance. the .S'tate Treasurer and the California Legislative Analyst Office u•ebsites. The estimates and projections provided below are based upon various assumptions as updated in the 2006-07 Governor's Budget. 11'hiCh'nal' he aff c1ed by numerous liwtors. including litture economic conditions in the .S'lclle and the nation. and there Can he no assurance 1ha1 the esll//lales will he achieved For liwther information and discussion of.fiwtors Underlying the.S'la1e s projections. see the aforementioned U'L'bsi1L's. the Redevelopment Agency believes such information to he reliable. however. the Redevelopment Agency takes no responsibility as to the accuracy or completeness thereof and has not independently verified such info/'oration. 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 fiends from redevelopment agencies to school districts by shifting a portion of each redevelopment 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 Year 2002-03. the aggregate amount transferred by redevelopment agencies into ERAF was $1.3 billion. was $250 million for 06013 pos-3 43 Fiscal Year 2004-05 and $250 million for Fiscal Year 2005-06. Based on the tax increment revenues shown in of the State Controllers Annual Report as being retained by the Redevelopment Agency. the Redevelopment Agency was required to pay } into ERAF in Fiscal Year 2003-04 of \Vhich was attributable for the Project Area. $ 3.887.133 in Fiscal Year 2004-05 of wIhich 1 117.698 was attributable for the Project Area. and $ 3.995.04 I in Fiscal Year 2005-06 of which $560.859 is attributable for the Project Area. Fiscal Year 2004-05. The 2004-05 Budget Act (the "State 2004 Budget Act") was adopted by the Legislature 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 \were projected to increase 3.6%. from $74.6 billion in Fiscal Year 2003-04 (including approximately $2.3 billion in tobacco securitization bond proceeds) to $77.3 billion in Fiscal Year 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 \were estimated to increase by 6.7%. from $75.6 billion in Fiscal Year 2003-04 to $80.7 billion in Fiscal Year 2004-05. The June 30. 2005 reserve was projected to be $768 million. compared to an estimated June 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 reduced from 2% to 0.65% 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 agencies \were again required to make transfers to the applicable ERAF in the aggregate amount of $250 million as implemented by SB I096. The transfers required under SB I096 to the ERAF \were subordinate to payments on bonds secured by tax increment revenues. For a more detailed description of SB 1096. see " SI:CIIRI IY ANI) S)IJRCI:S OF PAYMENT 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 reduced by $700 million. In future years. local governments would receive the frill value of the VLF revenue that they would have received under current law. Also for these two Fiscal Years. Proposition I A would require redevelopment agencies 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 detailed description of Proposition I A. see " CONSITI I J ! IoNAI, ANI) SI A I11"I ORY LIMITATIONS ON TAXES. RI:VI:NI II:S ANI) APPROPRIATIONS -Proposition I A.- Fiscal Year 2005-06. The 2005-06 Budget Act (the "State 2005 Budget Act") was adopted by the Legislature 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 General 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 Year 2006-07 in August 2005. 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 06013 pos-3 44 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`Yo. 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`%0 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 finding 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 future 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 Ha7zrd 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 located within a NSFHA. severe. concentrated rainfall could result in localized flooding and river overflows. The City can make no representation that future maps will not be revised to include the City within 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 06013 pos-3 45 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. infrastn►cture and other property Nvithin 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 effect 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 Nvithin 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 Nvith 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 «ith the applicable requirements of the Internal Revenue 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 will remain outstanding until maturity or prior redemption in accordance Nvith 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 Revenue 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 was undertaken that it \youId not adversely affect the market value of the 2006 Series Bonds. See "TAX MATTERS:* The Redevelopment Agency has not been contacted by the IRS regarding the examination of any of its bond transactions. 06013 pos-3 46 Secondary Market There can be no guarantee that there NyiII 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 NyiII depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. TAX MATTERS In the opinion of Richards. Watson & 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 NyiII 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 NyiII 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 otherwise 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. 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 06013 pos-3 47 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. Nvithin each semiannual period. Nvill 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 Nvith 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 accrued original issue discount on such bonds under federal individual and corporate alterative minimum taxes. If the 2006 Series Bonds were 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 owner's gain or loss on the sale. redemption (including redemption at maturity) or other disposition of a 2006 Series Bond. the owner's 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 Nvill 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 Nvith 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 ftirther 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 Counsel's final approving opinion Nvith respect to the 2006 Series Bonds is attached hereto as APPENDIX E. 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 K. Gershon. A Professional Corporation Los Angeles. California. Bond Counsel. A cope of the proposed form of Bond Counsel's opinion is contained in APPI:NDIx E to this Official Statement. and the final opinion Nvill be made available to the owners of the 2006 Series Bonds at the time of delivery of the 2006 Series Bonds. Certain legal matters Nvill be passed upon for the Redevelopment Agency by . and by Lofton & Jennings. San Francisco. California. Disclosure Counsel. 06013 pos-3 48 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 Counsels 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 NViII 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 Indenture 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 Series Bonds. the pledge of Subordinate Revenues to the payment of the Subordinate Capital Appreciation Bonds. the pledge of Tax Revenues to the payment of the 2006 Loans 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 will 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. 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 July _. 2006. by and among the Redevelopment Agency. the Trustcc. and MuniFinancial Inc.. as Dissemination Agent for the benefit of the holders and beneficial owners of the 2006 Series Bonds to provide 06013 pos-3 49 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 NViII 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 01: CONTINUING DISCLOSURI: AGRI:I:MI:N I .- 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. VERIFICATION OF MATHEMATICAL COMPUTATIONS Upon delivery of the 2006 Series Bonds. (the "Verification Agent"). NViII deliver a report stating that it has reviewed and confirmed the mathematical accuracy of certain computations relating to the adequacy of the funds and/or securities deposited in the Escrow Securities and the interest thereon. if any. to pay. when due. the redemption price and interest on the Prior Bonds on the specified payment or redemption date thereof. UNDERWRITING Pursuant to the terms of a Bond Purchase Agreement dated . 2006 (the "Purchase Agreement"). among the Financing Authority. the Redevelopment Agency and Wedbush Morgan Securities Inc. (the "Underwriter). 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 Underwriter'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 less an Underwriter's discount in the amount of $ ). 06013 pos-3 50 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 «iII be issued by the Bond Insurer. See " BoNU INSURANCE"' and APPENDIX H-" SPI:CIMI:N 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 «iII continue for anv given period of time or that they «iII not be reduced or withdrawn entirely by S&P or Fitch. if in their individual judgment circumstances so «arrant. The Redevelopment Agency has not undertaken anv responsibility to oppose anv such proposed revision or withdrawal. Any such revision or withdrawal of a 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 «ith respect to any event subsequent to the date of its report. 06013 pos-3 51 MISCELLANEOUS All of the preceding summaries of the 2006 Series Bonds. the 2006 Indenture. 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. Nyhether 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' 06013 pos-3 52 APPENDIX A REPORT OF THE FISCAL CONSULTANT 06013 pos-3 A- I APPENDIX B REDEVELOPMENT AGENCY AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2005 06013 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 06013 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: ( Mier! States Department o/Y 'onuru', c e, Bureau qf the ('c',,sus for 2000 and .Stale o/Y 'ali/imria Department qf l'inanc e .farrrmairrirr� mars. 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. 06013 pos-3 C-2 Table C-4 table represents the labor patterns in the City. the County. the State. and the United States from 2001 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 Unemplomeat Year and Area Labor Force EmDloyment Unemployment Rate 2001 City 20.000 19.400 600 3.1 `%0 County 711.200 672.500 38.700 5.4 State 17.150.100 16.217.500 932.600 5.4 United States 141.815.000 135.073.000 6.742.000 4.8 2002 City 21.100 20.300 800 3.6 County 749.800 702.300 47.500 6.3 State 17.326.900 16.165.100 1.161.800 6.7 United States 144.863.000 136.485.000 8.378.000 5.8 2003 City 21.900 21.100 800 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 146.510.000 137.736.000 8.774.000 6.0 2004 City 22.800 22.100 700 3.3 County 812.000 764.900 47.100 5.8 State 17.552.300 16.459.900 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 17.695.600 16.746.900 948.700 5.4 United States 149.321.000 141.730.000 7.591.000 5.1 Sources: ('ali/hniia .Stair Emplotnu'nt Development l )c parmu'nt and 11.S. J) parmu'nt of 1 abor. /3m•rau of Labor. Statistics. 06013 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. 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 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 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. 06013 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, OU11.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: ('onstr a tion /iithusnv Researcl, l3ow d, Budding Perini, Su,vev. 06013 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 nonbusiness 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) 06013 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 Buy!) 1g 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. 06013 pos-3 C-7 Transportation Inter -City transportation is provided by Greyhound Bus Nvhich provides service from its connection points in the City to its Tines 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. I0 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. Nvith 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 ofart 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 Willowy 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. 06013 pos-3 C-8 APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE 2006 INDENTURE 06013 pos-3 D- I APPENDIX E PROPOSED FORM OF BOND COUNSEL OPINION 06013 pos-3 E-I APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT 06013 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 fiilly-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 06013 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 06013 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. 06013 pos-3 G-3 APPENDIX H SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY 06013 pos-3 H- I APPENDIX J TABLE OF ACCRETED VALUES 06013 pos-3