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HomeMy WebLinkAbout2006-06-08 FA Regular Meeting AgendaPOSTED AGENDA PALM DESERT FINANCING AUTHORITY MEETING THURSDAY, JUNE 08, 2006 CIVIC CENTER COUNCIL CHAMBERS I. CALL TO ORDER II. ROLL CALL III. CONSENT CALENDAR ALL MATTERS LISTED ON THE CONSENT CALENDAR ARE CONSIDERED TO BE ROUTINE AND WILL BE ENACTED BY ONE ROLL CALL VOTE. THERE WILL BE NO SEPARATE DISCUSSION OF THESE ITEMS UNLESS MEMBERS OF THE CITY COUNCIL OR AUDIENCE REQUEST SPECIFIC ITEMS BE REMOVED FROM THE CONSENT CALENDAR FOR SEPARATE DISCUSSION AND ACTION UNDER SECTION XI, CONSENT ITEMS HELD OVER, OF THE AGENDA. A. MINUTES of the Financing Authority Meeting of April 27, 2006. Rec: Approve as presented. IV. CONSENT ITEMS HELD OVER V. RESOLUTIONS VI. NEW BUSINESS VII. CONTINUED BUSINESS VIII. OLD BUSINESS IX. PUBLIC HEARINGS I. REQUEST FOR APPROVAL Rec: 1) Open a public hearing before the City Council, receive public testimony and comment, and after hearing such testimony and comment, close the public hearing and: Waive further reading and adopt the following resolutions relating to Project Area No. 1, As Amended, Bonds: POSTED AGENDA PALM DESERT FINANCING AUTHORITY MEETING JUNE 8, 2006 2) City Council Resolution No. 06-74, supplementing Resolution No. 06-56 and further making a finding of significant public benefit and other findings in connection with the issuance and sale by the Palm Desert Financing Authority of the Authority's Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A (Tax -Exempt), and Tax Allocation Refunding Revenue Bonds (Project Area No. 1, As Amended), 2006 Series B (Taxable). 3) Financing Authority Resolution No. FA-55, acknowledging a finding of significant public benefit and affirming certain matters in connection with the issuance and sale of the Authority's Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A (Tax - Exempt), and Tax Allocation Refunding Revenue Bonds (Project Area No. 1, As Amended), 2006 Series B (Taxable), and approving the issuance, sale, and delivery of such bonds. 4) Agency Resolution No. 527, affirming the Agency's approval of documents and certain other matters relating to the sale and issuance by the Palm Desert Financing Authority of Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A, and Tax Allocation Refunding Revenue Bonds (Project Area No. 1, As Amended), 2006 Series B (Taxable). Action: II. REQUEST FOR APPROVAL Rec: 1) Open a public hearing before the City Council, receive public testimony and comment, and after hearing such testimony and comment, close the public hearing and: Waive further reading and adopt the following resolutions relating to Project Area No. 2 Bonds. 2) City Council Resolution No. 06-75, making a finding of significant public benefit and other findings in connection with the issuance and sale by the Palm Desert Financing Authority of the Authority's Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series B, Tax Allocation Revenue Bonds (Project Area No. 2), 2006 Series C, and Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series D. 2 POSTED AGENDA PALM DESERT FINANCING AUTHORITY MEETING JUNE 8, 2006 3) Financing Authority Resolution No. FA-56, acknowledging a finding of significant public benefit in connection with the issuance and sale of the Authority's Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series B, Tax Allocation Revenue Bonds (Project Area No. 2), 2006 Series C, and Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series D, and approving the issuance, sale, and delivery of such bonds and authorizing certain other matters relating thereto. 4) Agency Resolution No. 528, approving certain documents in connection with the sale and issuance by the Palm Desert Financing Authority of Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series B, Tax Allocation Revenue Bonds (Project Area No. 2), 2006 Series C, and Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series D, and authorizing certain other related matters. Action: III. REQUEST FOR APPROVAL Rec: 1) Open a public hearing before the City Council, receive public testimony and comment, and after hearing such testimony and comment, close the public hearing and: Waive further reading and adopt the following resolutions relating to Project Area No. 3 Bonds: 2) City Council Resolution No. 06-76, making a finding of significant public benefit and other findings in connection with the issuance and sale by the Palm Desert Financing Authority of the Authority's Tax Allocation Revenue Bonds (Project Area No. 3), 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series B, and Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C. 3) Financing Authority Resolution No. FA-57, acknowledging a finding of significant public benefit in connection with the issuance and sale of the Authority's Tax Allocation Revenue Bonds (Project Area No. 3), 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds 3 POSTED AGENDA PALM DESERT FINANCING AUTHORITY MEETING JUNE 8, 2006 (Project Area No. 3), 2006 Series B, and Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series C, and approving the issuance, sale, and delivery of such bonds and authorizing certain other matters relating thereto. 4) Agency Resolution No. 529, approving certain documents in connection with the sale and issuance by the Palm Desert Financing Authority of Tax Allocation Revenue Bonds (Project Area No. 3), 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series B, and Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series C, and Authorizing Certain other related matters. Action: IV. REQUEST FOR APPROVAL Rec: 1) Open a public hearing before the City Council, receive public testimony and comment, and after hearing such testimony and comment, close the public hearing and: Waive further reading and adopt the following resolutions relating to Project Area No. 4 Bonds: 2) City Council Resolution No. 06-77 , making a finding of significant public benefit and other findings in connection with the issuance and sale by the Palm Desert Financing Authority 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. 3) Financing Authority Resolution No. FA-58, acknowledging a finding of significant public benefit in connection with the issuance and sale 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 4 POSTED AGENDA PALM DESERT FINANCING AUTHORITY MEETING JUNE 8, 2006 approving the issuance, sale, and delivery of such bonds and authorizing certain other matters relating thereto. 4) Agency Resolution No. 530, approving 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, Tax Allocation Revenue Bonds (Project Area No. 2), and authorizing certain other related matters. Action: X. REPORTS, REMARKS, AND AGENCY BOARD ITEMS REQUIRING ACTION A. EXECUTIVE DIRECTOR B. AUTHORITY COUNSEL C. CHAIRMAN AND MEMBERS OF THE AUTHORITY XI. ADJOURNMENT 5 POSTED AGENDA PALM DESERT FINANCING AUTHORITY MEETING JUNE 8, 2006 I hereby certify, under penalty of perjury under the laws of the State of California, that the foregoing agenda for the Palm Desert City Council was posted on the City Hall bulletin board not less than 72 hours prior to the meeting. Dated this day of , 2003. RACHELLE D. KLASSEN, CITY CLERK 6 � � � � PRELIMINARY MtNUTES PALM DESERT FINANCING AUTHORITY MEETING THURSDAY, APRIL 27, 2006 CIVIC CENTER COUNCIL CHAMBER i� CALL TO ORDER President Ferguson convened the meeting at 3:01 p.m. Ii, ROLL CALL Present: Commissioner Jean M. Benson Commissioner Buford A. Crites Vice President Richard S. Kelly President Jim Ferguson Excused Absence: Commissioner Robert A. Spiegel Also Present: Carlos L. Ortega, City Manager/RDA Executive Director David J. Erwin, City Attorney Homer Croy, ACM for Development Services Justin McCarthy, ACM for Redevelopment Stephen Y. Aryan, Assistant to the City Manager Rachelle D. Klassen, City Clerk Amir Hamidzadeh, Director of Building & Safety Phil Drell, Director of Community Development Doug Van Gelder, Director of Information Systems Mark D. Greenwood, Director of Public Works David Yrigoyen, Director of Redevelopment & Housing Frankie Riddle, Acting Director of Special Programs J. Luis Espinoza, Assistant Finance Director Craig Kilday, Chief, Palm Desert Police/Riverside Co. Sheriff's Dept. Steve Thetford, Asst. Chief, Palm Desert Police/Riverside Co. Sheriff's Dept. Walt Holloway, Battalion Chief, Palm Desert Fire/Riverside Co. Fire Dept./CDF Grace L. Mendoza, Deputy City Clerk .� With Authority Board concurrence, President Ferguson adjourned the meeting to Closed Session of the City Council and Redevelopment Agency at 3:02 p.m. He reconvened the meeting at 4:01 p.m. PRELIMINARY MINUTES PALM DESERT FINANCING AUTHORITY MEETING APRIL 27, 2006 IlI. CONSENT CALENDAR A. MINUTES of the Financing Authority Meeting of November 10, 2005. Rec: Approve as presented. Upon motion by Kelly, second by Benson, the Consent Calendar was approved as presented by a 4-0 vote, with Commissioner Spiegel ABSENT. IV. CONSENT ITEMS HELD OVER None V. RESOLUTIONS None VI. NEW BUSINESS With Agency Board/Authority Board/City Counci! concurrence, New Business Items A and B were considered jointiywith Financing Authority Public Hearing Items A and B, Redevelopment Agency New Business ltems D and E, and City Council Public Hearing Items A and B. A. REQUEST FOR APPROVAL OF ACTIONS RELATED TO THE SALE AND ISSUANCE OF TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES A(TAX-EXEMPT), AND TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES B(TAXABLE), OF THE PALM DESERT FINANCING AUTHORITY (JOINT CONSIDERATION WlTH THE PALM DESERT REDEVELOPIVIENT AGENCY). Considered jointly with New Business Item B below, along with Public Hearings A and B below, Redevelopment Agency New Business Items D and E, and City Councit Public Hearing Items A and B. MayorlChairman/President Ferguson declared the public hearings o�en and asked anyone who wished to come forward to speak on the subject to do so at this time. With no testimony offered, he declared the public hearings closed. Director of Redevelopment/Housing Dave Yrigoyen introduced Fiscal Consultant Ken Dieker and Bond Counsel Teresa Ho-Urano, who had done a lot of work on this project. 2 PRELIMINARY MINUTES PALM DESERT FINANCING AUTHORITY MEETING APRIL 27, 2006 Vice ChairmanNice President Keliy moved to waive further reading and adopt: 1} Redevelopment Agency Resolution No. 524, approving as to form and authorizing the execution and delivery of certain documents in connection with the sale and issuance of Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A, and Tax Allocation Refunding Revenue Bonds (Project Area No. 1, As Amended), 2006 Series B, of the Palm Desert Financing Authority and authorizing certain other matters relating thereto; 2) Financing Authority Resolution No. FA-51, approving as to form and authorizing the execution and delivery of certain documents in connection with the issuance, sale, and delivery of the Authority's Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A, and Tax Allocation Refunding Revenue Bonds (Project Area No. 9, As Amended), 2006 Series B, appointing a trustee and escrow agent; and authorizing certain other matters relating thereto. Mofiion was seconded by Benson and carried by a 4-0 vote, with Member/Commissioner Spiegel ABSENT. With Agency Board/Authority Board/City Council concurrence, New Business ltems A and B were considered jointlywith Financing Authority Public Hearing Items A and B, Redevelopment Agency New Business Items D and E, and City Council Public Hearing Items A and B. B. REQUEST FOR APPROVAL OF ACTIONS RELATED TO THE SALE AND ISSUANCE OF SUBORDINATE TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 2), 2006 SERIES A, AND SUBORDlNATE TAXALLOCATION REVENUE CAPITALAPPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES B, OF THE PALM DESERT FINANCING AUTHORITY (JO1NT CONSIDERATION WITH THE PALM DESERT REDEVELOPMENT AGENCY). Considered jointly with New Business ttem A above, along with Public Hearings A and B below, Redevelopment Agency New Business ltems D and E, and City Council Public Hearing Items A and B. Mayor/Chairman/President Ferguson declared the public hearings open and asked anyone who wished to come forward to speak on the subject to do so at this time. With no testimony offered, he declared the public hearings closed. Director of Redevelopment/Housing Dave Yrigoyen introduced Fiscal Consultant Ken Dieker and Bond Counsel Teresa Ho-Urano, who had done a lot of work on this project. 3 PRELlMINARY MINUTES PALM DESERT FINANCING AUTHORITY MEETING APRIL 27, 2006 Vice ChairmanNice President Kelly moved to waive further reading and adopt: 1) Redevelopment Agency Resolution No. 525, approving as to form and authorizing the execution and delivery of certain documents in connection with the sale and issuance of Subordinate Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A, and Subordinate Tax Allocation Capital Appreciation Bonds (Project Area No. 2), 2006 Series B, of the Palm Desert Financing Authority and authorizing certain other matters relating thereto; 2) Financing Authority Resolution No. FA-52, 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 Subordinate Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A, and Subordinate Tax Allocation Capital Appreciation Bonds (Project Area No. 2), 2006 Series B, appointing a trustee and escrow agent; and authorizing certain other matters relating thereto. Motion was seconded by Benson and carried by a 4-0 vote, with Member/Commissioner Spiegel ABSENT. VII. CONTINUED BUSINESS None VIII. OLD BUSINESS None IX. PUBLIC HEARINGS With Agency BoardlAuthority Board/City Council concurrence, Public Hearing Items A and B were considered jointly with Financing Authority New Business Items A and B, Redevelopment Agency New Business Items D and E, and City Council Public Hearing ltems A and B. A. REQUEST FOR APPROVAL OF ACTIONS RELATED TO THE ISSUANCE AND SALE OF TAX ALLOCATlON REVENUE BONDS (PROJECT AREA NO. �, AS AMENDED), 2006 SERIES A(TAX-EXEMPT), AND TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES B(TAXABLE), OF THE PALM DESERT FINANCING AUTHORITY (JOINT CONSIDERATION WITH THE PALM DESERT CITY COUNCIL). Considered jointly with New Business ltems A and B above, along with Public Hearing Item B below, Redevelopment Agency New Business Items D and E, and City Council Public Hearing Items A and B. Mayor/Chairman/President Ferguson declared the public hearings open and asked anyone who wished to come forward to speak on the subject to do so at this time. With no testimony offered, he declared the public hearings closed. C! PRELIMINARY MINUTES PALM DESERT FINANCING AUTHORITY MEETING APRIL 27, 2006 Director of Redevelopment/Housing Dave Yrigoyen introduced Fiscal Consultant Ken Dieker and Bond Counsel Teresa Ho-Urano, who had done a lot of work on this project. Mayor Pro TemNice President Kelly moved to waive further reading and adopt: 1) City Council Resolution No. 06-56, making findings of significant public benefit in connection with the issuance and sale of Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A(Tax-Exempt), and TaxAllocation Refunding Revenue Bonds (Project Area No. 1, As Amended), 2006 Series B(Taxable), of the Palm Desert Financing Authority; 2) Financing Authority Resolution No. FA-53, acknowledging finding of significant public benefit in connection with the issuance and sale of the Authority's Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A(Tax- Exempt), and Tax Allocation Refunding Revenue Bonds (Project Area No. 1, As Amended), 2006 Series B(Taxable), and approving the issuance, sale, and delivery of such bonds. Motion was seconded by Benson and carried by a 4-0 vote, with Councilman/Commissioner Spiegel ABSENT. With Agency BoardlAuthority Board/City Council concurrence, Public Hearing ltems A and B were considered jointlywith Financing Authority New Business Items A and B, Redevelopment Agency New Business Items D and E, and City Counci! Public Hearing Items A and B. B. REQUEST FOR APPROVAL OF ACTIONS RELATED TO THE ISSUANCE AND SALE OF SUBORDINATE TAX ALLOCATION REVENUE REFUNDING BONDS (PROJECT AREA NO. 2), 2006 SERIES A, AND SUBORDINATE TAXALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES B, OF THE PALM DESERT FINANCING AUTHORITY {JOINT CONSIDERATION WITH THE PALM DESERT CITY COUNCIL). Considered jointly with New Business Items A and B and Public Hearing Item A above, along with Redevelopment Agency New Business Items D and E, and City Council Public Hearing Items A and B. Mayor/Chairman/President Ferguson declared the public hearings �en and asked anyone who wished to come forward to speak on the subject to do so at this time. With no testimony offered, he declared the public hearings closed. Director of Redevelopment/Housing Dave Yrigoyen introduced Fiscal Consultant Ken Dieker and Bond Counsel Teresa Ho-Urano, who had done a!ot of work on this project. 5 PRELIMINARY MINUTES PALM DESERT FINANCING AUTHORITY MEETING APRIL 27, 2006 Mayor Pro TemNice ChairmanNice President Kelly moved to waive further reading and adopt: 1) City Council Resolution No. 06-57, making findings of significant public benefit in connection with the issuance and sale of Subordinate Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A, and Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series B, of the Palm Desert Financing Authority; 2) Financing Authority Resolution No. FA-54, acknowledging finding of significant public benefit in connection with the issuance and sale of the Authority's Subordinate Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A, and Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series B, and approving the issuance, sale, and delivery of such bonds. Motion was seconded by Benson and carried by a 4-0 vote, with Councilman/Commissioner Spiegel ABSENT. X. REPORTS, REMARKS, AND AGENCY BOARD ITEMS REQUIRING ACTION A. CHIEF ADMINISTRATIVE OFFICER None B. AUTHORITY CC)UNSEL None C. PRESIDENT AND MEMBERS OF THE AUTHORITY None XI. ADJOURNMENT Commissioner Benson moved to adjourn the meeting at 5:46 p.m. Motion was seconded by Crites and carried by a 3-0 vote, with President Ferguson and Commissioner Spiegel ABSENT. JIM FERGUSON, PRESIDENT ATTEST: RACHELLE D. KLASSEN, SECRETARY PALM DESERT FINANCING AUTHORITY C� CITY OF PALM DESERT PALM DESERT FINANCING AUTHORITY PALM DESERT REDEVELOPMENT AGENCY STAFF REPORT REQUEST: HOLD A PUBLIC HEARING IN CONNECTION WITH THE ISSUANCE OF BONDS BY THE PALM DESERT FINANCING AUTHORITY SUBMITTED BY: DAVE YRIGOYEN, DIRECTOR OF REDEVELOPMENT/HOUSING DATE: JUNE 8, 2006 CONTENTS: AMENDED SUMMARY REPORTS FOR PROJECT AREAS NOS. 1 AND 2, AND SUMMARY REPORTS FOR PROJECT AREAS NOS. 3 AND 4 (NO FURTHER ACTION REQUIRED) Recommendation: By Minute Motion: 1. That the City Council open a public hearing, receive public testimony and comments, and then close the public hearing; and 2. That, after the close of the public hearing, proceed to consider the various resolutions relating to the issuance of bonds by the Palm Desert Financing Authority covered by the next agenda items. Executive Summary: State law requires the City Council to hold a public hearing in connection with the issuance of bonds and the financing of certain Agency projects. The City Council is requested to hold the public hearing, receive public testimony, and close the hearing. No further action is required on this item. Background and Discussion: California Government Code Section 6586.5 requires the City Council to hold a public hearing in connection with the issuance of bonds by the Palm Desert Financing Authority to finance certain public improvements. California Health and Safety Code Section 33679 also requires the City Council to hold a public hearing before the Agency commits to pay tax increment revenues for certain projects. This public hearing, which has been duly noticed under both statutes, covers both public hearing requirements. Pursuant to Section 33679, an amended summary report for Project Area No. 1, As Amended, an amended summary report for Project Area No. 2, a summary report for Project Area No. 3 and a summary report for Project Area No. 4 have all been made available to the public. Each of the summary reports describes the various projects, which may be paid for, in whole or in part, from the proposed Agency bond issues. All of the summary reports have been attached to this staff report for your convenience — no action on any of the summary reports is required at this time. The City Council is being asked only to P6401-0001\893887v 1.doc Staff Report Public Hearing — Issuance of Bonds by the Palm Desert Financing Authority Page 2 of 2 June 8, 2006 open the public hearing, receive public testimony, close the public hearing and then move on to consider the next agenda items which cover the proposed bond issues of the Palm Desert Financing Authority to finance projects for Project Area No. 1, As Amended, Project Area No. 2, Project Area No. 3 and Project Area No. 4. Staff is recommending that the City Council hold the public hearing and then proceed to consider the next agenda items. Submitted by: D Yrigoyen Director of R eve ment/Housing Approval: elopment b �� City Manager/7�0/Executive Director Carlos L. rte Paul S. i Lichr i ctor of Finance/Treasurer CITY COUNCIL ACTION: APPROVED DENILA. RECEIVED._ OTHER 0 & .'et0).,ec/ b/i_c ( i /- (_ (Y aatc. /. MET N PaA /(o AYES:_ NOES: ASSENT: A ABSTAIN: VERIFIED EY: _) Original on ile s�n(1;:ly Clerk's Office �Q,ncd, � (eked 1/G e/2 - C'l fic4/rt- IL" ---et BY FIN AUTH ON VERIFIED BY: /,,Original on file with Cityterk's Office L f , ice% AMC. C ec nmP.F:Lf `� Cio 4b/rc I re BY RDA VERIFIED BY -' OdgInai on file with City Clerk's Office P6401-0001\893887v1.doc 2 AMENDED SUMMARY REPORT REGARDING PAYMENT BY THE PALM DESERT REDEVELOPMENT AGENCY FOR ALL OR A PORTION OF THE COST OF THE INSTALLATION AND CONSTRUCTION OF CERTAIN PUBLIC CAPITAL IMPROVEMENTS OF BENEFIT TO PROJECT AREA NO. 1, AS AMENDED DATED: MAY 25, 2006 Estimate of Taxes The Palm Desert Financing Authority (the "Authority") proposes to issue bonds to finance payment for all or a portion of the cost of the installation and construction of certain public capital improvements, including the following: Acquisition / Improvement Core commercial areas projects (including public infrastructure, parking improvements and other improvements at and around Westfield shopping center, Highway 111 and El Paseo) Improvements to frontage roads along Highway 111 — Alessandro Alleyway (including street landscaping, parking improvements and other improvements) Estimated cost to be paid in whole or in part from bond proceeds $15,000,000 $5,000,000 Renovation and improvement of $1,200,000 parking facilities at President's Plaza El Paseo (west of Highway 74) extension and upgrade (including median work, landscaping, lighting and other related improvements) $5,000,000 Development of a multi -use community $6,100,000 center at El Paseo and Highway 111 Construction of Portola Avenue Bridge $6,000,000 across the Whitewater Channel Widening of Monterey Avenue from $1,000,000 P6402.1054\892501.3 1 Magnesia Falls Drive to Gerald Ford Drive Widening of Portola Avenue between Fred Waring Drive and Magnesia Falls Drive $3,000,000 Undergrounding of neighborhood $10,000,000 utilities throughout the Project Area The amounts set forth above are based upon the current estimates of costs and availability of other funds that Agency believes are reasonable. Such amounts may vary depending on the actual costs and availability of funds. Pursuant to a proposed loan agreement between the Authority and the Palm Desert Redevelopment Agency (the "Agency"), the Agency would pay debt service on the Authority bonds from taxes ("tax increment revenues") allocated to the Agency pursuant to California Health and Safety Code Section 33670(b) from its Project Area No. 1, As Amended (the "Project Area"). The total estimated amount of tax increment revenues allocated to the Agency from the Project Area necessary to pay debt service on the Authority bonds issued to finance all or a portion of the above -described projects (assuming an aggregate principal amount of bonds of approximately $42,000,000 and an overall interest rate of 5.15 percent, a term of the bonds of 24 years), would be approximately $72,000,000. To the extent that such bonds issued by the Authority are not sufficient to pay for all of the costs of the above -described public capital improvements, the Agency will pay for the balance of such costs from other available funds of the Agency. Facts Supporting Determinations The Project Area is an area in which there exists a combination of conditions of blight so prevalent and so substantial that it causes a reduction of, or lack of, proper utilization of the area to such an extent that it constitutes a serious physical, social and economic burden on the community which cannot reasonably be expected to be reversed or alleviated by private enterprise or governmental action, or both, without redevelopment. Among other things, the Project Area is characterized by buildings and structures, used or intended to be used for living, commercial, industrial, or other purposes, which are unfit or unsafe to occupy for such purposes and are conducive to juvenile delinquency and crime because of, among other things, inadequate provision for recreational facilities. In addition, the Project Area contains vacant and underutilized properties and properties which suffer from economic dislocation, deterioration or disuse, including depreciated or stagnant property values and impaired investments, and deteriorated, aged and obsolete buildings. The Project Area is characterized by the existence of inadequate public improvements, public facilities and open space that cannot be remedied by private or governmental action without redevelopment. The lack of adequate public improvements P6402.1054' 892501.3 2 hinders economic development opportunities and contributes to the existence of depreciated and stagnant property values and impaired investments in the Project Area. Highway 111 and El Paseo generally run east -west through the core commercial area of the City. The frontage roads provide access to the various commercial uses along Highway 111. President's Plaza is located on El Paseo east of Highway 74 and west of Portola Avenue. Inadequate public infrastructure and improvements, particularly in and around the commercial center of the City, contribute to the blighted condition of the Project Area. The installation of various public infrastructures and improvements in and around the core commercial area, including street landscaping, parking improvements and other improvements will promote the economic viability of the Project Area, improve traffic circulation, attract new businesses, encourage business expansion encourage private sector investment and enhance the public health, safety and welfare in the Project Area. The extension and upgrades of El Paseo west of Highway 74, which is adjacent to the core commercial area, will further enhance the development of the Project Area. The proposed multi -use community center at El Paseo and Highway 111 will serve residents and visitors to the Project Area and the City and will provide a new, modern and efficient facility to serve the residents and taxpayers of the City. The construction of such a multi -use community center will further encourage private sector investment in the Project Area and create job opportunities for the residents and taxpayers of the Project Area and the City. Portola Avenue and Monterey Avenue are major north —south arterials. The proposed widening, bridge, and other improvements to these major arterials and other streets throughout the Project Area will improve traffic circulation within the Project Area and thereby mitigate congestion and safety hazards. The undergrounding of utilities throughout the Project Area will eliminate unsightly and potentially hazardous overhead electrical, telephone and cable television lines, thereby improving the public health, safety and welfare. The budget constraints of the City and the extraordinary voter approval requirements applicable to traditional methods of financing (such as general obligation bonds and community facilities district special tax bonds) as a practical matter prevent the City from financing the acquisition of such open space and the acquisition of the land for and the installation and construction of the above - described improvements by any other means. No moneys of the City were, are or are reasonably expected to be available on a Tong -term basis under the budget of the City to pay for the cost of the installation and construction of the above -described public improvements. Traditional methods of financing such as the issuance of general obligation bonds are unavailable as a practical matter because of the extraordinary majority voter approval requirements of two-thirds of the electorate. Assessment financing or special tax financing could P6402.1054\892501.3 3 overburden benefiting properties with assessments or special taxes and, in addition, special taxes require a two-thirds vote and assessments are subject to a majority protest. The installation and construction of the above -described improvements are all consistent with the Agency's implementation plan. Redevelopment Purpose; Elimination of Blight The construction and installation of the above -described public improvements will serve a basic purpose of redevelopment; redevelopment includes the provision of structures as may be appropriate or necessary in the interest of the general welfare, including recreational and other facilities, as well as the provision of public recreational areas and the provision for open -space types of use, such as streets. In addition, a fundamental purpose of redevelopment is to expand employment opportunities and to provide an environment for the social, economic and psychological growth and well-being of all citizens. The construction and installation of the above -described public improvements will assist in the elimination of blight in the Project Area which is caused by the lack of adequate public improvements, assist in the revitalization of the Project Area, help to reverse depreciated or stagnant property values and impaired investments, encourage private sector investment, create job opportunities, promote the economic viability of businesses in the Project Area, attract new businesses, assist in retaining existing businesses, and encourage business expansion, all for the health, safety and welfare of the residents and taxpayers of the Project Area and the City. P6402.1054\892501.3 4 AMENDED SUMMARY REPORT REGARDING PAYMENT BY THE PALM DESERT REDEVELOPMENT AGENCY FOR ALL OR A PORTION OF THE COST OF THE ACQUISITION OF LAND FOR OPEN SPACE AND THE INSTALLATION AND CONSTRUCTION OF CERTAIN OTHER PUBLIC CAPITAL IMPROVEMENTS OF BENEFIT TO PROJECT AREA NO. 2 DATED: MAY 25, 2006 Estimate of Taxes The Palm Desert Financing Authority (the "Authority") proposes to issue bonds to finance payment for all or a portion of the cost of land for open space and the installation and construction of certain other public capital improvements, including the following: Acquisition / Improvement Estimated cost to be paid in whole or in part from bond proceeds Acquisition of open space for $13,500,000 recreational purposes Installation of Freedom Park at Country $3,000,000 Club Drive and Liberty Avenue Construction of a swimming pool and $3,500,000 related shower and restroom facilities at the College of the Desert Civic center park improvements, including the construction and improvements of public recreational buildings Construction of a parking structure to accommodate a hotel and related development at the Desert Willow Golf Resort $3,000,000 $7,000,000 Construction of a fire station and $4,000,000 related improvements P6402.1055\892560.2 1 Acquisition / Improvement Construction of a pedestrian bridge at University Park Installation of a new section of Berger Drive and related improvements Widening of Monterey Avenue between Magnesia Falls Drive and Gerald Ford Drive Improvements to the on- and off -ramps at Monterey Avenue and Interstate 10 Construction of on- and off -ramps at Portola Avenue and Interstate 10 Drainage improvements along Monterey Avenue Undergrounding of utilities on arterial streets throughout the Project Area Estimated cost to be paid in whole or in part from bond proceeds $1, 500,000 $500,000 $2,000,000 $4,000 ,000 $16,800,000 $2,000,000 $10,000,000 The amounts set forth above are based upon the current estimates of costs and availability of other funds that Agency believes are reasonable. Such amounts may vary depending on the actual costs and availability of funds. Pursuant to proposed loan agreements between the Authority and the Palm Desert Redevelopment Agency (the "Agency"), the Agency would pay debt service on the Authority bonds from taxes ("tax increment revenues") allocated to the Agency pursuant to California Health and Safety Code Section 33670(b) from its Project Area No. 2 (the "Project Area"). The total estimated amount of tax increment revenues allocated to the Agency from the Project Area necessary to pay debt service on the Authority bonds issued to finance all or a portion of the above -described projects (assuming an aggregate initial principal amount of bonds of approximately $65,000,000 and an overall interest rate of 5.22 percent, a term of the bonds of 30 years), would be approximately $139,000,000. To the extent that such bonds issued by the Authority are not sufficient to pay for all of the costs of the above -described land and public capital improvements, the Agency will pay for the balance of such costs from other available funds of the Agency. P6402.1055 \892560.2 2 Facts Supporting Determinations The Project Area is an area in which there exists a combination of conditions of blight so prevalent and so substantial that it causes a reduction of, or lack of, proper utilization of the area to such an extent that it constitutes a serious physical, social and economic burden on the community which cannot reasonably be expected to be reversed or alleviated by private enterprise or governmental action, or both, without redevelopment. Among other things, the Project Area is characterized by buildings and structures, used or intended to be used for living, commercial, industrial, or other purposes, which are unfit or unsafe to occupy for such purposes and are conducive to juvenile delinquency and crime because of, among other things, inadequate provision for recreational facilities. In addition, the Project Area contains vacant and underutilized properties and properties which suffer from economic dislocation, deterioration or disuse, including depreciated or stagnant property values and impaired investments, and deteriorated, aged and obsolete buildings. The Project Area is characterized by the existence of inadequate public improvements, public facilities and open space that cannot be remedied by private or governmental action without redevelopment. The lack of adequate public improvements hinders economic development opportunities and contributes to the existence of depreciated and stagnant property values and impaired investments in the Project Area. Improvement and development of public parks and recreational facilities assist in elimination of blighted conditions in the Project Area. The acquisition of land for open space will provide needed recreational opportunities for hiking and other activities to serve the residents and taxpayers of Project Area and the City. The installation of Freedom Park, the construction of a swimming pool and related facilities at the College of the Desert, and the construction and improvement of public recreational facilities relating to the civic center park project will enhance and provide additional needed park facilities to serve the residents and taxpayers of the Project Area and the City. These projects promote physical and mental health, and help correct the situation of inadequate facilities for recreational use and inadequate recreational improvements in the Project Area and the City, promote the sound development and redevelopment of the Project Area and reduce crime and juvenile delinquency, all for the benefit of the residents and taxpayers of the Project Area and the City. The parking structure will serve the Desert Willow Golf Resort and future hotel and other developments which would otherwise lack adequate public parking. The parking structure improvements are required in order to eliminate a factor which would substantially hinder the economically viable use of the Desert Willow Golf Resort. The construction of a new fire station will address a need with respect to public safety, health and welfare and benefit the residents and businesses of the Project Area and the City. P6402.1055\ 892560.2 3 The construction of a pedestrian bridge at University Park will mitigate congestion and safety hazards. The installation of Berger Drive will improve traffic circulation within the Project Area. These projects will enhance the economic viability of the Project Area, encourage private sector investment and enhance residential and commercial development in the Project Area. Gerald Ford is a major east -west arterial and Portola Avenue and Monterey Avenue are major north -south arterials. The proposed widening and on and off ramp improvements will improve traffic circulation within the Project Area and thereby mitigate congestion and safety hazards. The drainage improvements along Monterey Avenue will also improve traffic circulation and protect property in the Project Area and enhance the public health, safety and welfare. The undergrounding of utilities on arterial streets throughout the Project Area will eliminate unsightly and potentially hazardous overhead electrical, telephone and cable television lines, thereby improving the public health, safety and welfare. These in turn will assist in eliminating a factor which prevents or substantially hinders the economically viable use or capacity of buildings or lots and will encourage private -sector investment in the Project Area, thereby facilitating the redevelopment of the Project Area. The proposed open space and public improvements described above will assist in the elimination of blight in the Project Area which is caused by inadequate public improvements and open space. The acquisition of the land and the installation and construction of the public improvements will promote the economic viability of the Project Area businesses, attract new businesses, encourage business expansion and encourage private sector investment in the Project Area. The budget constraints of the City and the extraordinary voter approval requirements applicable to traditional methods of financing (such as general obligation bonds and community facilities district special tax bonds) as a practical matter prevent the City from financing the acquisition of such open space and the acquisition of the land for and the installation and construction of the above - described improvements by any other means. No moneys of the City were, are or are reasonably expected to be available on a long-term basis under the budget of the City to pay for the value of the land for open space or the value of the land for and the cost of the installation and construction of the above - described public improvements. Traditional methods of financing such as the issuance of general obligation bonds are unavailable as a practical matter because of the extraordinary majority voter approval requirements of two-thirds of the electorate. Assessment financing or special tax financing could overburden benefiting properties with assessments or special taxes and, in addition, special taxes require a two-thirds vote and assessments are subject to a majority protest. P6402.1055,892560.2 4 The acquisition of all of the above -described land and the installation and construction of the above -described improvements are all consistent with the Agency's implementation plan. Redevelopment Purpose; Elimination of Blight The acquisition of the above -described land and the construction of the above -described public improvements will serve a basic purpose of redevelopment; redevelopment includes the provision of structures as may be appropriate or necessary in the interest of the general welfare, including recreational and other facilities, as well as the provision of public recreational areas and the provision for open -space types of use, such as streets. In addition, a fundamental purpose of redevelopment is to expand employment opportunities and to provide an environment for the social, economic and psychological growth and well-being of all citizens. The acquisition of the above -described land and the construction of the above -described public improvements will assist in the elimination of blight in the Project Area which is caused by the lack of adequate public improvements, assist in the revitalization of the Project Area, help to reverse depreciated or stagnant property values and impaired investments, encourage private sector investment, create job opportunities, promote the economic viability of businesses in the Project Area, attract new businesses, assist in retaining existing businesses, and encourage business expansion, all for the health, safety and welfare of the residents and taxpayers of the Project Area and the City. P6402.1055\892560.2 5 SUMMARY REPORT REGARDING PAYMENT BY THE PALM DESERT REDEVELOPMENT AGENCY FOR ALL OR A PORTION OF THE COST OF THE INSTALLATION AND CONSTRUCTION OF CERTAIN PUBLIC CAPITAL IMPROVEMENTS OF BENEFIT TO PROJECT AREA NO. 3 DATED: MAY 25, 2006 Estimate of Taxes The Palm Desert Financing Authority (the "Authority") proposes to issue bonds to finance payment for all or a portion of the cost of land for open space and the installation and construction of certain other public capital improvements, including the following: Acauisition / Improvement Civic center park improvements, including the construction and improvements of public recreational buildings Construction of a parking structure to accommodate a hotel and related development at the Desert Willow Golf Resort Estimated cost to be paid in whole or in part from bond proceeds $1,000,000 $3,000,000 Construction of on- and off -ramps at $8,200,000 Portola Avenue and Interstate 10 Undergrounding of utilities throughout $2,000,000 the Project Area The amounts set forth above are based upon the current estimates of costs and availability of other funds that Agency believes are reasonable. Such amounts may vary depending on the actual costs and availability of funds. Pursuant to proposed loan agreements between the Authority and the Palm Desert Redevelopment Agency (the "Agency"), the Agency would pay debt service on the Authority bonds from taxes ("tax increment revenues") allocated to the Agency pursuant to California Health and Safety Code Section 33670(b) from P6402.1056\892565.2 1 its Project Area No. 2 (the "Project Area"). The total estimated amount of tax increment revenues allocated to the Agency from the Project Area necessary to pay debt service on the Authority bonds issued to finance all or a portion of the above -described projects (assuming an aggregate initial principal amount of bonds of approximately $15,500,000 and an overall interest rate of 5.47 percent, a term of the bonds of 35 years), would be approximately $35,600,000. To the extent that such bonds issued by the Authority are not sufficient to pay for all of the costs of the above -described land and public capital improvements, the Agency will pay for the balance of such costs from other available funds of the Agency. Facts Supporting Determinations The Project Area is an area in which there exists a combination of conditions of blight so prevalent and so substantial that it causes a reduction of, or lack of, proper utilization of the area to such an extent that it constitutes a serious physical, social and economic burden on the community which cannot reasonably be expected to be reversed or alleviated by private enterprise or governmental action, or both, without redevelopment. Among other things, the Project Area is characterized by buildings and structures, used or intended to be used for living, commercial, industrial, or other purposes, which are unfit or unsafe to occupy for such purposes and are conducive to juvenile delinquency and crime because of, among other things, inadequate provision for recreational facilities. In addition, the Project Area contains vacant and underutilized properties and properties which suffer from economic dislocation, deterioration or disuse, including depreciated or stagnant property values and impaired investments, and deteriorated, aged and obsolete buildings. The Project Area is characterized by the existence of inadequate public improvements, public facilities and open space that cannot be remedied by private or governmental action without redevelopment. The lack of adequate public improvements hinders economic development opportunities and contributes to the existence of depreciated and stagnant property values and impaired investments in the Project Area. Improvement and development of public parks and recreational facilities assist in elimination of blighted conditions in the Project Area. The construction and improvement of public recreational facilities relating to the civic center park project will enhance and provide additional needed facilities to serve the residents and taxpayers of the Project Area and the City. The project promotes physical and mental health, and helps correct the situation of inadequate facilities for recreational use and inadequate recreational improvements in the Project Area and the City, promote the sound development and redevelopment of the Project Area and reduce crime and juvenile delinquency, all for the benefit of the residents and taxpayers of the Project Area and the City. The parking structure will serve the Desert Willow Golf Resort and future hotel and other developments which would otherwise lack adequate public P6402.1056\892565.2 2 parking. The parking structure improvements are required in order to eliminate a factor which would substantially hinder the economically viable use of the Desert Willow Golf Resort. The undergrounding of utilities throughout the Project Area will eliminate unsightly and potentially hazardous overhead electrical, telephone and cable television lines, thereby improving the public health, safety and welfare. These in turn will assist in eliminating a factor which prevents or substantially hinders the economically viable use or capacity of buildings or lots and will encourage private -sector investment in the Project Area, thereby facilitating the redevelopment of the Project Area. The budget constraints of the City and the extraordinary voter approval requirements applicable to traditional methods of financing (such as general obligation bonds and community facilities district special tax bonds) as a practical matter prevent the City from financing the acquisition of such open space and the acquisition of the land for and the installation and construction of the above - described improvements by any other means. No moneys of the City were, are or are reasonably expected to be available on a Tong -term basis under the budget of the City to pay for the value of the land for open space or the value of the land for and the cost of the installation and construction of the above - described public improvements. Traditional methods of financing such as the issuance of general obligation bonds are unavailable as a practical matter because of the extraordinary majority voter approval requirements of two-thirds of the electorate. Assessment financing or special tax financing could overburden benefiting properties with assessments or special taxes and, in addition, special taxes require a two-thirds vote and assessments are subject to a majority protest. The installation and construction of the above -described improvements are all consistent with the Agency's implementation plan. Redevelopment Purpose; Elimination of Blight The construction and installation of the above -described public improvements will serve a basic purpose of redevelopment; redevelopment includes the provision of structures as may be appropriate or necessary in the interest of the general welfare, including recreational and other facilities, as well as the provision of public recreational areas and the provision for open -space types of use, such as streets. In addition, a fundamental purpose of redevelopment is to expand employment opportunities and to provide an environment for the social, economic and psychological growth and well-being of all citizens. The construction and installation of the above -described public improvements will assist in the elimination of blight in the Project Area which is caused by the lack of adequate public improvements, assist in the revitalization P6402.1056\892565.2 3 of the Project Area, help to reverse depreciated or stagnant property values and impaired investments, encourage private sector investment, create job opportunities, promote the economic viability of businesses in the Project Area, attract new businesses, assist in retaining existing businesses, and encourage business expansion, all for the health, safety and welfare of the residents and taxpayers of the Project Area and the City. P6402.1056\892565.2 4 SUMMARY REPORT REGARDING PAYMENT BY THE PALM DESERT REDEVELOPMENT AGENCY FOR ALL OR A PORTION OF THE COST OF THE INSTALLATION AND CONSTRUCTION OF CERTAIN PUBLIC CAPITAL IMPROVEMENTS OF BENEFIT TO PROJECT AREA NO. 4 DATED: MAY 25, 2006 Estimate of Taxes The Palm Desert Financing Authority (the "Authority") proposes to issue bonds to finance payment for all or a portion of the cost of land for open space and the installation and construction of certain other public capital improvements, including the following: Acquisition / Improvement Estimated cost to be paid in whole or in part from bond proceeds Sound attenuation wall along Fred $3,000,000 Waring Drive Undergrounding of utilities throughout $14,000,000 the Project Area The amounts set forth above are based upon the current estimates of costs and availability of other funds that Agency believes are reasonable. Such amounts may vary depending on the actual costs and availability of funds. Pursuant to a proposed loan agreement between the Authority and the Palm Desert Redevelopment Agency (the "Agency"), the Agency would pay debt service on the Authority bonds from taxes ("tax increment revenues") allocated to the Agency pursuant to California Health and Safety Code Section 33670(b) from its Project Area No. 2 (the "Project Area"). The total estimated amount of tax increment revenues allocated to the Agency from the Project Area necessary to pay debt service on the Authority bonds issued to finance all or a portion of the above -described projects (assuming an aggregate initial principal amount of bonds of approximately $17,000,000 and an overall interest rate of 5.34 percent, a term of the bonds of 29 years), would be approximately $38,500,000. To the extent that such bonds issued by the Authority are not sufficient to pay for all of the costs of the above -described land and public capital improvements, the Agency will pay for the balance of such costs from other available funds of the Agency. P6402. l 057\892567.2 1 Facts Supporting Determinations The Project Area is an area in which there exists a combination of conditions of blight so prevalent and so substantial that it causes a reduction of, or lack of, proper utilization of the area to such an extent that it constitutes a serious physical, social and economic burden on the community which cannot reasonably be expected to be reversed or alleviated by private enterprise or govemmental action, or both, without redevelopment. Among other things, the Project Area is characterized by buildings and structures, used or intended to be used for living, commercial, industrial, or other purposes, which are unfit or unsafe to occupy for such purposes and are conducive to juvenile delinquency and crime because of, among other things, inadequate provision for recreational facilities. In addition, the Project Area contains vacant and underutilized properties and properties which suffer from economic dislocation, deterioration or disuse, including depreciated or stagnant property values and impaired investments, and deteriorated, aged and obsolete buildings. The Project Area is characterized by the existence of inadequate public improvements, public facilities and open space that cannot be remedied by private or governmental action without redevelopment. The lack of adequate public improvements hinders economic development opportunities and contributes to the existence of depreciated and stagnant property values and impaired investments in the Project Area. Fred Waring Drive is a major east —west arterial, which run parallel to Highway 111. The proposed sound attenuation wall improve public health, safety and welfare and enhance the development and redevelopment of the Project Area. The undergrounding of utilities throughout the Project Area will eliminate unsightly and potentially hazardous overhead electrical, telephone and cable television lines, thereby improving the public health, safety and welfare. These in turn will assist in eliminating a factor which prevents or substantially hinders the economically viable use or capacity of buildings or Tots and will encourage private -sector investment in the Project Area, thereby facilitating the redevelopment of the Project Area. The budget constraints of the City and the extraordinary voter approval requirements applicable to traditional methods of financing (such as general obligation bonds and community facilities district special tax bonds) as a practical matter prevent the City from financing the acquisition of such open space and the acquisition of the land for and the installation and construction of the above - described improvements by any other means. No moneys of the City were, are or are reasonably expected to be available on a Tong -term basis under the budget of the City to pay for the value of the land for open space or the value of the land for and the cost of the installation and construction of the above - described public improvements. Traditional methods of financing such as the issuance of general obligation bonds are unavailable as a practical matter P6402.1057\892567.2 2 because of the extraordinary majority voter approval requirements of two-thirds of the electorate. Assessment financing or special tax financing could overburden benefiting properties with assessments or special taxes and, in addition, special taxes require a two-thirds vote and assessments are subject to a majority protest. The installation and construction of the above -described improvements are all consistent with the Agency's implementation plan. Redevelopment Purpose: Elimination of Blight The construction and installation of the above -described public improvements will serve a basic purpose of redevelopment; redevelopment includes the provision of structures as may be appropriate or necessary in the interest of the general welfare, including recreational and other facilities, as well as the provision of public recreational areas and the provision for open -space types of use, such as streets. In addition, a fundamental purpose of redevelopment is to expand employment opportunities and to provide an environment for the social, economic and psychological growth and well-being of all citizens. The construction and installation of the above -described public improvements will assist in the elimination of blight in the Project Area which is caused by the lack of adequate public improvements, assist in the revitalization of the Project Area, help to reverse depreciated or stagnant property values and impaired investments, encourage private sector investment, create job opportunities, promote the economic viability of businesses in the Project Area, attract new businesses, assist in retaining existing businesses, and encourage business expansion, all for the health, safety and welfare of the residents and taxpayers of the Project Area and the City. P6402.1057\892567.2 3 CITY OF PALM DESERT PALM DESERT FINANCING AUTHORITY PALM DESERT REDEVELOPMENT AGENCY STAFF REPORT REQUEST: APPROVAL OF RESOLUTION NO. 06-74 OF THE CITY COUNCIL OF THE CITY OF PALM DESERT SUPPLEMENTING RESOLUTION NO. 06-56 AND FURTHER MAKING A FINDING OF SIGNIFICANT PUBLIC BENEFIT AND OTHER FINDINGS IN CONNECTION WITH THE ISSUANCE AND SALE BY THE PALM DESERT FINANCING AUTHORITY OF ITS TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES A, AND TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES B (TAXABLE) APPROVAL OF RESOLUTION NO. FA-55 OF THE PALM DESERT FINANCING AUTHORITY ACKNOWLEDGING A FINDING OF SIGNIFICANT BENEFIT AND AFFIRMING THE AUTHORITY'S APPROVAL OF DOCUMENTS AND CERTAIN OTHER MATTERS RELATING TO THE ISSUANCE, SALE AND DELIVERY OF THE AUTHORITY'S TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES A, AND TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES B (TAXABLE) APPROVAL OF RESOLUTION NO. 527 OF THE PALM DESERT REDEVELOPMENT AGENCY AFFIRMING THE AGENCY'S APPROVAL OF DOCUMENTS AND CERTAIN OTHER MATTERS RELATING TO THE SALE AND ISSUANCE BY THE PALM DESERT FINANCING AUTHORITY OF TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES A, AND TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES B (TAXABLE) SUBMITTED BY: DAVE YRIGOYEN, DIRECTOR OF REDEVELOPMENT/HOUSING DATE: JUNE 8, 2006 CONTENTS: (1) CITY COUNCIL RESOLUTION NO. 06-74 (2) PALM DESERT FINANCING AUTHORITY RESOLUTION NO. FA-55 (3) PALM DESERT REDEVELOPMENT AGENCY RESOLUTION NO.527 Recommendation: By Minute Motion: 1. That the City Council approve Resolution No. 06- 74 , 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 Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A Staff Report Approval of Council, PDFA and RDA Resolutions — PA#1 Tax Alloc. Bonds Page 2 of 3 June 8, 2006 (the "Series 2006A Bonds"), and (B) Tax Allocation Revenue Refunding Bonds (Project Area No. 1, As Amended), 2006 Series B (Taxable) (the "Series 2006B Bonds"), and (ii) findings pursuant to Sections 33679 and 33445 of the California Health and Safety Code with respect to the projects to be funded by proceeds of the Series 2006A Bonds; 2. That the Palm Desert Financing Authority approve Resolution No. FA- 55 , acknowledging finding of significant public benefit in connection with the issuance and sale of the Bonds and affirming the Authority's approval of the issuance, sale and delivery of the Bonds and the Authority's authorizations regarding the execution and delivery of documents relating to the Bonds; and 3. That the Palm Desert Redevelopment Agency approve Resolution No.527 affirming the Agency's approval and authorizations regarding 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 Series 2006A Bonds proceeds to pay for the costs of certain projects. Background and discussion: Staff has recommended the issuance of two series of Bonds relating to the financing and refinancing of projects for the Agency's Project Area No. 1, As Amended ("Project Area No. 1). The Series 2006A Bonds will be issued as tax-exempt bonds. Net proceeds of the Series 2006A Bonds will be used to pay all or a portion of the costs of certain Agency projects benefiting Project Area No. 1. The Series 2006E Bonds will be issued as taxable bonds. Net Proceeds of the Series 2006B Bonds will be used to refund a portion of certain bonds issued by the Authority in 1997, the proceeds of which were used for the development of the Desert Willow Golf Resort. Based on most recent estimates by the Financial Advisor and the Underwriter for the Bonds, the sale of the Series 2006A Bonds is expected to generate approximately $39,000,000 of net proceeds to be available for Agency projects. Previously on April 27, 2006, the City Council, the Authority and the Agency adopted resolutions approving the issuance, sale and delivery of the Bonds and proposed projects to be funded by the proceeds of the Series 2006A Bonds. After the April 27, 2006 Council meeting, Staff undertook to review the various potential Agency projects with respect to Project Area No. 1 and proposes to modify and expand on the proposed projects to be funded by the proceeds of the Series 2006A Bonds. The proposed projects are outlined in the attached City Council resolution and are also described in an Amended Summary Report, which was made available to the public in connection with the City Council public hearing. Staff Report Approval of Council, PDFA and RDA Resolutions — PA#1 Tax Alloc. Bonds Page 3 of 3 June 8, 2006 Adoption of the attached resolutions will allow Staff to proceed with the issuance of the Bonds and the use of Series 2006A proceeds to pay for the costs of the identified projects. Submitted by: Dave Yrigoy& Director of R evelopment/Housing Ap oval: cCarthy, ACM lopment Carlos L. rtegity Manager/CAO pe$ Paul S.Gbso7Director of Finance COUNCIL ACTION APPROVED DENIED RECEIVED OTHER itiocke, C-/Vas• ,Q4150/7 MEETING DATE fa.- gv-o60 AYES:seeMaterile... KeZ64,49ieed, am/ ic--6311/dOrl OES: Mot_ ABSENT: Malt, AESTAIN:_jsicetr_ VERIFIED BY: ifikh Original on File th City Clerk's Office 40prc3kred . BY RDA ON g.°412 VERIFIED BY 11260.-)1(a) Original on file with City Clerk's Office ifProre-ci BY FIN AUTH ON . °C° ......., VERIFIED BY: '-Dt<inacitn Original on file with City Clerk's Office RESOLUTION NO. 06- 74 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT SUPPLEMENTING RESOLUTION NO. 06-56 AND FURTHER MAKING A FINDING OF SIGNIFICANT PUBLIC BENEFIT AND OTHER FINDINGS IN CONNECTION WITH THE ISSUANCE AND SALE BY THE PALM DESERT FINANCING AUTHORITY OF ITS TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES A, AND TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES B (TAXABLE) RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") has proposed to sell and issue its Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A (the "Series 2006A Bonds") and Tax Allocation Refunding Revenue Bonds (Project Area No. 1, As Amended), 2006 Series B (Taxable) (the "Series 2006B Bonds," and together with the Series 2006A Bonds, the "Bonds"); and WHEREAS, proceeds of the Series 2006B Bonds are to be applied to make a loan to the Palm Desert Redevelopment Agency (the "Agency") for the object and purpose of, among other things, effecting the refunding of the portion of the Authority's Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), Series 1997, scheduled to mature on April 1, 2023; and WHEREAS, proceeds of the Series 2006A Bonds are to be applied to make a loan to the Agency for the object and purpose of, among other things, assisting in the financing of certain public capital improvements of benefit to Project Area No. 1, As Amended, of the Agency (the "Project Area"); and WHEREAS, this City Council previously adopted Resolution No. 06-56, on April 27, 2006, (i) approving the issuance of the Bonds, and (ii) finding the financing and refinancing of the public capital improvements 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 (the "City"); and WHEREAS, Resolution No. 06-56 identified certain projects proposed to be financed with proceeds of the Series 2006A Bonds; and WHEREAS, upon further review, Agency Staff proposes to modify the projects to include the following (with the following projects (the "Projects") to supersede those previously identified in Resolution No. 06-56): (i) core commercial areas projects (including public infrastructure, parking improvements and other improvements at and around Westfield shopping center, Highway 111 and El Paseo); (ii) improvements to P6402.1054\892279.2 frontage roads along Highway 111 — Alessandro Alleyway (including street landscaping, parking improvements and other improvements); (iii) renovation and improvement of parking facilities at President's Plaza; (iv) El Paseo (west of Highway 74) extension and upgrade (including median work, landscaping, lighting and other related improvements); (v) development of a multi -purpose community center at El Paseo and Highway 111; (vi) construction of Portola Avenue Bridge across the Whitewater Channel; (vii) widening of Monterey Avenue from Magnesia Falls Drive to Gerald Ford Drive; (viii) widening of Portola Avenue between Fred Waring Drive and Magnesia Falls Drive; and (ix) undergrounding of neighborhood utilities throughout the Project Area; and WHEREAS, pursuant to Section 6586.5 of the Califomia Government Code and Section 33679 of the California Health and Safety Code, after notice duly published in accordance with law, this City Council held a public hearing on this date with respect to the proposed Projects to be financed by the issuance of the Series 2006A Bonds and the issuance of the 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, an amended 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 Califomia 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. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PALM DESERT DOES HEREBY FIND, 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 affirms its finding that the refinancing described above through the issuance by the Authority of the Series 2006B Bonds will result in significant public benefits to the constituents of the Agency and the City of Palm Desert. The City Council hereby finds that financing of the Projects described in the Recitals of this Resolution through the issuance by the Authority of the Series 2006A 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 ratifies and affirms the its approval of the issuance of the Bonds by the Authority. P6402.1054\892279.2 Section 3. Further Findings. The City Council hereby finds and determines that based upon the "Amended Summary Report Regarding Payment by the Palm Desert Redevelopment Agency for All or a Portion of the Cost of the Installation and Construction of Certain Public Capital Improvements of Benefit to Project Area No. 1, As Amended," 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 Projects described in the Recitals of this Resolution are of benefit to the Project Area and to the immediate neighborhoods in which the Projects are located; (ii) the payment of funds for the cost of such Projects 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 Projects 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 Projects 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. P6402.1054\892279.2 wit: APPROVED and ADOPTED this 8th day of June 2006 by following vote to AYES: NOES: ABSENT: ABSTAIN: Jim Ferguson, Mayor ATTEST: Rachelle D. Klassen, City Clerk P6402.1054\892279.2 RESOLUTION NO. FA- 55 A RESOLUTION OF THE PALM DESERT FINANCING AUTHORITY ACKNOWLEDGING A FINDING OF SIGNIFICANT BENEFIT AND AFFIRMING THE AUTHORITY'S APPROVAL OF DOCUMENTS AND CERTAIN OTHER MATTERS RELATING TO THE ISSUANCE, SALE AND DELIVERY OF THE AUTHORITY'S TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES A, AND TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES B (TAXABLE) 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 California 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 its Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A (the "Series 2006A Bonds") and Tax Allocation Refunding Revenue Bonds (Project Area No. 1, As Amended), 2006 Series B (Taxable) (the "Series 2006B Bonds," and together with the Series 2006A Bonds, the "Bonds") to be issued and secured pursuant to an indenture of trust (the "Indenture"); and WHEREAS, proceeds of the Series 2006A Bonds are to be applied to make a loan to the Agency pursuant to a loan agreement (the "Loan Agreement") for the object and purpose of, among other things, assisting in the financing of certain public capital improvements of benefit to Project Area No. 1, As Amended, of the Agency; and WHEREAS, proceeds of the Series 2006E Bonds are to be applied to make a second loan to the Agency pursuant to the Loan Agreement for the object and purpose of, among other things, effecting the refunding of the portion of the Authority's Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), Series 1997, scheduled to mature on April 1, 2023; and WHEREAS, on April 27, 2006, the City Council of the City of Palm Desert adopted its Resolution No. 06-56 ("City Council Resolution No. 06-56), making certain P6402.1054\892282.2 findings, including a finding of significant benefits, with respect to (i) the refinancing to be accomplished through the issuance of the Series 2006B Bonds, and (ii) the financing of certain capital improvement projects through the issuance of the Series 2006A Bonds; and WHEREAS, on April 27, 2006, the Authority adopted Resolution No. FA- 51 and Resolution No. FA-53, approving the forms of documents relating to the issuance of the Bonds, authorizing the execution and delivery thereof and setting forth certain parameters with respect to the terms of the Bonds; and WHEREAS, City Resolution No. 06-56 identified certain projects proposed to be financed with the proceeds of the Series 2006A Bonds; and WHEREAS, upon further review, Agency Staff has proposed to modify the projects, to include the following (collectively, the "Projects"): (i) core commercial areas projects (including public infrastructure, parking improvements and other improvements at and around Westfield shopping center, Highway 111 and El Paseo); (ii) improvements to frontage roads along Highway 111 — Alessandro Alleyway (including street landscaping, parking improvements and other improvements); (iii) renovation and improvement of parking facilities at President's Plaza; (iv) El Paseo (west of Highway 74) extension and upgrade (including median work, landscaping, lighting and other related improvements); (v) development of a multi -purpose community center at El Paseo and Highway 111; (vi) construction of Portola Avenue Bridge across the Whitewater Channel; (vii) widening of Monterey Avenue from Magnesia Falls Drive to Gerald Ford Drive; (viii) widening of Portola Avenue between Fred Waring Drive and Magnesia Falls Drive; and (ix) undergrounding of neighborhood utilities throughout the Project Area; and WHEREAS, on June 8, 2006, after a duly held public hearing, the City Council adopted a new resolution, (i) finding that the financing of the Projects, as now proposed by the Agency Staff, through the issuance by the Authority of the Series 2006A Bonds will result in significant public benefits to the constituents of the Agency and the City of Palm Desert, and (ii) affirming the City Council's approval of the issuance of the Bonds by the Authority; 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.Acknowledament of City Council Findings. The Authority hereby acknowledges and concurs with the City Council's finding of significant public benefits and hereby approves and authorizes the issuance and sale of the Bonds. Section 3.Affirmation of Resolution No. FA-51 and Resolution No. FA-53. Except as set forth in the next sentence, the Authority hereby affirms Resolution No. P6402.1054\892282.2 2 FA-51 and Resolution No. FA-53 (the "Prior Resolutions") in their entirety, including the approval, authorization and direction for the issuance of the Bonds, the execution and delivery of the Indenture, Loan Agreement, the Escrow Agreement, the Official Statement and the Purchase Agreement. The Authority hereby further affirms the parameters for the terms of the Bonds as set forth in Section 10 of Prior Resolutions, except that the true interest cost with respect to the Series 2006A Bonds shall not exceed 6.25 percent. Section 4.Other Acts. The 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 and the Prior Resolutions, and any such actions previously taken by such officers are hereby ratified and confirmed. Section 5. Effective Date. This Resolution shall take effect immediately upon adoption. to wit: APPROVED AND ADOPTED this 8th day of June 2006 by following vote AYES: NOES: ABSENT: ABSTAIN: Jim Ferguson, President ATTEST: Rachelle D. Klassen, Secretary P6402.1054\892282.2 3 RESOLUTION NO. 527 A RESOLUTION OF THE PALM DESERT REDEVELOPMENT AGENCY AFFIRMING THE AGENCY'S APPROVAL OF DOCUMENTS AND CERTAIN OTHER MATTERS RELATING TO THE SALE AND ISSUANCE BY THE PALM DESERT FINANCING AUTHORITY OF TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES A, AND TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 1, AS AMENDED), 2006 SERIES B (TAXABLE) RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") has determined to sell and issue its Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), 2006 Series A (the "Series 2006A Bonds") and Tax Allocation Refunding Revenue Bonds (Project Area No. 1, As Amended), 2006 Series B (Taxable) (the "Series 2006B Bonds," and together with the Series 2006A Bonds, the "Bonds"); and WHEREAS, proceeds of the Series 2006A Bonds are to be applied to make a loan (the "Series 2006A Loan") to the Palm Desert Redevelopment Agency (the "Agency") pursuant to a loan agreement (the "Loan Agreement") for the object and purpose of, among other things, assisting in the financing of certain public capital improvements of benefit to Project Area No. 1, As Amended, of the Agency; and WHEREAS, proceeds of the Series 2006B Bonds are to be applied to make a second loan (together with the Series 2006A Loan, the "Loans") to the Agency pursuant to the Loan Agreement for the object and purpose of, among other things, effecting the refunding of the portion of the Authority's Tax Allocation Revenue Bonds (Project Area No. 1, As Amended), Series 1997, scheduled to mature on April 1, 2023; and WHEREAS, on April 27, 2006, the City Council of the City of Palm Desert adopted its Resolution No. 06-56 ("City Council Resolution No. 06-56), making certain findings, including a finding of significant benefit, with respect to (i) the refinancing to be accomplished through the issuance of the Series 2006B Bonds, and (ii) the financing of certain capital improvement projects through the issuance of the Series 2006A Bonds; and WHEREAS, on April 27, 2006, the Agency adopted Resolution No. 524, approving the forms of documents relating to the issuance of the Bonds and authorizing the execution and delivery thereof; and WHEREAS, City Resolution No. 06-56 identified certain projects proposed to be financed with the proceeds of the Series 2006A Bonds; and P6402.1054\892281.2 1 WHEREAS, upon further review, Agency Staff has proposed to modify such projects, to include the following (collectively, the "Projects"): (i) core commercial areas projects (including public infrastructure, parking improvements and other improvements at and around Westfield shopping center, Highway 111 and El Paseo); (ii) improvements to frontage roads along Highway 111 — Alessandro Alleyway (including street landscaping, parking improvements and other improvements); (iii) renovation and improvement of parking facilities at President's Plaza; (iv) El Paseo (west of Highway 74) extension and upgrade (including median work, landscaping, lighting and other related improvements); (v) development of a visitors' center at El Paseo and Highway 111; (vi) construction of Portola Avenue Bridge across the Whitewater Channel; (vii) widening of Monterey Avenue from Magnesia Falls Drive to Gerald Ford Drive; (viii) widening of Portola Avenue between Fred Waring Drive and Magnesia Falls Drive; and (ix) undergrounding of neighborhood utilities throughout the Project Area; and WHEREAS, on June 8, 2006, after a duly held public hearing, the City Council adopted a new resolution, (i) finding that the financing of the Projects, as now proposed by the Agency Staff, through the issuance by the Authority of the Series 2006A Bonds will result in significant public benefits to the constituents of the Agency and the City of Palm Desert, and (ii) affirming the City Council's approval of the issuance of the Bonds by the Authority; 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. Affirmation of Resolution No. 524. The Agency hereby affirms Resolution No. 524 in its entirety, including the approval, authorization and direction for the execution and delivery of the Loan Agreement, the Escrow Agreement, the Continuing Disclosure Agreement, the Purchase Agreement and the costs of issuance requisitions. Section 3. Other Acts. The 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 and Resolution No. 524, and any such actions previously taken by such officers are hereby ratified and confirmed. Section 4. Effective Date. This Resolution shall take effect immediately upon adoption. P6402.1054\892281.2 wit: APPROVED and ADOPTED this 8th day of June 2006 by following vote to AYES: NOES: ABSENT: ABSTAIN: Jim Ferguson, Chairman ATTEST: Rachelle D. Klassen, Secretary P6402.1054\892281.2 CITY OF PALM DESERT PALM DESERT FINANCING AUTHORITY PALM DESERT REDEVELOPMENT AGENCY STAFF REPORT REQUEST: APPROVAL OF RESOLUTION NO. 06- 75 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. 2), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES B, TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 2), 2006 SERIES C, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES D APPROVAL OF RESOLUTION NO. FA- 56 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. 2), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES B, TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 2), 2006 SERIES C, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES D, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO APPROVAL OF RESOLUTION NO. 528 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. 2), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES B, TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 2), 2006 SERIES C, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES D, 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. 06-75 (2) PALM DESERT FINANCING AUTHORITY RESOLUTION NO. FA 56 Staff Report Approval of Agency/PDFA Resolutions — PA#2 Subordinate Tax Allocation Refunding Revenue Bonds 2006 Series A Page 2 of 5 June 8, 2006 (3) PALM DESERT REDEVELOPMENT AGENCY RESOLUTION NO.528 (4) INDENTURE OF TRUST (SENIOR BONDS) (5) PROJECT AREA NO. 2 LOAN AGREEMENT (2006 SENIOR LOANS) (6) INDENTURE OF TRUST (SUBORDINATE BONDS) (7) PROJECT AREA NO. 2 LOAN AGREEMENT (2006 SUBORDINATE LOAN) (8) ESCROW AGREEMENT (9) PRELIMINARY OFFICIAL STATEMENT (10) BOND PURCHASE AGREEMENT (11) CONTINUING DISCLOSURE AGREEMENT Recommendation: By Minute Motion: 1. That the City Council approve Resolution No. 06- 75 , making (i) findings of significant public benefit in connection with the issuance and sale of four series of bonds (the "Bonds") by the Palm Desert Financing Authority: (A) Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A (the "Series 2006A Bonds"), (B) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series B (the "Series 2006E Bonds"), (C) Tax Allocation Revenue Bonds (Project Area No. 2), 2006 Series C (the "Series 2006C Bonds"), and (D) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series D (the "Series 2006D Bonds"), and (ii) findings pursuant to Sections 33679 and 33445 of the California Health and Safety Code with respect to the projects to be funded by proceeds of the Bonds; 2. That the Palm Desert Financing Authority approve Resolution No. FA-56 , 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. 528 , approving and authorizing the execution and delivery of documents relating to the Bonds. Executive Summary Adoption of the attached resolutions will allow Staff to proceed with the issuance of the Bonds and the use of proceeds from the Bonds to pay for the costs of certain projects. Background and discussion: Staff recommends the issuance of four series of Bonds relating to the financing and refinancing of projects for the Agency's Project Area No. 2. The Bonds will be issued as tax-exempt bonds. A portion of the net proceeds of the Series 2006A Bonds will be used to refund certain Authority bonds Staff Report Approval of Agency/PDFA Resolutions — PA#2 Subordinate Tax Allocation Refunding Revenue Bonds 2006 Series A Page 3 of 5 June 8, 2006 issued in 1995 to finance projects for the Project Area No. 2. A portion of the net proceeds of the Series 2006A Bonds, along with the net proceeds of the Series 2006B Bonds, the Series 2006C Bonds and the Series 2006D Bonds will be used to pay all or a portion of the costs of certain Agency projects benefiting Project Area No. 2. The Series 2006C Bonds initially will be escrowed bonds, in that the net proceeds of the Series 2006C Bonds will be deposited in a Special Escrow Fund. In time, the Agency expects that, as certain conditions are met (primarily, that sufficient tax increments are generated with respect to the Project Area No. 2 to meet the coverage requirements set forth in the bond documents), money will be released from the Special Escrow Fund and become available for use on Agency projects. Based on current estimates by the Financing Advisor and the Underwriter, the sale of the four series of Bonds (including the moneys anticipated to be eventually released from the Special Escrow Fund) is expected to generate approximately $59,300,000 of net proceeds to be available for Agency projects. The refunding of the 1995 bonds is currently expected to generate approximately $250,000 net present value savings, while achieving annual debt service savings. The repayment of the Bonds will be primarily secured by tax increments generated with respect to Project Area No. 2. The Series 2006A Bonds, the Series 2006E Bonds and the Series 2006C Bonds will rank on a parity with the outstanding Authority bonds issued for Project Area No. 2, and will rank senior to the Series 2006D Bonds. The Series 2006A Bonds and the Series 2006C Bonds will be current interest bonds. The Series 2006E Bonds and the Series 2006D Bonds will be capital appreciation bonds. Previously on April 27, 2006, the City Council, the Authority and the Agency adopted resolutions (the "Prior Resolutions") approving the issuance, sale and delivery of the two series of bonds for Project Area No. 2 and proposed projects to be funded by the proceeds of the such bonds. After the April 27, 2006 Council meeting, the Financial Advisor and the Underwriter, in light of feedback from rating agencies and bond insurers, recommended a change to the structure of the financing, from two series of bonds to the four series of Bonds as described above. Staff also undertook to review the various potential Agency projects with respect to Project Area No. 2 and proposes to modify and expand on the proposed projects to be funded by the proceeds of the Bonds. The proposed projects are outlined in the attached City Council resolution and are also described in an Amended Summary Report which was made available to the public in connection with the City Council public hearing. The attached resolutions, once in effect, will supersede the Prior Resolutions in their entirety. 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 Jones Hall, A Professional Law Corporation, San Francisco, CA — Disclosure Counsel Wells Fargo Bank, National Association, Los Angeles, CA — Trustee and Escrow Agent Citigroup Global Markets Inc., Los Angeles, CA — Underwriter Rosenow Spevacek Group, Inc., Santa Ana, CA — Fiscal Consultant MuniFinancial, Inc., Temecula, CA — Dissemination Agent Staff Report Approval of Agency/PDFA Resolutions — PA#2 Subordinate Tax Allocation Refunding Revenue Bonds 2006 Series A Page 4 of 5 June 8, 2006 SUMMARY OF DOCUMENTS TO BE APPROVED: Indentures of Trust Generally, an indenture sets forth all of the terms and conditions of the bonds (e.g., principal amounts, maturity and redemption schedules, payment, registration and transfer provisions and the form of the Bonds), the covenants and other obligations of the Authority to the bondholders, and the role and the duties of the Trustee. Two indentures are presented, one for the Series 2006A Bonds, the Series 2006E Bonds and the Series 2006C Bonds, and the other for the Series 2006D Bonds. As presented, the Indentures are in substantially final form, except that final dollar amounts and interest rates will be added after the Bonds have been priced and sold. Provisions may also be added, deleted or otherwise modified to accommodate the bond insurer requirements. Loan Agreements Presented are two loan agreements, one for the Series 2006A Bonds, the Series 2006E Bonds and the Series 2006C Bonds, and the other for the Series 2006D Bonds. Pursuant to the Loan Agreements, the Authority agrees to lend the Agency funds that would be used by the Agency to refund the 1995 bonds and fund capital projects for benefit to Project Area No. 2. 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 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. Continuina Disclosure Agreement 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. Staff Report Approval of Agency/PDFA Resolutions — PA#2 Subordinate Tax Allocation Refunding Revenue Bonds 2006 Series A Page 5 of 5 June 8, 2006 The Annual Report contains the Agency's audited financial statements and other pertinent information relating to Project Area No. 2. 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 of the 1995 Bonds will occur a short period of time after the issuance of the Bonds. During this period, money to be used for the 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 redemption date The resolutions permit Staff to make the necessary changes to all of the documents in order to finalize and execute the documents. Staff is recommending that the City Council, the Authority and the Agency adopt their respective resolutions approving and authorizing the sale and issuance of the Bonds, and the execution and delivery of the related documents. Submi `D ve Yriclnva�ar' Directoredevelopment/Housing evelopment Carlos L. Ortega City Manager/C /Executive Director BY FIN AUTH ON . to d LP VERIFIED BY: 4 Airein Original on file with City Clerk's Office Paul S. s rector of Finance/Treasurer CITY COUNCIL CTION: APPROVED DENIED R CEIVED OTHER iVoic o -7%5. ift -5-11)> 5 2, ETINd DAT ( - c` O(n AYES: IWO.& . Koty, sp 1, 4,n c / ftesar1 NOES: ay ABS : 1\i ABSTAIN: VERIFIED BY: / Original on File wi h City Clerk's Office 44Wrai SY RDA ON (o •• d(o VERIFIED BY!O/ Original on file with City Clerk's Office RESOLUTION NO. 06- 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. 2), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES B, TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 2), 2006 SERIES C, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES D RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") has proposed to sell and issue four series of bonds (collectively, "the Bonds"): (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A, (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series B, (iii) Tax Allocation Revenue Bonds (Project Area No. 2), 2006 Series C, and (iii) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series D; and WHEREAS, proceeds of the Bonds are to be applied to make four 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 all of the Authority's remaining outstanding Tax Allocation Revenue Bonds (Project Area No. 2), Series 1995, and (ii) the financing of certain public capital improvements (the "Projects") of benefit to Project Area No. 2, of the Agency (the "Project Area"), including : (A) acquisition of open space for recreational purposes, (B) installation of Freedom Park at Country Club Drive and Liberty Avenue, (C) construction of a swimming pool and related shower and restroom facilities at the College of the Desert, (D) civic center park improvements, including the construction and improvements of public recreational buildings, (E) construction of a parking structure to accommodate a hotel and related development at the Desert Willow Golf Resort, (F) construction of a fire station and related improvements, (G) construction of a pedestrian bridge at University Park, (H) installation of a new section of Berger Drive and related improvements, (I) widening of Monterey Avenue between Magnesia Falls Drive and Gerald Ford Drive, (J) improvements to the on- and off -ramps at Monterey Avenue and Interstate 10, (K) construction of on- and off -ramps at Portola Avenue and Interstate 10, (L) drainage improvements along Monterey Avenue and (M) undergrounding of utilities on arterial streets throughout the Project Area; and 1>64U2. i055v89256s.1 WHEREAS, pursuant to Section 6586.5 of the California Government Code and Section 33679 of the California Health and Safety Code, after notice duly published in accordance with law, this City Council held a public hearing on this date with respect to the issuance of the proposed Bonds and received evidence 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, an amended 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; and WHEREAS, it is the intent of the City Council that this Resolution shall supersede Resolution No. 06-57, adopted on April 27, 2006, in its entirety; 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 in Recitals hereof 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 "Amended Summary Report Regarding Payment by the Palm Desert Redevelopment Agency for All or A Portion of the Cost of the Acquisition of Land for Open Space and the Installation and Construction of Certain Other Public Capital Improvements of Benefit to Project Area No. 2," 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 P6402.1055\892568. I 2 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. Resolution No. 06-57 Superseded. Upon adoption, this Resolution shall supersede Resolution No. 06-57 in its entirety. Section 6. 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 7. Effective Date. This Resolution shall take effect immediately upon adoption. APPROVED and ADOPTED this 8th day of June 2006 by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: Jim Ferguson, Mayor ATTEST: Rachelee D. Klassen, City Clerk P6402.1055\892568.1 3 RESOLUTION NO. FA- 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. 2), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES B, TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 2), 2006 SERIES C, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES D, 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 California 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 four series of bonds: (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A (the "Series 2006A Bonds"), (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series B (the "Series 2006B Bonds"), (iii) Tax Allocation Revenue Bonds (Project Area No. 2), 2006 Series C (the "Series 2006C Bonds," and collectively with the Series 2006A Bonds and the Series 2006B Bonds, the "Senior Bonds"), and (iii) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series D (the "Subordinate Bonds," and together with the "Series Bonds," the "Bonds"); and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making four loans to the Agency pursuant to two loan agreements 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. 2, of the Agency, and (ii) effecting a P6402.1055\892569.1 1 refunding of all of the Authority's remaining outstanding Tax Allocation Revenue Bonds (Project Area No. 2), Series 1995; 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; and WHEREAS, it is the intent of the Authority that this Resolution shall supersede Resolution No. FA-52 and Resolution No. FA-54, adopted on April 27, 2006, in their entirety; 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.Acknowledament of City Council Findings. The Authority hereby acknowledges and concurs with the City Council's finding of significant public benefit and hereby approves and authorizes the issuance and sale of the Bonds. Section 3. Issuance of Senior Bonds: Senior Indenture. The Indenture of Trust (the "Senior Indenture"), proposed to be entered into by and between the Authority and the Trustee (defined in Section 5 below) relating to the Senior Bonds, in the form presented at this meeting and on file in the office of the Secretary of the Authority (the "Secretary"), is hereby approved. The issuance of the Series 2006A Bonds in an aggregate principal amount not exceeding $46,000,000, the Series 2006B Bonds in an aggregate initial principal amount not exceeding $3,500,000, and the Series 2006C Bonds in an aggregate principal amount no exceeding $8,500,000, pursuant to the Senior Indenture is hereby approved. Subject to Section 12 below, each of the President, the Chief Administrative Officer and the Treasurer of the Authority, any deputy of such officers, and any member of the Authority Commission (each, an "Authorized Officer"), acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Senior Indenture in substantially said form, with such additions or changes as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 4. Issuance of Subordinate Bonds: Subordinate Indenture. The Indenture of Trust (the "Subordinate Indenture"), proposed to be entered into by and between the Authority and the Trustee relating to the Subordinate Bonds, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. The issuance of the Subordinate Bonds, in an aggregate principal amount not exceeding $18,000,000, pursuant to the Subordinate Indenture is hereby approved. Subject to Section 12 below, each Authorized Officer, acting singly, is hereby authorized P6402.1055\892569.1 2 and directed, for and in the name and on behalf of the Authority, to execute and deliver the Subordinate Indenture in substantially said form, with such additions or changes as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 5.Appointment of Trustee 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 8 is hereby approved. Section 6. Senior Loan Agreement. The Project Area No. 2 Loan Agreement (2006 Senior Loans) (the "Senior Loan Agreement"), proposed to be entered into by and among the Agency, the Authority and the Trustee, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Senior Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 7.Subordinate Loan Agreement. The Project Area No. 2 Loan Agreement (2006 Subordinate Loan) (the "Subordinate Loan Agreement"), proposed to be entered into by and among the Agency, the Authority and the Trustee, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Subordinate Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 8. Escrow Agreement. The Escrow Agreement (Project Area No. 2) (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 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 9. 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 P6402.1055\892569.1 3 1934. The distribution by Citigroup Global Markets Inc. (the "Underwriter") of copies of the Preliminary Official Statement to potential purchasers of the Bonds is hereby approved. Section 10. 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 11. 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 12. 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 $46,000,000, (ii) with respect to the Series 2006B Bonds shall not exceed $3,500,000, (iii) with respect to the Series 2006C Bonds shall not exceed $8,500,000, and (iv) with respect to the Subordinate Bonds shall not exceed $18,000,000; (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, (ii) the true interest cost with respect to the Series 2006B Bonds shall not exceed 6.25 percent, (iii) the true interest cost with respect to the Series 2006C Bonds shall not exceed 6.25 percent, and (iv) the true interest cost with respect to the Subordinate Bonds shall not exceed 6.25 percent; (d) the Underwriter's compensation (i.e., underwriter's discount) with respect to the sale of the Bonds, provided that such compensation (i) with respect to the Series 2006A Bonds shall not exceed one percent of the aggregate principal amount of the Series 2006A P6402.1055\892569.1 4 Bonds, (ii) with respect to the Series 2006B Bonds shall not exceed one percent of the aggregate initial principal amount of the Series 2006B Bonds, (iii) with respect to the Series 2006C Bonds shall not exceed one percent of the aggregate principal amount of the Series 2006C Bonds, and (iv) with respect to the Subordinate Bonds shall not exceed one percent of the aggregate initial principal amount of the Subordinate Bonds; and (e) such provisions as may be required by the terms of the bond insurance, if any, or debt service reserve surety bond(s), if any, purchased in connection with the issuance of the Bonds. The authorization and powers delegated to such officer by this Section 12 shall be valid for a period of 120 days from the date of adoption of this Resolution. Section 13. Resolution No. FA-52 and Resolution No. FA-54 Superseded. Upon adoption, this Resolution shall supersede Resolution No. FA-52 and Resolution No. FA-54 in their entirety. Section 14. Other Acts. The Authorized Officers and all other officers of the Authority are hereby authorized and directed, jointly and severally, to do any and all things, to execute and deliver any and all documents which they may deem necessary or advisable in order to consummate the issuance, sale and delivery of the Bonds, or otherwise to effectuate the purposes of this Resolution, the Senior Indenture, the Senior Loan Agreement, the Subordinate Indenture, the Subordinate Loan Agreement, the Escrow Agreement, the Purchase Agreement and the Official Statement, and any such actions previously taken by such officers are hereby ratified and confirmed. P6402.1055\892569.1 5 Section 15. Effective Date. This Resolution shall take effect immediately upon adoption. APPROVED AND ADOPTED this 8th day of June 2006 by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: ATTEST: Rachelle D. Klassen, Secretary Jim Ferguson, President P6402.1055\892569.1 6 RESOLUTION NO. 528 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. 2), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES B, TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 2), 2006 SERIES C, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2), 2006 SERIES D, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") has determined to sell and issue four series of bonds: (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A (the "Series 2006A Bonds"), (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series B (the "Series 2006B Bonds"), (iii) Tax Allocation Revenue Bonds (Project Area No. 2), 2006 Series C (the "Series 2006C Bonds," and collectively with the Series 2006A Bonds and the Series 2006B Bonds, the "Senior Bonds"), and (iii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series D (the "Subordinate Bonds," and together with the Senior Bonds, the "Bonds"); and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making four loans (the "Loans") to the Palm Desert Redevelopment Agency (the "Agency") pursuant to two loan agreements for the object and purpose of, among other things, (i) assisting in the financing of certain public capital improvements of benefit to Project Area No. 2 of the Agency, and (ii) effecting a refunding of all of the Authority's remaining outstanding Tax Allocation Revenue Bonds (Project Area No. 2), Series 1995; and WHEREAS, it is the intent of the Agency that this Resolution shall supersede Resolution No. 525, adopted on April 27, 2006, in its entirety; 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. P6402.1055\892572.1 Section 2. Senior Loan Agreement. The Project Area No. 2 Loan Agreement (2006 Senior Loans) (the "Senior Loan Agreement"), proposed to be entered into by and among the Authority, the Agency and Wells Fargo Bank, National Association, as trustee (the "Trustee"), in the form presented at this meeting and on file with the Secretary of the Agency (the "Secretary") is hereby approved. Each of the Chairman and the Executive Director, or either of them, or their designee (each, an "Authorized Officer"), is hereby authorized and directed, for and in the name and on behalf of the Agency, to execute and deliver the Senior Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof). Section 3. Subordinate Loan Agreement. The Project Area No. 2 Loan Agreement (2006 Subordinate Loan) (the "Subordinate Loan Agreement"), proposed to be entered into by and among the Authority, the Agency and the Trustee, in the form presented at this meeting and on file with the Secretary is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Agency, to execute and deliver the Subordinate Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof) Section 4. Escrow Agreement. The Escrow Agreement (Project Area No. 2), 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 5. 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 6. Purchase Agreement. The Bond Purchase Agreement (the "Purchase Agreement") proposed to be entered into by the Authority, the Agency and Citigroup Global Markets Inc. (the "Underwriter"), in the form presented at this meeting and on file with the Secretary, and the sale of the Bonds pursuant thereto upon the terms and conditions set forth therein, are hereby approved. Subject to the limitations P6402.1055\892572.1 2 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 7. Requisitions. Each Authorized Officer, the Treasurer or any deputy of such officers, acting singly, is hereby authorized and directed to execute one or more requisitions authorizing the Trustee to pay costs relating to the incurrence of the Loans and the issuance of the Bonds from the proceeds of the Bonds pursuant to the Senior Loan Agreement and the Subordinate Loan Agreement. Section 8. Resolution No. 525 Superseded. Upon adoption, this Resolution shall supersede Resolution No. 525 in its entirety. Section 9. 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 Senior Loan Agreement, the Subordinate 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. Section 10. Effective Date. This Resolution shall take effect immediately upon adoption. APPROVED and ADOPTED this 8th day of June 2006 by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: Jim Ferguson, Chairman ATTEST: Rachelle D. Klassen, Secretary P6402.1055\892572.1 3 Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 2) 2006 Series A Indenture of Trust «ith reference to Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2) 2006 Series B Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 2) 2006 Series C P64 )2.I0 5\872S31.8 RWG I)RAI I : 5/22/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY 2 Section I.0I. Definitions 2 Section 1.02. Rules of Construction 9 Section I.0 3. Authorization and Purpose of Bonds 9 Section 1.04. Equal Security 10 ARTICLE II ISSUANCE OF BONDS 10 Section 2.0I. Designation 10 Section 2.02. Terms of Bonds I0 Section 2.03. Redemption of Bonds I2 Section 2.04. Form of Bonds I6 Section 2.05. Execution of Bonds I6 Section 2.06. Transfer of Bonds 17 Section 2.07. Exchange of Bonds 17 Section 2.08. Temporary Bonds I Section 2.09. Registration Books I Section 2.10. Bonds Mutilated. Lost. Destroyed or Stolen 18 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 I9 Section 4.01. Pledge of Revenues: Assignment of Rights I9 Section 4.02. Receipt. Deposit and Application of Revenues I9 Section 4.03. Investments 20 Section 4.04. Valuation and Disposition of Investments 2I ARTICLE V COVENANTS OF THE AUTHORITY 2I Section 5.01. Punctual Payment 2I Section 5.02. Extension of Payment of Bonds 2I Section 5.03. Against Encumbrances 2 I Section 5.04. Power to Issue Bonds and Make Pledge and Assignment 2 I 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 ARTICLE VI THE TRUSTEE 24 Section 6.0 I . Appointment of Trustee 24 Section 6.02. Acceptance of Tnists 24 Section 6.03. Fees. Charges and Expenses of Trustee 27 Section 6.04. Notice to Owners of Default 27 Section 6.05. Intervention by Trustee 27 Section 6.06. Removal of Trustee 27 P64U2.IU55\872531.8 -1- Section 6.07. Resignation by Trustee 27 Section 6.08. Appointment of Successor Trustee 28 Section 6.09. Merger or Consolidation 28 Section 6.10. Concerning any Successor Trustee 28 Section 6.11. Appointment of Co -Trustee 28 Section 6.12. Indemnification: Limited Liability of Trustee 29 ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE 29 Section 7.01. Amendment Hereof 29 Section 7.02. Effect of Supplemental Indenture 30 Section 7.03. Endorsement or Replacement of Bonds After Amendment 30 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES 30 Section 8.01. Events of Default 30 Section 8.02. Remedies Upon Event of Default 31 Section 8.03. Application of Revenues and Other Funds After Default 32 Section 8.04. Power of Trustee to Control Proceedings 33 Section 8.05. Appointment of Receivers 33 Section 8.06. Non -Waiver 33 Section 8.07. Limitation on Rights and Remedies of Owners 33 Section 8.08. Termination of Proceedings 34 ARTICLE IX BOND INSURANCE 34 ARTICLE X BOOK -ENTRY SYSTEM Section 10.01 Book -Entry System: Limited Obligation of Authority Section 10.02 Representation Letter Section 10.03 Transfers Outside Book -Entry System Section 10.04 Payments to the Nominee 3� Section 10.05 Initial Depository and Nominee 3� ARTICLE XI MISCELLANEOUS 3iS Section 11.01. Limited Liability of Authority 3� Section 11.02. Benefits of Indenture Limited to Parties 36 Section 11.03. Discharge of Indenture 36 Section 11.04. Successor Is Deemed Included in All References to Predecessor 36 Section 11.05. Content of Certificates 37 Section 11.06. Execution of Documents by Owners 37 Section 11.07. Disqualified Bonds 37 Section 11.08. Waiver of Personal Liability 38 Section 11.09. Partial Invalidity 38 Section 11.10. Destruction of Cancelled Bonds 38 Section 1 1.1 1 . Funds and Accounts 38 Section 11.12. Payment on Business Days 38 Section 11.13. Notices 38 Section 11.14. Unclaimed Moncys 39 Section 1 1. 15. Governing Law 39 EXHIBIT A — FORM OF SERIES 2006A BOND EXHIBIT B — FORM OF SERIES 2006B BOND EXHIBIT C — FORM OF SERIES 2006C BOND P6402.1055\872 31.x Indenture of Trust This Indenture of Trust (this "Indenture) is made and entered into as of Jule I. 2006. by and between the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority) and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America. haying a corporate trust office in Los Angeles. California. and being qualified to accept and administer the trusts hereby created (the "Trustee.). Recitals A. The Palm Desert Redevelopment Agency (the "Agency) is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers. all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 2 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 determined to make three loans (the "Loans) to the Agency under and pursuant to the Project Area No. 2 Loan Agreement (2006 Senior Loans). dated as of July I. 2006 (the "Loan Agreement.). by and among the Authority. the Agency and the Trustee. E. To provide the moneys required to make the Loans under the Loan Agreement. the Authority has determined to issue three series of bonds (collectively. the "Bonds) pursuant to and secured by this Indenture in the manner provided herein: (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 2). 2006 Series A. in the aggregate principal amount of (the "Series 2006A Bonds.). (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series B. in the aggregate initial principal amount of (the "Series 2006B Bonds.). and (iii) Tax Allocation Revenue Bonds (Project Area No. 2). 2006 Series C (the "Series 2006C Bonds.). F. To provide for the authentication and delivery of the Bonds. to establish and declare the terms and conditions upon which the Bonds are to be issued and to secure the payment of the principal thereof. premium. if any. and interest thereon. the Authority has authorized the execution and delivery of this Indenture. NOW. THEREFORE. THIS INDENTURE WITNESSETH. that in order to secure the payment of the principal of. premium. if any. and interest on the Bonds at any time issued and Outstanding under this Indenture. according to their tenor. and to secure the performance and observance of all the covenants and conditions therein and herein set forth. and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received. and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof. and for other valuable considerations. the receipt whereof is hereby acknowledged. the Authority hereby covenants and agrees with the Trustee. for the benefit of the Owners of the Bonds. as follows: P6402.1055\872 S31.8 -1- ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY Section 1.01. Definitions. The following terms shall for all purposes of this Indenture and of any Supplemental Indenture and of any certificate. opinion. request or other documents herein mentioned have the meanings ascribed thereby. In addition. the terms defined in Section 1.01 of the Loan Agreement and not otherwise defined in this Section 1.01 shall have the meanings ascribed thereby in the Loan Agreement. "Accreted Value means. Nvith respect to any Series 2006B Bond. as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Closing Date at the stated yield to maturity thereof on each February I and August I. assuming in any such semiannual period that such Accreted Value increases in equal daily amounts on the basis of a 360-dav year of twelve 30-dav months. "Act means Articles I through 4 (commencing Nvith Section 6500) of Chapter 5. Division 7. Title I of the Government Code of the State. as in existence on the Closing Date or as thereafter amended from time to time. ..Agency.. means the Palm Desert Redevelopment Agency. a redevelopment agency. a public body corporate and politic. duly created. established and authorized to transact business and exercise its powers all under and pursuant to the Redevelopment Law. and any successor to its duties and functions. "Authority means the Palm Desert Financing Authority. a joint powers authority duly organized and existing under the Joint Exercise of Powers Agreement. dated January 26. 1989. by and between the City and the Agency. and under the laws of the State. "Authority Commission"' means the governing body of the Authority. "Bond Counsel means Richards. Watson K. Gershon. A Professional Corporation. Los Angeles. California. or a firm of attorneys of favorable reputation in the field of municipal bond lacy. "Bond Lary means the Marks -Roos Local Bond Pooling Act of 1985. being Article 4 of the Act (commencing Nyith Section 6584). as in existence on the Closing Date or as thereafter amended from time to time. "Bond Year- means each twelve-month period extending from August 2 in one calendar year to August I of the succeeding calendar year. both dates inclusive. except that the first Bond Year shall begin on the Closing Date and extend to and include August I. 2006. "Bonds means the Series 2006A Bonds. the Series 2006B Bonds and the Series 2006C Bonds. "Business Day" means any day other than (i) a Saturday or a Sunday or (ii) any other day on Nyhich the New York Stock Exchange or banks are authorized or obligated by lacy or executive order to close in New York. New York. San Francisco. California. Los Angeles. California or any city in Nyhich the Trust Office is located. P6402.1055\872 531.8 -2- "Certificate"' means a certificate in writing signed by any officer of the designated public entity. duly authorized by its legislative body for that purpose. "City means the City of Palm Desert. a charter city and municipal corporation duly organized and validly existing under the laws of the State. purchaser. "Closing Date means the date of delivery of the Bonds to the Underwriter as the original "Code" means the Internal Revenue Code of 1986. as amended. "County" means the County of Riverside. "Defeasance Obligations means (a) any obligations described in paragraph A or B of the definition of "Permitted Investments set forth in this Section or (b) collateralized investment agreements. provided that (i) the counterparty to any such agreement shall be a domestic bank or foreign bank with a senior unsecured debt rating of AAA by S&P and Aaa by Moody's: a domestic or Canadian life insurance company with a claims -paying or financial strength rating of AAA and Aaa by S&P and Moody's. respectively: a wholly -owned and guaranteed financial institution subsidiary of one of the above mentioned institutions: an insurance holding company. rated AAA and Aaa. by S&P and Moody's respectively: or a domestic financial guaranty insurance company or an affiliate of a domestic financial guaranty insurance company. whose obligations are fully guaranteed by an affiliate or the parent company which has a rating of AAA and Aaa by S&P and Moody's. respectively: (ii) any such agreement shall be collateralized by securities issued or guaranteed by the United States government. the Government National Mortgage Association. the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association. or municipal. corporate. asset -backed and mortgage -backed obligations rated AAA and Aaa by S&P and Moody's. respectively: the counterparty must grant to the Trustee or the agent holding the collateral for the Trustee a first perfected security interest in all collateral delivered pursuant to the agreement and in all proceeds of the collateral: and the collateral must be delivered free and clear of claims of any third parties and must be registered in the name of the Trustee or agent: and (iii) the value of the collateral. which shall be valued by the Trustee or the collateral agent Nveckly. must be equal to at least 105 percent of the amount of cash transferred by or on behalf of the Authority to the counterparty plus accrued interest. "Deuositorv- means The Depository Trust Company. NOV York. NOV 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. P6402.1055\872531.8 -3- "Fiscal Year"' means any twelve-month period extending from July I in one calendar year to June 30 of the succeeding calendar year. both dates inclusive. or any other twelve-month period selected and designated by the Authority as its official fiscal year period. "Indenture"' means this Indenture of Trust. as may from time to time be supplemented. modified or amended by any Supplemental Indenture pursuant to the provisions hereof. "Independent Accountant"' means any certified public accountant or firm of certified public accountants appointed and paid by the Authority. and 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. I0th Floor. Jersey City. New Jersey 07302. Attention: Editor: Mergentfs "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 Paying Agent" means or its successors under the Insurance Policy. "Insurance Policy" means the municipal bond insurance policy issued by the Insurer insuring the payment when due of the principal of and interest on the Bonds. "Insurer"' means "Interest Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)( I). "Interest Payment Date means February I and August I of each year. commencing August I. 2006. "Loan Agreement"' means the Project Area No. 2 Loan Agreement (2006 Senior Loans). dated as of July I. 2006. by and among the Authority. the Agency and the Trustee. relating to the Loans. as may from time to time be supplemented. modified or amended. "Loan Funds" means the Series 2006A Loan Fund. the Series 2006B Loan Fund. and the Series 2006C Loan Fund. "Loans" means the Series 2006A Loan. the Series 2006B Loan and the Series 2006C Loan. "Maturity Amount." with respect to any Series 2006B Bond. means the Accreted Value thereof at maturity. P6402.1055\872531.8 -4- "Moody's- means Moody's Investors Service. its successors and assigns. "Nominee means the nominee of the Depository. which may be the Depository. as determined from time to time pursuant to Article X. "Outstanding. when used as of any particular time with reference to Bonds. means (subject to the provisions of Section 11.07) all Bonds theretofore executed. issued and delivered by the Authority under this Indenture except (i) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation. (ii) Bonds paid or deemed to have been paid within the meaning of Section 11.0 3. and (riff) Bonds in Iicu of or in substitution for which other Bonds shall have been executed. issued and delivered pursuant to this Indenture. "Owner- means the person in 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. "Paying Agent means the Trustee. "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): P6402.1055\872531.8 I. United States Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing, Bank 4. Federal Housing, Administration Debentures (FHA) 5. General Services Administration Participation certificates -5- 6. Government National Mortgage Association (GNMA or "Ginnie Mae-) GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations 7. United States Maritime Administration Guaranteed Title XI financing 8. United States Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - United States government guaranteed debentures United States Public Housing Notes and Bonds - United States 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 United States government agencies (provided that stripped securities are only permitted if they have been stripped by the agency itself): I . Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mace) Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae-) Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing, Association (SLMA or "Sallie Mae-) Senior debt obligations 5. Resolution Funding, Corp. (REFCORP) obligations D. Money market funds. including funds for Nyhich the Trustee or its affiliates provide investment advisory or other management services. registered under the Investment Company Act of 1940. Nyhose shares are registered under the Securities Act of 1933. and having a rating by S&P of AAAm-G. AAAm. or AAm and. if rated by Moody's. rated Aaa. Aa I or Aa2. E. Certificates of deposit secured at all times by collateral described in A and/or B above: provided that such certificates must be issued by commercial banks (including the Trustee and its affiliates). savings and loan associations or mutual savings banks and provided further that the collateral must be held by a third party and the Trustee on behalf of the Owners must have a perfected first security interest in the collateral. P6402.1055\872531.8 -6- F. Certificates of deposit. savings accounts. deposit accounts or money market deposits Nvhich are fully insured by the Federal Deposit Insurance Corporation. including those of the Trustee and its affiliates. G. Investment agreements. including guaranteed investment contracts (GICs). Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to the Insurer. H. Commercial paper rated. at the time of purchase. "Prime - I.. by Moody's and "A -I" or better by S&P. I. Bonds or notes issued by 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 - I.. or "A — or better by Moody's and "A- I.. 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 Nvill repay the cash plus a yield to the Trustee in exchange for the securities at a specified date. L. The Local Agency Investment Fund in the State Treasury or any similar pooled investment fund administered by the State. to the extent such investment is held in the name and to the credit of the Trustee. M. Medium -term notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Such notes shall have a minimum credit rating of "Aa 3.. 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 lacy 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 or Series 2006C Bond. the principal amount thereof. and (ii) any Series 2006B Bond. the Accreted Value thereof. " Proiect Area means. unless the context clearly requires otherwise. the project area described and defined in the Redevelopment Plan approved and adopted by the City by its Ordinance No. 509. "Record Date" means. with respect to any Interest Payment Date. the 15th calendar day of the month immediately preceding such Interest Payment Date. Nvhether 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). P6402.1055\872 S31.8 -7- "Redevelopment Law means the Community Redevelopment Law. being California Health and Safety Code Section 33000. et seq.. and all future acts supplemental thereto or amendatory thereof. "Redevelopment Plane means the Redevelopment Plan for the Project Area. approved and adopted by the City by its Ordinance No. 509 and includes any amendment of the Redevelopment Plan heretofore or hereafter made pursuant to law. "Registration Books means the records maintained by the Trustee pursuant to Section 2.09 for the registration and transfer of ownership of the Bonds. "Report means a document in writing signed by an Independent Redevelopment Consultant and including: (i) a statement that the person or firm making or giving such Report has read the pertinent provisions of the document or documents to which such Report relates: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based: and (iii) a statement that. in the opinion of such person or firm. sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report. "Representation Letter- means the Blanket Issuer Letter of Representations. dated July I. 1997. from the Authority to the Depository. qualifying bonds issued by the Authority for the Depository's book -entry system. "Request means a request in writing signed by any officer of the designated public entity duly authorized by its legislative body for that purpose. "Revenue Fundy means the fund bv 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 2.3 or Section 2.4 of the Loan Agreement: (ii) any proceeds of the Bonds originally deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established hereunder: and (iii) income and gains with respect to the investment of amounts on deposit in the funds and accounts established hereunder. other than amounts payable to the United States of America pursuant to Section 5.07. "S&P- means Standard & Poor's Ratings Services and its successors and assigns. "Securities Depositories means The Depository Trust Company. ;; Water Street. 50th Floor. New York. New York. 10041. Attn: CaII Notification Department. Fax (2 12) 855-72 32: and. in accordance with then current guidelines of the Securities and Exchange Commission. such other addresses or such other securities depositories as the Authority may designate in a Certificate of the Authority delivered to the Trustee. "Series 2006A Bonds means the Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 2). 2006 Series A. "Series 2006A Loan means the Series 2006A Loan. as defined in the Loan Agreement. made by the Authority to the Agency. "Series 2006A Loan Fundy means the fund by that name established and held bv the Trustee pursuant to Section 3.02. P6402.1055\x72; 31.8 -8- "Series 2006B Bonds" means the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series B. "Series 2006B Loan" means the Series 2006B Loan. as defined in the Loan Agreement. made by the Authority to the Agency. "Series 2006B Loan Fundy means the fund by that name established and held by the Trustee pursuant to Section 3.02. "Series 2006C Bonds" means the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 2). 2006 Series C. "Series 2006C Loan" means the Series 2006B Loan. as defined in the Loan Agreement. made by the Authority to the Agency. "Series 2006C Loan Fundy means the fund by that name established and held by the Trustee pursuant to Section 3.02. "State" means the State of California. "Supplemental Indenture"' means any indenture. agreement or other instrument hereafter duly executed by the Authority and the Trustee in accordance with the provisions of Section 7.01. "Tax Retzulations- means temporary and permanent regulations promulgated under or with respect to Section 103 and Sections 141 through 150. inclusive. of the Code. "Trust Office" means the corporate trust office of the Trustee at the address set forth in Section 1 1.13 or such other offices as may be specified to the Authority by the Trustee in writing. With respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or agency of the Trustee at which. at any particular time. its corporate trust business shall be conducted. "Trustee" means Wells Fargo Bank. National Association. and its successors and assigns. and any other corporation or association which may at any time be substituted in its place as provided in Article VI. "Underwriter"' means Citigroup Global Markets Inc. Section 1.02. Rules of Construction. All references in this Indenture to "Articles." "Sections." and other subdivisions. unless indicated otherwise. are to the corresponding Articles. Sections or subdivisions of this Indenture: and the words "herein." "hereof. "hereunder."' and other words of similar import refer to this Indenture as a whole and not to any particular Article. Section or subdivision hereof. Section 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 Iaw 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 Iaw. and the Authority is now authorized under the Bond Law and each and every requirement of Iaw. 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 P6402.1055\872531.8 -9- 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 othenvise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale. execution or deliyenv thereof. or otherwise for any cause NVhatsoeyer. except as expressly provided therein or herein. ARTICLE II ISSUANCE OF BONDS Section 2.0I I. Desiwnation. The Series 2006A Bonds shall be designated the Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 2). 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. 2). 2006 Series B and shall be issued in the aggregate Initial Principal Amount of $ . The Series 2006C Bonds shall be designated the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 2). 2006 Series C and shall be issued in the original aggregate 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 Tong as no Series 2006A Bond shall have more than one maturity date. The Series 2006A Bonds shall be dated the Closing Date. shall mature on August I in each of the years and in the amounts. and shall bear interest (calculated on the basis of a 360- day year of twelve 30-day months) at the rates. as follows: Maturity Date Principal Interest Maturity Date Principal Interest (August I) Amount Rate (August I) Amount Rate (to come) Each Series 2006A Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof. unless (i) it is authenticated during the period from the day after the Record Date for an Interest Payment Date to and including such Interest Payment Date. in which event it shall bear interest from such Interest Payment Date. or (ii) it is authenticated on or prior to the Record Date for the first Interest Payment Date. in which event it shall bear interest from the Closing Date: provided. however. that if. at the time of registration of any Series 2006A Bond interest with respect to such Series 2006A Bond is in default. such Series 2006A Bond shall bear interest from the Interest Payment Date to which interest has been paid or made available for payment with respect to such Series 2006A Bond. P6402.1055\872 S31.8 -10- Interest on the Series 2006A Bonds shall be payable on each Interest Payment Date to the person wvhose name appears on the Registration Books as the Owner thereof as of the close of business on the Record Date. such interest to be paid by check or draft of the Trustee mailed by first class mail. postage prepaid. on each Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books on such Record Date: provided. however. that at the written request of the Owner of at least $ I.000.000 in aggregate principal amount of Outstanding Series 2006A Bonds filed with the Trustee prior to any Record Date. interest on such Series 2006A Bonds shall be paid to such Owner on each succeeding Interest Payment Date by wire transfer of immediately available funds to an account in the United States designated in such «rittcn 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 Icss 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 August I in each of the years and in the Maturity Amounts set forth in the following schedule. The Series 2006B Bonds shall be delivered on the Closing Date in the aggregate Initial Principal Amounts set forth below. Interest on the Initial Principal Amount of the Series 2006B Bonds shall accrue and compound at the yield to their maturity set forth below (such interest being equal to the difference between the Maturity Amounts and the Initial Principal Amounts thereof): Maturity Maturity Initial Initial Principal Yield to Date Amount Principal Amount per $5.000 Maturity (Autzust I) 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 February I and August I. commencing August I. 2006. until maturity or earlier redemption thereof. computed using a year of 360 days of twelve 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. with respect to any 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. (c) The Series 2006C 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 2006C Bond shall have more than one maturity date. The Series 2006C Bonds shall be dated the Closing Date. shall mature on August I in each of the years and in the amounts. and shall bear interest (calculated on the basis of a 360- day year of twelve 30-day months) at the rates. as follows: P64 2.1055\872i 3 I.8 -1 1- Maturity Date Principal Interest Maturity Date Principal Interest (August I) Amount Rate (August I) Amount Rate (to come) Each Series 2006C 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 2006C Bond interest with respect to such Series 2006C Bond is in default. such Series 2006C 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 2006C Bond. Interest on the Series 2006C Bonds shall be payable on each Interest Payment Date to the person wvhose name appears on the Registration Books as the Owner thereof as of the close of business on the Record Date. such interest to be paid by check or draft of the Trustee mailed by first class mail. postage prepaid. on each Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books on such Record Date: provided. however. that at the written request of the Owner of at least $ 1.000.000 in aggregate principal amount of Outstanding Series 2006C Bonds filed with the Trustee prior to any Record Date. interest on such Series 2006A Bonds shall be paid to such Owner on each succeeding Interest Payment Date by \wire transfer of immediately available funds to an account in the United States designated in such «rittcn request (unless and until such request has been revoked in writing). Payments of defaulted interest with respect to the Series 2006C Bonds shall be paid by check or draft to the Owners as of a special record date to be fixed by the Trustee. notice of which special record date shall be given to the Owners not Tess than ten days prior thereto. Principal of and premium. if any. on any Series 2006C 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 2006C Bonds shall be payable in lawful money of the United States of America. Section 2.03. Redemption of Bonds. (a) Series 2006A Bonds. (I) Redemption from Optional Loan Prepayment. In the event that the Agency shall exercise its option to prepay principal installments of the Series 2006A Loan pursuant to Section 2.4(a) of the Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Series 2006A Bonds maturing on or after August I. 2() . as a whole. or in part among maturities as designated in writing by the Authority and by lot within a maturity. in integral multiples of $5.000 principal amount. on any Interest Payment Date on or after August I. 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 August I. 2() and February I. 2() `%) August I. 2() and February I. 2() August I. 2() and thereafter P6402.I055\872531.8 -12- The Authority shall provide Nvritten notice to the Trustee of any redemption pursuant to this Section 2.03(a)( I) at least 45 but not more than 90 days prior to the date fixed for such redemption. (2) Mandatory Sinking, Fund Redemption. The Series 2006A Bonds maturing on August I. 20 and August I. 20 shall also be subject to mandatory redemption by lot. on August I in each year commencing August I. 20 and August I. 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. Nvithout premium. plus accrued interest to the date of redemption. in the aggregate respective principal amounts and on August I in the respective years as set forth in the following tables: provided. however. that (i) in Iicu of redemption thereof on August I in any year. the Series 2006A Bonds may be purchased by the Agency pursuant to Section 2.3 of the Loan Agreement and tendered to the Trustee for cancellation no later than the preceding May 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 Nvith 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, August I. 20 Sinking Fund Redemption Date (August I) +Maturity. Principal Amount to be Redeemed Series 2006A Bonds Maturing, August I. 20 Sinking Fund Redemption Date (August I) +Maturity. P6402.1055\872531.8 -1 3- Principal Amount to be Redeemed (b) Series 2006B Bonds. (I) Optional Redemption. In the event that the Agency shall exercise its option to prepay installments of the Series 2006B Loan pursuant to Section 2.4(b) of the Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Series 2006B Bonds maturing on or after August I. 2() . as a whole. or in part among maturities as designated in writing by the Authority and by lot within a maturity. in integral multiples of $5.000 of Maturity Amount. on any February I or August Ion or after August I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Series 2006B Bonds on the date fixed for redemption): Redemption Redemption Dates Price August I. 2() and February I. 2() `%) August I. 2() and February I. 2() August I. 2() and thereafter The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(b)( I) at least 45 but not more than 90 days prior to the date fixed for such redemption. (c) Series 2006C Bonds. (I) Optional Redemption. In the event that the Agency shall exercise its option to prepay principal installments of the Series 2006C Loan pursuant to Section 2.4(c) of the Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Series 2006C Bonds maturing on or after August I. 2() . as a whole. or in part among maturities as designated in writing by the Authority and by lot within a maturity. in integral multiples of $5.000 principal amount. on any Interest Payment Date on or after August I. 20 . at the following respective redemption prices (expressed as a percentage of the principal amount of Series 2006C Bonds to be redeemed). plus accrued interest thereon to the date of redemption: Redemption Redemption Dates Price August I. 2() and February I. 2() `%) August I. 2() and February I. 2() August I. 2() and thereafter The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(a)( I) at least 45 but not more than 90 days prior to the date fixed for such redemption. (2) Mandatory Sinking, Fund Redemption. The Series 2006C Bonds maturing on August I. 2() and August I. 2() shall also be subject to mandatory redemption by lot. on August I in each year commencing August I. 2() and August I. 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 August I in the respective years as set forth in the following tables: provided. however. that (i) in lieu of redemption thereof on August I in any year. the Series 2006C Bonds may be purchased by the Agency pursuant to Section 2.3 of the Loan Agreement and tendered to the Trustee for cancellation no later than the P6402.10.5i\872i 31.8 - I4- preceding May 1 5. and (ii) if some but all of the Series 2006C 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 2006C Bonds Maturing, August 1. 20 Sinking Fund Redemption Date (August 1) tMaturity. Principal Amount to be Redeemed Series 2006C Bonds Maturing, August 1. 20 Sinking Fund Redemption Date (August 1) tMaturity. Principal Amount to be Redeemed (3) Extraordinary Redemption From Unreleased Special Escrow Fund Moneys. The Series 2006C Bonds shall be subject to extraordinary redemption in wvhole or in part among maturities and by lot within each maturity as designated in writing by the Authority from amounts transferred from the Special Escrow Fund to the Principal Account for such purpose pursuant to the Loan Agreement. on August 1. 20 . at a redemption price equal to percent of the principal amount thereof to be redeemed. together with accrued interest thereon to the redemption date. (d) General Redemption Provisions (1) Notice of Redemption. The Tnistcc on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books and. by such means acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the date fixed for redemption: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the series designation of the Bonds. the Bond numbers (but only if less than all of the Outstanding Bonds of such series are to be redeemed) and the maturity or maturities of the Bonds of such series (in the event of redemption of all of such Bonds of such maturity or maturities in NVhoIe) 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. P6402.1055\872531.8 -15- (2) Selection of Bonds for Redemption. With respect to the redemption of Bonds of any series. Nvheneyer provision is made in this Indenture for the redemption of less than all of such Bonds of any maturity. the Trustee shall select the Bonds to be redeemed from all Bonds of such series and maturity not previously called for redemption. by lot in any manner Nvhich the Trustee in its sole discretion shall deem appropriate under the circumstances. For purposes of selecting Series 2006A Bonds or Series 2006C Nvithin a maturity for redemption. all of the Bonds of such series shall be deemed to be comprised of separate $5.000 principal amount portions and such portions shall be treated as separate bonds Nvhich may be separately redeemed. For purposes of selecting Series 2006B Bonds Nvithin 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 Nvhich 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 Trustees certificate of authentication. and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit A attached hereto and by this reference incorporated herein. Nvith necessary or appropriate variations. omissions and insertions. as permitted or required by this Indenture. The Series 2006B Bonds. the Trustees certificate of authentication. and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit B attached hereto and by this reference incorporated herein. Nvith necessary or appropriate variations. omissions and insertions. as permitted or required by this Indenture. The Series 2006C Bonds. the Trustees certificate of authentication. and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit C attached hereto and by this reference incorporated herein. Nvith 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 Nvith the manual or facsimile signatures of its President and attested Nvith the manual or facsimile signature of its Secretary or any deputy duly appointed by the Authority Commission. and shall be delivered to the Trustee for authentication by it. In case any officer of the Authority \yho shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed shall have been authenticated or delivered by the Trustee or issued by the Authority. such Bonds may nevertheless be authenticated. delivered and issued and. upon such authentication. delivery and issue. shall be as binding upon the Authority as though the individual \yho signed the same had continued to be such officer of the Authority. Also. any Bond may be signed on behalf of the Authority by any individual \yho on the actual date of the execution of such Bond shall be the proper officer although on the nominal date of such Bond such individual shall not have been such officer. Only such of the Bonds as shall bear thereon a certificate of authentication in substantially the form set forth in Exhibit A. Exhibit B or Exhibit C. as applicable. manually executed by the Trustee. shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture. and 1)6402.10i i\872.531.8 - 16- such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.06. Transfer of Bonds. Any Bond may. in accordance Nyith its terms. be transferred. upon the Registration Books. by the person in Nvhose name it is registered. in person or by such Owners duly authorized attorney. upon surrender of such Bond for cancellation. accompanied by delivery of a Nvritten instrument of transfer in a form acceptable to the Trustee. duly executed. Whenever any Bond shall be surrendered for transfer. the Authority shall execute and the Trustee shall thereupon authenticate and deliver to the transferee a new Bond or Bonds of the same series and of like tenor. maturity and aggregate principal amount. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection Nvith 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 Nvith 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. Exchange 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 Nvith any such exchange shall be paid by the Authority. except that the Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid Nvith respect to such exchange. The Trustee shall not be required to exchange. pursuant to this Section 2.07. either (i) any Bond during the period established by the Tnistcc for the selection of Bonds for redemption. or (ii) any Bond selected for redemption pursuant to Section 2.03. Section 2.08. Temporary Bonds. The Bonds may be issued initially in temporary form exchangeable for definitive Bonds Nvhen ready for delivery. The temporary Bonds may be printed. lithographed or typewritten. shall be of such denominations as may be determined by the Authority and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and be registered and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds: provided that any temporary Bond need only be signed in the name and on behalf of the Authority Nvith the manual or facsimile signature of the Secretary. or any deputy duly appointed by the Authority Commission. and need not be attested. If the Authority issues temporary Bonds. it NyiII execute and furnish definitive Bonds Nvithout delay. and thereupon the temporary Bonds shall be surrendered. for cancellation. in exchange therefor at the Trust Office of the Trustee in Los Angeles. California (or such other location designated by the Trustee). and the Trustee shall authenticate and deliver in exchange for such temporary Bonds definitive Bonds of like series. term. maturity and aggregate Principal Amount or Maturity Amount. as applicable. in authorized denominations. Until so exchanged. the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.09. Registration Books. The Trustee Nvill keep or cause to be kept at its Trust Office sufficient records for the registration and transfer of the Bonds. Nvhich shall at all times during regular business hours be open to inspection by the Authority Nvith reasonable prior notice: and. upon presentation for such purpose. the Trustee shall. under such reasonable regulations as it may prescribe. register or transfer or cause to be registered or transferred. on such records. Bonds as hereinbefore provided. P6402.1055\872 531.8 -17- 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 Iost. destroyed or stolen. evidence of such Toss. destruction or theft may be submitted to the Trustee and. if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given. the Authority. at the expense of the Owner. shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like series and tenor in Iicu of and in substitution for the Bond so Iost. 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 Nyithout surrender thereof upon receipt of indemnity satisfactory to the Trustee). The Trustee may require payment of a reasonable fee for each nc« Bond issued under this Section 2. I0 and of the expenses \yhich may be incurred by the Authority and the Trustee. Any Bond issued under the provisions of this Section 2. I() in Iicu of any Bond alleged to be Iost. destroyed or stolen shall constitute an original contractual obligation on the part of the Authority Nyhether or not the Bond alleged to be Iost. destroyed or stolen be at any time enforceable by anyone. and shall be equally and proportionately entitled to the benefits of this Indenture Nvith all other Bonds secured by this Indenture. ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS: ISSUANCE OF BONDS Section 3.01. Issuance of Bonds. Upon the execution and delivery of this Indenture. the Authority shall execute and deliver the Series 2006A Bonds and the Series 2006B Bonds in the respective aggregate Initial Principal Amounts set forth herein and shall deliver the Bonds to the Trustee for authentication and delivery to the original purchaser thereof upon the Request of the Authority. Section 3.02. Loan Funds: Application of Proceeds of Sale of Bonds. (a) The Trustee shall establish and maintain a separate fund to be known as the "Series 2006A Loan Fund." Upon the receipt of payment for the Series 2006A Bonds on the Closing Date. the Trustee shall deposit the proceeds of sale thereof in the amount of $ in the Series 2006A Loan Fund. The Trustee shall disburse all amounts in the Series 2006A Loan Fund pursuant to Section 2.2 of the Loan Agreement. (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 2.2 of the Loan Agreement. (c) The Trustee shall establish and maintain a separate fund to be known as the "Series 2006C Loan Fund." Upon the receipt of payment for the Series 2006C Bonds on the Closing Date. the Trustee shall deposit the proceeds of sale thereof in the amount of $ in the Series 2006C Loan Fund. The Trustee shall disburse all amounts in the Series 2006B Loan Fund pursuant to Section 2.2 of the Loan Agreement. Section 3.03. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be affected in any Nvay by any proceedings taken by the Agency Nyith respect to the application of the proceeds of the Loans. and the recital contained in the Bonds that the same are issued P6402.1055\872531.8 -I8- pursuant to the Bond Law shall be conclusive evidence of their validity and of the regularity of their issuance. ARTICLE IV REVENUES: FLOW OF FUNDS Section 4.01. Pledtze of Revenues: Assiwiment of Rights. Subject to the provisions of Section 6.03. the Bonds shall be secured by a first lien on and pledge (which shall be effected in the manner and to the extent hereinafter provided) of all of the Revenues. The Bonds shall be equally secured by a pledge. charge and 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 Tien upon the Revenues. So Tong as any of the Bonds are Outstanding. the Revenues shall not be used for any other purpose: except that out of the Revenues there may be apportioned such sums. for such purposes. as are expressly permitted by Section 4.02. The Authority hereby transfers in trust and assigns to the Trustee. for the benefit of the Owners from time to time of the Bonds. all of the Revenues and all of the right. title and interest of the Authority in the Loan Agreement (other than the rights of the Authority under Section 5.04 thereof). The Trustcc shall be entitled to and shall receive all of the Revenues. and any Revenues collected or received by the Authority shall be deemed to be held. and to have been collected or received. by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and. subject to the provisions hereof. shall take all steps. actions and proceedings reasonably necessary in its judgment to enforce. either jointly with the Authority or separately. all of the rights of the Authority and all of the obligations of the Agency under the Loan Agreement. Section 4.02. Receipt. Deposit and Application of Revenues. (a) Deposit of Revenues. Revenue Fund. All Revenues described in clause (i) of the definition thereof in Section 1.0I shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the "Revenue Fundy which the Trustee shall establish. maintain and hold in trust hereunder. (b) Application of Revenues: Accounts. On or before each Interest Payment Date. the Trustee shall transfer from the Rcycnuc Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Rcycnuc Fund). the following amounts in the following order of priority. the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: (I) Interest Account. On or before each Interest Payment Date. the Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest coming due and payable on such Interest Payment Date on all Outstanding Series 2006A and Series 2006C 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 and Series 2006C Bonds on the next succeeding Interest Payment Date. All moneys in the Interest Account shall be used and Nvithdrawn by the Trustee solely for the purpose of paying the interest on the Series 2006A Bonds and Series 2006C as it shall become due and payable (including accrued interest on any Series 2006A Bonds or Series 2006C 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 1)6402.10i i\872.531.8 - 19- pay any interest then having come due and payable on the Outstanding Series 2006A or Series 2006C Bonds. shall be withdrawn therefrom by the Trustee and transferred to the Agency to be used for any lawful purposes of the Agency. (2) Principal Account. On or before each date on wvhich the principal of the Bonds shall be payable. the Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal (i) the Principal Amount of the Bonds coming due and payable on such date pursuant to Section 2.02. and (ii) the Principal Amount of the Bonds subject to mandatory sinking fund redemption on such date pursuant to Section 2.03(a)(2) or 2.03(c)(2). All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the Principal Amount of the Bonds (i) at the maturity thereof. or (ii) upon mandatory sinking fund redemption thereof. All amounts on deposit in the Principal Account on the first day of any Bond Year. to the extent not required to pay the principal of any Outstanding Bonds then haying come due and payable. shall be withdrawn therefrom and transferred to the Agency to be used for any lawful purposes of the Agency. (3) Redemption Account. The Trustee. at any time that the Agency shall exercise its option to prepay principal installments of the Loans pursuant to Section 2.4 of the Loan Agreement. shall deposit the Revenues derived from such prepayment in the Redemption Account (which the Trustee shall also establish and maintain within the 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 Tnistcc shall invest any such moneys in Permitted Investments described in Paragraph D of the definition thereof. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the fund or account from which such investment was made. For purposes of acquiring any investments hereunder. the Trustee may commingle funds held by it hereunder. The Tnistcc may (but shall not be obligated to) act as principal or agent in the acquisition or disposition of any investment. The Trustee shall incur no liability for losses arising from any investments made at the direction of the Authority. or otherwise made pursuant to this Section. The 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 1.0I which embody legal conclusions (e.g.. the existence. validity and perfection of security interests in collateral). the Trustee shall be entitled to rely conclusively on an opinion of counsel or upon a representation of the provider of such Permitted Investment obtained at the Authority's or the Agency's expense. P6402.1055\872 S31.8 -20- Except as specifically provided in this Indenture. the Trustee shall not be liable to pay interest on any moneys received by it. but shall be liable only to account to the Authority and the Agency for earnings derived from funds that have been invested. The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur. the Authority specifically \valves receipt of such confirmations to the extent permitted by law. The Trustee Nvill furnish the Authority periodic cash transaction statements Nyhich include detail for all investment transactions made by the Trustee hereunder. The Trustee or any of its affiliates may act as sponsor. advisor or manager in connection Nyith any investments made by the Trustee hereunder. Section 4.04. Valuation and Disposition of Investments. For the purpose of determining the amount in any fund or account established hereunder or under the Loan Agreement. any investments credited to such fund or account shall be valued at least annually. on or before July I. at the market value thereof. In making any valuations hereunder the Trustee may utilize computerized securities pricing services that may be available to it. including those available through its regular accounting system. ARTICLE V COVENANTS OF THE AUTHORITY Section 5.01. 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 Nyith the terms of the Bonds and of this Indenture. according to the true intent and meaning thereof. but only out of Revenues and other assets pledged for such payment as provided in this Indenture. Section 5.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement. and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended. such Bonds or claims for interest shall not be entitled. in case of any default hereunder. to the benefits of this Indenture. except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon Nvhich shall not have been so extended. Nothing in this Section 5.02 shall be deemed to limit the right of the Authority to issue bonds or other obligations for the purpose of refunding any Outstanding Bonds. and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Section 5.03. Aizainst Encumbrances. The Authority shall not create. or permit the creation of. any pledge. Tien. charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture Nvhile any of the Bonds are Outstanding. except the pledge and assignment 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 Pledize and Assiwnment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues. the Loan Agreement and other assets purported to be pledged and assigned. respectively. under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and Nyill be the legal. valid and binding special obligations of the Authority in accordance Nyith their terms. and the Authority shall at all times. to the extent permitted by P6402.1055\872 S31.8 -2 I - law. defend. preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the ON\ners under this Indenture against all claims and demands of all persons Nyhomsoeyer. Section 5.05. Accounting, Records and Financial Statements. The Trustee shall at all times keep. or cause to be kept. proper books of record and account. prepared in accordance Nvith corporate trust industry standards. in Nyhich complete and accurate entries shall be made of all transactions made by the Trustee relating to the proceeds of Bonds. the Revenues. the Loan Agreement and all funds and accounts established pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority and the Agency. during regular business hours Nyith reasonable prior notice. Section 5.06. No Additional Indebtedness. Except for the Bonds. the Authority shall not incur any indebtedness payable out of the Revenues. (For clarification. this provision does not prohibit the Agency from incurring additional debt secured by Tax Revenues. so long as the incurrence of such debt is in compliance Nyith the Loan Agreement.) Section 5.07. Tax Covenants. (a) The Authority covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the interest on the Bonds. and for no other purpose. the Authority \\ill satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Authority agrees to comply Nyith such Nvritten instructions as may be provided by Bond Counsel. (b) The Authority covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nvould cause the Bonds to become arbitrage bonds. as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nyith the rebate requirements of Section 148 of the Codc. the Authority further covenants that it \\ill 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 \\ill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nyith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Authority covenants that it \\ill not take anv action or omit to take any action. Nyhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nvould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. (d) The Authority covenants that it \\ill not use or permit the use of any property financed Nyith the proceeds of the Bonds bv anv person (other than a state or local governmental unit) in such manner or to such extent as Nvould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. (c) Notwithstanding any provision of this Indenture. and except as provided below. the Authority covenants that none of the moneys contained in anv 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 anv agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured bv the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested directly or indirectly in obligations guaranteed (in NyhoIe or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys P6402.1055\872 531.8 -22- held in the Rcycnuc Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 I I (a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under this Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 5.08. Loan Agreement. The Trustee. as assignee of the Authority's rights pursuant to Section 4.01. shall receive all amounts due from the Agency pursuant to the Loan Agreement and. upon an Event of Default. shall diligently enforce. and take all steps. actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations of the Agency thereunder. The Loan Agreement may be amended or modified pursuant to the applicable provisions thereof. but only Nyith the «rittcn consent of the Insurer (as Tong as the Insurance Policy is in full force and effect) and only: (i) if the Authority. the Agency or the Trustee first obtains the «rittcn consent of the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding to such amendment or modification. provided. however. that no such amendment or modification shall (a) extend the maturity of or reduce the amount of interest or principal payments on a Loan. or otherwise alter or impair the obligation of the Agency to pay the principal. interest or prepayment premiums on a Loan at the time and place and at the rate and in the currency provided therein. Nyithout the express «rittcn consent of the Owner of each affected Bond. (b) reduce the percentage of the Bonds required for the «rittcn consent to any such modification or amendment thereof or hereof. or (c) Nyithout its «rittcn consent thereto. modify any of the rights or obligations of the Trustee: or (ii) Nyithout the consent of any of the Owners. if such amendment or modification does not modify the rights or obligations of the Trustee Nyithout its prior «rittcn consent. and is for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency contained in the Loan Agreement other covenants and agreements thereafter to be observed. or to limit or surrender any rights or power therein reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: (b) to make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in the Loan Agreement. or in any other respect Nvhatsoever as the Agency and the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds: (c) to amend any provision thereof relating to the Code. to any extent Nvhatsoever but only if and to the extent such amendment Nvill not adversely affect the exclusion from gross income for federal income tax purposes of interest on any of the Bonds under the Code. in the opinion of Bond Counsel: or (d) to provide for the issuance of Parity Debt under and in accordance with the provisions of the Loan Agreement. Nothing in this Section 5.08 shall prevent the Agency and the Authority. with the «rittcn consent of the Insurer (as 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 P64U2. I U.5.5\872.31.8 -23- 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 Nvritten consent. The Tnistcc shall be entitled to rely upon the opinion of Bond Counsel stating that the requirements of this Section 5.08 have been met with respect to any amendment or modification of the Loan Agreement. Section 5.09. Further Assurances. The Authority Nvill adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture. and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in this Indenture. ARTICLE VI THE TRUSTEE Section 6.0I I. Appointment of Trustee. Wells Fargo Bank. National Association. a national banking association organized and existing under and by virtue of the lays of the United States of America. Nvith 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 «ith the Trustee hereunder and to allocate. use and apply the same as provided in this Indenture. The Authority agrees that it Nvill 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 6.0I the combined capital and surplus of such financial institution shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee is hereby authorized to pay the principal of and interest and redemption premium. if any. on the Bonds Nyhen duly presented for payment at maturity. or on redemption or purchase prior to maturity. and to cancel all Bonds upon payment thereof. The Trustee shall keep accurate records of all funds administered by it and of all Bonds paid and discharged. Section 6.02. Acceptance of Tnists. The Trustee hereby accepts the trusts imposed upon it by this Indenture. and agrees to perform said trusts. but only upon and subject to the following express terms and conditions: (a) The Trustee. prior to the occurrence of an EN ent of Default and after curing of all Events of Default which may have occurred. undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants. duties or obligations shall be read into this Indenture against the Trustee. In case an Event of Default hereunder has occurred (which has not been cured or \valved). the Trustee may exercise such of the rights and powers vested in it by this 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 P6402.1055\872 531.8 -24- assurance. or for the validity of this Indenture or the Loan Agreement. or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby. or the tax status of the interest on the Bonds. and the Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants. conditions or agreements on the part of the Authority hereunder. (d) The Trustee (including its officers and employees) may become the Owner of Bonds secured hereby Nvith the same rights Nyhich it Nvould have if not the Trustee: may acquire and dispose of other bonds or evidences of indebtedness of the Authority Nvith the same rights it Nvould have if it \sere not the Trustee: and may act as a depositary for and permit any of its officers or directors to act as a member of. or in any other capacity Nvith respect to. any committee formed to protect the rights of Owners of Bonds. Nvhether or not such committee shall represent the Owners of the majority in aggregate Principal Amount of the Bonds then Outstanding. The Trustee. either as principal or agent. may engage in or be interested in any financial or other transaction Nvith the Authority. (e) The Trustee shall be protected in acting upon any Report. notice. request. consent. certificate. order. affidavit. letter. direction. telegram. facsimile transmission. electronic mail or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons and need not make any investigation into the facts or matters contained therein. Any action taken or omitted to be taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person \yho at the time of making such request or giving such authority or consent is the Owner of any Bond. shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. The Trustee shall not be bound to recognize any person as an Owner of any Bond or to take any action at his request unless the ownership of such Bond by such person shall be reflected on the Registration Books. (f) As to the existence or non-existence of any fact or as to the sufficiency or validity of any instrument. paper or proceeding. the Trustee shall be entitled to rely upon a Certificate of the Authority as sufficient evidence of the facts therein contained and prior to the occurrence of an Event of Default hereunder of Nvhich the Trustee has been given notice or is deemed to have notice. as provided in Section 6.02(h). shall also be at liberty to accept a Certificate of the Authority to the effect that any particular dealing. transaction or action is necessary or expedient. but may at its discretion secure such further evidence deemed by it to be necessary or advisable. but shall in no case be bound to secure the same. (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or �yillfuI misconduct. The immunities and exceptions from liability of the Trustee shall extend to its officers. directors. employees and agents. In the absence of negligence or misconduct. the Trustee shall not be liable for any error of judgment. (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 «citing of such default by the Authority. the Insurer or by the Owners of at least 25 percent in aggregate principal amount of the Bonds then Outstanding and all notices or other instruments required by this Indenture to be delivered to the Trustee must. in order to be effective. be delivered at the Trust Office of the Trustee in Los Angeles. California. and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default hereunder except as aforesaid. (i) At any and all reasonable times the Trustee. and its duly authorized agents. attorneys. experts. accountants and representatives. shall have the right. but not the obligation. fully to P6402.1055\872 S31.8 -25- 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 Nvhatsoeyer within the purview of this Indenture. the Trustee shall have the right. but shall not be required. to demand any showings. certificates. opinions. appraisals or other information. or corporate action or evidence thereof. as may be deemed desirable for the purpose of establishing the right of the Authority to the execution of any Bonds. the withdrawal of any cash. or the taking of any other action by the Trustee. (I) Before taking action referred to in Section 6.05. Section 8.02 or the first paragraph of Section 5.08. the Trustee may require that a satisfactory_ indemnity bond be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability. except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any such action. (m) All moneys received by the Trustee shall. until used or applied or invested as herein provided. be held in trust for the purposes for which they \were received but need not be segregated from other funds except to the extent required by law. (n) The Trustee shall have no liability or obligation to the Bond Owners with respect to the payment of debt service by the Authority or with respect to the observance or performance by the Authority of the other conditions. covenants and terms contained in this Indenture. or with respect to the investment of any moneys in any fund or account established. held or maintained by the Authority pursuant to this Indenture or otherwise. (o) The Trustee makes no covenant. representation or warranty concerning the current or future tax status of interest on the Bonds. The Trustee need only keep accurate records of all investments and funds. and send rebate payments to the United States in accordance with explicit instructions from the Authority. (p) The Trustee shall have no responsibility with respect to any information. statement. or recital in any official statement. offering memorandum or any other disclosure material prepared or distributed with respect to the issuance of the Bonds. (q) Loan Agreement. The Trustee in its capacity as Trustee is authorized and directed to execute the (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 w ithout 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 P6402.1055\872 531.8 -26- 6.02(r). the Trustcc notify the Authority and the Agency in «citing «ithin five business days after (i) the occurrcncc of the event giving rise to the unavoidable delay. (ii) the Trustees actual knowledge of the impending unavoidable delay. or (iii) the Trustees knowledge of sufficient facts under which a rcasonablc person would conclude the unavoidable delay will occur. (s) The Trustcc 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 Trustcc 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 dcsignatcd and authorized to sign for the party signing such instructions and/or directions. and (iii) the Trustcc shall have received a current incumbency certificate containing the specimen signature of such dcsignatcd person. Section 6.03. Fccs. Charzes and Expenses of Trustcc. The Trustcc shall be entitled to payment and rcimburscmcnt for rcasonablc fccs for its services rendered hereunder and all advances (with interest on such advances at the maximum rate allowed by lacy). counsel fccs 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 Trustcc in connection with such services. which payment and reimbursement shall not be limited by any provision of lacy in regard to the compensation of a trustee of an express trust. Upon the occurrcncc of an Event of Default hereunder. but only upon an Event of Default. the Trustcc shall have a first lien with right of payment prior to payment of any Bond upon the amounts held hereunder for the foregoing fccs. charges and expenses incurred by it respectively. which right to payment shall survive the resignation or removal of the Trustcc. Section 6.04. Notice to Owners of Default. !fan Event of Default hereunder occurs with respect to any Bonds of which the Trustcc has bccn given or is deemed to have notice. as provided in Section 6.02(h). then the Trustcc shall promptly given «cittcn notice thereof by first-class mail to the Owner of each such Bond. unless such Event of Default shall have bccn 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 \yhen due. the Trustcc may elect not to give such notice if and so long as the Trustcc in good faith determines that such Event of Default does not materially adversely affect the interests of the Owners or that it is othenyisc not in the best interests of the Owners to give such notice. Section 6.05. Intervention by Trustcc. In any judicial proceeding to which the Authority is a party which. in the opinion of the Trustcc. has a substantial bearing on the interests of Owners of any of the Bonds. the Trustcc may intervene on behalf of such Owners. and subject to Section 6.02(I). shall do so if requested in writing by the Owners of a majority in aggrcgatc Principal Amount of such Bonds then Outstanding. Section 6.06. Removal of Trustcc. The ON\ncrs of a majority in aggrcgatc 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 Eycnt of Default shall hays occurred and then be continuing. remove the Trustcc initially appointed. and any successor thcrcto. by an instrument or concurrent instruments in «citing delivered to the Tnistcc. «hereupon the Authority or such ON\ncrs. as the case may bc. shall appoint a successor or successors thcrcto: provided that any such successor shall be a financial institution meeting the requirements set forth in Section 6.0I I. Section 6.07. Resitznation by Trustcc. The Trustcc and any successor Trustcc may at any time ON «cittcn notice of its intention to resign as Trustcc 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 Trustcc. Any resignation or removal of the Trustcc and appointment of a successor Trustcc shall become effective upon acceptance of appointment by the P6402.1055\872 S31.8 -27- successor Trustee. Upon such acceptance. the Authority shall cause notice thereof to be given by first class mail. postage prepaid. to the Bond Owners at their respective addresses set forth on the Registration Books. Section 6.08. Appointment of Successor Trustee. In the event of the removal or resignation of the Trustee pursuant to Sections 6.06 or 6.07. respectively. with the prior written consent of Agency. the Authority shall promptly appoint a successor Trustee. In the event the Authority shall for any reason Nvhatsoeyer fail to appoint a successor Trustee within 60 days following the delivery to the Trustee of the instrument described in Section 6.06 or within 60 days following the receipt of notice by the Authority pursuant to Section 6.07. the Trustee may. at the expense of the Authority. apply to a court of competent jurisdiction for the appointment of a successor Trustee meeting the requirements of Section 6.0 I . Any such successor Trustee appointed by such court shall become the successor Trustee hereunder notwithstanding any action by the Authority purporting to appoint a successor Trustee following the expiration of such sixty-day period. Section 6.09. Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank or trust company resulting from any merger. conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business. provided such bank or trust company shall be eligible under Section 6.0I. shall be the successor to such Trustee without the execution or filing of any paper or further act. except as provided in Section 6.10. Section 6.10. Concerning, any Successor Trustee. Every successor Trustee appointed hereunder shall execute. acknowledge and deliver to its predecessor and also to the Authority an instrument in writing accepting such appointment hereunder and thereupon such successor. without any further act. deed or conveyance. shall become fully vested with all the estates. properties. rights. powers. trusts. duties and obligations of its predecessors: but such predecessor shall. nevertheless. on the Request of the Authority. or of the Trustees successor. execute and deliver an instrument transferring to such successor all the estates. properties. rights. powers and trusts of such predecessor hereunder: and every predecessor Trustee shall deliver all securities and moneys held by it as the Trustee hereunder to its successor. Should any instrument in writing from the Authority be required by any successor Trustee for more fully and certainly vesting in such successor the estate. rights. powers and duties hereby vested or intended to be vested in the predecessor Trustee. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. Section 6. I I . Appointment of Co -Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or 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. I I are adopted to these ends. In the event that the Trustee or the Authority appoints an additional individual or institution as a separate or co -trustee. each and every remedy. power. right. claim. demand. cause of action. immunity. estate. title. interest and 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 P6402.1055\x72; 31.8 -28- but only to the extent necessary to enable such separate or co -trustee to exercise such powers. rights and remedies. and every covenant and obligation necessary to the exercise thereof by such separate or co - trustee shall run to and be enforceable by either of them. The Trustee shall not be liable for the acts or omissions of any separate or co -trustee appointed hereunder. Should any instrument in writing from the Authority be required by the separate trustee or co -trustee so appointed by the Trustee for more fully and certainly vesting in and conforming to it such properties. rights. powers. trusts. duties and obligations. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. In case any separate trustee or co - trustee. or a successor to either. shall become incapable of acting. resign or be removed. all the estates. properties. rights. powers. trusts. duties and obligations of such separate trustee or co -trustee. so far as permitted by law. shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co -trustee. Section 6.12. Indemnification: Limited Liability of Trustee. The Authority further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any loss. expense and liabilities which it may incur arising out of or in the exercise and performance of its powers and duties hereunder. including the costs of expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities which are due to the negligence or intentional misconduct of the Trustee. its officers. directors or employees. No provision in this Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability hereunder if it shall have reasonable grounds for believing repayment of such funds or adequate indemnity against such liability or risk is not assured to it. The Trustee shall not be liable for any action taken or omitted to be taken by it in accordance with the direction of the Insurer or the Owners of at least a majority in aggregate Principal Amount of Bonds Outstanding relating to the time. method and place of conducting any proceeding or remedy available to the Trustee under this Indenture in exercising any trust or power conferred on the Tnistcc by this Indenture. The obligations of the Authority under this Section shall survive the payment and discharge of the Bonds or the resignation or removal of the Trustee under this Indenture. ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE Section 7.0I I. Amendment Hereof. This Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental 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 (b) To make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in this Indenture. or in any other respect Nvhatsoeyer as the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall either (i) conform to the original intention of the Authority. or (ii) not materially adversely affect the interests of the Owners of the Bonds in the reasonable judgment of the Authority: or P6402.1055\872531.8 -29- (c) To amend any provision hereof relating to the Code. to any extent Nvhatsoever but only if and to the extent such amendment \\ill not adversely affect the exclusion from gross income of interest on any of the Bonds under the Code. in the opinion of Bond Counsel. Except as set forth in the preceding paragraphs of this Section 7.0I. this Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture Nvhich shall become binding \yhen the «rittcn consent of the Insurer (as Tong 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 Nvith the Trustee. No such modification or amendment shall (i) extend the maturity of or reduce the interest rate on any Bond or othenvise alter or impair the obligation of the Authority to pay the principal. interest or premiums. if any. at the time and place and at the rate and in the currency provided therein of any Bond Nvithout the express «rittcn consent of the Owner of such Bond or (ii) reduce the percentage of Bonds required for the «rittcn consent to any such amendment or modification. In no event shall any Supplemental Indenture modify any of the rights or obligations of the Trustee Nyithout its prior «rittcn consent. Section 7.02. Effect of Supplemental Indenture. From and after the time any Supplemental Indenture becomes effective pursuant to this Article VII. this Indenture shall be deemed to be modified and amended in accordance therewith. the respective rights. duties and obligations of the parties hereto or thereto and all Owners of Outstanding Bonds. as the case may be. shall thereafter be determined. exercised and enforced hereunder subject in all respects to such modification and amendment. and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 7.03. Endorsement or Replacement of Bonds After Amendment. After the effective date of any action taken as 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. ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN. SO LONG AS THE INSURANCE POLICY REMAINS IN EFFECT AND THE INSURER HAS NOT DEFAULTED WITH RESPECT TO ITS PAYMENT OBLIGATIONS UNDER THE INSURANCE POLICY. ALL PROVISIONS OF THIS ARTICLE VIII SHALL BE SUBJECT TO. AND QUALIFIED BY. THE PROVISIONS SET FORTH IN ARTICLE IX. INCLUDING. WITHOUT LIMITATION. THE INSURERS RIGHT TO CONSENT TO ACCELERATION OF THE BONDS. AND THE INSURERS RIGHT TO CONSENT TO OR DIRECT CERTAIN AUTHORITY. TRUSTEE OR OWNER ACTIONS. Section 8.0I I. Events of Default. The following events shall be Events of Default hereunder: P6402.1 c055\872 531.8 -30- (a) Default in the due and punctual payment of the principal of any Bond w hen and as the same shall become due and payable. whether at maturity as therein expressed. by proceedings for redemption. by declaration or otherwise. (b) Default in the due and punctual payment of any installment of interest on an Bond when and as such interest installment shall become due and payable. (c) Failure by the Authority to observe and perform any of the covenants. agreements or conditions on its part in this Indenture or in the Bonds contained. other than as referred to in the preceding Paragraphs (a) and (b). for a period of 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. 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 P6402.1055\872 531.8 -3I- «waive such Event of Default: but no such rescission and annulment shall extend to or shall affect anv 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(I). the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article VIII. as the Tnistcc. being advised by counsel. shall deem most expedient in the interest of the Bond Owners. No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Owners) is intended to be exclusive of any other remedy. but each and every such remedy shall be cumulative and shall be in addition to anv 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 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 «hole 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 pav in full the full amount of such interest and principal. then such amounts shall be applied in the following order of priority: (i) first. to the payment of all installments of interest on the Bonds then due and unpaid. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. (ii) second. to the payment of principal of all installments of the Bonds then due and payable. on a pro rata basis in the event that the available amounts are insufficient to pav all such principal in full. and (iii) third. to the payment of interest on overdue installments of principal and interest. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. P6402.1055\872 531.8 -32- 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. hether 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. Nvith respect to the continuance. discontinuance. Nvithdrawal. compromise. settlement or other disposal of such action: provided. how ever. that the Trustee shall not. unless there no longer continues an Event of Default. discontinue. Nvithdraw. compromise or settle. or othenvise dispose of an litigation pending at lacy or in equity. if at the time there has been filed \yith it a Nvritten request signed by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds hereunder opposing such discontinuance. Nvithdrawal. compromise. settlement or other disposal of such litigation. Any suit. action or proceeding which any Owner shall have the right to bring to enforce an 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 (awful 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. Nvith such powers as the court making such appointment shall confer. Section 8.06. Non -Waiver. Nothing in this Article VI I I or in any other provision of this Indenture. or in the Bonds. shall affect or impair the obligation of the Authority. 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 Nvaiyer of any default or breach of duty or contract by the Trustee or any Owners shall not affect any subsequent default or breach of duty or contract. or impair 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 Nvaiyer of any such default or any acquiescence therein: and every power and remedy conferred upon the Trustee or Owners by the Bond Law or by this Article VIII may be enforced and exercised. upon an Event of Default. from time to time and as often as shall be deemed expedient by the Trustee or the Owners. as the case may be. Section 8.07. Limitation on Rights and Remedies of Owners. No Owner shall have the right to institute any suit. action or proceeding at lacy or in equity. for any remedy under or upon this Indenture. unless (i) such Owner shall have previously given to the Trustee «rittcn notice of the occurrence of an Event of Default: (ii) the Owners of a majority in aggregate Principal Amount of all the Bonds then Outstanding shall have made «rittcn request upon the Trustee to exercise the powers hereinbefore granted or to institute such action. suit or proceeding in its own name: (iii) said Owners shall 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 «rittcn request shall have been received by. and said tender of indemnity shall have been made to. the Trustee. P6402.1055\872 531.8 Such notification. request. tender of indemnity and refusal or omission are hereby declared. in eyery case. to be conditions precedent to the exercise by an Owner of an remedy hereunder: it being understood and intended that no one or more Owners shall have any right in any manner NVhateyer by the Owner or Ow ners" action to enforce an right under this Indenture. except in the manner herein provided. and that all proceedings at law or in equity to enforce an 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 an Owner of an Bond to receive payment of the principal of and interest and premium. if an. 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 othenvise. 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 Trustcc shall continue as if no such proceedings had been taken. ARTICLE IX BOND INSURANCE (to come) ARTICLE X BOOK -ENTRY SYSTEM Section 10.01 Book-Entnv System: Limited Obligation of Authority. The Bonds shall be initially delivered in the form of a separate single fully registered Bond (which may be typewritten) for each of the maturities of the Bonds. Upon initial delivery. the ownership of each such Bond shall be registered in the registration books kept by the Trustee in the name of the Nominee as nominee of the Depository. Except as provided in Section 10.03. all of the Outstanding Bonds shall be registered in the registration books kept by the Trustee in the name of the Nominee. With respect to Bonds registered in the registration books kept by the Trustee in the name of the Nominee. the Authority and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence. the Authority and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository. the Nominee. or any Participant with respect to any ownership interest in the Bonds. (ii) the delivery to any Participant or any other person. other than an Owner as shown in the registration books kept by the Trustee. of any notice with respect to the Bonds. including any notice of redemption. (iii) the selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed in the event the Bonds are redeemed in part. or (iv) the payment to any Participant or any other person. other than an Owner as shown in the registration books kept by the Trustee. of any amount with respect to principal of. premium. if any. or interest due with respect to the Bonds. The Authority and the Trustee may treat and consider the person in whose name each Bond is registered in the registration books kept by the Trustcc as the holder and absolute owner of such Bond for the purpose of payment of principal. premium. if any. and interest with 1)6402.10.5.5 \872.531.8 -34- respect to such Bond. for the purpose of giving notices of redemption and other matters with respect to such Bond. for the purpose of registering transfers with respect to such Bond. and for all other purposes Nvhatsoeyer. The Trustee shall pay all principal of. premium. if any. and interest due with respect to the Bonds only to or upon the order of the respective Owners. as shown in the registration books kept by the Trustee. or their respective attorneys duly authorized in writing. and all such payments shall be valid and effective to satisfy and discharge fully the Authority's obligations with respect to payment of the principal. premium. if any. and interest due with respect to the Bonds to the extent of the sum or sums so paid. No person other than an Owner. as shown in the registration books kept by the Trustee. shall receive a Bond evidencing the obligation of the Authority to make payments of principal. premium. if any. and interest pursuant to this Indenture. Upon delivery by the Depository to the Trustee and the Authority of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee. and subject to the provisions herein with respect to Record Dates. the word Nominee in this Indenture shall refer to such new nominee of the Depository. Section 10.02 Representation Letter. In order to qualify the Bonds for the Depository's book entry system. the Authority has heretofore executed and delivered to such Depository the Representation Letter. The execution and delivery of a Representation Letter shall not in any way impose upon the Authority or the Tnistee any obligation Nvhatsoeyer with respect to persons having interests in the Bonds other than the Owners. as shown on the registration books kept by the Trustee. The Trustee agrees to take all action necessary to continuously comply with the Representation Letter to the extent that such action is not inconsistent with this Indenture. In addition to the execution and delivery of the Representation Letter. the officers of the Authority 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 NViII discontinue the book -entry system with the Depository. If the Authority fails to identify another qualified securities depository to replace the Depository. then the Bonds so designated shall no longer be restricted to being registered in the registration books kept by the Trustee in the name of the Nominee. but shall be registered in Nvhateyer name or names persons transferring or exchanging Bonds shall designate. in accordance with the provisions of Section 2.09. Section 10.04 Payments to the Nominee. Notwithstanding any other provisions of this Indenture to the contrary. so long as any Bond is registered in the name of the Nominee. all payments with respect to principal. premium. if any. and interest due with respect to such Bond and all notices with respect to such Bond shall be made and given. respectively. as provided in the Representation Letter or as 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 K. Co.. as Nominee of The Depository Trust Company. New York. New York. ARTICLE XI MISCELLANEOUS Section l l .0l . 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 P6402.1055\872531.8 - 5- amounts payable under the Loan Agreement). The Authority may. however. advance funds for any such purpose. provided that such funds are derived from a source legally available for such purpose and may be used by the Authority for such purpose Nyithout incurring indebtedness. The Bonds shall be revenue bonds. payable exclusively from the Rcycnucs and other funds as in this Indenture provided. The general fund of the Authority is not liable. and the credit of the Authority is not pledged. for the payment of the interest and premium. if any. on or principal of the Bonds. The Owners of the Bonds shall never have the right to compel the forfeiture of any property of the Authority. The principal of and interest on the Bonds. and any premiums upon the redemption of any thereof. shall not be a legal or equitable pledge. charge. Tien or encumbrance upon any property of the Authority or upon any of its income. receipts or revenues except the Rcycnucs and other funds pledged to the payment thereof as in this Indenture provided. Section 11.02. Benefits of Indenture Limited to Parties. Nothing in this Indenture. expressed or implied. is intended to give to any person other than the Authority. the Trustee. the Agency. the Insurer. and the Owners of the Bonds. any right. remedy or claim under or by reason of this Indenture. Any covenants. stipulations. promises or agreements in this Indenture contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the Trustee. the Agency. the Insurer. and the Owners of the Bonds. Section 11.0 3. Discharge of Indenture. If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following \Nays: (a) By \yell and truly paying or causing to be paid the principal of and interest and premium. if any. on such Bonds. as and Nyhcn the same become due and payable: (b) By irrevocably depositing with the Trustee. in trust. at or before maturity. money which. together with the available amounts then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. is fully sufficient to pay such Bonds. including all principal. interest and premiums. if any: or (c) By irrevocably depositing with the Trustee or any other fiduciary. in trust. non -callable Defeasance Obligations in such amount as an Independent Accountant shall determine \yill. together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal. interest and redemption premiums) at or before their respective maturity dates: and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been sent pursuant to Section 2.03 or provision satisfactory to the Trustee shall have been made for the sending of such notice. then. at the Request of the Authority. and notwithstanding that any of such Bonds shall not have been surrendered for payment. the pledge of the Rcycnucs 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 Tnistcc's and the Insurers expenses and costs. shall be paid over to the Authority. Section 11.04. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture or any Supplemental Indenture the Authority is named or referred to. such reference shall be deemed to include the successor to the powers. duties and functions. with respect to the management. administration and control of the affairs of the Authority. that are presently vested in the P6402.1055\872531.8 -36- Authority. and all the covenants. agreements and provisions contained in this Indenture by or on behalf of the Authority shall bind and inure to the benefit of its successors whether so expressed or not. Section 11.05. Content of Certificates. Every Certificate of the Authority with respect to compliance with a condition or covenant provided for in this Indenture shall include (i) a statement that the person or persons making or giving such Certificate have read such covenant or condition and the definitions herein relating thereto: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Certificate are based: (iii) a statement that. in the opinion of the signers. they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with: and (iv) a statement as to whether. in the opinion of the signers. such condition or covenant has been complied with. Any such certificate made or given by an officer of the Authority may be based. insofar as it relates to legal matters. upon a certificate or opinion of or representations by counsel. unless such officer knows that the certificate or opinion or representations with respect to the matters upon \Vhich 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 11.06. 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 11.06. The fact and date of the execution by any person of any such request. consent or other instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer of any jurisdiction. authorized by the laws thereof to take acknowledgments of deeds. certifying that the person signing such request. consent or other instrument or writing acknowledged to him the execution thereof. The ownership of Bonds shall be proved by the Registration Books. Any request. consent or vote of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of any Bond issued in exchange therefor or in Iicu thereof. in respect of anything done or suffered to be done by the Trustee or the Authority in pursuance of such request. consent or vote. In Iicu of obtaining any demand. request. direction. consent or Nvaiyer in writing. the Trustee may call and hold a meeting of the Bond Owners upon such notice and in accordance with such rules and obligations as the Trustee considers fair and reasonable for the purpose of obtaining any such action. Section 11.07. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand. request. direction. consent or Nvaiyer under this Indenture. Bonds which are owned or held by or for the account of the Agency or the Authority (but excluding Bonds held in any employees" retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. provided. however. only Bonds which a responsible officer of the Trustee actually knows to be so owned or held shall be disregarded. P6402.1055\872 S31.8 -37- Section 11.08. Waiver of Personal Liability. No officer. agent or employee of the Authority shall be individually or personally liable for the payment of the interest on or principal of the Bonds: but nothing herein contained shall relieve any such officer. agent or employee from the performance of any official duty provided by law. Section 11.09. Partial Invalidity. If any one or more of the covenants or agreements. or portions thereof. provided in this Indenture on the part of the Authority (or of the Trustee) to be performed should be contrary to law. then such covenant or covenants. such agreement or agreements. or such portions thereof. shall be null and void and shall be deemed separable from the remaining covenants and agreements or portions thereof and shall in no Nvay 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 Nvould have entered into this Indenture and each and every other section. paragraph. subdivision. sentence. clause and phrase hereof and Nvould have authorized the issuance of the Bonds pursuant hereto irrespective of the fact that any one or more sections. paragraphs. subdivisions. sentences. clauses or phrases of this Indenture or the application thereof to any person or circumstance may be held to be unconstitutional. unenforceable or invalid. Section 1 1.10. Destruction of Cancelled Bonds. Whenever in this Indenture provision is made for the surrender to the Trustee of any Bonds Nvhich have been paid or cancelled pursuant to the provisions of this Indenture. the Trustee shall. as permitted by law. destroy such cancelled Bonds and. upon Request of the Authority. provide to the Authority a certificate of destruction duly executed by the Trustcc. and the Authority shall be entitled to rely upon any statement of fact contained in such certificate Nvith respect to the destruction of any such Bonds therein referred to: provided. however. the Authority shall reimburse the Trustee for the Trustees costs incurred in connection Nvith the microfilming or the required permanent recording. if any. related thereto. Section 1 1.1 1. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the accounting records of the Authority or the Trustee. as the case may be. either as a fund or an account. and may. for the purpose of such records. any audits thereof and any reports or statements Nvith respect thereto. be treated either as a fund or as an account. All such records Nvith respect to all such funds and accounts held by the Authority shall at all times be maintained in accordance Nvith generally accepted accounting principles and all such records Nvith respect to all such funds and accounts held by the Trustee shall be at all times maintained in accordance Nvith corporate trust industry practices. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the form of multiple funds. accounts or sub -accounts therein. Section 11.12. Payment on Business Days. Whenever in this Indenture any amount is required to be paid on a day Nyhich is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest shall not accrue from and after such day. Section 1 1.1 3. Notices. Any notice. request. complaint. demand or other communication under this Indenture shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below. or by telecopv or other form of telecommunication. confirmed by telephone at its number set forth below. Notice shall be effective either (i) upon transmission by telecopy or other form of telecommunication. (ii) 48 hours after deposit in the United States mail. postage prepaid. or (iii) in the case of personal delivery to any person. upon actual receipt. The Authority. the Agency or the Trustee may. by Nvritten notice to the other parties. from time to time modify the address or number to Nvhich communications are to be given hereunder. P6402.1055\x72; 31.8 -38- If to the Authority: Palm Desert Financing Authority 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Chief Administrative Officer Facsimile: (760) 340-0574 If to the Agency: Palm Desert Redevelopment Agency 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Executive Director Facsimile: (760) 340-0574 If to the Trustee: Wells Fargo Bank. National Association 707 Wilshire Boulevard. 17th Floor Los Angeles. California 90017 Attention: Corporate Trust Department Facsimile: (213) 614-3355 If to the Insurer: Attention: Facsimile: ( ) The Authority. the Agency. the Trustee and the Insurer may designate anv further or different addresses to Nyhich subsequent notices. certificates or other communications shall be sent. Notices to the Insurer shall be governed by Section 9.02. Section 11.14. Unclaimed Money s. Anything in this Indenture to the contrary notwithstanding. anv moneys held by the Trustee in trust for the payment and discharge of anv of the Bonds or the interest thereon which remain unclaimed for two years after the date Nyhen such Bonds or the interest thereon have become due and payable. either at their stated maturity dates or by call for earlier redemption. if such moneys \sere held by the Trustee at such date. or for two years after the date of deposit of such moneys if deposited with the Trustee after said date Nyhen such Bonds or the interest thereon become due and payable. shall. at the Request of the Authority. be repaid by the Trustee to the Authority. as its absolute property and free from trust. and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the Authority for the payment of such Bonds: provided. however. that before making anv such payment to the Authority. the Trustee shall. at the Request and at the expense of the Authority. cause to be mailed to the Owners of all such Bonds. at their respective addresses appearing on the Registration Books. a notice that said moneys remain unclaimed and that. after a date named in said notice. which date shall not be Tess than 30 days after the date of mailing of such notice. the balance of such moneys then unclaimed Nvill be returned to the Authority. Section 11.15. Governing, Lary. This Agreement shall be construed and governed in accordance with the laws of the State of California. P6402.1055\872 31.x 39 IN WITNESS WHEREOF. the PALM DESERT FINANCING AUTHORITY has caused this Indenture to be signed in its name by its duly authorized officer and WELLS FARGO BANK. NATIONAL ASSOCIATION. in token of its acceptance of the trust created hereunder. has caused this Indenture to be signed in its corporate name by its officer identified below. all as of the day and year first above Nvritten. P6402.1055\872531.8 PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By -40- Authorized Officer EXHIBIT A (FORM OF SERIES 2006A BONDS Unless this certificate is presented by an authorized representative of The Depository Trust Company. a NOV York corporation ("DTC). to the Authority or its agent for registration of transfer. exchange. or payment. and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC). ANY TRANSFER. PLEDGE. OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof. Cede & Co.. has an interest herein. No. PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REFUNDING REVENUE BOND (PROJECT AREA NO. 2) 2006 SERIES A RATE OF INTEREST MATURITY DATE ORIGINAL ISSUE DATE CUSIP August I. 20_ REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: The PALM DESERT FINANCING AUTHORITY. a joint powers authority organized and existing under the laws of the State of California (the "Authority"). for value received. hereby promises to pay (but only out of the Revenues. as defined in the Indenture hereinafter referred to. and certain other moneys) to the Registered Owner identified above or registered assigns (the "Registered Owner"). on the Maturity Date identified above or any earlier redemption date. the Principal Amount identified above in lawful money of the United States of America: and to pay interest thereon at the Rate of Interest identified above in like money from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Series 2006A Bond (unless this Series 2006A Bond is authenticated on or before an Interest Payment Date and after the fifteenth calendar day of the month preceding such Interest Payment Date. in which event it shall bear interest from such Interest Payment Date. or unless this Series 2006A Bond is authenticated on or prior to July 15. 2006. in which event it shall bear interest from the Original Issue Date identified above: provided. however. that if. at the time of authentication of this Series 2006A Bond. interest is in default on this Series 2006A Bond. this Series 2006A Bond shall bear interest from the Interest Payment Date to which interest hereon has previously been paid or made available for payment). payable semiannually on February I and August I in each year. commencing August I. 2006 (the "Interest Payment Dates) until payment of such Principal Amount in full. The Principal Amount hereof is payable upon presentation hereof upon maturity or earlier redemption at the corporate trust office of Wells Fargo Bank. National Association (the "Trustee) in Los Angeles. California or such other location as the Trustee shall designate (the "Trust Office"). Interest hereon is payable by check or draft of P6402.1055\872 S31.8 A- I the Trustee mailed by first class mail on each Interest Payment Date to the Registered Owner hereof at the address of the Registered Owner as it appears on the registration books of the Trustee as of the fifteenth calendar day of the month preceding such Interest Payment Date (except in the case of a Registered Owner of at least $ 1.000.000 in aggregate principal amount. such payment may. at such Registered Owners option. be made by \sire transfer of immediately available funds in accordance Nyith Nvritten instructions provided by such Registered Owner prior to the fifteenth calendar day of the month preceding such Interest Payment Date). This Series 2006A Bond is one of a duly authorized series of bonds of the Authority designated the Palm Desert Financing Authority Tax Allocation Refunding Rcycnuc Bonds (Project Area No. 2). 2006 Series A (the "Series 2006A Bonds.). limited in principal amount of $ . The Authority has issued two other series of bonds concurrently Nyith the issuance of the Series 2006A Bonds. designated the Palm Desert Financing Authority Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 2). 2006 Series B. limited in initial principal amount to $ (the "Series 2006B Bonds) and the Palm Desert Financing Authority Tax Allocation Rcycnuc Bonds (Project Area No. 2). 2006 Series C. limited in initial principal amount to } (the "Series 2006C Bonds. and collectively Nyith the Series 2006A Bonds and the Series 2006B Bonds. the "Bonds.). The Series 2006A Bonds. the Series 2006B Bonds and the Series 2006C Bonds are secured by an Indenture of Trust. dated as of July I. 2006 (the "Indenture.). by and between the Authority and the Trustee. Unless the context clearly requires othenvise. 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 Trustcc and of the rights and obligations of the Authority thereunder: and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof. and to all of the provisions of which Indenture the Registered Owner hereof. by acceptance hereof. assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985. constituting Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Act.). The Bonds are special obligations of the Authority and. as and to the extent set forth in the Indenture. are payable solely from and secured by a first lien on and pledge of the Revenues and certain other moneys and securities held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of. and charge and Tien upon. all of the Revenues and such other moneys and securities. and the Revenues and such other moneys and securities constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if an) on the Bonds. The Bonds are not secured by a legal or equitable pledge of. or charge. lien or encumbrance upon. any of the property of the Authority or any of its income or receipts. except the Revenues and such other moneys and securities as provided in the Indenture. The Series 2006A Bonds have been issued for the purpose of making a loan (the "Series 2006A Loan) to the Palm Desert Redevelopment Agency (the "Agency) to finance and refinance certain public capital improvements with respect to a redevelopment project known and designated as Project Area No. 2. The Series 2006A Loan has been made by the Authority to the Agency pursuant to a Project Area No. 2 Loan Agreement (2006 Senior Loans). dated as of July I. 2006 (the "Loan Agreement.). by and among the Agency. the Authority and the Trustee. The Series 2006A Bonds maturing on or after August I. 2() are subject to redemption prior to their respective maturity dates as a Nvhole. or in part among maturities as designated by the Authority and by lot within a maturity. from prepayments of the Series 2006A Loan made at the option of the Agency pursuant to the Loan Agreement. on any Interest Payment Date on or after August I. 2() . at the following respective redemption prices (expressed as a percentage of the principal amount of Series P6402.1055\872 531.8 A-2 2006A Bonds to be redeemed). plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price August I. 2() and February I. 2() `%) August I. 2() and February I. 2() August I. 2() and thereafter The Series 2006A Bonds maturing on August I. 2() and August I. 2() are also subject to mandatory sinking fund redemption by lot. on August I in each year commencing August I. 2() and August I. 20 . respectively. at a redemption price equal to the principal amount thereof to be redeemed. without premium. plus accrued interest to the date of redemption. in the aggregate respective principal amounts set forth in the Indenture: provided. however. that in Iicu of redemption thereof. such Series 2006A Bonds may be purchased by the Agency pursuant to the Loan Agreement. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Series 2006A Bonds designated for redemption. at their respective addresses appearing on the registration books maintained by the Trustee. and by such means as acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the redemption date: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Series 2006A Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the serial numbers of each maturity or maturities (except that if the event of redemption is of all of the Series 2006A Bonds of such maturity or maturities in whole. the Trustee shall designate such maturities or the maturity in wvhoIe without referencing each individual number) of the Series 2006A Bonds to be redeemed. and shall require that such Series 2006A Bonds be then surrendered at the Tnist Office for redemption at the redemption price. giving notice also that further interest on such Series 2006A Bonds will not accrue from and after the redemption date. Subject to the limitations and upon payment of the charges. if any. provided in the Indenture. this Series 2006A Bond may be exchanged at the Trust Office for a like aggregate Principal Amount and maturity of fully registered Series 2006A Bonds of other authorized denominations. This Series 2006A Bond is transferable by the Registered Owner hereof. in person or by the Registered Owners attorney duly authorized in writing. at the Trust Office. but only in the manner. subject to the limitations and upon payment of the charges provided in the Indenture. and upon surrender and cancellation of this Series 2006A Bond. Upon such transfer a new fully registered Series 2006A Bond or Series 2006A Bonds. of authorized denomination or denominations. for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of any Series 2006A Bond during the 15- day period preceding the selection of Series 2006A Bonds for redemption or any Series 2006A Bond selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes. and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority and of the owners of the Series 2006A Bonds and of the Trustee may be modified or amended from time to time and at any time in the 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 P6402.1055\872 S31.8 A-3 othenvise alter or impair the obligation of the Authority to pay the principal. interest or premiums at the time and place and at the rate and in the currency provided therein of any Series 2006A Bond 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. IN WITNESS WHEREOF. the Authority has caused this Series 2006A Bond to be executed in its name and on its behalf by the manual or facsimile signatures of its President and Secretary_ all as of the Original Issue Date identified above. PALM DESERT FINANCING AUTHORITY By Attest: Secretary President STATEMENT OF INSURANCE Ito coma P6402.1 c055\x72 S31.8 A-4 (FORM OF TRUSTEES CERTIFICATE OF AUTHENTICATION' This is one of the Series 2006A Bonds described in the Nvithin-mentioned Indenture and registered on the Bond Registration Books. 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 Nyhose tax identification number is the Nyithin-mentioned registered Series 2006A Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee Nyith full poNNer of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond Nyith the name(s) as Nyritten on the face of the Nyithin Series 2006A Bond in every particular Nyithout alteration or enlargement or any change whatsoeyer. NOTE: Signature(s) must be guaranteed by a member of an institution Nyhich is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. 1'6402.1 c h i\872 i 31.8 A-5 EXHIBIT B (FORM OF SERIES 2006B BONDS Unless this certificate is presented by an authorized representative of The Depository Trust Company. a NOV York corporation ("DTC). to the Authority or its agent for registration of transfer. exchange. or payment. and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & 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. 2) 2006 SERIES B YIELD TO MATURITY MATURITY DATE ORIGINAL ISSUE DATE CUSIP August I. 20_ REGISTERED OWNER: CEDE & CO. INITIAL PRINCIPAL AMOUNT: MATURITY AMOUNT: The PALM DESERT FINANCING AUTHORITY. a joint powers authority organized and existing under the laws of the State of California (the "Authority"). for value received. hereby promises to pay (but only out of the Revenues. as defined in the Indenture hereinafter referred to. and certain other moneys) to the Registered Owner identified above or registered assigns (the "Registered Owner"). in lawful money of the United States of America. either the Maturity Amount identified above on the Maturity Date or the Accreted Value. plus any applicable redemption premium. upon redemption prior to maturity. "Accreted Value." with respect to any Series 2006B Bond. means as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Original Issue Date at the stated Yield to Maturity thereof on each February I and August I. commencing August I. 2006. Interest on each Series 2006B Bond shall be computed using a year of 360 days of twelve 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. with respect to any Series 2006B Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the corporate trust office of Wells Fargo Bank. National Association (the "Trustee) in Los Angeles. California or such other location as the Trustee shall designate (the "Trust Office). P64U2. I U.5.5\872.531.8 B- 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. 2). 2006 Series B (the "Series 2006B Bonds"). limited in initial principal amount to } The Authority has issued two other series of bonds concurrently Nyith the issuance of the Series 2006B Bonds. designated the Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 2). 2006 Series A. limited in initial principal amount to $ (the "Series 2006A Bonds) and the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 2). 2006 Series C. limited in initial principal amount to } (the "Series 2006C Bonds." and collectively Nyith the Series 2006A Bonds and the Series 2006B Bonds. the "Bonds"). The Series 2006A Bonds. the Series 2006B Bonds and the Series 2006C Bonds are secured by an Indenture of Trust. dated as of July I. 2006 (the "Indenture"). by and between the Authority and the Trustee. Unless the context clearly requires othenvise. 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 Trustcc and of the rights and obligations of the Authority thereunder: and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof. and to all of the provisions of which Indenture the Registered Owner hereof. by acceptance hereof. assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985. constituting Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Act.). The Bonds are special obligations of the Authority and. as and to the extent set forth in the Indenture. are payable solely from and secured by a first lien on and pledge of the Revenues and certain other moneys and securities held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of. and charge and lien upon. all of the Revenues and such other moneys and securities. and the Revenues and such other moneys and securities constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if an) on the Bonds. The Bonds are not secured by a legal or equitable pledge of. or charge. Tien 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. 2. The Series 2006B Loan has been made by the Authority to the Agency pursuant to a Project Area No. 2 Loan Agreement (2006 Senior Loans). dated as of July I. 2006 (the "Loan Agreement.). by and among the Agency. the Authority and the Trustee. The Series 2006B Bonds maturing on or after August I. 2() are subject to redemption prior to their respective maturity dates as a Nvhole. or in part among maturities as designated by the Authority and by lot within a maturity. from prepayments of the Series 2006B Loan made at the option of the Agency pursuant to the Loan Agreement. on any August I or February I on or after August I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Series 2006B Bonds on the date fixed for redemption): P6402.1055\872 531.8 Redemption Dates Redemption Price August I. 2() and February I. 2() `N August I. 2() and February I. 2() August I. 2() and thereafter B-2 The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Series 2006B Bonds designated for redemption. at their respective addresses appearing on the registration books maintained by the Trustee. and by such means as acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the redemption date: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Series 2006B Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the serial numbers of each maturity or maturities (except that if the event of redemption is of all of the Series 2006B Bonds of such maturity or maturities in whole. the Trustee shall designate such maturities or the maturity in wvhoIe without referencing each individual number) of the Series 2006B Bonds to be redeemed. and shall require that such Series 2006B Bonds be then surrendered at the Trust Office for redemption at the redemption price. giving notice also that further interest on such Series 2006B Bonds will not accrue from and after the redemption date. Subject to the limitations and upon payment of the charges. if any. provided in the Indenture. this Series 2006B Bond may be exchanged at the Trust Office for a like aggregate Maturity Amount and maturity of fully registered Series 2006B Bonds of other authorized denominations. This Series 2006B Bond is transferable by the Registered Owner hereof. in person or by the Registered Owners attorney duly authorized in writing. at the Trust Office. but only in the manner. subject to the limitations and upon payment of the charges provided in the Indenture. and upon surrender and cancellation of this Series 2006B Bond. Upon such transfer a new fully registered Series 2006B Bond or Series 2006B Bonds. of authorized denomination or denominations. for the same aggregate Maturity Amount and of the same maturity will be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of an Series 2006B Bond during the 15- day period preceding the selection of Series 2006B Bonds for redemption or any Series 2006B Bond selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes. and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority and of the owners of the Series 2006B Bonds and of the Trustee may be modified or amended from time to time and at any time in the manner. to the extent. and upon the terms provided in the Indenture: provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Series 2006B Bond or othenyise alter or impair the obligation of the Authority to pay the principal. interest or premiums at the time and place and at the rate and in the currency provided therein of any Series 2006B Bond without the express written consent of the Owner of such Series 2006B Bond. (b) reduce the percentage of Series 2006B Bonds required for the written consent to any such amendment or modification. or (c) without its written consent thereto. modify any of the rights or obligations of the Trustee. all as more fully set forth in the Indenture. 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. P6402.1055\872531.8 B-3 This Series 2006B Bond shall not be entitled to any benefit under the Indenture. or become valid or obligatory for any purpose. until the certificate of authentication hereon shall have been signed by the Trustee. IN WITNESS WHEREOF. the Authority has caused this Series 2006B Bond to be executed in its name and on its behalf by the manual or facsimile signatures of its President and Secretary all as of the Original Issue Date identified above. PALM DESERT FINANCING AUTHORITY By Attest: Secretary President STATEMENT OF INSURANCE Ito coma P6402.1 c055\x72 S31.8 B-4 (FORM OF TRUSTEES CERTIFICATE OF AUTHENTICATION' This is one of the Series 2006B Bonds described in the Nvithin-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 Nyhose tax identification number is the Nyithin-mentioned registered Series 2006B Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee Nyith full poNNer of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond Nyith the name(s) as Nyritten on the face of the Nyithin Series 2006B Bond in every particular Nyithout alteration or enlargement or any change whatsoeyer. NOTE: Signature(s) must be guaranteed by a member of an institution Nyhich is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. 1'6402.1 c h i\872 i 31.8 B-5 EXHIBIT A (FORM OF SERIES 2006C BONDS Unless this certificate is presented by an authorized representative of The Depository Trust Company. a NOV York corporation ("DTC). to the Authority or its agent for registration of transfer. exchange. or payment. and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC). ANY TRANSFER. PLEDGE. OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof. Cede & Co.. has an interest herein. No. PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE BOND (PROJECT AREA NO. 2) 2006 SERIES C RATE OF INTEREST MATURITY DATE ORIGINAL ISSUE DATE CUSIP August I. 20_ REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: The PALM DESERT FINANCING AUTHORITY. a joint powers authority organized and existing under the laws of the State of California (the "Authority"). for value received. hereby promises to pay (but only out of the Revenues. as defined in the Indenture hereinafter referred to. and certain other moneys) to the Registered Owner identified above or registered assigns (the "Registered Owner"). on the Maturity Date identified above or any earlier redemption date. the Principal Amount identified above in lawful money of the United States of America: and to pay interest thereon at the Rate of Interest identified above in like money from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Series 2006C Bond (unless this Series 2006C 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 2006C Bond is authenticated on or prior to July 15. 2006. in which event it shall bear interest from the Original Issue Date identified above: provided. however. that if. at the time of authentication of this Series 2006C Bond. interest is in default on this Series 2006C Bond. this Series 2006C 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 February I and August I in each year. commencing August I. 2006 (the "Interest Payment Dates) until payment of such Principal Amount in full. The Principal Amount hereof is payable upon presentation hereof upon maturity or earlier redemption at the corporate trust office of P6402.1055\872531.8 C-1 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 Owners option. be made by \sire transfer of immediately available funds in accordance Nyith Nvritten instructions provided by such Registered Owner prior to the fifteenth calendar day of the month preceding such Interest Payment Date). This Series 2006C Bond is one of a duly authorized series of bonds of the Authority designated the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 2). 2006 Series C (the "Series 2006C Bonds.). limited in principal amount of $ . The Authority has issued two other series of bonds concurrently Nyith the issuance of the Series 2006C Bonds. designated the Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 2). 2006 Series A. limited in initial principal amount to $ (the "Series 2006A Bonds) and the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series B. limited in initial principal amount to } (the "Series 2006B Bonds. and collectively Nyith the Series 2006A Bonds and the Series 2006C Bonds. the "Bonds.). The Series 2006A Bonds. the Series 2006B Bonds and the Series 2006C Bonds are secured by an Indenture of Trust. dated as of July I. 2006 (the "Indenture.). by and between the Authority and the Trustee. Unless the context clearly requires othenvise. 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 Trustcc and of the rights and obligations of the Authority thereunder: and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof. and to all of the provisions of which Indenture the Registered Owner hereof. by acceptance hereof. assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985. constituting Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Act.). The Bonds are special obligations of the Authority and. as and to the extent set forth in the Indenture. are payable solely from and secured by a first lien on and pledge of the Revenues and certain other moneys and securities held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of. and charge and lien upon. all of the Revenues and such other moneys and securities. and the Revenues and such other moneys and securities constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if 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 2006C Bonds have been issued for the purpose of making a loan (the "Series 2006C 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. 2. The Series 2006C Loan has been made by the Authority to the Agency pursuant to a Project Area No. 2 Loan Agreement (2006 Senior Loans). dated as of July I. 2006 (the "Loan Agreement.). by and among the Agency. the Authority and the Trustee. P6402.1055\x72; 31.8 C-2 The Series 2006C Bonds are subject to extraordinary redemption. as a Nvholc or in part among maturities and by lot within each maturity. on August I. 20 . at a redemption price equal to percent of the principal amount of the Series 2006C Bonds to be redeemed as more fully set forth in the Indenture. The Series 2006C Bonds maturing on or after August I. 2() are subject to redemption prior to their respective maturity dates as a NvhoIe. or in part among maturities as designated by the Authority and by lot within a maturity. from prepayments of the Series 2006C Loan made at the option of the Agency pursuant to the Loan Agreement. on any Interest Payment Date on or after August I. 2() . at the following respective redemption prices (expressed as a percentage of the principal amount of Series 2006C Bonds to be redeemed). plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price August I. 2() and February I. 2() `%) August I. 2() and February I. 2() August I. 2() and thereafter The Series 2006C Bonds maturing on August I. 2() and August I. 2() are also subject to mandatory sinking fund redemption by lot. on August I in each year commencing August I. 2() and August I. 20 . respectively. at a redemption price equal to the principal amount thereof to be redeemed. without premium. plus accrued interest to the date of redemption. in the aggregate respective principal amounts set forth in the Indenture: provided. however. that in Iicu of redemption thereof. such Series 2006C 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 2006C 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 2006C 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 2006C Bonds of such maturity or maturities in NvhoIe. the Trustee shall designate such maturities or the maturity in wvhoIe without referencing each individual number) of the Series 2006C Bonds to be redeemed. and shall require that such Series 2006C Bonds be then surrendered at the Tnist Office for redemption at the redemption price. giving notice also that further interest on such Series 2006C 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 2006C Bond may be exchanged at the Tnist Office for a like aggregate Principal Amount and maturity of fully registered Series 2006C Bonds of other authorized denominations. This Series 2006C Bond is transferable by the Registered Owner hereof. in person or by the Registered Owners attorney duly authorized in writing. at the Trust Office. but only in the manner. subject to the limitations and upon payment of the charges provided in the Indenture. and upon surrender and cancellation of this Series 2006C Bond. Upon such transfer a new fully registered Series 2006C 1)6402.10.5.5 \872.531.8 C-3 Bond or Series 2006C Bonds. of authorized denomination or denominations. for the same aggregate principal amount and of the same maturity Nvill be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of an Series 2006C Bond during the 15- day period preceding the selection of Series 2006C Bonds for redemption or any Series 2006C 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 2006C 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 2006C Bond or othenvise alter or impair the obligation of the Authority to pay the principal. interest or premiums at the time and place and at the rate and in the currency provided therein of any Series 2006C Bond Nvithout the express Nvritten consent of the Owner of such Series 2006C Bond. (b) reduce the percentage of Series 2006C Bonds required for the «rittcn consent to any such amendment or modification. or (c) Nyithout its «rittcn consent thereto. modify any of the rights or obligations of the Trustee. all as more fully set forth in the Indenture. It is hereby certified that all things. conditions and acts required to exist. to have happened and to have been performed precedent to and in the issuance of this Series 2006C 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 2006C Bond. together Nvith all other indebtedness of the Authority. does not exceed any limit prescribed by the Constitution or statutes of the State of California or by the Act. This Series 2006C 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. P6402.1055\872531.8 C-4 IN WITNESS WHEREOF. the Authority has caused this Series 2006C Bond to be executed in its name and on its behalf by the manual or facsimile signatures of its President and Secretary all as of the Original Issue Date identified above. PALM DESERT FINANCING AUTHORITY By Attest: Secretary President STATEMENT OF INSURANCE Ito coma P6402.1 c 0;;\872531.8 C (FORM OF TRUSTEES CERTIFICATE OF AUTHENTICATION' This is one of the Series 2006C 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 Nvhose tax identification number is the Nvithin-mentioned registered Series 2006C Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee Nvith full power of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond Nyith the name(s) as Nyritten on the face of the Nyithin Series 2006C Bond in every particular Nyithout alteration or enlargement or any change whatsoeyer. NOTE: Signature(s) must be guaranteed by a member of an institution Nyhich is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. P6402.1 c h i\872 i 31.8 C-6 Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 2) 2006 Series A Project Area No. 2 Loan Agreement (2006 Senior Loans) NVith reference to Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2) 2006 Series B Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 2) 2006 Series C 1'6402. 1055\872 i ; 8.8 RWG DRAFT: 5/22/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 2 Section I.I. Definitions 2 Section 1.2. Rules of Construction iS ARTICLE II THE LOANS: APPLICATION OF LOAN PROCEEDS: PARITY DEBT iS Section 2.1. Authorization Section 2.2. Disbursement and Application of Loan Proceeds 6 Section 2.3. Repayment of Loans 7 Section 2.4. Optional Prepayment 8 Section 2.5. Reserve Fund 9 Section 2.6. Costs of Issuance Fund 10 Section 2.7. Special Escrow Fund 10 Section 2.8. Project Fund 11 Section 2.9. Parity Debt 12 Section 2.10. Issuance of Subordinate Debt 13 Section 2.11. Validity of Loans 13 ARTICLE III PLEDGE AND APPLICATION OF TAX REVENUES 13 Section 3.1. Pledge of Tax Revenues 13 Section 3.2. Special Fund: Deposit of Tax Revenues 13 Section 3.3. Transfer of Tax Revenues From Special Fund 13 Section 3.4. Investment of Moneys: Valuation of Investments 14 ARTICLE IV OTHER COVENANTS OF THE AGENCY 15 Section 4.1. Punctual Payment: Extension of Payments 15 Section 4.2. Limitation on Additional Indebtedness 15 Section 4.3. Payment of Claims 15 Section 4.4. Books and Accounts: Financial Statements 15 Section 4.5. Protection of Security and Rights 15 Section 4.6. Payments of Taxes and Other Charges 16 Section 4.7. Taxation of Leased Property 16 Section 4.8. Disposition of Property 16 Section 4.9. Maintenance of Tax Revenues 16 Section 4.10. Payment of Expenses: Indemnification 16 Section 4.11. Tax Covenants 17 Section 4.12. Redevelopment of Project Area 18 Section 4.13. Low and Moderate Income Housing Fund 18 Section 4.14. Annual Review of Tax Revenues 18 Section 4.15. Further Assurances 18 ARTICLE V EVENTS OF DEFAULT AND REMEDIES 19 Section 5.1. Events of Default and Acceleration of Maturities 19 Section 5.2. Application of Funds Upon Default 20 Section 5.3. No Waiver 20 Section 5.4. Agreement to Pay Attorneys' Fees and Expenses 20 Section 5.5. Remedies Not Exclusive 21 Section 5.6. Control of Remedies by Insurer 21 P6402.1055\8725 38.8 ARTICLE VI MISCELLANEOUS 2I Section 6. I . Benefits Limited to Parties 2I Section 6.2. Successor is Deemed Included in All References to Predecessor 2I Section 6.3. Discharge of Loan Agreement 2 I Section 6.4. Amendment 22 Section 6.5. Waiver of Personal Liability 22 Section 6.6. Payment on Business Days 22 Section 6.7. Notices 22 Section 6.8. Surety Bond 22 Section 6.9. Partial Invalidity 22 Section 6. ID. Article and Section Headings and References 22 Section 6. I I . Execution of Counterparts 23 Section 6.12. Governing Law 23 Section 6.1 3. The Trustee 23 EXHIBIT A — Schedule of Series 2006A Loan Payments EXHIBIT B — Schedule of Series 2006B Loan Payments EXHIBIT C — Schedule of Series 2006C Loan Payments ii P6402.1055\8725 38.8 PROJECT AREA NO. 2 LOAN AGREEMENT (2006 Senior Loans) This Project Area No. 2 Loan Agreement (2006 Senior Loans) (this "Loan Agreement) is made and entered into as of Jule I. 2006. by and among the Palm Desert Redevelopment Agency. a public body. corporate and politic. duly organized and validly existing under the laws of the State of California (the "Agency"). the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority"). and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America (the "Trustee"). Recitals A. The Agency is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers. all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 2 of the Agency (the "Project Area) has been duly approved and adopted by the City. C. The Agency has determined to incur three loans (the "Loans) hereunder for the object and purpose of assisting in the financing and refinancing of public capital improvements and redevelopment activities for the benefit of the Project Area. pursuant to the Redevelopment Law and the Marks -Roos Local Bond Pooling Act of 1985. Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Bond Law"). D. Concurrently with the execution and delivery of this Loan Agreement. the Authority has issued its Tax Allocation Refunding Revenue Bonds (Project Area No. 2). 2006 Series A. in the principal amount of $ . its Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series B. in the initial principal amount of $ . and its Tax Allocation Revenue Bonds. 2006 Series C. in the principal amount of $ (collectively. the "Bonds"). all pursuant to the Bond Law and an Indenture of Trust. dated as of July I. 2006 (the "Indentures). by and between the Authority and the Trustee. for the purpose of providing funds to make the Loans to the Agency E. The Authority has found and determined that there will be significant public benefits accruing from such borrowing. consisting of demonstrable savings in effective interest rates and financing costs associated with the issuance of the Bonds pursuant to the Bond Law. F. The Agency and the Authority have determined that all acts and proceedings required by law necessary to make this Loan Agreement. when executed by the Agency. the Authority and Trustee. the valid. binding and legal obligation of the Agency and the Authority. and to constitute this Loan Agreement a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms. have been done and taken. and the execution and delivery of this Loan Agreement have been in all respects duly authorized. NOW. THEREFORE. in consideration of the premises and the mutual agreements herein contained. the parties hereto do hereby agree as follows: 1)6402.1055\8725 38.8 1 ARTICLE I DEFINITIONS Section 1.1. Definitions. Unless the contest clearly requires or unless othenvise defined herein. the capitalized terms in this Loan Agreement shall have the respective meanings Nyhich such terms are given in the Indenture. In addition. the following terms defined in this Section 1.1 shall. for all purposes of this Loan Agreement. have the respective meanings herein specified. "Additional Reyenues- means. as of the date of calculation. the amount of Tax Revenues which. as shown in the Report of an Independent Redevelopment Consultant. are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to either (i) construction which has been completed but which is not then reflected on the tax rolls. or (ii) transfer of ownership or an other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition. the term "increases in the assessed valuation means the amount by which the assessed valuation of taxable property in the Project Area is estimated to increase above the assessed valuation of taxable property in the Project Area (as reported by an appropriate official of the County) as of the date on which such calculation is made. "Bonds means the Series 2006A Bonds. the Series 2006B Bonds and the Series 2006C 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 Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.6. "Deemed Escrow Portion means a portion of the Series 2006C Bonds in the principal amount equal to the balance in the Special Escrow Fund (not including any money deposited in the Escrow Interest Account). "Escrow Fundy means the fund by that name established under the Escrow Agreement (Project Area No. 2). 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 the Authority's remaining outstanding Tax Allocation Rcycnuc Bonds (Project Area No. 2) Series 1995. "Escrow Interest Account means the account within the Special Escrow Fund by that name established and held by the Trustee pursuant to Section 2.7. "Escrow Redemption Date- means August 1. 201091. "Event of Default means any of the events described in Section 5.1. P6402.1055\872538.8 2 "Indenture"' means the Indenture of Trust. dated as of Jule I. 2006. by and between the Authority and the Trustee. authorizing the issuance of the Bonds. as may from time to time be supplemented. modified or amended. "Independent Redevelopment Consultant"' means any consultant or firm of such consultants appointed by or acceptable to the Agency. and \yho. 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 \yho may be regularly retained to make reports to the Agency. "Loans means the Series 2006A Loan. the Series 2006B Loan and the Series 2006C Loan. "Loan Agreement means this Project Area No. 2 Loan Agreement (2006 Senior Loans). 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 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 Loan or Parity Debt. together with the interest to accrue thereon. in the event and to the extent that the proceeds of such Loan or 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. plus at the option of the Agency the Additional Revenues, meet the coverage test set forth in Section 2.9(b). "Parity Debt means the 2002 Loan. the 2003 Loan and any other loans. bonds. notes. advances. or indebtedness payable from Tax Revenues on a parity with the Loans. issued or incurred pursuant to and in accordance with the provisions of Section 2.9. "Parity Debt Instrument"' means the 2002 Loan Agreement. the 2003 Loan Agreement and any other resolution. indenture of trust. trust agreement or other instrument authorizing the issuance of any Parity Debt. "Pass -Through Agreements means, collectively. the agreements entered into by the Agency on or prior to the date hereof pursuant to Section 33401 of the Redevelopment Law with (i) the County of Riverside. (ii) the Coachella Valley Community College District. (iii) the Coachella Valley Mosquito Abatement District. (iv) the Desert Sands Unified School District. (v) the Palm Springs Unified School District and (vi) the Riverside County Superintendent of Schools. "Plan Limitations"' means the limitations contained or incorporated in the Redevelopment Plan on (i) the aggregate principal amount of bonded indebtedness payable from Tax Revenues 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 or repaying loans. advances and indebtedness payable from Tax Revenues. P6402.1055\872538.8 3 "Project Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.8. "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 Nvith the Trustee pursuant to Section 2.5. provided that all of the following requirements are met at the time of deposit Nvith the Trustee: (i) either (a) the Tong -term credit rating of such bank is Nvithin one of the two highest rating categories by Moody's or S&P. or the claims paying ability of such insurance company is rated Nvithin one of the two highest rating categories 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 Nvith the Trustee Nvritten evidence from Moody's and S&P that the delivery of such letter of credit or surety bond Nvill not. of itself. cause a reduction or Nvithdrawal 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 Nvith respect to Nvhich funds are proposed to be released pursuant to Section 2.5: 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 3.3(a). "Redevelopment Fundy means the Project Area No. 2 Redevelopment Fund. heretofore established and held by the Agency. "Redevelopment Project means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area. "Reserve Fundy means the "Project Area No. 2 Reserve Fundy held by the Trustee pursuant to Section 2.5. "Reserve Requirement means the least of (i) Maximum Annual Debt Service. (ii) 125 percent of average annual debt service on the Loans and all outstanding Parity Debt. and (iii) I0 percent of the proceeds of the Loans (i.e.. the original Principal Amount of the Bonds) and of the proceeds of any Parity Debt. The amount of the Reserve Requirement on any date is subject to confirmation by the Authority to the Trustee upon the Trustees «rittcn request. At the Closing Date. the Reserve Requirement shall be $ "Series 2006A Bonds means the Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 2). 2006 Series A. "Series 2006A Loan means the loan made by the Authority to the Agency pursuant to Section 2. I (a) from the proceeds of the Series 2006A Bonds in the initial principal amount of "Series 2006B Bonds means the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series B. "Series 2006B Loan means the loan made by the Authority to the Agency pursuant to Section 2. I (b) from the proceeds of the Series 2006B Bonds in the initial principal amount of "Series 2006C Bonds means the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 2). 2006 Series C. 1)6402. I 055\8725 38.8 4 "Series 2006C Loan means the loan made by the Authority to the Agency pursuant to Section 2. 1(c) from the proceeds of the Series 2006C Bonds in the initial principal amount of S "Special Fundy means the fund by that name held by the Agency pursuant to Section 3.2. "Subordinate Debt means any loans. advances or indebtedness issued or incurred by the Agency in accordance Nyith the requirements of Section 2.10. Nvhich 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 Nyhich is subordinate to the pledge of and lien upon the Tax Revenues hereunder for the security of the Loans and any Parity Debt. "Surety Bondy means the Qualified Reserve Fund Credit Instrument issued by the Insurer guaranteeing certain payments into the Reserve Fund as provided therein and subject to the limitations set forth therein. "Tax Reyenues- means that portion of the taxes levied upon taxable property in the Project Area allocated and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the California Constitution. exclusive of amounts placed into the Low and Moderate Income Housing Fund of the Agency pursuant to Sections 33334.2 and 33334.3 of the Redevelopment Lary. and excluding amounts payable to affected taxing agencies pursuant to the Pass -Through Agreements or pursuant to Section 33607.5 or 33607.7 of the Redevelopment Lary. "2003 Loan means the outstanding balance of the loan made by the Authority to the Agency pursuant to the 2003 Loan Agreement. "2003 Loan Agreements means the Project Area No. 2 Loan Agreement. dated as January I. 2003. by and between the Authority and the Agency. "2002 Loan means the outstanding balance of the loan made by the Authority to the Agency pursuant to the 2002 Loan Agreement. "2002 Loan Agreements means the Loan Agreement dated as of June, I. 2002. by and among the Agency. the Authority and BNY Western Trust Company. as succeeded by Wells Fargo Bank. National Association. as trustee. Section I.2. Rules of Construction. All references herein to "Articles. "Sections" and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement. and the Nyords "herein.- "hereof. "hereunder- and other Nyords of similar import refer to this Loan Agreement as a Nyhole and not to any particular Article. Section or subdivision hereof. ARTICLE II THE LOANS: APPLICATION OF LOAN PROCEEDS: PARITY DEBT Section 2. I . Authorization. (a) The Authority hereby agrees to lend to the Agency. from the proceeds of the sale of the, Series 2006A Bonds deposited in the Series 2006A Loan Fund established under the Indenture,. the principal amount of $ under and subject to the terms of this Loan Agreement. the Bond Law and the Redevelopment Lary. 1)6402.1 c155\8725 ;8.8 5 (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) The Authority hereby agrees to Tend to the Agency. from the proceeds of the sale of the Series 2006C Bonds deposited in the Series 2006C 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. (d) This Loan Agreement constitutes a continuing agreement to secure the full and final payment of the Loans. subject to the covenants. agreements. provisions and conditions herein contained. Section 2.2. Disbursement and Application of Loan Proceeds. (a) On the Closing Date. the Authority shall cause to be deposited into the Series 2006A Loan Fund the amount of $ which shall be held by the Trustee and which shall be disbursed as follows: (i) The Trustee shall transfer the amount of $ to the Series 2006A Account of the Costs of Issuance Fund. (ii) The Trustee shall transfer the amount of $ to the Escrow Fund. (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 `F Project Fund. to the Series to the On the Closing Date. the Authority shall also cause the amount of and the amount of $ to be paid to the Insurer for the costs of a portion of the premiums for the Insurance Policy and the Surety Bond. P6-lo2. l c h i\s72 i3 s. s 6 (c) On the Closing Date. the Authority shall cause to be deposited into the Series 2006C 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 $ 2006C Account of the Costs of Issuance Fund. (ii) The Trustee shall transfer the amount of $ Interest Account of the Escrow Fund. Escrow Fund. to the Series to the Escrow (iii) The Trustee shall transfer the remaining amount of $ to the On the Closing Date. the Authority shall also cause the amount of $ and the amount of $ to be paid to the Insurer for the costs of a portion of the premiums for the Insurance Policy and the Surety Bond. The Trustee may. in its discretion. establish a temporary fund or account to facilitate or account for the foregoing transfers. Section 2.3. Repayment of Loans. The Agency shall. subject to prepayment as provided in Section 2.4(a). repay the principal of the Series 2006A Loan in installments on August I in each of the years and in the amounts. and shall pay interest on the unpaid principal balance of the Series 2006A Loan due on each Interest Payment Date not later than the fifth Business Day preceding such Interest Payment Date in the amounts set forth in Exhibit A attached hereto and by this reference incorporated herein. Such interest shall accrue from the Closing Date. Any installment of principal or interest 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 2.4(a). or in the event the Series 2006A Bonds shall be redeemed pursuant to Section 2.0 3(a)(I) of the Indenture. the schedule of principal installments set forth in Exhibit A hereto shall be reduced as directed by the Agency to the Trustee. The Agency shall. subject to prepayment as provided in Section 2.4(b). repay the Series 2006B Loan in installments on August I in each of the years and in the amounts set forth in Exhibit B attached hereto and by this reference incorporated herein. Interest on each installment of 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 August I 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 2.4(b). or in the event the Series 2006B Bonds shall be redeemed pursuant to Section 2.03(b)( I) of the Indenture. the schedule of installments set forth in Exhibit B hereto shall be reduced as directed by the Agency to the Trustee. The Agency shall. subject to prepayment as provided in Sections 2.4(c) and 2.7. repay the principal of the Series 2006C Loan in installments on August I in each of the years and in the amounts. and shall pay interest on the unpaid principal balance of the Series 2006C 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 C 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 P6402.1055\872538.8 7 to accrue interest from and including the date on Nvhich such principal or interest is payable to but not including the date of actual payment. In the event any unpaid principal installments of the Series 2006C Loan shall be prepaid pursuant to Section 2.4(c) or 2.7. or in the event the Series 2006C Bonds shall be redeemed pursuant to Section 2.0 3(c)(l) or 2.03(c)(3) of the Indenture. the schedule of principal installments set forth in Exhibit C 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. I. absolute and unconditional. and such payments shall not be subject to reduction Nvhether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party to any agreement for any cause Nvhatsoeyer. Principal of and interest on the Loans shall be payable by the Agency to the Trustee. as assignee of the Authority under the Indenture in lawful money of the United States. Payment of such principal and interest shall be secured. and amounts for the payment thereof shall be deposited Nvith the Trustee at the times. as set forth in Article III. Notwithstanding the foregoing provisions of this Section 2.3. in Iicu of payment of any installment of principal of the Loans coming due and payable on August I 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 August I. and tender such Bonds for cancellation. provided that such tender shall be made before the preceding May 15. Section 2.4. Optional Prepayment (a) The Agency shall have the right to prepay principal installments of the Series 2006A Loan. in any integral multiple of $5.000. such prepayment to be allocated among such principal installments as the Agency may determine upon Request to the Authority and the Trustee provided not less than 45 days prior to the prepayment date. on any date on which the Series 2006A Bonds are subject to redemption pursuant to Section 2.03(a)( I) 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)( I) of the Indenture and effect a corresponding redemption of the Series 2006B Bonds. Such prepayment shall be allocated among such installments of the Series 2006B Loan as the Agency may determine upon Request to the Authority and the Trustee provided not Tess than 45 days prior to the prepayment date: provided that such prepayment shall cause redemption of Series 2006 Bonds in integral multiples of $5.000 Maturity Amount. To effect such prepayment. the Agency shall deposit 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) The Agency shall have the right to prepay principal installments of the Series 2006C 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 Tess than 45 days prior to the prepayment date. on any date on which the Series 2006C Bonds are subject to redemption pursuant to Section 2.03(c)( I) of the Indenture. by depositing with the Trustee an amount sufficient to redeem a like aggregate principal amount of Series 2006C Bonds together with the amount of accrued interest and premium. if any. required to be paid upon such redemption. P6402.1055\872538.8 8 (d) Before making any prepayment pursuant to this Section. the Agency shall give written notice to the Authority and the Trustee describing such event and specifying the date on wvhich the prepayment will be paid and the order thereof. which date shall be not less than 45 days from the date such notice is given: 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). (e) The Authority agrees that upon payment by the Agency to the Trustee of such amount. the Authority shall take or cause to be taken any and all steps required under the Indenture to redeem such Outstanding Bonds of the applicable series on the redemption date designated by the Agency: provided. however. that such date shall be a date of redemption of such Bonds. for which notice has been timely given pursuant to the Indenture. Section 2.5. Reserve Fund. There is heretofore established a separate fund known as the "Project Area No. 2 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 Tien and a security interest in the Reserve Fund to the Trustee in order to secure the Agency-s payment obligations under Sections 2.3 and 3.3(a). The amount on deposit in the Reserve Fund shall be maintained at the Reserve Requirement at all times. except to the extent required for the purposes set forth in this Section. In the event that the Agency shall fail to deposit with the Trustee the full amount required to be deposited pursuant to Section 3.3(a). 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 3.3(a) and (ii) the amount actually deposited by the Agency. In the event that the amount on deposit in the Reserve Fund shall at any time be Tess than the Reserve Requirement. the Trustee shall notify the Agency as soon as practicable of the amount required to be deposited therein to restore the balance to the Reserve Requirement. such notice to be given by telephone. telefax or other form of telecommunications promptly confirmed in writing. and the Agency shall thereupon transfer to the Trustee the amount needed to restore the Reserve Fund to the Reserve Requirement. In the event that the amount on deposit in the Reserve Fund on the 15th calendar day preceding any Interest Payment Date (other than the final Interest Payment Date) — provided that the deposits required by Section 3.3(a) have been made — exceeds the Reserve Requirement. the Trustee shall withdraw from the Reserve Fund all amounts in excess of the Reserve Requirement and apply such amounts toward the prepayment of the Loans pursuant to Section 2.4 or the prepayment of any Parity Debt. unless the Trustee shall have received prior Request of the Agency to pay such amounts to the Agency to be used for any lawful purpose relating to the Project Area. as specified in such Request of the Agency. Notwithstanding the foregoing provisions of this paragraph. however. no amounts shall be withdrawn from the Reserve Fund and transferred to the Agency pursuant to this paragraph during any period in which an Event of Default shall have occurred and be continuing hereunder. With the written consent of the Insurer (as long as the Insurance Policy is in full force and effect) and of the insurer of any Parity Debt (as long as the policy insuring such Parity Debt is in full force and effect). the Reserve Requirement may be satisfied by crediting to the Reserve Fund moneys or a Qualified Reserve Fund Credit Instrument or any combination thereof. which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement. Upon the deposit with the Trustee of such Qualified Reserve Fund Credit Instrument. the Trustee shall release moneys then on hand P6402.1055\872538.8 9 in the Reserve Fund to the Agency. to be used for any lawful purpose relating to the Project Area. in an amount equal to the face amount of the Qualified Reserve Fund Credit Instrument. If at any time the amount on deposit in. or credited to. the Reserve Fund includes both cash and the Surety Bond. any draw on the Surety Bond shall be made only after all cash in the Reserve Fund has been expended. If at any time the amount credited to the Reserve Fund includes the Surety Bond and one or more other Qualified Reserve Fund Credit Instruments issued by entities other than the issuer of the Surety Bond. any draw on the Surety Bond shall be made on a pro rata basis with draws on such other Qualified Reserve Fund Credit Instruments. based on the relative amounts of debt service covered by the Surety Bond and the debt service covered by such other Qualified Reserve Fund Credit Instruments in such Fiscal Year. Section 2.6. Costs of Issuance Fund. There is hereby established a find to be held by the Trustee known as the "Costs of Issuance Fundy and two accounts therein known as the "Series 2006A Account and the "Series 2006B Account." A portion of the proceeds of the Series 2006A Loan shall be deposited in the Series 2006A Account pursuant to Section 2.2(a). A portion of the proceeds of the Series 2006B Loan shall be deposited in the Series 2006B Account pursuant to Section 2.2(b). A portion of the proceeds of the Series 2006C Loan shall be deposited in the Series 2006C Account pursuant to Section 2.2(c). The moneys in each account of the Costs of Issuance Fund shall be used to pay Costs of Issuance of the related series of Bonds from time to time upon receipt of a Request of the Agency. On the 90th day after the Closing Date (or the first Business Day thereafter). or upon the earlier receipt by the Trustee of a Request of the Agency stating that all Costs of Issuance have been paid. the Trustee shall transfer all remaining amounts in the accounts of the Costs of Issuance Fund to the Revenue Fund. Section 2.7. Special Escrow Fund. There is hereby established a separate fund to be known as the "Special Escrow Fund. and an account therein to be known as the "Escrow Interest Account which shall be held by the Trustee in trust. On the Closing Date. the Trustee shall transfer money from the Series 2006B Loan Fund to the Escrow Interest Account and the Special Escrow Fund in accordance with Section 2.2(b). Amounts in the Special Escrow Fund and the Escrow Interest Account shall be applied as follows: (a) On each Interest Payment Date. the Trustee shall transfer from the Escrow Interest Account to the Interest Account. an amount equal to the interest payable on such date with respect to the Deemed Escrow Portion of the Series 2006B Bonds. (b) On or before [January' I of each year up to and including [January' I. 201091. the Agency shall file with the Trustee a Certificate accompanied by a Report of an Independent Redevelopment Consultant which identifies (i) the amounts. if any. proposed to be released from the Special Escrow Fund and the Escrow Interest Account. and (ii) the Reserve Requirement which results from such release. If an amount is proposed to be released from the Special Escrow Fund. such Report shall conclude that the amount of Tax Revenues received or to be received for the then current Fiscal Year. as set forth in a Certificate of the Agency. based on assessed valuation of property in the Project Area. as evidenced in the records of the County. plus at the option of the Agency the Additional Revenue. shall be at least equal to 120 percent of the amount of the Maximum Annual Debt Service identified in such Report. The Agency's Certificate shall also be accompanied by a schedule show ing that the balance remaining in the Escrow Interest Account [plus the anticipated interest earnings thereon' will be sufficient to pay interest on the Deemed Escrow Portion of the Series 2006C Bonds after the proposed transfer on each future Interest Payment Date to and including the Escrow Redemption Date. Promptly following receipt of any such Report. the Trustee shall withdraw from the Special Escrow Fund and the Escrow Interest Account the amounts identified in such Report and (subject to the provisions of Paragraph (c) below) transfer such amount as follows: P6402.1 0;;\x72;; x. x 10 (I) The Trustee shall deposit into the Reserve Fund an amount required to cause the balance therein to equal the Reserve Requirement: (2) The Trustee shall transfer the amount indicated in the Agency's Certificate to the Interest Account: and (3) The Trustee shall transfer the remainder of such amounts to the Agency for deposit in the Project Fund. (c) On (June I. 20091. the Trustee shall (i) transfer amounts then on deposit in the Special Escrow- Fund to the Principal Account. to be applied to the extraordinary redemption of the largest principal amount of Series 2006C Bonds Nyhich can be called pursuant to Section 2.03(c)(3) of the Indenture. and (ii) transfer amounts then on deposit in the Escrow- Interest Account to the Interest Account. to be applied to pay accrued interest on the Series 2006C Bonds being redeemed pursuant to Section 2.03(c)(3) of the Indenture on Escrow- Redemption Date. If the balance in the Special Escrow Fund exceeds the amount required to call and redeem all Outstanding Series 2006C Bonds. such excess shall be transferred to the Agency for deposit in the Project Fund. Notwithstanding the foregoing. if the balance in the Special Escrow- Fund on (June I. 20091 is less than $5.000. then the Trustee shall transfer all of such balance to the Project Fund and transfer all remaining money in the Special Interest Account to the Interest Account. Section 2.8. Proiect Fund. There is hereby established a fund to be known as the "Project Fundy. which shall be held and maintained by the Trustee. Amounts on deposit in such fund shall be derived solely from the portion of the proceeds of the Loans transferred thereto and from earnings on the investment of amounts therein. Except as provided in this Section. the moneys set aside and placed in the Project Fund shall remain therein until expended from time to time for the purpose of paying any portion of the costs of 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. Trustee: Each such Request of the Agency shall state and shall be sufficient evidence to the P6402.1055\872538.8 11 (i) that an obligation in the stated amount has been properly incurred under and pursuant to this Loan Agreement and that such obligation is a proper charge against the Project Fund: and (ii) that there has not been filed Nyith or served upon the Agency a stop notice or any other notice of any lien. right to lien or attachment upon. or claim affecting the right to receive payment of. an of the money payable to the person named in such Request of the Agency Nyhich has not been released or \\ill not be released simultaneously Nyith the payment of such obligation. other than liens accruing by mere operation of law. Upon receipt of each such Request of the Agency. the Trustee shall pay the amount set forth in such Request of the Agency as directed by the terms thereof within three Business Days. If any moneys deposited in the Project Fund remain therein after the full accomplishment of the objects and purposes for which the Loans \sere made. said moneys shall be transferred to the Special Fund. Section 2.9. 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 2.9: (a) No Event of Default shall have occurred and be continuing. and the Agency shall othenvise be in compliance with all covenants set forth in this Loan Agreement. (b) The amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Agency. based on assessed valuation of property in the Project Area as evidenced in the Nyritten records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to (i) 120 percent of Maximum Annual Debt Service. and (ii) 100 percent of the sum of Maximum Annual Debt Service (of the Loans and Parity Debt) and maximum annual debt service on all outstanding Subordinate Debt that is secured by a pledge of or lien upon the Tax Revenues. (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) All amounts held in the Special Escrow Fund shall have been transferred to the Agency or otherwise applied in accordance with Section 2.7: provided that this condition shall not limit the authority of the Agency to issue or incur Parity Debt for the purpose of refunding the Loans or other Parity Debt so long as either (i) the total amount of principal and interest payable with respect to such proposed refunding Parity Debt shall be Tess than the total amount of principal and interest remaining to be paid with respect to the Loan or the Parity Debt to be refunded. or (ii) the total amount of principal and interest payable with respect to such proposed refunding Parity Debt reflects a present value sayings Nwhen compared wwith the total amount of principal and interest remaining to be paid wwith respect to the Loan or the Parity Debt to be refunded. (e) The related Parity Debt Instrument shall provide that: (I) With respect to any Parity Debt \which bears current interest. interest on such Parity Debt shall not be payable on a date other than February I and August I of any year. and (2) The principal of such Parity Debt shall not be payable on any date other P6402.1 0;;\x72;; x. x 12 than the date on hich principal of the Loans is payable. (f) The issuance of such Parity Debt shall not cause the Agency to exceed an applicable Plan Limitations. (g) 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 (f) above have been satisfied. The Agency shall also furnish a cope of an Independent Redevelopment Consultants report evidencing compliance NVith the condition set forth in Paragraph (b). Section 2. ID. Issuance of Subordinate Debt. In addition to the Loans and any Parity Debt. from time to time the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency. provided that (i) the issuance of such Subordinate Debt shall not cause the Agency to exceed any applicable Plan Limitations. and (ii). Nyith respect to any Subordinate Debt that is to be secured by a pledge or lien upon Tax Revenues. the amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Agency. based on assessed valuation of property in the Project Area as evidenced in the Nvritten records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to 100 percent of the sum of Maximum Annual Debt Service (of the Loans and Parity Debt) and maximum annual debt service on all Outstanding Subordinate Debt that is secured by a pledge of or Tien upon the Tax Revenues. Section 2. I I . 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 NVith respect to the Redevelopment Project. ARTICLE III PLEDGE AND APPLICATION OF TAX REVENUES Section 3. I. Pledtze of Tax Revenues. The Loans and all Parity Debt shall be equally secured by a first pledge of and Tien on all of the Tax Revenues and all of the moneys on deposit in the Special Fund. Nvithout preference or priority for series. issue. number. dated date. sale date. date of execution or date of deliver Except for the Tax Reycnues and other funds pledged hereunder. no funds or properties of the Agency shall be pledged to. or othenyise liable for. the payment of principal of or interest on or prepayment premium. if any. on the Loans. Section 3.2. Special Fund: Deposit of Tax Revenues. The Agency has heretofore established a special fund known as the "Special Fund." Nyhich is and shall continue to be held by the Agency as a separate fund apart from all other funds and accounts of the Agency. The Agency shall deposit all Tax Revenues in the Special Fund promptly upon the receipt thereof. Except as may be othenvise provided in any Parity Debt Instrument. anv Tax Revenues received during the Bond Year in excess of amounts required to be transferred to the Trustee pursuant to Section 3.3 shall be released from the pledge and Tien hereunder and may be used for any (awful 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 under this Loan Agreement and anv Parity Debt Instrument. the Agency shall not have anv beneficial right or interest in the moneys on deposit in the Special Fund. except only as provided in this Loan Agreement and any Parity Debt Instrument. and such moneys shall be used and applied as set forth herein and therein. Section 3.3. Transfer of Tax Revenues From Special Fund. In addition to the transfers required to be made pursuant to any Parity Debt Instrument. the Agency shall Nvithdraw from the Special P6402.1055\87253 x. x 13 Fund and transfer to the Trustee the following amounts at the following times and in the following order of priority: (a) Interest and Principal Deposits. No later than the fifth Business Day preceding each date on 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 Nvithdraw 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 Rcycnuc Fund. is equal to the aggregate amount of such principal. interest and prepayment premium. (b) Reserve Fund Deposits. In the event that the Trustee shall notify the Agency pursuant to Section 2.5 that the amount on deposit in the Reserve Fund is Tess than the Reserve Requirement. the Agency shall immediately Nvithdraw from the Special Fund and transfer to the Tnistcc for deposit in the Reserve Fund an amount of money necessary to maintain the Reserve Requirement in the Reserve Fund (including repayment of any draw made under a Qualified Reserve Fund Credit Instrument. including the Surety Bond. prior to replenishing any cash in the Reserve Fund). (c) Surplus. Except as may be otherwise provided in any Parity Debt Instrument. the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Tax Revenues which. together with other available amounts in the Special Fund. exceeds the amounts required in such Bond Year pursuant to this Section. 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 pursuant to this Loan Agreement shall be released from the pledge thereof and lien thereon which is established pursuant hereto. In the event that for any reason Nvhatsoeyer any amounts shall remain on deposit in the Special Fund on any August 2 after making all of the transfers theretofore required to be made pursuant to the preceding Paragraphs (a) and (b) and pursuant to any Parity Debt Instrument. the Agency may Nvithdraw such amounts from the Special Fund. to be used for any lawful purposes of the Agency. including but not limited to the payment of any Subordinate Debt or the payment of any amounts due and owing to the United States pursuant to Section 4.1 I. Section 3.4. Investment of Moneys: Valuation of Investments. Subject to Section 4.03 of the Indenture. all moneys in the Special Fund. the Project Fund. the Reserve Fund and the Costs of Issuance Fund shall be invested in Permitted Investments. Absent any prior Nvritten instruction from the Agency or the Authority. moneys in any fund held by the Trustee hereunder or under the Indenture shall be invested in Permitted Investments described in clause D of the definition thereof. Obligations purchased as an investment of moneys in any fund or account established hereunder shall be credited to and deemed to be part of such fund or account. The Agency or the Trustee. as the case may be. may commingle any amounts in any of the funds and accounts held hereunder with any other amounts held by the Agency or the Trustee for purposes of making any investment. provided that the Agency and the Trustee shall maintain separate accounting procedures for the investment of all funds and accounts held hereunder. All interest. profits and other income received from the investment of moneys in any fund or account established hereunder shall be credited to such fund or account. Notwithstanding anything to the contrary contained in this Section. an amount of interest received with respect to any investment equal to the amount of accrued interest. if any. paid as part of the purchase price of such investment shall be credited to the fund or account from which such accrued interest was paid. 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. P6402.1 0;;\x72;; x. x 14 ARTICLE IV OTHER COVENANTS OF THE AGENCY Section 4. I. Punctual Payment: Extension of Payments. The Agency shall punctually pay or cause to be paid the principal of and interest and prepayment premium. if any. on the Loans in strict conformity with the terms of this Loan Agreement. and it will faithfully observe and perform all of the conditions. covenants and requirements of this Loan Agreement. The Agency shall not directly or indirectly extend or assent to the extension of the maturity of any installment of principal of or interest or prepayment premium. if any. on the Loans. and in case the principal of or interest or premium. if any. on the Loans or the time of payment of any such claims therefor shall be extended. such principal. interest. premium or claims for interest shall not be entitled. in case of any Event of Default hereunder. to the benefits of this Loan Agreement except for payment of all amounts which shall not have been so extended. Section 4.2. Limitation on Additional Indebtedness. The Agency hereby covenants that it shall not issue any bonds. notes or other obligations. enter into any agreement or otherwise incur any indebtedness. which is in any case payable from all or any part of the Tax Revenues. excepting only the Loans. any Parity Debt and any Subordinate Debt. and any other obligations permitted by this Loan Agreement. Section 4.3. Payment of Claims. The Agency shall pay and discharge. or cause to be paid and discharged. any and all lawful claims for labor. materials or supplies which. if unpaid. might become a lien or charge upon the properties owned by the Agency or upon the Tax Revenues or any part thereof. or upon any funds in the hands of the Trustee. or which might impair the security of the Loans. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims. Section 4.4. Books and Accounts: Financial Statements. The Agency shall keep. or cause to be kept. proper books of record and accounts. separate from all other records and accounts of the Agency and the City. in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project. the Tax Revenues. the Special Fund. the Reserve Fund. the Low and Moderate Income Housing Fund and the Redevelopment Fund. Such books of record and accounts shall at all times during business hours be subject. upon prior written request. to the reasonable inspection of the Authority. the Trustee and the Owners of not less than ten percent in aggregate Principal Amount of a series of Bonds then Outstanding. or their representatives authorized in writing. The Agency will cause to be prepared annually. within 180 days after the close of each Fiscal Year so long as any of the Bonds are Outstanding. complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues. all disbursements from the Special Fund and the Redevelopment Fund and the financial condition of the Redevelopment Project. including the balances in all funds and accounts relating to the Redevelopment Project. as of the end of such Fiscal Year. The Agency \ III furnish a copy of such statements. upon reasonable request. to any Owner. Section 4.5. Protection of Security and Rights. 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 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 Nvhomsoeyer. The Agency's obligations to P6402. I055\8725 38.8 15 the Trustee under this Section 4.5 shall survive the payment of the Bonds and the discharge of the Indenture. the removal or resignation of the Tnistcc pursuant to the Indenture or the payment of the Loans and the discharge of this Loan Agreement. Section 4.6. Payments of Taxes and Other Charges. The Agency Nvill pay and discharge. or cause to be paid and discharged. all taxes. service charges. assessments and other governmental charges Nvhich may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area Nyhen the same shall become due. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of such taxes. assessments or charges. The Agency \\ill duly observe and comply Nvith all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof. Section 4.7. Taxation of Leased Property. All ad valorem property taxes derived by the Agency pursuant to Section 33673 of the Redevelopment Law Nyith respect to the lease of property for redevelopment shall be treated as Tax Revenues for all purposes of this Loan Agreement. and shall be deposited by the Agency in the Special Fund promptly upon receipt. Section 4.8. Disposition of Property. The Agency Nvill not participate in the disposition of any land or real property in the Project Area to anyone Nyhich Nvill result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of this Loan Agreement) so that such disposition shall. Nyhen taken together Nyith other such dispositions. aggregate more than ten percent of the land area in the Project Area unless such disposition is permitted as hereinafter provided in this Section. If the Agency proposes to participate in such a disposition. it shall thereupon appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the Report of the Independent Redevelopment Consultant concludes that the security of the Loans or the rights of the Authority. the Owners and the Trustee hereunder Nvill not be materially impaired by said proposed disposition. the Agency may thereafter make such disposition. If such Report concludes that such security \\ill be materially impaired by such proposed disposition. the Agency shall disapprove said proposed disposition. Section 4.9. Maintenance of Tax Revenues. The Agency shall comply Nyith all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues. including Nyithout limitation the timely filing of any necessary statements of indebtedness Nyith appropriate officials of the County and (in the case of supplemental revenues and other amounts payable by the State) appropriate officials of the State. The Agency shall not amend the Redevelopment Plan or any of the Pass -Through Agreements. or enter into any agreement Nyith the County or any other governmental unit. Nyhich Nyould have the effect of reducing the amount of Tax Revenues available to the Agency for payment of the Loans. unless the Agency shall first obtain (i) the Report of an Independent Redevelopment Consultant stating that the amount of Tax Revenues for the then current Fiscal Year (calculated on the assumption that such reduction of Tax Revenues was in effect throughout such Fiscal Year). plus at the option of the Agency the Additional Revenues. shall meet the coverage test set forth in Section 2.9 (calculated on the assumption that no amounts remain on deposit in the Special Escrow Fund). and (ii) as Tong as the Insurance Policy is then in full force and effect. the Nvritten consent of the Insurer. Nothing herein is intended or shall be construed in any Nvay to prohibit or impose any limitations on the entering into by the Agency of any such agreement. amendment or supplement which by its term is subordinate to the payment of the Loans and all Parity Debt. Section 4. ID. Payment of Expenses: Indemnification. The Agency shall pay to the Trustee from time to time all compensation for all services rendered under this Loan Agreement and the Indenture. including but not limited to all reasonable expenses. charges. legal and consulting fees and P6402.1055\872538.8 16 other disbursements and those of its attorneys. agents and employees. incurred in and about the performance of its powers and duties hereunder and thereunder. Upon the occurrence of an Event of Default. the Trustcc shall have a first 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 \yhich it may incur arising out of or in the exercise and performance of its powers and duties in accordance Nvith the Indenture and this Loan Agreement. including the costs and expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities Nvhich are due to the negligence or intentional misconduct of the Trustee. its officers. directors. agents or employees. The obligations of the Agency under this paragraph shall survive the resignation or removal of the Trustee under the Indenture. this Loan Agreement and payment of the Loans and the discharge of this Loan Agreement. Section 4. I I. Tax Covenants. To the extent that bond counsel renders an opinion that interest on the Bonds (or any of them) is tax-exempt under federal tax lacy: (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 NyiII satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Agency agrees to comply Nyith such Nyritten instructions as may be provided by Bond Counsel. (b) The Agency covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nyould cause the Bonds to become arbitrage bonds as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nyith the rebate requirements of Section 148 of the Code. the Agency further covenants that it Nyill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section 1 48(f) of the Code. and that it \\ill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nyith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Agency covenants that it Nyill not take any action or omit to take any action. Nyhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nyould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. (d) The Agency covenants that it Nyill not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as Nyould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. (e) Except as provided below. the Agency covenants that none of the moneys contained in any of the funds or accounts Nyith respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested P6402.1055\872538.8 17 directly or indirectly in obligations guaranteed (in Nvholc or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Rcycnuc Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 1 I (a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under the Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 4.12. Redevelopment of Project Area. The Agency shall ensure that all activities undertaken by the Agency NVith respect to the redevelopment of the Project Area are undertaken and accomplished in conformity Nyith all applicable requirements of the Redevelopment Plan and the Redevelopment Lary. The Agency shall manage and operate all properties owned by the Agency and comprising any part of the Redevelopment Project in a sound and business -like manner and in conformity Nyith all valid requirements of any governmental authority. and NyiII keep such properties insured at all times in conformity Nyith sound business practice. 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 Nyith Sections 33334.2 and 33334.3 of the Redevelopment Law. and further covenants and agrees to disburse. expend or encumber any "excess surplus" (as defined in Section 33334.12 of the Redevelopment Lary) in the Low and Moderate Income Housing Fund at such times and in such manner that the Agency shall not be subject to sanctions pursuant to subdivision (c) of said Section 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 Plans cumulative tax increment limitation. as \Veil as future cumulative annual debt service with respect to the Loans and all Parity Debt. The Agency II not accept Tax Revenues greater than such annual debt service in any year. if such acceptance Nyill cause the amount remaining under the tax increment limit to fall below remaining cumulative annual debt service with respect to the Loans and all Parity Debt. except for the purpose of depositing such revenues in escrow for the payment of such debt service or for the prepayment or redemption of the Loans or any Parity Debt. Once it is determined that Tax Revenues available to be received by the Agency under the aforementioned tax increment limitation in an upcoming year will not exceed II() 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 NyiII adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Loan Agreement and for the better assuring and confirming unto the Trustee. the Authority and the Owners of the Bonds of the rights and benefits provided in this Loan Agreement. P6402.1 0;;\x72;; x. x 18 ARTICLE V EVENTS OF DEFAULT AND REMEDIES Section 5. I. Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default hereunder: (a) Failure by the Agency to pay the principal of or interest or prepayment premium. if any. on the Loans or any Parity Debt when and as the same shall become due and payable. (b) Failure by the Agency to observe and perform any of the covenants. agreements or conditions on its part contained in this Loan Agreement. other than as referred to in the preceding Paragraph (a). for a period of 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 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 Loans together with the accrued interest on all unpaid installments thereof. to be due and payable immediately. and upon any such declaration the same shall become immediately due and payable. anything in this Loan Agreement to the contrary notwithstanding. and (ii) subject to the receipt of indemnity as provided in the Indenture. exercise any other remedies available to the Trustee at law or in equity. Immediately upon becoming aware of the occurrence of an Event of Default. the Authority. or the Trustee as assignee of the Authority. shall give notice of such Event of Default to the Agency by telephone. telecopier or other telecommunication device. promptly confirmed in writing. This provision. however. is subject to the condition that if. at any time after the principal of the Loans shall have been so declared due and payable. and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the Agency shall deposit with the Trustee a sum sufficient to pay all installments of principal of the Loans matured prior to such declaration and all accrued interest thereon. with interest on such overdue installments of principal and interest at the net effective rate then borne by the Outstanding Bonds. and the reasonable expenses of the Trustee (including but not limited to attorneys fees). and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Loans due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in every such case. the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds may. by written notice to the Trustee and the Agency. rescind and annul such declaration and its consequences. However. no such rescission and annulment shall extend to or shall affect any subsequent default. or shall impair or exhaust any right or power consequent thereon. P6402.1 0;;\x72;; x. x 19 Section 5.2. 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 disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and Second. to the payment of the Nvhole amount of interest on and principal of the Loans then due and unpaid. Nyith interest on overdue installments of principal. and such interest to the extent permitted by lacy at the net effective rate of interest then borne by the Outstanding Bonds: provided. however. that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal. then such amounts shall be applied in the following order of priority: (i) first. to the payment of all installments of interest on the Loans then due and unpaid. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. (ii) second. to the payment of all installments of principal of the Loans then due and payable. on a pro rata basis in the event that the available amounts are installments of principal in full. and (iii) third. to the payment of interest on overdue installments of principal and interest. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. Section 5.3. No Waiver. Nothing in this Article V or in any other provision of this Loan Agreement. shall affect or impair the obligation of the Agency. which is absolute and unconditional. to pay from the Tax Revenues and other amounts pledged hereunder. the principal of and interest and premium. if any. on the Loans to the Trustee when due. as herein provided. or affect or impair the right of action. which is also absolute and unconditional. of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in this Loan Agreement. A waiver of any default by the Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein. and every power and remedy conferred upon the Trustee by the Redevelopment Law or by this Article V may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee. If a suit. action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Trustee. the Agency. the Authority and the Trustee shall be restored to their former positions. rights and remedies as if such suit. action or proceeding had not been brought or taken. Section 5.4. Agreement to Pay Attorneys" Fees and Expenses. In the event the Agency or the Authority should default under any of the provisions hereof and the nondefaulting party or the Trustee should employ attorneys or incur other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained. the defaulting party agrees that it will on demand therefor pay to the nondcfaulting party or the Trustcc. as the case may be. the reasonable fees of such attorneys and such other expenses so incurred P6402.1 0;;\x72;; x. x 20 (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). Section 5.5. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustcc is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing. at lacy or in equity or by statute or otherwise. and may be exercised Nvithout exhausting and Nvithout regard to any other remedy conferred by the Redevelopment Law or any other lacy. Section 5.6. Control of Remedies by Insurer . Notwithstanding the provisions of Section 5. I and subject to any rights heretofore granted by the Authority or the Agency to any insurer of Parity Debt. as 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. I shall be subject to the prior Nyritten consent of the Insurer. No Nyaiyer of a default shall be effective without the «rittcn consent of the Insurer. ARTICLE VI MISCELLANEOUS Section 6. I. Benefits Limited to Parties. Nothing in this Loan Agreement. expressed or implied. is intended to give to any person other than the Agency. the Tnistcc. the Insurer and the Authority. any right. remedy or claim under or by reason of this Loan Agreement. All covenants. stipulations. promises or agreements in this Loan Agreement contained by and on behalf of the Agency shall be for the sole and exclusive benefit of the Authority. the Trustee acting as trustee for the benefit of the Owners of the Bonds. and the Insurer so Tong as the Insurance Policy remains in full force and effect. Section 6.2. Successor is Deemed Included in All References to Predecessor. Whenever in this Loan Agreement. the Agency. the Authority. the Trustee or the Insurer is named or referred to. such reference shall be deemed to include the successors or assigns thereof. and all the covenants and agreements in this Loan Agreement contained by or on behalf of the Agency. the Authority. the Trustee or the Insurer shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 6.3. Discharze of Loan Agreement. If the Agency shall pay and discharge the indebtedness on the Loans or any portion thereof in any one or more of the following \Nays: (a) by \yell and truly paying or causing to be paid the principal of and interest and prepayment premiums. if any. on the Loans or such portion thereof. as and 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 Defeasance Obligations in such amount as an Independent Accountant shall determine NyiII. P6402.1 0;;\x72;; x. x 21 together Nyith the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or this Loan Agreement. be fully sufficient to pay and discharge the indebtedness on the Loans or such portion thereof (including all principal. interest and prepayment premiums) at or before maturity: then. at the election of the Agency but only if all other amounts then due and payable hereunder shall have been paid or provision for their payment made. the pledge of and Tien upon the Tax Revenues and other funds provided for in this Loan Agreement and all other obligations of the Trustee. the Authority and the Agency under this Loan Agreement Nyith respect to the Loans or such portion thereof shall cease and terminate. except only the obligation of the Agency to pay or cause to be paid to the Trustee. from the amounts so deposited Nyith the Trustee or such other fiduciary. all sums due Nyith respect to the Loans or such portion thereof. and to pay all expenses and costs of the Trustee Nyhen and as such expenses and costs become due and payable. Notice of such election shall be filed Nyith the Authority and the Trustee. Any funds thereafter held by the Trustee hereunder. Nyhich are not required for said purpose. shall be paid over to the Agency. Section 6.4. Amendment. This Loan Agreement may be amended by the parties hereto but only under the circumstances set forth in. and in accordance Nyith. the provisions of Section 5.08 of the Indenture. The Authority and the Trustee covenant that the Indenture shall not be amended. nor shall the Authority agree or consent to any amendment of the Indenture. Nyithout the prior Nvritten consent of the Agency (except that such consent shall not be required in the event that an Event of Default shall have occurred and be continuing hereunder). Section 6.5. Waiver of Personal Liability. No member. officer. agent or employee of the Agency shall be individually or personally liable for the payment of the principal of or interest on the Loans: but nothing herein contained shall relieve any such member. officer. agent or employee from the performance of any official duty provided by law. Section 6.6. Payment on Business Days. Whenever in this Loan Agreement any amount is required to be paid on a day Nyhich is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest on such payment shall not accrue from and after such day. Section 6.7. Notices. Any notice. request. complaint. demand or other communication under this Loan Agreement shall be given in the same manner as provided in Section I I. 13 of the Indenture. which is hereby incorporated. Section 6.8. Surety Bond. Ito coma Section 6.9. Partial Invalidity . If any Section. paragraph. sentence. clause or phrase of this Loan Agreement shall for any reason be held illegal. invalid or unenforceable. such holding shall not affect the validity of the remaining portions of this Loan Agreement. The Agency hereby declares that it 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 6.10. Article and Section Headings and References. The headings or titles of the several Articles and Sections hereof. and any table of contents appended to copies hereof. shall be solely for convenience of reference and shall not affect the meaning. construction or effect of this Loan Agreement. All references herein to "Articles." "Sections" and other subdivisions are to the P6402.1055\872538.8 22 corresponding Articles. Sections or subdivisions of this Loan Agreement: the Nvords "herein. "hereof. "hereby. "hereunder- and other Nvords of similar import refer to this Loan Agreement as a Nvhole and not to any particular Article. Section or subdivision hereof: and Nvords of the masculine gender shall mean and include Nvords of the feminine and neuter genders. Section 6. I I . Execution of Counterparts. This Loan Agrccmcnt may be executed in any number of counterparts. each of which shall for all purposes be deemed to be an original and all of which shall together constitute but one and the same instrument. Section 6.12. Governing Law. This Loan Agreement shall be construed and governed in accordance with the Taws of the State. Section 6.1 3. The Trustee. The Trustee is entering into this Loan Agreement solely in its capacity as Trustee under the Indenture and all provisions of the Indenture relating to the rights. privileges. powers and protections of the Trustee shall apply with equal force and effect to all actions taken by the Trustee in connection with this Loan Agreement. The Trustee shall be responsible only for the duties of the Trustee expressly set forth herein. 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 Nvritten. PALM DESERT REDEVELOPMENT AGENCY By Executive Director PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Officer P6402.1055\87253 x. x 23 EXHIBIT A SCHEDULE OF SERIES 2006A LOAN PAYMENTS' Date Principal Interest Total * Payable semiannually on the fifth Business Day preceding each Interest Payment Date P6402.1055\8725 38.8 A-1 EXHIBIT B SCHEDULE OF SERIES 2006B LOAN PAYMENTS Date Total Pa\ meat P6402.1 c h i\872 i 38.8 B- EXHIBIT C SCHEDULE OF SERIES 2006C LOAN PAYMENTS' Date Principal Interest Total * Payable semiannually on the fifth Business Day preceding each Interest Payment Date P6402.1 0;;\872;3 x. x c-I * Payable on the fifth Business Day preceding each August 1st P6402.1 0;;\x72;; x. x A-2 Indenture of Trust Nyith reference to Palm Desert Financing Authority Subordinate Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 2) 2006 Series D P6402.10 \88I 80.; RWG I)RAI' I: 5/22/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY 2 Section 1.01. Definitions 2 Section 1.02. Rules of Construction 9 Section 1.03. Authorization and Purpose of Bonds 9 Section 1.04. Equal Security 9 ARTICLE II ISSUANCE OF BONDS 9 Section 2.01. Designation 9 Section 2.02. Terms of Bonds 9 Section 2.03. Redemption of Bonds 10 Section 2.04. Form of Bonds 11 Section 2.05. Execution of Bonds 11 Section 2.06. Transfer of Bonds 11 Section 2.07. Exchange of Bonds 12 Section 2.08. Temporary Bonds 12 Section 2.09. Registration Books 12 Section 2.10. Bonds Mutilated. Lost. Destroyed or Stolen 12 ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS: ISSUANCE OF BONDS 13 Section 3.01. Issuance of Bonds 13 Section 3.02. Loan Fund: Application of Proceeds of Sale of Bonds 13 Section 3.03. Validity of Bonds 13 ARTICLE IV REVENUES: FLOW OF FUNDS 13 Section 4.01. Pledge of Revenues: Assignment of Rights 13 Section 4.02. Receipt. Deposit and Application of Revenues 14 Section 4.03. Investments 14 Section 4.04. Valuation and Disposition of Investments 15 ARTICLE V COVENANTS OF THE AUTHORITY 15 Section 5.01. Punctual Payment 15 Section 5.02. Extension of Payment of Bonds 15 Section 5.03. Against Encumbrances 15 Section 5.04. Power to Issue Bonds and Make Pledge and Assignment 16 Section 5.05. Accounting Records and Financial Statements 16 Section 5.06. No Additional Indebtedness 16 Section 5.07. Tax Covenants 16 Section 5.08. Loan Agreement 17 Section 5.09. Further Assurances 18 ARTICLE VI THE TRUSTEE 18 Section 6.01. Appointment of Trustee 18 Section 6.02. Acceptance of Tnists 18 Section 6.03. Fees. Charges and Expenses of Trustee 21 Section 6.04. Notice to Owners of Default 21 P64U2. I 0.5.5\881380.3 -1- Section 6.05. Intervention by Trustee 21 Section 6.06. Removal of Trustee 21 Section 6.07. Resignation by Trustee 22 Section 6.08. Appointment of Successor Trustee 22 Section 6.09. Merger or Consolidation 22 Section 6.10. Concerning any Successor Trustee 22 Section 6.11. Appointment of Co -Trustee 22 Section 6.12. Indemnification: Limited Liability of Trustee 23 ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE 23 Section 7.01. Amendment Hereof 23 Section 7.02. Effect of Supplemental Indenture 24 Section 7.03. Endorsement or Replacement of Bonds After Amendment 24 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES 2iS Section 8.01. Events of Default 25 Section 8.02. Remedies Upon Event of Default 25 Section 8.03. Application of Revenues and Other Funds After Default 26 Section 8.04. Power of Trustee to Control Proceedings 27 Section 8.05. Appointment of Receivers 27 Section 8.06. Non -Waiver 27 Section 8.07. Limitation on Rights and Remedies of Owners 27 Section 8.08. Termination of Proceedings 28 ARTICLE IX BOND INSURANCE 28 ARTICLE X BOOK -ENTRY SYSTEM 28 Section 10.01 Book -Entry System: Limited Obligation of Authority 28 Section 10.02 Representation Letter 29 Section 10.03 Transfers Outside Book -Entry System 29 Section 10.04 Payments to the Nominee 29 Section 10.05 Initial Depository and Nominee 29 ARTICLE XI MISCELLANEOUS 29 Section 11.01. Limited Liability of Authority 29 Section 11.02. Benefits of Indenture Limited to Parties 30 Section 11.03. Discharge of Indenture 30 Section 11.04. Successor Is Deemed Included in All References to Predecessor 31 Section 11.05. Content of Certificates 31 Section 1 1.06. Execution of Documents by Owners 31 Section 11.07. Disqualified Bonds 31 Section 11.08. Waiver of Personal Liability 32 Section 11.09. Partial Invalidity 32 Section 1 1.10. Destruction of Cancelled Bonds 32 Section 1 1.1 1. Funds and Accounts 32 Section 11.12. Payment on Business Days 32 Section 11.13. Notices 32 Section 11.14. Unclaimed Moneys 33 Section 11.15. Governing Law 33 EXHIBIT A — FORM OF BOND P6402.1055\881380.3 Indenture of Trust This Indenture of Trust (this "Indenture) is made and entered into as of Jule I. 2006. by and between the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority) and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America. haying a corporate trust office in Los Angeles. California. and being qualified to accept and administer the trusts hereby created (the "Trustee.). Recitals A. The Palm Desert Redevelopment Agency (the "Agency) is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers. all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 2 of the Agency (the "Project Area) has been duly approved and adopted by the City. C. The Authority is authorized to borrow money for the purpose of making loans to the Agency to provide financing for public capital improvements of the Agency. D. For the purpose of aiding in the financing of redevelopment projects for the Project Area. the Authority has determined to make a loan (the "Loan) to the Agency under and pursuant to the Project Area No. 2 Loan Agreement (2006 Subordinate Loan). dated as of July I. 2006 (the "Loan Agreement.). by and among the Authority. the Agency and the Trustee. E. To provide the moneys required to make the Loan under the Loan Agreement. the Authority has determined to issue its Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series D. in the aggregate initial principal amount of (the "Bonds.). pursuant to and secured by this Indenture in the manner provided herein. F. To provide for the authentication and delivery of the Bonds. to establish and declare the terms and conditions upon which the Bonds are to be issued and to secure the payment of the principal thereof. premium. if any. and interest thereon. the Authority has authorized the execution and delivery of this Indenture. NOW. THEREFORE. THIS INDENTURE WITNESSETH. that in order to secure the payment of the principal of. premium. if any. and interest on the Bonds at any time issued and Outstanding under this Indenture. according to their tenor. and to secure the performance and observance of all the covenants and conditions therein and herein set forth. and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received. and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof. and for other valuable considerations. the receipt whereof is hereby acknowledged. the Authority hereby covenants and agrees with the Trustee. for the benefit of the Owners of the Bonds. as follows: P64U2. ! U.5.5\881380.3 -1- ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY Section 1.01. Definitions. The following terms shall for all purposes of this Indenture and of any Supplemental Indenture and of any certificate. opinion. request or other documents herein mentioned have the meanings ascribed thereby. In addition. the terms defined in Section 1.01 of the Loan Agreement and not otherwise defined in this Section 1.0I shall have the meanings ascribed thereby in the Loan Agreement. "Accreted Value means. Nvith respect to any Bond. as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Closing Date at the stated yield to maturity thereof on each February I and August I. assuming in any such semiannual period that such Accreted Value increases in equal daily amounts on the basis of a 360-dav year of twelve 30-dav months. "Act means Articles I through 4 (commencing Nvith Section 6500) of Chapter 5. Division 7. Title I of the Government Code of the State. as in existence on the Closing Date or as thereafter amended from time to time. ..Agency.. means the Palm Desert Redevelopment Agency. a redevelopment agency. a public body corporate and politic. duly created. established and authorized to transact business and exercise its powers all under and pursuant to the Redevelopment Law. and any successor to its duties and functions. "Authority means the Palm Desert Financing Authority. a joint powers authority duly organized and existing under the Joint Exercise of Powers Agreement. dated January 26. 1989. by and between the City and the Agency. and under the laws of the State. "Authority Commission"' means the governing body of the Authority. "Bond Counsel means Richards. Watson K. Gershon. A Professional Corporation. Los Angeles. California. or a firm of attorneys of favorable reputation in the field of municipal bond lacy. "Bond Lary means the Marks -Roos Local Bond Pooling Act of 1985. being Article 4 of the Act (commencing Nyith Section 6584). as in existence on the Closing Date or as thereafter amended from time to time. "Bond Year- means each twelve-month period extending from August 2 in one calendar year to August I of the succeeding calendar year. both dates inclusive. except that the first Bond Year shall begin on the Closing Date and extend to and include August I. 2006. "Bonds means the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series D. "Business Day" means any day other than (i) a Saturday or a Sunday or (ii) any other day on Nyhich the New York Stock Exchange or banks are authorized or obligated by lacy or executive order to close in New York. New York. San Francisco. California. Los Angeles. California or any city in Nyhich the Trust Office is located. P6402. I 055\881380.3 -2- "Certificate"' means a certificate in writing signed by any officer of the designated public entity. duly authorized by its legislative body for that purpose. "City means the City of Palm Desert. a charter city and municipal corporation duly organized and validly existing under the laws of the State. purchaser. "Closing Date means the date of delivery of the Bonds to the Underwriter as the original "Code" means the Internal Revenue Code of 1986. as amended. "County" means the County of Riverside. "Defeasance Obligations means (a) any obligations described in paragraph A or B of the definition of "Permitted Investments set forth in this Section or (b) collateralized investment agreements. provided that (i) the counterparty to any such agreement shall be a domestic bank or foreign bank with a senior unsecured debt rating of AAA by S&P and Aaa by Moody's: a domestic or Canadian life insurance company with a claims -paying or financial strength rating of AAA and Aaa by S&P and Moody's. respectively: a wholly -owned and guaranteed financial institution subsidiary of one of the above mentioned institutions: an insurance holding company. rated AAA and Aaa. by S&P and Moody's respectively: or a domestic financial guaranty insurance company or an affiliate of a domestic financial guaranty insurance company. whose obligations are fully guaranteed by an affiliate or the parent company which has a rating of AAA and Aaa by S&P and Moody's. respectively: (ii) any such agreement shall be collateralized by securities issued or guaranteed by the United States government. the Government National Mortgage Association. the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association. or municipal. corporate. asset -backed and mortgage -backed obligations rated AAA and Aaa by S&P and Moody's. respectively: the counterparty must grant to the Trustee or the agent holding the collateral for the Trustee a first perfected security interest in all collateral delivered pursuant to the agreement and in all proceeds of the collateral: and the collateral must be delivered free and clear of claims of any third parties and must be registered in the name of the Trustee or agent: and (iii) the value of the collateral. which shall be valued by the Trustee or the collateral agent Nveckly. must be equal to at least 105 percent of the amount of cash transferred by or on behalf of the Authority to the counterparty plus accrued interest. "Deuositorv- means The Depository Trust Company. NOV York. NOV 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. P6402. I clii\881380.3 -3- "Fiscal Year- means any twelve-month period extending from July I in one calendar year to June 30 of the succeeding calendar year. both dates inclusive. or any other twelve-month period selected and designated by the Authority as its official fiscal year period. "Indenture means this Indenture of Trust. as may from time to time be supplemented. modified or amended by any Supplemental Indenture pursuant to the provisions hereof. "Independent Accountant means any certified public accountant or firm of certified public accountants appointed and paid by the Authority. and 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. I0th Floor. Jersey City. New Jersey 07302. Attention: Editor: Mergent's "Municipal and Government."' 5250 77 Center Drive. Suite 150. Charlotte. North Carolina 28217. Attention: Called Bond Department: and Kenny S&P. 55 Water Street. 45 Floor. New York. New York 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 Bond. means the initial principal amount thereof as of the Closing Date. "Insurance Paying Agent means or its successors under the Insurance Policy. "Insurance Policy means the municipal bond insurance policy issued by the Insurer insuring the payment when due of the principal of and interest on the Bonds. "Insurer- means "Loan Agreement means the Project Area No. 2 Loan Agreement (2006 Subordinate Loan). dated as of July I. 2006. by and among the Authority. the Agency and the Trustee. relating to the Loan. as may from time to time be supplemented. modified or amended. Agency. to Section 3.02. maturity. "Loan means the Loan. as defined in the Loan Agreement. made by the Authority to the "Loan Fundy means the fund by that name established and held by the Trustee pursuant "Maturity Amount. with respect to any Bond. means the Accreted Value thereof at "Moody's' means Moody's Investors Service. its successors and assigns. "Nominee" means the nominee of the Depository. which may be the Depository. as determined from time to time pursuant to Article X. P6402. I clii\881380.3 -4- "Outstanding. when used as of any particular time with reference to Bonds. means (subject to the provisions of Section 11.07) all Bonds theretofore executed. issued and delivered by the Authority under this Indenture except (i) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation. (ii) Bonds paid or deemed to have been paid within the meaning of Section 11.0 3. and (iii) Bonds in Iicu of or in substitution for which other Bonds shall have been executed. issued and delivered pursuant to this Indenture. "Owner- means the person in 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. "Paying Agent means the Trustee. "Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein: A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury. and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. For purposes of this paragraph A. "obligations the principal of and interest on which are unconditionally guaranteed by the United States of America include without limitation tax exempt obligations of a state or a political subdivision thereof which have been defeased under irrevocable escrow instructions with non -callable obligations for which the full faith and credit of the United States of America are pledged for the payment of principal and interest and which are rated "Aaa- by Moody's and "AAA by S&P. B. Bonds. debentures. notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies. provided such obligations are backed by the full faith and credit of the United States of America (provided that stripped securities are only permitted if they have been stripped by the agency itself): I. United States Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing, Bank 4. Federal Housing, Administration Debentures (FHA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae-) GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations P6402. I clii\881380.3 -5- 7. United States Maritime Administration Guaranteed Title XI financing 8. United States Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - United States government guaranteed debentures United States Public Housing Notes and Bonds - United States 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 United States government agencies (provided that stripped securities are only permitted if they have been stripped by the agency itself): I . Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mace) Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae-) Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae-) Senior debt obligations 5. Resolution Funding Corp. (REFCORP) obligations D. Money market funds. including funds for Nyhich the Trustee or its affiliates provide investment advisory or other management services. registered under the Investment Company Act of I940. Nyhose shares are registered under the Securities Act of 1933. and having a rating by S&P of AAAm-G. AAAm. or AAm and. if rated by Moody's. rated Aaa. Aa I or Aa2. E. Certificates of deposit secured at all times by collateral described in A and/or B above: provided that such certificates must be issued by commercial banks (including the Trustee and its affiliates). savings and loan associations or mutual savings banks and provided further that the collateral must be held by a third party and the Trustee on behalf of the Owners must have a perfected first security interest in the collateral. F. Certificates of deposit. savings accounts. deposit accounts or money market deposits Nyhich are fully insured by the Federal Deposit Insurance Corporation. including those of the Trustee and its affiliates. G. Investment agreements. including guaranteed investment contracts (GICs). Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to the Insurer. P6402. I clii\881380.3 -6- H. Commercial paper rated. at the time of purchase. "Prime - I by Moody's and "A -I" or better by S&P. I. Bonds or notes issued by 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 - I.. or "A — or better by Moody's and "A- I.. 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 wvill repay the cash plus a yield to the Trustee in exchange for the securities at a specified date. L. The Local Agency Investment Fund in the State Treasury or any similar pooled investment fund administered by the State. to the extent such investment is held in the name and to the credit of the Trustee. M. Medium -term notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Such notes shall have a minimum credit rating of "Aa 3.. 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 anv date of calculation. with respect to anv portion of the Bonds. the Accreted Value thereof. "Project Area means. unless the contest clearly requires otherwise. the project area described and defined in the Redevelopment Plan approved and adopted by the City by its Ordinance No. 509. "Redemption Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)(3). "Redevelopment Law means the Community Redevelopment Law. being California Health and Safety Code Section 33000. et seq.. and all future acts supplemental thereto or amendatory_ thereof. "Redevelopment Plane means the Redevelopment Plan for the Project Area. approved and adopted by the City by its Ordinance No. 509 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. P6402. I0ii\xx 1380.3 -7- "Report means a document in writing signed by an Independent Redevelopment Consultant and including: (i) a statement that the person or firm making or giving such Report has read the pertinent provisions of the document or documents to which such Report relates: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based: and (iii) a statement that. in the opinion of such person or firm. sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report. "Representation Letter- means the Blanket Issuer Letter of Representations. dated July 1. 1997. from the Authority to the Depository. qualifying bonds issued by the Authority for the Depository's book -entry system. "Request means a request in writing signed by any officer of the designated public entity duly authorized by its legislative body for that purpose. "Revenue Fundy means the fund by that name established and held by the Trustee pursuant to Section 4.02(a). "Revenues" means (i) all amounts payable by the Agency pursuant to Section 2.3 or Section 2.4 of the Loan Agreement: (ii) any proceeds of the Bonds originally deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established hereunder: and (iii) income and gains with respect to the investment of amounts on deposit in the funds and accounts established hereunder. other than amounts payable to the United States of America pursuant to Section 5.07. "S&P- means Standard & Poor's Ratings Services and its successors and assigns. "Securities Depositories means The Depository Trust Company. ;; Water Street. 50th Floor. New York. New York. 10041. Attn: CaII Notification Department. Fax (212) 855-72 32: and. in accordance with then current guidelines of the Securities and Exchange Commission. such other addresses or such other securities depositories as the Authority may designate in a Certificate of the Authority delivered to the Trustee. "State means the State of California. "Supplemental Indenture- means any indenture. agreement or other instrument hereafter duly executed by the Authority and the Trustee in accordance with the provisions of Section 7.01. "Tax Retzulations- means temporary and permanent regulations promulgated under or with respect to Section 103 and Sections 141 through 150. inclusive. of the Code. "Trust Office- means the corporate trust office of the Trustee at the address set forth in Section 11.13 or such other offices as may be specified to the Authority by the Trustee in writing. With respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or agency of the Trustee at which. at any particular time. its corporate trust business shall be conducted. "Trustee" means Wells Fargo Bank. National Association. and its successors and assigns. and any other corporation or association which may at any time be substituted in its place as provided in Article VI. "Underwriter - means Citigroup Global Markets Inc. P6402. I clii\881380.3 -8- 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 Nvords "herein. "hereof. "hereunder. and other Nvords of similar import refer to this Indenture as a Nvhole 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 Loan to the Agency pursuant to the Loan Agreement. Section 1.04. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof. this Indenture shall be deemed to be and shall constitute a contract among the Authority. the Trustee and the Owners of the Bonds: and the covenants and agreements herein set forth to be performed on behalf of the Authority shall be for the equal and proportionate benefit. security and protection of all Owners of the Bonds Nvithout preference. priority or distinction as to security or othenvise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale. execution or delivery thereof. or otherwise for any cause Nvhatsoeyer. except as expressly provided therein or herein. ARTICLE II ISSUANCE OF BONDS Section 2.0I I. Desitznation. The Bonds shall be designated the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series D and shall be issued in the aggregate Initial Principal Amount of Section 2.02. Terms of Bonds. (a) The Bonds shall be issued in fully registered form in any denominations of Initial Principal Amount but shall reflect denominations of $5.000 Maturity Amount or any integral multiple thereof. No Bond shall have more than one maturity date. The Bonds shall be dated the Closing Date. shall mature on August I in each of the years and in the Maturity Amounts set forth in the following schedule. The Bonds shall be delivered on the Closing Date in the aggregate Initial Principal Amounts set forth below. Interest on the Initial Principal Amount of the Bonds shall accrue and compound at the yield to their maturity set forth below (such interest being equal to the difference between the Maturity Amounts and the Initial Principal Amounts thereof): Maturity Initial Initial Principal Yield to Date Maturity Principal Amount per $5.000 Maturity (Autzust I) Amount Amount Maturity Amount Date P6402. I c li i\881380.3 -9- Interest on each Bond shall be compounded semi-annually at the yield set forth above from the Closing Date on each February I and August I. commencing August I. 2006. until maturity or earlier redemption thereof. computed using a year of 360 days of twelve 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. with respect to any Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the Trust Office. in lawful money of the United States of America Section 2.03. Redemption of Bonds. (a) Optional Redemption. In the event that the Agency shall exercise its option to prepay installments of the Loan pursuant to Section 2.4(a) of the Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Bonds maturing on or after August I. 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 February I or August Ion or after August I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Bonds on the date fixed for redemption): Redemption Redemption Dates Price August I. 2() and February I. 2() `N August I. 2() and February I. 2() August I. 2() and thereafter The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(b)( I) at least 45 but not more than 90 days prior to the date fixed for such redemption. (b) IReseryedi. (c) General Redemption Provisions (I) Notice of Redemption. The Tnistcc on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books and. by such means acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the date fixed for redemption: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the Bond numbers (but only if less than all of the Outstanding Bonds are to be redeemed) and the maturity or maturities of the Bonds (in the event of redemption of all of the Bonds of such maturity or maturities in NVhoIe) 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. 1)6402.10.5.5 \881380.3 -10- (2) Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of Tess than all of such Bonds of any maturity. the Trustee shall select the Bonds to be redeemed from all Bonds of such maturity not previously called for redemption. by lot in any manner Nvhich the Trustee in its sole discretion shall deem appropriate under the circumstances. For purposes of selecting Bonds Nyithin a maturity for redemption. all Bonds shall be deemed to be comprised of separate $5.000 Maturity Amount portions and such portions shall be treated as separate bonds Nvhich 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 like tenor and maturity date. of authorized denominations in aggregate Maturity Amount equal to the unredeemed portion of the Bond to be redeemed. (4) Effect of Redemption. From and after the date fixed for redemption. if funds available for the payment of the principal of. interest on and premium. if any. on the Bonds so called for redemption shall have been duly provided. such Bonds so called shall cease to be entitled to any benefit under this Indenture other than the right to receive payment of the redemption price. and no interest shall accrue thereon from and after the redemption date specified in such notice. All Bonds redeemed pursuant to this Section shall be destroyed. Section 2.04. Form of Bonds. The Bonds. the Trustees certificate of authentication. and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit A attached hereto and by this reference incorporated herein. Nyith necessary or appropriate variations. omissions and insertions. as permitted or required by this Indenture. Section 2.05. Execution of Bonds. The Bonds shall be signed in the name and on behalf of the Authority Nyith the manual or facsimile signatures of its President and attested Nyith the manual or facsimile signature of its Secretary or any deputy duly appointed by the Authority Commission. and shall be delivered to the Trustee for authentication by it. In case any officer of the Authority \yho shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed shall have been authenticated or delivered by the Trustee or issued by the Authority. such Bonds may nevertheless be authenticated. delivered and issued and. upon such authentication. delivery and issue. shall be as binding upon the Authority as though the individual \yho signed the same had continued to be such officer of the Authority. Also. any Bond may be signed on behalf of the Authority by any individual NV110 on the actual date of the execution of such Bond shall be the proper officer although on the nominal date of such Bond such individual shall not have been such officer. Only such of the Bonds as shall bear thereon a certificate of authentication in substantially the form set forth in Exhibit A manually executed by the Trustee. shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture. and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.06. Transfer of Bonds. Any Bond may. in accordance Nyith its terms. be transferred. upon the Registration Books. by the person in Nvhose name it is registered. in person or by the Owners duly authorized attorney. upon surrender of such Bond for cancellation. accompanied by delivery of a Nvritten instrument of transfer in a form acceptable to the Trustee. duly executed. Whenever any Bond shall be surrendered for transfer. the Authority shall execute and the Trustee shall thereupon authenticate and deliver to the transferee a neW Bond or Bonds of the same series and of like tenor. maturity and aggregate principal amount. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection Nyith any such transfer shall be paid by the Authority. P64U2. l 0.5.5\xx l 3x0. ; -11- 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 Nvith 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. Exchange of Bonds. Bonds may be exchanged at the Trust Office for the same aggregate Maturity Amount of Bonds of the same tenor and maturity and of other authorized denominations. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection Nvith any such exchange shall be paid by the Authority. except that the Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid Nvith respect to such exchange. The Trustee shall not be required to exchange. pursuant to this Section 2.07. either (i) any Bond during the period established by the Trustee for the selection of Bonds for redemption. or (ii) any Bond selected for redemption pursuant to Section 2.03. Section 2.08. Temporary Bonds. The Bonds may be issued initially in temporary form exchangeable for definitive Bonds Nvhen ready for delivery. The temporary Bonds may be printed. lithographed or typewritten. shall be of such denominations as may be determined by the Authority and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and be registered and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds: provided that any temporary Bond need only be signed in the name and on behalf of the Authority Nvith the manual or facsimile signature of the Secretary. or any deputy duly appointed by the Authority Commission. and need not be attested. If the Authority issues temporary Bonds. it NyiII execute and furnish definitive Bonds Nvithout delay. and thereupon the temporary Bonds shall be surrendered. for cancellation. in exchange therefor at the Trust Office of the Trustee in Los Angeles. California (or such other location designated by the Trustee). and the Trustee shall authenticate and deliver in exchange for such temporary Bonds definitive Bonds of like term. maturity and aggregate Maturity Amount in authorized denominations. Until so exchanged. the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.09. Registration Books. The Trustee Nvill keep or cause to be kept at its Trust Office sufficient records for the registration and transfer of the Bonds. Nvhich shall at all times during regular business hours be open to inspection by the Authority Nvith reasonable prior notice: and. upon presentation for such purpose. the Trustee shall. under such reasonable regulations as it may prescribe. register or transfer or cause to be registered or transferred. on such records. Bonds as hereinbefore provided. Section 2.10. Bonds Mutilated. Lost. Destroyed or Stolen. If any Bond shall become mutilated. the Authority. at the expense of the Owner of such Bond. shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like tenor. maturity and aggregate Maturity Amount in authorized denominations in exchange and substitution for the Bond so mutilated. but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be cancelled by it and destroyed. If any Bond issued hereunder shall be lost. destroyed or stolen. evidence of such Toss. destruction or theft may be submitted to the Trustee and. if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given. the Authority. at the expense of the Owner. shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like tenor in Iicu of and in substitution for the Bond so lost. destroyed or stolen (or if any such Bond shall have matured or shall have been called for redemption. instead of issuing a substitute Bond the Trustee may pay the same Nvithout surrender thereof upon receipt of indemnity satisfactory to the Trustee). The Trustee may require payment of a reasonable fee for each new Bond issued under this Section 2. I0 and of the expenses Nvhich may be incurred by the Authority and the Trustee. Any Bond P6462. I c );,\881 38c ). ; - 12- issued under the provisions of this Section 2.10 in Iicu of any Bond alleged to be Iost. destroyed or stolen shall constitute an original contractual obligation on the part of the Authority Nvhether or not the Bond alleged to be Iost. destroyed or stolen be at any time enforceable by anyone. and shall be equally and proportionately entitled to the benefits of this Indenture Nyith 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 Bonds in the respective aggregate Initial Principal Amounts set forth herein and shall deliver the Bonds to the Trustee for authentication and delivery to the original purchaser thereof upon the Request of the Authority. Section 3.02. Loan Fund: Application of Proceeds of Sale of Bonds. The Trustee shall establish and maintain a separate fund to be known as the "Loan Fund." Upon the receipt of payment for the Bonds on the Closing Date. the Trustee shall deposit the proceeds of sale thereof in the amount of in the Loan Fund. The Trustee shall disburse all amounts in the Loan Fund pursuant to Section 2.2 of the Loan Agreement. Section 3.03. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be affected in any Nvay by any proceedings taken by the Agency with respect to the application of the proceeds of the Loan. and the recital contained in the Bonds that the same are issued pursuant to the Bond Law shall be conclusive evidence of their validity and of the regularity of their issuance. ARTICLE IV REVENUES: FLOW OF FUNDS Section 4.01. Pledtze of Revenues: Assiwnment of Rights. Subject to the provisions of Section 6.03. the Bonds shall be secured by a first lien on and pledge (which shall be effected in the manner and to the extent hereinafter provided) of all of the Revenues. The Bonds shall be equally secured by a pledge. charge and Tien upon the Revenues without priority for series. number. date of Bonds. date of execution or date of delivery: and the payment of the Principal Amount of the Bonds and any premiums upon the redemption of any thereof shall be and are secured by an exclusive pledge. charge and Tien upon the Revenues. So Tong as any of the Bonds are Outstanding. the Revenues shall not be used for any other purpose: except that out of the Revenues there may be apportioned such sums. for such purposes. as are expressly permitted by Section 4.02. The Authority hereby transfers in trust and assigns to the Trustee. for the benefit of the Owners from time to time of the Bonds. all of the Revenues and all of the right. title and interest of the Authority in the Loan Agreement (other than the rights of the Authority under Section 5.04 thereof). The Trustcc shall be entitled to and shall receive all of the Revenues. and any Revenues collected or received by the Authority shall be deemed to be held. and to have been collected or received. by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and. subject to the provisions hereof. shall take all steps. actions and proceedings reasonably necessary in its judgment to enforce. either jointly with the Authority or separately. all of the rights of the Authority and all of the obligations of the Agency under the Loan Agreement. 1)6402. l c h i\881380.3 -1 3 - Section 4.02. Receipt. Deposit and Application of Revenues. (a) Deposit of Revenues. Revenue Fund. All Revenues described in clause (i) of the definition thereof in Section 1.0I shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the "Revenue Fundy which the Trustee shall establish. maintain and hold in trust hereunder. (b) Application of Revenues: Accounts. At the times prescribed below. the Trustee shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Revenue Fund). the following amounts in the following order of priority. the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: ( I ) I Reseryedi. (2) Principal Account. On or before each maturity date of the Bonds. the Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the Maturity Amount of the then Outstanding Bonds coming due and payable on such date pursuant to Section 2.02. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the Maturity Amount of the Bonds at the maturity thereof. All amounts on deposit in the Principal Account on the first day of any Bond Year. to the extent not required to pay the Maturity Amount of any Outstanding Bonds then haying come due and payable. shall be withdrawn therefrom and transferred to the Agency to be used for any lawful purposes of the Agency. (3) Redemption Account. The Trustee. at any time that the Agency shall exercise its option to prepay installments of the Loan pursuant to Section 2.4 of the Loan Agreement. shall deposit the Revenues derived from such prepayment in the Redemption Account (which the Tnistcc shall also establish and maintain within the Rcycnuc Fund). to be used and withdrawn by the Trustee solely for the purpose of paying the Principal Amount and redemption premiums. if any. on the Bonds to be redeemed on their respective redemption dates. as directed by the Authority. Section 4.03. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to this Indenture or pursuant to the Loan Agreement shall be invested by the Trustee solely in Permitted Investments pursuant to the written direction of the Authority given to the Trustee two Business Days in advance of the making of such investments (and promptly confirmed in writing. as to any such direction given orally): provided that moneys in the Reserve Fund established pursuant to the Loan Agreement shall be invested in Permitted Investments which mature not more than five years from the date of such investment. In the absence of any such direction from the Authority. the Tnistcc shall invest any such moneys in Permitted Investments described in Paragraph D of the definition thereof. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the fund or account from which such investment was made. For purposes of acquiring any investments hereunder. the Trustee may commingle funds held by it hereunder. The Tnistcc may (but shall not be obligated to) act as principal or agent in the acquisition or disposition of any investment. The Trustee shall incur no liability for losses arising from any investments made at the direction of the Authority. or otherwise made pursuant to this Section. 1)6402.10.5.5 \881380.3 - 14- The Trustcc shall be entitled to rely conclusively upon the written instructions of the Authority directing investments in Permitted Investments as to the fact that each such investment is permitted by the laws of the State. and shall not be required to make further investigation with respect thereto. With respect to any restrictions set forth in the definition of Permitted Investments set forth in Section 1.01 which embody legal conclusions (e.g.. the existence. validity and perfection of security interests in collateral). the Trustee shall be entitled to rely conclusively on an opinion of counsel or upon a representation of the provider of such Permitted Investment obtained at the Authority's or the Agency's expense. Except as specifically provided in this Indenture. the Trustee shall not be liable to pay interest on any moneys received by it. but shall be liable only to account to the Authority and the Agency for earnings derived from funds that have been invested. The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur. the Authority specifically \valves receipt of such confirmations to the extent permitted by law. The Trustee 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. Section 5.03. Aizainst Encumbrances. The Authority shall not create. or permit the creation of. any pledge. lien. charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture Nvhilc 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 1)6402. l c h i\881380.3 -15 - into one or more other indentures for any of its corporate purposes. including other programs under the Bond Law. and reserves the right to issue other obligations for such purposes. Section 5.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues. the Loan Agreement and other assets purported to be pledged and assigned. respectively. under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and Nyill be the legal. valid and binding special obligations of the Authority in accordance Nyith their terms. and the Authority shall at all times. to the extent permitted by law. defend. preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Owners under this Indenture against all claims and demands of all persons Nyhomsoeyer. Section 5.05. Accounting Records and Financial Statements. The Trustee shall at all times keep. or cause to be kept. proper books of record and account. prepared in accordance Nyith corporate trust industry standards. in Nyhich complete and accurate entries shall be made of all transactions made by the Trustee relating to the proceeds of Bonds. the Revenues. the Loan Agreement and all funds and accounts established pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority and the Agency. during regular business hours Nyith reasonable prior notice. Section 5.06. No Additional Indebtedness. Except for the Bonds. the Authority shall not incur any indebtedness payable out of the Revenues. (For clarification. this provision does not prohibit the Agency from incurring additional debt secured by Tax Revenues. so long as the incurrence of such debt is in compliance Nyith the Loan Agreement.) Section 5.07. Tax Covenants. (a) The Authority covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the Accreted Value of the Bonds Nyhich constitutes the interest thereon. and for no other purpose. the Authority Nyill satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Authority agrees to comply Nyith such Nyritten instructions as may be provided by Bond Counsel. (b) The Authority covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nyould cause the Bonds to become arbitrage bonds. as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nyith the rebate requirements of Section 148 of the Code. the Authority further covenants that it Nyill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section 148(f) of the Code. and that it Nyill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nyith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Authority covenants that it Nyill not take any action or omit to take any action. Nyhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nyould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. (d) The Authority covenants that it Nyill not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in 1)6402.10.5.5 \881380.3 - 16- such manner or to such extent as Nvould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. (e) Notwithstanding any provision of this Indenture. and except as provided below. the Authority covenants that none of the moneys contained in any of the funds or accounts created pursuant to this Indenture Nyith respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested directly or indirectly in obligations guaranteed (in Nvholc or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Rcycnuc Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 I I (a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under this Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 5.08. Loan Agreement. The Trustee. as assignee of the Authority's rights pursuant to Section 4.01. shall receive all amounts due from the Agency pursuant to the Loan Agreement and. upon an Event of Default. shall diligently enforce. and take all steps. actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations of the Agency thereunder. The Loan Agreement may be amended or modified pursuant to the applicable provisions thereof. but only Nyith the «rittcn consent of the Insurer (as Tong as the Insurance Policy is in full force and effect) and only: (i) if the Authority. the Agency or the Trustee first obtains the «rittcn consent of the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding to such amendment or modification. provided. however. that no such amendment or modification shall (a) extend the maturity of or reduce the amount of interest or principal payments on a Loan. or otherwise alter or impair the obligation of the Agency to pay the principal. interest or prepayment premiums on a Loan at the time and place and at the rate and in the currency provided therein. Nvithout the express «rittcn consent of the Owner of each affected Bond. (b) reduce the percentage of the Bonds required for the «rittcn consent to any such modification or amendment thereof or hereof. or (c) Nyithout its «rittcn consent thereto. modify any of the rights or obligations of the Trustee: or (ii) Nyithout the consent of any of the Owners. if such amendment or modification does not modify the rights or obligations of the Trustee Nyithout its prior «rittcn consent. and is for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency contained in the Loan Agreement other covenants and agreements thereafter to be observed. or to limit or surrender any rights or power therein reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: (b) to make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in the Loan Agreement. or in any other respect Nvhatsoever as the Agency and the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds: 1)6402.10.5.5 \881380.3 -17- (c) to amend any provision thereof relating to the Code. to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income for federal income tax purposes of interest on any of the Bonds under the Code. in the opinion of Bond Counsel: or (d) to provide for the issuance of Parity Debt under and in accordance with the provisions of the Loan Agreement. Nothing in this Section 5.08 shall prevent the Agency and the Authority. with the «rittcn consent of the Insurer (as 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 «rittcn 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. ARTICLE VI THE TRUSTEE Section 6.0I I. Appointment of Trustee. Wells Fargo Bank. National Association. a national banking association organized and existing under and by virtue of the laws of the United States of America. with a corporate trust office in Los Angeles. California. is hereby appointed Trustee by the Authority for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate. use and apply the same as provided in this Indenture. The Authority agrees that it will maintain a Trustee which shall be a financial institution haying a corporate trust office in the State. with a combined capital and surplus of at least $75.000.000. and subject to supervision or examination by federal or State authority. so long as any Bonds are Outstanding. If such financial institution publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining authority above referred to. then for the purpose of this Section 6.0I the combined capital and surplus of such financial institution shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee is hereby authorized to pay the principal of and interest and redemption premium. if any. on the Bonds when duly presented for payment at maturity. or on redemption or purchase prior to maturity. and to cancel all Bonds upon payment thereof. The Trustee shall keep accurate records of all funds administered by it and of all Bonds paid and discharged. Section 6.02. Acceptance of 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 P6402.1055\SS 1380.3 -18- been cured or \valved). the Trustee may exercise such of the rights and powers vested in it by this Indenture. and shall use the same degree of care and skill and diligence in their exercise. as a prudent person Nyould use in the conduct of its own affairs. (b) The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys. agents. or receivers. and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder. The Trustee may conclusively rely on an opinion of counsel as full and complete protection for any action taken or suffered by it hereunder. (c) The Trustee shall not be responsible for any recital herein. in the Loan Agreement or in the Bonds. or for any of the supplements hereto or thereto or instruments of further assurance. or for the validity of this Indenture or the Loan Agreement. or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby. or the tax status of the interest on the Bonds. and the Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants. conditions or agreements on the part of the Authority hereunder. (d) The Trustee (including its officers and employees) may become the Owner of Bonds secured hereby Nvith the same rights Nyhich it Nvould have if not the Trustee: may acquire and dispose of other bonds or evidences of indebtedness of the Authority Nvith the same rights it Nvould have if it \sere not the Trustee: and may act as a depositary for and permit any of its officers or directors to act as a member of. or in any other capacity Nvith respect to. any committee formed to protect the rights of Owners of Bonds. Nvhether or not such committee shall represent the Owners of the majority in aggregate Principal Amount of the Bonds then Outstanding. The Trustee. either as principal or agent. may engage in or be interested in any financial or other transaction Nvith the Authority. (e) The Trustee shall be protected in acting upon any Report. notice. request. consent. certificate. order. affidavit. letter. direction. telegram. facsimile transmission. electronic mail or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons and need not make any investigation into the facts or matters contained therein. Any action taken or omitted to be taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person \yho at the time of making such request or giving such authority or consent is the Owner of any Bond. shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. The Trustee shall not be bound to recognize any person as an Owner of any Bond or to take any action at his request unless the ownership of such Bond by such person shall be reflected on the Registration Books. (f) As to the existence or non-existence of any fact or as to the sufficiency or validity of any instrument. paper or proceeding. the Trustee shall be entitled to rely upon a Certificate of the Authority as sufficient evidence of the facts therein contained and prior to the occurrence of an Event of Default hereunder of Nvhich the Trustee has been given notice or is deemed to have notice. as provided in Section 6.02(h). shall also be at liberty to accept a Certificate of the Authority to the effect that any particular dealing. transaction or action is necessary or expedient. but may at its discretion secure such further evidence deemed by it to be necessary or advisable. but shall in no case be bound to secure the same. (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or �yillfuI misconduct. The immunities and exceptions from liability of the Trustee shall extend to its officers. directors. employees and agents. In the absence of negligence or misconduct. the Trustee shall not be liable for any error of judgment. 1)6402.10.5.5 \881380.3 - 1y- (h) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default hereunder except failure by the Authority to make any of the payments to the Trustee required to be made by the Authority pursuant hereto. unless the Trustee shall be specifically notified in writing of such default by the Authority. the Insurer or by the Owners of at least 25 percent in aggregate principal amount of the Bonds then Outstanding and all notices or other instruments required by this Indenture to be delivered to the Trustee must. in order to be effective. be delivered at the Trust Office of the Trustee in Los Angeles. California. and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default hereunder except as aforesaid. (i) At any and all reasonable times the Trustee. and its duly authorized agents. attorneys. experts. accountants and representatives. shall have the right. but not the obligation. fully to inspect all books. papers and records of the Authority pertaining to the Bonds. and to make copies of any of such books. papers and records such as may be desired but which is not privileged by statute or by law. (j) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises hereof. (k) Notwithstanding anything elsewhere in this Indenture with respect to the execution of any Bonds. the withdrawal of any cash. the release of any property. or any action whatsoever within the purview of this Indenture. the Trustee shall have the right. but shall not be required. to demand any showings. certificates. opinions. appraisals or other information. or corporate action or evidence thereof. as may be deemed desirable for the purpose of establishing the right of the Authority to the execution of any Bonds. the withdrawal of any cash. or the taking of any other action by the Trustee. (I) Before taking action referred to in Section 6.05. Section 8.02 or the first paragraph of Section 5.08. the Trustee may require that a satisfactory_ indemnity bond be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability. except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any such action. (m) All moneys received by the Trustee shall. until used or applied or invested as herein provided. be held in trust for the purposes for which they \were received but need not be segregated from other funds except to the extent required by law. (n) The Trustee shall have no liability or obligation to the Bond Owners with respect to the payment of debt service by the Authority or with respect to the observance or performance by the Authority of the other conditions. covenants and terms contained in this Indenture. or with respect to the investment of any moneys in any fund or account established. held or maintained by the Authority pursuant to this Indenture or otherwise. (o) The Trustee makes no covenant. representation or warranty concerning the current or future tax status of interest on the Bonds. The Trustee need only keep accurate records of all investments and funds. and send rebate payments to the United States in accordance with explicit instructions from the Authority. (p) The Trustee shall have no responsibility with respect to any information. statement. or recital in any official statement. offering memorandum or any other disclosure material prepared or distributed with respect to the issuance of the Bonds. (q) Loan Agreement. The Trustee in its capacity as Trustee is authorized and directed to execute the 1)6402.10.5.5 \881380.3 -20- (r) The Trustcc shall not be considered in broach of or in default in its obligations hereunder or progress in respect thereto in the cycnt of enforced delay ("unavoidable delay) in the performance of such obligations duo to unforeseeable causcs beyond its control and yithout its fault or negligence. including. but not Iimitcd to. Acts of God or of the public enemy or terrorists. acts of a government. acts of the other party. fires. floods. epidemics. quarantine restrictions. strikes. freight embargoes. earthquakes. explosion. mob violence. riot. inability to procure or general sabotage or rationing of labor. equipment. facilities. sources of energy. material or supplies in the open market. litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project. malicious mischief. condemnation. and unusually scycrc ycathcr or delays of suppliers or subcontractors duo to such causcs or any similar cycnt and/or occurrences beyond the control of the Trustcc: provided that. in the cycnt of any such unavoidable delay undcr this paragraph 6.02(r). the Trustcc notify the Authority and the Agency in «citing «ithin five business days after (i) the occurrcncc of the cycnt giving rise to the unavoidable delay. (ii) the Trustees actual knowledge of the impending unavoidable delay. or (iii) the Trustees knowledge of sufficient facts undcr which a rcasonablc person would conclude the unavoidable delay will occur. (s) The Trustcc agrees to accept and act upon facsimilc transmission of written instructions and/or dircctions pursuant to this Indenture. provided. however. that: (i) subsequent to such facsimilc transmission of written instructions and/or dircctions the Trustcc shall forthwith receive the originally executed instructions and/or dircctions. (ii) such originally executed instructions and/or dircctions shall be signed by a person as may be dcsignatcd and authorized to sign for the party signing such instructions and/or dircctions. and (iii) the Trustcc shall have received a current incumbency certificate containing the specimen signature of such dcsignatcd person. Scction 6.03. Fccs. Charzes and Expenses of Trustcc. The Trustcc shall be entitled to payment and rcimburscmcnt for rcasonablc fccs for its services rendered hcrcundcr and all advances (with interest on such advances at the maximum rats allowed by lacy). counscl fccs and expenses (including those of in-house counscl to the extent they arc for services not duplicative of other counsels' work) and other expenses reasonably and necessarily made or incurrcd by the Trustcc in connection with such services. which payment and reimbursement shall not be Iimitcd by any provision of lacy in regard to the compensation of a trustee of an express trust. Upon the occurrcncc of an Eycnt of Dcfault hcrcundcr. but only upon an Eycnt of Dcfault. the Trustcc shall hays a first lien with right of payment prior to payment of any Bond upon the amounts hold hcrcundcr for the foregoing fccs. charges and expenses incurrcd by it respectively. which right to payment shall survive the resignation or removal of the Trustcc. Section 6.04. Notice to ON\ncrs of Dcfault. If an Eycnt of Dcfault hcrcundcr occurs with respect to any Bonds of which the Trustcc has been given or is deemed to hays noticc. as provided in Section 6.02(h). then the Trustcc shall promptly given «cittcn noticc thereof by first-class mail to the ONyncr of each such Bond. unless such Eycnt of Dcfault shall hays been cured before the giving of such noticc: provided. however. that unless such Eycnt of Dcfault consists of the failure by the Authority to make any payment «hen duo. the Trustcc may elect not to give such noticc if and so Tong as the Trustcc in good faith determines that such Eycnt of Dcfault dots not materially adversely affect the interests of the ON\ncrs or that it is otherwise not in the best interests of the ON\ncrs to give such noticc. Section 6.05. Intervention by Trustcc. In any judicial proceeding to which the Authority is a party which. in the opinion of the Trustcc. has a substantial bearing on the interests of Owners of any of the Bonds. the Trustcc may intervene on behalf of such Owners. and subject to Section 6.02(I). shall do so if requested in writing by the Owners of a majority in aggrcgatc Principal Amount of such Bonds then Outstanding. Section 6.06. Rcmoyal of Trustcc. The ON\ncrs of a majority in aggrcgatc Principal Amount of the Outstanding Bonds may at any time. and the Authority may (and at the request of the P6402.1055\881 3xc). 3 -2 I- Agency shall) so long as no Event of Default shall have occurred and then be continuing. remove the Trustee initially appointed. and any successor thereto. by an instrument or concurrent instruments in writing delivered to the Tnistcc. «hereupon the Authority or such Owners. as the case may be. shall appoint a successor or successors thereto: provided that any such successor shall be a financial institution meeting the requirements set forth in Section 6.0I I. Section 6.07. Resignation by Trustee. The Trustee and any successor Trustee may at any time give written notice of its intention to resign as Trustee hereunder. such notice to be given to the Authority and the Agency by registered or certified mail. Upon receiving such notice of resignation. the Authority shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance. the Authority shall cause notice thereof to be given by first class mail. postage prepaid. to the Bond Owners at their respective addresses set forth on the Registration Books. Section 6.08. Appointment of Successor Trustee. In the event of the removal or resignation of the Trustee pursuant to Sections 6.06 or 6.07. respectively. with the prior written consent of Agency. the Authority shall promptly appoint a successor Trustee. In the event the Authority shall for any reason Nvhatsoeyer fail to appoint a successor Trustee within 60 days following the delivery to the Trustee of the instrument described in Section 6.06 or within 60 days following the receipt of notice by the Authority pursuant to Section 6.07. the Trustee may. at the expense of the Authority. apply to a court of competent jurisdiction for the appointment of a successor Trustee meeting the requirements of Section 6.0 I . Any such successor Trustee appointed by such court shall become the successor Trustee hereunder notwithstanding any action by the Authority purporting to appoint a successor Trustee following the expiration of such sixty-day period. Section 6.09. Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank or trust company resulting from any merger. conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business. provided such bank or trust company shall be eligible under Section 6.0I. shall be the successor to such Trustee without the execution or filing of any paper or further act. except as provided in Section 6.10. Section 6.10. Concerning, any Successor Trustee. Every successor Trustee appointed hereunder shall execute. acknowledge and deliver to its predecessor and also to the Authority an instrument in writing accepting such appointment hereunder and thereupon such successor. without any further act. deed or conveyance. shall become fully vested with all the estates. properties. rights. powers. trusts. duties and obligations of its predecessors: but such predecessor shall. nevertheless. on the Request of the Authority. or of the Trustees successor. execute and deliver an instrument transferring to such successor all the estates. properties. rights. powers and trusts of such predecessor hereunder: and every predecessor Trustee shall deliver all securities and moneys held by it as the Trustee hereunder to its successor. Should any instrument in writing from the Authority be required by any successor Trustee for more fully and certainly vesting in such successor the estate. rights. powers and duties hereby vested or intended to be vested in the predecessor Trustee. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. Section 6. I I . Appointment of Co -Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or 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 P6402. I Oi;\88I 3x(. ; -22- that by reason of any present or future law of any jurisdiction it may not exercise any of the powers. rights or remedies herein granted to the Trustee or hold title to the properties. in trust. as herein granted. or take any other action which may be desirable or necessary in connection therewith. it may be necessary that the Trustcc or the Authority appoint an additional individual or institution as a separate co -trustee. The following provisions of this Section 6. I I are adopted to these ends. In the event that the Trustee or the Authority appoints an additional individual or institution as a separate or co -trustee. each and every remedy. power. right. claim. demand. cause of action. immunity. estate. title. interest and 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. Should any instrument in writing from the Authority be required by the separate trustee or co -trustee so appointed by the Trustee for more fully and certainly vesting in and conforming to it such properties. rights. powers. trusts. duties and obligations. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. In case any separate trustee or co - trustee. or a successor to either. shall become incapable of acting. resign or be removed. all the estates. properties. rights. powers. trusts. duties and obligations of such separate trustee or co -trustee. so far as permitted by law. shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co -trustee. Section 6.12. Indemnification: Limited Liability of Trustee. The Authority further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any loss. expense and liabilities which it may incur arising out of or in the exercise and performance of its powers and duties hereunder. including the costs of expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities which are due to the negligence or intentional misconduct of the Trustee. its officers. directors or employees. No provision in this Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability hereunder if it shall have reasonable grounds for believing repayment of such funds or adequate indemnity against such liability or risk is not assured to it. The Trustee shall not be liable for any action taken or omitted to be taken by it in accordance with the direction of the Insurer or the Owners of at least a majority in aggregate Principal Amount of Bonds Outstanding relating to the time. method and place of conducting any proceeding or remedy available to the Trustee under this Indenture in exercising any trust or power conferred on the Tnistcc by this Indenture. The obligations of the Authority under this Section shall survive the payment and discharge of the Bonds or the resignation or removal of the Trustee under this Indenture. ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE Section 7.0I I. Amendment Hereof. This Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental 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: P6402. I c li i\881380.3 -2 3 - (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 Tong as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: or (b) To make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in this Indenture. or in any other respect Nvhatsoeyer as the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall either (i) conform to the original intention of the Authority. or (ii) not materially adversely affect the interests of the Owners of the Bonds in the reasonable judgment of the Authority: or (c) To amend any provision hereof relating to the Code. to any extent Nvhatsoeyer but only if and to the extent such amendment \\ill not adversely affect the exclusion from gross income of interest on any of the Bonds under the Code. in the opinion of Bond Counsel. Except as set forth in the preceding paragraphs of this Section 7.0I. this Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture Nvhich shall become binding \yhen the Nvritten 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 Nvith the Trustee. No such modification or amendment shall (i) extend the maturity of or reduce the interest rate on any Bond or othenvise alter or impair the obligation of the Authority to pay the principal. interest or premiums. if any. at the time and place and at the rate and in the currency provided therein of any Bond Nvithout the express «rittcn consent of the Owner of such Bond or (ii) reduce the percentage of Bonds required for the «rittcn consent to any such amendment or modification. In no event shall any Supplemental Indenture modify any of the rights or obligations of the Trustee Nyithout its prior «rittcn consent. Section 7.02. Effect of Supplemental Indenture. From and after the time any Supplemental Indenture becomes effective pursuant to this Article VII. this Indenture shall be deemed to be modified and amended in accordance therewith. the respective rights. duties and obligations of the parties hereto or thereto and all Owners of Outstanding Bonds. as the case may be. shall thereafter be determined. exercised and enforced hereunder subject in all respects to such modification and amendment. and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 7.03. Endorsement or Replacement of Bonds After Amendment. After the effective date of any action taken as hereinaboye provided. the Authority may determine that the Bonds shall bear a notation. by endorsement in form approved by the Authority. as to such action. and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his bond for that purpose at the Trust Office of the Trustee. a suitable notation as to such action shall be made on such Bond at the expense of the Authority. If the Authority shall so determine. neW Bonds SO modified as. in the opinion of the Authority. shall be necessary to conform to such Bond Owners" action shall be prepared and executed. and in that case upon demand of the Owner of any Bond Outstanding at such effective date such neW Bonds shall be exchanged at the Trust Office of the Trustee. at the expense of the Authority. for Bonds then Outstanding. upon surrender of such Outstanding Bonds. P6402. I c li i\881380.3 -24- ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN. SO LONG AS THE INSURANCE POLICY REMAINS IN EFFECT AND THE INSURER HAS NOT DEFAULTED WITH RESPECT TO ITS PAYMENT OBLIGATIONS UNDER THE INSURANCE POLICY. ALL PROVISIONS OF THIS ARTICLE VIII SHALL BE SUBJECT TO. AND QUALIFIED BY. THE PROVISIONS SET FORTH IN ARTICLE IX. INCLUDING. WITHOUT LIMITATION. THE INSURERS RIGHT TO CONSENT TO ACCELERATION OF THE BONDS. AND THE INSURERS RIGHT TO CONSENT TO OR DIRECT CERTAIN AUTHORITY. TRUSTEE OR OWNER ACTIONS. Section 8.0I I. Events of Default. The following events shall be Events of Default hereunder: (a) Default in the due and punctual payment of the Principal Amount of any Bond when and as the same shall become due and payable. whether at maturity as therein expressed. by proceedings for redemption. by declaration or otherwise. (b) IReseryedI (c) Failure by the Authority to observe and perform any of the covenants. agreements or conditions on its part in this Indenture or in the Bonds contained. other than as referred to in the preceding Paragraph (a). for a period of 30 days after written notice. specifying such a failure and requesting that it be remedied has been given to the Authority by the Trustee. or to the Authority and the Trustee by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds: provided. however. that if in the reasonable opinion of the Authority the failure stated in such notice can be corrected. but not within such 30 day period. such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30 day period and diligently pursued until such failure is corrected. (d) The filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America. or if a court of competent jurisdiction shall approve a petition. filed with or without the consent of the Authority. seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America. or if. under the provisions of any other law for the relief or aid of debtors. any court of competent jurisdiction shall assume custody_ or control of the Authority or of the whole or any substantial part of its property. (c) The occurrence of any Event of Default under. and as that term is defined in. the Loan Agreement. Section 8.02. Remedies Upon Event of Default. Subject to the provisions of Article IX. if any Event of Default shall occur. then. and in each and every such case during the continuance of such Event of Default. the Trustee may. and at the written direction of the Owners of a majority in aggregate Principal Amount of the Bonds at the time Outstanding shall. upon notice in writing to the Authority and the Agency. declare the Principal Amount of all of the Bonds then Outstanding. to be due and payable immediately. and upon any such declaration the same shall become and shall be immediately due and payable. anything in this Indenture or in the Bonds contained to the contrary notwithstanding. 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 P6402. I clii\881380.3 -25- entered. the Authority or the Agency shall deposit Nyith the Trustee a sum sufficient to pay the Accreted Value of the Bonds of which payments are overdue (such Accreted Value. to the extent permitted by lacy. being calculated to but not including the date of payment by the Authority or the Agency to the Trustee). and the charges and expenses of the Trustee and its counsel (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). and any and all other Events of Default known to the Trustee (other than in the payment of Principal Amount of the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in every such case. the Owners of not less than a majority in aggregate Principal Amount of the Bonds then Outstanding. by Nyritten notice to the Authority. the Agency and the Trustee. or the Trustee if such declaration was made by the Trustee. may. on behalf of the Owners of all of the Bonds. rescind and annul such declaration and its consequences and \yaiye such Event of Default: but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default. or shall impair or exhaust any right or power consequent thereon. In addition. upon the occurrence and during the continuance of an Event of Default. the Trustee may pursue any available remedy at lacy or in equity to enforce the payment of the Principal Amount of and premium. if any. on the Bonds. and to enforce any rights of the Trustee under or with respect to the Loan Agreement and this Indenture. If an Event of Default shall have occurred and be continuing and if requested so to do by the Owners of a majority in aggregate Principal Amount of Outstanding Bonds and indemnified as provided in Section 6.02(I). the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article VIII. as the Tnistcc. being advised by counsel. shall deem most expedient in the interest of the Bond Owners. No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Owners) is intended to be exclusive of any other remedy. but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Owners hereunder or now or hereafter existing at lacy or in equity. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a Nyaiyer of any such Event of Default or acquiescence therein: such right or power may be exercised from time to time as often as may be deemed expedient. Section 8.03. Application of Revenues and Other Funds After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Indenture shall be applied by the Trustee in the following order upon presentation of the several Bonds. and the stamping thereon of the amount of the payment if only partially paid. or upon the surrender thereof if fully paid - First. to the payment of the fees. costs and expenses of the Trustee. including reasonable compensation to its agents. attorneys and counsel (including the allocated costs and disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and Second. to the payment of the amount of Principal Amount of the Bonds then due and unpaid (such Principal Amount being Accreted Value of such Bonds calculated to but not including the date of payment by the Authority or the Agency to the Trustee. to the extent permitted by lacy): provided. however. that in the event such amounts shall be insufficient to pay the full amount. then such amounts P6402. I clii\881380.3 -26- shall be applied to the payment of the Principal Amount of all installments of the Bonds then due and payable on a pro rata basis. Section 8.04. Power of Trustee to Control Proceedings. Subject to the provisions of Article IX. in the event that the Trustee. upon the happening of an Event of Default. shall have taken an action. by judicial proceedings or otherwise. pursuant to its duties hereunder. Nvhether upon its own discretion or upon the request of the Owners of at least a majority in aggregate Principal Amount of the Bonds then Outstanding. it shall have full power. in the exercise of its discretion for the best interests of the Owners. Nyith respect to the continuance. discontinuance. Nvithdrawal. compromise. settlement or other disposal of such action: provided. however. that the Trustee shall not. unless there no longer continues an Event of Default. discontinue. Nvithdraw. compromise or settle. or othenvise dispose of an litigation pending at lacy or in equity. if at the time there has been filed Nyith it a Nvritten request signed by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds hereunder opposing such discontinuance. Nvithdrawal. compromise. settlement or other disposal of such litigation. Any suit. action or proceeding Nvhich any Owner shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners similarly situated and the Trustee is hereby appointed (and the successive respective Owners hereunder. by taking and holding the same. shall be conclusively deemed so to have appointed it) the true and lawful attorney -in -fact of the respective Owners for the purpose of bringing any such suit. action or proceeding and to do and perform any and all acts and things for an on behalf of the respective Owners as a class or classes. as may be necessary or advisable in the opinion of the Trustee as such attorney -in -fact. Section 8.05. Appointment of Receivers. Upon the occurrence of an Event of Default hereunder. and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Owners under this Indenture. the Trustee shall be entitled. as a matter or right. to the appointment of a receiver or receivers of the Revenues and other amounts pledged hereunder. pending such proceedings. Nyith such powers as the court making such appointment shall confer. Section 8.06. Non -Waiver. Nothing in this Article VI I I or in any other provision of this Indenture. or in the Bonds. shall affect or impair the obligation of the Authority. \yhich is absolute and unconditional. to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity. as herein provided. out of the Revenues and other moneys herein pledged for such payment. A Nvaiyer of any default or breach of duty or contract by the Trustee or any Owners shall not affect any subsequent default or breach of duty or contract. or impair 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 Nvaiyer of any such default or any acquiescence therein: and every power and remedy conferred upon the Trustee or Owners by the Bond Law or by this Article VIII may be enforced and exercised. upon an Event of Default. from time to time and as often as shall be deemed expedient by the Trustee or the Owners. as the case may be. Section 8.07. Limitation on Rights and Remedies of Owners. No Owner shall have the right to institute any suit. action or proceeding at lacy or in equity. for any remedy under or upon this Indenture. unless (i) such Owner shall have previously given to the Trustee «rittcn notice of the occurrence of an Event of Default: (ii) the Owners of a majority in aggregate Principal Amount of all the Bonds then Outstanding shall have made «rittcn request upon the Trustee to exercise the powers hereinbefore granted or to institute such action. suit or proceeding in its own name: (iii) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs. expenses and liabilities to be incurred in compliance Nyith such request: and (iv) the Trustee shall have refused or P6402. I clii\881380.3 -27- omitted to comply with such request for a period of 60 days after such written request shall have been received by. and said tender of indemnity shall have been made to. the Trustee. Such notification. request. tender of indemnity and refusal or omission are hereby declared. in every case. to be conditions precedent to the exercise by an Owner of an remedy hereunder: it being understood and intended that no one or more Owners shall have any right in any manner Nvhateyer by the Owners or Owners action to enforce any right under this Indenture. except in the manner herein provided. and that all proceedings at law or in equity to enforce any provision of this Indenture shall be instituted. had and maintained in the manner herein provided and for the equal benefit of all Owners. The right of any Owner of an Bond to receive payment of the principal of and interest and premium. if an. on such Bond as herein provided or to institute suit for the enforcement of any such payment. shall not be impaired or affected without the «rittcn consent of such Owner. notwithstanding the foregoing provisions of this Section or any other provision of this Indenture. Section 8.08. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or othenvise. and such proceedings shall have been discontinued or abandoned for any reason. or shall have been determined adversely. then and in even- such case. the Authority. the Trustee and the Owners shall be restored to their former positions and rights hereunder. respectively. with regard to the property subject to this Indenture. and all rights. remedies and powers of the Trustcc shall continue as if no such proceedings had been taken. ARTICLE IX BOND INSURANCE (to come) ARTICLE X BOOK -ENTRY SYSTEM Section 10.01 Book -Entry System: Limited Obligation of Authority. The Bonds shall be initially delivered in the form of a separate single fully registered Bond (which may be typewritten) for each of the maturities of the Bonds. Upon initial delivery. the ownership of each such Bond shall be registered in the registration books kept by the Trustee in the name of the Nominee as nominee of the Depository. Except as provided in Section 10.03. all of the Outstanding Bonds shall be registered in the registration books kept by the Trustee in the name of the Nominee. With respect to Bonds registered in the registration books kept by the Trustee in the name of the Nominee. the Authority and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence. the Authority and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository. the Nominee. or any Participant with respect to any ownership interest in the Bonds. (ii) the delivery to any Participant or any other person. other than an Owner as shown in the registration books kept by the Trustee. of any notice with respect to the Bonds. including any notice of redemption. (iii) the selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed in the event the Bonds are redeemed in part. or (iv) the payment to any Participant or any other person. other than an Owner as shown in the registration books kept by the Trustee. of any amount with respect to principal of. premium. if any. or P6402. I Oi;\88I HBO. ; -28- 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 Tnistcc as the holder and absolute owner of such Bond for the purpose of payment of principal. premium. if any. and interest with respect to such Bond. for the purpose of giving notices of redemption and other matters with respect to such Bond. for the purpose of registering transfers with respect to such Bond. and for all other purposes Nvhatsoeyer. The Trustee shall pay all principal of. premium. if any. and interest due with respect to the Bonds only to or upon the order of the respective Owners. as shown in the registration books kept by the Trustee. or their respective attorneys duly authorized in writing. and all such payments shall be valid and effective to satisfy and discharge fully the Authority's obligations with respect to payment of the principal. premium. if any. and interest due with respect to the Bonds to the extent of the sum or sums so paid. No person other than an Owner. as shown in the registration books kept by the Trustee. shall receive a Bond evidencing the obligation of the Authority to make payments of principal. premium. if any. and interest pursuant to this Indenture. Upon delivery by the Depository to the Trustee and the Authority of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee. and subject to the provisions herein with respect to Record Dates. the word Nominee in this Indenture shall refer to such new nominee of the Depository. Section 10.02 Representation Letter. In order to qualify the Bonds for the Depository's book entry system. the Authority has heretofore executed and delivered to such Depository the Representation Letter. The execution and delivery of a Representation Letter shall not in any way impose upon the Authority or the Tnistcc any obligation Nvhatsoeyer with respect to persons having interests in the Bonds other than the Owners. as shown on the registration books kept by the Trustee. The Trustee agrees to take all action necessary to continuously comply with the Representation Letter to the extent that such action is not inconsistent with this Indenture. In addition to the execution and delivery of the Representation Letter. the officers of the Authority 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 NViII discontinue the book -entry system with the Depository. If the Authority fails to identify another qualified securities depository to replace the Depository. then the Bonds so designated shall no longer be restricted to being registered in the registration books kept by the Trustee in the name of the Nominee. but shall be registered in Nvhateyer name or names persons transferring or exchanging Bonds shall designate. in accordance with the provisions of Section 2.09. Section 10.04 Payments to the Nominee. Notwithstanding anv other provisions of this Indenture to the contrary. so long as any Bond is registered in the name of the Nominee. all payments with respect to principal. premium. if any. and interest due with respect to such Bond and all notices with respect to such Bond shall be made and given. respectively. as provided in the Representation Letter or as othenyise instructed by the Depository. Section 10.05 Initial Depository and Nominee. The initial Depository under this Article shall be The Depository Trust Company. NOV York. NOV York. The initial Nominee shall be Cede & Co.. as Nominee of The Depository Trust Company. NOV York. NOV 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 anv moneys derived from any source P6402. I c);,\xx I 3xc). ; -29- of income other than the Revenues for the payment of the principal of or interest on the Bonds. or any premiums upon the redemption thereof. or for the performance of any covenants herein contained (except to the extent any such covenants are expressly payable hereunder from the Revenues or otherwise from amounts payable under the Loan Agreement). The Authority may. however. advance funds for any such purpose. provided that such funds are derived from a source legally available for such purpose and may be used by the Authority for such purpose Nyithout incurring indebtedness. The Bonds shall be revenue bonds. payable exclusively from the Revenues and other funds as in this Indenture provided. The general fund of the Authority is not liable. and the credit of the Authority is not pledged. for the payment of the interest and premium. if any. on or principal of the Bonds. The Owners of the Bonds shall never have the right to compel the forfeiture of any property of the Authority. The principal of and interest on the Bonds. and any premiums upon the redemption of any thereof. shall not be a legal or equitable pledge. charge. Tien or encumbrance upon any property of the Authority or upon any of its income. receipts or revenues except the Revenues and other funds pledged to the payment thereof as in this Indenture provided. Section 11.02. Benefits of Indenture Limited to Parties. Nothing in this Indenture. expressed or implied. is intended to give to any person other than the Authority. the Trustee. the Agency. the Insurer. and the Owners of the Bonds. any right. remedy or claim under or by reason of this Indenture. Any covenants. stipulations. promises or agreements in this Indenture contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the Trustee. the Agency. the Insurer. and the Owners of the Bonds. Section 11.0 3. Discharge 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 \yell and truly paying or causing to be paid the principal of and interest and premium. if any. on such Bonds. as and Nyhen the same become due and payable: (b) By irrevocably depositing with the Trustee. in trust. at or before maturity. money which. together with the available amounts then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. is fully sufficient to pay such Bonds. including all principal. interest and premiums. if any: or (c) By irrevocably depositing with the Trustee or any other fiduciary. in trust. non -callable Defeasance Obligations in such amount as an Independent Accountant shall determine 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 Trustees and the Insurers expenses and costs. shall be paid over to the Authority. 1)6402.10.5.5 \881380.3 -30- Section 11.04. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture or any Supplemental Indenture the Authority is named or referred to. such reference shall be deemed to include the successor to the powers. duties and functions. with respect to the management. administration and control of the affairs of the Authority. that are presently vested in the Authority. and all the covenants. agreements and provisions contained in this Indenture by or on behalf of the Authority shall bind and inure to the benefit of its successors whether so expressed or not. Section 11.05. Content of Certificates. Every Certificate of the Authority with respect to compliance with a condition or covenant provided for in this Indenture shall include (i) a statement that the person or persons making or giving such Certificate have read such covenant or condition and the definitions herein relating thereto: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Certificate are based: (iii) a statement that. in the opinion of the signers. they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with: and (iv) a statement as to whether. in the opinion of the signers. such condition or covenant has been complied with. Any such certificate made or given by an officer of the Authority may be based. insofar as it relates to legal matters. upon a certificate or opinion of or representations by counsel. unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate may be based. as aforesaid. are erroneous. or in the exercise of reasonable care should have known that the same were erroneous. Any such certificate or opinion or representation made or given by counsel may be based. insofar as it relates to factual matters. on information with respect to which is in the possession of the Authority. or upon the certificate or opinion of or representations by an officer or officers of the Authority. unless such counsel knows that the certificate or opinion or representations with respect to the matters upon which his certificate. opinion or representation may be based. as aforesaid. are erroneous. Section 11.06. 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 11.06. The fact and date of the execution by any person of any such request. consent or other instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds. certifying that the person signing such request. consent or other instrument or writing acknowledged to him the execution thereof. The ownership of Bonds shall be proved by the Registration Books. Any request. consent or vote of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of any Bond issued in exchange therefor or in Iicu thereof. in respect of anything done or suffered to be done by the Trustee or the Authority in pursuance of such request. consent or vote. In Iicu of obtaining any demand. request, direction. consent or Nvaiyer in writing. the Trustee may call and hold a meeting of the Bond Owners upon such notice and in accordance with such rules and obligations as the Trustee considers fair and reasonable for the purpose of obtaining any such action. Section 11.07. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand. request. direction. consent or Nvaiyer P6402. ! U \xx l ). ; -3 I - under this Indenture. Bonds which are owned or held by or for the account of the Agency or the Authority (but excluding Bonds held in any employees' retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. provided. however. only Bonds which a responsible officer of the Trustee actually knows to be so owned or held shall be disregarded. Section 11.08. Waiver of Personal Liability. No officer. agent or employee of the Authority shall be individually or personally liable for the payment of the interest on or principal of the Bonds: but nothing herein contained shall relieve any such officer. agent or employee from the performance of any official duty provided by law. Section 11.09. Partial Invalidity. If any one or more of the covenants or agreements. or portions thereof. provided in this Indenture on the part of the Authority (or of the Trustee) to be performed should be contrary to law. then such covenant or covenants. such agreement or agreements. or such portions thereof. shall be null and void and shall be deemed separable from the remaining covenants and agreements or portions thereof and shall in no way affect the validity of this Indenture or of the Bonds: but the Bond Owners shall retain all rights and benefits accorded to them under the Bond Law or any other applicable provisions of law. The Authority hereby declares that it would have entered into this Indenture and each and every other section. paragraph. subdivision. sentence. clause and phrase hereof and would have authorized the issuance of the Bonds pursuant hereto irrespective of the fact that any one or more sections. paragraphs. subdivisions. sentences. clauses or phrases of this Indenture or the application thereof to any person or circumstance may be held to be unconstitutional. unenforceable or invalid. Section 1 1.10. Destruction of Cancelled Bonds. Whenever in this Indenture provision is made for the surrender to the Trustee of any Bonds which have been paid or cancelled pursuant to the provisions of this Indenture. the Trustee shall. as permitted by law. destroy such cancelled Bonds and. upon Request of the Authority. provide to the Authority a certificate of destruction duly executed by the Trustcc. and the Authority shall be entitled to rely upon any statement of fact contained in such certificate with respect to the destruction of any such Bonds therein referred to: provided. however. the Authority shall reimburse the Trustee for the Trustees costs incurred in connection with the microfilming or the required permanent recording. if any. related thereto. Section 1 1.1 1. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the accounting records of the Authority or the Trustee. as the case may be. either as a fund or an account. and may. for the purpose of such records. any audits thereof and any reports or statements with respect thereto. be treated either as a fund or as an account. All such records with respect to all such funds and accounts held by the Authority shall at all times be maintained in accordance with generally accepted accounting principles and all such records with respect to all such funds and accounts held by the Trustee shall be at all times maintained in accordance with corporate trust industry practices. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the form of multiple funds. accounts or sub -accounts therein. 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 1.1 3. Notices. Any notice. request. complaint. demand or other communication under this Indenture shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below. or by telecopy or other form of telecommunication. confirmed by telephone at its number set forth below. Notice shall be effective either (i) upon transmission by telecopy or other P6402.I055\88I 38c).; -32- 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 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Chief Administrative Officer Facsimile: (760) 340-0574 If to the Agency: Palm Desert Redevelopment Agency 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Executive Director Facsimile: (760) 340-0574 If to the Trustee: Wells Fargo Bank. National Association 707 Wilshire Boulevard. 17th Floor Los Angeles. California 90017 Attention: Corporate Trust Department Facsimile: (213) 614-3355 If to the Insurer: Attention: Facsimile: ( ) The Authority. the Agency. the Trustee and the Insurer may designate anv further or different addresses to which subsequent notices. certificates or other communications shall be sent. Notices to the Insurer shall be governed by Section 9.02. Section 11.14. Unclaimed Money s. Anything in this Indenture to the contrary notwithstanding. anv moneys held by the Trustee in trust for the payment and discharge of anv of the Bonds or the interest thereon which remain unclaimed for two years after the date when such Bonds or the interest thereon have become due and payable. either at their stated maturity dates or by call for earlier redemption. if such moneys \were held by the Trustee at such date. or for two years after the date of deposit of such moneys if deposited with the Trustee after said date when such Bonds or the interest thereon become due and payable. shall. at the Request of the Authority. be repaid by the Trustee to the Authority. as its absolute property and free from trust. and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the Authority for the payment of such Bonds: provided. however. that before making anv such payment to the Authority. the Trustee shall. at the Request and at the expense of the Authority. cause to be mailed to the Owners of all such Bonds. at their respective addresses appearing on the Registration Books. a notice that said moneys remain unclaimed and that. after a date named in said notice. which date shall not be less than 30 days after the date of mailing of such notice. the balance of such moneys then unclaimed will be returned to the Authority. Section 11.15. Governing, Law. This Agreement shall be construed and governed in accordance with the laws of the State of California. P6402.1055\881380.; -33- P6402. I Oii\88I 38O. ; -34- IN WITNESS WHEREOF. the PALM DESERT FINANCING AUTHORITY has caused this Indenture to be signed in its name by its duly authorized officer and WELLS FARGO BANK. NATIONAL ASSOCIATION. in token of its acceptance of the trust created hereunder. has caused this Indenture to be signed in its corporate name by its officer identified below. all as of the day and year first above Nvritten. PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Officer P6402.I055\88I 80.; - 5- EXHIBIT A IFORM OF BONDS Unless this certificate is presented by an authorized representative of The Depository Trust Company. a NOV York corporation ("DTC). to the Authority or its agent for registration of transfer. exchange. or payment. and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC). ANY TRANSFER. PLEDGE. OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof. Cede & Co.. has an interest herein. No. Maturity Amount: } PALM DESERT FINANCING AUTHORITY SUBORDINATE TAX ALLOCATION REVENUE CAPTIAL APPRECIATION BOND (PROJECT AREA NO. 2) 2006 SERIES D YIELD TO MATURITY MATURITY DATE ORIGINAL ISSUE DATE CUSIP August I. 20_ REGISTERED OWNER: CEDE & CO. INITIAL PRINCIPAL AMOUNT: MATURITY AMOUNT: The PALM DESERT FINANCING AUTHORITY. a joint powers authority organized and existing under the laws of the State of California (the "Authority"). for value received. hereby promises to pay (but only out of the Revenues. as defined in the Indenture hereinafter referred to. and certain other moneys) to the Registered Owner identified above or registered assigns (the "Registered Owner"). in lawful money of the United States of America. either the Maturity Amount identified above on the Maturity Date or the Accreted Value. plus any applicable redemption premium. upon redemption prior to maturity. "Accreted Value." with respect to any Bond. means as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Original Issue Date at the stated Yield to Maturity thereof on each February I and August I. commencing August I. 2006. Interest on each Bond shall be computed using a year of 360 days of twelve 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. with respect to any Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the corporate trust office P64U2. l 0.5.5\881380.3 A- I of Wells Fargo Bank. National Association (the "Trustee") in Los Angeles. California or such other location as the Trustee shall designate (the "Trust Office"). This Bond is one of a duly authorized series of bonds of the Authority designated the Palm Desert Financing Authority. Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series D (the "Bonds"). limited in initial principal amount to } . The Bonds are secured by an Indenture of Trust. dated as of July I. 2006 (the "Indenture"). by and between the Authority and the Trustee. Unless the context clearly requires otherwise. capitalized terms used but not defined herein have the meanings ascribed to them in the Indenture. Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the rights thereunder of the owners of the Bonds. of the nature and extent of the Revenues. of the rights. duties and immunities of the Trustee and of the rights and obligations of the Authority thereunder: and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof. and to all of the provisions of which Indenture the Registered Owner hereof. by acceptance hereof. assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985. constituting Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Act"). The Bonds are special obligations of the Authority and. as and to the extent set forth in the Indenture. are payable solely from and secured by a first lien on and pledge of the Revenues and certain other moneys and securities held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of. and charge and lien upon. all of the Revenues and such other moneys and securities. and the Revenues and such other moneys and securities constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if an) on the Bonds. The Bonds are not secured by a legal or equitable pledge of. or charge. lien or encumbrance upon. any of the property of the Authority or any of its income or receipts. except the Revenues and such other moneys and securities as provided in the Indenture. The Bonds have been issued for the purpose of making a loan (the "Loan") to the Palm Desert Redevelopment Agency (the "Agency") to finance certain public capital improvements with respect to a redevelopment project known and designated as Project Area No. 2 (the "Project Area"). The Loan has been made by the Authority to the Agency pursuant to a Project Area No. 2 Loan Agreement (2006 Subordinate Loan). dated as of July I. 2006 (the "Loan Agreement"). by and among the Agency. the Authority and the Trustee. Repayment of the Loan is secured by Subordinate Tax Revenues (as defined in the Loan Agreement). consisting of certain tax revenues received by the Agency with respect to the Project Area. less the amount required to pay certain obligations of the Agency which rank senior to the Loan. The Bonds maturing on or after August I. 2() are subject to redemption prior to their respective maturity dates as a Nvhole. or in part among maturities as designated by the Authority and by lot within a maturity. from prepayments of the Loan made at the option of the Agency pursuant to the Loan Agreement. on any August I or February I on or after August I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Bonds on the date fixed for redemption): P6402. I clii\881380.3 A-2 Redemption Dates Redemption Price August I. 2() and February I. 2() `%) August I. 2() and February I. 2() August I. 2() and thereafter The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Bonds designated for redemption. at their respective addresses appearing on the registration books maintained by the Trustee. and by such means as acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the redemption date: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the serial numbers of each maturity or maturities (except that if the event of redemption is of all of the Bonds of such maturity or maturities in whole. the Trustee shall designate such maturities or the maturity in NVhoIe without referencing each individual number) of the Bonds to be redeemed. and shall require that such Bonds be then surrendered at the Trust Office for redemption at the redemption price. giving notice also that further interest on such Bonds will not accrue from and after the redemption date. Subject to the limitations and upon payment of the charges. if any. provided in the Indenture. this Bond may be exchanged at the Trust Office for a like aggregate Maturity Amount and maturity of fully registered Bonds of other authorized denominations. This Bond is transferable by the Registered Owner hereof. in person or by the Registered Owners attorney duly authorized in writing. at the Trust Office. but only in the manner. subject to the limitations and upon payment of the charges provided in the Indenture. and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Bond or Bonds. of authorized denomination or denominations. for the same aggregate Maturity Amount and of the same maturity NViII be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of an Bond during the 15-day period preceding the selection of Bonds for redemption or any Bond selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes. and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority and of the owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time in the manner. to the extent. and upon the terms provided in the Indenture: provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or othenyise alter or impair the obligation of the Authority to pay the principal. interest or premiums at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond. (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification. or (c) without its written consent thereto. modify any of the rights or obligations of the Trustee. all as more fully set forth in the Indenture. It is hereby certified that all things. conditions and acts required to exist. to have happened and to have been performed precedent to and in the issuance of this Bond do exist. have happened and have been performed in due time. form and manner as required by the Constitution and statutes of the State of P6402. I c li i\881380.3 A-3 California and by the Act and the amount of this Bond. together Nvith all other indebtedness of the Authority. does not exceed any limit prescribed by the Constitution or statutes of the State of California or by the Act. This Bond shall not be entitled to any benefit under the Indenture. or become valid or obligatory for any purpose. until the certificate of authentication hereon shall have been signed by the Trustee. IN WITNESS WHEREOF. the Authority has caused this Bond to be executed in its name and on its behalf by the manual or facsimile signatures of its President and Secretary all as of the Original Issue Date identified above. PALM DESERT FINANCING AUTHORITY By Attest: Secretary President STATEMENT OF INSURANCE Ito coma P6402.I055\881380.3 A-4 (FORM OF TRUSTEES CERTIFICATE OF AUTHENTICATION' This is one of the Bonds described in the Nvithin-mentioned Indenture and registered on the Bond Registration Books. Date: WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Signatory (FORM OF ASSIGNMENT' For value received the undersigned do(es) hereby sell. assign and transfer unto Nvhose tax identification number is . the within -mentioned registered Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee Nvith full power of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond Nvith the name(s) as Nvritten on the face of the Nyithin Bond in every particular Nvithout alteration or enlargement or any change Nyhatsoeyer. NOTE: Signature(s) must be guaranteed by a member of an institution Nyhich is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. P6402.1055\881380.3 A-5 Project Area No. 2 Loan Agreement (2006 Subordinate Loan) Nyith reference to Palm Desert Financing Authority Subordinate Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 2) 2006 Series D P6402.I055\88I9I6.3 RWG DRAFT: 5/22/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 2 Section I.I. Definitions 2 Section 1.2. Rules of Construction iS ARTICLE II THE LOAN: APPLICATION OF LOAN PROCEEDS: INCURRENCE OF ADDITIONAL DEBT Section 2. I. Authorization Section 2.2. Disbursement and Application of Loan Proceeds 6 Section 2.3. Repayment of Loan 6 Section 2.4. Optional Prepayment 6 Section 2.5. Reserve Fund 7 Section 2.6. Costs of Issuance Fund 8 Section 2.7. Project Fund 8 Section 2.8. Parity Debt 9 Section 2.9. Issuance of Additional Senior Debt I0 Section 2.10. Issuance of Subordinate Debt I0 Section 2. I I . Validity of Loan I0 ARTICLE III PLEDGE AND APPLICATION OF SUBORDINATE TAX REVENUES 10 Section 3. I . Pledge of Subordinate Tax Revenues 10 Section 3.2. Special Fund: Deposit of Subordinate Tax Revenues 10 Section 3.3. Transfer of Subordinate Tax Revenues From Special Fund I I Section 3.4. Investment of Moneys: Valuation of Investments I I ARTICLE IV OTHER COVENANTS OF THE AGENCY I2 Section 4. I . Punctual Payment: Extension of Payments I2 Section 4.2. Limitation on Additional Indebtedness I2 Section 4.3. Payment of Claims I2 Section 4.4. Books and Accounts: Financial Statements I2 Section 4.5. Protection of Security and Rights I3 Section 4.6. Payments of Taxes and Other Charges 13 Section 4.7. Taxation of Leased Property I3 Section 4.8. Disposition of Property I3 Section 4.9. Maintenance of Tax Revenues 13 Section 4.10. Payment of Expenses: Indemnification 14 Section 4.1 I. Tax Covenants 14 Section 4.12. Redevelopment of Project Area 15 Section 4.1 3. Low and Moderate Income Housing Fund 15 Section 4.1 4. Annual Review of Tax Revenues 15 Section 4.1 5. Further Assurances I6 ARTICLE V EVENTS OF DEFAULT AND REMEDIES I6 Section 5. I . Events of Default and Acceleration of Maturities I6 Section 5.2. Application of Funds Upon Default 17 Section 5.3. No Waiver 17 Section 5.4. Agreement to Pay Attorneys' Fees and Expenses 17 Section 5.5. Remedies Not Exclusive I8 P6402.1 055\881916. Section 5.6. Control of Remedies by Insurer I8 ARTICLE VI MISCELLANEOUS I8 Section 6. I . Benefits Limited to Parties I Section 6.2. Successor is Deemed Included in All References to Predecessor I8 Section 6.3. Discharge of Loan Agreement 18 Section 6.4. Amendment 19 Section 6.5. Waiver of Personal Liability 19 Section 6.6. Payment on Business Days 19 Section 6.7. Notices 19 Section 6.8. Partial Invalidity 19 Section 6.9. Article and Section Headings and References 19 Section 6.10. Execution of Counterparts 20 Section 6. I I. Governing Law 20 Section 6.12. The Trustee 20 EXHIBIT A — Schedule of Loan Payments ii P64U2. I 055\881916.; PROJECT AREA NO. 2 LOAN AGREEMENT (2006 Subordinate Loan) This Project Area No. 2 Loan Agreement (2006 Subordinate Loan) (this "Loan Agreement) is made and entered into as of Jule I. 2006. by and among the Palm Desert Redevelopment Agency. a public body. corporate and politic. duly organized and validly existing under the laws of the State of California (the "Agency"). the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority"). and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America (the " Tnisteel. 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. 2 of the Agency (the "Project Area) has been duly approved and adopted by the City. C. The Agency has determined to incur a loan (the "Loan) hereunder for the object and purpose of assisting in the financing of public capital improvements and redevelopment activities for the benefit of the Project Area. pursuant to the Redevelopment Law and the Marks -Roos Local Bond Pooling Act of 1985. Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Bond Law"). D. Concurrently with the execution and delivery of this Loan Agreement. the Authority has issued its Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series D. in the initial principal amount of } (the "Bonds) pursuant to the Bond Law and an Indenture of Trust. dated as of July I. 2006 (the "Indenture"). by and between the Authority and the Trustee. for the purpose of providing funds to make the Loan to the Agency E. The Authority has found and determined that there will be significant public benefits accruing from such borrowing. consisting of demonstrable savings in effective interest rates and financing costs associated with the issuance of the Bonds pursuant to the Bond Law. F. The Agency and the Authority have determined that all acts and proceedings required by law necessary to make this Loan Agreement. when executed by the Agency. the Authority and Trustee. the valid. binding and legal obligation of the Agency and the Authority. and to constitute this Loan Agreement a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms. have been done and taken. and the execution and delivery of this Loan Agreement have been in all respects duly authorized. NOW. THEREFORE. in consideration of the premises and the mutual agreements herein contained. the parties hereto do hereby agree as follows: P6402.10ii\881916. i 1 ARTICLE I DEFINITIONS Section I. I. Definitions. Unless the contest clearly requires or unless othenvise defined herein. the capitalized terms in this Loan Agreement shall have the respective meanings Nyhich such terms are given in the Indenture. In addition. the following terms defined in this Section I. I shall. for all purposes of this Loan Agreement. have the respective meanings herein specified. "Additional Reyenues- means. as of the date of calculation. the amount of Tax Revenues which. as shown in the Report of an Independent Redevelopment Consultant. are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to either (i) construction which has been completed but which is not then reflected on the tax rolls. or (ii) transfer of ownership or an other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition. the term "increases in the assessed valuation means the amount by which the assessed valuation of taxable property in the Project Area is estimated to increase above the assessed valuation of taxable property in the Project Area (as reported by an appropriate official of the County) as of the date on which such calculation is made. "Bonds means the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2). 2006 Series D. "Costs of Issuance means all expenses incurred in connection with the authorization. issuance. sale and delivery of the Bonds and the making of the Loan pursuant to this Loan Agreement. including but not limited to all compensation. fees and expenses (including but not limited to fees and expenses for legal counsel) of the Authority and any trustee. compensation to any financial advisors or underwriters and their counsel. legal fees and expenses. filing and recording costs. rating agency fees. credit enhancement fees (including insurance. surety bonds and letters of credit). costs of preparation and reproduction of documents and costs of printing. "Costs of Issuance Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.6. "Event of Default means any of the events described in Section 5.1. "Indenture' means the Indenture of Trust. dated as of July I. 2006. by and between the Authority and the Trustee. authorizing the issuance of the Bonds. as may from time to time be supplemented. modified or amended. "Independent Redevelopment Consultant means any consultant or firm of such consultants appointed by or acceptable to the Agency. and \who. or each of whom: (i) is judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the financing of redevelopment projects: (ii) is in fact independent and not under the domination of the Agency: (iii) does not have any substantial interest. direct or indirect. with the Agency. other than as original purchaser of any obligations of the Agency: and (iv) is not connected with the Agency as an officer or employee of the Agency. but \who may be regularly retained to make reports to the Agency. "Loan means the loan made by the Authority to the Agency pursuant to Section 2.1 from the proceeds of the Bonds in the initial principal amount of P6402.10ii\881916. i 2 "Loan Agreements means this Project Area No. 2 Loan Agreement (2006 Subordinate Loan). as may from time to time be amended. modified or supplemented. "Maximum Annual Debt Service" means. as of the date of calculation. the largest amount obtained by totaling. for the current or any future Bond Year. the sum of (i) the amount of interest payable on the Loan and all outstanding Parity Debt in such Bond Year. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. and (ii) the amount of principal payable on the Loan and all outstanding Parity Debt in such Bond Year. including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation. there shall be excluded a pro rata portion of each installment of principal of any Parity Debt. together Nvith the interest to accrue thereon. in the event and to the extent that the proceeds of such Parity Debt are deposited in an escrow fund from Nvhich amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year. plus at the option of the Agency the Additional Revenues. meet the coverage test set forth in Section 2.8(b). "Maximum Combined Annual Debt Service" means. as of the date of calculation. the largest amount obtained by totaling. for the current or any future Bond Year. the sum of (i) the amount of interest payable on the Loan. all outstanding Parity Debt and all outstanding Senior Debt in such Bond Year. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. and (ii) the amount of principal payable on the Loan. all outstanding Parity Debt and all outstanding Senior Debt in such Bond Year. including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation. there shall be excluded a pro rata portion of each installment of principal of any Senior Debt or Parity Debt. together Nvith the interest to accrue thereon. in the event and to the extent that the proceeds of such Senior Debt or Parity Debt are deposited in an escrow fund from Nvhich amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year. plus at the option of the Agency the Additional Revenues. meet the coverage test set forth in (a) Nvith respect to the release of Senior Debt proceeds from any such escrow fund. Section 2.9(b) or (b) Nvith respect to the release of Parity Debt proceeds from any such escrow fund. Section 2.8(b). "Parity Debt" means any loans. bonds. notes. advances. or indebtedness payable from Subordinate Tax Revenues on a parity Nvith the Loan. issued or incurred pursuant to and in accordance Nvith the provisions of Section 2.8. "Parity Debt Instrument"' means any resolution. indenture of trust. trust agreement or other instrument authorizing the issuance of any Parity Debt. "Pass-Throutzh Agreements means. collectively. the agreements entered into by the Agency on or prior to the date hereof pursuant to Section 33401 of the Redevelopment Law Nyith (i) the County of Riverside. (ii) the Coachella Valley Community College District. (iii) the Coachella Valley Mosquito Abatement District. (iv) the Desert Sands Unified School District. (v) the Palm Springs Unified School District and (vi) the Riverside County Superintendent of Schools. "Plan Limitations"' means the limitations contained or incorporated in the Redevelopment Plan on (i) the aggregate principal amount of bonded indebtedness payable from Tax Revenues Nvhich may be outstanding at any time. (ii) the aggregate amount of taxes Nvhich may be divided and allocated to the Agency pursuant to the Redevelopment Plan. and (iii) the period of time for establishing or repaying loans. advances and indebtedness payable from Tax Revenues. "Project Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.7. P6402.10ii\881916. i 3 "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 Nyith the Trustee pursuant to Section 2.5. provided that all of the following requirements are met at the time of deposit Nyith the Trustee: (i) either (a) the long-term credit rating of such bank is within one of the two highest rating categories by Moody's or S&P. or the claims paying ability of such insurance company is rated Nyithin one of the two highest rating categories 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 Nyith the Trustee Nvritten 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 Nvithdra«al 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 Nyith respect to Nyhich funds are proposed to be released pursuant to Section 2.5: and (iv) the Trustee is authorized pursuant to the terms of such 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 3.3(a). "Redevelopment Fundy means the Project Area No. 2 Redevelopment Fund. heretofore established and held by the Agency. "Redevelopment Project means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area. "Reserve Fundy means the "Project Area No. 2 Subordinate Reserve Fundy held by the Trustee pursuant to Section 2.5. "Reserve Requirement means the least of (i) Maximum Annual Debt Service. (ii) 125 percent of average annual debt service on the Loans and all outstanding Parity Debt. and (iii) 10 percent of the proceeds of the Loans (i.e.. the original Principal Amount of the Bonds) and of the proceeds of any Parity Debt. The amount of the Reserve Requirement on any date is subject to confirmation by the Authority to the Trustee upon the Trustees «rittcn request. At the Closing Date. the Reserve Requirement shall be $ "Senior Debt means the Senior 2002 Loan. the Senior 2003 Loan and the Senior 2006 Loans and any other loans. bonds. notes. advances. or indebtedness payable from Tax Revenues which rank senior to the Loan and the Parity Debt. issued or incurred pursuant to and in accordance with the provisions of Section 2.9. "Senior Debt Instrument means the Senior 2002 Loan Agreement. the Senior 2003 Loan Agreement. the Senior 2006 Loan Agreement and any other resolution. indenture of trust. trust agreement or other instrument authorizing the issuance of any Senior Debt. "Senior Debt Service" means. for any period of time. the sum of (i) the amount of interest payable during such period on all outstanding Senior Debt. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. (ii) the amount of principal payable during such period on all outstanding Senior Debt. including any principal required to be prepaid by operation of mandatory sinking fund payments. and (iii) amounts. if any. required to be deposited in the debt service reserve funds maintained under the Senior Debt Instruments or paid to the issuers of surety bonds (or other qualified reserve fund instruments) deposited in the reserve fund relating to any Senior Debt in lieu of cash pursuant to the agreements between the Agency and such issuers. "Senior 2006 Loans means the outstanding balance of the loans made by the Authority to the Agency pursuant to the Senior 2006 Loan Agreement. P6402.1 c h.5\xx 1916. 3 4 "Senior 2006 Loan Agreements means the Loan Agreement dated as of Jule I. 2006. by and among the Agency. the Authority and Wells Fargo Bank. National Association. as trustee. "Senior 2003 Loan means the outstanding balance of the loan made by the Authority_ to the Agency pursuant to the Senior 2003 Loan Agreement. "Senior 2003 Loan Agreements means the Project Area No. 2 Loan Agreement. dated as January I. 2003. by and between the Authority and the Agency. "Senior 2002 Loan means the outstanding balance of the loan made by the Authority_ to the Agency pursuant to the Senior 2002 Loan Agreement. "Senior 2002 Loan Agreements means the Loan Agreement dated as ofJune I. 2002. by and among the Agency. the Authority and BNY Western Trust Company. as prior trustee. as succeeded by Wells Fargo Bank. National Association. as trustee. "Special Fundy means the fund by that name held by the Agency pursuant to Section 3.2. "Subordinate Debt means any loans. advances or indebtedness issued or incurred by the Agency in accordance Nyith the requirements of Section 2.10. Nyhich are either: (i) payable from. but not secured by a pledge of or lien upon. the Tax Revenues: or (ii) secured by a pledge of or lien upon the Subordinate Tax Revenues Nyhich is subordinate to the pledge of and lien upon the Subordinate Tax Revenues hereunder for the security of the Loan and any Parity Debt. "Subordinate Tax Revenues means. for any period of time. the Tax Revenues for such period. Tess the Senior Debt Service payable during such period. "Tax Re eiuies- means that portion of the taxes levied upon taxable property in the Project Area allocated and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the California Constitution. exclusive of amounts placed into the Low and Moderate Income Housing Fund of the Agency pursuant to Sections 33334.2 and 33334.3 of the Redevelopment Law. and excluding amounts payable to affected taxing agencies pursuant to the Pass -Through Agreements or pursuant to Section 33607.5 or 33607.7 of the Redevelopment Lary. Section I.2. Rules of Construction. All references herein to "Articles. "Sections" and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement. and the Nyords "herein. "hereof. "hereunder- and other Nyords of similar import refer to this Loan Agreement as a Nyholc and not to any particular Article. Section or subdivision hereof. ARTICLE II THE LOAN: APPLICATION OF LOAN PROCEEDS: INCURRENCE OF ADDITIONAL DEBT Section 2. I . Authorization. The Authority hereby agrees to lend to the Agency. from the proceeds of the sale of the Bonds deposited in the Loan Fund established under the Indenture. the initial principal amount of $ under and subject to the terms of this Loan Agreement. the Bond Law and the Redevelopment Lary. This Loan Agreement constitutes a continuing agreement to secure the full and final payment of the Loan. subject to the covenants. agreements. provisions and conditions herein contained P64U2. I c .5.5\xx 1916.; 5 Section 2.2. Disbursement and Application of Loan Proceeds. On the Closing Date. the Authority shall cause to be deposited into the Loan Fund the amount of $ which shall be held by the Trustee and which shall be disbursed as follows: (i) The Trustcc shall transfer the amount of $ to the Series the Costs of Issuance Fund. (ii) The Trustee shall transfer the amount of $ to the Reserve Fund (which amount shall equal the initial Reserve Requirement). (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 the premium for the Insurance Policy. The Trustee may. in its discretion. establish a temporary fund or account to facilitate or account for the foregoing transfers. Section 2.3. Repayment of Loan. The Agency shall. subject to prepayment as provided in Section 2.4(a). repay the Loan in installments on August I in each of the years and in the amounts set forth in Exhibit A attached hereto and by this reference incorporated herein. Interest on each installment of the Loan shall accrue in the same manner as the interest accrues on the Bonds pursuant to the Indenture. The installments payable on the Loan on each August I set forth in Exhibit A correspond with the aggregate Maturity Amount of the Bonds coming due and payable on such date. Any installment of the Loan which is not paid 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 Loan shall be prepaid pursuant to Section 2.4(a). or in the event the Bonds shall be redeemed pursuant to Section 2.03(a) of the Indenture. the schedule of installments set forth in Exhibit A hereto shall be reduced as directed by the Agency to the Trustee. The obligation of the Agency to repay the Loan is. subject to Section 3.1. absolute and unconditional. and such payments shall not be subject to reduction wvhether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party to any agreement for any cause Nvhatsoeyer. Installments of the Loan shall be payable by the Agency to the Trustee. as assignee of the Authority under the Indenture in lawful money of the United States. Payment of such installments shall be secured. and amounts for the payment thereof shall be deposited with the Trustee at the times. as set forth in Article III. Section 2.4. Optional Prepayment (a) The Agency shall have the right to prepay installments of the Loan on any date on which the Bonds are subject to redemption pursuant to Section 2.03(a) of the Indenture and effect a corresponding redemption of the Bonds. Such prepayment shall be allocated among such installments of the Loan as the Agency may determine upon Request to the Authority and the Trustee provided not less P6402. Ichi\881916. i 6 than 45 days prior to the prepayment date: provided that such prepayment shall cause redemption of Bonds in integral multiples of $5.000 Maturity Amount. To effect such prepayment. the Agency shall deposit with the Trustee no later than the redemption date an amount sufficient to redeem the called Bonds (which amount shall include the Accreted Value of the called Bonds as of the date of redemption and the applicable redemption premium. if any). (b) Before making any prepayment pursuant to this Section. the Agency shall give written notice to the Authority and the Trustee describing such event and specifying the date on which the prepayment NViII 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). (c) The Authority agrees that upon payment by the Agency to the Trustee of such amount. the Authority shall take or cause to be taken any and all steps required under the Indenture to redeem such Outstanding Bonds on the redemption date designated by the Agency: provided. however. that such date shall be a date of redemption of such Bonds. for which notice has been timely given pursuant to the Indenture. Section 2.5. Reserve Fund. There is hereby established a separate fund known as the "Project Area No. 2 Subordinate Reserve Fund. which shall be held by the Trustee in trust for the benefit of the Authority and the Owners of the Bonds and the registered owners of all other bonds issued by the Authority in connection with any Parity Debt. The Agency hereby pledges and grants a Tien and a security interest in the Reserve Fund to the Trustee in order to secure the Agency's payment obligations under Sections 2.3 and 3.3(a). The amount on deposit in the Reserve Fund shall be maintained at the Reserve Requirement at all times. except to the extent required for the purposes set forth in this Section. In the event that the Agency shall fail to deposit with the Trustee the full amount required to be deposited pursuant to Section 3.3(a). the Trustee shall withdraw from the Reserve Fund and transfer to the Principal Account an amount equal to the difference between (i) the amount required to be deposited pursuant to Section 3.3(a) and (ii) the amount actually deposited by the Agency. In the event that the amount on deposit in the Reserve Fund shall at any time be Tess than the Reserve Requirement. the Trustee shall notify the Agency as soon as practicable of the amount required to be deposited therein to restore the balance to the Reserve Requirement. such notice to be given by telephone. telefax or other form of telecommunications promptly confirmed in writing. and the Agency shall thereupon transfer to the Trustee the amount needed to restore the Reserve Fund to the Reserve Requirement. In the event that the amount on deposit in the Reserve Fund on the 15th calendar day preceding any repayment date with respect to the Loan (other than the final payment date) — provided that the deposits required by Section 3.3(a) have been made — exceeds the Reserve Requirement. the Tnistcc shall withdraw from the Reserve Fund all amounts in excess of the Reserve Requirement and apply such amounts toward the prepayment of the Loan pursuant to Section 2.4 or the prepayment of any Parity Debt. unless the Trustee shall have received prior Request of the Agency to pay such amounts to the Agency to be used for any lawful purpose relating to the Project Area. as specified in such Request of the Agency. Notwithstanding the foregoing provisions of this paragraph. however. no amounts shall be withdrawn from the Reserve Fund and transferred to the Agency pursuant to this paragraph during any period in which an Event of Default shall have occurred and be continuing hereunder. With the written consent of the Insurer (as long as the Insurance Policy is in full force and effect) and of the insurer of any Parity Debt (as long as the policy insuring such Parity Debt is in full P6402.10ii\881916. i 7 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. Nvhich in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement. Upon the deposit Nyith 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 a debt service reserve surety bond. any draw- on such surety bond shall be made only after all cash in the Reserve Fund has been expended. If at any time the amount credited to the Reserve Fund includes more than one Qualified Reserve Fund Credit Instruments. any draw- on the Qualified Reserve Fund Credit Instrument shall be on a pro rata basis based on the relative amounts of debt service covered by such Qualified Reserve Fund Credit Instruments in such Fiscal Year. Section 2.6. Costs of issuance Fund. There is hereby established a fund to be held by the Trustee known as the "Costs of Issuance Fund. A portion of the proceeds of the Loan shall be deposited in the Costs of Issuance Fund pursuant to Section 2.2. The moneys in the Costs of Issuance Fund shall be used to pay Costs of Issuance of the 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 Costs of Issuance Fund to the Revenue Fund. Section 2.7. Proiect Fund. There is hereby established a fund to be known as the "Project Fundy. which shall be held and maintained by the Trustee. Amounts on deposit in such fund shall be derived solely from the portion of the proceeds of the Loan transferred thereto and from earnings on the investment of amounts therein. Except as provided in this Section. the moneys set aside and placed in the Project Fund shall remain therein until expended from time to time for the purpose of paying any portion of the costs of the Redevelopment Project. and other costs related thereto. which other costs may include. but are not limited to. (a) the cost of improvements and other costs which may not benefit the Redevelopment Project exclusively but which are necessary to the redevelopment of the Project Area and the disposition of land therein: (b) the repayment of any advances made by the City for the Redevelopment Project: and (c) to the extent not paid from the Costs of Issuance Fund. the necessary expenses in connection with the issuance and sale of the Bonds. Before any payment of money is made from the Project Fund. the Agency shall file with the Trustee a Request of the Agency showing with respect to each payment of money to be made: (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. Trustee: Each such Request of the Agency shall state and shall be sufficient evidence to the P6402.1055\881916. i 8 (i) that an obligation in the stated amount has been properly incurred under and pursuant to this Loan Agreement and that such obligation is a proper charge against the Project Fund: and (ii) that there has not been filed Nyith or served upon the Agency a stop notice or any other notice of any lien. right to lien or attachment upon. or claim affecting the right to receive payment of. an of the money payable to the person named in such Request of the Agency Nvhich has not been released or \\ill not be released simultaneously Nyith the payment of such obligation. other than liens accruing by mere operation of law. Upon receipt of each such Request of the Agency. the Trustee shall pay the amount set forth in such Request of the Agency as directed by the terms thereof within three Business Days. If any moneys deposited in the Project Fund remain therein after the full accomplishment of the objects and purposes for which the Loan was made. said moneys shall be transferred to the Special Fund. Section 2.8. Parity Debt. From time to time. the Agency may issue or incur additional Parity Debt in such principal amount as shall be determined by the Agency. subject to the following specific conditions which are hereby made conditions precedent to the issuance and delivery of such Parity Debt issued under this Section 2.8: (a) No Event of Default shall have occurred and be continuing. and the Agency shall othenvise be in compliance with all covenants set forth in this Loan Agreement. (b) (i) The amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Agency. based on assessed valuation of property in the Project Area as evidenced in the Nvritten records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to 100 percent of the Maximum Combined Annual Debt Service effective after the issuance of the proposed Parity Debt: and (ii) the amount of Subordinate Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Agency. based on assessed valuation of property in the Project Area as evidenced in the «rittcn records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to 110 percent of the Maximum Annual Debt Service effective after the issuance of the proposed Parity Debt. (c) The related Parity Debt Instrument shall provide that the balance of the Reserve Fund shall be increased to the new Reserve Requirement effective after the incurrence of such Parity Debt. (d) The related Parity Debt Instrument shall provide that: (I) With respect to any Parity Debt which bears current interest. interest on such Parity Debt shall not be payable on a date other than February I and August I of any year. and (2) The principal of such Parity Debt shall not be payable on any date other than the date on which principal of the Loan is payable. (c) The issuance of such Parity Debt shall not cause the Agency to exceed any applicable Plan Limitations. (f) The Agency shall deliver to the Trustee a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in Paragraphs (a) through (c) above P6402.10ii\881916. i 9 have been satisfied. The Agency shall also furnish a cope of an Independent Redevelopment Consultants report evidencing compliance with the condition set forth in Paragraph (b). Section 2.9. Issuance of Additional Senior Debt. From time to time. the Agency may issue or incur additional Senior Debt in such principal amount as shall be determined by the Agency. but solely if the following conditions are satisfied: (a) The incurrence of such proposed Senior Debt shall not cause the Agency to be in violation of anv Senior Debt Instrument. (b) The Agency shall have filed with the Trustee a report of an Independent consultant which shows that - (I) The amount of Tax Revenues for the then current Fiscal Year. based on assessed valuation of property in the Project Area as evidenced in the written records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to percent of the Maximum Combined Annual Debt Service effective after the issuance of the proposed Senior Debt: (2) So long as the Series 2006C Bonds shall remain outstanding. projected Subordinate Tax Revenues for each Fiscal Year shall be at least equal to 100 percent of the scheduled debt service for the Loan and an outstanding Parity Debt for such Fiscal Year: and (3) The projected Tax Revenues available to be received by the Agency under the Plan Limitations in each upcoming Fiscal Year will be at least I I0 percent of aggregate remaining debt service on the Loan and all outstanding Parity Debt and Senior Debt. Section 2.10. Issuance of Subordinate Debt. From time to time the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency. provided that the issuance of such Subordinate Debt shall not cause the Agency to exceed any applicable Plan Limitations. Section 2. I I . Validity of Loan. The validity of the Loan shall not be dependent upon the completion of the Redevelopment Project or upon the performance by any person of any obligation with respect to the Redevelopment Project. ARTICLE III PLEDGE AND APPLICATION OF SUBORDINATE TAX REVENUES Section 3. I . Pledtze of Subordinate Tax Revenues. The Loan and all Parity Debt shall be equally secured by a first pledge of and lien on all of the Subordinate Tax Revenues and all of the moneys on deposit in the Special Fund to the extent that such moneys are not required to pay Senior Debt Service. without preference or priority for series. issue. number. dated date. sale date. date of execution or date of delivery. Except for the Subordinate Tax Revenues and other funds pledged hereunder. no funds or properties of the Agency shall be pledged to. or othenyise liable for. the payment of principal of or interest on or prepayment premium. if any. on the Loan. Section 3.2. Special Fund: Deposit of Subordinate Tax Revenues. The Agency has heretofore established a special fund known as the "Special Fund." which is and shall continue to be held by the Agency as a separate fund apart from all other funds and accounts of the Agency. The Agency shall deposit all Tax Revenues in the Special Fund promptly upon the receipt thereof. Except as may be othenyise provided in any Senior Debt Instrument or Parity Debt Instrument. any Subordinate Tax P64U2. I 05 5\xx 1 9 16.; 10 Revenues received during the Bond Year in excess of amounts required to be transferred to the Trustee pursuant to Section 3.3 shall be released from the pledge and Tien hereunder and may be used for any lawful purposes of the Agency. Prior to the payment in full of the principal of and interest and prepayment premium. if any. on all Senior Debt. the Loan and all Parity Debt and the payment in full of all other amounts payable under any Senior Debt Instrument. this Loan Agreement and 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 any Senior Debt Instrument. this Loan Agreement and any Parity Debt Instrument. and such moneys shall be used and applied as set forth herein and therein. Section 3.3. Transfer of Subordinate Tax Revenues From Special Fund. The Agency shall Nvithdraw Subordinate Tax Revenues to make transfers. as required to be made pursuant to any Parity Debt Instrument and to the Trustee the following amounts at the following times and in the following order of priority: (a) Interest and Principal Deposits. No later than the fifth Business Day preceding each date on which an installment on the Loan (in accordance with Exhibit A) or the principal of or interest on any Parity Debt shall become due and payable. including but not limited to the installment of the Loan to be prepaid hereunder together with any prepayment premium thereon (provided that the transfers from the Special Fund for payment of principal. interest. prepayment premium. and replenishment of reserve fund. if any. with respect to all Senior Debt shall have been made pursuant to the Senior Debt Instruments). the Agency shall Nvithdraw from the Special Fund and transfer to the Trustee an amount which. together with the amounts then held on deposit in the Principal Account and the Rcycnuc Fund. is equal to the aggregate amount of the installment of the Loan (in accordance with Exhibit A). the principal of and interest on the Parity Debt and prepayment premium with respect to the Loan and the Parity Debt coming due. (b) Reserve Fund Deposits. In the event that the Trustee shall notify the Agency pursuant to Section 2.5 that the amount on deposit in the Reserve Fund is Tess than the Reserve Requirement. the Agency shall immediately Nvithdraw from the Special Fund and transfer to the Tnistcc for deposit in the Reserve Fund an amount of money necessary to maintain the Reserve Requirement in the Reserve Fund (including repayment of any draw made under a Qualified Reserve Fund Credit Instrument prior to replenishing any cash in the Reserve Fund). (c) Surplus. Except as may be otherwise provided in any Senior Debt Instrument or any Parity Debt Instrument. the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Subordinate Tax Revenues which. together with other available amounts in the Special Fund. exceeds the amounts required in such Bond Year pursuant to this Section 3.3. All Subordinate Tax Revenues which are received by the Agency during any Bond Year in excess of the amounts required to be deposited in the Special Fund in such Bond Year pursuant to the Senior Debt Instruments. this Loan Agreement and Parity Debt Instruments shall be released from the pledge thereof and Tien thereon which is established pursuant hereto. In the event that for any reason Nvhatsoever any amounts shall remain on deposit in the Special Fund on any August 2 after making all of the transfers theretofore required to be made pursuant to the preceding Paragraphs (a) and (b) and pursuant to any Senior Debt Instrument or Parity Debt Instrument. the Agency may Nvithdraw such amounts from the Special Fund. to be used for any lawful purposes of the Agency. including but not limited to the payment of any Subordinate Debt or the payment of any amounts due and owing to the United States pursuant to Section 4.1 I . Section 3.4. Investment of Moneys: Valuation of Investments. Subject to Section 4.03 of the Indenture. all moneys in the Special Fund. the Project Fund. the Reserve Fund and the Costs of Issuance Fund shall be invested in Permitted Investments. Absent any prior «ritten instruction from the Agency or the Authority. moneys in any fund held by the Trustee hereunder or under the Indenture shall P64U2. I 05 5\xx 1 9 16.; 11 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 w ith any other amounts held by the Agency or the Trustee for purposes of making any investment. provided that the Agency and the Trustee shall maintain separate accounting procedures for the investment of all funds and accounts held hereunder. All interest. profits and other income received from the investment of moneys in any fund or account established hereunder shall be credited to such fund or account. Notwithstanding anything to the contrary contained in this Section. an amount of interest received with respect to any investment equal to the amount of accrued interest. if any. paid as part of the purchase price of such investment shall be credited to the fund or account from wvhich such accrued interest was paid. For the purpose of determining the amount in any fund or account established hereunder. any investments credited to such fund shall be valued at least annually at the market value thereof. ARTICLE IV OTHER COVENANTS OF THE AGENCY Section 4. I. Punctual Payment: Extension of Payments. The Agency shall punctually pay or cause to be paid the installments and prepayment premium. if any. on the Loan 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 or prepayment premium. if any. on the Loan. and in case the installment or premium. if any. on the Loan or the time of payment of any such claims therefor shall be extended. such principal. interest. premium or claims for interest shall not be entitled. in case of any Event of Default hereunder. to the benefits of this Loan Agreement except for payment of all amounts which shall not have been so extended. Section 4.2. Limitation on Additional Indebtedness. The Agency hereby covenants that it shall not issue any bonds. notes or other obligations. enter into any agreement or otherwise incur any indebtedness. which is in any case payable from all or any part of the Tax Revenues. excepting only the Loan. any Parity Debt. any Senior Debt and any Subordinate Debt. and any other obligations permitted by this Loan Agreement. Section 4.3. Payment of Claims. The Agency shall pay and discharge. or cause to be paid and discharged. any and all lawful claims for labor. materials or supplies which. if unpaid. might become a lien or charge upon the properties owned by the Agency or upon the Tax Revenues or any part thereof. or upon any funds in the hands of the Trustee. or which might impair the security of the Loan. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims. Section 4.4. Books and Accounts: Financial Statements. The Agency shall keep. or cause to be kept. proper books of record and accounts. separate from all other records and accounts of the Agency and the City. in wvhich 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 Tess than ten percent in aggregate Principal Amount of a series of Bonds then Outstanding. or their representatives authorized in writing. P64U2. I 05 5\xx 1 9 16.; 12 The Agency \VIII cause to be prepared annually. Nyithin 180 days after the close of each Fiscal Year so Tong as any of the Bonds are Outstanding. complete audited financial statements Nyith respect to such Fiscal Year showing the Tax Reyenucs. all disbursements from the Special Fund and the Redevelopment Fund and the financial condition of the Redevelopment Project. including the balances in all funds and accounts relating to the Redevelopment Project. as of the end of such Fiscal Year. The Agency Nvill furnish a copy of such statements. upon reasonable request. to any Owner. Section 4.5. Protection of Security and Rights. The Agency \VIII preserve and protect the security of the Loan and the rights of the Trustee and the Owners Nyith respect to the Loan. From and after the Closing Date. the Loan shall be incontestable bv the Agency. The Loan and the provisions of this Loan Agreement arc and \VIII be the legal. valid and binding special obligations of the Agency enforceable in accordance Nyith their terms. and the Agency shall at all times. to the extent permitted bv lacy. defend. preserve and protect all the rights of the Authority. the Trustee and the Owners under this Loan Agreement against all claims and demands of all persons Nyhomsoeyer. The Agency's obligations to the Trustee under this Section 4.5 shall survive the payment of the Bonds and the discharge of the Indenture. the removal or resignation of the Trustee pursuant to the Indenture or the payment of the Loan and the discharge of this Loan Agreement. Section 4.6. Payments of Taxes and Other Charges. The Agency Nyill pay and discharge. or cause to be paid and discharged. all taxes. service charges. assessments and other governmental charges \yhich may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area Nyhen 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 \yiII duly observe and comply with all valid requirements of any governmental authority relative to the Redevelopment Project or anv part thereof. Section 4.7. Taxation of Leased Property. All ad valorem property taxes derived by the Agency pursuant to Section 33673 of the Redevelopment Law 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 4.8. Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Project Area to anyone which \yiII result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of this Loan Agreement) so that such disposition shall. Nyhen taken together 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. If the Agency proposes to participate in such a disposition. it shall thereupon appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the Report of the Independent Redevelopment Consultant concludes that the security of the Loan or the rights of the Authority. the Owners and the Trustee hereunder \yiII not be materially impaired by said proposed disposition. the Agency may thereafter make such disposition. If such Report concludes that such security Nyill be materially impaired by such proposed disposition. the Agency shall disapprove said proposed disposition. Section 4.9. Maintenance of Tax Revenues. The Agency shall comply 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 anv agreement with the County or anv other P6402. I 05 5\881 9 16.3 13 governmental unit. Nyhich Nvould have the effect of reducing the amount of Subordinate Tax Revenues available to the Agency for payment of the Loan. unless the Agency shall first obtain (i) the Report of an Independent Redevelopment Consultant stating that the amount of Tax Revenues for the then current Fiscal Year (calculated on the assumption that such reduction of Tax Revenues was in effect throughout such Fiscal Year). plus at the option of the Agency the Additional Revenues. shall meet the coverage test set forth in Section 2.8. and (ii) as long as the Insurance Policy is then in full force and effect. the Nvritten consent of the Insurer. Nothing herein is intended or shall be construed in any Nvay to prohibit or impose any limitations on the entering into by the Agency of any such agreement. amendment or supplement Nyhich by its term is subordinate to the payment of the Loan and all Parity Debt. Section 4. ID. Payment of Expenses: Indemnification. The Agency shall pay to the Trustee from time to time all compensation for all services rendered under this Loan Agreement and the Indenture. including but not limited to all reasonable expenses. charges. legal and consulting fees and other disbursements and those of its attorneys. agents and employees. incurred in and about the performance of its powers and duties hereunder and thereunder. Upon the occurrence of an Event of Default. the Trustcc shall have a first Tien on the funds held by it under the Indenture to secure the payment to the Trustee of all fees. costs and expenses. including reasonable compensation to its experts. attorneys and counsel (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel) incurred in performing its duties under the Indenture and this Loan Agreement. The Agency further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any losses. expenses and liabilities Nyhich it may incur arising out of or in the exercise and performance of its powers and duties in accordance Nyith the Indenture and this Loan Agreement. including the costs and expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities Nyhich are due to the negligence or intentional misconduct of the Trustee. its officers. directors. agents or employees. The obligations of the Agency under this paragraph shall survive the resignation or removal of the Trustee under the Indenture. this Loan Agreement and payment of the Loan and the discharge of this Loan Agreement. Section 4. I I. Tax Covenants. To the extent that bond counsel renders an opinion that interest on the Bonds (or any of them) is tax-exempt under federal tax law: (a) The Agency covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the portion of the Accreted Value of the Bonds Nyhich constitute interest thereon. and for no other purpose. the Agency Nvill satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Agency agrees to comply Nyith such «rittcn instructions as may be provided by Bond Counsel. (b) The Agency covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nvould cause the Bonds to become arbitrage bonds as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nyith the rebate requirements of Section 148 of the Code. the Agency further covenants that it Nvill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section I48(f) of the Code. and that it Nvill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nyith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. P64U2. I 05 5\881 9 16.; 14 (c) The Agency covenants that it Nvill not take any action or omit to take any action. \yhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nvould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. (d) The Agency covenants that it Nvill not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as Nvould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. (c) Except as provided below. the Agency covenants that none of the moneys contained in any of the funds or accounts Nyith respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) othenvise invested directly or indirectly in obligations guaranteed (in NyhoIe or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Revenue Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 I I (a) of the Financial Institutions Reform. Recover'. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under the Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 4.12. Redevelopment of Proiect Area. The Agency shall ensure that all activities undertaken by the Agency Nyith respect to the redevelopment of the Project Area are undertaken and accomplished in conformity Nyith all applicable requirements of the Redevelopment Plan and the Redevelopment Lary. The Agency shall manage and operate all properties oNyned by the Agency and comprising any part of the Redevelopment Project in a sound and business -like manner and in conformity ith all valid requirements of any governmental authority. and Nyill keep such properties insured at all times in conformity Nyith sound business practice. Section 4.1 3. Low and Moderate Income Housing Fund. The Agency covenants and agrees to use the moneys in the Low and Moderate Income Housing Fund in accordance Nyith Sections 33334.2 and 33334.3 of the Redevelopment Law. and further covenants and agrees to disburse. expend or encumber any "excess surplus" (as defined in Section 33334.12 of the Redevelopment Lary) in the Low and Moderate Income Housing Fund at such times and in such manner that the Agency shall not be subject to sanctions pursuant to subdivision (c) of said Section 3334.12. Section 4.14. Annual Review of Tax Revenues. The Agency hereby covenants that it Nyill annually cause an Independent Redevelopment Consultant to review the total amount of Tax Revenues remaining available to be received by the Agency under the Redevelopment Plans cumulative tax increment limitation. as \yell as future cumulative annual debt service Nyith respect to all Senior Debt. the Loan and all Parity Debt. Subject to any limitations set forth in the Senior Debt Instruments. the Agency II not accept Tax Revenues greater than such annual debt service in any year. if such acceptance \\ill cause the amount remaining under the tax increment limit to fall below remaining cumulative annual debt service Nyith respect to all Senior Debt. the Loan and all Parity Debt. except for the purpose of depositing P6402.1 c 1.5.5\881916. 3 15 such revenues in escrow for the payment of such debt service or for the prepayment or redemption of an Senior Debt. the Loan and any Parity Debt. Section 4. 15. Further Assurances. The Agency NViII adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Loan Agreement and for the better assuring and confirming unto the Trustee. the Authority and the Owners of the Bonds of the rights and benefits provided in this Loan Agreement. ARTICLE V EVENTS OF DEFAULT AND REMEDIES Section 5. I. Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default hereunder: (a) Failure by the Agency to pay the principal of or interest or prepayment premium. if any. on the Loan. any Parity Debt or Senior Debt when and as the same shall become due and payable. (b) Failure by the Agency to observe and perform any of the covenants. agreements or conditions on its part contained in this Loan Agreement. other than as referred to in the preceding Paragraph (a). for a period of 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 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 Loan (in the amount equal to the corresponding Principal Amount of the Bonds being declared due and payable under the Indenture) to be due and payable immediately. and upon any such declaration the same shall become immediately due and payable. anything in this Loan Agreement to the contrary notwithstanding. and (ii) subject to the receipt of indemnity as provided in the Indenture. exercise 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 Loan shall have been so declared due and payable. and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the Agency shall deposit with the Trustee a sum sufficient to pay all unpaid installments of the Loan matured prior to such declaration (such sum being equal to the Accreted Value. calculated to but not including the date of payment by the Agency to the Trustee. of the corresponding portion of the Outstanding Bonds that matured prior to such declaration). and the reasonable expenses of the Trustee P64U2.I055\xx1916.; 16 (including but not limited to attorneys fees). and any and all other defaults known to the Trustee (other than in the payment of the installments of the Loan due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in every such case. the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds may. by Nvritten notice to the Trustee and the Agency. rescind and annul such declaration and its consequences. However. no such rescission and annulment shall extend to or shall affect any subsequent default. or shall impair or exhaust any right or power consequent thereon. Section 5.2. Application of Funds Upon Default. Subject to the payment of funds with respect to the Senior Debt under the Senior Debt Instruments. all amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Loan Agreement. shall be applied by the Trustee in the following order: First. to the payment of the fees. costs and expenses of the Trustee. including reasonable compensation to its agents. attorneys and counsel (including the allocated costs and disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and Second. to the payment of the installments of the Loan then due and unpaid (being equal to the Accreted Value of the Bonds declared due and payable calculated to but not including the date of payment by the Authority or the Agency to the Trustee. to the extent permitted by lacy): provided. however. that in the event such amounts shall be insufficient to pay the full amount. then such amounts shall be applied to the payment of all installments of the Loan then due and payable on a pro rata basis. Section 5.3. No Waiver. Nothing in this Article V or in any other provision of this Loan Agreement. shall affect or impair the obligation of the Agency. which is absolute and unconditional. to pay from the Subordinate Tax Revenues and other amounts pledged hereunder. the installments and premium. if any. on the Loan to the Trustee Nyhen due. as herein provided. or affect or impair the right of action. which is also absolute and unconditional. of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in this Loan Agreement. A Nyaiyer of any default by the Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a Nyaiyer of any such default or an acquiescence therein. and every power and remedy conferred upon the Trustee by the Redevelopment Law or by this Article V may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee. If a suit. action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Trustee. the Agency. the Authority and the Trustee shall be restored to their former positions. rights and remedies as if such suit. action or proceeding had not been brought or taken. Section 5.4. Agreement to Pay Attorneys" Fees and Expenses. In the event the Agency or the Authority should default under any of the provisions hereof and the nondefaulting party or the Trustee should employ attorneys or incur other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained. the defaulting party agrees that it NyiII on demand therefor pay to the nondcfaulting party or the Trustee. as the case may be. the reasonable fees of such attorneys and such other expenses so incurred P64U2. I 05 5\xx 1 9 16.; 17 (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). Section 5.5. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustcc is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing. at lacy or in equity or by statute or otherwise. and may be exercised \wthout exhausting and \wthout regard to any other remedy conferred by the Redevelopment Law or any other lacy. Section 5.6. Control of Remedies by Insurer . Notwithstanding the provisions of Section 5. I and subject to any rights heretofore granted by the Authority or the Agency to any insurer of Parity Debt. as long as Insurance Policy is in full force and effect and the Insurer has not defaulted with respect to its payment obligations thereunder. upon the occurrence and continuance of an Event of Default. the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Owners or the Trustee for the benefit of the Owners under this Loan Agreement. Any acceleration of the Loan or annulment thereof pursuant to Section 5. I shall be subject to the prior \yritten consent of the Insurer. No \yaiyer of a default shall be effective without the «rittcn consent of the Insurer. ARTICLE VI MISCELLANEOUS Section 6. I. Benefits Limited to Parties. Nothing in this Loan Agreement. expressed or implied. is intended to give to any person other than the Agency. the Tnistcc. the Insurer and the Authority. any right. remedy or claim under or by reason of this Loan Agreement. All covenants. stipulations. promises or agreements in this Loan Agreement contained by and on behalf of the Agency shall be for the sole and exclusive benefit of the Authority. the Trustee acting as trustee for the benefit of the Owners of the Bonds. and the Insurer so Tong as the Insurance Policy remains in full force and effect. Section 6.2. Successor is Deemed Included in All References to Predecessor. Whenever in this Loan Agreement. the Agency. the Authority. the Trustee or the Insurer is named or referred to. such reference shall be deemed to include the successors or assigns thereof. and all the covenants and agreements in this Loan Agreement contained by or on behalf of the Agency. the Authority. the Trustee or the Insurer shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 6.3. Discharze of Loan Agreement. If the Agency shall pay and discharge the indebtedness on the Loan or any portion thereof in any one or more of the following \Nays: (a) by \yell and truly paying or causing to be paid the principal of and interest and prepayment premiums. if any. on the Loan or such portion thereof. as and \yhen the same become due and payable: (b) by irrevocably depositing with the Trustee. in trust. at or before maturity. cash in an amount which. together with the available amounts then on deposit in any of the funds and accounts established pursuant to the Indenture or this Loan Agreement. in the opinion or report of an Independent Accountant is fully sufficient to pay all principal of and interest and prepayment premiums. if any. on the Loan or such portion thereof: or (c) by irrevocably depositing with the Trustee or any other fiduciary. in trust. non - callable Defeasance Obligations in such amount as an Independent Accountant shall determine \yiII. P64U2. I 05 5\xx 1 9 16.; 18 together Nyith the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or this Loan Agreement. be fully sufficient to pay and discharge the indebtedness on the Loan or such portion thereof (including all principal. interest and prepayment premiums) at or before maturity: then. at the election of the Agency but only if all other amounts then due and payable hereunder shall have been paid or provision for their payment made. the pledge of and Tien upon the Subordinate Tax Revenues and other funds provided for in this Loan Agreement and all other obligations of the Trustee. the Authority and the Agency under this Loan Agreement Nyith respect to the Loan or such portion thereof shall cease and terminate. except only the obligation of the Agency to pay or cause to be paid to the Trustee. from the amounts so deposited Nyith the Trustee or such other fiduciary. all sums due Nyith respect to the Loan or such portion thereof. and to pay all expenses and costs of the Trustee when and as such expenses and costs become due and payable. Notice of such election shall be filed Nyith the Authority and the Trustee. Any funds thereafter held by the Trustee hereunder. Nyhich are not required for said purpose. shall be paid over to the Agency. Section 6.4. Amendment. This Loan Agreement may be amended by the parties hereto but only under the circumstances set forth in. and in accordance Nyith. the provisions of Section 5.08 of the Indenture. The Authority and the Trustee covenant that the Indenture shall not be amended. nor shall the Authority agree or consent to any amendment of the Indenture. Nyithout the prior Nvritten consent of the Agency (except that such consent shall not be required in the event that an Event of Default shall have occurred and be continuing hereunder). Section 6.5. Waiver of Personal Liability. No member. officer. agent or employee of the Agency shall be individually or personally liable for the repayment of the Loan: but nothing herein contained shall relieve any such member. officer. agent or employee from the performance of any official duty provided by law. Section 6.6. Payment on Business Days. Whenever in this Loan Agreement any amount is required to be paid on a day Nyhich is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest on such payment shall not accrue from and after such day. Section 6.7. Notices. Any notice. request. complaint. demand or other communication under this Loan Agreement shall be given in the same manner as provided in Section I I. 13 of the Indenture. which is hereby incorporated. Section 6.8. Partial Invalidity . If any Section. paragraph. sentence. clause or phrase of this Loan Agreement shall for any reason be held illegal. invalid or unenforceable. such holding shall not affect the validity of the remaining portions of this Loan Agreement. The Agency hereby declares that it would have adopted this Loan Agreement and each and every other Section. paragraph. sentence. clause or phrase hereof and authorized the Loan irrespective of the fact that any one or more Sections. paragraphs. sentences. clauses. or phrases of this Loan Agreement may be held illegal. invalid or unenforceable. Section 6.9. Article and Section Headings and References. The headings or titles of the several Articles and Sections hereof. and any table of contents appended to copies hereof. shall be solely for convenience of reference and shall not affect the meaning. construction or effect of this Loan Agreement. All references herein to "Articles." "Sections" and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement: the words "herein. "hereof. "hereby. "hereunder- and other words of similar import refer to this Loan Agreement as a Nvhole and not P64U2. I 05 5\881 9 16.; 19 to any particular Article. Section or subdivision hereof: and words of the masculine gender shall mean and include words of the feminine and neuter genders. Section 6.10. Execution of Counterparts. This Loan Agrccmcnt may be executed in any number of counterparts. each of which shall for all purposes be deemed to be an original and all of which shall together constitute but one and the same instrument. Section 6. I I. Governing, Law. This Loan Agreement shall be construed and governed in accordance with the laws of the State. Section 6.12. 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. 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 P64U2. I 05 5\xx 1 9 16.; 20 EXHIBIT A SCHEDULE OF LOAN PAYMENTS Date Total Pa\ meat * Payable on the fifth Business Day preceding each August 1st P6402.1055\881916. i A-1 ESCROW AGREEMENT (PROJECT AREA NO. 2) by and among PALM DESERT FINANCING AUTHORITY and PALM DESERT REDEVELOPMENT AGENCY and WELLS, FARGO BANK, N.A. as Escrow Agent Dated as of July 1, 2006 Relating to the Refunding of Palm Desert Financing Authority Tax Allocation Refunding Revenue Bonds (Project Area No. 2) Series 1995 P6402.1055\882127.3 RWG DRAFT: 5/22/2006 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 4 Section 7. Verification 4 Section 8. Compliance with Agreement 4 Section 9. Tax Covenant 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 6 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 9 Section 20. Governing Law 9 Section 21. Severability 9 Section 22. Counterparts 9 SCHEDULE A SCHEDULE B EXHIBIT A P6402. 1055\882127.3 REFUNDING REQUIREMENTS ESCROW SECURITIES FORM OF DEFEASANCE NOTICE ESCROW AGREEMENT (Project Area No. 2) This Escrow Agreement (Project Area No. 2) (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. 2), Series 1995, of which $3,870,000 in principal amount remain outstanding (the "Prior Bonds"), pursuant to the Indenture of Trust, dated as of June 1, 1995 (the "Prior Indenture"), by and between the Authority and Bank of America National Trust and Savings Association, as succeeded by Wells Fargo Bank, National Association, as trustee (the "Prior Bonds Trustee"). B. The Prior Bonds were 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. 2), dated as of June 1, 1995 (the "Prior Loan Agreement"), by and among the Agency, the Authority and the Prior Bonds Trustee. C. The Agency and the Authority have determined that, by refunding the Prior Bonds, costs to the Agency and the Authority will be reduced. D. The Authority has determined to issue its Tax Allocation Refunding Revenue Bonds (Project Area No. 2) 2006 Series A (the "Series 2006A Bonds"), pursuant to the Indenture of Trust, dated as of even date herewith (the "2006 Indenture"), by and between the Authority and Wells Fargo Bank, National Association, as trustee (together with any successors and assigns, the "2006 Trustee"). E. A portion of the proceeds from the sale of the Series 2006A Bonds will be used to make a loan (the "Series 2006A Loan") to the Agency pursuant to the Loan Agreement (2006 Senior Loans), dated as of event date herewith (the "2006 Loan Agreement") (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. P6402.1055\882127.3 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 Prior Bonds, the principal and interest and premium, if any, to become due thereon, then with respect to such Prior Bonds the lien of the Prior Indenture will thereupon cease, terminate and become void and be discharged and satisfied. H. 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: "Code" means the Internal Revenue Code of 1986, as amended. "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, interest and the redemption premium 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. P6402.1055\882127.3 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 a portion of the sale proceeds of the Series 2006A Bonds, in the amount of $ , to be transferred to the Escrow Agent, for deposit in the Escrow Fund. 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, premium and/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 nationally recognized bond counsel to the effect that (i) such disposition and substitution would not cause any of the Prior Bonds or the Series 2006A Bonds to be an "arbitrage bond" within the meaning of Section 148 of the Code and the regulations thereunder in effect on the date of such disposition and substitution and applicable to obligations issued on the respective issue dates of the Prior Bonds and the Series 2006A Bonds, such disposition or substitution would not be inconsistent with the tax covenants of the Authority and the Agency contained in the 2006 Indenture and the 2006 Loan Agreement and that the conditions of this Section as to the disposition and substitution have been satisfied and (ii) 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. P6402.1055\882127.3 3 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 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 Grant Thornton LLP, 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, interest and redemption premium 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 Authority and the Agency hereby covenant that no part of the proceeds of the Series 2006A Loan 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 permitted by Sections 5 and 6, sell, transfer or otherwise dispose of the Escrow Securities, except that the Escrow Agent may effectuate the transfer of such Escrow Securities to a successor escrow agent in accordance with the provisions of Section 15 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, to the registered owners of the Prior Bonds, the Securities Depositories and to one P6402.1055\882127.3 4 or more Information Services (as defined in the Prior Indenture) in the form and manner prescribed by Section 2.02(e) of the Prior Indenture. The Escrow Agent shall 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) the Prior Loan will no longer be deemed to be outstanding and unpaid 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 the 2006 Loan Agreement 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; (d) To conform the Escrow Agreement to the provisions of any law or regulations governing the tax-exempt status of the Prior Bonds and the Series 2006A Bonds in order maintain their tax-exempt status; and (e) 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 unqualified opinion of nationally recognized bond counsel with respect to compliance with this Section, including the extent, if any, to which any change, modification or addition affects the rights of P6402.1055\882127.3 5 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 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 P6402.1055\882127.3 6 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 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 P6402.1055\882127.3 7 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 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. P6402. 1055\882127.3 8 Section 19. Termination. This Agreement shall terminate when moneys have 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. P6402.1055\882127.3 9 (l;scro►r Deposit and 1rusi 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. P6402.1055\882127.3 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 August 1, 2006 $3,870,000 $ $ $ * Consists of the following Prior Bonds to be paid or optionally redeemed on August I. 2006: Maturity Date Interest Redemption (August I) Principal Rate Price 2024 $ 80.000** 5.950% 100% 2024 2.410.000 5.950 101 2025 1.380.000 6.250 101 $ 3.870.000 ** scheduled 2006 mandatory sinking fund redemption P64U2. I O55\882127.3 Schedule A-1 P6402. 1055\882127.3 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 Refunding Revenue Bonds (Project Area No. 2) Series 1995 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 June 1, 1995 (the "Indenture"), pertaining to the above -captioned Bonds, the lien of such Indenture has been discharged through the irrevocable deposit in escrow of cash and Federal Securities. P6402. 1055\882127.3 DATED this day of , 2006 WELLS FARGO BANK, NATIONAL ASSOCIATION, as Escrow Agent Exhibit A Jones Hall Draft 5/22/06 PRELIMINARY OFFICIAL STATEMENT DATED , 2006 NEW ISSUE Senior Bonds Ratings (_ Insured): Moody's: FULL BOOK ENTRY S&P: (See "RATINGS" herein) In the opinion of Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, Bond Counsel, under existing law, the interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the tax covenants described herein, interest on the Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986, as amended, from the gross income of the owners thereof for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax. See, however, "CONCLUDING INFORMATION — Tax -Exempt Status of the Bonds" herein regarding certain other tax considerations. PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 2) 2006 SERIES A PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2) 2006 SERIES B PALM DESERT FINANCING AUTHORITY SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2) 2006 SERIES D $ PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 2) 2006 SERIES C Dated: Date of Delivery Due: August 1, as shown on the inside cover hereof The captioned bonds (the "Series 2006A Bonds", the "Series 2006B Bonds", and the "Series 2006C Bonds", and collectively, the "Senior Bonds") will be issued by the Palm Desert Financing Authority (the "Authority") under an Indenture of Trust, dated as of July 1, 2006 (the "Senior Indenture"), by and between the Authority and Wells Fargo Bank, National Association, Los Angeles, California as trustee for the Bonds (the "Trustee"). The captioned Series 2006D Bonds (the "Subordinate Bonds", and together with the Senior Bonds, the "Bonds") will be issued by the Authority under an Indenture of Trust, dated as of July 1, 2006 (the "Subordinate Indenture"), by and between the Authority and the Trustee. The proceeds of the Senior Bonds will be used to make three loans (together, the "Senior Loans") to the Palm Desert Redevelopment Agency (the "Agency") pursuant to a loan agreement, dated as of July 1, 2006 (the "Senior Loan Agreement") by and among the Authority, the Agency and the Trustee. The proceeds of the Subordinate Bonds will be used to make a loan (the "Subordinate Loan", and together with the Senior Loan, the "Loans") to the Agency pursuant to a loan agreement, dated as of July 1, 2006 (the "Subordinate Loan Agreement") by and among the Authority, the Agency and the Trustee. The Agency will use proceeds of the Loans to (i) refinance the Agency's obligations under a loan agreement entered into in 1995, (ii) finance certain redevelopment activities within or of benefit to its Project Area No. 2 (the "Project Area"), (iii) make a deposit into a special escrow fund to be released to the Agency if and when certain conditions are met, and (iv) pay costs of issuance of the Bonds. The Series 2006A Bonds and the Series 2006C Bonds are being issued as Current Interest Bonds. The Series 2006B Bonds and the Series 2006D Bonds are being issued as Capital Appreciation Bonds. The Current Interest Bonds will be issued as fully registered instruments without coupons, in the denomination of $5,000 or any integral multiple thereof, in book -entry form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). Interest on the Current Interest Bonds will be payable on August 1 and February 1 of each year (the "Interest Payment Dates"), commencing August 1, 2006. Purchasers will not receive physical certificates representing their interest in the Bonds. The Capital Appreciation Bonds are dated their date of delivery and accrete interest from such date, compounded semiannually on February 1 and August 1 of each year, commencing August 1, 2006. The Capital Appreciation Bonds will be issued in denominations of $5,000 Maturity Value or any integral multiple thereof. For so long as the Bonds are registered in the name of Cede & Co., all payments of principal and interest or Maturity Value on the Bonds will be made to DTC, which, in turn, is obligated to remit such principal and interest to DTC Participants (defined herein) for subsequent disbursement to the Beneficial Owners (defined herein) of the Bonds. See "THE BONDS — Book -Entry Only System" herein. The Bonds are subject to optional redemption and mandatory sinking fund redemption as described herein. The Series 2006C Bonds are also subject to extraordinary redemption from unreleased escrow funds, as described herein. The Senior Bonds are special obligations of the Authority payable from and secured by Revenues, as defined herein, consisting primarily of amounts payable by the Agency under the Senior Loan Agreements, and the Subordinate Bonds are special obligations of the Authority payable from and secured by Subordinate Revenues, as defined herein, consisting primarily of amounts payable by the Agency under the Subordinate Loan Agreement. The Senior Loan Agreement is secured by and payable from Tax Revenues, as defined herein, derived from the Project Area. The Subordinate Loan Agreement is secured by and payable from Subordinate Tax Revenues, as defined herein, which are Tax Revenues pledged on a subordinate basis to the Agency's obligations under loan agreements entered into in 2002 and 2003, the Senior Loan Agreement, and any future obligations secured on a parity to such loan agreements. The Agency may issue, pursuant to the terms of the Senior Loan Agreement and the Senior Indenture, additional obligations secured by Tax Revenues on a parity with the Senior Loan (the "Senior Parity Debt"), or, pursuant to the terms of the Subordinate Loan Agreement and the Subordinate Indenture, additional obligations secured by Subordinate Tax Revenues on a parity with the Subordinate Loan (the "Subordinate Parity Debt"), . See "SECURITY FOR THE BONDS" herein. Payment of the principal of and interest on the Senior Bonds when due will be insured by a municipal bond insurance policy to be issued by simultaneously with the delivery of the Senior Bonds. See "SENIOR BONDS MUNICIPAL BOND INSURANCE" herein. The Subordinate Bonds are not insured. [INSURER LOGO] The Bonds are not a debt of the City of Palm Desert (the "City") or of the State of California or any of its political subdivisions (other than the Authority), and are not a liability of the City, the State of California or any of its political subdivisions (other than the Authority). The Loans are not a debt of the Authority or of the State of California or any of its political subdivisions (other than the Agency), and neither the Authority nor the State of California nor any of its political subdivisions (other than the Agency) is liable therefor. Neither the Bonds nor the Loans constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. The members of the Authority, the Agency or any persons executing the Bonds or the Loan Agreements are not personally liable with respect to the Bonds or Loans. In no event will the obligations of the Agency under the Loan Agreements be payable out of any funds or properties of the Agency other than Tax Revenues or Subordinate Tax Revenues (as the case may be) set forth in the applicable Loan Agreement. The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to the approval as to legality by Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, Bond Counsel. Certain legal matters will be passed on for the Authority and the Agency by Jones Hall, A Professional Law Corporation, San Francisco, California, as Disclosure Counsel. It is anticipated that the Bonds will be available for delivery in New York, New York through the facilities of DTC on or about , 2006. CITIGROUP The date of this Official Statement is , 2006. *Preliminary, subject to change. $ $ $ $ * PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 2) 2006 SERIES A (CUSIP Base: ) Maturity Date Principal Interest (Auaust 11 Amount Rate Yield CUSIP % Term Bond due August 1, , Yield % (CUSIP: $ * PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2) 2006 SERIES B (CUSIP Base: ) Maturity Date Principal Interest (Auaust 11 Amount Rate Yield CUSIP % Term Bond due August 1, , Yield % (CUSIP: $ * PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 2) 2006 SERIES C (CUSIP Base: ) Maturity Date Principal Interest (Auaust 11 Amount Rate Yield CUSIP % Term Bond due August 1, , Yield % (CUSIP: $ * PALM DESERT FINANCING AUTHORITY SUBORDINATE TAX ALLOCATION REVENUE BONDS CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2) 2006 SERIES D (CUSIP Base: ) Maturity Date Principal Interest (Auaust 11 Amount Rate Yield CUSIP $ % Term Bond due August 1, , Yield % (CUSIP: ) PALM DESERT FINANCING AUTHORITY PALM DESERT REDEVELOPMENT AGENCY CITY OF PALM DESERT PALM DESERT FINANCING AUTHORITY COMMISSION MEMBERS AND STAFF James Ferguson, President Richard S. Kelly, Vice President Jean M. Benson, Commissioner Buford A. Crites, Commissioner Robert A. Spiegel, Commissioner Carlos L. Ortega, City Manager CITY COUNCIL/AGENCY MEMBERS James Ferguson, Mayor/Chairman Richard S. Kelly, Mayor Pro Tem/Vice Chairman Jean M. Benson, Councilmember/Member Buford A. Crites, Councilmember/Member Robert A. Spiegel, Councilmember/Member AGENCY STAFF Carlos L. Ortega, City Manager/Executive Director Stephen Aryan, Assistant to the City Manager Homer Croy, Assistant City Manager Development Services Justin McCarthy, Assistant City Manager/Redevelopment Sheila R. Gilligan, Assistant City Manager Community Services Paul S. Gibson, Finance Director/Treasurer David L. Yrigoyen, Director of Redevelopment/Housing Rachelle Klassen, City Clerk Arla K. Scott, Senior Financial Analyst Veronica Tapia, Redevelopment Accountant SPECIAL SERVICES Bond Counsel Richards, Watson & Gershon, A Professional Corporation Los Angeles, California Financial Advisor Del Rio Advisors, LLC Modesto, California Disclosure Counsel Jones Hall, A Professional Law Corporation San Francisco, California Fiscal Consultant Rosenow Spevacek Group Inc. Santa Ana, California Trustee Wells Fargo Bank, National Association Los Angeles, California GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Agency in any press release and in any oral statement made with the approval of an authorized officer of the Agency or any other entity described or referenced in this Official Statement, the words or phrases "will likely result," "are expected to", "will continue", "is anticipated", "estimate", "project," "forecast", "expect", "intend" and similar expressions identify "forward looking statements." Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward -looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. The information and expressions of opinion in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any subsequent sale under any circumstances, give rise to any implication that there has been no change in the affairs of the Authority or the Agency or any other entity described or referenced herein since the date of this Official Statement. The information and expressions of opinions in this Official Statement are subject to change without notice and neither delivery of this Official Statement nor any subsequent sale shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency any other entity described or referenced in this Official Statement since its date. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the Authority or the Agency to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained in this Official Statement and if given or made, such other information or representation must not be relied upon as having been authorized by the Authority, the Agency or the Underwriter. 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 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with 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 Underwriter does not guarantee the accuracy or completeness of such information. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. TABLE OF CONTENTS INTRODUCTION 2 PLAN OF FINANCE 5 SOURCES AND USES OF FUNDS 6 DEBT SERVICE SCHEDULES 8 THE BONDS 11 Description of the Bonds 11 Redemption of the Bonds 12 SENIOR BONDS MUNICIPAL BOND INSURANCE 15 SECURITY FOR THE BONDS 16 Revenues and Loan Agreement 16 Tax Allocation Financing 17 Allocation of Taxes 17 Tax Revenues and Subordinate Tax Revenues 18 Special Escrow Fund for Series 2006C Bonds 20 Pass -Through Agreements and Housing Set -Aside 21 Parity Debt and Existing Parity Lien 22 Issuance of Additional Parity Debt 22 Issuance of Additional Subordinate Debt 25 Reserve Funds 25 RISK FACTORS 26 Bonds Are Limited Obligations 26 Reduction of Tax Revenues 26 Reduction in Inflationary Rate 27 Concentration of Ownership 27 Assessment Appeals 27 Proposition 8 Adjustments 28 Subordinate Nature of Series 2006B Bonds28 No Rating of Series 2006B Bonds 28 Development Risks 29 Seismic Factors 29 Flood Risk Considerations 29 Levy and Collection 29 State Budget; ERAF Shift 30 Assumptions and Projections 30 Bankruptcy and Foreclosure 30 Loss of Tax Exemption on the Bonds 31 PROPERTY TAXATION IN CALIFORNIA 31 Constitutional Amendments Affecting Tax Revenues 31 APPENDIX A APPENDIX B APPENDIX C APPENDIX D - APPENDIX E - APPENDIX F - APPENDIX G - APPENDIX H - APPENDIX I - Implementing Legislation 32 Constitutional Challenges to Property Tax System 32 Property Tax Collection Procedures 33 Supplemental Assessments 33 Tax Collection Fees 33 Unitary Property Tax 34 Business Inventory and Replacement Revenue 34 Proposition 8 34 Future Initiatives 35 THE PROJECT AREA 35 Establishment of the Project Area 35 Limitations and Requirements of the Redevelopment Plan 36 SB211 37 SUBORDINATE TAX REVENUES 37 Pass -Through Agreements 38 Schedule of Historical Tax Revenues 38 Top Ten Taxpayers 41 Filing of Statement of Indebtedness 41 Housing Set -Aside Requirements 42 PALM DESERT FINANCING AUTHORITY 43 PALM DESERT REDEVELOPMENT AGENCY 43 Authority and Management 43 Agency Powers 45 Financial Information 46 Redevelopment Project Areas 46 Pass -Through Agreements 46 Regulatory Issues 46 VERIFICATION OF MATHEMATICAL COMPUTATIONS 46 CONCLUDING INFORMATION 47 Continuing Disclosure 47 Underwriting 47 Legal Opinion 47 Tax -Exempt Status of the Bonds 47 No Litigation 49 Ratings 49 Miscellaneous 50 FISCAL CONSULTANT'S REPORT FORM OF OPINION OF BOND COUNSEL AGENCY AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2005 CITY OF PALM DESERT GENERAL INFORMATION SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FORM OF MUNICIPAL BOND INSURANCE POLICY FOR SENIOR BONDS FORM OF CONTINUING DISCLOSURE AGREEMENT BOOK -ENTRY SYSTEM TABLES OF ACCRETED VALUES OFFICIAL STATEMENT $ $ $ PALM DESERT FINANCING AUTHORITY PALM DESERT FINANCING AUTHORITY PALM DESERT FINANCING AUTHORITY TAX ALLOCATION TAX ALLOCATION REVENUE CAPITAL TAX ALLOCATION REVENUE BONDS REFUNDING REVENUE BONDS APPRECIATION BONDS (PROJECT AREA NO. 2) (PROJECT AREA NO. 2) (PROJECT AREA NO. 2) 2006 SERIES C 2006 SERIES A 2006 SERIES B PALM DESERT FINANCING AUTHORITY SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 2) 2006 SERIES D This Official Statement, including the cover page, is provided to furnish information in connection with the sale by the Palm Desert Financing Authority (the "Authority") of: $ * aggregate principal amount of Palm Desert Financing Authority, Tax Allocation Refunding Revenue Bonds (Project Area No. 2) 2006 Series A (the "Series 2006A Bonds"), • $ * aggregate principal amount of Palm Desert Financing Authority, Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2) 2006 Series B (the "Series 2006B Bonds"), $ * aggregate principal amount of Palm Desert Financing Authority, Tax Allocation Revenue Bonds (Project Area No. 2) 2006 Series B (the "Series 2006C Bonds"), and $ * aggregate principal amount of Palm Desert Financing Authority, Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2) 2006 Series D (the "Series 2006D Bonds", or the "Subordinate Bonds"). *Preliminary, subject to change. The Series 2006A Bonds, the Series 2006B Bonds and the Series 2006C Bonds are collectively referred to as the "Senior Bonds". For the definitions of certain capitalized terms used and not otherwise defined, see "APPENDIX E — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS." Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so 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. Definitions of 1 certain terms used herein and not defined herein have the meaning set forth in the Indenture. See "APPENDIX E — Summary of Principal Legal Documents." INTRODUCTION This Introduction contains a brief summary of certain information contained in this Official Statement. It is not intended to be complete and is qualified by the more detailed information contained elsewhere in this Official Statement. Authorization. The Bonds will be issued under the provisions of the Marks -Roos Local Bond Pooling Act of 1985, constituting Article 4 of Chapter 5 of Division 7 of Title 1 (commencing with Section 6584) of the California Government Code (the "Bond Law"). The Bonds will be issued pursuant to an Indenture of Trust, dated as of July 1, 2006 (the "Indenture"), by and between the Authority and Wells Fargo Bank, National Association, as trustee thereunder (the "Trustee"). Use of Proceeds. The proceeds of each series of Senior Bonds will be used by the Authority to fund three loans (the "Series A Loan", the "Series B Loan", and the "Series C Loan", and together, the "Senior Loans") to the Palm Desert Redevelopment Agency (the "Agency") pursuant to a Loan Agreement (the "Senior Loan Agreement"), dated as of July 1, 2006 by and among the Authority, the Agency and the Trustee for the benefit of the Agency's Project Area No. 2 (the "Project Area"). The proceeds of the Series A Loan will be used: • to refund the indebtedness of the Agency under a Loan Agreement dated as of June 1, 1995 (the "1995 Loan Agreement"); • to finance certain redevelopment activities within or of benefit to the Project Area; and • to pay costs of issuance of the Series 2006A Bonds (including the premium for a reserve fund surety bond). The proceeds of the Series B Loan will be used: • to finance certain redevelopment activities within or of benefit to the Project Area; and • to pay costs of issuance of the Series 2006B Bonds (including the premium for a reserve fund surety bond). The proceeds of the Series C Loan will be used: • to deposit funds into a special escrow fund, to be released to the Agency if and when certain conditions are met; and • to pay costs of issuing the Series 2006C Bonds (including the premium for a reserve fund surety bond). The refunding of the obligations under the 1995 Loan Agreement will effect a refunding of the Authority's corresponding Subordinate Tax Allocation Refunding Revenue Bonds (Project Area No. 2), Series 1995 (the "1995 Bonds"). See "PLAN OF FINANCE — The 2 Redevelopment Project." Proceeds of the Senior Bonds will also be used to establish a parity Reserve Fund (described herein) for the Senior Bonds and to pay costs of issuance. The proceeds of the Series 2006D Bonds will be used by the Authority to fund a loan (the "Subordinate Loan" to the Agency pursuant to a Loan Agreement (the "Subordinate Loan Agreement"), dated as of July 1, 2006 by and among the Authority, the Agency and the Trustee for the benefit of the Project Area. The proceeds of the Subordinate Loan will be used: • to finance certain redevelopment activities within or of benefit to the Project Area; and • to pay costs of issuance of the Series 2006D Bonds (including a reserve fund surety bond). Security. The Senior Bonds are special obligations of the Authority secured by a parity pledge of Revenues, as defined in the Senior Indenture and described herein, consisting primarily of the amounts paid by the Agency under the Senior Loan Agreement. The pledge of Revenues under the Senior Loan Agreement is on a parity with the Agency's pledge of Revenues under loan agreements entered into in 2002 and 2003 (the "Prior Loan Agreements", as described below. The Subordinate Bonds are special obligations of the Authority secured by a parity pledge of Subordinate Revenues, as defined in the Subordinate Indenture. The Subordinate Tax Revenues securing the Series D Bonds consist of the Tax Revenues remaining after payment of the Senior Loan and the Prior Loans. Amounts payable under each respective Loan Agreement are calculated to be sufficient to pay in full when due the principal of and interest and premium (if any) on the related Bonds. In California, the financing and refinancing of redevelopment projects may be provided by the issuance of tax allocation bonds. Such bonds are payable from property taxes collected within a redevelopment project area attributable to the increase in assessed valuation of property over the valuation as of the date of establishment of the project area, as explained in greater detail herein. Tax Revenues is defined in the Indenture and generally includes certain ad valorem property taxes attributable to increases in the assessed valuation of certain property (except public property and property exempt from taxation) in the Project Area (described herein) over that shown on the assessment rolls for the adjusted base year. Such taxes are eligible for allocation to the Agency pursuant to the Redevelopment Law in connection with the Project Area. The fiscal year 2005-06 total assessed value of the Project Area is approximately $1.5 billion, of which tax increment revenue is generated from the incremental assessed value of approximately $13.8 million, representing the excess of the value of the Project Area over the base year value of approximately $102 million. Tax Revenues and Subordinate Tax Revenues are more fully described under the caption "SECURITY FOR THE BONDS — Revenues and the Loan Agreements." In addition to the 1995 Loan Agreement to be refunded, the Agency currently has outstanding its (i) Project Area No. 2, Loan Agreement, dated as of March 1, 2002 (the "Senior 2002 Loan Agreement"), by and among the Agency, the Authority and BNY Western Trust Company, as prior trustee (the "Prior Trustee"), and (ii) Project Area No. 2, Loan Agreement, dated as of July 1, 2003 (the "Senior 2003 Loan Agreement" and together with the Senior 2002 Loan Agreement, the "Prior Loan Agreements"), by and among the Agency, the Authority and the Prior Trustee. Each loan under the Prior Loan Agreements (the "Senior 2002 Loan" and "Senior 2003 Loan" and together, the "Prior Loans") is secured by Tax Revenues on a parity with the pledge of Tax Revenues pledged to pay the Senior Loans and on senior 3 priority to the pledge of Subordinate Tax Revenues pledged to pay the Subordinate Loan. The Agency may, pursuant to the terms of the Senior Loan Agreement and the Senior Indenture, issue additional obligations secured by Tax Revenues on a parity with the Senior Loans and the Prior Loans, and may under the Prior Loan Agreements, issue additional obligations secured by Tax Revenues on a parity with the obligations under the Prior Loan Agreements. See "SECURITY FOR THE BONDS — Existing Parity Debt" and "-- Issuance of Additional Parity Debt" herein. In addition, the Agency may, pursuant to the terms of the Subordinate Loan Agreement and the Subordinate Indenture, issue additional obligations secured by Subordinate Tax Revenues on a parity with the Subordinate Loan. Payment of the principal of and interest on the Senior Bonds when due will be insured by a municipal bond insurance policy to be issued by (the "Insurer") simultaneously with the delivery of the Bonds. See "SENIOR BONDS MUNICIPAL BOND INSURANCE" herein. The Subordinate Bonds are not insured. The Project Area. The Agency's Project Area No. 2 (the "Project Area") consists of the territory described and defined as such in the Redevelopment Plan of the City of Palm Desert (the "City") approved and adopted by the City by its Ordinance No. 509 on July 15, 1987. See "THE PROJECT AREA." Risk Factors. Risks of investment in the Bonds include the possibility of future decreases in the taxable valuation in the Project Area or in the applicable tax rates, which could reduce the Tax Revenues allocated to the Agency and correspondingly could have an adverse impact on the ability of the Agency to pay debt service on the Bonds. See "RISK FACTORS" herein. The City. The City of Palm Desert (the "City"), is located in the Coachella Valley and is approximately midway between the cities of Indio and Palm Springs, 117 miles east of Los Angeles, 118 miles northeast of San Diego and 515 miles southeast of San Francisco. The City was incorporated on November 26, 1973, as a general law city. In 1997 the City became a charter city. The estimated City population as of January 1, 2006 was approximately 49,539, The City occupies an area of 24.75 square miles. For certain information regarding the City, see "APPENDIX D - City of Palm Desert General Information." The Bonds are not an obligation of the City. The Agency. The Agency is a redevelopment agency existing under the Community Redevelopment Law of the State of California (the "State"), constituting Part 1 of Division 24 (commencing with Section 33000) of the California Health and Safety Code, as amended (the "Redevelopment Law"). The Agency was established by ordinance of the City Council adopted in 1974. See "PALM DESERT REDEVELOPMENT AGENCY" below. Miscellaneous. There follows in this Official Statement, which includes the cover page and Appendices hereto, a brief description of the Bonds, the Indentures, the Loan Agreements, the Tax Revenues and Subordinate Tax Revenues, the Project Area, security for the Bonds, risk factors, limitations on Revenues and Subordinate Revenues and certain other information relevant to the issuance of the Bonds. All references herein to the Indentures are qualified in their entirety by reference to the definitive form thereof, and all references to the Bonds are further qualified by references to the information with respect thereto contained in the respective Indentures. A summary of certain provisions of the Indentures is included in APPENDIX E. The most recent audited financial statements of the Agency are included in APPENDIX C. The 4 information set forth herein and in the Appendices hereto has been furnished by the Agency and includes information which has been obtained from other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Underwriter. All capitalized terms used herein and not normally capitalized have the meanings assigned thereto in the Indenture, unless otherwise stated herein. The information and expressions of opinion herein speak only as of the date of this Official Statement and are subject to change without notice. Neither delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency since the date hereof. All financial and other information presented in this Official Statement has been provided by the Agency or the City from their records, except for information expressly attributed to other sources. The presentation of information, including the table of receipts from tax increment revenues, is intended to show recent historic information and is not intended to indicate future or continuing trends in the financial or other affairs of the Agency or the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. PLAN OF FINANCE The proceeds of the Bonds will be used by the Authority to make the Loans to the Agency. A portion of the proceeds of the Series A Loan will be used to refund indebtedness of the Agency under the 1995 Loan Agreement, and proceeds of the Series A Loan, the Series B Loan and the Series D Loan will be used to finance certain redevelopment activities within or of benefit to the Project Area. The proceeds of the Series C Loan will be deposited into a special escrow fund, to be released to the Agency if and when certain conditions are met, whereupon the money released will be used to finance additional redevelopment activities. Upon receipt of payment for the Bonds on the date of their initial delivery, the Trustee is required to deposit the net proceeds of the Bonds into the Loan Funds created under the Indentures and disbursed by the Trustee pursuant to the respective Loan Agreements. The amounts in each Loan Fund are to be transferred by the Trustee pursuant to the Loan Agreement to the appropriate Project Fund, Escrow Fund, Special Escrow Fund and/or Costs of Issuance Fund. Proceeds of the Loans will also be used to establish a Reserve Fund (described herein) for each series of Bonds and to pay costs of issuance. Refunding of 1995 Loan. In 1997, the Authority issued its $4,090,000 original principal amount of Subordinate Tax Allocation Refunding Revenue Bonds (Project Area No. 2), Series 1995 (the "1995 Bonds"), of which $3,870,000 remain outstanding, for the purpose of funding a loan (the "1995 Loan") to the Agency pursuant to a Loan Agreement dated as of June 1, 1995 (the "1995 Loan Agreement"). A portion of the proceeds of the Series A Loan will be used by the Agency to refund the 1995 Loan. The proceeds of the 1995 Loan were primarily used to finance certain redevelopment activities within or of benefit to the Project Area. The refunding of the obligations under the 1995 Loan Agreement will effect a refunding of the 1995 Bonds. The Agency and Wells Fargo Bank, National Association, as escrow bank (the "Escrow Agent") will enter into an Escrow Agreement (the "Escrow Agreement") dated as of July 1, 2006 under which the Escrow Agent will establish an Escrow Fund (the "Escrow Fund"), into which a portion of the Loan and other available funds held for the 1995 Bonds will be deposited 5 concurrent with the original delivery of the Bonds. Amounts in the Escrow Fund will be invested in certain United States Treasury securities, the principal of and interest on which, together with any uninvested cash therein, will be sufficient to pay and redeem, on August 1, 2006, the outstanding 1995 Bonds to be refunded. Sufficiency of the deposits and investment earnings for those purposes will be verified by Grant Thornton, Minneapolis, Minnesota. See "VERIFICATION OF MATHEMATICAL COMPUTATIONS" below. Amounts on deposit in the Escrow Fund are not available for payment of the Bonds or the Loan. New Money Component. Proceeds of the Loans deposited into the Project Fund are to be disbursed pursuant to the Loan Agreements from time to time by the Trustee for the purpose of paying any portion of the costs of the Agency for the redevelopment of the Project Area (the "Redevelopment Project"). The Agency anticipates using the proceeds of the Loans deposited into the Project Fund primarily for the financing of in the City and include [to come from Agency — new money projects...] SOURCES AND USES OF FUNDS The estimated sources and uses of Bond proceeds is summarized as follows. All of the proceeds of each series of Bonds are used to fund the respective Loans. The uses of funds shown below represent the estimated use of the proceeds of the Series 2006A Bonds pursuant to the provisions of the Senior Loan Agreement. Sources: Principal amount of Series 2006A Bonds [Series 2006A Bonds Premium/Discount] Total Sources Uses: Deposit to Escrow Fund Deposit to Project Fund Series A Costs of Issuance* Total Uses * Includes underwriters' discount, municipal bond insurance premium and reserve fund surety bond premium, fees and expenses of Bonds Counsel and Disclosure Counsel, and any other expenses incurred in connection with the issuance of the Series 2006A Bonds and the making of the Series A Loan. 6 The uses of funds shown below represent the estimated use of the proceeds of the Series 2006B Bonds pursuant to the provisions of the Senior Loan Agreement. Sources: Principal amount of Series 2006B Bonds [Series 2006B Bonds Premium/Discount] Total Sources Uses: Deposit to Project Fund Series B Costs of Issuance* Total Uses * Includes underwriters' discount, municipal bond insurance premium and reserve fund surety bond premium, fees and expenses of Bonds Counsel and Disclosure Counsel, and any other expenses incurred in connection with the issuance of the Series 2006B Bonds and the making of the Series B Loan. The uses of funds shown below represent the estimated use of the proceeds of the Series 2006C Bonds pursuant to the provisions of the Senior Loan Agreement. Sources: Principal amount of Series 2006C Bonds [Series 2006C Bonds Premium/Discount] Total Sources Uses: Deposit to Special Escrow Fund Series C Costs of Issuance* Total Uses * Includes underwriters' discount, reserve fund surety bond premium, fees and expenses of Bonds Counsel and Disclosure Counsel, and any other expenses incurred in connection with the issuance of the Series 2006C Bonds and the making of the Series C Loan. The uses of funds shown below represent the estimated use of the proceeds of the Series 2006B Bonds pursuant to the provisions of the Subordinate Loan Agreement. Sources: Principal amount of Series 2006D Bonds [Series 2006D Bonds Premium/Discount] Total Sources Uses: Deposit to Project Fund Series D Costs of Issuance* Total Uses * Includes underwriters' discount, municipal bond insurance premium and reserve fund surety bond premium, fees and expenses of Bonds Counsel and Disclosure Counsel, and any other expenses incurred in connection with the issuance of the Series 2006D Bonds and the making of the Series D Loan. 7 DEBT SERVICE SCHEDULES Annual debt service for the Series 2006A Bonds is set forth below. Bond Year Ending Series A Series A Series A August 1 Principal Interest Total Annual debt service for the Series 2006B Bonds is set forth below. Bond Year Ending Series B Series B Series B August 1 Principal Interest Total 8 Annual debt service for the Series 2006C Bonds is set forth below. Bond Year Ending Series C Series C Series C August 1 Principal Interest Total Annual debt service for the Series 2006D Bonds is set forth below. Bond Year Ending Series D Series D Series D August 1 Principal Interest Total The following table shows the aggregate debt service for the Senior Bonds, the Prior Loans, and the Subordinate Bonds. 9 Bond Year Series A Series B Series C Parity Prior Total Senior Subordinate Ending Total Debt Total Debt Total Debt Loans Debt Debt Series D Debt August 1 Service Service Service Service Service Service 10 THE BONDS Description of the Bonds The Series 2006A Bonds and the Series 2006C Bonds will be issued as current interest bonds (the "Current Interest Bonds"). The Series 2006B Bonds and the Series 2006D Bonds will be issued as capital appreciation bonds (the "Capital Appreciation Bonds"). Current Interest Bonds. The Current Interest Bonds will be issued in the form of fully registered bonds without coupons and in the denomination of $5,000 or any integral multiple thereof. The Current Interest Bonds will be dated their date of initial delivery, and will bear interest at the rates per annum and will mature, subject to redemption provisions set forth below, on the dates and in the principal amounts, all as set forth on the inside front cover page hereof. The Current Interest Bonds will be issued only as one fully registered Bond for each maturity, in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"), as registered owner of all Bonds. See "APPENDIX H - Book -Entry System." Ownership may be changed only upon the registration books maintained by the Trustee as provided in the Indenture. The Authority may decide to discontinue use of the system of book - entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. Each Current Interest 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 date of delivery of the Bonds (the "Closing Date"); provided, however, that if, at the time of registration of any Current Interest Bond interest with respect to such Current Interest Bond is in default, such Current Interest Bond shall bear interest from the Interest Payment Date to which interest has been paid or made available for payment with respect to such Current Interest Bond. Interest on the Current Interest 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 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 Current Interest Bonds filed with the Trustee prior to any Record Date, interest on such Current Interest Bonds shall be paid to such Owner on each succeeding Interest Payment Date by wire transfer of immediately available funds to an account in the United States designated in such written request (unless and until such request has been revoked in writing). Principal of and premium, if any, on any Current Interest 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 Current Interest Bonds shall be payable in lawful money of the United States of America. Capital Appreciation Bonds. The Capital Appreciation 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 Capital Appreciation Bond shall 11 have more than one maturity date. The Capital Appreciation Bonds shall be dated the Closing Date, shall mature on August 1 in each of the years and in the Maturity Amounts set forth in the following schedule. The Capital Appreciation 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 Capital Appreciation Bonds shall accrue and compound at the yield to their maturity set forth in "APPENDIX I — ACCRETED VALUE TABLES". Interest on each Capital Appreciation Bond shall be compounded semi-annually at the yield set forth above from the Closing Date on each February 1 and August 1, commencing August 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 Capital Appreciation 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 The principal or redemption price, or Maturity Amounts of the Bonds will be payable at the maturity or earlier redemption upon presentation and surrender of the Bonds at the corporate trust office of the Trustee in Los Angeles, California and interest on the Current Interest Bonds will be payable by check or draft, mailed on the Interest Payment Date to each Owner of the Bonds (an "Owner") as of the Record Date preceding such Interest Payment Date. While the Bonds are held in the book -entry only system of DTC, all such payments will be made to Cede & Co., as the registered Owner of the Bonds. Redemption of the Bonds Series 2006A Bonds Redemption From Optional Senior Loan Prepayments. Under the Senior Loan Agreement, the Agency is given the option to prepay principal installments of the Senior Loan. The Revenues derived from such prepayment shall be applied to the redemption of the Series 2006A Bonds, 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 August 1, 20_, at the following respective redemption prices (expressed as percentages of the principal amount of the Series 2006A Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates August 1, 20_ and February 1, 20_ August 1, 20_ and February 1, 20_ August 1, 20_ and thereafter Redemption Price Series 2006A Bonds Mandatory Sinking Fund Redemption. The Series 2006A Bonds due August 1, 20_ and August 1, 20_ shall be subject to mandatory redemption by lot, on August 1 in each year as shown on the tables below, from sinking fund payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest to the date of redemption as shown in the following table; provided, however, that (i) in lieu of redemption thereof on August 1 in any year, such Series 2006A Bonds may be purchased by the Agency pursuant to the Loan Agreement and tendered to the Trustee for cancellation not later than the preceding May 15, and (ii) if some but not all of such Series 2006A Bonds have been redeemed pursuant to the paragraph above entitled "Redemption From Optional Loan Prepayments," the total amount of all future sinking fund payments 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. 12 Term Series 2006A Bonds Due August 1, 20 Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed or Purchased Term Series 2006A Bonds Due August 1, 20 Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed or Purchased Series 2006B Bonds Redemption From Optional Series B Loan Prepayments. Under the Series B Loan Agreement, the Agency is given the option to prepay principal installments of the Series B Loan. The Revenues derived from such prepayment shall be applied to the redemption of the Series 2006B Bonds, 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 Five Thousand Dollars ($5,000) Maturity Amount, on any February 1 or August 1 on or after August 1, 20_, at the following respective redemption prices (expressed as percentages of the Accreted Value of the called Series 2006B Bonds on the date fixed for redemption: Redemption Dates August 1, 20_ and February 1, 20_ August 1, 20_ and February 1, 20_ August 1, 20_ and thereafter Redemption Price 102% 101 100 No Series 2006B Bonds Mandatory Sinking Fund Redemption. The Series 2006B Bonds are not subject to mandatory sinking fund redemption prior to maturity. Series 2006C Bonds Redemption From Optional Series C Loan Prepayments. Under the Series C Loan Agreement, the Agency is given the option to prepay principal installments of the Series C Loan. The Revenues derived from such prepayment shall be applied to the redemption of the Series 2006C Bonds, 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 August 1, 20_, at the following respective redemption prices (expressed as percentages of the principal amount of the Series 2006C Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates August 1, 20_ and February 1, 20_ August 1, 20_ and February 1, 20_ August 1, 20_ and thereafter Redemption Price 102% 101 100 Series 2006C Bonds Mandatory Sinking Fund Redemption. The Series 2006C Bonds due August 1, 20_ and August 1, 20_ shall be subject to mandatory redemption by lot, on August 1 in each year as shown on the tables below, from sinking fund payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed, without 13 premium, plus accrued interest to the date of redemption as shown in the following table; provided, however, that (i) in lieu of redemption thereof on August 1 in any year, such Series 2006C Bonds may be purchased by the Agency pursuant to the Loan Agreement and tendered to the Trustee for cancellation not later than the preceding May 15, and (ii) if some but not all of such Series 2006C Bonds have been redeemed pursuant to the paragraph above entitled "Redemption From Optional Loan Prepayments," the total amount of all future sinking fund payments shall be reduced by the aggregate principal amount of such Series 2006C Bonds so redeemed, to be allocated among such sinking fund payments on a pro rata basis. Term Series 2006C Bonds Due August 1, 20 Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed or Purchased Term Series 2006C Bonds Due August 1, 20 Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed or Purchased Extraordinary Redemption From Unreleased Special Escrow Fund. The Series 2006C Bonds are subject to extraordinary redemption in whole or in part among maturities and by lot within each maturity as designated in writing by the Authority from amounts transferred from the Special Escrow Fund to the Principal Account for such purpose pursuant to the Senior Loan Agreement, on August 1, , at a redemption price equal to % of the principal amount thereof to be redeemed, together with the accrued interest thereof to the redemption date. Notice of Redemption. The Trustee on behalf and at the expense of the Authority will mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and 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 Bonds or the cessation of the accrual of interest thereon. Such notice will state the date of the notice, the redemption date, the redemption place and the redemption price and will designate the CUSIP numbers, the series designation, the Bond numbers (but only if less than all of the Outstanding Bonds of each series are to be redeemed) and the maturity or maturities (in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds of such series to be redeemed, and will require that such Bonds be then surrendered at the trust office of 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. 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 14 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. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for less than all of the Bonds of a series of any maturity to be redeemed, the Trustee will select the Bonds of such series and maturity to be redeemed from all Bonds 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 such selection, all Bonds will be deemed to be comprised of separate $5,000 portions and such portions will be treated as separate bonds which may be separately redeemed. Effect of Redemption. From and after the date fixed for redemption, if notice of redemption shall have been duly mailed and funds available for the payment of the principal of and interest (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 the 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. SENIOR BONDS MUNICIPAL BOND INSURANCE The information relating to the Insurer set forth in this section entitled "SENIOR BONDS MUNICIPAL BOND INSURANCE," and the specimen Insurance Policy set forth in Appendix F hereto, has been furnished by the Insurer. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. The Subordinate Bonds are not insured. [to come from Insurer...] 15 SECURITY FOR THE BONDS Revenues and Loan Agreement Senior Bonds. The Senior Bonds are secured by a first lien on and pledge of the Revenues, which are defined in the Senior Indenture to include (i) all amounts payable by the Agency as payments or prepayments for the respective Senior Loans pursuant to the Senior Loan Agreement; (ii) any proceeds of the Senior Bonds originally deposited with the Trustee and all moneys deposited and held from time to time in the funds and accounts established under the Senior Indenture; and (iii) income and gains with respect to the investment of amounts on deposit in the funds and accounts established under the Senior Indenture, other than amounts payable to the United States of America pursuant to the tax covenants contained in the Senior Indenture. The primary security for the Senior Bonds, therefore, consists of amounts payable by the Agency under the Senior Loan Agreement, amounts held in the Reserve Fund and amounts held by the Trustee under the Senior Indenture. The Senior Loans are secured by a parity (to the Prior Loans, plus any future obligations secured by a parity pledge of Tax Revenues) pledge of and lien on the Tax Revenues, as more fully described under "SECURITY FOR THE BONDS — Tax Revenues." The Agency may, pursuant to the terms of the Senior Loan Agreement and the Senior Indenture, issue additional obligations secured by Tax Revenues on a parity with the Senior Loan. See "SECURITY FOR THE BONDS — Issuance of Additional Parity Debt." Subordinate Bonds. The Subordinate Bonds are secured by a first lien on and pledge of the Subordinate Revenues, which are defined in the Subordinate Indenture to include (i) all amounts payable by the Agency as payments or prepayments for the Subordinate Loan pursuant to the Subordinate Loan Agreement; (ii) any proceeds of the Subordinate Bonds originally deposited with the Trustee and all moneys deposited and held from time to time in the funds and accounts established under the Subordinate Indenture; and (iii) income and gains with respect to the investment of amounts on deposit in the funds and accounts established under the Subordinate Indenture, other than amounts payable to the United States of America pursuant to the tax covenants contained in the Subordinate Indenture. The primary security for the Subordinate Bonds, therefore, consists of amounts payable by the Agency under the Subordinate Loan Agreement, amounts held in the Reserve Fund and amounts held by the Trustee under the Subordinate Indenture. The Subordinate Loan defines "Subordinate Tax Revenues" as, for any period of time, the Tax Revenues for such period, less the Senior Debt Service payable during such period, where "Senior Debt Service" generally means all payments due on the Senior Bonds and the Parity Loans, and any other loans, bonds, notes, advances, or indebtedness payable from Tax Revenues which rank senior to the Subordinate Loan. The Subordinate Loan is secured by a subordinate (to the Senior Bonds, the Prior Loans, plus any future obligations secured by a parity pledge of Tax Revenues) pledge of and lien on the Tax Revenues, as more fully described under "SECURITY FOR THE BONDS — Tax Revenues." The Agency may, pursuant to the terms of the Subordinate Loan Agreement and the Subordinate Indenture, issue additional obligations secured by Subordinate Tax Revenues on a parity with the Subordinate Loan. See "SECURITY FOR THE BONDS — Issuance of Additional Parity Debt." 16 Tax Allocation Financing The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a project area. The taxable valuation of a project area last equalized prior to adoption of the redevelopment plan, or base roll, is established. Thereafter, except for any period during which the taxable valuation drops below the base roll, the state and local governments for the benefit of which taxes are levied and collected on property within the project area 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 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. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above indicated. Further, the Redevelopment Law requires that certain amounts of tax increment be used by a redevelopment agency for low and moderate income housing projects, and places certain limits on the tax increment which a redevelopment agency is authorized to receive. See "TAX REVENUES — Housing Set -Aside Requirements" and "THE PROJECT AREA — Limitations and Requirements of the Redevelopment Plan" herein. Allocation of Taxes As provided in the Redevelopment Plan, and pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in the Project Area, each year by or for the benefit of the State of California and any city, county, city and county, district or other public corporation (herein collectively referred to as "taxing agencies") for fiscal years beginning after the effective date of the Project Area, are divided as follows: (1) To Taxing Agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of said taxing agencies upon the total sum of the assessed value of the taxable property in the Project Area, as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to the effective date of the ordinance approving the Redevelopment Plan shall be allocated to, and when collected shall be paid into, the funds of the respective taxing agencies as taxes by or for said taxing agencies on all other property are paid; and (2) To the Agency: Except for taxes which are attributable to a tax rate levy by a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989, which shall be allocated to and when collected shall be paid to such taxing agency, that portion of said levied taxes each year in excess of the amounts provided for in (1) above, shall be allocated to, and when collected shall be paid into, a special fund of the Agency to pay the principal of and interest on bonds, loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed, or otherwise) incurred by the Agency to finance or refinance, in whole or in part, the Project Area. Unless and until the total assessed valuation of the taxable property in the Project Area exceeds the total assessed value of the taxable property in the Project Area as shown by the last equalized assessment roll referred to in paragraph (1) above, all of the taxes levied and collected upon the taxable property in the Project Area, shall be paid into the funds of the respective taxing agencies. When said bonds, loans, advances, and indebtedness, if any, and interest thereon, have been paid, all moneys thereafter received from taxes upon the taxable property in the Project Area, shall be paid into the funds of the respective taxing agencies as taxes on all other property are paid. 17 The Agency is authorized to make pledges of the portion of taxes allocated to it as described in paragraph (2) above to repay specific advances, loans and indebtedness as appropriate in carrying out the Redevelopment Plan. Teeter Plan In 1949, the California Legislature enacted an alternative method for the distribution of secured property taxes to local agencies. This method, known as the Teeter Plan, is now set forth in Sections 4701-4717 of the California Revenue and Taxation Code. Upon adoption and implementation of this method by a county board of supervisors, local agencies for which the county acts as "bank" and certain other public agencies and taxing areas located in the county receive annually the full amount of their share of property taxes on the secured roll, including delinquent property taxes which have yet to be collected. While the county bears the risk of loss on delinquent taxes which go unpaid, it also benefits from the penalties associated with these delinquent taxes when they are paid. In turn, the Teeter Plan provides participating local agencies with stable cash flow and the elimination of collection risk. To implement a Teeter Plan, the board of supervisors of a county generally must elect to do so by July 15 of the fiscal year in which it is to apply. As a separate election, a county may elect to have the Teeter Plan procedures also apply to assessments on the secured roll. The Board of Supervisors of Riverside County adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan") in 1993-94, and the City is a participant under the Teeter Plan. Once adopted, a county's Teeter Plan will remain in effect in perpetuity unless the board of supervisors orders its discontinuance or unless, prior to the commencement of a fiscal year, a petition for discontinuance is received and joined in by resolutions of the governing bodies of not less than two-thirds of the participating districts in the county. An electing county may, however, opt to discontinue the Teeter Plan with respect to any levying agency in the county if the board of supervisors, by action taken not later than July 15 of a fiscal year, elects to discontinue the procedure with respect to such levying agency and the rate of secured tax delinquencies in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll by that agency. Upon making a Teeter Plan election, a county must initially provide a participating local agency with 95% of the estimated amount of the then -accumulated tax delinquencies (excluding penalties) for that agency. After the initial distribution, each participating local agency receives annually 100% of the secured property tax levies to which it is otherwise entitled, regardless of whether the county has actually collected the levies. If any tax or assessment which was distributed to a Teeter Plan participant is subsequently changed by correction, cancellation or refund, a pro rata adjustment for the amount of the change is made on the records of the treasurer and auditor of the county. Such adjustment for a decrease in the tax or assessment is treated by the County as an interest -free offset against future advances of tax levies under the Teeter Plan. Tax Revenues and Subordinate Tax Revenues Tax Revenues Pledged to Senior Bonds. The "Tax Revenues" which the Agency has pledged, on a parity (to the Prior Loans, plus any future obligations secured by a parity pledge of Tax Revenues) basis, to the payment of the Senior Loans are defined in the Senior Loan Agreement as that portion of the taxes levied upon taxable property in the Project Area, 18 allocated and paid into a special fund of the Agency (the "Special Fund"), 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 (i) 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 (ii) amounts payable to affected taxing agencies pursuant to the Pass -Through Agreements (hereinafter described), or pursuant to sections 33607.5 and 33607.7 of the Redevelopment Law. See "SECURITY FOR THE BONDS — Pass -Through Agreements and Housing Set -Aside" and "APPENDIX A — Fiscal Consultant's Report." Tax Revenues Pledged to Subordinate Bonds. The pledge for payment of the Subordinate Loan is of "Subordinate Tax Revenues" which is defined as Tax Revenues available after payment of "Senior Debt Service." Senior Debt Service is defined in the Loan Agreement as, for any period of time, the sum of (i) the amount of interest payable during such period on all outstanding Senior Debt, assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled, (ii) the amount of principal payable during such period on all outstanding Senior Debt, including any principal required to be prepaid by operation of mandatory sinking fund payments, and (iii) amounts, if any, required to be deposited in the debt service reserve funds maintained under the Senior Debt Instruments (as defined in the Subordinate Loan Agreement) or paid to the issuers of surety bonds (or other qualified reserve fund instruments) deposited in the reserve fund relating to any Senior Debt in lieu of cash pursuant to the agreements between the Agency and such issuers. The Senior Loans, together with the Prior 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 under the Senior Loan Agreement, 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 Senior Loans In connection with the Prior Loans, the Agency has established a "Special Fund," which is and will continue to be held by the Agency as a separate fund apart from all other funds and accounts of the Agency. The Agency is required to 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 to meet the Agency's obligations with regard to the Senior Loans and Prior Loans (as well as any future Parity Debt) shall be released from the pledge and lien for such obligations 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 under the Senior Loan Agreement and 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 the Senior Loan Agreement and any Parity Debt Instrument. In addition to the transfers required to be made pursuant to any Parity Debt Instrument, the Agency will 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 fifth 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 19 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 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 a Qualified Reserve Fund Credit Instrument, including the Surety Bond, prior to replenishing any cash in the Reserve Fund). (c) Surplus. 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 pursuant to the Senior Loan Agreement shall be released from the pledge and lien thereof. In the event that for any reason whatsoever any amounts shall remain on deposit in the Special Fund on any August 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 the Subordinate Loan any other Subordinate Debt. The Agency has no power to levy and collect property taxes, and any property tax limitation, Legislative measure, voter initiative or provisions of additional sources of income to taxing agencies having the effect of reducing the property tax rate, could reduce the amount of Tax Revenues that would otherwise be available to pay a Loan and, consequently, the principal of, and interest on, the related Bonds. Likewise, broadened property tax exemptions could have a similar effect. See "RISK FACTORS" herein. For information on Tax Revenues and Subordinate Tax Revenues available for payment of the Loans, see "TAX REVENUES" below. THE BONDS ARE NOT A DEBT OF THE CITY OF PALM DESERT, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AUTHORITY), AND NEITHER THE CITY NOR THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AUTHORITY) IS LIABLE THEREON. NEITHER THE AUTHORITY NOR THE AGENCY HAS ANY TAXING POWER. THE BONDS ARE REVENUE BONDS, PAYABLE EXCLUSIVELY FROM THE REVENUES AND OTHER FUNDS AS PROVIDED IN THE INDENTURE, INCLUDING PAYMENTS TO BE MADE BY THE AGENCY UNDER THE LOAN AGREEMENT. THE OBLIGATIONS OF THE AGENCY UNDER THE LOAN AGREEMENTS AND ANY PARITY DEBT OF THE AGENCY ARE PAYABLE SOLELY FROM TAX REVENUES OR SUBORDINATE TAX REVENUES ALLOCATED TO THE AGENCY FROM THE PROJECT AREA. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION. Special Escrow Fund for Series 2006C Bonds There is established under the Senior Loan Agreement a separate fund to be known as the "Special Escrow Fund," and an account therein to be known as the "Escrow Interest Account" which shall be held by the Trustee in trust. On the Closing Date, the Trustee shall transfer money from the Series 2006C Loan Fund to the Escrow Interest Account and the Special Escrow Fund in accordance with the Senior Loan Agreement. Amounts in the Special 20 Escrow Fund and the Escrow Interest Account shall be applied as follows (for certain defined terms, see Appendix E): (a) On each Interest Payment Date, the Trustee shall transfer from the Escrow Interest Account to the Interest Account, an amount equal to the interest payable on such date with respect to the Deemed Escrow Portion of the Series 2006C Bonds (where, generally, the "Deemed Escrow Portion" is the aggregate principal balance of Series 2006C Bonds in the Special Escrow Fund). (b) On or before [January] 1 of each year up to and including [January] 1, 20[09], the Agency shall file with the Trustee a Certificate accompanied by a Report of an Independent Redevelopment Consultant which identifies (i) the amounts, if any, proposed to be released from the Special Escrow Fund and the Escrow Interest Account, and (ii) the Reserve Requirement which results from such release. If an amount is proposed to be released from the Special Escrow Fund, such Report shall conclude that the amount of Tax Revenues received or to be received for the then current Fiscal Year, as set forth in a Certificate of the Agency, based on assessed valuation of property in the Project Area, as evidenced in the records of the County, plus at the option of the Agency the Additional Revenue, shall be at least equal to 120 percent of the amount of the Maximum Annual Debt Service identified in such Report. The Agency's Certificate shall also be accompanied by a schedule showing that the balance remaining in the Escrow Interest Account [plus the anticipated interest earnings thereon] will be sufficient to pay interest on the Deemed Escrow Portion of the Series 2006C Bonds after the proposed transfer on each future Interest Payment Date to and including the Escrow Redemption Date. Promptly following receipt of any such Report, the Trustee shall withdraw from the Special Escrow Fund and the Escrow Interest Account the amounts identified in such Report and (subject to the provisions of Paragraph (c) below) transfer such amount as follows: (1) The Trustee shall deposit into the Reserve Fund an amount required to cause the balance therein to equal the Reserve Requirement; (2) The Trustee shall transfer the amount indicated in the Agency's Certificate to the Interest Account; and (3) The Trustee shall transfer the remainder of such amounts to the Agency for deposit in the Project Fund. (c) On [June 1, 2009], the Trustee shall (i) transfer amounts then on deposit in the Special Escrow Fund to the Principal Account, to be applied to the extraordinary redemption of the largest principal amount of Series 2006C Bonds which can be called pursuant to the Indenture, and (ii) transfer amounts then on deposit in the Escrow Interest Account to the Interest Account, to be applied to pay accrued interest on the Series 2006C Bonds being redeemed pursuant to the Indenture on Escrow Redemption Date. If the balance in the Special Escrow Fund exceeds the amount required to call and redeem all Outstanding Series 2006C Bonds, such excess shall be transferred to the Agency for deposit in the Project Fund. Notwithstanding the foregoing, if the balance in the Special Escrow Fund on [June 1, 2009] is less than $5,000, then the Trustee shall transfer all of such balance to the Project Fund and transfer all remaining money in the Special Interest Account to the Interest Account. Pass -Through Agreements and Housing Set -Aside Pass -Through Agreements. The Agency has entered into several agreements (the "Pass -Through Agreements") in connection with the Project Area, whereby portions of the tax increment revenues which would otherwise be received by the Agency as described above are 21 paid to certain other taxing entities. Amounts paid under the Pass -Through Agreements are not Tax Revenues and, therefore, are not pledged to secure the Loans. See "TAX REVENUES — Projected Taxable Valuation and Tax Revenues" herein, and see "APPENDIX A — Fiscal Consultant's Report" for a description of the Pass -Through Agreements. Statutory Pass-Throughs. Certain provisions were added to the Redevelopment Law by the adoption of AB 1290 in 1994. Under Section 33607.5 of the Law, any new project area formed after 1994 is required to share in tax increment revenues generated pursuant to a statutory formula ("Statutory Tax Sharing"). Although the Project Area has existing tax -sharing agreements with the majority of its taxing agencies there are an additional 10 agencies without agreements. Commencing in fiscal year 2008-09, the Agency will begin making payments to these agencies pursuant to Section 33607.7 of the Redevelopment Law. The projections prepared by the Fiscal Consultant incorporated those expected payments. Housing Set -Aside. Excluded from the Tax Revenues are those amounts received by the Agency and placed into the Low and Moderate Income Housing Fund of the Agency pursuant to Sections 33334.2 and 33334.3 of the Redevelopment Law (the "Housing Set - Aside"). For a discussion of Housing Set -Aside requirements, see "TAX REVENUES — Housing Set -Aside Requirements." Parity Debt and Existing Parity Lien The Agency's obligations on the Senior Loans are repayable on a parity with the Prior Loans, as well as possible future Parity Debt, which consists of any indebtedness payable from Tax Revenues on a parity with the Senior Loans. The Senior 2002 Loan is currently outstanding in the aggregate principal amount of $ and the Senior 2003 Loan is currently outstanding in the aggregate principal amount of $ . See "DEBT SERVICE SCHEDULES" herein for the scheduled payments due on the Prior Loans. Other than the Senior Loans, the Senior 2002 Loan and the Senior 2003 Loan, there is currently no existing senior Parity Debt. In addition, the Agency's obligations on the Subordinate Loan is repayable on a parity with possible future Parity Subordinate Debt, which consists of any indebtedness payable from Subordinate Tax Revenues on a parity with the Subordinate Loan which includes Subordinate Parity Debt issued in the future. See "TAX REVENUES - Projected Taxable Valuation and Tax Revenue" herein. See "SECURITY FOR THE BONDS — Issuance of Additional Parity Debt." Issuance of Additional Parity Debt The Authority has covenanted in each of the Indentures that except for the Bonds, it will not incur any other indebtedness payable out of Revenues (where "Revenues" are the amounts payable to the Authority under the respective Loan Agreements). So long as the Senior 2002 Loan or the Senior 2003 Loan remains outstanding, any additional Parity Debt must also meet the requirements thereunder for issuance of additional Parity Debt. The Agency has covenanted in the Senior Loan Agreement that it will not incur any indebtedness which is payable from all or any part of the Tax Revenues, other than: (i) the Senior 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 Senior Loan Agreement. Similarly, the Agency has covenanted in the Subordinate Loan Agreement that it will not incur any indebtedness which is payable from all or 22 any part of the Subordinate Tax Revenues, other than: (i) the Subordinate Loan; (ii) additional Parity Debt subject to the conditions described below; and (iii) any debt secured by a pledge of Subordinate Tax Revenues which is subordinate to the pledge of Subordinate Tax Revenues created by the Subordinate Loan Agreement The Agency has further covenanted in each Loan Agreement that it will not amend the Redevelopment Plan (except for the purpose of extending or eliminating the time limit on the establishment of loans, advances, and indebtedness, extending the time limit on the effectiveness of the Redevelopment Plan, extending the time limit on the payment of indebtedness, extending the time limit for the receipt of tax increment, or increasing the limitation on the number of dollars of taxes to be allocated to the Agency) or any of the Pass - Through Agreements, or enter into any agreement with the County or any other governmental unit, which would have the effect of reducing the amount of Tax Revenues (or Subordinate Tax Revenues in the case of the Subordinate Loan) available to the Agency for payment of such Loan, unless the Agency shall first obtain (a) 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 (or Subordinate Tax Revenues) was in effect throughout such Fiscal Year), shall be at least equal to 120 percent (in the case of the Senior Loans) or % (in the case of the Subordinate Loan) of Maximum Annual Debt Service and (b), as long as the Insurance Policy is in full force and effect, the written consent of the Insurer. Issuance of Senior Parity Debt. Pursuant to the Senior Loan Agreement, the Agency may issue or incur additional Parity Debt subject to the following specific conditions: (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 the Senior Loan Agreement. (b) The amount of Tax Revenues for the then current Fiscal Year as set forth in a Certificate of the Agency, based on assessed valuation of property in the Project Area as evidenced in the written records of the County, plus at the option of the Agency the Additional Revenues, shall be at least equal to (i) 120 percent of Maximum Annual Debt Service, and (ii) 100 percent of the sum of Maximum Annual Debt Service (of the Senior Loans and Parity Debt) and maximum annual debt service on all outstanding Subordinate Debt that is secured by a pledge of or lien upon the Tax Revenues. (c) The balance in the Reserve Fund shall be increased to an amount which equals the Reserve Requirement. (d) All amounts held in the Special Escrow Fund shall have been transferred to the Agency or otherwise applied in accordance with the Loan Agreement; provided that this condition shall not limit the authority of the Agency to issue or incur Parity Debt for the purpose of refunding the Loans or other Parity Debt so long as either (i) the total amount of principal and interest payable with respect to such proposed refunding Parity Debt shall be less than the total amount of principal and interest remaining to be paid with respect to the Loan or the Parity Debt to be refunded, or (ii) the total amount of principal and interest payable with respect to such proposed refunding Parity Debt reflects a present value savings when compared with the total amount of principal and interest remaining to be paid with respect to the Loan or the Parity Debt to be refunded. (e) The related Parity Debt Instrument shall provide that: 23 (i) With respect to any Parity Debt which bears current interest, interest on such Parity Debt shall not be payable on a date other than February 1 and August 1 of any year and (ii) The principal of such Parity Debt shall not be payable on any date other than the date on which principal of the Loan is payable. (f) The issuance of such Parity Debt shall not cause the Agency to exceed any applicable Plan Limitations. (g) 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 subparagraphs (a) through (e), above, have been satisfied. The Agency shall also furnish a copy of an Independent Redevelopment Consultant's report evidencing compliance with the conditions set forth in subparagraph (b) above. Issuance of Subordinate Parity Debt. Pursuant to the Subordinate Loan Agreement, the Agency may issue or incur additional Parity Subordinate Debt subject to the following specific conditions: (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 the Subordinate Loan Agreement. (b) The amount of Subordinate Tax Revenues for the then current Fiscal Year as set forth in a Certificate of the Agency, based on assessed valuation of property in the Project Area as evidenced in the written records of the County, plus at the option of the Agency the Additional Revenues, shall be at least equal to percent of Maximum Combined Annual Debt Service (as defined in the Subordinate Loan Agreement). (c) The balance in the Reserve Fund shall be increased to an amount which equals the Reserve Requirement. (d) The related Parity Debt Instrument shall provide that: (i) With respect to any Parity Debt which bears current interest, interest on such Parity Debt shall not be payable on a date other than February 1 and August 1 of any year and (ii) The principal of such Parity Debt shall not be payable on any date other than the date on which principal of the Subordinate Loan 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 Subordinate Debt set forth in subparagraphs (a) through (e), above, have been satisfied. The Agency shall also furnish a copy of an Independent Redevelopment Consultant's report evidencing compliance with the conditions set forth in subparagraph (b) above. 24 Issuance of Additional Subordinate Debt Issuance of Additional Debt Subordinate to the Senior Loans. In addition to the Senior 2002 Loan, the Senior 2003 Loan, the Senior Loans and any Parity Senior 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 (i) the issuance of such Subordinate Debt shall not cause the Agency to exceed any applicable Plan Limitations, and (ii), with respect to any Subordinate Debt that is to be secured by a pledge or lien upon Tax Revenues, the amount of Tax Revenues for the then current Fiscal Year, as set forth in a Certificate of the Agency, based on assessed valuation of property in the Project Area as evidenced in the written records of the County, plus at the option of the Agency the Additional Revenues, shall be at least equal to 100 percent of the sum of Maximum Annual Debt Service (of the Senior Loans and Parity Senior Debt) and maximum annual debt service on all Outstanding Subordinate Debt that is secured by a pledge of or lien upon the Tax Revenues. Issuance of Additional Debt Subordinate to the Subordinate Loan. From time to time the Agency may issue or incur debt which is subordinate to the Subordinate Loan, in such principal amount as shall be determined by the Agency, provided that (i) the issuance of such subordinate debt shall not cause the Agency to exceed any applicable Plan Limitations. Reserve Funds In order to further secure the payment of principal of and interest on the Bonds, the Agency is required by the Loan Agreements to maintain an amount equal to the respective Reserve Requirement for the respective Senior Bonds and Subordinate Bonds in a separate respective "Senior Reserve Fund" and "Subordinate Reserve Fund"held by the Trustee. The Reserve Requirement for the respective Senior Loans and Subordinate Loan is 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. Amounts in each Reserve Fund are to be held by the Trustee for the benefit of the Authority, the respective Bondowners, and the owners of any Parity Debt pursuant to the corresponding Loan Agreement, and are pledged by the Agency to secure the Agency's payment obligations under such Loan Agreement. The Agency is required to set aside from the Special Fund and deposit in the Reserve Fund an amount sufficient to maintain the Reserve Requirements on deposit in the Reserve Funds at all times so long as any Bonds remain outstanding. The Loan Agreements permit the Agency to fund all or a portion of a Reserve Requirement by means of a "Qualified Reserve Fund Credit Instrument" which is 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, provided that all of the following requirements are met at the time of deposit with the Trustee: (i) either (a) the long-term credit rating of such bank is within one of the two highest rating categories by Moody's or S&P, or the claims paying ability of such insurance company is rated within one of the two highest rating categories 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; 25 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 the applicable Indenture. On the date of issuance of the Bonds, the Reserve Requirement for the Senior Loans will be met with a Qualified Reserve Fund Credit Instrument in the form of a issued by RISK FACTORS The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Bonds. This discussion does not purport to be comprehensive or definitive. The occurrence of one or more of the events discussed herein could adversely affect the ability of the Agency to make the payments required to repay the Bonds and their interest on a timely manner. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in the Project Area. Bonds Are Limited Obligations The Bonds and the interest thereon are limited obligations of the Agency and do not constitute a general obligation of the Agency. See "SECURITY FOR THE BONDS" herein. No Owner of the Bonds may compel exercise of the taxing power of the State of California or any of its political subdivisions or agencies to pay the principal of, premium, if any, or interest due on the Bonds. The Bonds do not evidence a debt of the Agency within the meaning of any constitutional or statutory debt limitation provision. Reduction of Tax Revenues Tax Revenues (which constitute the source of repayment of the Loans and indirectly of the Bonds, as discussed herein) are a portion of the taxes allocated to the Agency each year which are determined by the amount of incremental valuation of taxable property in the Project Area, the current rate or rates at which property in the Project Area, is taxed and the percentage of taxes collected in the Project Area. Neither the Agency nor the Authority has taxing power, nor does the Agency have the power to affect the rate at which property is taxed. Events beyond the control of the Agency could cause a reduction in Tax Revenues, thereby impairing the ability of the Agency to make payments under the Loan Agreement sufficient to pay principal of and interest and premium (if any) when due on the Bonds. A reduction of taxable values of property or tax rates 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 Agency's control (such as a relocation out of the Project Area by one or more major property owners, successful appeals by property owners for a reduction in a property's assessed value, a reduction of the general inflationary rate, a reduction in transfers of property, reduction of property values, events that permit reassessment of property at lower values, or the destruction of property caused by natural or other disasters, including earthquake) could occur, thereby causing a reduction in Tax Revenues. The California electorate or legislature could adopt limitations with the effect of reducing Tax Revenues. Such limitation already exists under Article XIIIA of the California Constitution, which was adopted pursuant to the initiative process. For a further description of Article XIIIA, 26 see "PROPERTY TAXATION IN CALIFORNIA — Constitutional Amendments Affecting Tax Revenues," herein. A reduction in the tax rate applicable to property in the Project Area by reason of discontinuation of certain override tax levies in excess of the 1 % basic levy will reduce tax increment revenues. Such override tax levies can be expected to decline over time until the tax rate in the Project Area reaches the 1 % basic levy. Such overrides may be discontinued at any time, which may cause a reduction in Tax Revenues. The Agency does not receive any Tax Revenues attributable to tax override levies. The current practice of the County under the Teeter Plan is to calculate 100% of the gross tax increment payable annually to the Agency and to retain any penalties or delinquencies collected to offset such gross payment. There can be no assurances that the County will continue this practice in the future, or that the County will not discontinue the Teeter Plan or remove the Agency from the Teeter Plan in the future. Other events beyond the control of the Agency could also cause a reduction in Tax Revenues. Tax increment revenues allocated to the Agency are distributed throughout the year in installments. The payments are adjusted to reflect actual collections. Any reduction in tax increment revenues, whether for any of the foregoing reasons or any other reason, could have an adverse effect on the Agency's ability to make payments under the Loan Agreement sufficient to pay the principal of and interest on the Bonds. Reduction in Inflationary Rate As described in greater detail below, Article XIIIA of the California Constitution provides that the full cash value basis of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. The Agency has projected Tax Revenues to be received by it based, among other things, upon such 2% inflationary increases. Should the assessed value of real property not increase at the allowed annual rate of 2%, the Agency's receipt of future Tax Revenues may be adversely affected. See "PROPERTY TAXATION IN CALIFORNIA - Constitutional Amendments Affecting Tax Revenues" herein. Concentration of Ownership The largest secured local taxpayer in the Project Area (constituting approximately 16.17% of the Fiscal Year 2005-06 secured assessed value in the Project Area) is Desert Spring Hotel/Marriott. See "THE PROJECT AREA - Largest Taxable Property Owners" above. While the Agency believes that Desert Spring Hotel/Marriott to be a viable and profitable enterprise, its business, by nature, is dependent upon various unpredictable economic and market forces. The impact of various other risks described in this section could be exaggerated should any such risk negatively impact Desert Spring Hotel/Marriott. Assessment Appeals Property taxable values may be reduced as a result of a successful appeal of the taxable value determined by the County Assessor. An appeal may result in a reduction to the County Assessor's original taxable value and a tax refund to the applicant property owner. Appeal and 27 refund activity within the Project Area may result in resolved appeals which reduce the assessed value of parcels within the Project Area. See APPENDIX A - "Fiscal Consultant's Report - Assessment Appeals." An assessee may contest either (i) the original determination of the "base assessment value" of a parcel (i.e., the value assigned after a change of ownership or completion of new construction), or (ii) the "current assessment value" (i.e., the value as determined by the County Assessor, which may be no more than the base assessment value plus the compounded 2% annual inflation factor) when specified factors have caused the market value of the parcel to drop below current assessment value. At the time of reassessment, after a change of ownership or completion of new construction, the assessee may appeal the base assessment value of the property. Under an appeal of a base assessment value, the assessee appeals the actual underlying market value of the sales transaction or the recently completed improvement. A successful appeal of the base assessment value of a parcel has significant future revenue impacts, because a reduced base year assessment will reduce the compounded future value of the property prospectively. Except for the two percent inflation factor, the value of the property cannot be increased until a change in ownership occurs or additional improvements are added. Assessment appeals are currently pending in the Project Area, and the Agency cannot predict whether such appeals, or any future appeals, will be successful. Future reductions in taxable values in the Project Area resulting from successful appeals by property owners will reduce the amount of Tax Revenues available to pay the principal of and interest on the Bonds. Proposition 8 Adjustments Proposition 8, approved in 1978 (California Revenue and Taxation Code Section 51(b)), provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based on Proposition 8 do not establish new base year values, and the property may be reassessed on a following lien date up to the lower of the then -current fair market value or the factored base year value. Properties in the Project Area have not been subject to Proposition 8 adjustments made by the County Assessor in any significant amount. Subordinate Nature of Series 2006D Bonds The Series 2006D Bonds are subordinate to the Senior Bonds in priority and right of payment. Subordinate Revenues will be available to pay obligations on the Series 2006D Bonds only after all payments and deposits in respect of the Senior Bonds have been made as set forth herein and in the Senior Indenture. In the event of delinquencies in the payment of the Senior Loans, there may not be sufficient Subordinate Revenues available to pay interest or principal due on any or all of the Series 2006D Bonds then Outstanding. No Rating of Series 2006D Bonds The Series 2006D Bonds are not rated by any rating agency, and the Authority does not presently intend to seek any rating of the Series 2006D Bonds [[[nor does the Authority anticipate that the Series 2006D Bonds would qualify for an investment grade rating due to the structure and size of the Senior Bonds.]]] 28 Development Risks Generally, the Agency's ability to make payments under the Loan Agreements will be dependent upon the economic strength of the Project Area. The general economy of the Project Area will be subject, in part, to the development risks generally associated with real estate development projects. Projected development within the Project Area may be subject to unexpected delays, disruptions and changes. For example, real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in the real estate market, fluctuations in interest rates, unexpected increases in development costs and by other factors. Further, real estate development operations within the Project Area could be adversely affected by future governmental policies, including governmental policies to restrict or control development. If projected development in the Project Area is delayed or halted, the economy of the Project Area could be adversely affected, causing a reduction of the Tax Revenues available ultimately to pay debt service on the Bonds. Seismic Factors The assessed valuation of properties in the Project Area could be substantially reduced as a result of a major earthquake proximate to the Project Area. The area in and surrounding the Project Area, like much of California, may be subject to unpredictable seismic activity. If there were to be an occurrence of severe seismic activity in the Project Area, there could be a negative impact on assessed values of taxable values of property in the Project Area, and a corresponding reduction in Tax Revenues. Such reduction of Tax Revenues could have an adverse effect on the Agency's ability to make timely payments of principal of and interest on a Loan. Flood Risk Considerations In and around the City, flooding caused by river overflow or heavy rainfall could cause possible damage to property in the City, including property in the Project Area. Levy and Collection Neither the Agency nor the Authority has any independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Tax Revenues, and accordingly, could have an adverse impact on the ability of the Agency to make payments under the Loan Agreements sufficient to pay debt service on the Bonds. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the Agency's ability to make timely payments. The County currently allocates to the Agency 100% of tax increment revenues without regard to delinquencies. However, there is no assurance that the County will continue to allocate Tax Revenues in this manner. To estimate the Tax Revenues available to pay debt service on the Bonds, the Agency has made certain assumptions with regard to the assessed valuation of property within the Project Area and future tax rates. The Agency believes these assumptions to be reasonable, but to the extent that the assessed valuation and the tax rates are less than the Agency's assumptions, the Tax Revenues available to pay debt service on the Bonds may be less than those projected herein. 29 State Budget; ERAF Shift In connection with its approval of the budget for the 1992-93, 1993-94 and 1994-95 fiscal years, the State Legislature enacted legislation which, among other things, reallocated funds from redevelopment agencies to school districts by shifting a portion of each 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 was apportioned among all of its redevelopment project areas on a collective basis, and was not allocated separately to individual project areas. Faced with a projected $23.6 billion budget gap for Fiscal Year 2002- 03, the State Legislature adopted and sent to the Governor of the State as urgency legislation, AB 1768 requiring redevelopment agencies to pay into ERAF in Fiscal Year 2002-03 an aggregate amount of $75 million. In 2003, the State Legislature adopted SB 1045 which required redevelopment agencies to make ERAF transfers in Fiscal Year 2003-04, based on a statewide aggregate transfer by redevelopment agencies of $135 million. Due to continuing state budget problems, the State Legislature adopted SB 1096, Chapter 211, Statutes of 2004 ("SB 1096"), which required an ERAF shift of $250 million for 2004-05 and 2005-06. As with previous ERAF shifts, SB 1096 requires that half of the shift be calculated on the basis of the gross tax increment of a project area and the other half on net revenues after tax sharing payments. The Agency's ERAF payment for 2004-05 was $3,887,133, and the proportionate share for Project Area was $788,700. The Agency's estimated ERAF payments for 2005-06 are $3,995,041, with the Project Area's proportionate share being $871,272 SB 1096 provides that the Agency's ERAF payment obligations are subordinate to the payment of debt service on the Bonds. The Agency cannot predict whether the State Legislature will adopt legislation requiring other shifts of redevelopment property tax increment revenues in future fiscal years beyond 2005-06 to the State and/or to schools, whether by the ERAF mechanism or by other arrangement. Should such legislation be enacted, Tax Revenues available for payment of the Bonds may, in the future, be substantially reduced and the Agency's ability to pay debt service on the Bonds may be impaired. Assumptions and Projections To estimate the total Tax Revenues available to pay debt service on the Bonds, the Agency's Fiscal Consultant has made certain assumptions with regard to the assessed valuation in the Project Area, future tax rates, the percentage of taxes collected, the likelihood of appeals, the amount of funds available for investment and the interest rate at which those funds will be invested. See APPENDIX A — "FISCAL CONSULTANT'S REPORT" for a full discussion of the assumptions underlying the projections set forth herein and therein with respect to Tax Revenues. The Agency believes these assumptions to be reasonable, but to the extent that the payment of any revenues that constitute Tax Revenues is less than such assumptions, the total Tax Revenues available may be less than those projected herein. See "SECURITY AND SOURCE OF PAYMENT FOR THE BONDS" herein. Bankruptcy and Foreclosure On July 30, 1992 the United States Court of Appeals for the Ninth Circuit issued an opinion in a bankruptcy case entitled In re Glasply Marine Industries holding that ad valorem property taxes levied by a county in the State of Washington after the date that the property owner filed a petition for bankruptcy would not be entitled to priority over the claims of a secured 30 creditor with a prior lien on the property. Similar results were reached by several circuit courts in other circuits. Subsequently, however, section 362(b)(18) of the Bankruptcy Code was enacted, effectively overturning this line of decisions and providing that local governments may rely on statutory property tax liens to secure payment of property taxes after the filing of a bankruptcy petition. Loss of Tax Exemption on the Bonds In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the Agency has covenanted in the Loan Agreement to comply with each applicable requirement of Section 103 and Sections 141 through 150 of the Internal Revenue Code of 1986, as amended. The interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of the Bonds, as a result of acts or omissions of the Agency in violation of covenants in the Loan Agreement. Should such an event of taxability occur, the Bonds are not subject to acceleration, redemption or any increase in interest rates and will remain Outstanding until maturity or until redeemed under one of the redemption provisions contained in the Indenture. See "CONCLUDING INFORMATION — Tax -Exempt Status of the Bonds" herein. PROPERTY TAXATION IN CALIFORNIA Constitutional Amendments Affecting Tax Revenues Article XIIIA of the California Constitution limits the amounts of ad valorem tax on real property to 1 % of "full cash value" as determined by the county assessor. Article XIIIA defines "full cash value" to mean "the County Assessor's valuation of real property as shown on the 1975-76 tax bill under 'full cash value', or thereafter the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment period." Furthermore, all real property valuation may be increased to reflect the inflationary rate, as shown by the consumer price index, not to exceed 2% per year, or may be reduced in the event of declining property values caused by damage, destruction or other factors. Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the voters voting on the proposition approving such bonds, and requires a vote of two-thirds of the qualified electorate to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State legislature to change any State tax law resulting in increased tax revenues. Article XIIIB of the California Constitution 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 XIIIB 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. 31 Section 33678 of the Redevelopment Law 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 XIIIB, nor shall such portion of taxes be deemed receipt of proceeds of taxes by, or any appropriation subject to the limitation of, any other public body within the meaning or the purpose of the Constitution and laws of the State, including Section 33678 of the Redevelopment Law. Two California 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. Implementing Legislation Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax, except to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA of $4.00 per $100 assessed valuation (based on the traditional practice of using 25% of full cash value as the assessed value for tax purposes). The legislation further provided that, for Fiscal Year 1978-79 only, the tax levied by each county was to be appropriated among all taxing agencies within the county in proportion to their average share of taxes levied in certain previous years. Effective as of the 1981-82 Fiscal Year, assessors in California no longer record property values in the tax rolls at the assessed value of 25% of market values. All taxable property value is shown at full market value. In conformity with this change in procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of market value and all general tax rates reflect the $1 per $100 of taxable value. Future assessed valuation growth allowed under Article XIIIA (i.e., new construction, change of ownership, and 2% annual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of "base" revenue from the tax rate area. Each year's growth allocation becomes part of each agency's allocation in the following year. The 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 XIIIA effectively prohibits the levying of any other ad valorem property tax above those described above, even with the approval of the affected voters. Constitutional Challenges to Property Tax System There have been many challenges to Article XIIIA of the California Constitution. Recently, the United States Supreme Court heard the appeal in Nordlinger v. Hahn, a challenge relating to residential property. Based upon the facts presented in Nordlinger, the United States Supreme Court held that the method of property tax assessment under Article XIIIA did not violate the federal Constitution. The Agency cannot predict whether there will be any future challenges to California's present system of property tax assessment and cannot evaluate the ultimate effect on the Agency's receipt of tax increment revenues should a future decision hold unconstitutional the method of assessing property. 32 Property Tax Collection Procedures In California, property that is subject to ad valorem taxes is classified as "secured" or "unsecured." The secured classification includes property on which any property tax levied by a county becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax levied by a county that becomes a lien on secured property has priority over all present and future private liens arising pursuant to State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on other property owned by the taxpayer. Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The payment of delinquent taxes with respect to property on the secured roll may be enforced only through the sale of the property securing the taxes to the State for the amount of taxes that are delinquent. Such property may thereafter be redeemed by payment of the delinquent taxes and penalties. Unsecured personal property taxes may be collected, in the absence of timely payment by the taxpayer, through (1) a civil action against the taxpayer; (2) filing a certificate of delinquency for record in the county recorder's office, in order to obtain a lien on property of the taxpayer; (3) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer; and (4) 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. The valuation of taxable property is determined as of January 1 each year, and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due on the lien date and become delinquent August 31, and such taxes are levied at the prior year's secured tax rate. 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 of ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change, and thus delayed the realization of increased property taxes from the new assessments for up to 14 months. As enacted, Chapter 498 provides increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the lien date. To the extent such supplemental assessments occur within the Project Area, Tax Revenues may increase. Collection of taxes based on supplemental assessments will occur throughout the year. Taxes due will be pro -rated according to the amount of time remaining in the tax year, with the exception of tax bills dated the lien date through May 31, which will be calculated on the basis of the remainder of the current fiscal year and the full twelve months of the next fiscal year. Tax Collection Fees County auditors are authorized to determine property tax administration costs proportionately attributable to local jurisdictions, including redevelopment agencies, and to submit invoices to the jurisdictions for such costs. The projections of tax revenues take such administrative costs into account. 33 Unitary Property Tax 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 only 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 % 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 from unitary properties are greater than 102% of prior year revenues, each jurisdiction receives a percentage share of the excess unitary revenues equal to the percentage of each jurisdiction's share of secured property taxes; (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 jurisdiction's annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. The provisions of AB 454 apply to all State -assessed property, except railroads and non - unitary properties the valuation of which will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination or a revision 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. Business Inventory and Replacement Revenue Prior to 1979, the State reimbursed cities, counties, special districts and redevelopment agencies that portion of taxes which would have been generated by the exempted portion of business inventory value (50%). In 1979, the California Legislature enacted AB 66 (Statutes of 1979, Chapter 1150), eliminating the assessment and taxation of business inventory property and providing for replacement revenue for local agencies, except redevelopment agencies. In 1980, the California Legislature enacted AB 1994 (Statutes of 1980, Chapter 610), providing partial replacement revenue for the loss of business inventory revenues by redevelopment agencies. In 1990, the California Legislature amended Section 16112.7 of the California Government Code (Chapter 449, Statutes of 1990) which precludes redevelopment agencies from pledging special subvention revenues toward the payment of debt service for bonded indebtedness incurred after July 31, 1990 (the effective date of the legislation). The 1992-93 State Budget reduced the State's funding for the special subvention. As enacted under AB 222 (Chapter 188, Statutes of 1991), the Budget Act eliminated 1991-92 subvention payments for most redevelopment projects, including the Project Area. Additionally, the 1992-93 State Budget implemented further cuts in funding for the State's special subvention to redevelopment agencies. As a result, these revenues are not included in the projections of estimated tax revenues. Proposition 87 Under prior State law, if a taxing entity increased its tax rate to obtain revenues to repay general obligation bonds approved by two-thirds of the voters, the redevelopment agency with a 34 project area which includes property affected by the tax rate increase would realize a proportionate increase in tax increment. Proposition 87, approved by the voters of the State on November 8, 1988, requires that all revenues produced by a tax rate increase (approved by the voters on or after January 1, 1989) go directly to the taxing entity which increases the tax rate to repay the general obligation bonded indebtedness. As a result, redevelopment agencies no longer receive an increase in tax increment when taxes on property in the project area are increased to repay voter approved general obligation debt. Future Initiatives Article XIIIA, Article XIIIB and Proposition 87 were each adopted as measures that qualified for the ballot pursuant to California's initiative process. From time to time other initiative measures could be adopted, further affecting revenues of the Agency or the Agency's ability to expend revenues. The nature and impact of these measures cannot be anticipated by the Authority or Agency. THE PROJECT AREA In connection with the issuance of the Bonds, the Agency caused Rosenow Spevacek Group Inc., Santa Ana, California, to prepare a Fiscal Consultant's Report dated April 10, 2006, which sets forth current financial and other information on the Project Area. The information below and under the caption "SUBORDINATE TAX REVENUES" includes information contained in the Fiscal Consultant's Report. The Fiscal Consultant's Report is included herein as APPENDIX A. Establishment of the Project Area On July 7, 1987, the Planning Commission approved the preliminary plan for the redevelopment of Project Area No. 2. The Agency's report to the City Council requesting the proposed redevelopment plan indicated that the area had been selected because of the existence of lots of inadequate size for proper usefulness and development; inadequate traffic circulation; numerous obsolete and dilapidated residential structures subject to mixed character and shifting of land uses; above ground voltage transmission lines which are not only unsightly, but because of high winds in the area, a threat to public safety. Following Agency meetings and hearings on the Redevelopment Plan, a joint public hearing was held with the City Council on July 9, 1987. On July 15, 1987, the Redevelopment Plan (the "Redevelopment Plan") for Project Area No. 2 was adopted by the City of Palm Desert pursuant to the adoption of Ordinance No. 509 ("Project Area No. 2"). The Redevelopment Plan was adopted in order to eliminate conditions of blight existing in Project Area No. 2 and to prevent their recurrence by undertaking appropriate redevelopment projects pursuant to the Redevelopment Law. The primary objectives of the Redevelopment Plan include the improvement of traffic circulation; the undergrounding of utilities and the elimination of drainage deficiencies; the elimination of irregularly shaped and inadequate sized parcels of land and the rehabilitation or removal of substandard buildings. The Redevelopment Plan also provides for the expansion of recreational facilities and open space and other public improvements. 35 Adopted on July 15, 1987, the Project Area encompasses approximately 2,927 acres (6,195 parcels) of residential, hotel/resort, office and undeveloped uses. The Project Area is generally bounded by the Palm Desert city limits and Interstate 10 to the north, portions of the City limits to the east, Country Club Drive and Hovely Lane to the south and Portola and Monterey Avenues to the west. There are three other project areas of the Agency. The table below shows land use by assessed value for the parcels in the Project Area. The majority of land in the Project Area is used for residential purposes. PALM DESERT REDEVELOPMENT AGENCY Project Area No. 2 Summary of Land Use in 2005-06 Land No. Secured % of Total Use of Parcels Value Assessed Value Commercial 17 $253,735,686 26.3% Institutional 1 2,992,024 0.3 Professional/Office 10 16,135,679 1.7 Recreational 17 38,187,084 4.0 Residential 1,695 536,001,080 55.5 Vacant Land 490 119,221,517 12.3 Unknown 15 279.353 0.0 Total 2,245 $966,552,423 100.0% Source: Rosenow Spevacek Group Inc.; derived from Metroscan TRW Database based on County of Riverside Assessor information, does not include possessory interest. Limitations and Requirements of the Redevelopment Plan The Redevelopment Plan limits the amount of tax revenues which can be divided and allocated to the Agency from Project Area No. 2 pursuant to the Redevelopment Law to a maximum of $800,000,000 (in 1987 dollars), and limits the amount of bonded indebtedness (to be repaid in whole or in part from such allocation of taxes) which can be outstanding at one time to $150,000,000 (in 1987 dollars). Each of the foregoing maximum amounts is expressed in 1987 dollars and adjusted annually thereafter in accordance with changes in the Consumer Price Index for the nearest area to Project Area No. 2, as maintained by the Bureau of Labor Statistics, United States Department of Labor. The total gross tax increment revenue collected in Project Area No. 2 through 2004-05 is $109,686,684. The cap limitation, when adjusted by the CPI is $1.36 billion for fiscal year 2005-06. Based upon the growth projections utilized in the Fiscal Consultant's Report, Project Area No. 2 will not reach its limit through the end of its term to collect tax increment (fiscal year 2037-38). Pursuant to City Ordinance No. 766, adopted December 8, 1994, the Redevelopment Plan also establishes the following limitations: 1. time limit to issue or incur debt has been eliminated by the adoption of Ordinance 1036 on February 27, 2003; 2. the term of the effectiveness of the Redevelopment Plan of July 15, 2028; and 3. the time limit to receive tax increment generated from the Project Area at ten (10) years beyond the effectiveness date of the Redevelopment Plan, which is July 15, 2037, except that the Agency may continue to receive such necessary tax increment to pay indebtedness or 36 other obligations issued or incurred prior to January 1, 1994 and for the financing of required housing attributable to housing set -aside funds. SB211 SB 211 (Statutes of 2001 Chapter 741) amended the Redevelopment Law by providing cities and redevelopment agencies with an alternative method of determining certain limitations of their redevelopment plans. First, a city may eliminate the time limit to establish indebtedness in project areas adopted prior to January 1, 1994 by ordinance. If a redevelopment plan is so amended, existing tax sharing agreements will continue and certain statutory tax sharing for entities without tax sharing agreements will commence in the year the former limitation would have taken effect. Second, an agency may extend the time limit for plan effectiveness and repayment of debt for up to ten years if it can make certain specified findings. Project areas that have been adopted after January 1, 1994 may only extend the limitation on incurring new debt by making specific findings. On February 27, 2003 the City adopted Ordinance No. 1036, amending the Redevelopment Plan to adopt the plan limitations permitted under SB 211. The ordinance is subject to a 30-day referendum period, after which it will become law. If it becomes law, the ordinance is expected to result in a slight reduction in Tax Revenues beginning in 2008. For further information on the impact that SB 211 would have on the tax increment receipts of the Project Area, see "APPENDIX A — Fiscal Consultant's Report." TAX REVENUES Tax Revenues (as described in the section "SECURITY FOR THE BONDS" herein) derived each year from the levy and collection of taxes on any increase in the taxable valuation of land, improvements, personal property and public utility property in the Project Area, over and above the base year valuation for such property are to be deposited in the Special Fund, administered by the Agency and applied to the payment of the principal of and interest on the Loan. On May 15, 1991, the Riverside County Superior Court entered a final judgment incorporating a Stipulation for Entry of Judgment (the "Stipulation") among the Agency, the Western Center on Law and Poverty, Inc. and California Rural Legal Assistance in connection with litigation filed over the adoption of the Redevelopment Plan for Project Area No. 2 (City of Palm Springs v. All Persons Interested, etc., Case No. Indio 51143). On June 18, 1997 and again on September 20, 2002, the Court entered amendments to its 1991 judgment, incorporating Stipulations Amending Stipulation for Entry of Judgment. Under the terms of the Stipulation, as amended, the Agency has generally agreed to use its 20 percent set aside funds, and other tax increment revenues, if necessary, to develop, rehabilitate, or otherwise financially assist a certain number of affordable housing units and to meet certain housing needs of the City. See "TAX REVENUES - Housing Set -Aside Requirements." The Stipulation, as amended, provides that future indebtedness incurred by the Agency will be payable on a basis which is prior to the obligations imposed by the Stipulation, as amended, if the Agency makes a finding by resolution, based upon a report, that the Agency will have sufficient revenues to meet that indebtedness as well as its obligations under the Stipulation, as amended. Under the terms of the Stipulation, as amended, notwithstanding its other terms, the Agency may incur indebtedness and pledge tax increment revenues to refinance its obligations, so long as (i) the total amount of debt service payable in connection with such refinancing is less than the total amount of debt service remaining to be paid on the refunded obligations, or (ii) the total amount of debt service payable in connection with such refinancing reflects a present value savings 37 when compared with the total amount of debt service remaining to be paid on the refunded obligations. Pass -Through Agreements Pursuant to Section 33607.7 of the Redevelopment Law, a redevelopment agency that extends the original time limit to incur debt becomes required to share certain tax increment revenues with any taxing agency having territory located within the redevelopment project area for which the Agency has not previously entered into pass -through agreements.("Statutory Tax Sharing"). In the Project Area, the Agency has entered into six tax sharing agreements (each, a "Cooperative Agreement"), the provisions of which are summarized in "APPENDIX A — FISCAL CONSULTANT'S REPORT — Payments to Project Area Taxing Agencies." [Add further discussion if Cooperative Agreements are revenues for coverage purposes] Schedule of Historical Tax Revenues The following tables provide a schedule of the historical tax increment revenues attributable to the Project Area for the fiscal years shown. For further information regarding the historical tax increment revenues for the Project Area see "APPENDIX A — Fiscal Consultant's Report." Secured Valuation Unsecured Valuation Total Valuation Incremental Valuation PALM DESERT REDEVELOPMENT AGENCY Project Area No. 2 Historical Tax Increment Revenues Fiscal Years 2001-02 through 2005-06 2001-02 2002-03 2003-04 2004-05 2005-06 $948,228023 $1,134,005,914 $1,257974,957 $1,347,408,182 $1,451,555,514 11.464.203 10.426.145 15.969.361 17.745.052 16.317.319 959,692,226 1,144,432,059 1,273,944,318 1,365,153,234 1,467,872,833 857,534,779 1,042,274,612 1,171,786,871 1,262,995,787 1,365,715,386 Total Estimated Revenue") 8,459,376 Actual Receipts 10,289,020 11,574,903 12,486,136 $13,510,987 $8,717,272 $10,681,120 $12,387,750 $13,490,609 N/A (1) Before payment of Pass -Through Agreements, Housing Set -Aside; after payment of County administration charge. Source: Rosenow Spevacek Group Inc. 38 Current and Planned Development The Fiscal Consultant's Report identified development currently approved and/or underway in the Project Area, indicating the use, square footage, projected value, and projected approximate completion time of the new development. The Fiscal Consultant identified the planned projects as shown in the following table. PALM DESERT REDEVELOPMENT AGENCY Project Area No. 2 Projected New Development 2007-08 2008-09 2009-10 Residential $14,698,200 $35,448,100 $173,606,913 Commercial 18,312,140 42,593,000 0 Industrial 6,582,000 3,913,000 0 Total $39,592,340 $81,954,100 $173,606,913 Source: Rosenow Spevacek Group Inc. See APPENDIX A — "FISCAL CONSULTANT'S REPORT — Future Tax Increment Projections" attached hereto. Projected Taxable Valuation and Tax Revenue The Agency has retained Rosenow Spevacek Group Inc., Santa Ana, California to provide projections of tax increment revenues in the Project Area. Projections of tax increment growth are based upon: • Proposition 13 inflationary adjustments of 2% annually; • Valuation increases based on ownership changes; • Valuation increases caused by new construction. The Agency believes the assumptions (set forth in APPENDIX A) upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur (see "RISK FACTORS"). Therefore, the actual tax increment revenues received during the forecast period may vary from the projections and the variations may be material. A summary of the projected tax increment revenues for the Project Area and the debt service coverage on the Parity Debt (the Loan, the Senior 2002 Loan, and the Senior 2003 Loan) is set forth in the following table. For additional information regarding projected tax increment revenues see "APPENDIX A — Fiscal Consultant's Report. " 39 PALM DESERT REDEVELOPMENT AGENCY Project Area No. 2 Projected Tax Increment Revenues And Debt Service Coverage- Bonds Fiscal Years 2005-06 through 2012-13 Fiscal Subordinate Year Total Project Senior Senior Loan Subordinate Loan Ending Area Net Tax Existing Parity Loan Total Parity Coverage Loan Debt Coverage June 30 Increment (1) Debt Service (2) Debt Service Debt Service (3) Ratio Service Ratio 2006 $5,596,977 $2,413,989 2007 6,269,216 2,070,339 2008 6,539,590 2,072,084 2009 6,916,638 2,075,859 2010 7,598,670 2,071,874 2011 7,730,926 2,070,504 2012 7,876,824 2,077,644 2013 8,126,125 2,073,769 2014 8,266,469 2,076,359 (1) Amounts are net of pass -through agreement payments and low and moderate income housing fund payments. (2) Combined debt service on the Senior 2002 Loan and the Senior 2003 Loan. (3) Combined debt service on the Loan, the Senior 2002 Loan and the Senior 2003 Loan. Sources: Rosenow Spevacek Group Inc., and Citigroup. 40 Top Ten Taxpayers The following table lists the ten largest property tax payers in the Project Area, based on combined secured and unsecured assessed valuation. The top ten taxpayers account for 27.31 % of the total property tax roll in the Project Area. For tables showing the top ten taxpayers based on secured value only and the top ten taxpayers based on unsecured value only see "APPENDIX A —Fiscal Consultant's Report — Top Ten Taxpayers". PALM DESERT REDEVELOPMENT AGENCY Project Area No. 2 Top Ten Taxpayers in Fiscal Year 2005-06 Assessed Percentage Owner Value of Total Roll 1. Desert Spring Hotel/Marriott $237,366,747 16.17% 2. Marriott Ownership Resorts Inc. 55,540,166 3.78 3. Ashford Ruby Palm Desert I 30,267,496 2.06 4. Palm Desert Funding Co 18,403,763 1.25 5. Desert Falls County Club 11,934,000 0.81 6. Sinatra/Cook Project LLC 11,102,261 0.76 7. Resort Ventures 11,042,983 0.75 8. BNY Western Trust 9,086,716 0.62 9. Manor Healthcare Corp 8,672,821 0.59 10. Villas At Desert Dalis 7,519,695 0.51 Total Fiscal Year 2005-06 Total Assessed Value: $1,467,872,833. Source: Rosenow Spevacek Group Inc. Filing of Statement of Indebtedness $400,936,648 27.31 Section 33675 of the Redevelopment Law requires that the Agency file, not later than the first day of October of each year with the county auditor, a statement of indebtedness certified by the chief financial officer of the Agency for each redevelopment project for which the redevelopment plan provides for the division of taxes pursuant to section 33670 of the Redevelopment Law. The statement of indebtedness is required to contain, among other things, the date on which the bonds were delivered, the principal amount, term, purpose, interest rate and total interest of the bonds, the principal amount and the interest due in the fiscal year in which the statement of indebtedness is filed and the outstanding balance and amount due on the bonds. Similar information must be given for each loan, advance or indebtedness that the Agency has incurred or entered into which is payable from tax increment. Section 33675(g) has been amended by AB 1290 to provide that payments of tax increment revenues from the county auditor to a redevelopment agency may not exceed the redevelopment agency's aggregate total outstanding debt service obligations minus the available revenues of the redevelopment agency, and establishes certain procedures under which a county auditor may, in certain cases, dispute the amount of indebtedness shown on the statement of indebtedness. Payments to a trustee under a bond resolution or indenture or payments to a public agency in connection with payments by such public agency pursuant to a bond issue may not be disputed in any action under Section 33675. 41 The Agency has determined that the amendments to Section 33675 limiting the payment of tax revenues to an amount not greater than the difference between a redevelopment agency's total outstanding debt obligations and total available revenues, as reported on the redevelopment agency's reconciliation statement, will not have an adverse impact on the Agency's ability to meet its debt service obligations. Housing Set -Aside Requirements In accordance with Section 33334.2 of the Redevelopment Law, not less than twenty percent (20%) of all taxes which are allocated to the Agency shall be used by the Agency for purposes of improving, increasing and preserving the City's supply of housing for persons and families of low or moderate income (including the payment of indebtedness issued or incurred for such purposes). This requirement is applicable unless the Agency makes the finding that: 1. No need for such housing exists in the City; 2. Less than twenty percent (20%) is sufficient to meet such housing needs of the City; or 3. A substantial effort is presently being carried out with other funds (either local, State or federal) and that such efforts are equivalent in impact to twenty percent (20%) of all taxes which are allocated to the Agency. Both the "no need" finding (item 1 above) and the "less than 20% finding" (item 2 above) must apply to very low income as well as low and moderate income households, must be consistent with the housing element of the community's general plan and the annual report of its planning agency, and do not become effective until after certain filings have been made with the State Department of Housing and Community Development ("HCD"). Neither finding can be made unless the housing element is in proper form and up to date and has been filed with HCD. The "equivalent effort" finding (item 3 above) must apply to the community's share of regional housing needs as well as its own existing and projected needs. After June 30, 1993, no agency may make this finding unless it can show evidence that it is required in order to meet contractual obligations to bondholders or other private entities incurred prior to May 1, 1991 and made in reliance on the on the ability to make the finding. The Agency has made no such findings. Funds available from the twenty percent (20%) requirement may be used outside the Project Area on a finding by the Agency and the City Council that such use will be of benefit to the Project Area. The Redevelopment Law also permits agencies with more than one project area to set aside less than twenty percent (20%) of the taxes allocated to the agency from one project area if the difference is made up from another project area in the same year and if the agency and the legislative body of the community find that such use of funds will benefit such other project area. 42 PALM DESERT FINANCING AUTHORITY The Authority is a joint powers authority whose members are the City and the Agency. The Authority is duly organized and existing under a Joint Exercise of Powers Agreement dated January 26, 1989, by and between the City and the Agency, and under the provisions of Chapter 5 of Division 7 of Title 1 of the California Government Code. The officers of the City and the Agency serve as the officers of the Authority. The Authority has no taxing power, and has no source of revenue other than the Revenues for paying the debt service on the Bonds. PALM DESERT REDEVELOPMENT AGENCY Authority and Management The Agency was established pursuant to the Redevelopment Law. The City Council adopted Ordinance No. 53 on October 24, 1974, which activated the Agency. The Agency is governed by a five -member board which consists of all members of the City Council of the City of Palm Desert. The Mayor who acts as Chairperson of the Agency is appointed by the City Council. City Council members, their occupations and term expiration dated are as follows: Board Member James C. Ferguson, Chairman Richard S. Kelly, Vice Chairman Jean M. Benson, Commissioner Buford A. Crites, Commissioner Robert A. Spiegel, Term Expires November, 2006 November, 2008 November, 2006 November, 2008 November, 2008 Occupation Attorney at Law Retired Businessman Retired Businesswoman College Professor Retired Businessman The professional staff of the Agency presently includes the following: Carlos L. Ortega was appointed City Manager in August 2000. He has also served as Executive Director of the Agency, a position he has held since 1983. Mr. Ortega has also served as Assistant City Manager from 1980 until 1995, and Assistant to the City Manager from 1977 to 1980. 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 the University of Redlands. Justin McCarthy has served as the Assistant City Manager for Redevelopment since November, 2001. Mr. McCarthy began his career as 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. He served for two years as the Redevelopment Manager for the San Diego Southeast Economic Development Corporation managing industrial and commercial projects. For the last thirteen years Mr. McCarthy served as the Deputy Executive Director and Community Development Director for the City of Commerce. During his career he has implemented millions of square feet of public/private projects valued at approximately $1 billion. 43 Aria K. Scott serves as the Senior Financial Analyst for Redevelopment. Ms. Scott was previously with JPMorgan Chase Bank. She began her tenure there in the Trust Operations Department, and later moved on to a Relationship Manger position in their Treasury and Security Services Department. Within Treasury and Security Services, she worked in their Municipal and Corporate Debt Department, where she worked with various municipalities and corporations serving as their bond trustee. Later she moved into the Trust Compliance Department where she dealt with mitigating risk to JPMorgan Chase on a daily basis, by reviewing documents, laws and regulations. She received her BBA in Finance from University of Houston. Veronica Tapia has been with the City for over nine years, and for the last two years has served as the Accountant for the Agency. She is responsible for compiling the federal and state mandated reports for the Agency, the administration of the Agency's outstanding bond issues of approximately $245 million, and the overall accounting duties for both the 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. Homer Croy serves as the Assistant City Manager for Development Services. The Development Services Division is comprised of three departments: Building and Safety, Community Development and Public Works. Mr. Croy has been employed by the City since 2000, when he was hired to serve as the Director of Building and Safety. Mr. Croy has been employed in city government service since 1985, having served in the cities of Pomona, San Gabriel, and Simi Valley. During his tenure in government service, Mr. Croy has had direct experience with earthquake disaster recovery, project design and construction, FEMA floodplain management, and construction management. Sheila R. Gilligan serves as the Assistant City Manager for Community Services, a position she has held 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 Visitor's Information Center, and special events for the City. Prior 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. Ms. Gilligan has been active in the civic affairs for the City, and, is the Past President of Soroptimist International of Palm Desert and also served on the Board of Directors of the Family Y.M.C.A., the Palm Desert Youth Center, the Haymen Center, and is currently President of the Desert Cancer Foundation. Paul S. Gibson serves as Treasurer/Finance Director of the Agency and the City of Palm Desert, a position he has held since 1988. Prior to this position, Mr. Gibson served for three years as the Accounting Supervisor for the City. Subsequent to this date, Mr. Gibson spent five years with Imperial County as the Accountant -Auditor for the Auditor Controller's office. Mr. Gibson holds a Bachelor of Science degree in Accounting from San Diego State University. David L. Yrigoyen serves as the Director of Redevelopment/Housing with the Agency. Prior to his current position and beginning in 1985, Mr. Yrigoyen served as the Senior Administrative Assistant to the Agency and then as Redevelopment Manager. Prior service includes work with the City of Coachella, California, as the Economic Development Coordinator, a position he held since 1982. 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. 44 Rachelle D. Klassen started with the City's Finance Department in June, 1995. Since 1997 she has worked in the City Clerk's Office; initially as the Records Technician, appointed Deputy City Clerk in 1998, and City Clerk on July 1, 2002. She received Certified Municipal Clerk status from the International Institute of Municipal Clerks in October, 2001. As City Clerk, she also serves as Secretary to the Redevelopment Agency, Housing and Financing Authorities, with responsibilities of preparing and presenting all agendas and minutes for same, maintaining all official City/Agency/Authority records, as well as the related duties of City elections and being available to the public for information on legislative and administrative actions. Her background includes an Associate in Arts Degree, with honors, from Waldorf College, Forest City, Iowa, with continuing units obtained at College of the Desert since relocating to the Coachella Valley. For the 12 years before relocating to California, she was administrative assistant to both the president and vice president of the world's largest manufacturer of grain drying and handling equipment. Agency Powers The Agency is charged with the responsibility of eliminating blight within its redevelopment project areas through the process of redevelopment. Generally, this process culminates when the Agency disposes of land for development by the private sector. Before this can be accomplished, the Agency must complete the process of acquiring and assembling the necessary sites, relocating residents and businesses, demolishing the deteriorated improvements, grading and preparing the sites for purchase by developers and providing for ancillary offsite improvements. All powers of the Agency are vested in its five members. The Agency exercises all of the governmental functions authorized under the Redevelopment Law in carrying out projects and has sufficient broad authority to acquire, develop, administer and sell or lease property, including the right of eminent domain and the right to issue bonds, notes and other evidences of indebtedness and expend their proceeds. The Agency can clear buildings and other improvements and develop as a building site any real property owned or acquired, and in connection with such development, cause streets, highways and sidewalks to be constructed or reconstructed and public utilities to be installed. Redevelopment in the State of California may be carried out pursuant to the Redevelopment Law. 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 welfare, including recreational and other facilities incidental or appurtenant to them. The Agency may, out of the funds available to it for such purposes, pay for all or part of the cost of land and buildings, facilities, structures or other improvements to be publicly owned, to the extent that such improvements are of benefit to the relevant project area or the immediate neighborhood in which the project is located no other reasonable means of financing is available and the payment of funds will assist in the elimination of one or more blighting conditions inside the project area or provide housing for low and moderate income persons and is consistent with the implementation plan adopted pursuant to section 33490 of the Redevelopment Law. The Agency must sell or lease remaining property within a project area for redevelopment by others in strict conformity with the applicable redevelopment plan, and may specify a period within which such redevelopment must begin and be completed. 45 Financial Information Included in this Official Statement, as APPENDIX C, are the audited financial statements of the Agency for the Fiscal Year ended June 30, 2005. Redevelopment Project Areas The Agency is presently charged with the responsibility of the ongoing administration and implementation of four redevelopment project areas within the City. Pass -Through Agreements The Agency has entered into several agreements to pay tax increment revenues to certain taxing agencies entitled to receive ad valorem taxes from property located within the Project Area in an amount which in the Agency's determination is appropriate to alleviate any financial burden or detriment caused by redevelopment activities within the Project Area. These agreements normally provide for a pass -through of tax increment revenues directly to the affected taxing agency, and therefore are commonly referred to as "pass -through agreements" or "tax -sharing agreements." See "APPENDIX A — Fiscal Consultant's Report" for a description of these pass -through agreements. Regulatory Issues The Agency is in compliance with the provisions of the California Environmental Quality Act, constituting Division 13 (commencing with Section 21000) of the California Public Resources Code with respect to the Project Area. VERIFICATION OF MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by the Agency or the Authority relating to (a) computation of forecasted receipts of principal and interest on amounts deposited with the trustee for the 1995 Bonds and the forecasted payments of principal and interest to redeem the 1995 Bonds, and (b) computation of the yields on the Bonds will be examined by Grant Thornton, Minneapolis, Minnesota (the "Verification Agent"). Such computations are based solely upon assumptions and information supplied by the Agency or the Authority. The Verification Agent has restricted its procedures to examining the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information upon which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. 46 CONCLUDING INFORMATION Continuing Disclosure The Agency will undertake all responsibilities for continuing disclosure to Owners of the Bonds as described below. The Insurer as a provider of municipal bond insurance is not subject to the continuing disclosure requirements of Securities and Exchange Commission Rule 15c2- 12, and the Agency will not provide any ongoing disclosure with respect to the Insurer. The Agency will covenant for the benefit of Bondholders to provide certain financial information and operating data relating to the Agency and the Project Area by not later than six months after the end of the Fiscal Year to which such information pertains, commencing with the 2005-06 Fiscal Year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed with each Nationally Recognized Municipal Securities Information Repository and with any then existing State Repository (collectively, the "Repositories"). Currently, there is no State Repository. The notices of material events will be filed with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report or the notices of material events is described in "APPENDIX G - FORM OF CONTINUING DISCLOSURE AGREEMENT" attached hereto. These covenants will be made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). The Agency has not failed to comply in any material respect with any of its other continuing disclosure undertakings under Rule 15c2-12(b)(5). Underwriting The Underwriter expects to purchase the Bonds at a purchase price of $ , representing the principal amount of the Bonds, less an Underwriter's discount of $ , plus an initial issue premium of $ . The Underwriter intends to offer the Bonds to the public initially at the prices set forth on the inside front cover page of this Official Statement, which prices may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers. Legal Opinion The Bond Counsel firm of Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, will render its final approving legal opinion with respect to the Bonds substantially in the form set forth in APPENDIX B hereto. The legal opinion is only as to legality of the Bonds and is not intended to be nor is it to be interpreted or relied upon as a disclosure document or an express or implied recommendation as to the investment quality of the Bonds. Tax -Exempt Status of the Bonds In the opinion of Richards, Watson & Gershon, A Professional Corporation, Bond Counsel, under existing law interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), and is not an item of tax preference for purposes of the federal alternative 47 minimum tax imposed on individuals and corporations. Bond Counsel will express no opinion as to any other federal tax consequences regarding the Bonds. The opinion on federal tax matters will be based on and will assume the accuracy of certain representations and certifications, and continuing compliance with certain covenants, of the Agency and the Authority that are intended to assure the foregoing, including that the Bonds are and will remain obligations, the interest on which is excluded from gross income for federal income tax purposes. Bond Counsel will 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 with these qualifications and conditions by the Authority or the Agency may cause the interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Bonds. The Authority and the Agency have covenanted to take the actions required of them for the interest on the Bonds to be and to remain excluded from gross income for federal income tax purposes, and not to take any actions that would adversely affect that exclusion. Under the Code, a portion of the interest on the Bonds earned by certain corporations may be subject to a corporate alternative minimum tax. In addition, interest on the 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 will depend upon the particular tax status or other tax items of the owners of the Bonds. Bond Counsel will express no opinion regarding those consequences. Any excess of the stated redemption price at maturity of the Bonds over the initial offering price to the public of the Bonds set forth on the inside cover of this Official Statement is "original issue discount." Such original issue discount accruing on a Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and exempt from California personal income tax. Original issue discount on any Bond purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term of the Bond on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a Bond accruing during each period is added to the adjusted basis of such Bond to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such Bond. The Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds other than at the initial offering price and pursuant to the initial offering. Any person considering purchasing a Bond should consult his or her own tax advisors with respect to the tax consequences of ownership of bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering and the original offering price, the allowance of a deduction for any loss on a 48 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 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 Bonds, based on the yield to maturity of the Bonds, compounded semiannually. No portion of that premium is deductible by the owner of a Bond. For purposes of determining the owner's gain or loss on the sale, redemption (including redemption at maturity) or other disposition of a Bond, the owner's tax basis in the 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 Bond for an amount equal to or less than the amount paid by the owner for that Bond. A purchaser of a Bond in the initial public offering at the price for that Bond stated on the inside cover of this Official Statement who holds that Bond to maturity will realize no gain or loss upon the retirement of that Bond. Owners of the 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 with respect to the 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 Bonds at other than their original issuance at the respective prices indicated on the inside cover of this Official Statement should consult their own tax advisers regarding other tax considerations such as the consequences of market discount or premium. In the further opinion of Bond Counsel, interest on the Bonds is exempt from personal income taxation imposed by the State of California. A copy of the proposed form of Bond Counsel's final approving opinion with respect to the Bonds is attached hereto as APPENDIX B. No Litigation There is no action, suit or proceeding known to the Authority to be pending or threatened, restraining or enjoining the execution or delivery of the Bonds or the Indenture or in any way contesting or affecting the validity of the foregoing or any proceedings of the Authority taken with respect to any of the foregoing. Ratings The Bonds are rated " " by Moody's Investors Service and " " by Standard & Poor's Ratings Group and " " by Fitch Ratings. The ratings reflect the coverage of payment when due of principal of and interest on the Bonds by a municipal bond insurance policy to be issued by the Insurer simultaneously with the issuance of the Bonds. The ratings reflect only the views of the rating organizations, and explanations of the significance of the ratings may be obtained from Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007 and Standard & Poor's Ratings Group, 55 Water Street, New York, New York, 10041. There is no assurance that the ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of the rating agencies circumstances so warrant. Any such downward revision or withdrawal of the ratings may have an adverse effect on the market price of the Bonds. 49 Miscellaneous All of the preceding summaries of the Loan Agreement, the Indenture, the Bond Law, the Redevelopment Law, other applicable legislation, the Redevelopment Plan for the Project Area, agreements and other documents are made subject to the provisions of 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 with the Authority for further information in connection therewith. This Official Statement does not constitute a contract with the purchasers of the Bonds. Any statements made in this Official Statement involving matters of opinion or estimates, whether 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 Chief Administrative Officer of the Authority have been duly authorized by the Authority. PALM DESERT FINANCING AUTHORITY Chief Administrative Officer 50 APPENDIX A FISCAL CONSULTANT'S REPORT A-1 APPENDIX B FORM OF OPINION OF BOND COUNSEL [Closing Date] Palm Desert Financing Authority 73-519 Fred Waring Drive Palm Desert, California 92260 Opinion of Bond Counsel with reference to $ Palm Desert Financing Authority Subordinate Tax Allocation Refunding Revenue Bonds (Project Area No. 2) 2006 Series A Ladies and Gentlemen: We have examined (i) a record of proceedings relating to the issuance of the above - captioned bonds (the "Bonds") of the Palm Desert Financing Authority, a public entity of the State of California (the "Authority"); (ii) the Indenture of Trust, dated as of July 1, 2006 (the "Indenture"), by and between the Authority and Wells Fargo Bank, National Association, as trustee (the "Trustee"); (iii) the Project Area No. 2, Loan Agreement, dated as of July 1, 2006 (the "Loan Agreement"), by and among the Authority, the Palm Desert Redevelopment Agency (the "Agency") and the Trustee; and (iv) such other matters of law as we have deemed necessary to enable us to render the opinions expressed herein. As to questions of fact material to this opinion, we have relied upon such certificates and documents without undertaking to verify the same by independent investigation. The Bonds are issued under and pursuant to the Indenture and the provisions relating to the joint exercise of powers found in Chapter 5 of Division 7 of Title 1 of the Government Code of California, as amended (the "Act"), including the provisions of the Marks -Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Act. The Bonds are issued for the purpose of making a Loan to the Agency to finance certain public capital improvements for the benefit of the Project Area. Capitalized terms used herein which are not defined herein shall have the meanings given such terms in the Indenture. We are of the opinion that: 1. The Authority is duly created and validly existing under the provisions of the Act. 2. The Authority has the right and power to enter into and carry out its obligations under the Loan Agreement and has duly authorized, executed and delivered the Loan B-1 Agreement, which (assuming due authorization, execution and delivery by the Trustee) constitutes a valid and binding agreement of the Authority enforceable in accordance with its terms. 3. The Authority has the right and power to enter into the Indenture, and the Indenture has been duly and lawfully authorized, executed and delivered by the Authority, and (assuming due authorization, execution and delivery by the Trustee) is in full force and effect in accordance with its terms and is valid and binding upon the Authority and enforceable in accordance with its terms, and no other authorization for the Indenture is required. The Indenture creates the valid pledge which it purports to create of (i) the Revenues (as defined in the Indenture) and (ii) certain funds established by the Indenture, including the investments, if any, thereof; subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture. 4. The Authority is duly authorized and entitled to issue the Bonds, and the Bonds have been duly and validly authorized and issued by the Authority in accordance with the Constitution and statutes of the State of California, including the Act, and in accordance with the Indenture. The Bonds constitute the valid and binding obligations of the Authority as provided in the Indenture, are enforceable in accordance with their terms and the terms of the Indenture and are entitled to the benefits of the Act and the Indenture. The Bonds are not an obligation of the State of California, any public agency thereof (other than the Authority), or any member of the Authority and neither the faith and credit nor the taxing power of the State of California or any public agency thereof or any member of the Authority is pledged for the payment of the Bonds. The Authority has no taxing power. 5. The Agency has the right and power to enter into and carry out its obligations under the Loan Agreement and has duly authorized, executed and delivered the Loan Agreement, which (assuming due authorization, execution and delivery by the Trustee) constitutes a valid and binding agreement of the Agency enforceable in accordance with its terms. The Loan Agreement creates the valid pledge which it purports to create of the Tax Revenues (as defined in the Loan Agreement) and the Reserve Fund, subject only to the provisions of the Loan Agreement permitting the application thereof for the purposes and on the terms and conditions set forth in the Loan Agreement. 6. Interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the covenant described below, is excluded from gross income for Federal income tax purposes. The Bonds are not "specified private activity bonds" within the meaning of Section 57(a)(5) of the Internal Revenue Code of 1986, as amended (the "Code") and, therefore, the interest on the Bonds will not be treated as a preference item for purposes of computing the alternative minimum tax imposed by Section 55 of the Code. However, we note a portion of the interest on Bonds owned by corporations may be subject to the Federal alternative minimum tax, which is based in part on adjusted current earnings. The Code sets forth certain requirements which must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded from gross income for Federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issue of the Bonds. The Authority has covenanted in the Indenture to satisfy, or take such actions as may be necessary to cause to be satisfied, each provision of the Code necessary to maintain the exclusion of the interest on the Bonds from gross income for Federal income tax purposes pursuant to Section 103(a) of the Code. B-2 Certain requirements and procedures contained or referred to in the Indenture and other relevant documents may be changed and certain actions may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. We express no opinion as to any Bond, or the interest thereon, if any change occurs or action is taken upon the advice or approval of other bond counsel. Except as stated in the foregoing paragraph numbered 6 and the paragraph immediately following paragraph 6, we express no opinion as to any Federal or state tax consequences of the ownership or disposition of the Bonds. The opinions expressed in the paragraphs numbered 2, 3, 4 and 5 hereof are qualified to the extent that the enforceability of the Loan Agreement, the Indenture and the Bonds may be limited by any applicable bankruptcy, insolvency, debt adjustment, moratorium, reorganization or other similar laws affecting creditors' rights generally or as to the availability of any particular remedy. Respectfully submitted, B-3 APPENDIX C AGENCY AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2005 C-1 APPENDIX D CITY OF PALM DESERT GENERAL INFORMATION The following information concerning the City of Palm Desert, the County of Riverside and surrounding areas is included only for the purpose of supplying general information regarding the community. The Bond and the Loan are not an obligation of the City. The following information concerning the City and surrounding areas are included only for the purpose of supplying general information regarding the community. The Local Obligations and the Bonds are not a debt of the City, the State, or any of its political subdivisions and neither said City, said State, nor any of its political subdivisions is liable therefor. See the section herein entitled "SECURITY FOR THE BONDS AND SOURCES OF PAYMENT THEREFOR." General Description and Background The City of Palm Desert (the "City") is located in the Coachella Valley and is approximately midway between the cities of Indio and Palm Springs, 117 miles east of Los Angeles, 118 miles northeast of San Diego and 515 miles southeast of San Francisco. The City was incorporated on November 26, 1973, as a general law city. In 1997 the City became a charter city. Elevation of the City is 243 feet and the mean temperature is 73.1 degrees. Except for the summers, the weather is mild and annual average rainfall is 3.38 inches. According to State Department of Finance estimates, the City population as of January 1, 2005 was 49,280. The City covers an area of 24.75 square miles. Population The following sets forth the City, the County and the State population estimates as of January 1 for the years 2002 to 2006: CITY OF PALM DESERT, RIVERSIDE COUNTY AND STATE OF CALIFORNIA Estimated Population Year City of Riverside State of (January 1) Palm Desert County California 2002 43,129 1,654,220 35,088,671 2003 44,490 1,726,754 35,691,442 2004 45,604 1,807,624 36,245,016 2005 49,595 1,888,311 36,728,196 2006 49,539 1,953,330 37,172,015 Source: State of California Department of Finance, Demographic Research Unit. Commerce Total taxable sales reported during calendar year 2004 in the City were reported to be $1,433,296,000, a 10.5% increase over the total taxable sales of $1,296,730,000 reported during the first quarter calendar year 2003. The number of establishments selling merchandise D-1 subject to sales tax and the valuation of taxable transactions in the City is presented in the following table. CITY OF PALM DESERT Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in thousands) Number of Permits 2000 1,376 2001 1,529 2002 1,532 2003 1,538 2004 1,684 Retail Stores Taxable Change Transactions $1,020,025 -- 1,015,932 -0.4% 1,019,327 0.3% 1,103,689 8.3% 1,228,411 11.3% Total All Outlets Number Taxable Change of Permits Transactions 2,627 $1,217,986 -- 2,833 1,211,069 -0.6% 2,979 1,209,385 -0.1 % 3,146 1,296,730 7.2% 3,254 1,433,296 10.5% Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions within the County is presented in the following table. COUNTY OF RIVERSIDE Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in thousands) Number of Permits 2000 16,309 2001 17,403 2002 17,646 2003 18,300 2004 20,642 Retail Stores Taxable Change Transactions $12,190,474 -- 13,173,281 8.1 14,250,733 8.2% 16,030,952 12.5% 18,715,949 16.7% Number of Permits 36,117 38,011 38,767 40,833 42,826 Total All Outlets Taxable Change Transactions $16,979,449 -- 18,231,555 7.4% 19,498,994 7.0% 21,709,135 11.3% 25,237,148 16.3% Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). D-2 Employment and Industry The City is included in the Riverside -San Bernardino labor market area. The unemployment rate in Riverside County was 4.7 percent in February 2006, up from a revised 4.5 percent in January 2006, and below the year-ago estimate of 5.5 percent. This compares with an unadjusted unemployment rate of 5.4 percent for California during the same period. The following table shows the average annual estimated numbers of wage and salary workers by industry. Does not include proprietors, the self-employed, unpaid volunteers or family workers, domestic workers in households, and persons in labor management disputes. RIVERSIDE-SAN BERNARDINO METROPOLITAN STATISTICAL AREA (RIVERSIDE COUNTY) Civilian Labor Force, Employment and Unemployment (Annual Averages) Civilian Labor Force (1) Employment Unemployment Unemployment Rate Wage and Salary Employment: (2) Agriculture Natural Resources and Mining Construction Manufacturing Wholesale Trade Retail Trade Transportation, Warehousing and Utilities Information Finance and Insurance Real Estate and Rental and Leasing Professional and Business Services Educational and Health Services Leisure and Hospitality Other Services Federal Government State Government Local Government Total All Industries 2001 2002 2003 2004 1,562,300 1,639,700 1,688,300 1,650,500 1,484,100 1,543,400 1,588,700 1,556,100 78,200 96,300 99,600 94,400 5.0% 5.9% 5.9% 5.7% 20,900 20,300 20,300 18,700 1,200 1,200 1,200 1,200 88,400 90,900 99,000 111,800 118,600 115,400 116,100 120,100 41,600 41,900 43,500 45,600 132,200 137,500 142,700 153,800 45,600 46,800 50,100 55,500 14,600 14,100 13,900 14,000 22,900 23,500 25,700 28,000 15,300 15,900 16,900 17,700 101,700 106,800 115,400 125,500 106,000 112,400 115,800 118,400 104,400 107,200 109,000 116,700 37,100 38,100 38,400 39,300 16,900 16,900 17,000 17,300 25,800 26,600 26,600 26,500 157,600 169,300 167,900 168,700 1,050,700 1,084,800 1,119,400 1 178,700 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid household domestic workers, and workers on strike. Source: State of California Employment Development Department. 2005 1,714,000 1,627,700 86,300 5.0 18,200 1,300 122,200 120,200 49,200 165,000 59,700 14,400 29,900 18,700 132,500 120,000 122,400 41,200 18,600 27,000 174,800 1,235,400 family workers, family workers, D-3 Major Employers The following table lists the largest employers within the County, listed alphabetically: Employer Name C A State Transportation Casino Morongo Chase Manhattan Mortgage Corp Crossroads Truck Dismantling Desert Regional Medical Ctr Eisenhower Medical Ctr Guidant Corp Jw Marriott Desert Springs Rst La Quinta Resort & Club Labtechniques Mountain & Dunes Golf Courses Oasis Distributing Parkview Community Hospital Pechanga Resort & Casino Riverside Community College Riverside Community Hospital Riverside County Regional Med Signatures Spa Resort Casino Starcrest Starcrest Products Of Ca Sun World Intl Inc University Of California Valley Health System Watson Pharmaceuticals Inc COUNTY OF RIVERSIDE Major Employers (As of January 2006) Location Lake Elsinore Cabazon Moreno Valley Mira Loma Palm Springs Rancho Mirage Temecula Palm Desert La Quinta Rancho Mirage La Quinta Thermal Riverside Temecula Riverside Riverside Moreno Valley Perris Palm Springs Perris Perris Coachella Riverside Hemet Corona Industry Government Offices -State Tourist Attractions Real Estate Loans Automobile Dismantling/Recycling (Whol) Hospitals Clinics Physicians & Surgeons Equip & Supls-Mfrs Hotels & Motels Hotels & Motels Laboratories -Medical Golf Courses -Private Fruits & Vegetables -Growers & Shippers Hospitals Casinos Schools -Universities & Colleges Academic Hospitals Hospitals Mail Order & Catalog Shopping Casinos Mail Order & Catalog Shopping Mail Order & Catalog Shopping Fruits & Vegetables -Growers & Shippers Schools -Universities & Colleges Academic Hospitals Drug Millers Source: California Employment Development Department, extracted from The America's Labor Market Information System (ALMIS) Employer Database. D-4 Construction Activity The following is a five year summary of the valuation of building permits issued in the City and the County. Permit Valuation New Single-family New Multi -family Res. Alterations/Additions Total Residential New Commercial New Industrial New Other Com. Alterations/Additions Total Nonresidential City of Palm Desert Building Permit Valuation (Valuation in Thousands of Dollars) 2001 2002 2003 2004 2005 $82,145.0 $60,526.9 $65,066.1 $81,436.8 $46,917.6 28,885.0 27,001.6 11,992.5 11,198.0 17,553.1 9,043.2 12,957.5 9,328.9 11,103.3 13,660.2 120,073.2 100,486.0 86,387.6 103,738.2 78,130.9 11,177.0 14,707.5 7,272.6 19,863.5 60,005.2 5,438.4 3,012.0 712.6 3,005.1 13,495.5 1,264.2 1,160.0 1,249.8 7,896.1 5,278.0 18,439.4 22,534.2 10,888.0 12,347.4 13,756.7 36,319.0 41,413.7 20,123.0 43,112.1 92,535.4 New Dwelling Units Single Family 255 221 237 325 100 Multiple Family 411 310 101 111 135 TOTAL 666 531 338 436 235 Source: Construction Industry Research Board, Building Permit Summary. Permit Valuation New Single-family New Multi -family Res. Alterations/Additions Total Residential COUNTY of Riverside Building Permit Valuation (Valuation in Thousands of Dollars) 2001 2002 2003 2004 2005 $3,051,190.4 $3,670,371.4 $4,665,675.7 $5,997,513.2 $6,243,791.7 174,628.0 165,413.0 406,483.0 404,615.9 407,432.1 70,849.7 87.842.9 106.855.8 135,176.6 164.312.5 3,296,668.2 3,923,627.4 5,179,014.5 6,537,305.6 6,815,536.3 New Commercial 287,068.6 297,963.6 360,707.4 580,057.8 552,666.9 New Industrial 74,766.3 80,881.6 112,706.6 203,311.9 120,367.6 New Other 152,854.0 187,510.6 261,793.6 334,001.0 344,703.2 Com. Alterations/Additions 143,351.7 174,785.7 173.165.5 222,495.5 274.337.7 Total Nonresidential 658,040.6 741,141.5 908,373.1 1,339,866.1 1,292,075.4 New Dwelling Units Single Family 16,556 20,591 25,137 29,478 29,994 Multiple Family 2,458 2,073 5,224 4,748 4,140 TOTAL 19,014 22,664 30,361 34,226 34,134 Source: Construction Industry Research Board, Building Permit Summary. D-5 Effective Buying Income "Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other labor -related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner -occupants of non -farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as "disposable personal income." CITY OF PALM DESERT; COUNTY OF RIVERSIDE Effective Buying Income 2000 through 2004 Year Area 2000 City of Palm Desert Riverside County California United States Total Effective Buying Income (000's Omitted) $ 1,109, 327 25,144,120 652,190,282 5,230,824,904 2001 City of Palm Desert $ 1,008,568 Riverside County 23,617,301 California 650,521,407 United States 5,303,481,498 2002 City of Palm Desert $ 1,184,128 Riverside County 25,180,040 California 647,879,427 United States 5,340,682,818 2003 City of Palm Desert Riverside County California United States 2004 City of Palm Desert Riverside County California United States $ 1,238,323 27,623,743 674,721,020 5,466,880,008 $ 1,295,785 29,468,208 705,108,410 5,692,909,567 Median Household Effective Buying Income $46,046 39,293 44,464 39,129 $37,975 37,480 43,532 38,365 $42,299 38,691 42,484 38,035 $41,699 39,321 42,924 38,201 $42,769 40,275 43,915 39,324 Source: Sales & Marketing Management Survey of Buying Power D-6 Utilities Services Water is supplied to the City by the Coachella Valley Water District. Sewage treatment and disposal is 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 services are provided by Time Warner. Transportation Inter -City transportation is provided by Greyhound Bus which provides service from its connection points in the City to its lines located outside of the City in addition to the community owned and operated Sunline Bus System which provides service throughout the entire Coachella Valley. IntraCity transportation is provided by Tel -a -Ride and local taxi firms. The City's central highways are California Highway 111 and 74 which connect to US Interstate 10 and to California Highway 63 and 86. A full service airport is located in Palm Springs, twelve miles northwest of the City, with approximately seven carriers providing service. The airport has an 8,500-foot runway and general aviation facilities. There is also a private airport in Bermuda Dunes, eight miles northeast of the City. In addition, shipping is provided by numerous truck carriers which have overnight service to Los Angeles, San Francisco, San Diego and Phoenix. Rail transportation is provided by the Southern Pacific Railroad located in Indio, 10 miles east of the City, and by Amtrak, which has two stations located in the Coachella Valley. Community Service Facilities The City provides both police and fire protection through contracts with the County of Riverside . Educational services are provided through the Desert Sands Unified School District. The College of Desert is the Coachella Valley's Community College and is located in Palm Desert. A satellite campus of Cal State University, San Bernardino is located on the College of the Desert Campus. Cultural and recreational facilities include sixteen churches. The City has library services provided by the Riverside County Public Library System. The City has one public library located on the College of the Desert campus. This 43,000 square foot library is jointly used by the College of the Desert and the public library system. D-7 APPENDIX E SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a brief summary of the provisions of the Indenture and the Loan Agreement. Such summary is not intended to be definitive, and reference is made to the complete documents for the complete terms thereof. E-1 APPENDIX F FORM OF MUNICIPAL BOND INSURANCE POLICY F-1 APPENDIX G FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by the Palm Desert Redevelopment Agency (the "Agency") and Wells Fargo Bank, National Association, as Trustee (the "Trustee") and MuniFinancial, Inc. (the "Dissemination Agent") in connection with the issuance of $ Palm Desert Financing Authority, Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A, $ Palm Desert Financing Authority, Tax Allocation Capital Appreciation Revenue Bonds (Project Area No. 2), 2006 Series B, $ Palm Desert Financing Authority, Tax Allocation Revenue Bonds (Project Area No. 2), 2006 Series C, and $ Palm Desert Financing Authority, Subordinate Tax Allocation Capital Appreciation Revenue Bonds (Project Area No. 2), 2006 Series D (together, the "Bonds"). The Bonds are being issued pursuant to an Indenture of Trust dated as of July 1, 2006, between the Palm Desert Financing Authority (the "Issuer") and the Trustee (the "Indenture"). The proceeds of the Bonds are being loaned by the Issuer to the Agency pursuant to a Loan Agreement (as defined in the Indenture). The parties agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the parties for the benefit of the Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (defined below). The Agency acknowledges that the Issuer has undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Agreement, and has no liability to any person, including any Owner of Bonds, with respect to any such 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 Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Disclosure Representative" shall mean the Executive Director of the Agency or his or her designee, or such other person as the Agency shall designate in writing to the Trustee and Dissemination Agent from time to time. "Dissemination Agent" shall mean MuniFinancial, Inc., acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Agency and which has filed with the Trustee a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. "Official Statement" shall mean the final Official Statement with respect to the Bonds. G-1 "Owners" shall mean the registered owners of the Bonds or, if the Bonds are registered in the name of a depository, the beneficial owners of the Bonds. "Participating Underwriter" shall mean the original underwriters of the Bonds required to comply with the Rule in connection with the offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934. "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. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) The Agency shall, or upon written direction shall cause the Dissemination Agent to, not later than six months after the end of the Agency's Fiscal Year (which currently would be December 31 of each year), commencing with the report for the 2005-2006 Fiscal Year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. Not later than fifteen (15) Business Days prior to said date, the Agency shall provide the Annual Report to the Dissemination Agent and the Trustee. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Agency may be submitted separately from the balance of the Annual Report. The Agency shall provide a written 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 Agency hereunder. The Dissemination Agent and Trustee may conclusively rely upon such certification of the Agency. (b) 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 each National Repository or to the Municipal Securities Rulemaking Board and to the appropriate State Repository, if any, in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) if the Annual Report has been furnished to the Dissemination Agent, file a report with the Agency, the Issuer and the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided, and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. The Agency's Annual Report shall contain or incorporate by reference the following: G-2 (i) the audited financial statements of the Agency, prepared in accordance with generally accepted accounting principles in effect from time to time. If the Agency's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (ii) An update of the tabular information set forth in the Official Statement under the captions "SUBORDINATE TAX REVENUES -- Schedule of Historical Tax Revenues" and "-- Top Ten Taxpayers." Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Agency or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Agency shall clearly identify each such other document so incorporated by reference. SECTION 5. Reporting of Material Events. (a) Pursuant to the provisions of this Section 5, the 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: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; and (6) adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds; (7) modifications to rights of security holders; (8) unscheduled bond calls; (9) defeasances; (10) release, substitution or sale of property securing repayment of the securities; and (11) rating changes. (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 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 either of the Indentures). 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. G-3 (c) Whenever the Agency obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Trustee pursuant to subsection (b) or otherwise, the Agency shall as soon as possible determine if such event is material under applicable federal securities laws. (d) If the Agency has determined that knowledge of the occurrence of a Listed Event is material, the Agency shall promptly notify the Dissemination Agent and the Trustee in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f) and shall instruct the Trustee to report the occurrence to Owners. (e) If in response to a request under subsection (b), the Agency determines that the Listed Event is not material, the 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. (f) If the Dissemination Agent has been instructed by the Agency to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository, with a copy to the Agency. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to the Owners of affected Bonds pursuant to the Indenture. SECTION 6. Termination of Reporting Obligation. The obligations of the Agency, the Trustee and the Dissemination Agent under this Disclosure Agreement shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds; provided that the obligations of the Trustee and the Dissemination Agent hereunder shall also terminate upon the resignation or removal of such Trustee or Dissemination Agent. SECTION 7. Dissemination Agent. The 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, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be MuniFinancial, Inc. The Dissemination Agent may resign its duties hereunder at any time upon written notice to the Agency. SECTION 8. Amendment. Notwithstanding any other provision of this Disclosure Agreement, the parties may amend this Disclosure Agreement (and the Trustee and the Dissemination Agent shall agree to any amendment so requested by the Agency provided that neither the Trustee 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 with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Agency, or type of business conducted; (b) this Disclosure Agreement, as amended, would have complied with 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; G-4 (c) the amendment does not materially impair the interests of Owners, as determined by parties unaffiliated with the Agency (such as, but without limitation, the Agency's bond counsel) or by Owners' 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 will explain, in narrative form, the reasons for the amendment and the "impact" (as that word 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. Nothing in this Disclosure Agreement shall be deemed to prevent the 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 which is required by this Disclosure Agreement. If the Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Disclosure Agreement, the Agency shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Agency to comply with any provision of this Disclosure Agreement, the Trustee 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 Agency, the Trustee or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement; provided that any 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 any failure of the Agency, the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Agency agrees to indemnify and save the Dissemination Agent and the Trustee, their officers, directors, employees and agents, harmless against any loss, 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 Agent's or Trustee's negligence or wilful misconduct. The Dissemination Agent may rely on and shall be protected in acting or refraining from acting upon any direction from the Issuer or an opinion of nationally recognized bond counsel. The Dissemination Agent and the Trustee shall be paid compensation by the Agency for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Trustee shall have no duty or obligation to review any information G-5 provided to them by the Agency hereunder and shall not be deemed to be acting in any fiduciary capacity for the Authority, the Agency, the Owners, or any other party. The obligations of the 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 Agreement. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach of this Agreement. SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Agency, the Trustee, the Dissemination Agent, the Participating Underwriter and Owners from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 13. Notices. Notices should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing. Agency: Palm Desert Redevelopment Agency 73-510 Fred Waring Drive Palm Desert, California 92260 (760) 346-0611 (760) 346-0574 Fax Dissemination Agent: MuniFinancial, Inc. 27368 Via Industria, Suite 110 Temecula, California 92590 (909) 587-3500 (909) 587-3510 fax Trustee: Wells Fargo Bank, National Association 707 Wilshire Boulevard, 17th Floor Los Angeles, CA 90017 (213) 614-3353 (213) 614-3355 Fax G-6 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. PALM DESERT REDEVELOPMENT AGENCY By Executive Director WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By Authorized Officer MUNIFINANCIAL, INC., as Dissemination Agent By Authorized Officer G-7 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Obligated Party: Palm Desert Redevelopment Agency (the "Agency") Name of Bond Issue: Palm Desert Financing Authority $ Series 2006 A Bonds $ Series 2006 B Bonds $ Series 2006 C Bonds $ Series 2006 D Bonds Date of Delivery: , 2006 NOTICE IS HEREBY GIVEN that the Agency has not provided an Annual Report with respect to the above -named Bonds as required by Section 3 of the Continuing Disclosure Agreement dated as of July 1, 2006 between the Agency and Wells Fargo Bank, National Association. [The Agency anticipates that the Annual Report will be filed by Dated: .] MuniFinancial, Inc. on behalf of the Agency cc: Executive Director, Palm Desert Redevelopment Agency G-8 APPENDIX H BOOK -ENTRY SYSTEM The information set forth below has been provided by DTC. The Authority and the Underwriters make no representation as to the accuracy or the completeness of such information. All Beneficial Owners should confirm the following information with DTC or the DTC Participants. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered Bond certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over two million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with 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 wholly - owned subsidiary of The Depository Trust & 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 (NSCC, GSCC, MBSCC, and EMCC, are also subsidiaries of DTCC), as well 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 with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 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 will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive H-1 certificates representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & 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 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 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. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the 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 funds and corresponding detail information from the Authority 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 of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede &Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to Beneficial Owners is the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. The Authority may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. H-2 APPENDIX I TABLES OF ACCRETED VALUES Jones Hall Draft 5/25/06 $ PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REFUNDING REVENUE BONDS (PROJECT AREA NO. 2) 2006 SERIES A PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 2) 2006 SERIES C $ PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE CAPTIAL APPRECIATION BONDS (PROJECT AREA NO. 2) 2006 SERIES B PALM DESERT FINANCING AUTHORITY SUBORDINATE TAX ALLOCATION REVENUE CAPTIAL APPRECIATION BONDS (PROJECT AREA NO. 2) 2006 SERIES D BOND PURCHASE AGREEMENT , 2006 Palm Desert Financing Authority 73-510 Fred Waring Drive Palm Desert, CA 92260-2578 Ladies and Gentlemen: The undersigned (the "Underwriter") offers to enter into this bond purchase agreement (this "Purchase Agreement") with the Palm Desert Financing Authority (the "Authority") and the Palm Desert Redevelopment Agency (the "Agency") which will be binding upon the Authority, the Agency and the Underwriter upon the acceptance hereof by the Authority and the Agency. This offer is made subject to its acceptance by the Authority and the Agency by execution of this Purchase Agreement and its delivery to the Underwriter on or before 11:59 p.m., California time, on the date hereof. All terms used herein and not otherwise defined shall have the respective meanings given to such terms in the Indentures (as hereinafter defined). Section 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties and agreements hereinafter set forth, the Underwriter hereby agrees to purchase from the Authority for offering to the public, and the Authority hereby agrees to sell to the Underwriter for such purpose, all (but not less than all) of the (collectively referred to herein as the "Bonds"): Series 2006A Bonds: $ principal amount of the Authority's Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A (the "2006A Bonds") at a purchase price for the 2006A Bonds of $ (being the aggregate principal amount thereof, less an underwriter's discount of $ and plus a net original issue premium of $ ); Series 2006B Bonds: $ principal amount of the Authority's Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series B (the "2006B Bonds") at a purchase price for the 2006B Bonds of $ (being the aggregate principal amount thereof, less an underwriter's discount of $ and plus a net original issue premium of $ ); Series 2006C Bonds: $ principal amount of the Authority's Tax Allocation Revenue Bonds (Project Area No. 2), 2006 Series C (the "2006C Bonds") at a purchase price for the 2006C Bonds of $ (being the aggregate principal amount thereof, less an underwriter's discount of $ and plus a net original issue premium of $ ); and Series 2006D Bonds: $ principal amount of the Authority's Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2), 2006 Series D (the "2006D Bonds") at a purchase price for the 2006D Bonds of $ (being the aggregate principal amount thereof, less an underwriter's discount of $ and plus a net original issue premium of $ ). Section 2. Description of the Bonds. The Bonds will be issued under the provisions of the Marks -Roos Local Bond Pooling Act of 1985, constituting Article 4 of Chapter 5 of Division 7 of Title 1 (commencing with Section 6584) of the California Government Code (the "Bond Law"). The 2006A Bonds, 2006B Bonds and 2006C Bonds will be issued pursuant to an Indenture of Trust, dated as of July 1, 2006 (the "Senior Indenture"), by and between the Authority and Wells Fargo Bank, National Association, as trustee thereunder (the "Trustee") The 2006D Bonds will be issued pursuant to an Indenture of Trust, dated as of July 1, 2006 (the "Subordinate Indenture" and together with the Senior Indenture, the "Indentures"), by and between the Authority the Trustee. The 2006A Bonds and 2006C Bonds are issued as current interest bonds and the 2006B Bonds and 2006D Bonds are issued as capital appreciation bonds. The Bonds shall mature and shall be subject to redemption on the dates and in the amounts and shall bear interest at the rates set forth in the Indenture and the Official Statement dated the date hereof relating to the Bonds (which, together with all exhibits and appendices included therein or attached thereto and such amendments or supplements thereto which shall be approved by the Underwriter, is hereinafter called the "Official Statement"). The proceeds of the 2006A Bonds, 2006B Bonds and 2006C Bonds (the "Senior Bonds") will be used by the Authority to make three loans (collectively, the "Senior Loan") to the Palm Desert Redevelopment Agency (the "Agency") pursuant to a Loan Agreement (the "Senior Loan Agreement"), dated as of July 1, 2006 by and among the Authority, the Agency and the Trustee for the benefit of the Agency's Project Area No. 2 (the "Project Area"). The proceeds of the 2006D Bonds (the "Subordinate Bonds") will be used by the Authority to make a loan (the "Subordinate Loan" and together with the Senior Loan", the "Loans") to the Agency pursuant to a Loan Agreement (the "Subordinate Loan Agreement"), dated as of July 1, 2006 by and among the Authority, the Agency and the Trustee for the benefit of the Project Area. A portion of the proceeds of the 2006A Loan will be used to refund the indebtedness of the Agency under a Loan Agreement dated as of June 1, 1995 (the "1995 Loan Agreement"), to finance certain redevelopment activities within or of benefit to the Project Area and a portion of the proceeds of all the Loans will be used to finance certain redevelopment activities within or of benefit to the Project Area, provided that proceeds of the loan related to the 2006C Bonds is subject to release from an escrow if and when the conditions for release set forth in the Senior -2- Loan Agreement are met. The refunding of the obligations under the 1995 Loan Agreement will effect a refunding of the corresponding portion of the Authority's Subordinate Tax Allocation Refunding Revenue Bonds (Project Area No. 2), Series 1995 (the "1995 Bonds"). The Senior Bonds are secured by a pledge of and lien on all of the Tax Revenues (as defined in the Senior Indenture) allocated to the Agency with respect to the Project Area. The Subordinate Bonds are secured by a pledge of and lien on surplus Tax Revenues after payment of the Senior Bonds. The Agency currently has outstanding its (i) Project Area No. 2, Loan Agreement, dated as of March 1, 2002 (the "Senior 2002 Loan Agreement"), by and among the Agency, the Authority and BNY Western Trust Company, as prior trustee (the "Prior Trustee"), and (ii) Project Area No. 2, Loan Agreement, dated as of July 1, 2003 (the "Senior 2003 Loan Agreement" and together with the Senior 2002 Loan Agreement, the "Prior Loan Agreements"), by and among the Agency, the Authority and the Prior Trustee. Each loan under the Prior Loan Agreements is secured by Tax Revenues on parity with the pledge of Tax Revenues pledged to pay the Senior Loan. The scheduled payment of principal of and interest on the Senior Bonds will be insured by (the "Insurer") by the issuance of a bond insurance policy (the "Policy"). Section 3. Public Offering. The Underwriter agrees to make a bona fide public offering of all the Bonds initially at the public offering prices (or yields) set forth on Appendix A attached hereto and incorporated herein by reference. Subsequent to the initial public offering, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds, provided that the Underwriter shall not change the interest rates set forth on Appendix A. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. Section 4. Delivery of Official Statement. The Agency has delivered or caused to be delivered to the Underwriter prior to the execution of this Purchase Agreement, copies of the Preliminary Official Statement relating to the Bonds (the "Preliminary Official Statement"). Such Preliminary Official Statement is the official statement deemed final by the Agency for purposes of Rule 15c2-12 under the Securities Exchange Act of 1934 (the "Rule") and approved for distribution by resolution of the Agency. The Agency hereby ratifies, approves and confirms the distribution of the Preliminary Official Statement in connection with the public offering and sale of the Bonds by the Underwriter. The Agency shall have executed and delivered to the Underwriter a certification to such effect in the form attached hereto as Appendix B and hereby ratifies the information contained therein. Within seven (7) business days from the date hereof, the Agency shall deliver to the Underwriter a final Official Statement, executed on behalf of the Agency by an authorized representative of the Agency and dated the date hereof, which shall include information permitted to be omitted by paragraph (b) (1) of the Rule and with such other amendments or supplements as shall have been approved by the Agency and the Underwriter. The Agency also agrees to deliver to the Underwriter, at the Agency's' sole cost and at such address as the Underwriter shall specify, as many copies of the Official Statement as the Underwriter shall reasonably request as necessary to comply with paragraph (b) (4) of the Rule and with Rule C- 32 and all other applicable rules of the Municipal Securities Rulemaking Board. The Agency shall undertake, pursuant to the Indentures and a Continuing Disclosure Agreement (the "Continuing Disclosure Agreement"), to provide certain annual financial -3- information and notices of the occurrence of certain events, if material. The form of the Continuing Disclosure Agreement is appended to the Official Statement. Section 5. The Closing. At 8:00 a.m., California time, on , 2006, (the "Closing"), or at such other time or on such earlier or later business day as shall have been mutually agreed upon by the Agency and the Underwriter, the Authority and the Agency shall deliver (i) the Bonds in definitive form (one bond for each maturity) for the Underwriter to the Trustee at the Closing or to The Depository Trust Company ("DTC") in New York, New York, or such other location as may be specified by the Underwriter, with CUSIP identification numbers thereon, in fully registered form and registered in the name of Cede & Co., and (ii) the closing documents hereinafter mentioned at the offices of Richards, Watson & Gershon, A Professional Corporation, Bond Counsel (the "Bond Counsel") in Los Angeles, California, or another place to be mutually agreed upon by the Agency and the Underwriter. The Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Section 1 hereof by federal funds wire payable to the order of the Trustee on behalf of the Agency. This payment and delivery, together with the delivery of the aforementioned documents, is herein called the "Closing." Section 6. Agency Representations, Warranties and Covenants. The Agency represents, warrants and covenants to the Underwriter that: (a) Due Organization and Existence of Agency. The Agency is a public body corporate and politic, organized and existing under the laws of the State, including the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the Health and Safety Code (the "Redevelopment Law"), with full right, power and authority to execute, deliver and perform its obligations under this Purchase Agreement, the Continuing Disclosure Agreement, and the Loan Agreement (collectively, the "Agency Documents") and to carry out and consummate the transactions contemplated by the Agency Documents and the Official Statement. (b) Due Authorization and Approval. By all necessary official action of the Agency, the Agency has duly authorized and approved the execution and delivery of, and the performance by the Agency of the obligations contained in, the Agency Documents and as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered, the Agency Documents will constitute the legally valid and binding obligations of the 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 Agency has complied, and will at the Closing be in compliance in all respects, with the terms of the Agency Documents. The Agency has duly authorized and approved the Preliminary Official Statement and the Official Statement. (c) Official Statement Accurate and Complete. The Preliminary Official Statement was as of its date, and the final Official Statement will be, and at all times subsequent to the date of the final Official Statement up to and including the Closing will be, true and correct in all material respects, and the Preliminary Official Statement contains and the final Official Statement will contain, and up to and including the Closing will contain, no misstatement of any material fact and do not, and up to and including the Closing will not, omit any statement necessary to make the statements contained -4- therein, in the light of the circumstances in which such statements were made, not misleading. (d) Underwriter's Consent to Amendments and Supplements to Official Statement. The Agency covenants with the Underwriter that during the period of 25 days after the end of the "underwriting period" (as defined in the Rule), if an event occurs, of which the Agency has knowledge, which 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 the statements therein, in the light of the circumstances under which they were made, not misleading, the Agency shall 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 Agency shall cooperate with the Underwriter in the preparation of an amendment or supplement to the Official Statement in a form and in a manner approved by the Underwriter, and all printing expenses thereby incurred shall be paid for by the Agency. The Agency will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (e) No Breach or Default. As of the time of acceptance hereof and as of the time of the Closing, except as otherwise disclosed in the Official Statement, the Agency is not and will not be in breach of or in default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Agency is a party or is otherwise subject which breach or default would materially adversely affect the Agency's ability to perform under the Agency Agreements, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; and, as of such times, except as disclosed in the Official Statement, the authorization, execution and delivery of the Agency Documents and the Official Statement and compliance with the provisions of each of such agreements or instruments do not and will not conflict with or constitute a breach of or default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, license, permit, trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Agency (or any of its officers in their respective capacities as such) is subject, or by which it or any of its properties is bound, nor will any such authorization, execution, delivery or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of its assets or properties or under the terms of any such law, regulation or instrument, except as may be provided by the Agency Documents. (0 No Litigation. As of the time of acceptance hereof and the Closing, except as disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or threatened (i) in any way questioning the corporate existence of the Agency or the titles of the officers of the Agency to their respective offices; (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the issuance or delivery of any of the Bonds, or the payment or collection of any amounts pledged or to be -5- pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Agency Documents, the power of the Agency to execute and deliver the Agency Documents or the Official Statement or the consummation of the transactions contemplated thereby, or contesting the exclusion of the interest on the Bonds from taxation or contesting the powers of the Agency and its authority to pledge the Subordinate Tax Revenues; (iii) which may result in any adverse change relating to the Agency which would materially adversely affect the Agency's ability to perform under the Agency Documents; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the final Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the final Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (g) Preliminary Official Statement. For purposes of the Rule, the Agency has heretofore deemed final the Preliminary Official Statement prior to its use and distribution by the Underwriter, except for the information specifically permitted to be omitted by paragraph (b) (1) of the Rule. The Agency has never failed to comply timely with any filing requirements under the Rule. (h) Excess Surplus. The Agency's Low and Moderate Income Housing Fund established pursuant to Section 33334.3 of the Law does not, on the date hereof, contain an "excess surplus" (within the meaning of Section 33334.12 of the Law) that would cause the Agency to be subject to the sanctions contained in Section 33334.12(e) (1) of the Law. (i) Arbitrage Certificate. The Agency has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certificates may not be relied upon. (j) No Required Consents. All approvals, consents and orders of any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to the execution and delivery by the Agency of the Agency Documents and the Official Statement have been obtained or will be obtained prior to the Closing (provided the Agency shall not be responsible for state blue sky filings). (k) Certificates of the Agency. Any certificate signed by an authorized officer of the Agency and delivered to the Underwriter shall be deemed a representation and warranty of the Agency to the Underwriter as to the statements made therein. (1) Tax Exemption. The Agency covenants that it will not take any action which would cause interest on the Bonds to be subject to federal income taxation or California personal income taxes (other than to the extent the Bonds will be subject to federal income taxation as described under the caption "Tax Matters" in the Official Statement). (m) Compliance with Rule. There has been no instance in which the Agency has failed to comply in all respects with any undertakings with regard to the Rule. -6- Section 7. Authority Representations, Warranties and Covenants. The Authority represents, warrants and covenants to the Underwriter that: (a) Due Organization and Existence of Authority. The Authority is a joint exercise of powers authority, duly organized and existing, and authorized to transact business and exercise of powers under and pursuant to the provisions of the laws of the State of California and the joint exercise of powers agreement pursuant to which the Authority was created and has, and on Closing Date for each respective series of Bonds will have, full legal right, power and authority to enter into this Purchase Agreement, and to carry out and to consummate the transactions contemplated by this Purchase Agreement and the Official Statement. (b) Due Authorization and Approval. By all necessary official action of the Authority, the Authority has duly authorized and approved the execution and delivery of, and performance by the Authority of the obligations contained in, this Purchase Agreement and as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered, this Purchase Agreement will constitute the legally valid and binding obligation of the Authority enforceable in accordance with its 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 Authority has complied, and will at the Closing be in compliance in all respects, with the terms of this Purchase Agreement. (c) Official Statement Accurate and Complete. The information relating to the Authority contained in the Preliminary Official Statement and the final Official Statement as amended or supplemented, is correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (d) Purchase and Sale of Bonds. The Bonds will be purchased and sold by the Authority pursuant to the Mark -Roos Local Bond Pooling Act of 1985, constituting Article 4 of Chapter 5, Division 7 of Title 1 (commencing with Section 6584) of the California Government Code (the "JPA Act"). (e) Compliance with Law and Joint Exercise of Powers Agreement. The Authority has complied, and will on the Closing Date for each respective series of Bonds be in compliance, in all respects, with the JPA Act and all other applicable laws of the State of California and the joint exercise of powers agreement pursuant to which the Authority was created. (0 No Breach or Default. As of the time of acceptance hereof and as of the time of the Closing, except as otherwise disclosed in the Official Statement, the Authority is not and will not be in breach of or in default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Authority is a party or is otherwise subject which breach or default would materially adversely affect the Agency's ability to perform under the Indentures or this Purchase Agreement, and no event has occurred and is continuing which, with the passage of time or the giving of -7- notice, or both, would constitute such a default or event of default under any such instrument; and, as of such times, except as disclosed in the Official Statement, the authorization, execution and delivery of this Purchase Agreement and compliance with the provisions hereof do not and will not conflict with or constitute a breach of or default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, license, permit, trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Authority (or any of its officers in their respective capacities as such) is subject, or by which it or any of its properties is bound, nor will any such authorization, execution, delivery or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of its assets or properties or under the terms of any such law, regulation or instrument, except as may be provided by this Purchase Agreement. (g) No Litigation. As of the time of acceptance hereof and the Closing, except as disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or threatened (i) in any way questioning the corporate existence of the Authority or the titles of the officers of the Authority to their respective offices; (ii) seeking to restrain or enjoin the sale of the Bonds or in any way contesting or affecting the validity of this Purchase Agreement, the power of the Authority to execute and deliver this Purchase Agreement or the consummation of the transactions contemplated hereby; or (iii) which may result in any adverse change relating to the Authority which would materially adversely affect the Authority's ability to perform under the Indentures and this Purchase Agreement. (h) No Required Consents. All approvals, consents and orders of any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to the execution and delivery by the Authority of this Purchase Agreement have been obtained. (i) Certificates of the Authority. Any certificate signed by an authorized officer of the Authority and delivered to the Underwriter shall be deemed a representation and warranty of the Authority to the Underwriter as to the statements made therein. Section 8. Closing Conditions. The Underwriter has entered into this Purchase Agreement in reliance upon the representations, warranties and covenants herein and the performance by the Agency of their respective obligations hereunder, both as of the date hereof and as of the date of the Closing. Accordingly, the Underwriter's obligations under this Purchase Agreement to purchase, accept delivery of, and pay for the Bonds on the Closing Date for each respective series of Bonds are subject to the performance by the Agency and the Authority of their respective obligations hereunder at or prior to the Closing. The Underwriter's obligations under this Purchase Agreement to purchase and pay for the Bonds shall be subject to the following additional conditions: (a) Bring -Down Representation. The representations, warranties and covenants of the Authority and the Agency contained herein shall be true, complete and correct at the date hereof and at the time of the Closing, as if made on the date of the Closing. -8- (b) Executed Agreements and Performance Thereunder. At the time of the Closing (i) the Agency Documents shall be in full force and effect, and shall not have been amended, modified or supplemented except with the written consent of the Underwriter and (ii) there shall be in full force and effect such resolutions of the Agency and the Authority (the "Resolutions") as, in the opinion of Bond Counsel, shall be necessary in connection with the transactions contemplated by this Purchase Agreement, the Official Statement and the Agency Documents. (c) Closing Documents. At or prior to the Closing, the Underwriter shall receive each of the documents identified in Section 9, such documents shall be in full force and effect and shall not have been amended, modified or supplemented, except as therein permitted or as may have been agreed to in writing by the Underwriter. Section 9. Closing Documents. In addition to the other conditions to the Underwriter's obligations under this Purchase Agreement to purchase and pay for the Bonds, at or before the Closing of each series of Bonds the Underwriter shall receive each of the following documents as to each respective series, provided the Underwriter may in its sole discretion waive one or more of the conditions imposed by this Purchase Agreement for the protection of the Underwriter and proceed with the Closing. (a) Bond Counsel Opinion. An approving opinion of Bond Counsel dated the date of the Closing and substantially in the form appended to the Official Statement, together with a letter from such counsel, dated the date of the Closing and addressed to the Underwriter, to the effect that the foregoing opinion may be relied upon by the Underwriter to the same extent as if such opinion were addressed to it. (b) Supplemental Opinion. A supplemental opinion or opinions of Bond Counsel addressed to the Underwriter, in form and substance acceptable to the Underwriter, and dated the date of the Closing substantially to the following effect: (i) This Purchase Agreement has been duly authorized, executed and delivered by the Agency and the Authority, as applicable, and constitute the valid, legal and binding agreements of the Agency and the Authority, as applicable, enforceable in accordance with its terms. (ii) The statements contained in the Official Statement under the captions "INTRODUCTION", "THE BONDS", "SECURITY FOR THE BONDS", CONCLUDING INFORMATION — "Tax -Exempt Status of the Bonds" and Appendices B and E, insofar as such statements purport to summarize certain provisions of the Bonds, the Indentures or federal tax law, accurately summarize the information presented therein; provided that Bond Counsel need not express any opinion with respect to any financial or statistical information contained therein. (iii) The Agency's obligations under the Indentures are exempt from registration under the Securities Act of 1933, as amended, and the Indentures are exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended. -9- (c) Agency Counsel Opinion. An opinion of Counsel to the Agency, dated the date of the Closing and addressed to the Underwriter, in form and substance acceptable to the Underwriter substantially to the following effect: (i) The Agency is a duly organized and validly existing public body, corporate and politic, organized and existing under the Community Redevelopment Law (Part 1 of Division 24 of the Health and Safety Code of the State of California) with full legal right, power and authority to perform all of its obligations under the Loan Agreement and this Purchase Agreement (collectively, the "Legal Documents"). The Agency has duly authorized executed and delivered the Legal Documents and assuming due authorization execution and delivery by the other parties thereto, as necessary, the Legal Documents constitute legal, valid and binding agreements of the Agency enforceable against the Agency in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, moratorium, insolvency, equitable remedies and other laws affecting creditors' rights or remedies. (ii) To the best of our knowledge, there is no action, suit or proceeding before or by a court, public board of body pending or threatened wherein an unfavorable decision, ruling or finding would ( a) affect the creation, organization existence or powers of the Agency or the titles of its officers to their respective offices, (b) in any way question or affect the validity or enforceability of the Legal Documents, or (c) find illegal, invalid or unenforceable the Purchase Contract or the transactions contemplated thereby, or any other agreement or instrument related to the issuance of the Bonds to which the Agency is a party. (iii) The execution and delivery of the Legal Documents and compliance with the provisions of each thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California, the United States or any department, division, agency or instrumentality of either thereof, or any applicable court or administrative decree or order or any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Agency is a party or is otherwise subject or bound in a manner which would materially adversely affect the Agency s performance under the Legal Documents. (iv) Any approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, the absence of which would materially adversely affect, the performance by the Agency of its obligations under the Legal Documents have been obtained and are in full force and effect. (d) Authority Counsel Opinion. An opinion of Counsel to the Authority, dated the date of the Closing and addressed to the Underwriter, in form and substance acceptable to the Underwriter substantially to the following effect: (i) The Agency is a duly organized and validly existing public body, corporate and politic, organized and existing under the Community Redevelopment Law (Part 1 of Division 24 of the Health and Safety Code of the State of California) with full legal right, power and authority to perform all of its -10- obligations under the Loan Agreement and this Purchase Contract (collectively, the "Legal Documents). The Agency has duly authorized executed and delivered the Legal Documents and assuming due authorization execution and delivery by the other parties thereto, as necessary, the Legal Documents constitute legal, valid and binding agreements of the Agency enforceable against the Agency in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, moratorium, insolvency, equitable remedies and other laws affecting creditors' rights or remedies. (ii) To the best of our knowledge, there is no action, suit or proceeding before or by a court, public board of body pending or threatened wherein an unfavorable decision, ruling or finding would ( a) affect the creation, organization existence or powers of the Agency or the titles of its officers to their respective offices, (b) in any way question or affect the validity or enforceability of the Legal Documents, or (c) find illegal, invalid or unenforceable the Purchase Contract or the transactions contemplated thereby, or any other agreement or instrument related to the issuance of the Bonds to which the Agency is a party. (iii) The execution and delivery of the Legal Documents and compliance with the provisions of each thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California, the United States or any department, division, agency or instrumentality of either thereof, or any applicable court or administrative decree or order or any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Agency is a party or is otherwise subject or bound in a manner which would materially adversely affect the Agency s performance under the Legal Documents. (iv) Any approvals, consents, authorizations, elections and orders of or filings or registrations with any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, the absence of which would materially adversely affect, the performance by the Agency of its obligations under the Legal Documents have been obtained and are in full force and effect. (e) Trustee Counsel Opinion. The opinion of counsel to the Trustee, dated the date of the Closing, addressed to the Underwriter, to the effect that: (i) The Trustee is a banking corporation, duly organized and validly existing under the laws of the State of California, having full power to enter into, accept and administer the trust created under the Indentures. (ii) The Indentures have been duly authorized, executed and delivered by the Trustee and each Indenture constitutes the legal, valid and binding obligation of the Trustee 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 generally and by the application of equitable principles, if equitable remedies are sought. (iii) No consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has -11- not been obtained is or will be required for the execution and delivery of the Indentures by the Trustee or the consummation by the Trustee of the transactions contemplated by the Indentures. (0 The opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Counsel to the Underwriter, dated the Closing date, addressed to the Agency, and to the Underwriter, to the effect that based upon an examination which they have made, and without having undertaken to determine independently the accuracy or completeness of the statements contained in the Official Statement, they have no reason to believe that the Official Statement (other than financial statements and other statistical and financial data and information relating to The Depository Trust Company, New York, New York, and its book -entry system contained therein and incorporated therein by reference, and information regarding the municipal bond insurance policy and the issuer thereof, as to which no view need be expressed) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (g) Agency Certificate. A certificate of the Agency, dated the date of the Closing, signed on behalf of the Agency by the Executive Director or other duly authorized officer of the Agency to the effect that: (i) The representations, warranties and covenants of the Agency contained herein are true and correct in all material respects on and as of the date of the Closing as if made on the date of the Closing and the Agency has complied with all of the terms and conditions of this Purchase Agreement required to be complied with by the Agency at or prior to the date of the Closing. (ii) No event affecting the Agency, of which the Agency has actual knowledge, has occurred since the date of the Official Statement which has not been disclosed therein or in any supplement or amendment thereto which event should be disclosed in the Official Statement in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iii) The Agency Documents are in full force and effect and none has been amended in any respect, except as approved in writing by the Underwriter. (iv) Except as otherwise disclosed in the Official Statement and to the best knowledge of such signing officer after due inquiry, there is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, governmental agency or body, pending and served on the Agency or threatened against the Agency, challenging the creation, organization or existence of the Agency, or the validity of the Agency Documents or seeking to restrain or enjoin the repayment of the Bonds or in any way contesting or affecting the validity of the Agency Documents or contesting the authority of the Agency to enter into or perform its obligations under any of the Agency Documents, or under which a determination adverse to the Agency would have a material adverse effect upon the financial condition or the revenues of the Agency, or which, in any manner, questions the right of the Agency to use the Subordinate Tax Revenues for -12- repayment of the Loan or affects in any manner the right or ability of the Agency to collect or pledge the Subordinate Tax Revenues. (h) Authority Certificate. A certificate of the Authority, dated the date of the Closing, signed on behalf of the Authority by the Executive Director or other duly authorized officer of the Authority to the effect that: (i) The Authority is a joint exercise of powers agency, duly organized and existing under the laws of the State, including the JPA Act. (ii) The resolution of the Authority approving and authorizing the execution and delivery of this Purchase Agreement (the "Authority Resolution") was duly adopted at a meeting of the Authority 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 the Authority Resolution is in full force and effect and has not been modified, amended or rescinded. (iii) The representations, warranties and covenants of the Authority contained herein are true and correct in all material respects on and as of the date of the Closing as if made on the date of the Closing and the Authority has complied with all of the terms and conditions of this Purchase Agreement required to be complied with by the Authority at or prior to the date of the Closing. (iv) There is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, governmental Authority or body, pending and served on the Authority or, to the best of such signing officer's knowledge after due inquiry, threatened against the Authority, challenging the creation, organization or existence of the Authority, or the validity of this Purchase Agreement or contesting the authority of the Authority to enter into or perform its obligations under this Purchase Agreement. (i) Trustee's Certificate. A certificate of the Trustee, dated the date of Closing, in form and substance acceptable to counsel for the Underwriter, to the following effect: (i) The Trustee is duly organized and existing as a banking corporation in good standing under the laws of the State of California, having the full power and authority to accept the trusts and to enter into and perform its duties under the Indentures. (ii) The Trustee is duly authorized to enter into the Indentures. (iii) Compliance with the provisions on the Trustee's part contained in the Indentures will not conflict with or constitute a breach of or default under any judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the Trustee is a party or is otherwise subject, or, to the best knowledge of the Trustee, any material law or administrative regulation to which the Trustee is subject, as a result of which the Trustee's ability to perform its obligations under the Indentures would be impaired, nor will any such compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the -13- properties or assets held by the Trustee pursuant to the lien created by the Indentures 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 Indentures. (iv) There is no action, suit, proceeding or investigation, at law or in equity, before or by any court or governmental agency, public board or body that has been served upon the Trustee or to the best knowledge after due inquiry, threatened against the Trustee which in the reasonable judgment of the Trustee would affect the existence of the Trustee or in any way contesting or affecting the validity or enforceability of the Indentures or contesting the powers of the Trustee or its authority to enter into and perform its obligation under the Indentures. (j) A certificate of Rosenow Spevacek Group, Inc., dated the date of Closing, signed by an authorized representative thereof, to the effect that that the Tax Revenues coverage test for the issuance of additional bonds secured by Subordinate Tax Revenues, as required in connection with the Prior Loan Agreements, has been met. (k) Documents. An original executed copy of each of the Agency Documents, the Official Statement and a certified copy of each of the Resolutions, except that it shall be sufficient to provide a copy of the Bonds marked "specimen. (1) Municipal Bond Insurance Policy. A copy of the Policy, as duly executed and delivered by the Insurer. (m) Insurer Counsel Opinion. The opinion of counsel to the Insurer, in form and substance acceptable to the Underwriter. (n) Insurer Certificate. A certificate of the Insurer, in form and substance acceptable to the Underwriter. (o) Ratings. Evidence that the Bonds have been rated "AAA" by S&P and "AAA" by Fitch Ratings. (p) Fiscal Consultant Consent and Certificate. The consent of Rosenow Spevacek Group, Inc. to the use of their report entitled "Fiscal Consultant Report" dated May 26, 2006, in the Preliminary Official Statement and the Official Statement and their affirmation of the accuracy of the data in the tables in the Official Statement which reference such fiscal consultant report. (q) Additional Documents. Such additional certificates, instruments and other documents as Bond Counsel, the Agency or the Underwriter may reasonably deem necessary. If the Agency or the Authority shall be unable to satisfy the conditions contained in this Purchase Agreement, or if the obligations of the Underwriter shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement shall terminate and neither the Underwriter nor the Agency or the Authority shall be under further obligation hereunder. Section 10. Termination Events. The Underwriter has entered into this Purchase Agreement in reliance upon the representations, warranties and agreements of the Agency and -14- the Authority contained herein and upon the accuracy of the statements to be contained in the documents, opinions, and instruments to be delivered at the Closing. Accordingly, the Underwriter's obligations under this Purchase Agreement to purchase, accept delivery of, and pay for the Bonds on the Closing Date for each respective series of Bonds is subject to the performance by the Agency and the Authority of their respective obligations hereunder at or prior to the Closing. The Underwriter shall have the right to terminate this Purchase Agreement, without liability therefor, by notification to the Agency and the Authority if at any time between the date hereof and prior to the Closing: (a) any event shall occur which causes any statement contained in the Official Statement to be materially misleading or results in a failure of the Official Statement to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading; or (b) the marketability of the Bonds or the market price thereof, in the reasonable opinion of the Underwriter, has been materially adversely affected by an amendment to the Constitution of the United States or by any legislation in or by the Congress of the United States or by the State, or the amendment of legislation pending as of the date of this Purchase Agreement in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service 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 the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or any decision of any federal or State court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or State authority materially adversely affecting the federal or State tax status of the Agency, or the interest on bonds or notes or obligations of the general character of the Bonds; or (c) any legislation, ordinance, rule or regulation shall be introduced in, or be enacted by any governmental body, department or agency of the State, or a decision by any court of competent jurisdiction within the State or any court of the United States shall be rendered which, in the reasonable opinion of the Underwriter, materially adversely affects the market price of the Bonds; or (d) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, or a stop order, ruling, regulation or official statement by, or on behalf of, the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall be issued or made to the effect that the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, including all underlying obligations, as contemplated hereby or by the Official Statement, is in violation or would be in violation of, or that obligations of the general character of -15- the Bonds, or the Bonds, are not exempt from registration under, any provision of the federal securities laws, including the Securities Act of 1933, as amended and as then in effect, or that the Indentures need to be qualified under the Trust Indenture Act of 1939, as amended and as then in effect; or (e) additional material restrictions including without limitation those relating to the extension of credit by, or the charge to the net capital requirements of, not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange which restrictions materially adversely affect the Underwriter's ability to trade the Bonds; or (0 a general banking moratorium shall have been established by federal or State authorities; or (g) the United States has become engaged in hostilities which have resulted in a declaration of war or a national emergency or there has occurred any other outbreak of hostilities or a national or international calamity or crisis, or there has occurred any escalation of existing hostilities, calamity or crisis, financial or otherwise, the effect of which on the financial markets of the United States being such as, in the reasonable opinion of the Underwriter, would affect materially and adversely the ability of the Underwriter to market the Bonds or enforce contracts for sale of the Bonds; or (h) any rating of the Bonds shall have been downgraded, suspended or withdrawn by a national rating service, which, in the Underwriter's reasonable opinion, materially adversely affects the marketability or market price of the Bonds; or (i) the commencement of any action, suit or proceeding described in Section 6(1) hereof which, in the reasonable judgment of the Underwriter, materially adversely affects the market price of the Bonds; or (j) there shall be in force a general suspension of trading on the New York Stock Exchange, or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on the New York Stock Exchange, whether by virtue of determination by that Exchange or by order of the Securities and Exchange Commission of the United States or any other governmental authority having jurisdiction; or (k) there shall have been any materially adverse change in the affairs of the Authority or the Agency which in the Underwriter's reasonable judgment materially adversely affects the market for the Bonds. Section 11. Expenses. Subject to the immediately following paragraph, the Underwriter shall be under no obligation to pay and the Agency shall pay or cause to be paid the expenses incident to the performance of the obligations of the Agency and the Authority hereunder including but not limited to (a) the costs of the preparation and printing, or other reproduction (for distribution on or prior to the date hereof) of the Agency Documents and the cost of preparing, printing, issuing and delivering the definitive Bonds, (b) the fees and disbursements of any counsel, financial advisors, accountants or other experts or consultants retained by the Agency; (c) the fees and disbursements of Bond Counsel; (d) the cost of printing the Preliminary Official Statement and any supplements and amendments thereto and the cost of printing the Official Statement, including the requisite number of copies thereof for distribution -16- by the Underwriter; (e) charges of rating agencies for the rating of the Bonds; (f) the premium payable to the Insurer in consideration of the issuance by the Insurer of the Policy; and (g) the fees and disbursements of the Trustee, including but not limited to, fee and disbursements of its counsel, travel and other expenses. The Underwriter shall pay all expenses incurred by it in connection with the public offering and distribution of the Bonds, travel, and miscellaneous fees of the California Debt and Investment Advisory Commission, the fees of Underwriter's counsel and the CUSIP Service Bureau charge for the assignment of CUSIP numbers to the Bonds. Such amounts will be billed separately by the Underwriter and will be payable from the proceeds of the Bonds. Section 12. Notice. Any notice or other communication to be given to the Agency and the Authority under this Purchase Agreement may be given by delivering the same in writing to such entity at the address set forth above. 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: Citigroup Global Markets Inc. 350 California Street, 21st Floor San Francisco, California 94104 Section 13. Entire Agreement. This Purchase Agreement, when accepted by the Agency and the Authority, shall constitute the entire agreement between the Agency, the Authority and the Underwriter and is made solely for the benefit of the Agency, the Authority and the Underwriter (including the successors or assigns of any Underwriter). No other person shall acquire or have any right hereunder by virtue hereof, except as provided herein. All the Agency's and the Authority's representations, warranties and covenants in this Purchase Agreement shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter. Section 14. Counterparts. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. Section 15. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. Section 16. State of California Law Governs. The validity, interpretation and performance of this Purchase Agreement shall be governed by the laws of the State. -17- Section 17. No Assignment. The rights and obligations created by this Purchase Agreement shall not be subject to assignment by the Underwriter, the Authority or the Agency without the prior written consent of the other parties hereto. Accepted as of the date first stated above: CITIGROUP GLOBAL MARKETS INC. By: Vice President PALM DESERT FINANCING AUTHORITY By: Chief Administrative Officer PALM DESERT REDEVELOPMENT AGENCY By: Executive Director -18- APPENDIX A MATURITY SCHEDULE 2006 SERIES A Current Interest Bonds Maturity Date Principal Interest (April 1) Amount Rate 2006 SERIES B Capital Appreciation Bonds Yield Initial Approximate Reoffering Maturity Maturity Date Principal Amount Yield To Maturity Value 2006 SERIES C Current Interest Bonds (Escrowed Proceeds) Maturity Date Principal Interest (April 1) Amount Rate 2006 SERIES D Subordinate Capital Appreciation Bonds Yield Initial Approximate Reoffering Maturity Maturity Date Principal Amount Yield To Maturity Value A-1 APPENDIX B RULE 15c2-12 CERTIFICATE The undersigned hereby certifies and represents to Citigroup Global Markets Inc. (the "Underwriter") that he is a duly appointed and acting officer of the Palm Desert Redevelopment Agency (the "Agency"), and as such is to execute and deliver this Certificate and further hereby certify and reconfirm on behalf of the Agency to the Underwriter as follows: (1) This Certificate is delivered to enable the Underwriter to comply with Securities and Exchange Commission Rule 15c2- 12 under the Securities Exchange Act of 1934 (the "Rule") in connection with the offering and sale of the Palm Desert Financing Authority, Tax Allocation Revenue Bonds (Project Area No. 2) 2006 Series A, Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2) 2006 Series B, Tax Allocation Revenue Bonds (Project Area No. 2) 2006 Series C, and Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 2) 2006 Series D (collectively, the "Bonds"). (2) In connection with the offering and sale of the Bonds, there has been prepared a Preliminary Official Statement, setting forth information concerning the Bonds and the issuer of the Bonds (the "Preliminary Official Statement"). (3) As used herein, "Permitted Omissions" shall mean the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, ratings and other terms of the Bonds depending on such matters and the identity of the underwriter(s), all with respect to the Bonds. (4) The Preliminary Official Statement is, except for the Permitted Omissions, deemed final within the meaning of the Rule and has been, and the information therein is accurate and complete except for the Permitted Omissions. (5) If, at any time prior to the execution of the final contract of purchase, the Agency gains actual knowledge of the occurrence of any event as a result of which the Preliminary Official Statement might include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Agency shall promptly notify the underwriter thereof. Dated: , 2006. PALM DESERT REDEVELOPMENT AGENCY By: Executive Director B-1 CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by the Palm Desert Redevelopment Agency (the "Agency") and Wells Fargo Bank, National Association, as Trustee (the "Trustee") and MuniFinancial, Inc. (the "Dissemination Agent") in connection with the issuance of $ Palm Desert Financing Authority, Tax Allocation Refunding Revenue Bonds (Project Area No. 2), 2006 Series A, $ Palm Desert Financing Authority, Tax Allocation Capital Appreciation Revenue Bonds (Project Area No. 2), 2006 Series B, $ Palm Desert Financing Authority, Tax Allocation Revenue Bonds (Project Area No. 2), 2006 Series C, and $ Palm Desert Financing Authority, Subordinate Tax Allocation Capital Appreciation Revenue Bonds (Project Area No. 2), 2006 Series D (together, the "Bonds"). The Bonds are being issued pursuant to an Indenture of Trust dated as of July 1, 2006, between the Palm Desert Financing Authority (the "Issuer") and the Trustee (the "Indenture"). The proceeds of the Bonds are being loaned by the Issuer to the Agency pursuant to a Loan Agreement (as defined in the Indenture). The parties agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the parties for the benefit of the Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (defined below). The Agency acknowledges that the Issuer has undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Agreement, and has no liability to any person, including any Owner of Bonds, with respect to any such 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 Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Disclosure Representative" shall mean the Executive Director of the Agency or his or her designee, or such other person as the Agency shall designate in writing to the Trustee and Dissemination Agent from time to time. "Dissemination Agent" shall mean MuniFinancial, Inc., acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Agency and which has filed with the Trustee a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. "Official Statement" shall mean the final Official Statement with respect to the Bonds. "Owners" shall mean the registered owners of the Bonds or, if the Bonds are registered in the name of a depository, the beneficial owners of the Bonds. "Participating Underwriter" shall mean the original underwriters of the Bonds required to comply with the Rule in connection with the offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934. "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. As of the date of this Agreement, there is no State Repository. SECTION 3. Provision of Annual Reports. (a) The Agency shall, or upon written direction shall cause the Dissemination Agent to, not later than six months after the end of the Agency's Fiscal Year (which currently would be December 31 of each year), commencing with the report for the 2005-2006 Fiscal Year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. Not later than fifteen (15) Business Days prior to said date, the Agency shall provide the Annual Report to the Dissemination Agent and the Trustee. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Agency may be submitted separately from the balance of the Annual Report. The Agency shall provide a written 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 Agency hereunder. The Dissemination Agent and Trustee may conclusively rely upon such certification of the Agency. (b) 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 each National Repository or to the Municipal Securities Rulemaking Board and to the appropriate State Repository, if any, in substantially the form attached as Exhibit A. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) if the Annual Report has been furnished to the Dissemination Agent, file a report with the Agency, the Issuer and the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided, and listing all the Repositories to which it was provided. SECTION 4. Content of Annual Reports. The Agency's Annual Report shall contain or incorporate by reference the following: 2 (i) the audited financial statements of the Agency, prepared in accordance with generally accepted accounting principles in effect from time to time. If the Agency's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (ii) An update of the tabular information set forth in the Official Statement under the captions "SUBORDINATE TAX REVENUES -- Schedule of Historical Tax Revenues" and "-- Top Ten Taxpayers." Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Agency or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Agency shall clearly identify each such other document so incorporated by reference. SECTION 5. Reporting of Material Events. (a) Pursuant to the provisions of this Section 5, the 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: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; and (6) adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds; (7) modifications to rights of security holders; (8) unscheduled bond calls; (9) defeasances; (10) release, substitution or sale of property securing repayment of the securities; and (11) rating changes. (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 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 either of the Indentures). 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. .3 (c) Whenever the Agency obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Trustee pursuant to subsection (b) or otherwise, the Agency shall as soon as possible determine if such event is material under applicable federal securities laws. (d) If the Agency has determined that knowledge of the occurrence of a Listed Event is material, the Agency shall promptly notify the Dissemination Agent and the Trustee in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f) and shall instruct the Trustee to report the occurrence to Owners. (e) If in response to a request under subsection (b), the Agency determines that the Listed Event is not material, the 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. (f) If the Dissemination Agent has been instructed by the Agency to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository, with a copy to the Agency. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to the Owners of affected Bonds pursuant to the Indenture. SECTION 6. Termination of Reporting Obligation. The obligations of the Agency, the Trustee and the Dissemination Agent under this Disclosure Agreement shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds; provided that the obligations of the Trustee and the Dissemination Agent hereunder shall also terminate upon the resignation or removal of such Trustee or Dissemination Agent. SECTION 7. Dissemination Agent. The 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, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be MuniFinancial, Inc. The Dissemination Agent may resign its duties hereunder at any time upon written notice to the Agency. SECTION 8. Amendment. Notwithstanding any other provision of this Disclosure Agreement, the parties may amend this Disclosure Agreement (and the Trustee and the Dissemination Agent shall agree to any amendment so requested by the Agency provided that neither the Trustee 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 with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Agency, or type of business conducted; (b) this Disclosure Agreement, as amended, would have complied with 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; 4 (c) the amendment does not materially impair the interests of Owners, as determined by parties unaffiliated with the Agency (such as, but without limitation, the Agency's bond counsel) or by Owners' 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 will explain, in narrative form, the reasons for the amendment and the "impact" (as that word 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. Nothing in this Disclosure Agreement shall be deemed to prevent the 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 which is required by this Disclosure Agreement. If the Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Disclosure Agreement, the Agency shall have no obligation under this Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Default. In the event of a failure of the Agency to comply with any provision of this Disclosure Agreement, the Trustee 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 Agency, the Trustee or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement; provided that any 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 any failure of the Agency, the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Agency agrees to indemnify and save the Dissemination Agent and the Trustee, their officers, directors, employees and agents, harmless against any loss, 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 Agent's or Trustee's negligence or wilful misconduct. The Dissemination Agent may rely on and shall be protected in acting or refraining from acting upon any direction from the Issuer or an opinion of nationally recognized bond counsel. The Dissemination Agent and the Trustee shall be paid compensation by the Agency for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Trustee shall have no duty or obligation to review any information 5 provided to them by the Agency hereunder and shall not be deemed to be acting in any fiduciary capacity for the Authority, the Agency, the Owners, or any other party. The obligations of the 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 Agreement. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach of this Agreement. SECTION 12. Beneficiaries, This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Agency, the Trustee, the Dissemination Agent, the Participating Underwriter and Owners from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 13. Notices. Notices should be sent in writing to the following addresses. The following information may be conclusively relied upon until changed in writing. Agency: Dissemination Agent: Trustee: Palm Desert Redevelopment Agency 73-510 Fred Waring Drive Palm Desert, California 92260 (760) 346-0611 (760) 346-0574 Fax MuniFinancial, Inc. 27368 Via Industria, Suite 110 Temecula, California 92590 (909) 587-3500 (909) 587-3510 fax Wells Fargo Bank, National Association 707 Wilshire Boulevard, 17th Floor Los Angeles, CA 90017 (213) 614-3353 (213) 614-3355 Fax 6 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. PALM DESERT REDEVELOPMENT AGENCY By Executive Director WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By Authorized Officer MUNI FINANCIAL, INC., as Dissemination Agent By Authorized Officer 7 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Obligated Party: Palm Desert Redevelopment Agency (the "Agency") Name of Bond Issue: Palm Desert Financing Authority $ Series 2006 A Bonds $ Series 2006 B Bonds $ Series 2006 C Bonds $ Series 2006 D Bonds Date of Delivery: , 2006 NOTICE IS HEREBY GIVEN that the Agency has not provided an Annual Report with respect to the above -named Bonds as required by Section 3 of the Continuing Disclosure Agreement dated as of July 1, 2006 between the Agency and Wells Fargo Bank, National Association. [The Agency anticipates that the Annual Report will be filed by .] Dated: MuniFinancial, Inc. on behalf of the Agency cc: Executive Director, Palm Desert Redevelopment Agency 8 CITY OF PALM DESERT PALM DESERT FINANCING AUTHORITY PALM DESERT REDEVELOPMENT AGENCY STAFF REPORT REQUEST: APPROVAL OF RESOLUTION NO. 06- 76 OF THE CITY COUNCIL OF THE CITY OF PALM DESERT MAKING A FINDING OF SIGNIFICANT PUBLIC BENEFIT AND OTHER FINDINGS IN CONNECTION WITH THE ISSUANCE AND SALE BY THE PALM DESERT FINANCING AUTHORITY OF ITS TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C APPROVAL OF RESOLUTION NO. FA- 57 OF THE PALM DESERT FINANCING AUTHORITY ACKNOWLEDGING A FINDING OF SIGNIFICANT BENEFIT AND APPROVING AS TO FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION WITH THE ISSUANCE, SALE AND DELIVERY OF THE AUTHORITY'S TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO APPROVAL OF RESOLUTION NO. 529 OF THE PALM DESERT REDEVELOPMENT AGENCY APPROVING AS TO FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION WITH THE SALE AND ISSUANCE BY THE PALM DESERT FINANCING AUTHORITY OF TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO SUBMITTED BY: DAVE YRIGOYEN, DIRECTOR OF REDEVELOPMENT/HOUSING DATE: JUNE 8, 2006 CONTENTS: (1) CITY COUNCIL RESOLUTION NO. 06 76 (2) PALM DESERT FINANCING AUTHORITY RESOLUTION NO. FA-57 (3) PALM DESERT REDEVELOPMENT AGENCY RESOLUTION NO. 529 (4) INDENTURE OF TRUST (SENIOR BONDS) (5) PROJECT AREA NO. 3 LOAN AGREEMENT (2006 SENIOR LOANS) (6) INDENTURE OF TRUST (SUBORDINATE BONDS) (7) PROJECT AREA NO. 3 LOAN AGREEMENT (2006 SUBORDINATE LOAN) (8) PRELIMINARY OFFICIAL STATEMENT (9) BOND PURCHASE AGREEMENT Staff Report Approval of Agency/PDFA Resolutions — PA#3 Tax Allocation Revenue Bonds 2006 Series A, B and C Page 2 of 4 June 8, 2006 (10) CONTINUING DISCLOSURE AGREEMENT Recommendation: By Minute Motion: 1. That the City Council approve Resolution No. 06-76 , making (i) findings of significant public benefit in connection with the issuance and sale of three series of bonds (the "Bonds") by the Palm Desert Financing Authority: (A) Tax Allocation Revenue Bonds (Project Area No. 3), 2006 Series A (the "Series 2006A Bonds"), (B) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series B (the "Series 2006E Bonds"), and (C) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series C (the "Series 2006C Bonds"), and (ii) findings pursuant to Sections 33679 and 33445 of the California Health and Safety Code with respect to the projects to be funded by proceeds of the Bonds; 2. That the Palm Desert Financing Authority approve Resolution No. FA-57 , acknowledging finding of significant public benefit in connection with the issuance and sale of the Bonds, approving of the issuance, sale and delivery of the Bonds and authorizing the execution and delivery of documents relating to the Bonds; and 3. That the Palm Desert Redevelopment Agency approve Resolution No.529 , approving and authorizing the execution and delivery of documents relating to the Bonds. Executive Summary. Adoption of the attached resolutions will allow Staff to proceed with the issuance of the Bonds and the use of proceeds from the Bonds to pay for the costs of certain projects. Background and discussion: Staff recommends the issuance of three series of Bonds relating to the financing of projects for the Agency's Project Area No. 3. The Bonds will be issued as tax-exempt bonds. Net proceeds of the Bonds will be used to pay all or a portion of the costs of certain Agency projects benefiting Project Area No. 3. Based on current estimates by the Financing Advisor and the Underwriter, the sale of the three series of Bonds is expected to generate approximately $14,150,000 of net proceeds to be available for Agency projects. The proposed projects are outlined in the attached City Council resolution and are also described in a Summary Report, which was made available to the public for inspection in connection with the City Council public hearing. The repayment of the Bonds will be primarily secured by tax increments generated with respect to Project Area No. 3. The Series 2006A Bonds and the Series 2006B Bonds will rank on a parity with the outstanding bonds previously issued for Project Area No. 3, and will rank senior to the Series 2006C Bonds. The Series 2006A Bonds will be current interest bonds. The Series 2006E Bonds Staff Report Approval of Agency/PDFA Resolutions — PA#3 Tax Allocation Revenue Bonds 2006 Series A,BandC Page 3 of 4 June 8, 2006 and the Series 2006C Bonds will be capital appreciation bonds. Adoption of the attached resolutions will allow Staff to proceed with the issuance of the Bonds and the use of proceeds to pay for the costs of the identified projects. Staff is utilizing the following financing team: Kenneth L. Dieker, D.B.A. Del Rio Advisors, LLC, Modesto, CA — Financial Advisor, Richards, Watson & Gershon, A Professional Corporation, Los Angeles, CA— Bond Counsel Lofton & Jennings, San Francisco, CA — Disclosure Counsel Wells Fargo Bank, National Association, Los Angeles, CA — Trustee and Escrow Agent Citigroup Global Markets Inc., Los Angeles, CA — Underwriter Rosenow Spevacek Group, Inc., Santa Ana, CA — Fiscal Consultant MuniFinancial, Inc., Temecula, CA — Dissemination Agent SUMMARY OF DOCUMENTS TO BE APPROVED: Indentures of Trust Generally, an indenture sets forth all of the terms and conditions of the bonds (e.g., principal amounts, maturity and redemption schedules, payment, registration and transfer provisions and the form of the Bonds), the covenants and other obligations of the Authority to the bondholders, and the role and the duties of the Trustee. Two indentures are presented, one for the Series 2006A Bonds and the Series 2006B Bonds, and the other for the Series 2006C Bonds. As presented, the Indentures are in substantially final form, except that final dollar amounts and interest rates will be added after the Bonds have been priced and sold. Provisions also may be added, deleted or otherwise modified to accommodate the bond insurer requirements. Loan Aareements Presented are two loan agreements, one for the Series 2006A Bonds and the Series 2006E Bonds, and the other for the Series 2006C Bonds. Pursuant to the Loan Agreements, the Authority agrees to lend the Agency funds that would be used by the Agency to fund capital projects for benefit to Project Area No. 3. The Agency agrees to pay tax increment revenues to the Trustee, as the Authority's assignee, in sufficient amounts to pay debt service on the Bonds. Bond Purchase Aareement This is an agreement between the Authority, the Agency and the Underwriter for the purchase and sale of the bonds. Pursuant to the Bond Purchase Agreement, the underwriter agrees to purchase the Authority bonds at specified prices and interest rates, subject to the receipt of certain opinions, certificates and other conditions. The Bond Purchase Agreement will be presented to the appropriate officers of the Authority and Agency for approval and execution as soon as the Underwriter has completed the process of offering and then pricing the Bonds in the market. Preliminary Official Statement A Preliminary Official Statement relating to the Bonds, in substantially final form, has been prepared by Disclosure Counsel. The Preliminary Official Statement is designed to provide material Staff Report Approval of Agency/PDFA Resolutions — PA#3 Tax Allocation Revenue Bonds 2006 Series A, B and C Page 4 of 4 June 8, 2006 information to investors with respect to the terms and the security of the Bonds. It includes a full description of the legal and financial aspects, as well as the various legal documents in regard to the Bonds, except for certain information which will be determined upon the pricing of the Bonds (such as the final principal amounts, the interest rates and the redemption dates). The Preliminary Official Statement also includes information regarding the Authority, the Agency, and the Project Area. The Preliminary Official Statement will be utilized by the Underwriter in its effort to market the bonds to the public. Once the Bonds have been priced and the Bond Purchase Agreement has been signed, Disclosure Counsel will insert the final pricing information into the Preliminary Official Statement, thereby converting it to the Official Statement. The Underwriter will then distribute the Official Statement to the individuals and institutions that purchased the Bonds. Continuing Disclosure Aareement The Continuing Disclosure Agreement is between the Agency, the Trustee and the Dissemination Agent. This agreement directs the Agency to provide an annual report to the Dissemination Agent. The Annual Report contains the Agency's audited financial statements and other pertinent information relating to Project Area No. 3. The Annual Report is sent to state and national repositories so that this information is available to the bondholders. This mechanism is used to keep bondholders informed on an annual basis of the financial status of the Agency. The resolutions permit Staff to make the necessary changes to all of the documents in order to finalize and execute the documents. Staff is recommending that the City Council, the Authority and the Agency adopt their respective resolutions approving and authorizing the sale and issuance of the Bonds, and the execution and delivery of the related documents. S,\mitted y: //// Aix/ Yrigoyen tor of Redeye Aproval• in McCarthy, ACM Rede elopment }ed- Carlos L. Ortega, City Manager/GAO/Executive Director 4 BY RDA ONlr• '649 VERIFIED BY O'S IM P), Original on file with City Clerk's Office BY FIN AUTH ON 1,0 • UP VERIFIED BY: Pac Original on file / Ci Ierk's Office PIpo- Paul S. Gor of Finance/Treasurer CITY COUNCI%ACTION: APPROVED ✓ DENIED RECEIVED OTHER too A/c , 66-76 04167 and .5- METING DATE •O}G AYES : /t0Y) ,,(�.rtS•, (� /e.�. � e -ani NOES: �j &Le ABSENT: ►\ ABSTAIN: VERIFIED BY: 3 ��,-� Original on F ®w t 1ty Clerk's Office RESOLUTION NO. 06- 76 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT MAKING A FINDING OF SIGNIFICANT PUBLIC BENEFIT AND OTHER FINDINGS IN CONNECTION WITH THE ISSUANCE AND SALE BY THE PALM DESERT FINANCING AUTHORITY OF ITS TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") has proposed to sell and issue three series of bonds (collectively, "the Bonds"): (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 3), 2006 Series A, (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series B; and (iii) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series C; and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making three loans to the Palm Desert Redevelopment Agency (the "Agency") for the object and purpose of, among other things, assisting in the financing of certain public capital improvements (the "Projects") of benefit to Project Area No. 3, of the Agency (the "Project Area"), including: (A) civic center park improvements, including the construction and improvements of public recreational buildings, (B) construction of a parking structure to accommodate a hotel and related development at the Desert Willow Golf Resort, (C) construction of on- and off -ramps at Portola Avenue and Interstate 10, (D) undergrounding of utilities throughout the Project Area; and WHEREAS, pursuant to Section 6586.5 of the California Government Code and Section 33679 of the California Health and Safety Code, after notice duly published in accordance with law, this City Council held a public hearing on this date with respect to the issuance of the proposed Bonds and received evidence conceming the public benefits therefrom; and WHEREAS, there has been made available in the office of the City Clerk for two weeks prior to such public hearing for public inspection and copying, at a cost not to exceed the cost of duplication, a summary report which includes all of the following: (i) estimates of the amount of such taxes allocated to the Agency from the Project Area proposed to be used to pay for the Projects, including interest payments; (ii) facts supporting the determinations required to be made by the City Council pursuant to California Health and Safety Code Section 33445; and (iii) the redevelopment P6402.1056\893634.1 purpose for which such taxes are being used to pay for the installation and construction; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PALM DESERT DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. Recitals. The above recitals, and each of them, are true and correct. Section 2. Approval of Financing. The City Council hereby finds that the financing of public capital improvements described above through the issuance by the Authority of the Bonds will result in significant public benefits to the constituents of the Agency and the City of Palm Desert, including demonstrable savings in effective interest rate and more efficient delivery of Agency and City services to residential and commercial development. The City Council hereby approves the issuance of the Bonds by the Authority. Section 3. Further Findings. The City Council hereby finds and determines that based upon the "Summary Report Regarding Payment by the Palm Desert Redevelopment Agency for All or A Portion of the Installation and Construction of Certain Other Public Capital Improvements of Benefit to Project Area No. 3," which Report was made available at the office of the City Clerk in connection with the public hearing described in the Recitals hereof, and other information presented to the City Council: (i) the above -described public capital improvements are of benefit to the Project Area and to the immediate neighborhoods in which the Projects are located; (ii) the payment of funds for the cost of such public capital improvements will assist in the elimination of one or more blighting conditions inside the Project Area; (iii) the payment of funds for the cost of such improvements is consistent with the Agency's implementation plan adopted pursuant to Health and Safety Code Section 33490; and (iv) no other reasonable means of financing such improvements is available to the City. Section 4. Approval of Payment by Agency. The City Council hereby approves payment by the Agency for the cost of the installation and construction of the above -described improvements from tax increment revenues of the Agency from the Project Area. Section 5. Other Acts. The officers of the City are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents which they may deem necessary or advisable in order to effectuate the purposes of this Resolution and any such actions previously taken by such officers are hereby ratified and confirmed. P6402.1056\893634.1 2 Section 6. Effective Date. This Resolution shall take effect immediately upon adoption. APPROVED and ADOPTED this 8th day of June 2006 by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: Jim Ferguson, Mayor ATTEST: Rachelle D. Klassen, City Clerk P6402.1056\893634.1 3 RESOLUTION NO. FA-57 A RESOLUTION OF THE PALM DESERT FINANCING AUTHORITY ACKNOWLEDGING A FINDING OF SIGNIFICANT BENEFIT AND APPROVING AS TO FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION WITH THE ISSUANCE, SALE AND DELIVERY OF THE AUTHORITY'S TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") is a joint powers authority duly organized and existing under and pursuant to Articles 1 through 4 (commencing with Section 6500), Chapter 5, Division 7, Title 1 of the Califomia Govemment Code (the "Act") and that certain Joint Exercise of Powers Agreement dated as of January 26, 1989, by and between the City of Palm Desert (the "City") and the Palm Desert Redevelopment Agency (the "Agency"), and is authorized pursuant to Article 4 of the Act to issue bonds for the purpose of making loans to the Agency to provide financing and refinancing for public capital improvements; and WHEREAS, the Authority desires to issue and sell three series of bonds: (i) Tax Allocation Refunding Revenue Bonds (Project Area No. 3), 2006 Series A (the "Series 2006A Bonds"), (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series B (the "Series 2006B Bonds," and together with the Series 2006A Bonds, the "Senior Bonds"), and (iii) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series C (the "Subordinate Bonds," and together with the "Series Bonds," the "Bonds"); and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making three loans to the Agency pursuant to two loan agreements for the object and purpose of, among other things, assisting in the financing of certain public capital improvements of benefit to Project Area No. 3, of the Agency; and WHEREAS, the City Council has made a finding, after a duly noticed public hearing pursuant to Section 6586.5 of the California Government Code held on the date hereof, that the issuance of the Bonds will result in significant public benefit; P6402. l 057\893635.1 1 NOW, THEREFORE, THE PALM DESERT FINANCING AUTHORITY DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. Recitals. The above recitals, and each of them, are true and correct. Section 2.Acknowledgment of City Council Findings. The Authority hereby acknowledges and concurs with the City Council's finding of significant public benefit and hereby approves and authorizes the issuance and sale of the Bonds. Section 3.Issuance of Senior Bonds; Senior Indenture. The Indenture of Trust (the "Senior Indenture"), proposed to be entered into by and between the Authority and the Trustee (defined in Section 5 below) relating to the Senior Bonds, in the form presented at this meeting and on file in the office of the Secretary of the Authority (the "Secretary"), is hereby approved. The issuance of the Series 2006A Bonds in an aggregate principal amount not exceeding $14,000,000, and the Series 2006B Bonds in an aggregate initial principal amount not exceeding $1,500,000, pursuant to the Senior Indenture is hereby approved. Subject to Section 11 below, each of the President, the Chief Administrative Officer and the Treasurer of the Authority, any deputy of such officers, and any member of the Authority Commission (each, an "Authorized Officer"), acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Senior Indenture in substantially said form, with such additions or changes as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 4.Issuance of Subordinate Bonds; Subordinate Indenture. The Indenture of Trust (the "Subordinate Indenture"), proposed to be entered into by and between the Authority and the Trustee relating to the Subordinate Bonds, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. The issuance of the Subordinate Bonds, in an aggregate principal amount not exceeding $4,500,000, pursuant to the Subordinate Indenture is hereby approved. Subject to Section 11 below, each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Subordinate Indenture in substantially said form, with such additions or changes as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 5.Appointment of Trustee. The appointment of Wells Fargo Bank, National Association, as trustee (the "Trustee") under the Senior Indenture and the Subordinate Indenture is hereby approved. Section 6.Senior Loan Agreement. The Project Area No. 3 Loan Agreement (2006 Senior Loans) (the "Senior Loan Agreement"), proposed to be entered into by and among the Agency, the Authority and the Trustee, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. Each P6402.1057\893635.1 2 Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Senior Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 7.Subordinate Loan Agreement. The Project Area No. 3 Loan Agreement (2006 Subordinate Loan) (the "Subordinate Loan Agreement"), proposed to be entered into by and among the Agency, the Authority and the Trustee, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Subordinate Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Officer's execution and delivery thereof). Section 8. Preliminary Official Statement. The Preliminary Official Statement relating to the Bonds (the "Preliminary Official Statement"), in the form presented at this meeting and on file with the Secretary, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to cause the Preliminary Official Statement in substantially said form, with such changes therein as such Authorized Officer may approve, to be deemed final for the purposes of Rule 15c2-12 of the Securities and Exchange Act of 1934. The distribution by Citigroup Global Markets Inc. (the "Underwriter") of copies of the Preliminary Official Statement to potential purchasers of the Bonds is hereby approved. Section 9. Official Statement. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Authority, to cause the Preliminary Official Statement to be brought into the form of a final Official Statement (the "Official Statement"), and to execute the same for and in the name and on behalf of the Authority, with such changes therein as such Authorized Officer may approve (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof). The distribution and use of the Official Statement by the Underwriter in connection with the sale of the Bonds are hereby approved. Section 10. Purchase Agreement. The form of the Bond Purchase Agreement as presented to this meeting by the Underwriter and the sale of the Bonds pursuant thereto upon the terms and conditions set forth therein are hereby approved. Subject to Section 11 below, Each Authorized Officer, acting singly, is authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Purchase Agreement in substantially said form, with such changes therein as the officer executing the same may require or approve, including such matters as are authorized by Section 11 hereof (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof). P6402.1057\893635.1 3 Section 11. Terms of Sale of Bonds. Each Authorized Officer, acting singly, is hereby authorized and directed to act on behalf of the Authority to establish and determine each of the following: (a) the aggregate initial principal amount of each series of Bonds, which amount (i) with respect to the Series 2006A Bonds shall not exceed $14,000,000, (ii) with respect to the Series 2006B Bonds shall not exceed $1,500,000, and (iii) with respect to the Subordinate Bonds shall not exceed $4,500,000; (b) interest rates on the Bonds, provided that (i) the true interest cost with respect to the Series 2006A Bonds shall not exceed 6.25 percent, (ii) the true interest cost with respect to the Series 2006B Bonds shall not exceed 6.25 percent, and (iii) the true interest cost with respect to the Subordinate Bonds shall not exceed 6.25 percent; (d) the Underwriter's compensation (i.e., underwriter's discount) with respect to the sale of the Bonds, provided that such compensation (i) with respect to the Series 2006A Bonds shall not exceed one percent of the aggregate principal amount of the Series 2006A Bonds, (ii) with respect to the Series 2006B Bonds shall not exceed one percent of the aggregate initial principal amount of the Series 2006B Bonds, and (iii) with respect to the Subordinate Bonds shall not exceed one percent of the aggregate initial principal amount of the Subordinate Bonds; and (e) such provisions as may be required by the terms of the bond insurance, if any, or debt service reserve surety bond(s), if any, purchased in connection with the issuance of the Bonds. The authorization and powers delegated to such officer by this Section 11 shall be valid for a period of 120 days from the date of adoption of this Resolution. Section 12. Other Acts. The Authorized Officers and all other officers of the Authority are hereby authorized and directed, jointly and severally, to do any and all things, to execute and deliver any and all documents which they may deem necessary or advisable in order to consummate the issuance, sale and delivery of the Bonds, or otherwise to effectuate the purposes of this Resolution, the Senior Indenture, the Senior Loan Agreement, the Subordinate Indenture, the Subordinate Loan Agreement, the Purchase Agreement and the Official Statement, and any such actions previously taken by such officers are hereby ratified and confirmed. Section 13. Effective Date. This Resolution shall take effect immediately upon adoption. P6402.1057\893635.1 4 to wit: APPROVED AND ADOPTED this 8th day of June 2006 by following vote AYES: NOES: ABSENT: ABSTAIN: ATTEST: Rachelle D. Klassen, Secretary Jim Ferguson, President P6402.1057\893635.1 5 RESOLUTION NO, 529 A RESOLUTION OF THE PALM DESERT REDEVELOPMENT AGENCY APPROVING AS TO FORM AND AUTHORIZING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS IN CONNECTION WITH THE SALE AND ISSUANCE BY THE PALM DESERT FINANCING AUTHORITY OF TAX ALLOCATION REVENUE BONDS (PROJECT AREA NO. 3), 2006 SERIES A, TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES B, AND SUBORDINATE TAX ALLOCATION REVENUE CAPITAL APPRECIATION BONDS (PROJECT AREA NO. 3), 2006 SERIES C, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO RECITALS: WHEREAS, the Palm Desert Financing Authority (the "Authority") has determined to sell and issue three series of bonds: (i) Tax Allocation Revenue Bonds (Project Area No. 3), 2006 Series A (the "Series 2006A Bonds"), (ii) Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series B (the "Series 2006B Bonds," and together with the Series 2006A Bonds, the "Senior Bonds") and (iii) Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3), 2006 Series C (the "Subordinate Bonds," and together with the Senior Bonds, the "Bonds"); and WHEREAS, proceeds of the Bonds are to be applied for the purpose of making three loans (the "Loans") to the Palm Desert Redevelopment Agency (the "Agency") pursuant to two loan agreements for the object and purpose of, among other things, assisting in the financing of certain public capital improvements of benefit to Project Area No. 3, of the Agency; and NOW, THEREFORE, THE PALM DESERT REDEVELOPMENT AGENCY DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. Recitals. The above recitals, and each of them, are true and correct. Section 2. Senior Loan Agreement. The Project Area No. 3 Loan Agreement (2006 Senior Loans) (the "Senior Loan Agreement"), proposed to be entered into by and among the Authority, the Agency and Wells Fargo Bank, National Association, as trustee (the "Trustee"), in the form presented at this meeting and on file with the Secretary of the Agency (the "Secretary") is hereby approved. Each of the Chairman and the Executive Director, or either of them, or their designee (each, an "Authorized Officer"), is hereby authorized and directed, for and in the name and on P6402. 1 056,893643.1 behalf of the Agency, to execute and deliver the Senior Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof). Section 3. Subordinate Loan Agreement. The Project Area No. 3 Loan Agreement (2006 Subordinate Loan) (the "Subordinate Loan Agreement"), proposed to be entered into by and among the Authority, the Agency and the Trustee, in the form presented at this meeting and on file with the Secretary is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Agency, to execute and deliver the Subordinate Loan Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such Authorized Officer's execution and delivery thereof) Section 4. Continuing Disclosure Agreement. The Continuing Disclosure Agreement (the "Continuing Disclosure Agreement"), proposed to be entered into by and among the Agency, the Trustee and MuniFinancial, Inc., as Dissemination Agent, in the form presented at this meeting and on file in the office of the Secretary, is hereby approved. Each Authorized Officer, acting singly, is hereby authorized and directed, for and in the name and on behalf of the Agency, to execute and deliver the Continuing Disclosure Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may approve (such approval to be conclusively evidenced by such officer's execution and delivery thereof). Section 5. Purchase Agreement. The Bond Purchase Agreement (the "Purchase Agreement") proposed to be entered into by the Authority, the Agency and Citigroup Global Markets Inc. (the "Underwriter"), in the form presented at this meeting and on file with the Secretary, and the sale of the Bonds pursuant thereto upon the terms and conditions set forth therein, are hereby approved. Subject to the limitations imposed by the Authority by its Resolution relating to the issuance and sale of the Bonds, each Authorized Officer, acting singly, is authorized and directed, for and in the name and on behalf of the Agency, to execute and deliver the Purchase Agreement in substantially said form, with such changes therein as the Authorized Officer executing the same may require or approve (such approval to be conclusively evidenced by his execution and delivery thereof). Section 6. Requisitions. Each Authorized Officer, the Treasurer or any deputy of such officers, acting singly, is hereby authorized and directed to execute one or more requisitions authorizing the Trustee to pay costs relating to the incurrence of the Loans and the issuance of the Bonds from the proceeds of the Bonds pursuant to the Senior Loan Agreement and the Subordinate Loan Agreement. Section 7. Other Acts. The Authorized Officers and all other officers of the Agency are hereby authorized and directed, jointly and severally, to do any and all things and to execute and deliver any and all documents which they may deem P6402.1056\893643.1 2 necessary or advisable in order to effectuate the purposes of this Resolution, the Senior Loan Agreement, the Subordinate Loan Agreement, the Continuing Disclosure Agreement and the Purchase Agreement, and any such actions previously taken by such officers are hereby ratified and confirmed. Section 8. Effective Date. This Resolution shall take effect immediately upon adoption. APPROVED and ADOPTED this 8th day of June,2006 by the following vote to wit: AYES: NOES: ABSENT: ABSTAIN: ATTEST: Jim Ferguson, Chairman Rachelle D. Klassen, Secretary P6402.1056.893643.1 3 Indenture of Trust Nyith reference to Palm Desert Financing Authority Tax Allocation Rcycnuc Bonds (Project Area No. 3) 2006 Series A 5 Palm Desert Financing Authority Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 3) 2006 Series B P6402. 1056\875 154. 3 RWG DRAFT: 5/24/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY 2 Section 1.01. Definitions 2 Section 1.02. Rules of Construction 9 Section 1.03. Authorization and Purpose of Bonds 9 Section 1.04. Equal Security 9 ARTICLE II ISSUANCE OF BONDS 9 Section 2.01. Designation 9 Section 2.02. Terms of Bonds 9 Section 2.03. Redemption of Bonds 11 Section 2.04. Form of Bonds 13 Section 2.05. Execution of Bonds 14 Section 2.06. Transfer of Bonds 14 Section 2.07. Exchange of Bonds 14 Section 2.08. Temporary Bonds 14 Section 2.09. Registration Books 15 Section 2.10. Bonds Mutilated. Lost. Destroyed or Stolen 15 ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS: ISSUANCE OF BONDS 15 Section 3.01. Issuance of Bonds 15 Section 3.02. Loan Funds: Application of Proceeds of Sale of Bonds 15 Section 3.03. Validity of Bonds 16 ARTICLE IV REVENUES: FLOW OF FUNDS 16 Section 4.01. Pledge of Revenues: Assignment of Rights 16 Section 4.02. Receipt. Deposit and Application of Revenues 16 Section 4.03. Investments 17 Section 4.04. Valuation and Disposition of Investments 18 ARTICLE V COVENANTS OF THE AUTHORITY 18 Section 5.01. Punctual Payment 18 Section 5.02. Extension of Payment of Bonds 18 Section 5.03. Against Encumbrances 18 Section 5.04. Power to Issue Bonds and Make Pledge and Assignment 19 Section 5.05. Accounting Records and Financial Statements 19 Section 5.06. No Additional Indebtedness 19 Section 5.07. Tax Covenants 19 Section 5.08. Loan Agreement 20 Section 5.09. Further Assurances 21 ARTICLE VI THE TRUSTEE 21 Section 6.01. Appointment of Trustee 21 Section 6.02. Acceptance of Tnists 21 Section 6.03. Fees. Charges and Expenses of Trustee 24 Section 6.04. Notice to Owners of Default 24 Section 6.05. Intervention by Trustee 24 Section 6.06. Removal of Trustee 25 Section 6.07. Resignation by Trustee 25 Section 6.08. Appointment of Successor Trustee 25 Section 6.09. Merger or Consolidation 25 -i- P6402. 1056\875 154.3 Section 6.10. Concerning an Successor Trustee 25 Section 6.11. Appointment of Co -Trustee 25 Section 6.12. Indemnification: Limited Liability of Trustee 26 ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE 26 Section 7.01. Amendment Hereof 26 Section 7.02. Effect of Supplemental Indenture 27 Section 7.03. Endorsement or Replacement of Bonds After Amendment 27 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES 28 Section 8.01. Events of Default 28 Section 8.02. Remedies Upon Event of Default 28 Section 8.03. Application of Revenues and Other Funds After Default 29 Section 8.04. Power of Trustee to Control Proceedings 30 Section 8.05. Appointment of Receivers 30 Section 8.06. Non -Waiver 30 Section 8.07. Limitation on Rights and Remedies of Owners 31 Section 8.08. Termination of Proceedings 31 ARTICLE IX BOND INSURANCE 31 ARTICLE X BOOK -ENTRY SYSTEM 32 SECTION 10.01 Book -Entry System: Limited Obligation of Authority 32 SECTION 10.02 Representation Letter 32 SECTION 10.03 Transfers Outside Book -Entry System 32 SECTION 10.04 Payments to the Nominee 33 SECTION 10.05 Initial Depository and Nominee 33 ARTICLE XI MISCELLANEOUS 33 Section 11.01. Limited Liability of Authority 33 Section 11.02. Benefits of Indenture Limited to Parties 33 Section 11.03. Discharge of Indenture 33 Section 11.04. Successor Is Deemed Included in All References to Predecessor 34 Section 11.05. Content of Certificates 34 Section 1 1.06. Execution of Documents by Owners 3� Section 11.07. Disqualified Bonds 3� Section 11.08. Waiver of Personal Liability 3� Section 11.09. Partial Invalidity 3� Section 1 1.10. Destruction of Cancelled Bonds 3� Section 1 1.1 1. Funds and Accounts 36 Section 11.12. Payment on Business Days 36 Section 11.13. Notices 36 Section 11.14. Unclaimed Moncys 37 Section 1 1. 15. Governing Law 37 EXHIBIT A — FORM OF SERIES 2006A BOND EXHIBIT B — FORM OF SERIES 2006B BOND P6402. 1056\875 154.3 INDENTURE OF TRUST This Indenture of Trust (this "Indenture) is made and entered into as of Jule I. 2006. by and between the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority) and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America. haying a corporate trust office in Los Angeles. California. and being qualified to accept and administer the trusts hereby created (the "Trustee.). Recitals A. The Palm Desert Redevelopment Agency (the "Agency) is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers. all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 3 of the Agency (the "Project Area) has been duly approved and adopted by the City. C. The Authority is authorized to borrow money for the purpose of making loans to the Agency to provide financing for public capital improvements of the Agency. D. For the purpose of aiding in the financing of redevelopment projects for the Project Area. the Authority has determined to make two loans (the "Loans) to the Agency under and pursuant to the Project Area No. 3 Loan Agreement (2006 Senior Loans). dated as of July I. 2006 (the "Loan Agreement) by and among the Authority. the Agency and the Trustee. E. To provide the moneys required to make the Loans under the Loan Agreement. the Authority has determined to issue its Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A. in the aggregate principal amount of $ (the "Series 2006A Bonds.). and its Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B. in the aggregate initial principal amount of $ (together with the Series 2006A Bonds. the "Bonds.). pursuant to and secured by this Indenture in the manner provided herein. F. To provide for the authentication and delivery of the Bonds. to establish and declare the terms and conditions upon which the Bonds are to be issued and to secure the payment of the principal thereof. premium. if any. and interest thereon. the Authority has authorized the execution and delivery of this Indenture. NOW. THEREFORE. THIS INDENTURE WITNESSETH. that in order to secure the payment of the principal of. premium. if any. and interest on the Bonds at any time issued and Outstanding under this Indenture. according to their tenor. and to secure the performance and observance of all the covenants and conditions therein and herein set forth. and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received. and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof. and for other valuable considerations. the receipt whereof is hereby acknowledged. the Authority hereby covenants and agrees with the Trustee. for the benefit of the Owners of the Bonds. as follows: P6402. 1056\875 154.3 -1- ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY Section 1.01. Definitions. The following terms shall for all purposes of this Indenture and of any Supplemental Indenture and of any certificate. opinion. request or other documents herein mentioned have the meanings ascribed thereby. In addition. the terms defined in Section 1.01 of the Loan Agreement and not otherwise defined in this Section 1.01 shall have the meanings ascribed thereby in the Loan Agreement. "Accreted Value means. Nvith respect to any Series 2006B Bond. as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Closing Date at the stated yield to maturity thereof on each April I and October I. assuming in any such semiannual period that such Accreted Value increases in equal daily amounts on the basis of a 360-dav year of twelve 30-dav months. "Act means Articles I through 4 (commencing Nvith Section 6500) of Chapter 5. Division 7. Title I of the Government Code of the State. as in existence on the Closing Date or as thereafter amended from time to time. ..Agency.. means the Palm Desert Redevelopment Agency. a redevelopment agency. a public body corporate and politic. duly created. established and authorized to transact business and exercise its powers all under and pursuant to the Redevelopment Law. and any successor to its duties and functions. "Authority means the Palm Desert Financing Authority. a joint powers authority duly organized and existing under the Joint Exercise of Powers Agreement. dated January 26. 1989. by and between the City and the Agency. and under the lays of the State. "Authority Commission"' means the governing body of the Authority. "Bond Counsel means Richards. Watson & Gershon. A Professional Corporation. Los Angeles. California. or a firm of attorneys of favorable reputation in the field of municipal bond lacy. "Bond Lary means the Marks -Roos Local Bond Pooling Act of 1985. being Article 4 of the Act (commencing Nyith Section 6584). as in existence on the Closing Date or as thereafter amended from time to time. "Bond Year- means each twelve-month period extending from April 2 in one calendar year to April I of the succeeding calendar year. both dates inclusive. except that the first Bond Year shall begin on the Closing Date and extend to and include April I. 2007. "Bonds means the Series 2006A Bonds and the Series 2006B Bonds. "Business Day" means any day other than (i) a Saturday or a Sunday or (ii) any other day on Nyhich the New York Stock Exchange or banks are authorized or obligated by lacy or executive order to close in New York. New York. San Francisco. California. Los Angeles. California or any city in Nyhich the Trust Office is located. P6402. 1056\875 154.3 -2- "Certificate"' means a certificate in writing signed by any officer of the designated public entity. duly authorized by its legislative body for that purpose. "City means the City of Palm Desert. a charter city and municipal corporation duly organized and validly existing under the laws of the State. purchaser. "Closing, Date means the date of delivery of the Bonds to the Underwriter as the original "Code" means the Internal Rcycnuc Code of 1986. as amended. "County" means the County of Riverside. "Defeasance Obligations" means (a) an obligations described in paragraph A (provided that stripped securities are only permitted if they have been stripped by the U.S. Treasury itself) or paragraph B (excluding the obligations described in subparagraphs B.4 and B.6) of the definition of "Permitted Investments' set forth in this Section. (b) bonds. debentures. notes or other evidences of indebtedness issued or guaranteed by the non -full faith and credit U.S. government agency Resolution Funding Corp. (REFCORP) (provided stripped securities and interest components thereof are only permitted if they have been stripped by request to the Federal Reserve Bank of NOV York in book entry form). or (c) pre -refunded municipal bonds rated "Aaa- by Moody's and "AAA' by S&P. provided if the issue is only rated by S&P. the pre -refunded bonds must have been pre -refunded with cash. direct U.S. or U.S. guaranteed obligations. or AAA rated pre -refunded municipal obligations. "Depository means The Depository Trust Company. New York. New York. and its successors and assigns as securities depository for the Bonds. or any other securities depository acting as Depository under Article X. "Event of Default means any of the events described in Section 8.0 I . "Fiscal Year- means any twelve-month period extending from July I in one calendar year to June 30 of the succeeding calendar year. both dates inclusive. or any other twelve-month period selected and designated by the Authority as its official fiscal year period. "Indenture means this Indenture of Trust. as may from time to time be supplemented. modified or amended by any Supplemental Indenture pursuant to the provisions hereof. "Independent Accountant means any certified public accountant or firm of certified public accountants appointed and paid by the Authority. and \vho. or each of whom (i) is in fact independent and not under domination of the Authority. the City or the Agency: (ii) does not have any substantial interest. direct or indirect. in the Authority. the City or the Agency: and (iii) is not connected with the Authority. the City or the Agency as an officer or employee of the Authority. the City or the Agency but whom may be regularly retained to make annual or other audits of the books of or reports to the Authority. the City or the Agency. "Information Services" means Financial Information. Inc.'s "Daily Called Bond Service." 30 Montgomery Street. I0th Floor. Jersey City. New Jersey 07302. Attention: Editor: Mergent's "Municipal and Government."' 5250 77 Center Drive. Suite 150. Charlotte. North Carolina 28217. Attention: Called Bond Department: and Kenny S&P. 55 Water Street. 45 Floor. New York. New York 1004I. Attention: Notification Department: or. in accordance with then -current guidelines of the P6402. I c 56\875 154.3 Securities and Exchange Commission. such other addresses and/or such other services providing information wvith respect to called bonds as the Agency may designate to the Trustee in writing. "Initial Principal Amount. with respect to any Series 2006B Bond. means the initial principal amount thereof as of the Closing Date. "Insurance Paying Agent means or its successors under the Insurance Policy. "Insurance Policy means the municipal bond insurance policy issued by the Insurer insuring the payment when due of the principal of and interest on the Bonds. "Insurer- means "Interest Payment Date means April I and October I of each year. commencing October I. 2006. "Loan Agreements means the Project Area No. 3 Loan Agreement (2006 Senior Loans). dated as of July I. 2006. by and among the Authority. the Agency and the Trustee relating to the Loans. as may from time to time be supplemented. modified or amended. "Loan Funds means the Series 2006A Loan Fund and the Series 2006B Loan Fund. "Loans means the Series 2006A Loan and the Series 2006B Loan. "Maturity Amount. with respect to any Series 2006B Bond. means the Accreted Value thereof at maturity. "Moody's' means Moody's Investors Service. its successors and assigns. "Nominee means the nominee of the Depository. which may be the Depository. as determined from time to time pursuant to Article X. "Outstanding. when used as of any particular time with reference to Bonds. means (subject to the provisions of Section 11.07) all Bonds theretofore executed. issued and delivered by the Authority under this Indenture except (i) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation. (ii) Bonds paid or deemed to have been paid within the meaning of Section 11.0 3. and (iii) Bonds in Iicu of or in substitution for which other Bonds shall have been executed. issued and delivered pursuant to this Indenture. "Owner- means the person in wvhose name the ownership of any Bond or Bonds shall be registered on the Registration Books. "Participants means those broker -dealers. banks and other financial institutions from time to time for which the Depository holds Bonds as securities depository. "Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein: A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury. and CATS and TIGRS) or P6402. 1056\875 154.3 -4- obligations the principal of and interest on hich are unconditionally guaranteed by the United States of America. For purposes of this paragraph A. 'obligations the principal of and interest on hich are unconditionally guaranteed by the United States of America include Nyithout limitation tax exempt obligations of a state or a political subdivision thereof which have been defeased under irrevocable escrow instructions Nyith non -callable obligations for which the full faith and credit of the United States of America are pledged for the payment of principal and interest and which are rated "Aaa- by Moody's and "AAA by S&P. B. Bonds. debentures. notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies. provided such obligations are backed by the full faith and credit of the United States of America (provided that stripped securities are only permitted if they have been stripped by the agency itself): U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing. Bank 4. Federal Housing. Administration Debentures (FHA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae-) GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations 7 U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing. and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds. debentures. notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (provided that stripped securities are only permitted if they have been stripped by the agency itself): P6402. I c 56\875 154.3 -5- I . Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mace) Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae-) Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing, Association (SLMA or "Sallie Mae-) Senior debt obligations 5. Resolution Funding, Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds. including funds for «Vhich the Tnistee or its affiliates provide investment advisory or other management services. registered under the Investment Company Act of 1940. «hose shares are registered under the Securities Act of 1933. and having a rating by S&P of AAAm-G: AAAm: or AAm and. if rated by Moody's. rated Aaa. Aa I or Aa2. E. Certificates of deposit secured at all times by collateral described in A and/or B above: provided that such certificates must be issued by commercial banks (including the Trustee and its affiliates). savings and loan associations or mutual savings banks and provided further that the collateral must be held by a third party and the Trustee on behalf of the Owners must have a perfected first security interest in the collateral. F. Certificates of deposit. savings accounts. deposit accounts or money market deposits NVhich are fully insured by the Federal Deposit Insurance Corporation. including those of the Trustee and its affiliates. G. Investment agreements. including guaranteed investment contracts. fonvard purchase agreements and reserve fund put agreements acceptable to the Insurer. H. Commercial paper rated. at the time of purchase. "Prime - I by Moody's and "A- I " or better by S&P. I. Bonds or notes issued by an state or municipality NVhich are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances NVith a maximum term of one year of any bank (including the Trustee and its affiliates) NVhich has an unsecured. uninsured and unguaranteed obligation rating of "Prime - I or "A3- or better by Moody's and "A -I.. or "A- or better by S&P. K. Repurchase Agreements NVhich are approved by the Insurer and NVhich provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee or third P6462. I 056\875 154.3 -6- party custodian. as the case may be (buyer/lender). and the transfer of cash from the Tnistcc to the dealer bank or securities firm wvith an agreement that the dealer bank or securities firm NViII repay the cash plus a yield to the Trustee in exchange for the securities at a specified date. L. The Local Agency Investment Fund in the State Treasury or any similar pooled investment fund administered by the State. to the extent such investment is held in the name and to the credit of the Trustee. M. Medium -term notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Such notes shall have a minimum credit rating of "Aar by Moody's and "AA by S&P at time of purchase. and shall mature within three years or Tess. N. Shares of beneficial interest issued by the California Asset Management Trust. a common law trust established under the laws of the State. "Principal Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)(2). "Principal Amount" means. as of any date of calculation. with respect to (i) any Series 2006A Bond. the principal amount thereof. and (ii) any Series 2006B Bond. the Accreted Value thereof " Proiect Area means. unless the context clearly requires otherwise. the project area described and defined in the Redevelopment Plan approved and adopted by the City by its Ordinance No. 652. "Record Date means. with respect to any Interest Payment Date. the 15th calendar day of the month immediately preceding such Interest Payment Date. whether or not such day is a Business Day. "Redemption Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)(3). "Redevelopment Law means the Community Redevelopment Law. being California Health and Safety Code Section 33000. et seq.. and all future acts supplemental thereto or amendatory thereof. "Redevelopment Plane means the Redevelopment Plan for the Project Area. approved and adopted by the City by its Ordinance No. 652 and includes any amendment of the Redevelopment Plan heretofore or hereafter made pursuant to law. "Re zistration Books means the records maintained by the Trustee pursuant to Section 2.09 for the registration and transfer of ownership of the Bonds. "Report" means a document in writing signed by an Independent Redevelopment Consultant and including: (i) a statement that the person or firm making or giving such Report has read the pertinent provisions of the document or documents to which such Report relates: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based: and (iii) a statement that. in the opinion of such person or firm. sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report. P6402. 1056\875 154.3 -7- "Representation Letter- means the Blanket Issuer Letter of Representations. dated July 1. 1997. from the Authority to the Depository. qualifying bonds issued by the Authority for the Depository's book -entry system. "Request" means a request in writing signed by any officer of the designated public entity duly authorized by its legislative body for that purpose. "Revenue Fundy means the fund by that name established and held by the Trustee pursuant to Section 4.02(a). "Reyenues- means (i) all amounts payable by the Agency pursuant to Section 2.3 or Section 2.4 of the Loan Agreement: (ii) any proceeds of the Bonds originally deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established hereunder: and (iii) income and gains with respect to the investment of amounts on deposit in the funds and accounts established hereunder. other than amounts payable to the United States of America pursuant to Section 5.07. "S&P- means Standard & Poor's Ratings Services and its successors and assigns. "Securities Depositories means The Depository Trust Company. ;; Water Street. 50th Floor. New York. New York. 10041. Attn: CaII Notification Department. Fax (212) 855-72 32: and. in accordance with then current guidelines of the Securities and Exchange Commission. such other addresses or such other securities depositories as the Authority may designate in a Certificate of the Authority delivered to the Trustee. "Series 2006A Bonds means the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A. "Series 2006A Loan means the Series 2006A Loan. as defined in the Loan Agreement. made by the Authority to the Agency. "Series 2006A Loan Fundy means the fund by that name established and held by the Trustee pursuant to Section 3.02. "Series 2006B Bonds means the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B. "Series 2006B Loan means the Series 2006B Loan. as defined in the Loan Agreement. made by the Authority to the Agency. "Series 2006B Loan Fundy means the fund by that name established and held by the Trustee pursuant to Section 3.02. "State means the State of California. "Supplemental Indenture- means any indenture. agreement or other instrument hereafter duly executed by the Authority and the Trustee in accordance with the provisions of Section 7.01. "Tax Retzulations- means temporary and permanent regulations promulgated under or with respect to Section 103 and Sections 1 q 1 through 150. inclusive. of the Code. P6402. 1056\875 154.3 -8- "Trust Office means the corporate trust office of the Trustee at the address set forth in Section I I.13 or such other offices as may be specified to the Authority by the Trustee in writing. With respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or agency of the Trustee at which. at any particular time. its corporate trust business shall be conducted. "Trustee" means Wells Fargo Bank. National Association. and its successors and assigns. and any other corporation or association which may at any time be substituted in its place as provided in Article VI. "Underwriter- means Citigroup Global Markets Inc. Section 1.02. Rules of Construction. All references in this Indenture to "Articles." "Sections." and other subdivisions. unless indicated otherwise. are to the corresponding Articles. Sections or subdivisions of this Indenture: and the words "herein. "hereof. "hereunder. and other words of similar import refer to this Indenture as a whole and not to any particular Article. Section or subdivision hereof. Section I.0 3. Authorization and Purpose of Bonds. The Authority has reviewed all proceedings heretofore taken relative to the authorization of the Bonds and has found. as a result of such review. and hereby finds and determines that all things. conditions. and acts required by law to exist. happen and be performed precedent to and in the issuance of the Bonds do exist. have happened and have been performed in due time. form and manner as required by law. and the Authority is now authorized under the Bond Law and each and every requirement of law. to issue the Bonds in the manner and form provided in this Indenture. The Authority hereby authorizes the issuance of the Bonds pursuant to the Bond Law and this Indenture for the purpose of providing funds to make the Loans to the Agency pursuant to the Loan Agreement. Section 1.04. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof. this Indenture shall be deemed to be and shall constitute a contract among the Authority. the Trustee and the Owners of the Bonds: and the covenants and agreements herein set forth to be performed on behalf of the Authority shall be for the equal and proportionate benefit. security and protection of all Owners of the Bonds without preference. priority or distinction as to security or othenyise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale. execution or delivery thereof. or otherwise for any cause Nvhatsoeyer. except as expressly provided therein or herein. ARTICLE II ISSUANCE OF BONDS Section 2.01. Desitznation. The Series 2006A Bonds shall be designated the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A. and shall be issued in the original aggregate Principal Amount of $ . The Series 2006B Bonds shall be designated the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B and shall be issued in the aggregate Initial Principal Amount of Section 2.02. Terms of Bonds. P6402. I c 56\875 154.3 -9- (a) The Series 2006A Bonds shall be issued in fully registered form without coupons in denominations of $5.000 or any integral multiple thereof. so Tong as no Series 2006A Bond shall have more than one maturity date. The Series 2006A Bonds shall be dated the Closing Date. shall mature on April I in each of the years and in the amounts. and shall bear interest (calculated on the basis of a 360- day year of twelve 30-day months) at the rates. as follows: Maturity Date Principal Interest Maturity Date Principal Interest (April I) Amount Rate (April I) Amount Rate (to come) Each Series 2006A Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof. unless (i) it is authenticated during the period from the day after the Record Date for an Interest Payment Date to and including such Interest Payment Date. in which event it shall bear interest from such Interest Payment Date. or (ii) it is authenticated on or prior to the Record Date for the first Interest Payment Date. in which event it shall bear interest from the Closing Date: provided. however. that if. at the time of registration of any Series 2006A Bond interest with respect to such Series 2006A Bond is in default. such Series 2006A Bond shall bear interest from the Interest Payment Date to which interest has been paid or made available for payment with respect to such Series 2006A Bond. Interest on the Series 2006A Bonds shall be payable on each Interest Payment Date to the person wvhose name appears on the Registration Books as the Owner thereof as of the close of business on the Record Date. such interest to be paid by check or draft of the Trustee mailed by first class mail. postage prepaid. on each Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books on such Record Date: provided. how ever. that at the w ritten request of the Owner of at least $I.000.000 in aggregate principal amount of Outstanding Series 2006A Bonds filed with the Trustee prior to any Record Date. interest on such Series 2006A Bonds shall be paid to such Owner on each succeeding Interest Payment Date by \wire transfer of immediately available funds to an account in the United States designated in such written request (unless and until such request has been revoked in writing). Payments of defaulted interest with respect to the Series 2006A Bonds shall be paid by check or draft to the Owners as of a special record date to be fixed by the Trustee. notice of which special record date shall be given to the Owners not Tess than ten days prior thereto. Principal of and premium. if any. on any Series 2006A Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the Trust Office. The principal of and interest and premium. if any. on the Series 2006A Bonds shall be payable in lawful money of the United States of America. (b) The Series 2006B Bonds shall be issued in fully registered form in any denominations of Initial Principal Amount but shall reflect denominations of $5.000 Maturity Amount or any integral multiple thereof. No Series 2006B Bond shall have more than one maturity date. The Series 2006B Bonds shall be dated the Closing Date. shall mature on April I in each of the years and in the Maturity Amounts set forth in the following schedule. The Series 2006B Bonds shall be delivered on the Closing Date in the aggregate Initial Principal Amounts set forth below. Interest on the Initial Principal Amount of the Series 2006B Bonds shall accrue and compound at the yield to their maturity set forth below (such interest being equal to the difference between the Maturity Amounts and the Initial Principal Amounts thereof): P6402.1 c 56\87515-1.3 -10- Maturity Initial Initial Principal Yield to Date Maturity Principal Amount per $5.000 Maturity (April I) Amount Amount Maturity Amount Date Interest on each Series 2006B Bond shall be compounded semi-annually at the yield set forth above from the Closing Date on each April I and October I. commencing October I. 2006. until maturity or earlier redemption thereof. computed using a year of 360 days of tw elye 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. w ith respect to any Series 2006B Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the Trust Office. in lawful money of the United States of America. Section 2.03. Redemption of Bonds. (a) Series 2006A Bonds. (I) Redemption from Optional Loan Prepayment. In the event that the Agency shall exercise its option to prepay principal installments of the Series 2006A Loan pursuant to Section 2.4(a) of the Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Series 2006A Bonds maturing on or after April I. 2() . as a whole. or in part among maturities as designated in writing by the Authority and by lot within a maturity. in integral multiples of $5.000 principal amount. on any Interest Payment Date on or after April I. 2() . at the following respective redemption prices (expressed as a percentage of the principal amount of Series 2006A Bonds to be redeemed). plus accrued interest thereon to the date of redemption: Redemption Redemption Dates Price April I. 20 and October I. 2() 10_`%0 April I. 20 and October I. 2() 10_ April I. 20 and thereafter 100 The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(a)( I) at least 45 but not more than 90 days prior to the date fixed for such redemption. (2) Mandatory Sinking, Fund Redemption. The Series 2006A Bonds maturing on April I. 2() and April I. 2() shall also be subject to mandatory redemption by lot. on April I in each year commencing April I. 2() and April I. 2() . respectively. from sinking fund payments made by the Authority into the Principal Account pursuant to Section 4.02(b)(2). at a redemption price equal to the principal amount thereof to be redeemed. without premium. plus accrued interest to the date of redemption. in the aggregate respective principal amounts and on April I in the respective years as set forth in the following tables: provided. however. that (i) in Iicu of redemption thereof on April I in any year. the Series 2006A Bonds may be purchased by the Agency pursuant to Section 2.3 of the Loan Agreement and tendered to the Trustee for cancellation no later than the preceding January 15. and (ii) if some but all of the Series 2006A Bonds of a maturity have been P6402. I c 56\875 154.3 —1 1— redeemed pursuant to Paragraph (a) above. the total amount of all future sinking fund payments with respect to the Series 2006A Bonds of such maturity shall be reduced by the aggregate principal amount of such Series 2006A Bonds so redeemed. to be allocated among such sinking fund payments on a pro rata basis. Series 2006A Bonds Maturing, April I. 20 Sinking Fund Redemption Date (April I) +Maturity. Principal Amount to be Redeemed Series 2006A Bonds Maturing, April I. 20 Sinking Fund Redemption Date (April I) +Maturity. (b) Series 2006B Bonds. Principal Amount to be Redeemed (I) Optional Redemption. In the event that the Agency shall exercise its option to prepay installments of the Series 2006B Loan pursuant to Section 2.4(b) of the Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Series 2006B Bonds maturing on or after April I. 2() . as a whole. or in part among maturities as designated in writing by the Authority and by lot within a maturity. in integral multiples of $5.000 of Maturity Amount. on any October I or April Ion or after April I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Series 2006B Bonds on the date fixed for redemption): Redemption Redemption Dates Price April I. 20 and October I. 2() 10_`%0 April I. 20 and October I. 2() 10_ April I. 20 and thereafter 100 The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(b)( I) at least 45 but not more than 90 days prior to the date fixed for such redemption. (2) No Mandatory Sinking, Fund Redemption. The Series 2006B Bonds are not subject to mandatory sinking fund redemption prior to maturity. P6402. 1056\875 154.3 -I2- (c) General Redemption Provisions (I) Notice of Redemption. The Tnistcc on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books and. by such means acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the date fixed for redemption: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the series designation of the Bonds. the Bond numbers (but only if less than all of the Outstanding Bonds of such series are to be redeemed) and the maturity or maturities of the Bonds of such series (in the event of redemption of all of such Bonds of such maturity or maturities in NyhoIe) to be redeemed. and shall require such Bonds be then surrendered at the Trust Office of the Trustee in Los Angeles. California (or such other location as designated by the Trustee) for redemption at the redemption price. giving notice also that further interest on such Bonds Nvill not accrue from and after the redemption date. (2) Selection of Bonds for Redemption. With respect to the redemption of Bonds of either series. Nvheneyer provision is made in this Indenture for the redemption of less than all of such Bonds of any maturity. the Trustee shall select the Bonds to be redeemed from all Bonds of such series and maturity not previously called for redemption. by lot in any manner which the Trustee in its sole discretion shall deem appropriate under the circumstances. For purposes of selecting Series 2006A Bonds within a maturity for redemption. all Series 2006A Bonds shall be deemed to be comprised of separate $5.000 principal amount portions and such portions shall be treated as separate bonds which may be separately redeemed. For purposes of selecting Series 2006B Bonds within a maturity for redemption. all Series 2006B Bonds shall be deemed to be comprised of separate $5.000 Maturity Amount portions and such portions shall be treated as separate bonds which may be separately redeemed. (3) Partial Redemption of Bonds. In the event only a portion of any Bond is called for redemption. then upon surrender of such Bond the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof. at the expense of the Authority. a new Bond or Bonds of the same series. tenor and maturity date. of authorized denominations in aggregate Principal Amount or Maturity Amount. as the case may be. equal to the unredeemed portion of the Bond to be redeemed. (4) Effect of Redemption. From and after the date fixed for redemption. if funds available for the payment of the principal of. interest on and premium. if any. on the Bonds so called for redemption shall have been duly provided. such Bonds so called shall cease to be entitled to any benefit under this Indenture other than the right to receive payment of the redemption price. and no interest shall accrue thereon from and after the redemption date specified in such notice. All Bonds redeemed pursuant to this Section shall be destroyed. Section 2.04. Form of Bonds. The Series 2006A Bonds. the Trustee's certificate of authentication. and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit A attached hereto and by this reference incorporated herein. with necessary or appropriate variations. omissions and insertions. as permitted or required by this Indenture. The Series 2006B Bonds. the Trustees certificate of authentication. and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit B attached hereto and by this reference incorporated herein. Nvith necessary or appropriate variations. omissions and insertions. as permitted or required by this Indenture. P6402. 1056\875 154.3 -I 3- Section 2.05. Execution of Bonds. The Bonds shall be signed in the name and on behalf of the Authority with the manual or facsimile signatures of its President and attested with the manual or facsimile signature of its Secretary or any deputy duly appointed by the Authority Commission. and shall be delivered to the Trustee for authentication by it. In case any officer of the Authority wiho shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed shall have been authenticated or delivered by the Trustee or issued by the Authority. such Bonds may nevertheless be authenticated. delivered and issued and. upon such authentication. delivery and issue. shall be as binding upon the Authority as though the individual wiho signed the same had continued to be such officer of the Authority. Also. any Bond may be signed on behalf of the Authority by any individual NVho on the actual date of the execution of such Bond shall be the proper officer although on the nominal date of such Bond such individual shall not have been such officer. Only such of the Bonds as shall bear thereon a certificate of authentication in substantially the form set forth in Exhibit A or Exhibit B. as applicable. manually executed by the Trustee. shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture. and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.06. Transfer of Bonds. Any Bond may. in accordance with its terms. be transferred. upon the Registration Books. by the person in whose name it is registered. in person or by such Owner's duly authorized attorney. upon surrender of such Bond for cancellation. accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee. duly executed. Whenever any Bond shall be surrendered for transfer. the Authority shall execute and the Trustee shall thereupon authenticate and deliver to the transferee a new Bond or Bonds of the same series and of like tenor. maturity and aggregate principal amount. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection with any such transfer shall be paid by the Authority. except that the Trustee shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. The Trustee shall not be required to transfer. pursuant to this Section 2.06. either (i) any Bond during the period established by the Trustcc for the selection of Bonds for redemption. or (ii) any Bond selected for redemption pursuant to Section 2.03. Section 2.07. Exchantze of Bonds. Bonds may be exchanged at the Trust Office for the same aggregate Principal Amount or Maturity Amount. as applicable. of Bonds of the same series and of the same tenor and maturity and of other authorized denominations. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection with any such exchange shall be paid by the Authority. except that the Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be required to exchange. pursuant to this Section 2.07. either (i) any Bond during the period established by the Tnistcc for the selection of Bonds for redemption. or (ii) any Bond selected for redemption pursuant to Section 2.03. Section 2.08. Temporary Bonds. The Bonds may be issued initially in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be printed. lithographed or typewritten. shall be of such denominations as may be determined by the Authority and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and be registered and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds: provided that any temporary Bond need only be signed in the name and on behalf of the Authority with the manual or facsimile signature of the Secretary. or any deputy duly appointed by the Authority Commission. and need not be attested. If the Authority issues temporary Bonds. it NViII execute and furnish definitive P6402. 1056\875 154.3 -I4- Bonds Nvithout delay. and thereupon the temporary Bonds shall be surrendered. for cancellation. in exchange therefor at the Trust Office of the Trustee in Los Angeles. California (or such other location designated by the Trustee). and the Trustee shall authenticate and deliver in exchange for such temporary Bonds definitive Bonds of like series. term. maturity and aggregate Principal Amount or Maturity Amount. as applicable. in authorized denominations. Until so exchanged. the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.09. Registration Books. The Trustee Nvill keep or cause to be kept at its Trust Office sufficient records for the registration and transfer of the Bonds. Nvhich shall at all times during regular business hours be open to inspection by the Authority Nvith reasonable prior notice: and. upon presentation for such purpose. the Trustee shall. under such reasonable regulations as it may prescribe. register or transfer or cause to be registered or transferred. on such records. Bonds as hereinbefore provided. Section 2.10. Bonds Mutilated. Lost. Destroyed or Stolen. If any Bond shall become mutilated. the Authority. at the expense of the Owner of such Bond. shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like series. tenor. maturity and aggregate Principal Amount or Maturity Amount. as applicable. in authorized denominations in exchange and substitution for the Bond so mutilated. but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be cancelled by it and destroyed. If any Bond issued hereunder shall be lost. destroyed or stolen. evidence of such Toss. destruction or theft may be submitted to the Trustee and. if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given. the Authority. at the expense of the Owner, shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like series and tenor in lieu of and in substitution for the Bond so lost. destroyed or stolen (or if any such Bond shall have matured or shall have been called for redemption. instead of issuing a substitute Bond the Trustee may pay the same Nvithout surrender thereof upon receipt of indemnity satisfactory to the Trustee). The Trustee may require payment of a reasonable fee for each new Bond issued under this Section 2. I0 and of the expenses Nvhich may be incurred by the Authority and the Trustee. Any Bond issued under the provisions of this Section 2. I() in lieu of any Bond alleged to be lost. destroyed or stolen shall constitute an original contractual obligation on the part of the Authority Nyhether or not the Bond alleged to be lost. destroyed or stolen be at any time enforceable by anyone. and shall be equally and proportionately entitled to the benefits of this Indenture Nvith all other Bonds secured by this Indenture. ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS: ISSUANCE OF BONDS Section 3.01. Issuance of Bonds. Upon the execution and delivery of this Indenture. the Authority shall execute and deliver the Series 2006A Bonds and the Series 2006B Bonds in the respective aggregate Initial Principal Amounts set forth herein and shall deliver the Bonds to the Trustee for authentication and delivery to the original purchaser thereof upon the Request of the Authority. Section 3.02. Loan Funds: Application of Proceeds of Sale of Bonds. (a) The Trustee shall establish and maintain a separate fund to be known as the "Series 2006A Loan Fund." Upon the receipt of payment for the Series 2006A Bonds on the Closing Date. the Trustee shall deposit the proceeds of sale thereof in the amount of $ in the Series 2006A Loan Fund. The Trustee shall disburse all amounts in the Series 2006A Loan Fund pursuant to Section 2.2 of the Loan Agreement. P6402. 1056\875 154.3 -15- (b) The Trustcc shall establish and maintain a separate fund to be known as the "Series 2006B Loan Fund." Upon the receipt of payment for the Series 2006B Bonds on the Closing Date. the Trustee shall deposit the proceeds of sale thereof in the amount of $ in the Series 2006B Loan Fund. The Trustee shall disburse all amounts in the Series 2006B Loan Fund pursuant to Section 2.2 of the Loan Agreement. Section 3.03. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be affected in any Nvay by any proceedings taken by the Agency with respect to the application of the proceeds of the Loans. and the recital contained in the Bonds that the same are issued pursuant to the Bond Law shall be conclusive evidence of their validity and of the regularity of their issuance. ARTICLE IV REVENUES: FLOW OF FUNDS Section 4.01. PIedtze of Revenues: Assignment of Rights. Subject to the provisions of Section 6.03. the Bonds shall be secured by a first lien on and pledge (which shall be effected in the manner and to the extent hereinafter provided) of all of the Revenues. The Bonds shall be equally secured by a pledge. charge and Tien upon the Revenues without priority for series. number. date of Bonds. date of execution or date of delivery: and the payment of the interest on and principal of the Bonds and any premiums upon the redemption of any thereof shall be and are secured by an exclusive pledge. charge and Tien upon the Revenues. So Tong as any of the Bonds are Outstanding. the Revenues shall not be used for any other purpose: except that out of the Revenues there may be apportioned such sums. for such purposes. as are expressly permitted by Section 4.02. The Authority hereby transfers in trust and assigns to the Trustee. for the benefit of the Owners from time to time of the Bonds. all of the Revenues and all of the right. title and interest of the Authority in the Loan Agreement (other than the rights of the Authority under Section 5.04 thereof). The Trustcc shall be entitled to and shall receive all of the Revenues. and any Revenues collected or received by the Authority shall be deemed to be held. and to have been collected or received. by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and. subject to the provisions hereof. shall take all steps. actions and proceedings reasonably necessary in its judgment to enforce. either jointly with the Authority or separately. all of the rights of the Authority and all of the obligations of the Agency under the Loan Agreement. Section 4.02. Receipt. Deposit and Application of Rcycnues. (a) Deposit of Revenues. Revenue Fund. All Revenues described in clause (i) of the definition thereof in Section 1.0I shall be promptly deposited by the Trustee upon receipt thereof in a special fund designated as the "Rcycnuc Fundy which the Trustee shall establish. maintain and hold in trust hereunder. (b) Application of Revenues: Accounts. On or before each Interest Payment Date. the Trustee shall transfer from the Rcycnuc Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Rcycnuc Fund). the following amounts in the following order of priority. the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: P6402. 1056\875 154.3 -I6- (I) Interest Account. On or before each Interest Payment Date. the Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest coming due and payable on such Interest Payment Date on all Outstanding Series 2006A Bonds. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest coming due and payable upon all Outstanding Series 2006A Bonds on the next succeeding Interest Payment Date. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Series 2006A Bonds as it shall become due and payable (including accrued interest on any Series 2006A Bonds redeemed prior to maturity). All amounts on deposit in the Interest Account on the first day of any Bond Year. to the extent not required to pay any interest then haying come due and payable on the Outstanding Series 2006A Bonds. shall be withdrawn therefrom by the Trustee and transferred to the Agency to be used for any lawful purposes of the Agency. (2) Principal Account. On or before each date on wvhich the principal of the Bonds shall be payable. the Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal (i) the Principal Amount of the Bonds coming due and payable on such date pursuant to Section 2.02. and (ii) the Principal Amount of the Bonds subject to mandatory sinking fund redemption on such date pursuant to Section 2.03(a)(2). All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the Principal Amount of the Bonds (i) at the maturity thereof. or (ii) upon mandatory sinking fund redemption thereof. All amounts on deposit in the Principal Account on the first day of any Bond Year. to the extent not required to pay the principal of any Outstanding Bonds then haying come due and payable. shall be withdrawn therefrom and transferred to the Agency to be used for any lawful purposes of the Agency. (3) Redemption Account. The Trustee. at any time that the Agency shall exercise its option to prepay principal installments of the Loans pursuant to Section 2.4 of the Loan Agreement. shall deposit the Revenues derived from such prepayment in the Redemption Account (which the Trustee shall also establish and maintain within the Rcycnuc Fund). to be used and withdrawn by the Trustee solely for the purpose of paying the Principal Amount and redemption premiums. if any. on the Bonds to be redeemed on their respective redemption dates. as directed by the Authority. Section 4.03. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to this Indenture or pursuant to the Loan Agreement shall be invested by the Trustee solely in Permitted Investments pursuant to the written direction of the Authority given to the Trustee two Business Days in advance of the making of such investments (and promptly confirmed in writing. as to any such direction given orally): provided that moneys in the Reserve Fund established pursuant to the Loan Agreement shall be invested in Permitted Investments which mature not more than five years from the date of such investment. In the absence of any such direction from the Authority. the Tnistcc shall invest any such moneys in Permitted Investments described in Paragraph D of the definition thereof. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the fund or account from which such investment was made. For purposes of acquiring any investments hereunder. the Trustee may commingle funds held by it hereunder. The Trustee may (but shall not be obligated to) act as principal or agent in the acquisition or disposition of any investment. The Trustee shall incur no liability for losses arising from any investments made at the direction of the Authority. or otherwise made pursuant to this Section. P6402. 1056\875 154.3 -17- The Trustee shall be entitled to rely conclusively upon the Nvritten instructions of the Authority directing investments in Permitted Investments as to the fact that each such investment is permitted by the laws of the State. and shall not be required to make further investigation xvith respect thereto. With respect to any restrictions set forth in the definition of Permitted Investments set forth in Section 1.01 which embody legal conclusions (e.g.. the existence. validity and perfection of security interests in collateral). the Trustee shall be entitled to rely conclusively on an opinion of counsel or upon a representation of the provider of such Permitted Investment obtained at the Authority's or the Agency's expense. Except as specifically provided in this Indenture. the Trustee shall not be liable to pay interest on any moneys received by it. but shall be liable only to account to the Authority and the Agency for earnings derived from funds that have been invested. The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur. the Authority specifically \valves receipt of such confirmations to the extent permitted by law. The Trustee NyiII furnish the Authority periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. The Trustee or any of its affiliates may act as sponsor. advisor or manager in connection with any investments made by the Trustee hereunder. Section 4.04. Valuation and Disposition of Investments. For the purpose of determining the amount in any fund or account established hereunder or under the Loan Agreement. any investments credited to such fund or account shall be valued at least annually. on or before July 1. at the market value thereof. In making any valuations hereunder the Trustee may utilize computerized securities pricing services that may be available to it. including those available through its regular accounting system. ARTICLE V COVENANTS OF THE AUTHORITY Section 5.01. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal. interest and premium. if any. to become due in respect of all the Bonds. in strict conformity with the terms of the Bonds and of this Indenture. according to the true intent and meaning thereof. but only out of Revenues and other assets pledged for such payment as provided in this indenture. Section 5.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement. and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended. such Bonds or claims for interest shall not be entitled. in case of any default hereunder. to the benefits of this Indenture. except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section 5.02 shall be deemed to limit the right of the Authority to issue bonds or other obligations for the purpose of refunding any Outstanding Bonds. and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Section 5.03. Against Encumbrances. The Authority shall not create. or permit the creation of. any pledge. lien. charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture Nvhile any of the Bonds are Outstanding. except the pledge and assignment P6-IO2. I().56\s7S I.54. 3 - 18- created by this Indenture. Subject to this limitation. the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes. including other programs under the Bond Law. and reserves the right to issue other obligations for such purposes. Section 5.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues. the Loan Agreement and other assets purported to be pledged and assigned. respectively. under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and Nyill be the legal. valid and binding special obligations of the Authority in accordance Nyith their terms. and the Authority shall at all times. to the extent permitted by law. defend. preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Owners under this Indenture against all claims and demands of all persons Nyhomsoeyer. Section 5.05. Accounting Records and Financial Statements. The Trustee shall at all times keep. or cause to be kept. proper books of record and account. prepared in accordance Nyith corporate trust industry standards. in Nyhich complete and accurate entries shall be made of all transactions made by the Trustee relating to the proceeds of Bonds. the Revenues. the Loan Agreement and all funds and accounts established pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority and the Agency. during regular business hours Nyith reasonable prior notice. Section 5.06. No Additional Indebtedness. Except for the Bonds. the Authority shall not incur any indebtedness payable out of the Revenues. (For clarification. this provision does not prohibit the Agency from incurring additional debt secured by Tax Revenues. so long as the incurrence of such debt is in compliance Nyith the Loan Agreement.) Section 5.07. Tax Covenants. (a) The Authority covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the interest on the Bonds. and for no other purpose. the Authority Nyill satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Authority agrees to comply Nyith such Nyritten instructions as may be provided by Bond Counsel. (b) The Authority covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nyould cause the Bonds to become arbitrage bonds. as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nyith the rebate requirements of Section 148 of the Code. the Authority further covenants that it Nyill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section 148(f) of the Code. and that it Nyill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nyith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Authority covenants that it Nyill not take any action or omit to take any action. Nyhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nyould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. (d) The Authority covenants that it Nyill not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in P6402. 1056\875 154.3 -I9- such manner or to such extent as Nyould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. (e) Notwithstanding any provision of this Indenture. and except as provided below. the Authority covenants that none of the moneys contained in any of the funds or accounts created pursuant to this Indenture Nyith respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested directly or indirectly in obligations guaranteed (in NyhoIe or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Rcycnuc Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 I I (a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under this Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 5.08. Loan Agreement. The Trustee. as assignee of the Authority's rights pursuant to Section 4.01. shall receive all amounts due from the Agency pursuant to the Loan Agreement and. upon an Event of Default. shall diligently enforce. and take all steps. actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations of the Agency thereunder. The Loan Agreement may be amended or modified pursuant to the applicable provisions thereof. but only Nyith the «rittcn consent of the Insurer (as Tong as the Insurance Policy is in full force and effect) and only: (i) if the Authority. the Agency or the Trustee first obtains the «rittcn consent of the Owners of a majority in aggregate Principal Amount of the affected Bonds then Outstanding to such amendment or modification. provided. however. that no such amendment or modification shall (a) extend the maturity of or reduce the amount of interest or principal payments on a Loan. or otherwise alter or impair the obligation of the Agency to pay the principal. interest or prepayment premiums on a Loan at the time and place and at the rate and in the currency provided therein. Nyithout the express «rittcn consent of the Owner of each affected Bond. (b) reduce the percentage of the Bonds required for the «rittcn consent to any such modification or amendment thereof or hereof. or (c) Nyithout its «rittcn consent thereto. modify any of the rights or obligations of the Trustee: or (ii) Nyithout the consent of any of the Owners. if such amendment or modification does not modify the rights or obligations of the Trustee Nyithout its prior «rittcn consent. and is for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency contained in the Loan Agreement other covenants and agreements thereafter to be observed. or to limit or surrender any rights or power therein reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: (b) to make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in the Loan Agreement. or in any other respect Nvhatsoever as the Agency and the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds: P6402. 1056\875 154.3 -20- (c) to amend any provision thereof relating to the Code. to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income for federal income tax purposes of interest on any of the Bonds under the Code. in the opinion of Bond Counsel: or (d) to provide for the issuance of Parity Debt under and in accordance with the provisions of the Loan Agreement. Nothing in this Section 5.08 shall prevent the Agency and the Authority. with the «rittcn consent of the Insurer (as Tong as the Insurance Policy is in full force and effect). from entering into any amendment or modification of the Loan Agreement which solely affects a particular Bond or Bonds all of the Owners of which shall have consented to such amendment or modification: provided. however. no such amendment or modification shall affect the rights or obligations of the Trustee without its prior «rittcn consent. The Tnistcc shall be entitled to rely upon the opinion of Bond Counsel stating that the requirements of this Section 5.08 have been met with respect to any amendment or modification of the Loan Agreement. Section 5.09. Further Assurances. The Authority will adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture. and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in this Indenture. ARTICLE VI THE TRUSTEE Section 6.01. Appointment of Trustee. Wells Fargo Bank. National Association. a national banking association organized and existing under and by virtue of the laws of the United States of America. with a corporate trust office in Los Angeles. California. is hereby appointed Trustee by the Authority for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate. use and apply the same as provided in this Indenture. The Authority agrees that it will maintain a Trustee which shall be a financial institution haying a corporate trust office in the State. with a combined capital and surplus of at least $75.000.000. and subject to supervision or examination by federal or State authority. so long as any Bonds are Outstanding. If such financial institution publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining authority above referred to. then for the purpose of this Section 6.01 the combined capital and surplus of such financial institution shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee is hereby authorized to pay the principal of and interest and redemption premium. if any. on the Bonds when duly presented for payment at maturity. or on redemption prior to maturity. and to cancel all Bonds upon payment thereof. The Trustee shall keep accurate records of all funds administered by it and of all Bonds paid and discharged. Section 6.02. Acceptance of Tnists. The Trustee hereby accepts the trusts imposed upon it by this Indenture. and agrees to perform said trusts. but only upon and subject to the following express terms and conditions: (a) The Trustee. prior to the occurrence of an Event of Default and after curing of all Events of Default which may have occurred. undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants. duties or obligations shall be read P6402. 1056\875 154.3 -2 I - into this Indenture against the Trustee. In case an Event of Default hereunder has occurred (which has not been cured or \valved). the Trustee may exercise such of the rights and powers vested in it by this Indenture. and shall use the same degree of care and skill and diligence in their exercise. as a prudent person would use in the conduct of its own affairs. (b) The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys. agents. or receivers. and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder. The Trustee may conclusively rely on an opinion of counsel as full and complete protection for any action taken or suffered by it hereunder. (c) The Trustee shall not be responsible for any recital herein. in the Loan Agreement or in the Bonds. or for any of the supplements hereto or thereto or instruments of further assurance. or for the validity of this Indenture or the Loan Agreement. or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby. or the tax status of the interest on the Bonds. and the Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants. conditions or agreements on the part of the Authority hereunder. (d) The Trustee (including its officers and employees) may become the Owner of Bonds secured hereby with the same rights which it would have if not the Trustee: may acquire and dispose of other bonds or evidences of indebtedness of the Authority with the same rights it would have if it \verc not the Trustee: and may act as a depositary for and permit any of its officers or directors to act as a member of. or in any other capacity with respect to. any committee formed to protect the rights of Owners of Bonds. Nvhether or not such committee shall represent the Owners of the majority in aggregate Principal Amount of the Bonds then Outstanding. The Trustee. either as principal or agent. may engage in or be interested in any financial or other transaction with the Authority. (e) The Trustee shall be protected in acting upon any Report. notice. request. consent. certificate. order. affidavit. letter. direction. telegram. facsimile transmission. electronic mail or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons and need not make any investigation into the facts or matters contained therein. Any action taken or omitted to be taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person \yho at the time of making such request or giving such authority or consent is the Owner of any Bond. shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. The Trustee shall not be bound to recognize any person as an Owner of any Bond or to take any action at his request unless the ownership of such Bond by such person shall be reflected on the Registration Books. (f) As to the existence or non-existence of any fact or as to the sufficiency or validity of any instrument. paper or proceeding. the Trustee shall be entitled to rely upon a Certificate of the Authority as sufficient evidence of the facts therein contained and prior to the occurrence of an Event of Default hereunder of which the Trustee has been given notice or is deemed to have notice. as provided in Section 6.02(h). shall also be at liberty to accept a Certificate of the Authority to the effect that any particular dealing. transaction or action is necessary or expedient. but may at its discretion secure such further evidence deemed by it to be necessary or advisable. but shall in no case be bound to secure the same. (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or �yillfuI misconduct. The immunities and exceptions from liability of the Trustee shall extend to its officers. directors. employees and agents. In the absence of negligence or misconduct. the Trustee shall not be liable for any error of judgment. P6462. 1056\875 154.3 -22- (h) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default hereunder except failure by the Authority to make any of the payments to the Trustee required to be made by the Authority pursuant hereto. unless the Trustee shall be specifically notified in writing of such default by the Authority. the Insurer or by the Owners of at least 25 percent in aggregate principal amount of the Bonds then Outstanding and all notices or other instruments required by this Indenture to be delivered to the Trustee must. in order to be effective. be delivered at the Trust Office of the Trustee in Los Angeles. California. and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default hereunder except as aforesaid. (i) At any and all reasonable times the Trustee. and its duly authorized agents. attorneys. experts. accountants and representatives. shall have the right. but not the obligation. fully to inspect all books. papers and records of the Authority pertaining to the Bonds. and to make copies of any of such books. papers and records such as may be desired but which is not privileged by statute or by law. (j) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises hereof. (k) Notwithstanding anything elsewhere in this Indenture with respect to the execution of any Bonds. the withdrawal of any cash. the release of any property. or any action whatsoever within the purview of this Indenture. the Trustee shall have the right. but shall not be required. to demand any showings. certificates. opinions. appraisals or other information. or corporate action or evidence thereof. as may be deemed desirable for the purpose of establishing the right of the Authority to the execution of any Bonds. the withdrawal of any cash. or the taking of any other action by the Trustee. (I) Before taking action referred to in Section 6.05. Section 8.02 or the first paragraph of Section 5.08. the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability. except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any such action. (m) All moneys received by the Trustee shall. until used or applied or invested as herein provided. be held in trust for the purposes for which they \were received but need not be segregated from other funds except to the extent required by law. (n) The Trustee shall have no liability or obligation to the Bond Owners with respect to the payment of debt service by the Authority or with respect to the observance or performance by the Authority of the other conditions. covenants and terms contained in this Indenture. or with respect to the investment of any moneys in any fund or account established. held or maintained by the Authority pursuant to this Indenture or otherwise. (o) The Trustee makes no covenant. representation or warranty concerning the current or future tax status of interest on the Bonds. The Trustee need only keep accurate records of all investments and funds. and send rebate payments to the United States in accordance with explicit instructions from the Authority. (p) The Trustee shall have no responsibility with respect to any information. statement. or recital in any official statement. offering memorandum or any other disclosure material prepared or distributed with respect to the issuance of the Bonds. (q) The Trustee in its capacity as Trustee is authorized and directed to execute the Loan Agreement. P6402. 1056\875 154.3 -2 3- (r) The Trustcc shall not be considered in broach of or in default in its obligations hereunder or progress in respect thereto in the cycnt of enforced delay ("unavoidable delay) in the performance of such obligations duo to unforeseeable causcs beyond its control and yithout its fault or negligence. including. but not Iimitcd to. Acts of God or of the public enemy or terrorists. acts of a government. acts of the other party. fires. floods. epidemics. quarantine restrictions. strikes. freight embargoes. earthquakes. explosion. mob violence. riot. inability to procure or general sabotage or rationing of labor. equipment. facilities. sources of energy. material or supplies in the open market. litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project. malicious mischief. condemnation. and unusually severe ycathcr or delays of suppliers or subcontractors duo to such causcs or any similar cycnt and/or occurrences beyond the control of the Trustcc: provided that. in the cycnt of any such unavoidable delay undcr this paragraph 6.02(r). the Trustcc notify the Authority and the Agency in «citing «ithin five business days after (i) the occurrcncc of the cycnt giving rise to the unavoidable delay. (ii) the Trustees actual knowledge of the impending unavoidable delay. or (iii) the Trustees knowledge of sufficient facts undcr which a rcasonablc person would conclude the unavoidable delay will occur. (s) The Trustcc agrees to accept and act upon facsimilc transmission of written instructions and/or dircctions pursuant to this Indenture provided. however. that: (i) subsequent to such facsimilc transmission of written instructions and/or dircctions the Trustcc shall forthwith receive the originally executed instructions and/or dircctions. (ii) such originally executed instructions and/or dircctions shall be signed by a person as may be dcsignatcd and authorized to sign for the party signing such instructions and/or dircctions. and (iii) the Trustcc shall have received a current incumbency certificate containing the specimen signature of such dcsignatcd person. Scction 6.03. Fccs. Charzes and Expenses of Trustcc. The Trustcc shall be entitled to payment and rcimburscmcnt for rcasonablc fccs for its services rendered hcrcundcr and all advances (with interest on such advances at the maximum rats allowed by lacy). counscl fccs and expenses (including those of in-house counscl to the extent they arc for services not duplicative of other counsels' work) and other expenses reasonably and necessarily made or incurrcd by the Trustcc in connection with such services. which payment and reimbursement shall not be Iimitcd by any provision of lacy in regard to the compensation of a trustee of an express trust. Upon the occurrcncc of an Eycnt of Dcfault hcrcundcr. but only upon an Eycnt of Dcfault. the Trustcc shall hays a first Iicn with right of payment prior to payment of any Bond upon the amounts hold hcrcundcr for the foregoing fccs. charges and expenses incurrcd by it respectively. which right to payment shall survive the resignation or removal of the Trustcc. Scction 6.04. Notice to Owners of Dcfault. If an Event of Dcfault hcrcundcr occurs with respect to any Bonds of which the Trustcc has bccn given or is deemed to have noticc. as provided in Scction 6.02(h). then the Trustcc shall promptly given «cittcn noticc thereof by first-class mail to the Owner of each such Bond. unlcss such Event of Dcfault shall have bccn cured before the giving of such noticc: provided. however. that unlcss such Event of Dcfault consists of the failure by the Authority to make any payment \yhen duo. the Trustcc may elect not to give such noticc if and so long as the Trustcc in good faith determines that such Event of Dcfault dots not materially adversely affect the interests of the Owners or that it is othenyisc not in the best interests of the Owners to give such noticc. Scction 6.05. Intervention by Trustcc. In any judicial proceeding to which the Authority is a party which. in the opinion of the Trustcc. has a substantial bearing on the interests of Owners of any of the Bonds. the Trustcc may intervene on behalf of such Owners. and subject to Scction 6.02(I). shall do so if requested in writing by the Owners of a majority in aggregate Principal Amount of such Bonds then Outstanding. P6402. 1056\875 154.3 -24- Section 6.06. Removal of Trustee. The Owners of a majority in aggregate Principal Amount of the Outstanding Bonds may at any time. and the Authority may (and at the request of the Agency shall) so long as no Event of Default shall have occurred and then be continuing. remove the Trustee initially appointed. and any successor thereto. by an instrument or concurrent instruments in writing delivered to the Tnistcc. «hereupon the Authority or such Owners. as the case may be. shall appoint a successor or successors thereto: provided that any such successor shall be a financial institution meeting the requirements set forth in Section 6.0I I. Section 6.07. Resignation by Trustee. The Trustee and any successor Trustee may at any time give written notice of its intention to resign as Trustee hereunder. such notice to be given to the Authority and the Agency by registered or certified mail. Upon receiving such notice of resignation. the Authority shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance. the Authority shall cause notice thereof to be given by first class mail. postage prepaid. to the Bond Owners at their respective addresses set forth on the Registration Books. Section 6.08. Appointment of Successor Trustee. In the event of the removal or resignation of the Trustee pursuant to Sections 6.06 or 6.07. respectively. with the prior written consent of Agency. the Authority shall promptly appoint a successor Trustee. In the event the Authority shall for any reason Nvhatsoeyer fail to appoint a successor Trustee within 60 days following the delivery to the Trustee of the instrument described in Section 6.06 or within 60 days following the receipt of notice by the Authority pursuant to Section 6.07. the Trustee may. at the expense of the Authority. apply to a court of competent jurisdiction for the appointment of a successor Trustee meeting the requirements of Section 6.0 I . Any such successor Trustee appointed by such court shall become the successor Trustee hereunder notwithstanding any action by the Authority purporting to appoint a successor Trustee following the expiration of such sixty-day period. Section 6.09. Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank or trust company resulting from any merger. conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business. provided such bank or trust company shall be eligible under Section 6.0I. shall be the successor to such Trustee without the execution or filing of any paper or further act. except as provided in Section 6.10. Section 6.10. Concerning any Successor Trustee. Every successor Trustee appointed hereunder shall execute. acknowledge and deliver to its predecessor and also to the Authority an instrument in writing accepting such appointment hereunder and thereupon such successor. without any further act. deed or conveyance. shall become fully vested with all the estates. properties. rights. powers. trusts. duties and obligations of its predecessors: but such predecessor shall. nevertheless. on the Request of the Authority. or of the Trustees successor. execute and deliver an instrument transferring to such successor all the estates. properties. rights. powers and trusts of such predecessor hereunder: and every predecessor Trustee shall deliver all securities and moneys held by it as the Trustee hereunder to its successor. Should any instrument in writing from the Authority be required by any successor Trustee for more fully and certainly vesting in such successor the estate. rights. powers and duties hereby vested or intended to be vested in the predecessor Trustee. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. Section 6. I I . Appointment of Co -Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or P6402.1056\875I54.3 -25- restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in the case of litigation under this Indenture. and in particular in case of the enforcement of the rights of the Trustee on default. or in the case the Trustee or the Authority deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers. rights or remedies herein granted to the Trustee or hold title to the properties. in trust. as herein granted. or take any other action which may be desirable or necessary in connection therewith. it may be necessary that the Trustcc or the Authority appoint an additional individual or institution as a separate co -trustee. The following provisions of this Section 6. I I are adopted to these ends. In the event that the Trustee or the Authority appoints an additional individual or institution as a separate or co -trustee. each and every remedy. power. right. claim. demand. cause of action. immunity. estate. title. interest and Tien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co -trustee but only to the extent necessary to enable such separate or co -trustee to exercise such powers. rights and remedies. and every covenant and obligation necessary to the exercise thereof by such separate or co - trustee shall run to and be enforceable by either of them. The Trustee shall not be liable for the acts or omissions of any separate or co -trustee appointed hereunder. Should any instrument in writing from the Authority be required by the separate trustee or co -trustee so appointed by the Trustee for more fully and certainly vesting in and conforming to it such properties. rights. powers. trusts. duties and obligations. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. In case any separate trustee or co - trustee. or a successor to either. shall become incapable of acting. resign or be removed. all the estates. properties. rights. powers. trusts. duties and obligations of such separate trustee or co -trustee. so far as permitted by law. shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co -trustee. Section 6.12. Indemnification: Limited Liability of Trustee. The Authority further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any loss. expense and liabilities which it may incur arising out of or in the exercise and performance of its powers and duties hereunder. including the costs of expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities which are due to the negligence or intentional misconduct of the Trustee. its officers. directors or employees. No provision in this Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability hereunder if it shall have reasonable grounds for believing repayment of such funds or adequate indemnity against such liability or risk is not assured to it. The Trustee shall not be liable for any action taken or omitted to be taken by it in accordance with the direction of the Insurer or the Owners of at least a majority in aggregate Principal Amount of Bonds Outstanding relating to the time. method and place of conducting any proceeding or remedy available to the Trustee under this Indenture in exercising any trust or power conferred on the Tnistcc by this Indenture. The obligations of the Authority under this Section shall survive the payment and discharge of the Bonds or the resignation or removal of the Trustee under this Indenture. ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE Section 7.0I I. Amendment Hereof. This Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental P6402. 1056\875 154.3 -26- Indenture Nvhich shall become binding upon adoption. Nyith the Nvritten consent of the Insurer (as Tong as the Insurance Policy is in full force and effect) but Nyithout consent of any Bond Owners. to the extent permitted by lacy but only for any one or more of the following purposes: (a) To add to the covenants and agreements of the Authority in this Indenture contained. other covenants and agreements thereafter to be observed. or to limit or surrender any rights or powers herein reserved to or conferred upon the Authority so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: or (b) To make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in this Indenture. or in any other respect Nvhatsoeyer as the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall either (i) conform to the original intention of the Authority. or (ii) not materially adversely affect the interests of the Owners of the Bonds in the reasonable judgment of the Authority: or (c) To amend any provision hereof relating to the Code. to any extent Nvhatsoeyer but only if and to the extent such amendment \\ill not adversely affect the exclusion from gross income of interest on any of the Bonds under the Code. in the opinion of Bond Counsel. Except as set forth in the preceding paragraphs of this Section 7.0I. this Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture Nvhich shall become binding \yhen the «rittcn consent of the Insurer (as long as the Insurance Policy is in full force and effect) and of the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding are filed Nyith the Trustee. No such modification or amendment shall (i) extend the maturity of or reduce the interest rate on any Bond or othenvise alter or impair the obligation of the Authority to pay the principal. interest or premiums. if any. at the time and place and at the rate and in the currency provided therein of any Bond Nyithout the express «rittcn consent of the Owner of such Bond or (ii) reduce the percentage of Bonds required for the «rittcn consent to any such amendment or modification. In no event shall any Supplemental Indenture modify any of the rights or obligations of the Trustee Nyithout its prior «rittcn consent. Section 7.02. Effect of Supplemental Indenture. From and after the time any Supplemental Indenture becomes effective pursuant to this Article VII. this Indenture shall be deemed to be modified and amended in accordance therewith. the respective rights. duties and obligations of the parties hereto or thereto and all Owners of Outstanding Bonds. as the case may be. shall thereafter be determined. exercised and enforced hereunder subject in all respects to such modification and amendment. and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 7.03. Endorsement or Replacement of Bonds After Amendment. After the effective date of any action taken as hereinaboye provided. the Authority may determine that the Bonds shall bear a notation. by endorsement in form approved by the Authority. as to such action. and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his bond for that purpose at the Trust Office of the Trustee. a suitable notation as to such action shall be made on such Bond at the expense of the Authority. If the Authority shall so determine. neW Bonds so modified as. in the opinion of the Authority. shall be necessary to conform to such Bond Owners" action shall be prepared and executed. and in that case upon demand of the Owner of any Bond Outstanding at such effective date such neW Bonds shall be exchanged at the Trust Office of the Trustee. at the expense of the Authority. for Bonds then Outstanding. upon surrender of such Outstanding Bonds. P6402. 1056\875 154.3 -27- ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN. SO LONG AS THE INSURANCE POLICY REMAINS IN EFFECT AND THE INSURER HAS NOT DEFAULTED WITH RESPECT TO ITS PAYMENT OBLIGATIONS UNDER THE INSURANCE POLICY. ALL PROVISIONS OF THIS ARTICLE VIII SHALL BE SUBJECT TO. AND QUALIFIED BY. THE PROVISIONS SET FORTH IN ARTICLE IX. INCLUDING. WITHOUT LIMITATION. THE INSURERS RIGHT TO CONSENT TO ACCELERATION OF THE BONDS. AND THE INSURERS RIGHT TO CONSENT TO OR DIRECT CERTAIN AUTHORITY. TRUSTEE OR OWNER ACTIONS. Section 8.0I I. Events of Default. The following events shall be Events of Default hereunder: (a) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable. whether at maturity as therein expressed. by proceedings for redemption. by declaration or otherwise. (b) Default in the due and punctual payment of any installment of interest on an Bond when and as such interest installment shall become due and payable. (c) Failure by the Authority to observe and perform any of the covenants. agreements or conditions on its part in this Indenture or in the Bonds contained. other than as referred to in the preceding Paragraphs (a) and (b). for a period of 30 days after written notice. specifying such a failure and requesting that it be remedied has been given to the Authority by the Trustee. or to the Authority and the Trustee by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds: provided. however. that if in the reasonable opinion of the Authority the failure stated in such notice can be corrected. but not within such 30 day period. such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30 day period and diligently pursued until such failure is corrected. (d) The filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America. or if a court of competent jurisdiction shall approve a petition. filed with or without the consent of the Authority. seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America. or if. under the provisions of any other law for the relief or aid of debtors. any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property. (e) The occurrence of any Event of Default under. and as that term is defined in. the Loan Agreement. Section 8.02. Remedies Upon Event of Default. Subject to the provisions of Article IX. if any Event of Default shall occur. then. and in each and every such case during the continuance of such Event of Default. the Trustee may. and at the written direction of the Owners of a majority in aggregate Principal Amount of the Bonds at the time Outstanding shall. upon notice in writing to the Authority and the Agency. declare the principal of all of the Bonds then Outstanding. and the interest accrued thereon. to be due and payable immediately. and upon any such declaration the same shall become and shall be P6402. 1056\875 154.3 -28- immediately due and payable. anything in this Indenture or in the Bonds contained to the contrary notwithstanding. Any such declaration is subject to the condition that if. at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the Authority or the Agency shall deposit Nyith the Trustee a sum sufficient to pay all the principal of and installments of interest on the Bonds payment of which is overdue. with interest on such overdue principal at the rate borne by the respective Bonds to the extent permitted by lacy. and the charges and expenses of the Trustee and its counsel (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). and any and all other Events of Default known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in every such case. the Owners of not Tess than a majority in aggregate Principal Amount of the Bonds then Outstanding. by Nyritten notice to the Authority. the Agency and the Trustee. or the Trustee if such declaration was made by the Trustee. may. on behalf of the Owners of all of the Bonds. rescind and annul such declaration and its consequences and \yaiye such Event of Default: but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default. or shall impair or exhaust any right or power consequent thereon. In addition. upon the occurrence and during the continuance of an Event of Default. the Trustee may pursue any available remedy at lacy or in equity to enforce the payment of the principal of and interest and premium. if any. on the Bonds. and to enforce any rights of the Trustee under or with respect to the Loan Agreement and this Indenture. If an Event of Default shall have occurred and be continuing and if requested so to do by the Owners of a majority in aggregate Principal Amount of Outstanding Bonds and indemnified as provided in Section 6.02(I). the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article VIII. as the Tnistcc. being advised by counsel. shall deem most expedient in the interest of the Bond Owners. No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Owners) is intended to be exclusive of any other remedy. but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Owners hereunder or now or hereafter existing at lacy or in equity. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a Nyaiyer of any such Event of Default or acquiescence therein: such right or power may be exercised from time to time as often as may be deemed expedient. Section 8.03. Application of Revenues and Other Funds After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Indenture shall be applied by the Trustee in the following order upon presentation of the several Bonds. and the stamping thereon of the amount of the payment if only partially paid. or upon the surrender thereof if fully paid - First. to the payment of the fees. costs and expenses of the Trustee. including reasonable compensation to its agents. attorneys and counsel (including the allocated costs and disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and P6402. 1056\875 154.3 -29- Second. to the payment of the Nvhole amount of interest on and principal of the Bonds then due and unpaid. Nyith interest on overdue installments of principal. and such interest to the extent permitted by lacy at the net effective rate of interest then borne by the Outstanding Bonds: provided. however. that in the event such amounts shall be insufficient to pav in full the full amount of such interest and principal. then such amounts shall be applied in the following order of priority: (i) first. to the payment of all installments of interest on the Bonds then due and unpaid. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. (ii) second. to the payment of principal of all installments of the Bonds then due and payable. on a pro rata basis in the event that the available amounts are insufficient to pav all such principal in full. and (iii) third. to the payment of interest on overdue installments of principal and interest. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. Section 8.04. Power of Trustee to Control Proceedings. Subject to the provisions of Article IX. in the event that the Trustee. upon the happening of an Event of Default. shall have taken an action. by judicial proceedings or otherwise. pursuant to its duties hereunder. Nvhether upon its own discretion or upon the request of the Owners of at least a majority in aggregate Principal Amount of the Bonds then Outstanding. it shall have full power. in the exercise of its discretion for the best interests of the Owners. Nyith respect to the continuance. discontinuance. Nvithdrawal. compromise. settlement or other disposal of such action: provided. however. that the Trustee shall not. unless there no longer continues an Event of Default. discontinue. Nvithdraw. compromise or settle. or othenvise dispose of an litigation pending at lacy or in equity. if at the time there has been filed Nyith it a Nvritten request signed by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds hereunder opposing such discontinuance. Nvithdrawal. compromise. settlement or other disposal of such litigation. Any suit. action or proceeding \yhich any Owner shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners similarly situated and the Trustee is hereby appointed (and the successive respective Owners. by taking and holding the same. shall be conclusively deemed so to have appointed it) the true and lawful attorney -in -fact of the respective Owners for the purpose of bringing any such suit. action or proceeding and to do and perform any and all acts and things for an on behalf of the respective Owners as a class or classes. as may be necessary or advisable in the opinion of the Trustee as such attorney -in -fact. Section 8.05. Appointment of Receivers. Upon the occurrence of an Event of Default hereunder. and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Owners under this Indenture. the Trustee shall be entitled. as a matter or right. to the appointment of a receiver or receivers of the Revenues and other amounts pledged hereunder. pending such proceedings. Nyith such powers as the court making such appointment shall confer. Section 8.06. Non -Waiver. Nothing in this Article VI I I or in any other provision of this Indenture. or in the Bonds. shall affect or impair the obligation of the Authority. \yhich is absolute and unconditional. to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity. as herein provided. out of the Revenues and other moneys herein pledged for such payment. A Nvaiyer of any default or breach of duty or contract by the Trustee or any Owners shall not affect any subsequent default or breach of duty or contract. or impair anv rights or remedies on anv P6402. 1056\875154.3 -30- such subsequent default or breach. No delay or omission of the Trustee or any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a Nvaiyer of any such default or any acquiescence therein: and every power and remedy conferred upon the Trustee or Owners by the Bond Law or by this Article VIII may be enforced and exercised. upon an Event of Default. from time to time and as often as shall be deemed expedient by the Trustee or the Owners. as the case may be. Section 8.07. Limitation on Rights and Remedies of Owners. No Owner shall have the right to institute any suit. action or proceeding at lacy or in equity. for any remedy under or upon this Indenture. unless (i) such Owner shall have previously given to the Trustee Nvritten notice of the occurrence of an Event of Default: (ii) the Owners of a majority in aggregate Principal Amount of all the Bonds then Outstanding shall have made «rittcn request upon the Trustee to exercise the powers hereinbefore granted or to institute such action. suit or proceeding in its own name: (iii) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs. expenses and liabilities to be incurred in compliance Nyith such request: and (iv) the Trustee shall have refused or omitted to comply Nyith such request for a period of 60 days after such «rittcn request shall have been received by. and said tender of indemnity shall have been made to. the Trustee. Such notification. request. tender of indemnity and refusal or omission are hereby declared. in every case. to be conditions precedent to the exercise by any Owner of any remedy hereunder: it being understood and intended that no one or more Owners shall have any right in any manner Nyhateyer by the Owner's or Owners" action to enforce any right under this Indenture. except in the manner herein provided. and that all proceedings at lacy or in equity to enforce any provision of this Indenture shall be instituted. had and maintained in the manner herein provided and for the equal benefit of all Owners. The right of any Owner of any Bond to receive payment of the principal of and interest and premium. if any. on such Bond as herein provided or to institute suit for the enforcement of any such payment. shall not be impaired or affected Nyithout the «rittcn consent of such Owner. notwithstanding the foregoing provisions of this Section or any other provision of this Indenture. Section 8.08. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or otherwise. and such proceedings shall have been discontinued or abandoned for any reason. or shall have been determined adversely. then and in every such case. the Authority. the Trustee and the Owners shall be restored to their former positions and rights hereunder. respectively. with regard to the property subject to this Indenture. and all rights. remedies and powers of the Tnistcc shall continue as if no such proceedings had been taken. P6402. 1056\875 154.3 ARTICLE IX BOND INSURANCE (to come) -3I- ARTICLE X BOOK -ENTRY SYSTEM Section 10.01 Book -Entry System: Limited Obligation of Authority. The Bonds shall be initially delivered in the form of a separate single fully registered Bond (which may be typewritten) for each of the maturities of the Bonds. Upon initial delivery. the ownership of each such Bond shall be registered in the registration books kept by the Trustee in the name of the Nominee as nominee of the Depository. Except as provided in Section 10.03. all of the Outstanding Bonds shall be registered in the registration books kept by the Trustee in the name of the Nominee. With respect to Bonds registered in the registration books kept by the Trustee in the name of the Nominee,. the Authority and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence. the Authority and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository. the Nominee. or any Participant with respect to any ownership interest in the Bonds. (ii) the delivery to any Participant or any other person. other than an Owner as shown in the registration books kept by the Trustee. of any notice with respect to the Bonds. including any notice of redemption. (iii) the selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed in the event the Bonds are redeemed in part. or (iv) the payment to any Participant or any other person. other than an Owner as shown in the registration books kept by the Trustee. of any amount with respect to principal of. premium. if any. or interest due with respect to the Bonds. The Authority and the Trustee may treat and consider the person in wvhose name each Bond is registered in the registration books kept by the Tnistcc as the holder and absolute owner of such Bond for the purpose of payment of principal. premium. if any. and interest with respect to such Bond. for the purpose of giving notices of redemption and other matters with respect to such Bond. for the purpose of registering transfers with respect to such Bond. and for all other purposes Nvhatsoeyer. The Trustee shall pay all principal of. premium. if any. and interest due with respect to the Bonds only to or upon the order of the respective Owners. as shown in the registration books kept by the Trustee. or their respective attorneys duly authorized in writing. and all such payments shall be valid and effective to satisfy and discharge fully the Authority's obligations with respect to payment of the principal. premium. if any. and interest due with respect to the Bonds to the extent of the sum or sums so paid. No person other than an Owner. as shown in the registration books kept by the Trustee. shall receive a Bond evidencing the obligation of the Authority to make payments of principal. premium. if any. and interest pursuant to this Indenture. Upon delivery by the Depository to the Trustee and the Authority of written notice to the effect that the Depository has determined to substitute a new nomincc in place of the Nominee. and subject to the provisions herein with respect to Record Dates. the word Nominee in this Indenture shall refer to such new nominee of the Depository. Section 10.02 Representation Letter. In order to qualify the Bonds for the Depository's book entry system. the Authority has heretofore executed and delivered to such Depository the Representation Letter. The execution and delivery of a Representation Letter shall not in any way impose upon the Authority or the Tnistcc any obligation wvhatsoeyer with respect to persons having interests in the Bonds other than the Owners. as shown on the registration books kept by the Trustee. The Trustee agrees to take all action necessary to continuously comply with the Representation Letter to the extent that such action is not inconsistent with this Indenture. In addition to the execution and delivery of the Representation Letter. the officers of the Authority are hereby authorized to take any other actions. not inconsistent with this Indenture. to qualify the Bonds for the Depository's book entry program. Section 10.03 Transfers Outside Book -Entry System. In the event (a) the Depository determines not to continue to act as securities depository for the Bonds. or (b) the Authority determines P6402. 1056\875 154.3 -32- that the Depository shall no longer so act. then the Authority NyiII discontinue the book -entry system Nyith the Depository. If the Authority fails to identify another qualified securities depository to replace the Depository. then the Bonds so designated shall no longer be restricted to being registered in the registration books kept by the Trustee in the name of the Nominee. but shall be registered in Nvhateyer name or names persons transferring or exchanging Bonds shall designate. in accordance Nyith the provisions of Section 2.09. Section 10.04 Payments to the Nominee. Notwithstanding any other provisions of this Indenture to the contrary. so Tong as any Bond is registered in the name of the Nominee. all payments Nyith respect to principal. premium. if any. and interest due Nyith respect to such Bond and all notices Nyith respect to such Bond shall be made and given. respectively. as provided in the Representation Letter or as otherwise instructed by the Depository. Section 10.05 Initial Depository and Nominee. The initial Depository under this Article shall be The Depository Trust Company. NON York. NON York. The initial Nominee shall be Cede & Co.. as Nominee of The Depository Trust Company. NON York. NON York. ARTICLE XI MISCELLANEOUS Section 11.01. Limited Liability of Authority. Notwithstanding anything in this Indenture contained. the Authority shall not be required to advance any moneys derived from any source of income other than the Revenues for the payment of the principal of or interest on the Bonds. or any premiums upon the redemption thereof. or for the performance of any covenants herein contained (except to the extent any such covenants are expressly payable hereunder from the Revenues or otherwise from amounts payable under the Loan Agreement). The Authority may. however. advance funds for any such purpose. provided that such funds are derived from a source legally available for such purpose and may be used by the Authority for such purpose without incurring indebtedness. The Bonds shall be revenue bonds. payable exclusively from the Revenues and other funds as in this Indenture provided. The general fund of the Authority is not liable. and the credit of the Authority is not pledged. for the payment of the interest and premium. if any. on or principal of the Bonds. The Owners of the Bonds shall never have the right to compel the forfeiture of any property of the Authority. The principal of and interest on the Bonds. and any premiums upon the redemption of any thereof. shall not be a legal or equitable pledge. charge. lien or encumbrance upon any property of the Authority or upon any of its income. receipts or revenues except the Revenues and other funds pledged to the payment thereof as in this Indenture provided. Section 11.02. Benefits of Indenture Limited to Parties. Nothing in this Indenture. expressed or implied. is intended to give to any person other than the Authority. the Trustee. the Agency. the Insurer. and the Owners of the Bonds. any right. remedy or claim under or by reason of this Indenture. Any covenants. stipulations. promises or agreements in this Indenture contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the Trustee. the Agency. the Insurer. and the Owners of the Bonds. Section 11.0 3. Dischartze of Indenture. If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following \Nays: (a) By \yell and truly paying or causing to be paid the principal of and interest and premium. if any. on such Bonds. as and Nyhen the same become due and payable: P6402. 1056\875 154.3 (b) By irrevocably depositing with the Trustee. in trust. at or before maturity. money which. together with the available amounts then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. is fully sufficient to pay such Bonds. including all principal. interest and premiums. if any: or (c) By irrevocably depositing with the Trustee or any other fiduciary. in trust. non -callable Defeasance Obligations in such amount as an Independent Accountant shall determine \gill. together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal. interest and redemption premiums) at or before their respective maturity dates: and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been mailed pursuant to Section 2.03 or provision satisfactory to the Trustee shall have been made for the mailing of such notice. then. at the Request of the Authority. and notwithstanding that any of such Bonds shall not have been surrendered for payment. the pledge of the Revenues and other funds provided for in this Indenture with respect to such Bonds. and all other pecuniary obligations of the Authority under this Indenture with respect to all such Bonds. shall cease and terminate. except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid. and all expenses and costs of the Trustee. Any funds held by the Trustee. following any payment or discharge of the Outstanding Bonds pursuant to this Section 11.03 and the payment of the Tnistee's and the Insurers expenses and costs. shall be paid over to the Authority. Section 11.04. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture or any Supplemental Indenture the Authority is named or referred to. such reference shall be deemed to include the successor to the powers. duties and functions. with respect to the management. administration and control of the affairs of the Authority. that are presently vested in the Authority. and all the covenants. agreements and provisions contained in this Indenture by or on behalf of the Authority shall bind and inure to the benefit of its successors whether so expressed or not. Section 11.05. Content of Certificates. Every Certificate of the Authority with respect to compliance with a condition or covenant provided for in this Indenture shall include (i) a statement that the person or persons making or giving such Certificate have read such covenant or condition and the definitions herein relating thereto: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Certificate are based: (iii) a statement that. in the opinion of the signers. they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with: and (iv) a statement as to whether. in the opinion of the signers. such condition or covenant has been complied with. Any such certificate made or given by an officer of the Authority may be based. insofar as it relates to legal matters. upon a certificate or opinion of or representations by counsel. unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate may be based. as aforesaid. are erroneous. or in the exercise of reasonable care should have known that the same \were erroneous. Any such certificate or opinion or representation made or given by counsel may be based. insofar as it relates to factual matters. on information with respect to which is in the possession of the Authority. or upon the certificate or opinion of or representations by an officer or officers of the Authority. unless such counsel knows that the certificate or opinion or representations with respect to the matters upon which his certificate. opinion or representation may be based. as aforesaid. are erroneous. P6402. I Oi6\875 154. 3 -34- Section I I.06. Execution of Documents by Owners. Any request. consent or other instrument required by this Indenture to be signed and executed by Bond Owners may be in any number of concurrent writings of substantially similar tenor and may be signed or executed by such Bond Owners in person or by their agent or agents duly appointed in writing. Proof of the execution of any such request. consent or other instrument or of a writing appointing any such agent. shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and of the Authority if made in the manner provided in this Section I I.06. The fact and date of the execution by any person of any such request. consent or other instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer of any jurisdiction. authorized by the laws thereof to take acknowledgments of deeds. certifying that the person signing such request. consent or other instrument or writing acknowledged to him the execution thereof. The ownership of Bonds shall be proved by the Registration Books. Any request. consent or vote of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of any Bond issued in exchange therefor or in Iicu thereof. in respect of anything done or suffered to be done by the Trustee or the Authority in pursuance of such request. consent or vote. In Iicu of obtaining any demand. request. direction. consent or Nvaiyer in writing. the Trustee may call and hold a meeting of the Bond Owners upon such notice and in accordance with such rules and obligations as the Trustee considers fair and reasonable for the purpose of obtaining any such action. Section I I.07. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand. request. direction. consent or Nvaiyer under this Indenture. Bonds which are owned or held by or for the account of the Agency or the Authority (but excluding Bonds held in any employees" retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. provided. however. only Bonds which a responsible officer of the Trustee actually knows to be so owned or held shall be disregarded. Section I I.08. Waiver of Personal Liability. No officer. agent or employee of the Authority shall be individually or personally liable for the payment of the interest on or principal of the Bonds: but nothing herein contained shall relieve any such officer. agent or employee from the performance of any official duty provided by law. Section I I.09. Partial Invalidity. If any one or more of the covenants or agreements. or portions thereof. provided in this Indenture on the part of the Authority (or of the Trustee) to be performed should be contrary to law. then such covenant or covenants. such agreement or agreements. or such portions thereof. shall be null and void and shall be deemed separable from the remaining covenants and agreements or portions thereof and shall in no way affect the validity of this Indenture or of the Bonds: but the Bond Owners shall retain all rights and benefits accorded to them under the Bond Law or any other applicable provisions of law. The Authority hereby declares that it would have entered into this Indenture and each and every other section. paragraph. subdivision. sentence. clause and phrase hereof and would have authorized the issuance of the Bonds pursuant hereto irrespective of the fact that any one or more sections. paragraphs. subdivisions. sentences. clauses or phrases of this Indenture or the application thereof to any person or circumstance may be held to be unconstitutional. unenforceable or invalid. Section I I.10. Destruction of Cancelled Bonds. Whenever in this Indenture provision is made for the surrender to the Trustee of any Bonds which have been paid or cancelled pursuant to the provisions of this Indenture. the Trustee shall. as permitted by law. destroy such cancelled Bonds and. upon Request of the Authority. provide to the Authority a certificate of destruction duly executed by the P6402.1056\875154.3 - 5- Trustee. and the Authority shall be entitled to rely upon any statement of fact contained in such certificate Nvith respect to the destruction of any such Bonds therein referred to: provided. however. the Authority shall reimburse the Trustee for the Trustees costs incurred in connection Nvith the microfilming or the required permanent recording. if any. related thereto. Section 1 1.1 1. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the accounting records of the Authority or the Trustee. as the case may be. either as a fund or an account. and may. for the purpose of such records. any audits thereof and any reports or statements Nvith respect thereto. be treated either as a fund or as an account. All such records Nvith respect to all such funds and accounts held by the Authority shall at all times be maintained in accordance Nvith generally accepted accounting principles and all such records Nvith respect to all such funds and accounts held by the Trustee shall be at all times maintained in accordance Nvith corporate trust industry practices. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the form of multiple funds. accounts or sub -accounts therein. Section 11.12. Payment on Business Days. Whenever in this Indenture any amount is required to be paid on a day Nyhich is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest shall not accrue from and after such day. Section 1 1.1 3. Notices. Any notice. request. complaint. demand or other communication under this Indenture shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below. or by telecopv or other form of telecommunication. confirmed by telephone at its number set forth below. Notice shall be effective either (i) upon transmission by telecopy or other form of telecommunication. (ii) 48 hours after deposit in the United States mail. postage prepaid. or (iii) in the case of personal delivery to any person. upon actual receipt. The Authority. the Agency or the Trustee may. by Nvritten notice to the other parties. from time to time modify the address or number to which communications are to be given hereunder. If to the Authority: Palm Desert Financing Authority 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Chief Administrative Officer Facsimile: (760) 340-0574 If to the Agency: Palm Desert Redevelopment Agency 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Executive Director Facsimile: (760) 340-0574 If to the Trustee: Wells Fargo Bank. National Association 707 Wilshire Boulevard. 17th Floor Los Angeles. California 90017 Attention: Corporate Trust Department Facsimile: (213) 6I4-3355 If to the Insurer: P6402. I c 56\875 154.3 -36- Attention: Facsimile: ( ) The Authority. the Agency. the Trustee and the Insurer may designate anv further or different addresses to \Vhich subsequent notices. certificates or other communications shall be sent. Notices to the Insurer shall be governed by Section 9.02. Section 11.14. Unclaimed Money s. Anything in this Indenture to the contrary notwithstanding. anv moneys held by the Trustee in trust for the payment and discharge of anv of the Bonds or the interest thereon which remain unclaimed for two years after the date when such Bonds or the interest thereon have become due and payable. either at their stated maturity dates or by call for earlier redemption. if such moneys \were held by the Trustee at such date. or for two years after the date of deposit of such moneys if deposited with the Trustee after said date when such Bonds or the interest thereon become due and payable. shall. at the Request of the Authority. be repaid by the Trustee to the Authority. as its absolute property and free from trust. and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the Authority for the payment of such Bonds: provided. however. that before making anv such payment to the Authority. the Trustee shall. at the Request and at the expense of the Authority. cause to be mailed to the Owners of all such Bonds. at their respective addresses appearing on the Registration Books. a notice that said moneys remain unclaimed and that. after a date named in said notice. which date shall not be less than 30 days after the date of mailing of such notice. the balance of such moneys then unclaimed will be returned to the Authority. Section I I.15. Governing Law. This Agreement shall be construed and governed in accordance with the laws of the State of California. P6402. 1056\875 154.3 -37- IN WITNESS WHEREOF. the PALM DESERT FINANCING AUTHORITY has caused this Indenture to be signed in its name by its duly authorized officer and WELLS FARGO BANK. NATIONAL ASSOCIATION. in token of its acceptance of the trust created hereunder. has caused this Indenture to be signed in its corporate name by its officer identified below. all as of the day and year first above Nvritten. P6402. 1056\875 154.3 PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By -38- Authorized Officer EXHIBIT A (FORM OF SERIES 2006A BONDS Unless this certificate is presented by an authorized representative of The Depository Trust Company. a NOV York corporation ("DTC). to the Authority or its agent for registration of transfer. exchange. or payment. and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC). ANY TRANSFER. PLEDGE. OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof. Cede & Co.. has an interest herein. No. PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE BOND (PROJECT AREA NO. 3) 2006 SERIES A RATE OF INTEREST MATURITY DATE ORIGINAL ISSUE DATE CUSIP April I. 20_ REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: The PALM DESERT FINANCING AUTHORITY. a joint powers authority organized and existing under the laws of the State of California (the "Authority"). for value received. hereby promises to pay (but only out of the Revenues. as defined in the Indenture hereinafter referred to. and certain other moneys) to the Registered Owner identified above or registered assigns (the "Registered Owner"). on the Maturity Date identified above or any earlier redemption date. the Principal Amount identified above in lawful money of the United States of America: and to pay interest thereon at the Rate of Interest identified above in like money from the Interest Payment Date (as hereinafter defined) next preceding the date of authentication of this Series 2006A Bond (unless this Series 2006A Bond is authenticated on or before an Interest Payment Date and after the fifteenth calendar day of the month preceding such Interest Payment Date. in which event it shall bear interest from such Interest Payment Date. or unless this Series 2006A Bond is authenticated on or prior to September 15. 2006. in which event it shall bear interest from the Original Issue Date identified above: provided. however. that if. at the time of authentication of this Series 2006A Bond. interest is in default on this Series 2006A Bond. this Series 2006A Bond shall bear interest from the Interest Payment Date to which interest hereon has previously been paid or made available for payment). payable semiannually on April I and October I in each year. commencing October I. 2006 (the "Interest Payment Dates) until payment of such Principal Amount in full. The Principal Amount hereof is payable upon presentation hereof upon maturity or earlier redemption at the corporate trust office of Wells Fargo Bank. National Association (the "Trustee) in Los Angeles. P6402. 1056\875 154.3 A- I California or such other location as the Trustee shall designate (the "Trust Office"). Interest hereon is payable by check or draft of the Trustee mailed by first class mail on each Interest Payment Date to the Registered Owner hereof at the address of the Registered Owner as it appears on the registration books of the Trustee as of the fifteenth calendar day of the month preceding such Interest Payment Date (except in the case of a Registered Owner of at least $ 1.000.000 in aggregate principal amount. such payment may. at such Registered Owners option. be made by \sire transfer of immediately available funds in accordance Nyith Nvritten instructions provided by such Registered Owner prior to the fifteenth calendar day of the month preceding such Interest Payment Date). This Series 2006A Bond is one of a duly authorized series of bonds of the Authority designated the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A (the "Series 2006A Bonds"). limited in principal amount to } . The Authority has issued another series of bonds designated the Palm Desert Financing Authority Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 3). 2006 Series B (the "Series 2006B Bonds." and together Nyith the Series 2006A Bonds. the "Bonds"). limited in initial principal amount to } . concurrently Nyith the issuance of the Series 2006A Bonds. Both the Series 2006A Bonds and the Series 2006B Bonds are secured by an Indenture of Trust. dated as of July I. 2006 (the "Indenture"). by and between the Authority and the Trustee. Unless the context clearly requires otherwise. capitalized terms used but not defined herein have the meanings ascribed to them in the Indenture. Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the rights thereunder of the owners of the Bonds. of the nature and extent of the Revenues. of the rights. duties and immunities of the Trustee and of the rights and obligations of the Authority thereunder: and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof. and to all of the provisions of which Indenture the Registered Owner hereof. by acceptance hereof. assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985. constituting Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Act"). The Bonds are special obligations of the Authority and. as and to the extent set forth in the Indenture. are payable solely from and secured by a first lien on and pledge of the Revenues and certain other moneys and securities held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of. and charge and Tien upon. all of the Revenues and such other moneys and securities. and the Revenues and such other moneys and securities constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if an) on the Bonds. The Bonds are not secured by a legal or equitable pledge of. or charge. lien or encumbrance upon. any of the property of the Authority or any of its income or receipts. except the Revenues and such other moneys and securities as provided in the Indenture. The Series 2006A Bonds have been issued for the purpose of making a loan (the "Series 2006A Loan) to the Palm Desert Redevelopment Agency (the "Agency) to finance certain public capital improvements with respect to a redevelopment project known and designated as Project Area No. 3. The Series 2006A Loan has been made by the Authority to the Agency pursuant to a Project Area No. 3 Loan Agreement (2006 Senior Loans). dated as of July I. 2006 (the "Loan Agreement"). by and among the Agency. the Authority and the Trustee. The Series 2006A Bonds maturing on or after April I. 2() are subject to redemption prior to their respective maturity dates as a Nvhole. or in part among maturities as designated by the Authority and by lot within a maturity. from prepayments of the Series 2006A Loan made at the option of the Agency pursuant to the Loan Agreement. on any Interest Payment Date on or after April I. 2() . at the following P6402. 1056\875 154.3 A-2 respective redemption prices (expressed as a percentage of the principal amount of Series 2006A Bonds to be redeemed). plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price April I. 20 and October I. 2() `Y0 April I. 20 and October I. 2() April I. 20 and thereafter 100 The Series 2006A Bonds maturing on April I. 20 and April I. 20 are also subject to mandatory sinking fund redemption by lot. on April I in each year commencing April I. 20 and April I. 20 . respectively. at a redemption price equal to the principal amount thereof to be redeemed. without premium. plus accrued interest to the date of redemption. in the aggregate respective principal amounts set forth in the Indenture: provided. however. that in Iicu of redemption thereof. such Series 2006A Bonds may be purchased by the Agency pursuant to the Loan Agreement. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Series 2006A Bonds designated for redemption. at their respective addresses appearing on the registration books maintained by the Trustee. and by such means as acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the redemption date: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Series 2006A Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the serial numbers of each maturity or maturities (except that if the event of redemption is of all of the Series 2006A Bonds of such maturity or maturities in whole. the Trustee shall designate such maturities or the maturity in NVhoIe without referencing each individual number) of the Series 2006A Bonds to be redeemed. and shall require that such Series 2006A Bonds be then surrendered at the Tnist Office for redemption at the redemption price. giving notice also that further interest on such Series 2006A Bonds will not accrue from and after the redemption date. Subject to the limitations and upon payment of the charges. if any. provided in the Indenture. this Series 2006A Bond may be exchanged at the Trust Office for a like aggregate principal amount and maturity of fully registered Series 2006A Bonds of other authorized denominations. This Series 2006A Bond is transferable by the Registered Owner hereof. in person or by the Registered Owners attorney duly authorized in writing. at the Trust Office. but only in the manner. subject to the limitations and upon payment of the charges provided in the Indenture. and upon surrender and cancellation of this Series 2006A Bond. Upon such transfer a new fully registered Series 2006A Bond or Series 2006A Bonds. of authorized denomination or denominations. for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of any Series 2006A Bond during the 15- day period preceding the selection of Series 2006A Bonds for redemption or any Series 2006A Bond selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes. and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority and of the owners of the Series 2006A Bonds and of the Trustee may be modified or amended from time to time and at any time in the P6402. 1056\875 154.3 A-3 manner. to the extent. and upon the terms provided in the Indenture: provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on an Series 2006A Bond or othenvise alter or impair the obligation of the Authority to pay the principal. interest or premiums at the time and place and at the rate and in the currency provided therein of any Series 2006A Bond Nvithout the express Nvritten consent of the Owner of such Series 2006A Bond. (b) reduce the percentage of Series 2006A Bonds required for the «rittcn consent to any such amendment or modification. or (c) Nyithout its «rittcn consent thereto. modify any of the rights or obligations of the Trustee. all as more fully set forth in the Indenture. It is hereby certified that all things. conditions and acts required to exist. to have happened and to have been performed precedent to and in the issuance of this Series 2006A Bond do exist. have happened and have been performed in due time. form and manner as required by the Constitution and statutes of the State of California and by the Act and the amount of this Series 2006A Bond. together Nvith all other indebtedness of the Authority. does not exceed any limit prescribed by the Constitution or statutes of the State of California or by the Act. This Series 2006A Bond shall not be entitled to any benefit under the Indenture. or become valid or obligatory for any purpose. until the certificate of authentication hereon shall have been signed by the Trustee. IN WITNESS WHEREOF. the Authority has caused this Series 2006A Bond to be executed in its name and on its behalf by the manual or facsimile signatures of its President and Secretary_ all as of the Original Issue Date identified above. PALM DESERT FINANCING AUTHORITY By Attest: Secretary President STATEMENT OF INSURANCE Ito coma P6402. 1056\875 154.3 A-4 (FORM OF TRUSTEES CERTIFICATE OF AUTHENTICATION' This is one of the Series 2006A Bonds described in the Nvithin-mentioned Indenture and registered on the Bond Registration Books. Date: WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Signatory (FORM OF ASSIGNMENT' For value received the undersigned do(es) hereby sell. assign and transfer unto Nyhose tax identification number is . the Nyithin-mentioned registered Series 2006A Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee Nyith full pomer of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond Nvith the name(s) as Nvritten on the face of the Nvithin Series 2006A Bond in every particular Nvithout alteration or enlargement or any change Nvhatsoeyer. NOTE: Signature(s) must be guaranteed by a member of an institution Nyhich is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. P6402. 1056\875 154.3 A-5 EXHIBIT B FORM OF SERIES 2006B BONDS Unless this certificate is presented by an authorized representative of The Depository Trust Company. a NOV York corporation ("DTC). to the Authority or its agent for registration of transfer. exchange. or payment. and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede K. Co. or to such other entity as is requested by an authorized representative of DTC). ANY TRANSFER. PLEDGE. OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof. Cede & Co.. has an interest herein. No. Maturity Amount: } PALM DESERT FINANCING AUTHORITY TAX ALLOCATION REVENUE CAPTIAL APPRECIATION BOND (PROJECT AREA NO. 3) 2006 SERIES B YIELD TO MATURITY MATURITY DATE ORIGINAL ISSUE DATE CUSIP April I. 20_ REGISTERED OWNER: CEDE & CO. INITIAL PRINCIPAL AMOUNT: MATURITY AMOUNT: The PALM DESERT FINANCING AUTHORITY. a joint powers authority organized and existing under the laws of the State of California (the "Authority"). for value received. hereby promises to pay (but only out of the Revenues. as defined in the Indenture hereinafter referred to. and certain other moneys) to the Registered Owner identified above or registered assigns (the "Registered Owner'). in lawful money of the United States of America. either the Maturity Amount identified above on the Maturity Date or the Accreted Value. plus any applicable redemption premium. upon redemption prior to maturity. "Accreted Value." with respect to any Series 2006B Bond. means as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Original Issue Date at the stated Yield to Maturity thereof on each April I and October I. commencing October I. 2006. Interest on each Series 2006B Bond shall be computed using a year of 360 days of twelve 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. with respect to any Series 2006B Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the corporate trust office of Wells Fargo Bank. National Association (the B- 1 P6402. 10;6\875 154.3 "Trustee") in Los Angeles. California or such other location as the Trustee shall designate (the "Trust Office"). This Series 2006B Bond is one of a duly authorized series of bonds of the Authority designated the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B (the "Series 2006B Bonds"). limited in initial principal amount to $ The Authority has issued another series of bonds designated the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A (the "Series 2006A Bonds." and together Nyith the Series 2006B Bonds. the "Bonds"). limited in principal amount to } . concurrently Nyith the issuance of the Series 2006B Bonds. Both the Series 2006A Bonds and the Series 2006B Bonds are secured by an Indenture of Trust. dated as of July I. 2006 (the "Indenture"). by and between the Authority and the Trustee. Unless the context clearly requires otherwise. capitalized terms used but not defined herein have the meanings ascribed to them in the Indenture. Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the rights thereunder of the owners of the Bonds. of the nature and extent of the Revenues. of the rights. duties and immunities of the Trustee and of the rights and obligations of the Authority thereunder: and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof. and to all of the provisions of which Indenture the Registered Owner hereof. by acceptance hereof. assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985. constituting Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Act"). The Bonds are special obligations of the Authority and. as and to the extent set forth in the Indenture. are payable solely from and secured by a first lien on and pledge of the Revenues and certain other moneys and securities held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of. and charge and lien upon. all of the Revenues and such other moneys and securities. and the Revenues and such other moneys and securities constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if an) on the Bonds. The Bonds are not secured by a legal or equitable pledge of. or charge. lien or encumbrance upon. any of the property of the Authority or any of its income or receipts. except the Revenues and such other moneys and securities as provided in the Indenture. The Series 2006B Bonds have been issued for the purpose of making a loan (the "Series 2006B Loan") to the Palm Desert Redevelopment Agency (the "Agency") to finance certain public capital improvements with respect to a redevelopment project known and designated as Project Area No. 3. The Series 2006B Loan has been made by the Authority to the Agency pursuant to a Project Area No. 3 Loan Agreement (2006 Senior Loans). dated as of July I. 2006 (the "Loan Agreement"). by and among the Agency. the Authority and the Trustee. The Series 2006B Bonds maturing on or after April I. 2() are subject to redemption prior to their respective maturity dates as a Nvhole. or in part among maturities as designated by the Authority and by lot within a maturity. from prepayments of the Series 2006B Loan made at the option of the Agency pursuant to the Loan Agreement. on any April I or October I on or after April I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Series 2006B Bonds on the date fixed for redemption): B-2 P6402. 1056\875 154.3 Redemption Dates Redemption Price April I. 20 and October I. 2() 10_`%0 April I. 20 and October I. 2() 10_ April I. 20 and thereafter 100 The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Series 2006B Bonds designated for redemption. at their respective addresses appearing on the registration books maintained by the Trustee. and by such means as acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the redemption date: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Series 2006B Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the serial numbers of each maturity or maturities (except that if the event of redemption is of all of the Series 2006B Bonds of such maturity or maturities in whole. the Trustee shall designate such maturities or the maturity in wvhoIe without referencing each individual number) of the Series 2006B Bonds to be redeemed. and shall require that such Series 2006B Bonds be then surrendered at the Trust Office for redemption at the redemption price. giving notice also that further interest on such Series 2006B Bonds will not accrue from and after the redemption date. Subject to the limitations and upon payment of the charges. if any. provided in the Indenture. this Series 2006B Bond may be exchanged at the Trust Office for a like aggregate Maturity Amount and maturity of fully registered Series 2006B Bonds of other authorized denominations. This Series 2006B Bond is transferable by the Registered Owner hereof. in person or by the Registered Owners attorney duly authorized in writing. at the Trust Office. but only in the manner. subject to the limitations and upon payment of the charges provided in the Indenture. and upon surrender and cancellation of this Series 2006B Bond. Upon such transfer a new fully registered Series 2006B Bond or Series 2006B Bonds. of authorized denomination or denominations. for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of an Series 2006B Bond during the 15- day period preceding the selection of Series 2006B Bonds for redemption or any Series 2006B Bond selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes. and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority and of the owners of the Series 2006B Bonds and of the Trustee may be modified or amended from time to time and at any time in the manner. to the extent. and upon the terms provided in the Indenture: provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Series 2006B Bond or othenyise alter or impair the obligation of the Authority to pay the principal. interest or premiums at the time and place and at the rate and in the currency provided therein of any Series 2006B Bond without the express written consent of the Owner of such Series 2006B Bond. (b) reduce the percentage of Series 2006B Bonds required for the written consent to any such amendment or modification. or (c) without its written consent thereto. modify any of the rights or obligations of the Trustee. all as more fully set forth in the Indenture. B-3 P6402. 1056\875 154.3 It is hereby certified that all things. conditions and acts required to exist. to have happened and to have been performed precedent to and in the issuance of this Series 2006B Bond do exist. have happened and have been performed in due time. form and manner as required by the Constitution and statutes of the State of California and by the Act and the amount of this Series 2006B Bond. together Nvith all other indebtedness of the Authority. does not exceed any limit prescribed by the Constitution or statutes of the State of California or by the Act. This Series 2006B Bond shall not be entitled to any benefit under the Indenture. or become valid or obligatory for any purpose. until the certificate of authentication hereon shall have been signed by the Trustee. IN WITNESS WHEREOF. the Authority has caused this Series 2006B Bond to be executed in its name and on its behalf by the manual or facsimile signatures of its President and Secretary all as of the Original Issue Date identified above. PALM DESERT FINANCING AUTHORITY By Attest: Secretary President STATEMENT OF INSURANCE Ito coma B-4 P6402. 10;6\875 154.3 (FORM OF TRUSTEES CERTIFICATE OF AUTHENTICATION' This is one of the Series 2006B Bonds described in the Nyithin-mentioned Indenture and registered on the Bond Registration Books. Date: WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Signatory (FORM OF ASSIGNMENT' For value received the undersigned do(es) hereby sell. assign and transfer unto Nyhose tax identification number is the Nyithin-mentioned registered Series 2006B Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee Nyith full pomer of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond Nyith the name(s) as Nyritten on the face of the Nyithin Series 2006B Bond in every particular Nyithout alteration or enlargement or any change Nyhatsoeyer. NOTE: Signature(s) must be guaranteed by a member of an institution Nyhich is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. B-5 P6402. I c )56\875 154.3 Project Area No. 3 Loan Agreement (2006 Senior Loans) Nyith reference to Palm Desert Financing Authority Tax Allocation Rcycnuc Bonds (Project Area No. 3) 2006 Series A Palm Desert Financing Authority Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 3) 2006 Series B P64 2.0I56\875167.3 RWG DRAFT: 5/24/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 2 Section I.I. Definitions 2 Section 1.2. Rules of Construction iS ARTICLE II THE LOANS: APPLICATION OF LOAN PROCEEDS: PARITY DEBT iS Section 2.1. Authorization Section 2.2. Disbursement and Application of Loan Proceeds Section 2.3. Repayment of Loans 6 Section 2.4. Optional Prepayment 7 Section 2.5. Reserve Fund 7 Section 2.6. Costs of Issuance Fund 8 Section 2.7. Project Fund 8 Section 2.8. Parity Debt 9 Section 2.9. Issuance of Subordinate Debt 10 Section 2.10. Validity of Loans 10 ARTICLE III PLEDGE AND APPLICATION OF TAX REVENUES 10 Section 3.1. Pledge of Tax Revenues 10 Section 3.2. Special Fund: Deposit of Tax Revenues 10 Section 3.3. Transfer of Tax Revenues From Special Fund 1 1 Section 3.4. Investment of Moneys: Valuation of Investments 1 1 ARTICLE IV OTHER COVENANTS OF THE AGENCY 12 Section 4.1. Punctual Payment: Extension of Payments 12 Section 4.2. Limitation on Additional Indebtedness 12 Section 4.3. Payment of Claims 12 Section 4.4. Books and Accounts: Financial Statements 12 Section 4.5. Protection of Security and Rights 13 Section 4.6. Payments of Taxes and Other Charges 13 Section 4.7. Taxation of Leased Property 13 Section 4.8. Disposition of Property 13 Section 4.9. Maintenance of Tax Revenues 13 Section 4.10. Payment of Expenses: Indemnification 14 Section 4.1 1. Tax Covenants 14 Section 4.12. Redevelopment of Project Area 15 Section 4.13. Low and Moderate Income Housing Fund 15 Section 4.14. Annual Review of Tax Revenues 15 Section 4.15. Further Assurances 16 ARTICLE V EVENTS OF DEFAULT AND REMEDIES 16 Section 5.1. Events of Default and Acceleration of Maturities 16 Section 5.2. Application of Funds Upon Default 17 Section 5.3. No Waiver 17 Section 5.4. Agreement to Pay Attorneys' Fees and Expenses 18 Section 5.5. Remedies Not Exclusive 18 Section 5.6. Control of Remedies by Insurer 18 ARTICLE VI MISCELLANEOUS 18 Section 6.1. Benefits Limited to Parties 18 Section 6.2. Successor is Deemed Included in All References to Predecessor 18 Section 6.3. Discharge of Loan Agreement 18 Section 6.4. Amendment 19 P64 2.0I56\875I67.3 Section 6.5. Waiver of Personal Liability 19 Section 6.6. Payment on Business Days 19 Section 6.7. Notices 19 Section 6.8. Surety Bond 19 Section 6.9. Partial Invalidity 19 Section 6. ID. Article and Section Headings and References 20 Section 6.11. Execution of Counterparts 20 Section 6.12. Governing Law 20 Section 6.13. The Trustee 20 EXHIBIT A — Schedule of Series 2006A Loan Payments EXHIBIT B — Schedule of Series 2006B Loan Payments P64 2.0I56\875167.3 11 PROJECT AREA NO. 3 LOAN AGREEMENT (2006 Senior Loans) This Project Area No. 3 Loan Agreement (2006 Senior Loans) (this "Loan Agreement) is made and entered into as of Jule I. 2006. by and among the Palm Desert Redevelopment Agency. a public body. corporate and politic. duly organized and validly existing under the laws of the State of California (the "Agency"). the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority"). and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America (the "Trustee"). Recitals A. The Agency is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers. all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 3 of the Agency (the "Project Area) has been duly approved and adopted by the City. C. The Agency has determined to incur two loans (the "Loans) hereunder for the object and purpose of assisting in the financing of public capital improvements and redevelopment activities for the benefit of the Project Area. pursuant to the Redevelopment Law and the Marks -Roos Local Bond Pooling Act of 1985. Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Bond Law"). D. Concurrently with the execution and delivery of this Loan Agreement. the Authority has issued its Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A. in the principal amount of $ and its Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B. in the initial principal amount of $ (together. the "Bonds"). pursuant to the Bond Law and an Indenture of Trust. dated as of July I. 2006 (the "Indentures). by and between the Authority and the Trustee. for the purpose of providing funds to make the Loans to the Agency. E. The Authority has determined that there will be significant public benefits accruing from such borrowing. consisting of demonstrable savings in effective interest rates and financing costs associated with the issuance of the Bonds pursuant to the Bond Law. F. The Agency and the Authority have determined that all acts and proceedings required by law necessary to make this Loan Agreement. when executed by the Agency. the Authority and Trustee. the valid. binding and legal obligation of the Agency and the Authority. and to constitute this Loan Agreement a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms. have been done and taken. and the execution and delivery of this Loan Agreement have been in all respects duly authorized. NOW. THEREFORE. in consideration of the premises and the mutual agreements herein contained. the parties hereto do hereby agree as follows: P64 2.0I56\875167.3 1 ARTICLE I DEFINITIONS Section I. I. Definitions. Unless the contest clearly requires or unless othenvise defined herein. the capitalized terms in this Loan Agreement shall have the respective meanings Nyhich such terms are given in the Indenture. In addition. the following terms defined in this Section I. I shall. for all purposes of this Loan Agreement. have the respective meanings herein specified. "Additional Reyenues- means. as of the date of calculation. the amount of Tax Revenues which. as shown in the Report of an Independent Redevelopment Consultant. arc estimated to be receivable bv the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to either (i) construction which has been completed but which is not then reflected on the tax rolls. or (ii) transfer of ownership or anv other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition. the term "increases in the assessed valuation means the amount by which the assessed valuation of taxable property in the Project Area is estimated to increase above the assessed valuation of taxable property in the Project Area (as reported by an appropriate official of the County) as of the date on which such calculation is made. "Bonds means the Series 2006A Bonds and the Series 2006B Bonds. "Costs of Issuance means all expenses incurred in connection with the authorization. issuance. sale and delivery of the Bonds and the making of the Loans pursuant to this Loan Agreement. including but not limited to all compensation. fees and expenses (including but not limited to fees and expenses for legal counsel) of the Authority and anv trustee. compensation to anv financial advisors or underwriters and their counsel. legal fees and expenses. filing and recording costs. rating agency fees. credit enhancement fees (including insurance. surety bonds and letters of credit). costs of preparation and reproduction of documents and costs of printing. "Costs of Issuance Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.6. "Event of Default means any of the events described in Section 5. I. "Indenture' means the Indenture of Trust dated as of July I. 2006. bv and between the Authority and the Trustee. authorizing the issuance of the Bonds. as may from time to time be supplemented. modified or amended. "Independent Redevelopment Consultant means anv consultant or firm of such consultants appointed by or acceptable to the Agency. and \who. or each of whom: (i) is judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the financing of redevelopment projects: (ii) is in fact independent and not under the domination of the Agency: (iii) does not have any substantial interest. direct or indirect. with the Agency. other than as original purchaser of any obligations of the Agency: and (iv) is not connected with the Agency as an officer or employee of the Agency. but Nwho may be regularly retained to make reports to the Agency. "Loans means the Series 2006A Loan and the Series 2006B Loan. "Loan Agreements means this Project Area No. 3 Loan Agreement (2006 Senior Loans). as may from time to time be amended. modified or supplemented. P64 2.0I56\875I67.3 2 "Maximum Annual Debt Service" means. as of the date of calculation. the largest amount obtained by totaling. for the current or any future Bond Year. the sum of (i) the amount of interest payable on the Loans and all outstanding Parity Debt in such Bond Year. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. and (ii) the amount of principal payable on the Loans and all outstanding Parity Debt in such Bond Year. including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation. there shall be excluded a pro rata portion of each installment of principal of any Parity Debt. together Nyith the interest to accrue thereon. in the event and to the extent that the proceeds of such Parity Debt are deposited in an escrow fund from Nvhich amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year. plus at the option of the Agency the Additional Revenues. meet the coverage test set forth in Section 2.8(b). "Parity Debt means the 2003 Loan and any other loans. bonds. notes. advances. or indebtedness payable from Tax Revenues on a parity Nyith the Loans. issued or incurred pursuant to and in accordance Nyith the provisions of Section 2.8. "Parity Debt Instrument"' means the 2003 Loan Agreement and any resolution. indenture of trust. trust agreement or other instrument authorizing the issuance of any Parity Debt. "Pass-Throutzh Agreements means. collectively. the agreements entered into or approved by the Agency on or prior to the date hereof pursuant to Section 33401 of the Redevelopment Law Nyith (i) the County of Riverside. (ii) the Coachella Valley Mosquito Abatement District. (iii) the Coachella Valley Recreation and Park District. (iv) the Coachella Valley Water District. (v) the Desert Community College District. (vi) the Desert Sands Unified School District and (yii) the Riverside County Superintendent of Schools. "Plan Limitations"' means the limitations contained or incorporated in the Redevelopment Plan on (i) the aggregate principal amount of bonded indebtedness payable from Tax Revenues Nyhich may be outstanding at any time. (ii) the aggregate amount of taxes Nyhich may be divided and allocated to the Agency pursuant to the Redevelopment Plan. and (iii) the period of time for establishing loans. advances and indebtedness payable from Tax Revenues. "Project Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.7. "Qualified Reserve Fund Credit Instrument"' means a surety bond issued by an insurance company and deposited Nyith the Trustee pursuant to Section 2.5. provided that all of the following requirements are met at the time of deposit Nyith the Trustee: (i) either (a) the claims paying ability of such insurance company is rated Nyithin the highest rating category by Moody's and S&P. and if rated by A.M. Best & Company. Nyithin the highest rating category by A.M. Best & Company. at the time of delivery of such surety bond or (b) the Authority shall cause to be filed Nyith the Trustee Nvritten evidence from Moody's and S&P that the delivery of such surety bond Nvill not. of itself. cause a reduction or Nvithdrawal of any rating then assigned to the Bonds: (ii) such surety bond has a term of at least 12 months: (iii) such surety bond has a stated amount at least equal to the portion of the Reserve Requirement Nyith respect to Nyhich funds are proposed to be released pursuant to Section 2.5: and (iv) the Trustee is authorized pursuant to the terms of such surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time with respect to deposits required pursuant to Section 3.3(a). "Redevelopment Fundy means the Project Area No. 3 Redevelopment Fund. heretofore established and held by the Agency. P64 2.0I56\875I67.3 3 "Redevelopment Proiect- means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area. "Reserve Fund' means the fund by that name held by the Trustee pursuant to Section 2.5. "Reserve Requirement. means the least of (i) Maximum Annual Debt Service. (ii) 125 percent of average annual debt service on the Loans and all outstanding Parity Debt. and (iii) I0 percent of the proceeds of the Loans (i.e.. the original Principal Amount of the Bonds) and of the proceeds of an Parity Debt. The amount of the Reserve Requirement on any date is subject to confirmation by the Authority to the Trustee upon the Trustees Nvritten request. At the Closing Date. the Reserve Requirement shall be $ "Series 2006A Bonds means the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3). 2006 Series A. "Series 2006A Loan means the loan made by the Authority to the Agency pursuant to Section 2. I (a) from the proceeds of the Series 2006A Bonds in the initial principal amount of "Series 2006B Bonds means the Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series B. "Series 2006B Loan means the loan made by the Authority to the Agency pursuant to Section 2.1(b) from the proceeds of the Series 2006B Bonds in the initial principal amount of "Special Fund" means the fund by that name held by the Agency pursuant to Section 3.2. "Subordinate Debt means any loans. advances or indebtedness issued or incurred by the Agency in accordance Nyith the requirements of Section 2.9. \yhich are either: (i) payable from. but not secured by a pledge of or lien upon. the Tax Revenues: or (ii) secured by a pledge of or Tien upon the Tax Revenues Nyhich is subordinate to the pledge of and lien upon the Tax Revenues hereunder for the security of the Loans and any Parity Debt. "Surety Bondy means the Qualified Reserve Fund Credit Instrument issued by the Insurer guaranteeing certain payments into the Reserve Fund as provided therein and subject to the limitations set forth therein. "Tax Rcycnucs- means that portion of the taxes levied upon taxable property in the Project Area allocated and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the California Constitution. exclusive of amounts placed into the Low and Moderate Income Housing Fund of the Agency pursuant to Sections 33334.2 and 33334.3 of the Redevelopment Law. and excluding amounts payable to affected taxing agencies pursuant to the Pass -Through Agreements or pursuant to Section 33607.5 or 33607.7 of the Redevelopment Lary. "2003 Loan means the loan made by the Authority to the Agency pursuant to the 2003 Loan Agreement. "2003 Loan Aareement- means the Project Area No. 3 Loan Agreement dated as of July I. 2003. by and among the Agency. the Authority and BNY Western Trust Company. as prior trustee (as succeeded by Wells Fargo Bank. National Association. as trustee). P64 2.0156\875167.3 4 Section I.2. Rules of Construction. All references herein to "Articles." "Sections" and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement. and the words "herein. "hereof. "hereunder- and other words of similar import refer to this Loan Agreement as a whole and not to any particular Article. Section or subdivision hereof. ARTICLE II THE LOANS: APPLICATION OF LOAN PROCEEDS: PARITY DEBT Section 2. I . Authorization. (a) The Authority hereby agrees to lend to the Agency. from the proceeds of the sale of the Series 2006A Bonds deposited in the Series 2006A Loan Fund established under the Indenture. the principal amount of $ under and subject to the terms of this Loan Agreement. the Bond Law and the Redevelopment Law. (b) The Authority hereby agrees to lend to the Agency. from the proceeds of the sale of the Series 2006B Bonds deposited in the Series 2006B Loan Fund established under the Indenture. the initial principal amount of $ under and subject to the terms of this Loan Agreement. the Bond Law and the Redevelopment Law. (c) This Loan Agreement constitutes a continuing agreement to secure the full and final payment of the Loans. subject to the covenants. agreements. provisions and conditions herein contained. Section 2.2. Disbursement and Application of Loan Proceeds. (a) On the Closing Date. the Authority shall cause to be deposited into the Series 2006A Loan Fund the amount of $ which shall be held by the Trustee and which shall be disbursed as follows: (i) The Trustee shall transfer the amount of 2006A Account of the Costs of Issuance Fund. (ii) The Trustee shall transfer the remaining amount of Project Fund. to the Series to the On the Closing Date. the Authority shall also cause the amount of and the amount of $ to be paid to the Insurer for the costs of a portion of the premiums for the Insurance Policy and the Surety Bond. The Trustee may. in its discretion. establish a temporary fund or account to facilitate or account for the foregoing transfers. (b) On the Closing Date. the Authority shall cause to be deposited into the Series 2006B Loan Fund the amount of $ which shall be held by the Trustee and which shall be disbursed as follows: (i) The Trustee shall transfer the amount of 2006B Account of the Costs of Issuance Fund. to the Series P64 2.0I56\875I67.3 5 (ii) The Trustee shall transfer the remaining amount of $ to the Project Fund. On the Closing Date. the Authority shall also cause the amount of and the amount of $ to be paid to the Insurer for the costs of a portion of the premiums for the Insurance Policy and the Surety Bond. The Trustcc may. in its discretion. establish a temporary fund or account to facilitate or account for the foregoing transfers. Section 2.3. Repayment of Loans. The Agency shall. subject to prepayment as provided in Section 2.4(a). repay the principal of the Series 2006A Loan in installments on April I in each of the years and in the amounts. and shall pay interest on the unpaid principal balance of the Series 2006A Loan due on each Interest Payment Date not later than the fifth Business Day preceding such Interest Payment Date in the amounts set forth in Exhibit A attached hereto and by this reference incorporated herein. Such interest shall accrue from the Closing Date. Any installment of principal or interest \yhich is not paid Nvhen due shall continue to accrue interest from and including the date on Nvhich such principal or interest is payable to but not including the date of actual payment. In the event any unpaid principal installments of the Series 2006A Loan shall be prepaid pursuant to Section 2.4(a). or in the event the Series 2006A Bonds shall be redeemed pursuant to Section 2.0 3(a)(I) of the Indenture. the schedule of principal installments set forth in Exhibit A hereto shall be reduced as directed by the Agency to the Trustee. The Agency shall. subject to prepayment as provided in Section 2.4(b). repay the Series 2006B Loan in installments on April I in each of the years and in the amounts set forth in Exhibit B attached hereto and by this reference incorporated herein. Interest on the Series 2006B Loan shall accrue in the same manner as the interest accrues on the Scrics 2006B Bonds pursuant to the Indenture. The installments payable on the Series 2006B Loan on each April I set forth in Exhibit B correspond Nyith the aggregate Maturity Amount of Series 2006B Bonds coming due and payable on such date. Any installment of the Series 2006B Loan Nyhich is not paid Nvhen due shall continue to accrue interest from and including the date on Nvhich such installment is payable to but not including the date of actual payment. In the event any unpaid installments of the Series 2006B Loan shall be prepaid pursuant to Section 2.4(b). or in the event the Series 2006B Bonds shall be redeemed pursuant to Section 2.03(b)( I) of the Indenture. the schedule of installments set forth in Exhibit B hereto shall be reduced as directed by the Agency to the Trustee. The obligation of the Agency to repay the Loans is. subject to Section 3.1. absolute and unconditional. and such payments shall not be subject to reduction Nvhether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party to anv agreement for any cause Nvhatsoeyer. Principal of and interest on the Loans shall be payable by the Agency to the Trustee. as assignee of the Authority under the Indenture in (awful money of the United States. Payment of such principal and interest shall be secured. and amounts for the payment thereof shall be deposited Nvith the Trustee at the times. as set forth in Article III. Notwithstanding the foregoing provisions of this Section 2.3. in lieu of payment of any installment of principal of the Loans coming due and payable on April I in anv year in Nvhich any Bonds are subject to mandatory sinking fund redemption. the Agency shall have the right to purchase any of such Bonds in an amount not exceeding the amount thereof which is subject to mandatory sinking fund redemption on such April I. and tender such Bonds for cancellation. provided that such tender shall be made before the preceding January 15. P64 2.0I56\875I67.3 6 Section 2.4. Optional Prepayment (a) The Agency shall have the right to prepay principal installments of the Series 2006A Loan. in any integral multiple of $5.000. such prepayment to be allocated among such principal installments as the Agency may determine upon Request to the Authority and the Trustee provided not less than 45 days prior to the prepayment date. on any date on Nvhich the Series 2006A Bonds are subject to redemption pursuant to Section 2.03(a)( I) of the Indenture. by depositing Nvith the Trustee an amount sufficient to redeem a like aggregate principal amount of Series 2006A Bonds together Nvith the amount of accrued interest and premium. if any. required to be paid upon such redemption. (b) The Agency shall have the right to prepay installments of the Series 2006B Loan on any date on Nvhich the Series 2006B Bonds are subject to redemption pursuant to Section 2.03(b)( I) of the Indenture and effect a corresponding redemption of the Series 2006B Bonds. Such prepayment shall be allocated among such installments of the Series 2006B Loan as the Agency may determine upon Request to the Authority and the Trustee provided not Tess than 45 days prior to the prepayment date: provided that such prepayment shall cause redemption of Series 2006 Bonds in integral multiples of $5.000 Maturity Amount. To effect such prepayment. the Agency shall deposit Nvith the Trustee no later than the redemption date an amount sufficient to redeem the called Series 2006B Bonds (which amount shall include the Accreted Value of the called Series 2006B Bonds as of the date of redemption and the applicable redemption premium. if any). (c) Before making anv prepayment pursuant to this Section. the Agency shall give Nvritten notice to the Authority and the Trustee describing such event and specifying the date on which the prepayment Nvill be paid and the order thereof. which date shall be not Tess than 45 days from the date such notice is given: provided. that notwithstanding anv such prepayment. the Agency shall not be relieved of its obligations with respect to a Loan hereunder. including specifically its obligations under this Article. until such Loan shall have been fully paid (or provision for payment thereof shall have been made pursuant to Section 6.3). (d) The Authority agrees that upon payment by the Agency to the Trustee of such amount. the Authority shall take or cause to be taken any and all steps required under the Indenture to redeem such Outstanding Bonds of the applicable series on the redemption date designated by the Agency: provided. however. that such date shall be a date of redemption of such Bonds. for which notice has been timely given pursuant to the Indenture. Section 2.5. Reserve Fund. Pursuant to the 2003 Loan Agreement. there has heretofore been established a fund known as the "Project Area No. 3 Reserve Fund. which shall continue to be held by the Trustee in trust for the benefit of the Authority and the Owners of the Bonds and the registered owners of all other bonds issued by the Authority in connection with any Parity Debt. The Agency hereby pledges and grants a lien and a security interest in the Reserve Fund to the Trustee in order to secure the Agency's payment obligations under Sections 2.3 and 3.3(a). The amount on deposit in the Reserve Fund shall be maintained at the Reserve Requirement at all times. except to the extent required for the purposes set forth in this Section. In the event that the Agency shall fail to deposit with the Trustee the full amount required to be deposited pursuant to Section 3.3(a) on or before the third Business Day preceding any Interest Payment Date. the Trustee shall Nvithdraw from the Reserve Fund and transfer to the Interest Account and the Principal Account. in such order. an amount equal to the difference between (i) the amount required to be deposited pursuant to Section 3.3(a) and (ii) the amount actually deposited by the Agency. In the event that the amount on deposit in the Reserve Fund shall at any time be Tess than the Reserve Requirement. the Trustee shall notify the Agency as soon as practicable of the amount required to be deposited therein P64 2.0I56\875I67.3 7 to restore the balance to the Reserve Requirement. such notice to be given by telephone. telefax or other form of telecommunications promptly confirmed in writing. and the Agency shall thereupon transfer to the Trustee the amount needed to restore the Reserve Fund to the Reserve Requirement. In the event that the amount on deposit in the Reserve Fund on the 15th calendar day preceding any Interest Payment Date (other than the final Interest Payment Date) — provided that the deposits required by Section 3.3(a) have been made — exceeds the Reserve Requirement. the Trustee shall withdraw from the Reserve Fund all amounts in excess of the Reserve Requirement and apply such amounts toward the prepayment of the Loans pursuant to Section 2.4 or the prepayment of any Parity Debt. unless the Trustee shall have received prior Request of the Agency to pay such amounts to the Agency to be used for any lawful purpose relating to the Project Area. as specified in such Request of the Agency. Notwithstanding the foregoing provisions of this paragraph. however. no amounts shall be withdrawn from the Reserve Fund and transferred to the Agency pursuant to this paragraph during any period in which an Event of Default shall have occurred and be continuing hereunder. With the written consent of the Insurer (as long as the Insurance Policy is in full force and effect) and of the insurer of any Parity Debt (as long as the policy insuring such Parity Debt is in full force and effect). the Reserve Requirement may be satisfied by crediting to the Reserve Fund moneys or a Qualified Reserve Fund Credit Instrument or any combination thereof. which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement. Upon the deposit with the Trustee of such Qualified Reserve Fund Credit Instrument. the Trustee shall release moneys then on hand in the Reserve Fund to the Agency. to be used for any lawful purpose relating to the Project Area. in an amount equal to the face amount of the Qualified Reserve Fund Credit Instrument. If at any time the amount on deposit in. or credited to. the Reserve Fund includes both cash and the Surety Bond. any draw on the Surety Bond shall be made only after all cash in the Reserve Fund has been expended. If at any time the amount credited to the Reserve Fund includes the Surety Bond and one or more other Qualified Reserve Fund Credit Instruments issued by entities other than the issuer of the Surety Bond. any draw on the Surety Bond shall be made on a pro rata basis with draws on such other Qualified Reserve Fund Credit Instruments. based on the relative amounts of debt service covered by the Surety Bond and the debt service covered by such other Qualified Reserve Fund Credit Instruments in such Fiscal Year. Section 2.6. Costs of Issuance Fund. There is hereby established a fiend to be held by the Trustee known as the "Costs of Issuance Fundy and two accounts therein known as the "Series 2006A Account and the "Series 2006B Account." A portion of the proceeds of the Series 2006A Loan shall be deposited in the Series 2006A Account pursuant to Section 2.2(a). A portion of the proceeds of the Series 2006B Loan shall be deposited in the Series 2006B Account pursuant to Section 2.2(b). The moneys in each account of the Costs of Issuance Fund shall be used to pay Costs of Issuance of the related series of Bonds from time to time upon receipt of a Request of the Agency. On the 90th day after the Closing Date (or the first Business Day thereafter). or upon the earlier receipt by the Trustee of a Request of the Agency stating that all Costs of Issuance have been paid. the Trustee shall transfer all remaining amounts in the accounts of the Costs of Issuance Fund to the Revenue Fund. Section 2.7. Proiect Fund. There is hereby established a fund to be known as the "Project Fundy. which shall be held and maintained by the Trustee. Amounts on deposit in such fund shall be derived solely from the portion of the proceeds of the Loans transferred thereto and from earnings on the investment of amounts therein. Except as provided in this Section. the moneys set aside and placed in the Project Fund shall remain therein until expended from time to time for the purpose of paying any portion of the costs of P64 2.0I56\875I67.3 8 the Redevelopment Project. and other costs related thereto. Nyhich other costs may include. but are not limited to. (a) the cost of improvements and other costs \yhich may not benefit the Redevelopment Project exclusively but \yhich are necessary to the redevelopment of the Project Area and the disposition of land therein: (b) the repayment of any advances made by the City for the Redevelopment Project: and (c) to the extent not paid from the Costs of Issuance Fund. the necessary expenses in connection Nyith the issuance and sale of the Bonds. Before any payment of money is made from the Project Fund. the Agency shall file Nyith the Trustee a Request of the Agency showing with respect to each payment of money to be made: (a) the name and address of the person to whom payment is due: (b) the amount of money to be paid: (c) the purpose for which the obligation to be paid was incurred: and (d) that such amount has not been paid previously for such purpose from the Project Fund. Each such Request of the Agency shall state and shall be sufficient evidence to the Trustee: (i) that an obligation in the stated amount has been properly incurred under and pursuant to this Loan Agreement and that such obligation is a proper charge against the Project Fund: and (ii) that there has not been filed with or served upon the Agency a stop notice or any other notice of any Tien. right to lien or attachment upon. or claim affecting the right to receive payment of. any of the money payable to the person named in such Request of the Agency which has not been released or \\ill not be released simultaneously with the payment of such obligation. other than liens accruing by mere operation of law. Upon receipt of each such Request of the Agency. the Trustee shall pay the amount set forth in such Request of the Agency as directed by the terms thereof within three Business Days. If any moneys deposited in the Project Fund remain therein after the full accomplishment of the objects and purposes for which the Loans \sere made. said moneys shall be transferred to the Special Fund. Section 2.8. Parity Debt. From time to time. the Agency may issue or incur additional Parity Debt in such principal amount as shall be determined by the Agency. subject to the following specific conditions which are hereby made conditions precedent to the issuance and delivery of such Parity Debt issued under this Section 2.8: (a) No Event of Default shall have occurred and be continuing. and the Agency shall othenyise be in compliance with all covenants set forth in this Loan Agreement. (b) The amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Agency. based on assessed valuation of property in the Project Area as evidenced in the Nvritten records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to (i) 150 percent of Maximum Annual Debt Service so long as the assessed value of property within the Project Area is Tess than $ 360.000.000. (ii) 135 percent of Maximum Annual Debt Service so P64 2.0I56\875I67.3 9 Tong as the assessed value of property Nyithin the Project Area is equal to or greater than $ 360.000.000 and Tess than $ 395.000.000. and (iii) 125 percent of Maximum Annual Debt Service so Tong as the assessed value of property Nyithin the Project Area is equal to or greater than $ 395.000.000. (c) The related Parity Debt Instrument shall provide that the balance of the Reserve Fund shall be increased to the new Reserve Requirement effective after the incurrence of such Parity Debt. (d) The related Parity Debt Instrument shall provide that: (I) With respect to any Parity Debt \yhich bears current interest. interest on such Parity Debt shall not be payable on a date other than April I and October I of any year. and (2) The principal of such Parity Debt shall not be payable on any date other than the date on Nyhich principal of the Loans is payable. (e) The issuance of such Parity Debt shall not cause the Agency to exceed any applicable Plan Limitations. (f) The Agency shall deliver to the Trustee a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in Paragraphs (a) through (c) above have been satisfied. Section 2.9. Issuance of Subordinate Debt. In addition to the Loans and any Parity Debt. from time to time the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency. provided that the issuance of such Subordinate Debt shall not cause the Agency to exceed any applicable Plan Limitations. Section 2.10. Validity of Loans. The validity of the Loans shall not be dependent upon the completion of the Redevelopment Project or upon the performance by any person of any obligation Nyith respect to the Redevelopment Project. ARTICLE III PLEDGE AND APPLICATION OF TAX REVENUES Section 3. I. Pledize of Tax Revenues. The Loans and all Parity Debt shall be equally secured by a first pledge of and lien on all of the Tax Revenues and all of the moneys on deposit in the Special Fund. Nyithout preference or priority for series. issue. number. dated date. sale date. date of execution or date of deliver Except for the Tax Revenues and other funds pledged hereunder. no funds or properties of the Agency shall be pledged to. or otherwise liable for. the payment of principal of or interest on or prepayment premium. if any. on the Loans. Section 3.2. Special Fund: Deposit of Tax Revenues. The Agency has heretofore established a special fund known as the "Special Fund." which is and shall continue to be held by the Agency as a separate fund apart from all other funds and accounts of the Agency. The Agency shall deposit all Tax Revenues in the Special Fund promptly upon the receipt thereof. Except as may be otherwise provided in anv Parity Debt Instrument. anv Tax Revenues received during the Bond Year in excess of amounts required to be transferred to the Trustee pursuant to Section 3.3 shall be released from the pledge and lien hereunder and may be used for any lawful purposes of the Agency. Prior to the payment in full of the principal of and interest and prepayment premium. if any. on the Loans and all P6402.0 156\875167.3 10 Parity Debt and the payment in full of all other amounts payable hereunder and under any Parity Debt Instrument. the Agency shall not have any beneficial right or interest in the moneys on deposit in the Special Fund. except only as provided in this Loan Agreement and any Parity Debt Instrument. and such moneys shall be used and applied as set forth herein and in any Parity Debt Instrument. Section 3.3. Transfer of Tax Revenues From Special Fund. In addition to the transfers required to be made pursuant to any Parity Debt Instrument. the Agency shall Nvithdraw from the Special Fund and transfer to the Trustee the following amounts at the following times and in the following order of priority: (a) Interest and Principal Deposits. No later than the fifth Business Day preceding each date on \yhich the principal of or interest on the Loans or any Parity Debt shall become due and payable. including but not limited to the principal amounts of the Loans to be prepaid hereunder together Nyith any prepayment premium thereon. the Agency shall Nvithdraw from the Special Fund and transfer to the Trustee an amount Nvhich. together Nyith the amounts then held on deposit in the Interest Account. the Principal Account and the Rcycnuc Fund. is equal to the aggregate amount of such principal. interest and prepayment premium. (b) Reserve Fund Deposits. In the event that the Trustee shall notify the Agency pursuant to Section 2.5 that the amount on deposit in the Reserve Fund is Tess than the Reserve Requirement. the Agency shall immediately Nvithdraw from the Special Fund and transfer to the Tnistcc for deposit in the Reserve Fund an amount of money necessary to maintain the Reserve Requirement in the Reserve Fund (including repayment of any draw made under a Qualified Reserve Fund Credit Instrument. including the Surety Bond. prior to replenishing any cash in the Reserve Fund). (c) Surplus. Except as may be otherwise provided in any Parity Debt Instrument. the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Tax Revenues which. together with other available amounts in the Special Fund. exceeds the amounts required in such Bond Year pursuant to this Section 3.3. All Tax Revenues which are received by the Agency during any Bond Year in excess of the amounts required to be deposited in the Special Fund in such Bond Year shall be released from the pledge thereof and lien thereon which is established pursuant hereto. In the event that for any reason Nvhatsoever any amounts shall remain on deposit in the Special Fund on any April 2 after making all of the transfers theretofore required to be made pursuant to the preceding Paragraphs (a) and (b) and pursuant to any Parity Debt Instrument. the Agency may Nvithdraw such amounts from the Special Fund. to be used for any lawful purposes of the Agency. including but not limited to the payment of any Subordinate Debt or the payment of any amounts due and owing to the United States pursuant to Section 4.1 I. Section 3.4. Investment of Moneys: Valuation of Investments. Subject to Section 4.03 of the Indenture. all moneys in the Special Fund. the Project Fund. the Reserve Fund and the Costs of Issuance Fund shall be invested in Permitted Investments. Absent any prior «ritten instruction from the Agency or the Authority. moneys in any fund held by the Trustee hereunder or under the Indenture shall be invested in Permitted Investments described in clause D of the definition thereof. Obligations purchased as an investment of moneys in any fund or account established hereunder shall be credited to and deemed to be part of such fund or account. The Agency or the Trustee. as the case may be. may commingle any amounts in any of the funds and accounts held hereunder with any other amounts held by the Agency or the Trustee for purposes of making any investment: provided that the Agency and the Trustee shall maintain separate accounting procedures for the investment of all funds and accounts held hereunder. All interest. profits and other income received from the investment of moneys in any fund or account established hereunder shall be credited to such fund or account. Notwithstanding anything to the contrary contained in this Section. an amount of interest received with respect to any investment equal to P6402.0 156\875167.3 11 the amount of accrued interest. if any. paid as part of the purchase price of such investment shall be credited to the fund or account from which such accrued interest was paid. For the purpose of determining the amount in any fund or account established hereunder. any investments credited to such fund shall be valued at least annually at the market value thereof. ARTICLE IV OTHER COVENANTS OF THE AGENCY Section 4. I. Punctual Payment: Extension of Payments. The Agency shall punctually pay or cause to be paid the principal of and interest and prepayment premium. if any. on the Loans in strict conformity with the terms of this Loan Agreement. and it will faithfully observe and perform all of the conditions. covenants and requirements of this Loan Agreement. The Agency shall not directly or indirectly extend or assent to the extension of the maturity of any installment of principal of or interest or prepayment premium. if any. on the Loans. and in case the principal of or interest or premium. if any. on the Loans or the time of payment of any such claims therefor shall be extended. such principal. interest. premium or claims for interest shall not be entitled. in case of any Event of Default hereunder. to the benefits of this Loan Agreement except for payment of all amounts which shall not have been so extended. Section 4.2. Limitation on Additional Indebtedness. The Agency hereby covenants that it shall not issue any bonds. notes or other obligations. enter into any agreement or otherwise incur any indebtedness. which is in any case payable from all or any part of the Tax Revenues. excepting only the Loans. any Parity Debt. and any Subordinate Debt. and any other obligations permitted by this Loan Agreement. Section 4.3. Payment of Claims. The Agency shall pay and discharge. or cause to be paid and discharged. any and all lawful claims for labor. materials or supplies which. if unpaid. might become a lien or charge upon the properties owned by the Agency or upon the Tax Revenues or any part thereof. or upon any funds in the hands of the Trustee. or which might impair the security of the Loans. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims. Section 4.4. Books and Accounts: Financial Statements. The Agency shall keep. or cause to be kept. proper books of record and accounts. separate from all other records and accounts of the Agency and the City. in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project. the Tax Revenues. the Special Fund. the Reserve Fund. the Low and Moderate Income Housing Fund and the Redevelopment Fund. Such books of record and accounts shall at all times during business hours be subject. upon prior written request. to the reasonable inspection of the Authority. the Trustee and the Owners of not less than ten percent in aggregate Principal Amount of a series of Bonds then Outstanding. or their representatives authorized in writing. The Agency will cause to be prepared annually. within 180 days after the close of each Fiscal Year so long as any of the Bonds are Outstanding. complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues. all disbursements from the Special Fund and the Redevelopment Fund and the financial condition of the Redevelopment Project. including the balances in all funds and accounts relating to the Redevelopment Project. as of the end of such Fiscal Year. The Agency \ III furnish a copy of such statements. upon reasonable request. to any Owner. P6402.0 156\875167.3 12 Section 4.5. Protection of Security and Rights. The Agency Nvill preserve and protect the security of the Loans and the rights of the Trustee and the Owners Nyith respect to the Loans. From and after the Closing Date. the Loans shall be incontestable by the Agency. The Loans and the provisions of this Loan Agreement are and \\ill be the legal. valid and binding special obligations of the Agency enforceable in accordance Nyith their terms. and the Agency shall at all times. to the extent permitted by lacy. defend. preserve and protect all the rights of the Authority. the Trustee and the Owners under this Loan Agreement against all claims and demands of all persons Nyhomsoeyer. The Agency's obligations to the Trustee under this Section 4.5 shall survive the payment of the Bonds and the discharge of the Indenture. the removal or resignation of the Tnistcc pursuant to the Indenture or the payment of the Loans and the discharge of this Loan Agreement. Section 4.6. Payments of Taxes and Other Charzes. The Agency Nyill pay and discharge. or cause to be paid and discharged. all taxes. service charges. assessments and other governmental charges Nyhich may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area \yhen the same shall become due. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of such taxes. assessments or charges. The Agency \\ill duly observe and comply Nyith all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof. Section 4.7. Taxation of Leased Property. All ad valorem property taxes derived by the Agency pursuant to Section 33673 of the Redevelopment Law Nyith respect to the lease of property for redevelopment shall be treated as Tax Revenues for all purposes of this Loan Agreement. and shall be deposited by the Agency in the Special Fund promptly upon receipt. Section 4.8. Disposition of Property. The Agency \\ill not participate in the disposition of any land or real property in the Project Area to anyone Nyhich \\ill result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of this Loan Agreement) so that such disposition shall. Nyhen taken together Nyith other such dispositions. aggregate more than ten percent of the land area in the Project Area unless such disposition is permitted as hereinafter provided in this Section. If the Agency proposes to participate in such a disposition. it shall thereupon appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the Report of the Independent Redevelopment Consultant concludes that the security of the Loans or the rights of the Authority. the Owners and the Trustee hereunder \\ill not be materially impaired by said proposed disposition. the Agency may thereafter make such disposition. If such Report concludes that such security Nyill be materially impaired by such proposed disposition. the Agency shall disapprove said proposed disposition. Section 4.9. Maintenance of Tax Revenues. The Agency shall comply Nyith all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues. including Nyithout limitation the timely filing of any necessary statements of indebtedness Nyith appropriate officials of the County and (in the case of supplemental revenues and other amounts payable by the State) appropriate officials of the State. The Agency shall not amend the Redevelopment Plan (except for the purpose of extending or eliminating the time limit on the establishment of loans. advances. and indebtedness. extending the time limit on the effectiveness of the Redevelopment Plan. extending the time limit on the payment of indebtedness. extending the time limit for the receipt of tax increment. or increasing the limitation on the number of dollars of taxes to be allocated to the Agency) or any of the Pass -Through Agreements. or enter into any agreement Nyith the County or any other governmental unit. Nyhich Nyould have the effect of reducing the amount of Tax Revenues available to the Agency for payment of the Loans. unless the Agency shall first obtain (i) the Report of an Independent Redevelopment Consultant stating that the amount of Tax Revenues for the then current Fiscal Year P6402.0 156\875167.3 13 (calculated on the assumption that such reduction of Tax Revenues was in effect throughout such Fiscal Year). plus at the option of the Agency the Additional Revenues. shall meet the coverage test set forth in Section 2.8(b) and (ii). as long as the Insurance Policy is in full force and effect. the Nvritten consent of the Insurer. Nothing herein is intended or shall be construed in any Nvay to prohibit or impose any limitations on the entering into by the Agency of any such agreement. amendment or supplement Nyhich by its term is subordinate to the payment of the Loans and all Parity Debt. Section 4. ID. Payment of Expenses: Indemnification. The Agency shall pay to the Trustee from time to time all compensation for all services rendered under this Loan Agreement and the Indenture. including but not limited to all reasonable expenses. charges. legal and consulting fees and other disbursements and those of its attorneys. agents and employees. incurred in and about the performance of its powers and duties hereunder and thereunder. Upon the occurrence of an Event of Default. the Trustcc shall have a first Tien on the funds held by it under the Indenture to secure the payment to the Trustee of all fees. costs and expenses. including reasonable compensation to its experts. attorneys and counsel (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel) incurred in performing its duties under the Indenture and this Loan Agreement. The Agency further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any losses. expenses and liabilities Nyhich it may incur arising out of or in the exercise and performance of its powers and duties in accordance Nyith the Indenture and this Loan Agreement. including the costs and expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities Nyhich are due to the negligence or intentional misconduct of the Trustee. its officers. directors. agents or employees. The obligations of the Agency under this paragraph shall survive the resignation or removal of the Trustee under the Indenture. this Loan Agreement and payment of the Loans and the discharge of this Loan Agreement. Section 4. I I. Tax Covenants. (a) The Agency covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the interest on the Bonds. and for no other purpose. the Agency Nvill satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Agency agrees to comply Nyith such «rittcn instructions as may be provided by Bond Counsel. (b) The Agency covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nvould cause the Bonds to become arbitrage bonds as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nyith the rebate requirements of Section 148 of the Code. the Agency further covenants that it Nvill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section I48(f) of the Code. and that it Nvill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nyith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Agency covenants that it Nvill not take any action or omit to take any action. Nyhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nvould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. P6402.0 156\875167.3 14 (d) The Agency covenants that it not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as Nvould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. (e) Except as provided below. the Agency covenants that none of the moneys contained in any of the funds or accounts Nyith respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested directly or indirectly in obligations guaranteed (in NyhoIe or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Revenue Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 I I (a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under the Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 4.12. Redevelopment of Proiect Area. The Agency shall ensure that all activities undertaken by the Agency Nyith respect to the redevelopment of the Project Area are undertaken and accomplished in conformity Nyith all applicable requirements of the Redevelopment Plan and the Redevelopment Lary. The Agency shall manage and operate all properties oNyned by the Agency and comprising any part of the Redevelopment Project in a sound and business -like manner and in conformity with all valid requirements of any governmental authority. and Nyill keep such properties insured at all times in conformity with sound business practice. Section 4.1 3. Low and Moderate Income Housing Fund. The Agency covenants and agrees to use the moneys in the Low and Moderate Income Housing Fund in accordance Nyith Sections 33334.2 and 33334.3 of the Redevelopment Law. and further covenants and agrees to disburse. expend or encumber any "excess surplus" (as defined in Section 33334.12 of the Redevelopment Lary) in the Low and Moderate Income Housing Fund at such times and in such manner that the Agency shall not be subject to sanctions pursuant to subdivision (c) of said Section 3334.12. Section 4.14. Annual Review of Tax Revenues. The Agency hereby covenants that it will annually cause an Independent Redevelopment Consultant to review the total amount of Tax Revenues remaining available to be received by the Agency under the Redevelopment Plans cumulative tax increment limitation. as \yell as future cumulative annual debt service with respect to the Loans and all Parity Debt. The Agency Nyill not accept Tax Revenues greater than such annual debt service in any year. if such acceptance Nyill cause the amount remaining under the tax increment limit to fall below remaining cumulative annual debt service with respect to the Loans and all Parity Debt. except for the purpose of depositing such revenues in escrow for the payment of such debt service or for the prepayment or redemption of the Loans or any Parity Debt. Once it is determined that Tax Revenues available to be received by the Agency under the aforementioned tax increment limitation in an upcoming year «iII not exceed I I0 percent of aggregate remaining debt service on the Loans and all outstanding Parity Debt. the Agency shall escrow all current and future Tax Revenues and use such amounts solely for the purpose of paying (or prepaying) debt service on the Loans and all Parity Debt. P6402.0 156\875167.3 15 Section 4. 15. Further Assurances. The Agency NViII adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Loan Agreement and for the better assuring and confirming unto the Trustee. the Authority and the Owners of the Bonds of the rights and benefits provided in this Loan Agreement. ARTICLE V EVENTS OF DEFAULT AND REMEDIES Section 5. I. Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default hereunder: (a) Failure by the Agency to pay the principal of or interest or prepayment premium. if any. on the Loans or any Parity Debt when and as the same shall become due and payable. (b) Failure by the Agency to observe and perform any of the covenants. agreements or conditions on its part contained in this Loan Agreement. other than as referred to in the preceding Paragraph (a). for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the Agency by the Trustee: provided. however. that if the failure stated in such notice can be corrected. but not within such 30 day period. such failure shall not constitute an Event of Default if corrective action is instituted by the Agency within such 30 day period and thereafter is diligently pursued until such failure is corrected. (c) The filing by the Agency of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America. or if a court of competent jurisdiction shall approve a petition. filed with or without the consent of the Agency. seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America. or if. under the provisions of any other law for the relief or aid of debtors. any court of competent jurisdiction shall assume custody or control of the Agency or of the whole or any substantial part of its property. If an Event of Default has occurred and is continuing. the Authority or the Trustee may. and at the written direction of the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds the Authority or the Trustee shall. (i) declare the principal of the Loans. together with the accrued interest on all unpaid installments thereof. to be due and payable immediately. and upon any such declaration the same shall become immediately due and payable. anything in this Loan Agreement to the contrary notwithstanding. and (ii) subject to the receipt of indemnity as provided in the Indenture. exercise any other remedies available to the Trustee at law or in equity. Immediately upon becoming aware of the occurrence of an Event of Default. the Authority. or the Trustee as assignee of the Authority. shall give notice of such Event of Default to the Agency by telephone. telecopier or other telecommunication device. promptly confirmed in writing. This provision. however. is subject to the condition that if. at any time after the principal of the Loans shall have been so declared due and payable. and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the Agency shall deposit with the Trustee a sum sufficient to pay all installments of principal of the Loans matured prior to such declaration and all accrued interest thereon. with interest on such overdue installments of principal and interest at the net effective rate then borne by the Outstanding Bonds. and the reasonable expenses of the Trustee (including but not limited to attorneys fees). and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Loans due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in P6402.0 156\875167.3 16 every such case. the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds may. by Nvritten notice to the Trustee and the Agency. rescind and annul such declaration and its consequences. However. no such rescission and annulment shall extend to or shall affect any subsequent default. or shall impair or exhaust any right or power consequent thereon. Section 5.2. Application of Funds Upon Default. All amounts recek ed by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Loan Agreement. shall be applied by the Trustee in the following order: First. to the payment of the fees. costs and expenses of the Trustee. including reasonable compensation to its agents. attorneys and counsel (including the allocated costs and disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and Second. to the payment of the Nvhole amount of interest on and principal of the Loans then due and unpaid. Nvith interest on overdue installments of principal. and such interest to the extent permitted by lacy at the net effective rate of interest then borne by the Outstanding Bonds: provided. however. that in the CA ent such amounts shall be insufficient to pay in full the full amount of such interest and principal. then such amounts shall be applied in the following order of priority: (i) first. to the payment of all installments of interest on the Loans then due and unpaid. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. (ii) second. to the payment of all installments of principal of the Loans then due and payable. on a pro rata basis in the event that the available amounts are installments of principal in full. and (iii) third. to the payment of interest on overdue installments of principal and interest. on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. Section 5.3. No Waiver. Nothing in this Article V or in any other provision of this Loan Agreement. shall affect or impair the obligation of the Agency. which is absolute and unconditional. to pay from the Tax Revenues and other amounts pledged hereunder. the principal of and interest and premium. if any. on the Loans to the Trustee when due. as herein provided. or affect or impair the right of action. which is also absolute and unconditional. of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in this Loan Agreement. A waiver of any default by the Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein. and every power and remedy conferred upon the Trustee by the Redevelopment Law or by this Article V may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee. If a suit. action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Trustee. the Agency. the Authority and the Trustee shall be restored to their former positions. rights and remedies as if such suit. action or proceeding had not been brought or taken. P6402.0 156\875167.3 17 Section 5.4. Agreement to Pay Attorneys" Fees and Expenses. In the event the Agency or the Authority should default under any of the provisions hereof and the nondefaulting party or the Trustee should employ attorneys or incur other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained. the defaulting party agrees that it NyiII on demand therefor pay to the nondcfaulting party or the Trustcc. as the case may be. the reasonable fees of such attorneys and such other expenses so incurred (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). Section 5.5. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustcc is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing. at lacy or in equity or by statute or otherwise. and may be exercised Nyithout exhausting and Nyithout regard to any other remedy conferred by the Redevelopment Law or any other lacy. Section 5.6. Control of Remedies by Insurer. Notwithstanding the provisions of Section 5. I and subject to any rights heretofore granted by the Authority or the Agency to any insurer of Parity Debt. as Tong as Insurance Policy is in full force and effect and the Insurer has not defaulted Nyith respect to its payment obligations thereunder. upon the occurrence and continuance of an Event of Default. the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Owners or the Trustee for the benefit of the Owners under this Loan Agreement. Any acceleration of the Loans or annulment thereof pursuant to Section 5. I shall be subject to the prior Nyritten consent of the Insurer. No Nyaiyer of a default shall be effective Nyithout the «rittcn consent of the Insurer. ARTICLE VI MISCELLANEOUS Section 6. I. Benefits Limited to Parties. Nothing in this Loan Agreement. expressed or implied. is intended to give to any person other than the Agency. the Tnistcc. the Insurer and the Authority. any right. remedy or claim under or by reason of this Loan Agreement. All covenants. stipulations. promises or agreements in this Loan Agreement contained by and on behalf of the Agency shall be for the sole and exclusive benefit of the Authority. the Trustee acting as trustee for the benefit of the Owners of the Bonds. and the Insurer so Tong as the Insurance Policy remains in full force and effect. Section 6.2. Successor is Deemed Included in All References to Predecessor. Whenever in this Loan Agreement. the Agency. the Authority. the Trustee or the Insurer is named or referred to. such reference shall be deemed to include the successors or assigns thereof. and all the covenants and agreements in this Loan Agreement contained by or on behalf of the Agency. the Authority. the Trustee or the Insurer shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 6.3. Discharne of Loan Agreement. If the Agency shall pay and discharge the indebtedness on the Loans or any portion thereof in any one or more of the following \Nays: (a) by \yell and truly paying or causing to be paid the principal of and interest and prepayment premiums. if any. on the Loans or such portion thereof. as and \yhen the same become due and payable: (b) by irrevocably depositing Nyith the Trustee. in trust. at or before maturity. cash in an amount Nyhich. together Nyith the available amounts then on deposit in any of the funds and accounts P6402.0 156\875167.3 18 established pursuant to the Indenture or this Loan Agreement. in the opinion or report of an Independent Accountant is fully sufficient to pay all principal of and interest and prepayment premiums. if any. on the Loans or such portion thereof: or (c) by irrevocably depositing Nyith the Trustee or any other fiduciary. in trust. non - callable Defeasance Obligations in such amount as an Independent Accountant shall determine \yill. together Nyith the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or this Loan Agreement. be fully sufficient to pay and discharge the indebtedness on the Loans or such portion thereof (including all principal. interest and prepayment premiums) at or before maturity: then. at the election of the Agency but only if all other amounts then due and payable hereunder shall have been paid or provision for their payment made. the pledge of and Tien upon the Tax Revenues and other funds provided for in this Loan Agreement and all other obligations of the Trustee. the Authority and the Agency under this Loan Agreement Nvith respect to the Loans or such portion thereof shall cease and terminate. except only the obligation of the Agency to pay or cause to be paid to the Trustee. from the amounts so deposited Nyith the Trustee or such other fiduciary. all sums due Nyith respect to the Loans or such portion thereof. and to pay all expenses and costs of the Trustee NVhcn and as such expenses and costs become due and payable. Notice of such election shall be filed Nyith the Authority and the Trustee. Any funds thereafter held by the Trustee hereunder. Nyhich are not required for said purpose. shall be paid over to the Agency. Section 6.4. Amendment. This Loan Agreement may be amended by the parties hereto but only under the circumstances set forth in. and in accordance Nyith. the provisions of Section 5.08 of the Indenture. The Authority and the Trustee covenant that the Indenture shall not be amended. nor shall the Authority agree or consent to any amendment of the Indenture. Nyithout the prior Nvritten consent of the Agency (except that such consent shall not be required in the event that an Event of Default shall have occurred and be continuing hereunder). Section 6.5. Waiver of Personal Liability. No member. officer. agent or employee of the Agency shall be individually or personally liable for the payment of the principal of or interest on the Loans: but nothing herein contained shall relieve any such member. officer. agent or employee from the performance of any official duty provided by law. Section 6.6. Payment on Business Days. Whenever in this Loan Agreement any amount is required to be paid on a day Nyhich is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest on such payment shall not accrue from and after such day. Section 6.7. Notices. Any notice. request. complaint. demand or other communication under this Loan Agreement shall be given in the same manner as provided in Section 11.13 of the Indenture. Nyhich is hereby incorporated. Section 6.8. Surety Bond. Ito coma Section 6.9. Partial Invalidity . If any Section. paragraph. sentence. clause or phrase of this Loan Agreement shall for any reason be held illegal. invalid or unenforceable. such holding shall not affect the validity of the remaining portions of this Loan Agreement. The Agency hereby declares that it Nyould have adopted this Loan Agreement and each and every other Section. paragraph. sentence. clause or phrase hereof and authorized the Loans irrespective of the fact that any one or more Sections. P6402.0 156\875167.3 19 paragraphs. sentences. clauses. or phrases of this Loan Agreement may be held illegal. invalid or unenforceable. Section 6.10. Article and Section Headings and References. The headings or titles of the several Articles and Sections hereof. and any table of contents appended to copies hereof. shall be solely for convenience of reference and shall not affect the meaning. construction or cffcct of this Loan Agreement. All references herein to "Articles."' "Sections and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement: the words "herein. "hereof. - "hereby.- "hereunder- and other words of similar import refer to this Loan Agreement as a «hole and not to any particular Article. Section or subdivision hereof: and words of the masculine gender shall mean and include words of the feminine and neuter genders. Section 6. 11. Execution of Counterparts. This Loan Agrccmcnt may be executed in any number of counterparts. each of which shall for all purposes be deemed to be an original and all of which shall together constitute but one and the same instrument. Section 6.12. Governing, Law. This Loan Agreement shall be construed and governed in accordance with the laws of the State. Section 6.1 3. The Trustee. The Trustee is entering into this Loan Agreement solely in its capacity as Trustee under the Indenture and all provisions of the Indenture relating to the rights. privileges. powers and protections of the Trustee shall apply with equal force and effect to all actions taken by the Trustee in connection with this Loan Agreement. The Trustee shall be responsible only for the duties of the Trustee expressly set forth herein. Mom -tinder of I'Uge Intentionally Leff /3lailk f P64 2.0I 56\875167. i 20 IN WITNESS WHEREOF. the AGENCY. the AUTHORITY and the TRUSTEE have caused this Loan Agreement to be signed by their respective officers. all as of the day and year first above «ritten. PALM DESERT REDEVELOPMENT AGENCY By Executive Director PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Officer P6402.0 156\875167.3 21 EXHIBIT A SCHEDULE OF SERIES 2006A LOAN PAYMENTS' Date Principal Interest Total * Payable semiannually on the fifth Business Day preceding each Interest Payment Date P64 2.0I56\875167.3 A-1 EXHIBIT B SCHEDULE OF SERIES 2006B LOAN PAYMENTS Date Total Pa\ meat * Payable on the fifth Business Day preceding each April 1st P6402.0 156\875167.3 B- Indenture of Trust Nyith reference to Palm Desert Financing Authority Subordinate Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 3) 2006 Series C P6402. 1056\889838.2 RWG DRAFT: 5/24/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY 2 Section 1.01. Definitions 2 Section 1.02. Rules of Construction 8 Section 1.03. Authorization and Purpose of Bonds 9 Section 1.04. Equal Security 9 ARTICLE II ISSUANCE OF BONDS 9 Section 2.01. Designation 9 Section 2.02. Terms of Bonds 9 Section 2.03. Redemption of Bonds 10 Section 2.04. Form of Bonds 1 1 Section 2.05. Execution of Bonds 1 1 Section 2.06. Transfer of Bonds 1 1 Section 2.07. Exchange of Bonds 12 Section 2.08. Temporary Bonds 12 Section 2.09. Registration Books 12 Section 2.10. Bonds Mutilated, Lost, Destroyed or Stolen 12 ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS: ISSUANCE OF BONDS 13 Section 3.01. Issuance of Bonds 13 Section 3.02. Loan Fund; Application of Proceeds of Sale of Bonds 13 Section 3.03. Validity of Bonds 13 ARTICLE IV REVENUES: FLOW OF FUNDS 1 3 Section 4.01. Pledge of Revenues; Assignment of Rights 13 Section 4.02. Receipt, Deposit and Application of Revenues 13 Section 4.03. Investments 14 Section 4.04. Valuation and Disposition of Investments 15 ARTICLE V COVENANTS OF THE AUTHORITY 15 Section 5.01. Punctual Payment 15 Section 5.02. Extension of Payment of Bonds 15 Section 5.03. Against Encumbrances 15 Section 5.04. Power to Issue Bonds and Make Pledge and Assignment 16 Section 5.05. Accounting Records and Financial Statements 16 Section 5.06. No Additional Indebtedness 16 Section 5.07. Tax Covenants 16 Section 5.08. Loan Agreement 17 Section 5.09. Further Assurances 18 ARTICLE VI THE TRUSTEE 18 Section 6.01. Appointment of Trustee 18 Section 6.02. Acceptance of Trusts 18 Section 6.03. Fees, Charges and Expenses of Trustee 21 Section 6.04. Notice to Owners of Default 21 Section 6.05. Intervention by Trustee 21 -i- P6402. 1056\S898 38.2 Section 6.06. Removal of Trustee 22 Section 6.07. Resignation by Trustee 22 Section 6.08. Appointment of Successor Trustee 22 Section 6.09. Merger or Consolidation 22 Section 6.10. Concerning any Successor Trustee 22 Section 6.11. Appointment of Co -Trustee 22 Section 6.12. Indemnification; Limited Liability of Trustee 23 ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE 23 Section 7.01. Amendment Hereof 23 Section 7.02. Effect of Supplemental Indenture 24 Section 7.03. Endorsement or Replacement of Bonds After Amendment 24 ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES 25 Section 8.01. Events of Default 25 Section 8.02. Remedies Upon Event of Default 25 Section 8.03. Application of Revenues and Other Funds After Default 26 Section 8.04. Power of Trustee to Control Proceedings 27 Section 8.05. Appointment of Receivers 27 Section 8.06. Non -Waiver 27 Section 8.07. Limitation on Rights and Remedies of Owners 27 Section 8.08. Termination of Proceedings 28 ARTICLE IX BOND INSURANCE 28 ARTICLE X BOOK -ENTRY SYSTEM 28 SECTION 10.01 Book -Entry System; Limited Obligation of Authority 28 SECTION 10.02 Representation Letter 29 SECTION 10.03 Transfers Outside Book -Entry System 29 SECTION 10.04 Payments to the Nominee 29 SECTION 10.05 Initial Depository and Nominee 29 ARTICLE XI MISCELLANEOUS 30 Section 11.01. Limited Liability of Authority 30 Section 1 1.02. Benefits of Indenture Limited to Parties 30 Section 11.03. Discharge of Indenture 30 Section 1 1.04. Successor Is Deemed Included in All References to Predecessor 31 Section 11.05. Content of Certificates 31 Section 1 1.06. Execution of Documents by Owners 31 Section 1 1.07. Disqualified Bonds 32 Section 1 1.08. Waiver of Personal Liability 32 Section 11.09. Partial Invalidity 32 Section 11.10. Destruction of Cancelled Bonds 32 Section 1 1.1 1. Funds and Accounts 32 Section 11.12. Payment on Business Days 33 Section 11.13. Notices 33 Section 11.14. Unclaimed Moneys 33 Section 11.15. Governing Law 34 EXHIBIT A - FORM OF BOND P6402. 1056\8898 38.2 INDENTURE OF TRUST This Indenture of Trust (this "Indenture) is made and entered into as of Jule I. 2006. by and between the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority) and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America. haying a corporate trust office in Los Angeles. California. and being qualified to accept and administer the trusts hereby created (the "Trustee.). Recitals A. The Palm Desert Redevelopment Agency (the "Agency) is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers. all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 3 of the Agency (the "Project Area) has been duly approved and adopted by the City. C. The Authority is authorized to borrow money for the purpose of making loans to the Agency to provide financing for public capital improvements of the Agency. D. For the purpose of aiding in the financing of redevelopment projects for the Project Area. the Authority has determined to make a loan (the "Loan) to the Agency under and pursuant to the Project Area No. 3 Loan Agreement (2006 Subordinate Loan). dated as of July I. 2006 (the "Loan Agreement) by and among the Authority. the Agency and the Trustee. E. To provide the moneys required to make the Loan under the Loan Agreement. the Authority has determined to issue its Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C. in the aggregate initial principal amount of (the "Bonds.). pursuant to and secured by this Indenture in the manner provided herein. F. To provide for the authentication and delivery of the Bonds. to establish and declare the terms and conditions upon which the Bonds are to be issued and to secure the payment of the principal thereof. premium. if any. and interest thereon. the Authority has authorized the execution and delivery of this Indenture. NOW. THEREFORE. THIS INDENTURE WITNESSETH. that in order to secure the payment of the principal of. premium. if any. and interest on the Bonds at any time issued and Outstanding under this Indenture. according to their tenor. and to secure the performance and observance of all the covenants and conditions therein and herein set forth. and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received. and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the Owners thereof. and for other valuable considerations. the receipt whereof is hereby acknowledged. the Authority hereby covenants and agrees with the Trustee. for the benefit of the Owners of the Bonds. as follows: P6402. 1056\S898 38.2 -1- ARTICLE I DEFINITIONS: AUTHORIZATION AND PURPOSE OF BONDS: EQUAL SECURITY Section 1.01. Definitions. The following terms shall for all purposes of this Indenture and of any Supplemental Indenture and of any certificate. opinion. request or other documents herein mentioned have the meanings ascribed thereby. In addition. the terms defined in Section 1.01 of the Loan Agreement and not otherwise defined in this Section 1.01 shall have the meanings ascribed thereby in the Loan Agreement. "Accreted Value means. Nvith respect to any Bond. as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Closing Date at the stated yield to maturity thereof on each April I and October I. assuming in any such semiannual period that such Accreted Value increases in equal daily amounts on the basis of a 360-day year of twelve 30-dav months. "Act means Articles I through 4 (commencing Nvith Section 6500) of Chapter 5. Division 7. Title I of the Government Code of the State. as in existence on the Closing Date or as thereafter amended from time to time. ..Agency.. means the Palm Desert Redevelopment Agency. a redevelopment agency. a public body corporate and politic. duly created. established and authorized to transact business and exercise its powers all under and pursuant to the Redevelopment Law. and any successor to its duties and functions. "Authority means the Palm Desert Financing Authority. a joint powers authority duly organized and existing under the Joint Exercise of Powers Agreement. dated January 26. 1989. by and between the City and the Agency. and under the lays of the State. "Authority Commission"' means the governing body of the Authority. "Bond Counsel means Richards. Watson & Gershon. A Professional Corporation. Los Angeles. California. or a firm of attorneys of favorable reputation in the field of municipal bond lacy. "Bond Lary means the Marks -Roos Local Bond Pooling Act of 1985. being Article 4 of the Act (commencing Nyith Section 6584). as in existence on the Closing Date or as thereafter amended from time to time. "Bond Year- means each twelve-month period extending from April 2 in one calendar year to April I of the succeeding calendar year. both dates inclusive. except that the first Bond Year shall begin on the Closing Date and extend to and include April I. 2007. "Bonds means the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C. "Business Day" means any day other than (i) a Saturday or a Sunday or (ii) any other day on Nyhich the New York Stock Exchange or banks are authorized or obligated by law or executive order to close in New York. New York. San Francisco. California. Los Angeles. California or any city in Nyhich the Trust Office is located. P6402. 1056\S898 38.2 -2- "Certificate"' means a certificate in writing signed by any officer of the designated public entity. duly authorized by its legislative body for that purpose. "City means the City of Palm Desert. a charter city and municipal corporation duly organized and validly existing under the laws of the State. purchaser. "Closing, Date means the date of delivery of the Bonds to the Underwriter as the original "Code" means the Internal Rcycnuc Code of 1986. as amended. "County" means the County of Riverside. "Defeasance Obligations" means (a) an obligations described in paragraph A (provided that stripped securities are only permitted if they have been stripped by the U.S. Treasury itself) or paragraph B (excluding the obligations described in subparagraphs B.4 and B.6) of the definition of "Permitted Investments' set forth in this Section. (b) bonds. debentures. notes or other evidences of indebtedness issued or guaranteed by the non -full faith and credit U.S. government agency Resolution Funding Corp. (REFCORP) (provided stripped securities and interest components thereof are only permitted if they have been stripped by request to the Federal Reserve Bank of NOV York in book entry form). or (c) pre -refunded municipal bonds rated "Aaa- by Moody's and "AAA' by S&P. provided if the issue is only rated by S&P. the pre -refunded bonds must have been pre -refunded with cash. direct U.S. or U.S. guaranteed obligations. or AAA rated pre -refunded municipal obligations. "Depository means The Depository Trust Company. New York. New York. and its successors and assigns as securities depository for the Bonds. or any other securities depository acting as Depository under Article X. "Event of Default means any of the events described in Section 8.0 I . "Fiscal Year- means any twelve-month period extending from July I in one calendar year to June 30 of the succeeding calendar year. both dates inclusive. or any other twelve-month period selected and designated by the Authority as its official fiscal year period. "Indenture means this Indenture of Trust. as may from time to time be supplemented. modified or amended by any Supplemental Indenture pursuant to the provisions hereof. "Independent Accountant means any certified public accountant or firm of certified public accountants appointed and paid by the Authority. and \vho. or each of whom (i) is in fact independent and not under domination of the Authority. the City or the Agency: (ii) does not have any substantial interest. direct or indirect. in the Authority. the City or the Agency: and (iii) is not connected with the Authority. the City or the Agency as an officer or employee of the Authority. the City or the Agency but whom may be regularly retained to make annual or other audits of the books of or reports to the Authority. the City or the Agency. "Information Services" means Financial Information. Inc.'s "Daily Called Bond Service." 30 Montgomery Street. I0th Floor. Jersey City. New Jersey 07302. Attention: Editor: Mergent's "Municipal and Government."' 5250 77 Center Drive. Suite 150. Charlotte. North Carolina 28217. Attention: Called Bond Department: and Kenny S&P. 55 Water Street. 45 Floor. New York. New York 1004I. Attention: Notification Department: or. in accordance with then -current guidelines of the P6402. 1056\889838.2 Securities and Exchange Commission. such other addresses and/or such other services providing information wvith respect to called bonds as the Agency may designate to the Trustee in writing. "Initial Principal Amount." with respect to any Bond. means the initial principal amount thereof as of the Closing Date. "Insurance Paying Agent means or its successors under the Insurance Policy. "Insurance Policy" means the municipal bond insurance policy issued by the Insurer insuring the payment when due of the principal of and interest on the Bonds. "Insurer"' means "Interest Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)( I). "Loan Agreement"' means the Project Area No. 3 Loan Agreement (2006 Subordinate Loan). dated as of July I. 2006. by and among the Authority. the Agency and the Trustee relating to the Loan. as may from time to time be supplemented. modified or amended. Agency. to Section 3.02. maturity "Loan means the Loan. as defined in the Loan Agreement. made by the Authority to the "Loan Fundy means the fund by that name established and held by the Trustee pursuant "Maturity Amount." with respect to any Bond. means the Accreted Value thereof at "Moody's"' means Moody's Investors Service. its successors and assigns. "Nominee" means the nominee of the Depository. which may be the Depository. as determined from time to time pursuant to Article X. "Outstanding."' when used as of any particular time with reference to Bonds. means (subject to the provisions of Section 11.07) all Bonds theretofore executed. issued and delivered by the Authority under this Indenture except (i) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation. (ii) Bonds paid or deemed to have been paid within the meaning of Section 11.0 3. and (iii) Bonds in Iicu of or in substitution for which other Bonds shall have been executed. issued and delivered pursuant to this Indenture. "Owner"' means the person in wvhose name the ownership of any Bond or Bonds shall be registered on the Registration Books. "Participants"' means those broker -dealers. banks and other financial institutions from time to time for which the Depository holds Bonds as securities depository. "Paying Agent means the Trustee. P6402. 1056\S89838.2 -4- "Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein: A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury. and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. For purposes of this paragraph A. 'obligations the principal of and interest on which are unconditionally guaranteed by the United States of America include without limitation tax exempt obligations of a state or a political subdivision thereof which have been defeased under irrevocable escrow instructions with non -callable obligations for which the full faith and credit of the United States of America are pledged for the payment of principal and interest and which are rated "Aaa- by Moody's and "AAA by S&P. B. Bonds. debentures. notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies. provided such obligations are backed by the full faith and credit of the United States of America (provided that stripped securities are only permitted if they have been stripped by the agency itself): I. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing, Bank 4. Federal Housing, Administration Debentures (FHA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae-) GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing, and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds. debentures. notes or other evidence of indebtedness issued or guaranteed P6402. 1056\S898 38.2 -5- by any of the following non -full faith and credit U.S. government agencies (provided that stripped securities are only permitted if they have been stripped by the agency itself): I . Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mace) Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae-) Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing, Association (SLMA or "Sallie Mae-) Senior debt obligations 5. Resolution Funding, Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds. including funds for «Vhich the Tnistee or its affiliates provide investment advisory or other management services. registered under the Investment Company Act of 1940. «hose shares are registered under the Securities Act of 1933. and having a rating by S&P of AAAm-G: AAAm: or AAm and. if rated by Moody's. rated Aaa. Aa I or Aa2. E. Certificates of deposit secured at all times by collateral described in A and/or B above: provided that such certificates must be issued by commercial banks (including the Trustee and its affiliates). savings and loan associations or mutual savings banks and provided further that the collateral must be held by a third party and the Trustee on behalf of the Owners must have a perfected first security interest in the collateral. F. Certificates of deposit. savings accounts. deposit accounts or money market deposits which are fully insured by the Federal Deposit Insurance Corporation. including those of the Trustee and its affiliates. G. Investment agreements. including guaranteed investment contracts (GICs). Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to the Insurer. H. Commercial paper rated. at the time of purchase. "Prime - I by Moody's and "A- I " or better by S&P. I. Bonds or notes issued by an state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of an bank (including the Trustee and its affiliates) which has an unsecured. uninsured and unguaranteed obligation rating of "Prime - I or "A3- or better by Moody's and "A -I.. or "A- or better by S&P. P6462. 1056\889838.2 -6- K. Repurchase Agreements which are approved by the Insurer and which provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee or third party custodian. as the case may be (buyer/lender). and the transfer of cash from the Tnistcc to the dealer bank or securities firm w ith an agreement that the dealer bank or securities firm w ill repay the cash plus a yield to the Trustee in exchange for the securities at a specified date. L. The Local Agency Investment Fund in the State Treasury or any similar pooled investment fund administered by the State. to the extent such investment is held in the name and to the credit of the Trustee. M. Medium -term notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Such notes shall have a minimum credit rating of "Aar by Moody's and "AA by S&P at time of purchase. and shall mature within three years or less. N. Shares of beneficial interest issued by the California Asset Management Trust. a common law trust established under the laws of the State. "Principal Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)(2). "Principal Amount" means. as of any date of calculation. with respect to any portion of the Bonds. the Accreted Value thereof "Project Area means. unless the context clearly requires otherwise, the project area described and defined in the Redevelopment Plan approved and adopted by the City by its Ordinance No. 652. "Redemption Account" means the account by that name established and held by the Trustee pursuant to Section 4.02(b)(3). "Redevelopment Law means the Community Redevelopment Law. being California Health and Safety Code Section 33000. et seq.. and all future acts supplemental thereto or amendatory thereof. "Redevelopment Plane means the Redevelopment Plan for the Project Area. approved and adopted by the City by its Ordinance No. 652 and includes any amendment of the Redevelopment Plan heretofore or hereafter made pursuant to law. "Registration Books means the records maintained by the Trustee pursuant to Section 2.09 for the registration and transfer of ownership of the Bonds. "Report" means a document in writing signed by an Independent Redevelopment Consultant and including: (i) a statement that the person or firm making or giving such Report has read the pertinent provisions of the document or documents to which such Report relates: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based: and (iii) a statement that. in the opinion of such person or firm. sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report. P6402. 1056\S898 38.2 -7- "Representation Letter- means the Blanket Issuer Letter of Representations. dated July 1. 1997. from the Authority to the Depository. qualifying bonds issued by the Authority for the Depository's book -entry system. "Request" means a request in writing signed by any officer of the designated public entity duly authorized by its legislative body for that purpose. "Revenue Fundy means the fund by that name established and held by the Trustee pursuant to Section 4.02(a). "Reyenues- means (i) all amounts payable by the Agency pursuant to Section 2.3 or Section 2.4 of the Loan Agreement: (ii) any proceeds of the Bonds originally deposited with the Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established hereunder: and (iii) income and gains with respect to the investment of amounts on deposit in the funds and accounts established hereunder. other than amounts payable to the United States of America pursuant to Section 5.07. "S&P- means Standard & Poor's Ratings Services and its successors and assigns. "Securities Depositories means The Depository Trust Company. ;; Water Street. 50th Floor. New York. New York. 10041. Attn: CaII Notification Department. Fax (212) 855-72 32: and. in accordance with then current guidelines of the Securities and Exchange Commission. such other addresses or such other securities depositories as the Authority may designate in a Certificate of the Authority delivered to the Trustee. "State means the State of California. "Supplemental Indenture- means any indenture. agreement or other instrument hereafter duly executed by the Authority and the Trustee in accordance with the provisions of Section 7.01. "Tax Retzulations- means temporary and permanent regulations promulgated under or with respect to Section 103 and Sections 141 through 150. inclusive. of the Code. "Trust Office- means the corporate trust office of the Trustee at the address set forth in Section 11.13 or such other offices as may be specified to the Authority by the Trustee in writing. With respect to presentation of Bonds for payment or for registration of transfer and exchange such term shall mean the office or agency of the Trustee at which. at any particular time. its corporate trust business shall be conducted. "Trustee" means Wells Fargo Bank. National Association. and its successors and assigns. and any other corporation or association which may at any time be substituted in its place as provided in Article VI. "Underwriter - means Citigroup Global Markets Inc. Section 1.02. Rules of Construction. All references in this Indenture to "Articles." "Sections." and other subdivisions. unless indicated otherwise. are to the corresponding Articles. Sections or subdivisions of this Indenture: and the words "herein. "hereof. "hereunder. and other words of similar import refer to this Indenture as a whole and not to any particular Article. Section or subdivision hereof. P6402. 1056\8898 38.2 -8- Section 1.03. Authorization and Purpose of Bonds. The Authority has reviewed all proceedings heretofore taken relative to the authorization of the Bonds and has found. as a result of such review. and hereby finds and determines that all things. conditions. and acts required by law to exist. happen and be performed precedent to and in the issuance of the Bonds do exist. have happened and have been performed in due time. form and manner as required by law. and the Authority is now authorized under the Bond Law and each and every requirement of law. to issue the Bonds in the manner and form provided in this Indenture. The Authority hereby authorizes the issuance of the Bonds pursuant to the Bond Law and this Indenture for the purpose of providing funds to make the Loan to the Agency pursuant to the Loan Agreement. Section 1.04. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof. this Indenture shall be deemed to be and shall constitute a contract among the Authority. the Trustee and the Owners of the Bonds: and the covenants and agreements herein set forth to be performed on behalf of the Authority shall be for the equal and proportionate benefit. security and protection of all Owners of the Bonds Nvithout preference. priority or distinction as to security or othenvise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale. execution or delivery thereof. or otherwise for any cause Nvhatsoeyer. except as expressly provided therein or herein. ARTICLE II ISSUANCE OF BONDS Section 2.0I I. Desitznation. The Bonds shall be designated the Palm Desert Financing Authority Tax Allocation Subordinate Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C and shall be issued in the aggregate Initial Principal Amount of Section 2.02. Terms of Bonds. The Bonds shall be issued in fully registered form in any denominations of Initial Principal Amount but shall reflect denominations of $5.000 Maturity Amount or any integral multiple thereof. No Bond shall have more than one maturity date. The Bonds shall be dated the Closing Date. shall mature on April I in each of the years and in the Maturity Amounts set forth in the following schedule. The Bonds shall be delivered on the Closing Date in the aggregate Initial Principal Amounts set forth below. Interest on the Initial Principal Amount of the Bonds shall accrue and compound at the yield to their maturity set forth below (such interest being equal to the difference between the Maturity Amounts and the Initial Principal Amounts thereof): Maturity Initial Initial Principal Yield to Date Maturity Principal Amount per $5.000 Maturity (April I) Amount Amount Maturity Amount Date Interest on each Bond shall be compounded semi-annually at the yield set forth above from the Closing Date on each April I and October I. commencing October I. 2006. until maturity or earlier redemption thereof. computed using a year of 360 days of twelve 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. with respect to any Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the Trust Office. in lawful money of the United States of America. P6402. 1056\S89838.2 -9- Section 2.03. Redemption of Bonds. (a) Optional Redemption. In the event that the Agency shall exercise its option to prepay installments of the Loan pursuant to Section 2.4(a) of the Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Bonds maturing on or after April I. 2() . as a whole. or in part among maturities as designated in writing by the Authority and by lot within a maturity. in integral multiples of $5.000 of Maturity Amount. on any October I or April Ion or after April I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Bonds on the date fixed for redemption): Redemption Redemption Dates Price April I. 20 and October I. 2() 10_`%0 April I. 20 and October I. 2() 10_ April I. 20 and thereafter 100 The Authority shall provide written notice to the Trustee of any redemption pursuant to this Section 2.03(a) at least 45 but not more than 90 days prior to the date fixed for such redemption. (b) 'Reseryedi. (c) General Redemption Provisions (I) Notice of Redemption. The Tnistcc on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books and. by such means acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the date fixed for redemption: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the Bond numbers (but only if less than all of the Outstanding Bonds are to be redeemed) and the maturity or maturities of the Bonds (in the event of redemption of all of the Bonds of such maturity or maturities in NVhoIc) to be redeemed. and shall require such Bonds be then surrendered at the Trust Office of the Trustee in Los Angeles. California (or such other location as designated by the Trustee) for redemption at the redemption price. giving notice also that further interest on such Bonds will not accrue from and after the redemption date. (2) Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of Tess than all of such Bonds of any maturity. the Trustee shall select the Bonds to be redeemed from all Bonds of such maturity not previously called for redemption. by lot in any manner which the Trustee in its sole discretion shall deem appropriate under the circumstances. For purposes of selecting Bonds within a maturity for redemption. all Bonds shall be deemed to be comprised of separate $5.000 Maturity Amount portions and such portions shall be treated as separate bonds which may be separately redeemed. P6402. 1056\8898 38.2 -10- (3) Partial Redemption of Bonds. In the event only a portion of any Bond is called for redemption. then upon surrender of such Bond the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof. at the expense of the Authority. a new Bond or Bonds of the like tenor and maturity date. of authorized denominations in aggregate Maturity Amount equal to the unredeemed portion of the Bond to be redeemed. (4) Effect of Redemption. From and after the date fixed for redemption. if funds available for the payment of the principal of. interest on and premium. if any. on the Bonds so called for redemption shall have been duly provided. such Bonds so called shall cease to be entitled to any benefit under this Indenture other than the right to receive payment of the redemption price. and no interest shall accrue thereon from and after the redemption date specified in such notice. All Bonds redeemed pursuant to this Section shall be destroyed. Section 2.04. Form of Bonds. The Bonds. the Trustees certificate of authentication. and the form of assignment to appear thereon shall be substantially in the respective forms set forth in Exhibit A attached hereto and by this reference incorporated herein. Nyith necessary or appropriate variations. omissions and insertions. as permitted or required by this Indenture. Section 2.05. Execution of Bonds. The Bonds shall be signed in the name and on behalf of the Authority Nyith the manual or facsimile signatures of its President and attested Nyith the manual or facsimile signature of its Secretary or any deputy duly appointed by the Authority Commission. and shall be delivered to the Trustee for authentication by it. In case any officer of the Authority \yho shall have signed any of the Bonds shall cease to be such officer before the Bonds so signed shall have been authenticated or delivered by the Trustee or issued by the Authority. such Bonds may nevertheless be authenticated. delivered and issued and. upon such authentication. delivery and issue. shall be as binding upon the Authority as though the individual \yho signed the same had continued to be such officer of the Authority. Also. any Bond may be signed on behalf of the Authority by any individual \yho on the actual date of the execution of such Bond shall be the proper officer although on the nominal date of such Bond such individual shall not have been such officer. Only such of the Bonds as shall bear thereon a certificate of authentication in substantially the form set forth in Exhibit A manually executed by the Trustee. shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture. and such certificate of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.06. Transfer of Bonds. Any Bond may. in accordance Nyith its terms. be transferred. upon the Registration Books. by the person in Nvhose name it is registered. in person or by the Owners duly authorized attorney. upon surrender of such Bond for cancellation. accompanied by delivery of a Nvritten instrument of transfer in a form acceptable to the Trustee. duly executed. Whenever any Bond shall be surrendered for transfer. the Authority shall execute and the Trustee shall thereupon authenticate and deliver to the transferee a neW Bond or Bonds of the same series and of like tenor. maturity and aggregate principal amount. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection Nyith any such transfer shall be paid by the Authority. except that the Trustee shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid Nyith respect to such transfer. The Trustee shall not be required to transfer. pursuant to this Section 2.06. either (i) any Bond during the period established by the Trustee for the selection of Bonds for redemption. or (ii) any Bond selected for redemption pursuant to Section 2.03. P6—IU2.Ic156\8893x.2 -II- Section 2.07. Exchange of Bonds. Bonds may be exchanged at the Trust Office for the same aggregate Maturity Amount of Bonds of the same tenor and maturity and of other authorized denominations. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection Nvith any such exchange shall be paid by the Authority. except that the Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid Nvith respect to such exchange. The Trustee shall not be required to exchange. pursuant to this Section 2.07. either (i) any Bond during the period established by the Trustee for the selection of Bonds for redemption. or (ii) any Bond selected for redemption pursuant to Section 2.01 Section 2.08. Temporary Bonds. The Bonds may be issued initially in temporary form exchangeable for definitive Bonds Nvhen ready for delivery. The temporary Bonds may be printed. lithographed or typewritten. shall be of such denominations as may be determined by the Authority and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and be registered and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds: provided that any temporary Bond need only be signed in the name and on behalf of the Authority Nvith the manual or facsimile signature of the Secretary. or any deputy duly appointed by the Authority Commission. and need not be attested. If the Authority issues temporary Bonds. it NyiII execute and furnish definitive Bonds Nvithout delay. and thereupon the temporary Bonds shall be surrendered. for cancellation. in exchange therefor at the Trust Office of the Trustee in Los Angeles. California (or such other location designated by the Trustee). and the Trustee shall authenticate and deliver in exchange for such temporary Bonds definitive Bonds of like term. maturity and aggregate Maturity Amount in authorized denominations. Until so exchanged. the temporary Bonds shall be entitled to the same benefits under this Indenture as definitive Bonds authenticated and delivered hereunder. Section 2.09. Registration Books. The Trustee Nvill keep or cause to be kept at its Trust Office sufficient records for the registration and transfer of the Bonds. Nvhich shall at all times during regular business hours be open to inspection by the Authority Nvith reasonable prior notice: and. upon presentation for such purpose. the Trustee shall. under such reasonable regulations as it may prescribe. register or transfer or cause to be registered or transferred. on such records. Bonds as hereinbefore provided. Section 2.10. Bonds Mutilated. Lost. Destroyed or Stolen. If any Bond shall become mutilated. the Authority. at the expense of the Owner of such Bond. shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like tenor. maturity and aggregate Maturity Amount in authorized denominations in exchange and substitution for the Bond so mutilated. but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be cancelled by it and destroyed. If any Bond issued hereunder shall be lost. destroyed or stolen. evidence of such Toss. destruction or theft may be submitted to the Trustee and. if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given. the Authority. at the expense of the Owner. shall execute. and the Trustee shall thereupon authenticate and deliver. a new Bond of like tenor in Iicu of and in substitution for the Bond so lost. destroyed or stolen (or if any such Bond shall have matured or shall have been called for redemption. instead of issuing a substitute Bond the Trustee may pay the same Nvithout surrender thereof upon receipt of indemnity satisfactory to the Trustee). The Trustee may require payment of a reasonable fee for each new Bond issued under this Section 2. I0 and of the expenses Nvhich may be incurred by the Authority and the Trustee. Any Bond issued under the provisions of this Section 2. I0 in Iicu of any Bond alleged to be lost. destroyed or stolen shall constitute an original contractual obligation on the part of the Authority Nvhether or not the Bond alleged to be lost. destroyed or stolen be at any time enforceable by anyone. and shall be equally and proportionately entitled to the benefits of this Indenture Nvith all other Bonds secured by this Indenture. P64U2. I ch6\8898 38.2 -I2- ARTICLE III DEPOSIT AND APPLICATION OF PROCEEDS OF BONDS: ISSUANCE OF BONDS Section 3.01. Issuance of Bonds. Upon the execution and delivery of this Indenture. the Authority shall execute and deliver the Bonds in the respective aggregate Initial Principal Amounts set forth herein and shall deliver the Bonds to the Trustee for authentication and delivery to the original purchaser thereof upon the Request of the Authority. Section 3.02. Loan Fund: Application of Proceeds of Sale of Bonds. The Trustee shall establish and maintain a separate fund to be known as the "Loan Fund." Upon the receipt of payment for the Bonds on the Closing Date. the Trustee shall deposit the proceeds of sale thereof in the amount of in the Loan Fund. The Trustee shall disburse all amounts in the Loan Fund pursuant to Section 2.2 of the Loan Agreement. Section 3.03. Validity of Bonds. The validity of the authorization and issuance of the Bonds shall not be affected in any Nvay by any proceedings taken by the Agency with respect to the application of the proceeds of the Loan. and the recital contained in the Bonds that the same are issued pursuant to the Bond Law shall be conclusive evidence of their validity and of the regularity of their issuance. ARTICLE IV REVENUES: FLOW OF FUNDS Section 4.01. Pledtze of Revenues: Assignment of Rights. Subject to the provisions of Section 6.03. the Bonds shall be secured by a first lien on and pledge (which shall be effected in the manner and to the extent hereinafter provided) of all of the Revenues. The Bonds shall be equally secured by a pledge. charge and Tien upon the Revenues without priority for series. number. date of Bonds. date of execution or date of delivery: and the payment of the Principal Amount of the Bonds and any premiums upon the redemption of any thereof shall be and are secured by an exclusive pledge. charge and Tien upon the Revenues. So Tong as any of the Bonds are Outstanding. the Revenues shall not be used for any other purpose: except that out of the Revenues there may be apportioned such sums. for such purposes. as are expressly permitted by Section 4.02. The Authority hereby transfers in trust and assigns to the Trustee. for the benefit of the Owners from time to time of the Bonds. all of the Revenues and all of the right. title and interest of the Authority in the Loan Agreement (other than the rights of the Authority under Section 5.04 thereof). The Trustee shall be entitled to and shall receive all of the Revenues. and any Revenues collected or received by the Authority shall be deemed to be held. and to have been collected or received. by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and. subject to the provisions hereof. shall take all steps. actions and proceedings reasonably necessary in its judgment to enforce. either jointly with the Authority or separately. all of the rights of the Authority and all of the obligations of the Agency under the Loan Agreement. Section 4.02. Receipt. Deposit and Application of Revenues. (a) Deposit of Revenues. Revenue Fund. All Revenues described in clause (i) of the definition thereof in Section 1.0I shall be promptly deposited by the Trustee upon receipt thereof in a P6402. 1056\8898 38.2 -I 3- special fund designated as the "Revenue Fundy which the Trustee shall establish. maintain and hold in trust hereunder. (b) Application of Revenues: Accounts. At the times prescribed below. the Trustee shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Revenue Fund). the following amounts in the following order of priority. the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: ( I ) I Reseryedi. (2) Principal Account. On or before each maturity date of the Bonds shall be payable. the Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the Maturity Amount of the then Outstanding Bonds coming due and payable on such date pursuant to Section 2.02. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the Maturity Amount of the Bonds at the maturity thereof. All amounts on deposit in the Principal Account on the first day of any Bond Year. to the extent not required to pay the Maturity Amount of any Outstanding Bonds then haying come due and payable. shall be withdrawn therefrom and transferred to the Agency to be used for any lawful purposes of the Agency. (3) Redemption Account. The Trustee. at any time that the Agency shall exercise its option to prepay installments of the Loan pursuant to Section 2.4 of the Loan Agreement. shall deposit the Revenues derived from such prepayment in the Redemption Account (which the Tnistcc shall also establish and maintain within the Rcycnuc Fund). to be used and withdrawn by the Trustee solely for the purpose of paying the Principal Amount and redemption premiums. if any. on the Bonds to be redeemed on their respective redemption dates. as directed by the Authority. Section 4.03. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to this Indenture or pursuant to the Loan Agreement shall be invested by the Trustee solely in Permitted Investments pursuant to the written direction of the Authority given to the Trustee two Business Days in advance of the making of such investments (and promptly confirmed in writing. as to any such direction given orally): provided that moneys in the Reserve Fund established pursuant to the Loan Agreement shall be invested in Permitted Investments which mature not more than five years from the date of such investment. In the absence of any such direction from the Authority. the Tnistcc shall invest any such moneys in Permitted Investments described in Paragraph D of the definition thereof. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the fund or account from which such investment was made. For purposes of acquiring any investments hereunder. the Trustee may commingle funds held by it hereunder. The Tnistcc may (but shall not be obligated to) act as principal or agent in the acquisition or disposition of any investment. The Trustee shall incur no liability for losses arising from any investments made at the direction of the Authority. or otherwise made pursuant to this Section. The Trustcc shall be entitled to rely conclusively upon the written instructions of the Authority directing investments in Permitted Investments as to the fact that each such investment is permitted by the laws of the State. and shall not be required to make further investigation with respect P6402. 1056\8898 38.2 -I4- thereto. With respect to any restrictions set forth in the definition of Permitted Investments set forth in Section 1.0I Nyhich embody legal conclusions (e.g.. the existence. validity and perfection of security interests in collateral). the Trustee shall be entitled to rely conclusively on an opinion of counsel or upon a representation of the provider of such Permitted Investment obtained at the Authority's or the Agency's expense. Except as specifically provided in this Indenture. the Trustee shall not be liable to pay interest on any moneys received by it. but shall be liable only to account to the Authority and the Agency for earnings derived from funds that have been invested. The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur. the Authority specifically \valves receipt of such confirmations to the extent permitted by law. The Trustee Nvill furnish the Authority periodic cash transaction statements Nyhich include detail for all investment transactions made by the Trustee hereunder. The Trustee or any of its affiliates may act as sponsor. advisor or manager in connection Nyith any investments made by the Trustee hereunder. Section 4.04. Valuation and Disposition of Investments. For the purpose of determining the amount in any fund or account established hereunder or under the Loan Agreement. any investments credited to such fund or account shall be valued at least annually. on or before July I. at the market value thereof. In making any valuations hereunder the Trustee may utilize computerized securities pricing services that may be available to it. including those available through its regular accounting system. ARTICLE V COVENANTS OF THE AUTHORITY Section 5.0I I. Punctual Payment. The Authority shall punctually pay or cause to be paid the principal. interest and premium. if any. to become due in respect of all the Bonds. in strict conformity Nyith the terms of the Bonds and of this Indenture. according to the true intent and meaning thereof. but only out of Revenues and other assets pledged for such payment as provided in this Indenture. Section 5.02. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement. and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended. such Bonds or claims for interest shall not be entitled. in case of any default hereunder. to the benefits of this Indenture. except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon Nvhich shall not have been so extended. Nothing in this Section 5.02 shall be deemed to limit the right of the Authority to issue bonds or other obligations for the purpose of refunding any Outstanding Bonds. and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Section 5.03. Aizainst Encumbrances. The Authority shall not create. or permit the creation of. any pledge. lien. charge or other encumbrance upon the Revenues and other assets pledged or assigned under this Indenture Nyhile any of the Bonds are Outstanding. except the pledge and assignment created by this Indenture. Subject to this limitation. the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes. including other programs under the Bond Law. and reserves the right to issue other obligations for such purposes. P6402. 1056\8898 38.2 -15- Section 5.04. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into this Indenture and to pledge and assign the Revenues. the Loan Agreement and other assets purported to be pledged and assigned. respectively. under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and Nvill be the legal. valid and binding special obligations of the Authority in accordance Nyith their terms. and the Authority shall at all times. to the extent permitted by law. defend. preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Owners under this Indenture against all claims and demands of all persons Nvhomsoeyer. Section 5.05. Accounting Records and Financial Statements. The Trustee shall at all times keep. or cause to be kept. proper books of record and account. prepared in accordance Nyith corporate trust industry standards. in Nyhich complete and accurate entries shall be made of all transactions made by the Trustee relating to the proceeds of Bonds. the Revenues. the Loan Agreement and all funds and accounts established pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority and the Agency. during regular business hours Nyith reasonable prior notice. Section 5.06. No Additional Indebtedness. Except for the Bonds. the Authority shall not incur any indebtedness payable out of the Revenues. (For clarification. this provision does not prohibit the Agency from incurring additional debt secured by Tax Revenues. so long as the incurrence of such debt is in compliance Nyith the Loan Agreement.) Section 5.07. Tax Covenants. (a) The Authority covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the Accreted Value of the Bonds Nyhich constitutes the interest thereon. and for no other purpose. the Authority Nvill satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Authority agrees to comply Nyith such Nvritten instructions as may be provided by Bond Counsel. (b) The Authority covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nvould cause the Bonds to become arbitrage bonds. as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nyith the rebate requirements of Section 148 of the Code. the Authority further covenants that it Nvill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section 148(f) of the Code. and that it Nvill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nyith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Authority covenants that it Nvill not take any action or omit to take any action. Nyhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nvould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. (d) The Authority covenants that it Nvill not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as Nvould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. P6402. 1056\8898 38.2 -16- (e) Notwithstanding any provision of this Indenture. and except as provided below. the Authority covenants that none of the moneys contained in any of the funds or accounts created pursuant to this Indenture with respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested directly or indirectly in obligations guaranteed (in Nvhole or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Rcycnuc Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 11(a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under this Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 5.08. Loan Agreement. The Trustee. as assignee of the Authority's rights pursuant to Section 4.01. shall receive all amounts due from the Agency pursuant to the Loan Agreement and. upon an Event of Default. shall diligently enforce. and take all steps. actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations of the Agency thereunder. The Loan Agreement may be amended or modified pursuant to the applicable provisions thereof. but only with the Nvritten consent of the Insurer (as Tong as the Insurance Policy is in full force and effect) and only: (i) if the Authority. the Agency or the Trustee first obtains the «rittcn consent of the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding to such amendment or modification. provided. however. that no such amendment or modification shall (a) extend the maturity of or reduce the amount of interest or principal payments on a Loan. or otherwise alter or impair the obligation of the Agency to pay the principal. interest or prepayment premiums on a Loan at the time and place and at the rate and in the currency provided therein. without the express «rittcn consent of the Owner of each affected Bond. (b) reduce the percentage of the Bonds required for the «rittcn consent to any such modification or amendment thereof or hereof. or (c) without its «rittcn consent thereto. modify any of the rights or obligations of the Trustee: or (ii) without the consent of any of the Owners. if such amendment or modification does not modify the rights or obligations of the Trustee without its prior «rittcn consent. and is for any one or more of the following purposes: (a) to add to the covenants and agreements of the Agency contained in the Loan Agreement other covenants and agreements thereafter to be observed. or to limit or surrender any rights or power therein reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: (b) to make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in the Loan Agreement. or in any other respect Nvhatsoeyer as the Agency and the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds: (c) to amend any provision thereof relating to the Code. to any extent whatsoever but only if and to the extent such amendment Nvill not adversely affect the exclusion from P6402. 1056\8898 38.2 -17- gross income for federal income tax purposes of interest on any of the Bonds under the Code. in the opinion of Bond Counsel: or (d) to provide for the issuance of Parity Debt under and in accordance with the provisions of the Loan Agreement. Nothing in this Section 5.08 shall prevent the Agency and the Authority. with the written consent of the Insurer (as Tong as the Insurance Policy is in full force and effect). from entering into any amendment or modification of the Loan Agreement which solely affects a particular Bond or Bonds all of the Owners of which shall have consented to such amendment or modification: provided. however. no such amendment or modification shall affect the rights or obligations of the Trustee without its prior «rittcn consent. The Tnistcc shall be entitled to rely upon the opinion of Bond Counsel stating that the requirements of this Section 5.08 have been met with respect to any amendment or modification of the Loan Agreement. Section 5.09. Further Assurances. The Authority will adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture. and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in this Indenture. ARTICLE VI THE TRUSTEE Section 6.0I I. Appointment of Trustee. Wells Fargo Bank. National Association. a national banking association organized and existing under and by virtue of the laws of the United States of America. with a corporate trust office in Los Angeles. California. is hereby appointed Trustee by the Authority for the purpose of receiving all moneys required to be deposited with the Trustee hereunder and to allocate. use and apply the same as provided in this Indenture. The Authority agrees that it will maintain a Trustee which shall be a financial institution haying a corporate trust office in the State. with a combined capital and surplus of at least $75.000.000. and subject to supervision or examination by federal or State authority. so long as any Bonds are Outstanding. If such financial institution publishes a report of condition at least annually pursuant to law or to the requirements of any supervising or examining authority above referred to. then for the purpose of this Section 6.0I the combined capital and surplus of such financial institution shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee is hereby authorized to pay the principal of and interest and redemption premium. if any. on the Bonds when duly presented for payment at maturity. or on redemption or purchase prior to maturity. and to cancel all Bonds upon payment thereof. The Trustee shall keep accurate records of all funds administered by it and of all Bonds paid and discharged. Section 6.02. Acceptance of Tnists. The Trustee hereby accepts the trusts imposed upon it by this Indenture. and agrees to perform said trusts. but only upon and subject to the following express terms and conditions: (a) The Trustee. prior to the occurrence of an Event of Default and after curing of all Events of Default which may have occurred. undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants. duties or obligations shall be read into this Indenture against the Trustee. In case an Event of Default hereunder has occurred (which has not been cured or \valved). the Trustee may exercise such of the rights and powers vested in it by this P6402. 1056\8898 38.2 -I8- Indenture. and shall use the same degree of care and skill and diligence in their exercise. as a prudent person Nyould use in the conduct of its own affairs. (b) The Trustee may execute any of the trusts or powers hereof and perform the duties required of it hereunder by or through attorneys. agents. or receivers. and shall be entitled to advice of counsel concerning all matters of trust and its duty hereunder. The Trustee may conclusively rely on an opinion of counsel as full and complete protection for any action taken or suffered by it hereunder. (c) The Trustee shall not be responsible for any recital herein. in the Loan Agreement or in the Bonds. or for any of the supplements hereto or thereto or instruments of further assurance. or for the validity of this Indenture or the Loan Agreement. or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby. or the tax status of the interest on the Bonds. and the Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants. conditions or agreements on the part of the Authority hereunder. (d) The Trustee (including its officers and employees) may become the Owner of Bonds secured hereby Nvith the same rights Nyhich it Nvould have if not the Trustee: may acquire and dispose of other bonds or evidences of indebtedness of the Authority Nvith the same rights it Nvould have if it \sere not the Trustee: and may act as a depositary for and permit any of its officers or directors to act as a member of. or in any other capacity Nvith respect to. any committee formed to protect the rights of Owners of Bonds. Nvhether or not such committee shall represent the Owners of the majority in aggregate Principal Amount of the Bonds then Outstanding. The Trustee. either as principal or agent. may engage in or be interested in any financial or other transaction Nvith the Authority. (e) The Trustee shall be protected in acting upon any Report. notice. request. consent. certificate. order. affidavit. letter. direction. telegram. facsimile transmission. electronic mail or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons and need not make any investigation into the facts or matters contained therein. Any action taken or omitted to be taken by the Trustee pursuant to this Indenture upon the request or authority or consent of any person \yho at the time of making such request or giving such authority or consent is the Owner of any Bond. shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. The Trustee shall not be bound to recognize any person as an Owner of any Bond or to take any action at his request unless the ownership of such Bond by such person shall be reflected on the Registration Books. (f) As to the existence or non-existence of any fact or as to the sufficiency or validity of any instrument. paper or proceeding. the Trustee shall be entitled to rely upon a Certificate of the Authority as sufficient evidence of the facts therein contained and prior to the occurrence of an Event of Default hereunder of Nvhich the Trustee has been given notice or is deemed to have notice. as provided in Section 6.02(h). shall also be at liberty to accept a Certificate of the Authority to the effect that any particular dealing. transaction or action is necessary or expedient. but may at its discretion secure such further evidence deemed by it to be necessary or advisable. but shall in no case be bound to secure the same. (g) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or �yillfuI misconduct. The immunities and exceptions from liability of the Trustee shall extend to its officers. directors. employees and agents. In the absence of negligence or misconduct. the Trustee shall not be liable for any error of judgment. P6402. 1056\8898 38.2 -I9- (h) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default hereunder except failure by the Authority to make any of the payments to the Trustee required to be made by the Authority pursuant hereto. unless the Trustee shall be specifically notified in writing of such default by the Authority. the Insurer or by the Owners of at least 25 percent in aggregate principal amount of the Bonds then Outstanding and all notices or other instruments required by this Indenture to be delivered to the Trustee must. in order to be effective. be delivered at the Trust Office of the Trustee in Los Angeles. California. and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default hereunder except as aforesaid. (i) At any and all reasonable times the Trustee. and its duly authorized agents. attorneys. experts. accountants and representatives. shall have the right. but not the obligation. fully to inspect all books. papers and records of the Authority pertaining to the Bonds. and to make copies of any of such books. papers and records such as may be desired but which is not privileged by statute or by law. (j) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises hereof. (k) Notwithstanding anything elsewhere in this Indenture with respect to the execution of any Bonds. the withdrawal of any cash. the release of any property. or any action whatsoever within the purview of this Indenture. the Trustee shall have the right. but shall not be required. to demand any showings. certificates. opinions. appraisals or other information. or corporate action or evidence thereof. as may be deemed desirable for the purpose of establishing the right of the Authority to the execution of any Bonds. the withdrawal of any cash. or the taking of any other action by the Trustee. (I) Before taking action referred to in Section 6.05. Section 8.02 or the first paragraph of Section 5.08. the Trustee may require that a satisfactory indemnity bond be furnished for the reimbursement of all expenses to which it may be put and to protect it against all liability. except liability which is adjudicated to have resulted from its negligence or willful misconduct in connection with any such action. (m) All moneys received by the Trustee shall. until used or applied or invested as herein provided. be held in trust for the purposes for which they \were received but need not be segregated from other funds except to the extent required by law. (n) The Trustee shall have no liability or obligation to the Bond Owners with respect to the payment of debt service by the Authority or with respect to the observance or performance by the Authority of the other conditions. covenants and terms contained in this Indenture. or with respect to the investment of any moneys in any fund or account established. held or maintained by the Authority pursuant to this Indenture or otherwise. (o) The Trustee makes no covenant. representation or warranty concerning the current or future tax status of interest on the Bonds. The Trustee need only keep accurate records of all investments and funds. and send rebate payments to the United States in accordance with explicit instructions from the Authority. (p) The Trustee shall have no responsibility with respect to any information. statement. or recital in any official statement. offering memorandum or any other disclosure material prepared or distributed with respect to the issuance of the Bonds. (q) The Trustee in its capacity as Trustee is authorized and directed to execute the Loan Agreement. P6402. 1056\8898 38.2 -20- (r) The Trustcc shall not be considered in broach of or in default in its obligations hereunder or progress in respect thereto in the cycnt of enforced delay ("unavoidable delay) in the performance of such obligations duo to unforeseeable causcs beyond its control and yithout its fault or negligence. including. but not Iimitcd to. Acts of God or of the public enemy or terrorists. acts of a government. acts of the other party. fires. floods. epidemics. quarantine restrictions. strikes. freight embargoes. earthquakes. explosion. mob violence. riot. inability to procure or general sabotage or rationing of labor. equipment. facilities. sources of energy. material or supplies in the open market. litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project. malicious mischief. condemnation. and unusually severe ycathcr or delays of suppliers or subcontractors duo to such causcs or any similar cycnt and/or occurrences beyond the control of the Trustcc: provided that. in the cycnt of any such unavoidable delay undcr this paragraph 6.02(r). the Trustcc notify the Authority and the Agency in «citing «ithin five business days after (i) the occurrcncc of the cycnt giving rise to the unavoidable delay. (ii) the Trustees actual knowledge of the impending unavoidable delay. or (iii) the Trustees knowledge of sufficient facts undcr which a rcasonablc person would conclude the unavoidable delay will occur. (s) The Trustcc agrees to accept and act upon facsimilc transmission of written instructions and/or dircctions pursuant to this Indenture provided. however. that: (i) subsequent to such facsimilc transmission of written instructions and/or dircctions the Trustcc shall forthwith receive the originally executed instructions and/or dircctions. (ii) such originally executed instructions and/or dircctions shall be signed by a person as may be dcsignatcd and authorized to sign for the party signing such instructions and/or dircctions. and (iii) the Trustcc shall have received a current incumbency certificate containing the specimen signature of such dcsignatcd person. Scction 6.03. Fccs. Charzes and Expenses of Trustcc. The Trustcc shall be entitled to payment and rcimburscmcnt for rcasonablc fccs for its services rendered hcrcundcr and all advances (with interest on such advances at the maximum rats allowed by lacy). counscl fccs and expenses (including those of in-house counscl to the extent they arc for services not duplicative of other counsels' work) and other expenses reasonably and necessarily made or incurrcd by the Trustcc in connection with such services. which payment and reimbursement shall not be Iimitcd by any provision of lacy in regard to the compensation of a trustee of an express trust. Upon the occurrcncc of an Eycnt of Dcfault hcrcundcr. but only upon an Eycnt of Dcfault. the Trustcc shall hays a first Iicn with right of payment prior to payment of any Bond upon the amounts hold hcrcundcr for the foregoing fccs. charges and expenses incurrcd by it respectively. which right to payment shall survive the resignation or removal of the Trustcc. Scction 6.04. Notice to Owners of Dcfault. If an Event of Dcfault hcrcundcr occurs with respect to any Bonds of which the Trustcc has bccn given or is deemed to have noticc. as provided in Scction 6.02(h). then the Trustcc shall promptly given «cittcn noticc thereof by first-class mail to the Owner of each such Bond. unlcss such Event of Dcfault shall have bccn cured before the giving of such noticc: provided. however. that unlcss such Event of Dcfault consists of the failure by the Authority to make any payment \yhen duo. the Trustcc may elect not to give such noticc if and so long as the Trustcc in good faith determines that such Event of Dcfault dots not materially adversely affect the interests of the Owners or that it is othenyisc not in the best interests of the Owners to give such noticc. Scction 6.05. Intervention by Trustcc. In any judicial proceeding to which the Authority is a party which. in the opinion of the Trustcc. has a substantial bearing on the interests of Owners of any of the Bonds. the Trustcc may intervene on behalf of such Owners. and subject to Scction 6.02(I). shall do so if requested in writing by the Owners of a majority in aggregate Principal Amount of such Bonds then Outstanding. P64U2. I056\S898 38.2 -2 I- Section 6.06. Removal of Trustee. The Owners of a majority in aggregate Principal Amount of the Outstanding Bonds may at any time. and the Authority may (and at the request of the Agency shall) so long as no Event of Default shall have occurred and then be continuing. remove the Trustee initially appointed. and any successor thereto. by an instrument or concurrent instruments in writing delivered to the Tnistcc. «hereupon the Authority or such Owners. as the case may be. shall appoint a successor or successors thereto: provided that any such successor shall be a financial institution meeting the requirements set forth in Section 6.0I I. Section 6.07. Resignation by Trustee. The Trustee and any successor Trustee may at any time give written notice of its intention to resign as Trustee hereunder. such notice to be given to the Authority and the Agency by registered or certified mail. Upon receiving such notice of resignation. the Authority shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance. the Authority shall cause notice thereof to be given by first class mail. postage prepaid. to the Bond Owners at their respective addresses set forth on the Registration Books. Section 6.08. Appointment of Successor Trustee. In the event of the removal or resignation of the Trustee pursuant to Sections 6.06 or 6.07. respectively. with the prior written consent of Agency. the Authority shall promptly appoint a successor Trustee. In the event the Authority shall for any reason Nvhatsoeyer fail to appoint a successor Trustee within 60 days following the delivery to the Trustee of the instrument described in Section 6.06 or within 60 days following the receipt of notice by the Authority pursuant to Section 6.07. the Trustee may. at the expense of the Authority. apply to a court of competent jurisdiction for the appointment of a successor Trustee meeting the requirements of Section 6.0 I . Any such successor Trustee appointed by such court shall become the successor Trustee hereunder notwithstanding any action by the Authority purporting to appoint a successor Trustee following the expiration of such sixty-day period. Section 6.09. Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which either of them may be consolidated or any bank or trust company resulting from any merger. conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business. provided such bank or trust company shall be eligible under Section 6.0I. shall be the successor to such Trustee without the execution or filing of any paper or further act. except as provided in Section 6.10. Section 6.10. Concerning any Successor Trustee. Every successor Trustee appointed hereunder shall execute. acknowledge and deliver to its predecessor and also to the Authority an instrument in writing accepting such appointment hereunder and thereupon such successor. without any further act. deed or conveyance. shall become fully vested with all the estates. properties. rights. powers. trusts. duties and obligations of its predecessors: but such predecessor shall. nevertheless. on the Request of the Authority. or of the Trustees successor. execute and deliver an instrument transferring to such successor all the estates. properties. rights. powers and trusts of such predecessor hereunder: and every predecessor Trustee shall deliver all securities and moneys held by it as the Trustee hereunder to its successor. Should any instrument in writing from the Authority be required by any successor Trustee for more fully and certainly vesting in such successor the estate. rights. powers and duties hereby vested or intended to be vested in the predecessor Trustee. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. Section 6. I I . Appointment of Co -Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State) denying or P6402. 1056\S89838.2 -22- restricting the right of banking corporations or associations to transact business as Trustee in such jurisdiction. It is recognized that in the case of litigation under this Indenture. and in particular in case of the enforcement of the rights of the Trustee on default. or in the case the Trustee or the Authority deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers. rights or remedies herein granted to the Trustee or hold title to the properties. in trust. as herein granted. or take any other action which may be desirable or necessary in connection therewith. it may be necessary that the Trustcc or the Authority appoint an additional individual or institution as a separate co -trustee. The following provisions of this Section 6. I I are adopted to these ends. In the event that the Trustee or the Authority appoints an additional individual or institution as a separate or co -trustee. each and every remedy. power. right. claim. demand. cause of action. immunity. estate. title. interest and Tien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co -trustee but only to the extent necessary to enable such separate or co -trustee to exercise such powers. rights and remedies. and every covenant and obligation necessary to the exercise thereof by such separate or co - trustee shall run to and be enforceable by either of them. The Trustee shall not be liable for the acts or omissions of any separate or co -trustee appointed hereunder. Should any instrument in writing from the Authority be required by the separate trustee or co -trustee so appointed by the Trustee for more fully and certainly vesting in and conforming to it such properties. rights. powers. trusts. duties and obligations. any and all such instruments in writing shall. on request. be executed. acknowledged and delivered by the Authority. In case any separate trustee or co - trustee. or a successor to either. shall become incapable of acting. resign or be removed. all the estates. properties. rights. powers. trusts. duties and obligations of such separate trustee or co -trustee. so far as permitted by law. shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co -trustee. Section 6.12. Indemnification: Limited Liability of Trustee. The Authority further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any loss. expense and liabilities which it may incur arising out of or in the exercise and performance of its powers and duties hereunder. including the costs of expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities which are due to the negligence or intentional misconduct of the Trustee. its officers. directors or employees. No provision in this Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability hereunder if it shall have reasonable grounds for believing repayment of such funds or adequate indemnity against such liability or risk is not assured to it. The Trustee shall not be liable for any action taken or omitted to be taken by it in accordance with the direction of the Insurer or the Owners of at least a majority in aggregate Principal Amount of Bonds Outstanding relating to the time. method and place of conducting any proceeding or remedy available to the Trustee under this Indenture in exercising any trust or power conferred on the Tnistcc by this Indenture. The obligations of the Authority under this Section shall survive the payment and discharge of the Bonds or the resignation or removal of the Trustee under this Indenture. ARTICLE VII MODIFICATION AND AMENDMENT OF THE INDENTURE Section 7.0I I. Amendment Hereof. This Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental P6402. IO56\S89838.2 -23- Indenture Nvhich shall become binding upon adoption. Nyith the Nvritten consent of the Insurer (as Tong as the Insurance Policy is in full force and effect) but Nyithout consent of any Bond Owners. to the extent permitted by lacy but only for any one or more of the following purposes: (a) To add to the covenants and agreements of the Authority in this Indenture contained. other covenants and agreements thereafter to be observed. or to limit or surrender any rights or powers herein reserved to or conferred upon the Authority so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds: or (b) To make such provisions for the purpose of curing any ambiguity. or of curing. correcting or supplementing any defective provision contained in this Indenture. or in any other respect Nvhatsoeyer as the Authority may deem necessary or desirable. provided under any circumstances that such modifications or amendments shall either (i) conform to the original intention of the Authority. or (ii) not materially adversely affect the interests of the Owners of the Bonds in the reasonable judgment of the Authority: or (c) To amend any provision hereof relating to the Code. to any extent Nvhatsoeyer but only if and to the extent such amendment \\ill not adversely affect the exclusion from gross income of interest on any of the Bonds under the Code. in the opinion of Bond Counsel. Except as set forth in the preceding paragraphs of this Section 7.0I. this Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture Nvhich shall become binding \yhen the «rittcn consent of the Insurer (as long as the Insurance Policy is in full force and effect) and of the Owners of a majority in aggregate Principal Amount of the Bonds then Outstanding are filed Nyith the Trustee. No such modification or amendment shall (i) extend the maturity of or reduce the interest rate on any Bond or othenvise alter or impair the obligation of the Authority to pay the principal. interest or premiums. if any. at the time and place and at the rate and in the currency provided therein of any Bond Nyithout the express «rittcn consent of the Owner of such Bond or (ii) reduce the percentage of Bonds required for the «rittcn consent to any such amendment or modification. In no event shall any Supplemental Indenture modify any of the rights or obligations of the Trustee Nyithout its prior «rittcn consent. Section 7.02. Effect of Supplemental Indenture. From and after the time any Supplemental Indenture becomes effective pursuant to this Article VII. this Indenture shall be deemed to be modified and amended in accordance therewith. the respective rights. duties and obligations of the parties hereto or thereto and all Owners of Outstanding Bonds. as the case may be. shall thereafter be determined. exercised and enforced hereunder subject in all respects to such modification and amendment. and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 7.03. Endorsement or Replacement of Bonds After Amendment. After the effective date of any action taken as hereinaboye provided. the Authority may determine that the Bonds shall bear a notation. by endorsement in form approved by the Authority. as to such action. and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of his bond for that purpose at the Trust Office of the Trustee. a suitable notation as to such action shall be made on such Bond at the expense of the Authority. If the Authority shall so determine. neW Bonds so modified as. in the opinion of the Authority. shall be necessary to conform to such Bond Owners" action shall be prepared and executed. and in that case upon demand of the Owner of any Bond Outstanding at such effective date such neW Bonds shall be exchanged at the Trust Office of the Trustee. at the expense of the Authority. for Bonds then Outstanding. upon surrender of such Outstanding Bonds. P6402. 1056\8898 38.2 -24- ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN. SO LONG AS THE INSURANCE POLICY REMAINS IN EFFECT AND THE INSURER HAS NOT DEFAULTED WITH RESPECT TO ITS PAYMENT OBLIGATIONS UNDER THE INSURANCE POLICY. ALL PROVISIONS OF THIS ARTICLE VIII SHALL BE SUBJECT TO. AND QUALIFIED BY. THE PROVISIONS SET FORTH IN ARTICLE IX. INCLUDING. WITHOUT LIMITATION. THE INSURERS RIGHT TO CONSENT TO ACCELERATION OF THE BONDS. AND THE INSURERS RIGHT TO CONSENT TO OR DIRECT CERTAIN AUTHORITY. TRUSTEE OR OWNER ACTIONS. Section 8.0I I. Events of Default. The following events shall be Events of Default hereunder: (a) Default in the due and punctual payment of the Principal Amount of any Bond when and as the same shall become due and payable. whether at maturity as therein expressed. by proceedings for redemption. by declaration or otherwise. (b) IReseryedI (c) Failure by the Authority to observe and perform any of the covenants. agreements or conditions on its part in this Indenture or in the Bonds contained. other than as referred to in the preceding Paragraph (a). for a period of 30 days after written notice. specifying such a failure and requesting that it be remedied has been given to the Authority by the Trustee. or to the Authority and the Trustee by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds: provided. however. that if in the reasonable opinion of the Authority the failure stated in such notice can be corrected. but not within such 30 day period. such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30 day period and diligently pursued until such failure is corrected. (d) The filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America. or if a court of competent jurisdiction shall approve a petition. filed with or without the consent of the Authority. seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America. or if. under the provisions of any other law for the relief or aid of debtors. any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property. (e) The occurrence of any Event of Default under. and as that term is defined in. the Loan Agreement. Section 8.02. Remedies Upon Event of Default. Subject to the provisions of Article IX. if any Event of Default shall occur. then. and in each and every such case during the continuance of such Event of Default. the Trustee may. and at the written direction of the Owners of a majority in aggregate Principal Amount of the Bonds at the time Outstanding shall. upon notice in writing to the Authority and the Agency. declare the Principal Amount of all of the Bonds then Outstanding. to be due and payable immediately. and upon any such declaration the same shall become and shall be immediately due and payable. anything in this Indenture or in the Bonds contained to the contrary notwithstanding. P6402. I Oi6\S89838.2 -25- Any such declaration is subject to the condition that if. at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the Authority or the Agency shall deposit Nvith the Trustee a sum sufficient to pay the Accreted Value of the Bonds of which payments are overdue (such Accreted Value. to the extent permitted by lacy. being calculated to but not including the date of payment by the Authority or the Agency to the Trustee). and the charges and expenses of the Trustee and its counsel (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). and any and all other Events of Default known to the Trustee (other than in the payment of Principal Amount of the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in every such case. the Owners of not less than a majority in aggregate Principal Amount of the Bonds then Outstanding. by Nyritten notice to the Authority. the Agency and the Trustee. or the Trustee if such declaration was made by the Trustee. may. on behalf of the Owners of all of the Bonds. rescind and annul such declaration and its consequences and yaiye such Event of Default: but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default. or shall impair or exhaust any right or power consequent thereon. In addition. upon the occurrence and during the continuance of an Event of Default. the Trustee may pursue any available remedy at lacy or in equity to enforce the payment of the Principal Amount of and premium. if any. on the Bonds. and to enforce any rights of the Trustee under or with respect to the Loan Agreement and this Indenture. If an Event of Default shall have occurred and be continuing and if requested so to do by the Owners of a majority in aggregate Principal Amount of Outstanding Bonds and indemnified as provided in Section 6.02(I). the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article VIII. as the Tnistcc, being advised by counsel. shall deem most expedient in the interest of the Bond Owners. No remedy by the terms of this Indenture conferred upon or reserved to the Trustee (or to the Owners) is intended to be exclusive of any other remedy. but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Owners hereunder or now or hereafter existing at lacy or in equity. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a Nyaiyer of any such Event of Default or acquiescence therein: such right or power may be exercised from time to time as often as may be deemed expedient. Section 8.03. Application of Revenues and Other Funds After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Indenture shall be applied by the Trustee in the following order upon presentation of the several Bonds. and the stamping thereon of the amount of the payment if only partially paid. or upon the surrender thereof if fully paid - First. to the payment of the fees. costs and expenses of the Trustee. including reasonable compensation to its agents. attorneys and counsel (including the allocated costs and disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and Second. to the payment of the amount of Principal Amount of the Bonds then due and unpaid (such Principal Amount being Accreted Value of such Bonds calculated to but not including the P6462. 1056\8898 38.2 -26- date of payment by the Authority or the Agency to the Trustee. to the extent permitted by lacy): provided. however. that in the event such amounts shall be insufficient to pay the full amount. then such amounts shall be applied to the payment of the Principal Amount of all installments of the Bonds then due and payable on a pro rata basis. Section 8.04. PoNyer of Trustee to Control Proceedings. Subject to the provisions of Article IX. in the event that the Trustee. upon the happening of an Event of Default. shall have taken any action. by judicial proceedings or otherwise. pursuant to its duties hereunder. Nyhether upon its own discretion or upon the request of the Owners of at least a majority in aggregate Principal Amount of the Bonds then Outstanding. it shall have full power. in the exercise of its discretion for the best interests of the Owners. Nyith respect to the continuance. discontinuance. NyithdraWal. compromise. settlement or other disposal of such action: provided. however. that the Trustee shall not. unless there no longer continues an Event of Default. discontinue. Nyithdraw. compromise or settle. or othenvise dispose of any litigation pending at lacy or in equity. if at the time there has been filed Nyith it a Nyritten request signed by the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds hereunder opposing such discontinuance. Nyithdrawal. compromise. settlement or other disposal of such litigation. Any suit. action or proceeding \yhich any Owner shall have the right to bring to enforce any right or remedy hereunder may be brought by the Trustee for the equal benefit and protection of all Owners similarly situated and the Trustee is hereby appointed (and the successive respective Owners hereunder. by taking and holding the same. shall be conclusively deemed so to have appointed it) the true and lawful attorney -in -fact of the respective Owners for the purpose of bringing any such suit. action or proceeding and to do and perform any and all acts and things for an on behalf of the respective Owners as a class or classes. as may be necessary or advisable in the opinion of the Trustee as such attorney -in -fact. Section 8.05. Appointment of Receivers. Upon the occurrence of an Event of Default hereunder. and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Owners under this Indenture. the Trustee shall be entitled. as a matter or right. to the appointment of a receiver or receivers of the Revenues and other amounts pledged hereunder. pending such proceedings. Nyith such powers as the court making such appointment shall confer. Section 8.06. Non -Waiver. Nothing in this Article VI I I or in any other provision of this Indenture. or in the Bonds. shall affect or impair the obligation of the Authority. \yhich is absolute and unconditional. to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity. as herein provided. out of the Revenues and other moneys herein pledged for such payment. A Nyaiyer of any default or breach of duty or contract by the Trustee or any Owners shall not affect any subsequent default or breach of duty or contract. or impair any rights or remedies on any such subsequent default or breach. No delay or omission of the Trustee or any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a Nyaiyer of any such default or any acquiescence therein: and every power and remedy conferred upon the Trustee or Owners by the Bond Law or by this Article VIII may be enforced and exercised. upon an Event of Default. from time to time and as often as shall be deemed expedient by the Trustee or the Owners. as the case may be. Section 8.07. Limitation on Rights and Remedies of Owners. No Owner shall have the right to institute any suit. action or proceeding at lacy or in equity. for any remedy under or upon this Indenture. unless (i) such Owner shall have previously given to the Trustee «rittcn notice of the occurrence of an Event of Default: (ii) the Owners of a majority in aggregate Principal Amount of all the Bonds then Outstanding shall have made «rittcn request upon the Trustee to exercise the powers hereinbefore granted or to institute such action. suit or proceeding in its own name: (iii) said Owners shall P6402. 1056\S89838.2 -27- have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs. expenses and liabilities to be incurred in compliance with such request: and (iv) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by. and said tender of indemnity shall have been made to. the Trustee. Such notification. request. tender of indemnity and refusal or omission are hereby declared. in every case. to be conditions precedent to the exercise by an Owner of an remedy hereunder: it being understood and intended that no one or more Owners shall have any right in any manner Nvhateyer by the Owners or Owners action to enforce any right under this Indenture. except in the manner herein provided. and that all proceedings at law or in equity to enforce any provision of this Indenture shall be instituted. had and maintained in the manner herein provided and for the equal benefit of all Owners. The right of any Owner of an Bond to receive payment of the principal of and interest and premium. if any. on such Bond as herein provided or to institute suit for the enforcement of any such payment. shall not be impaired or affected without the «rittcn consent of such Owner. notwithstanding the foregoing provisions of this Section or any other provision of this Indenture. Section 8.08. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or othenyise, and such proceedings shall have been discontinued or abandoned for any reason. or shall have been determined adversely. then and in even- such case. the Authority. the Trustee and the Owners shall be restored to their former positions and rights hereunder. respectively. with regard to the property subject to this Indenture. and all rights. remedies and powers of the Trustcc shall continue as if no such proceedings had been taken. ARTICLE IX BOND INSURANCE (to come) ARTICLE X BOOK -ENTRY SYSTEM Section 10.01 Book -Entry System: Limited Obligation of Authority. The Bonds shall be initially delivered in the form of a separate single fully registered Bond (which may be typewritten) for each of the maturities of the Bonds. Upon initial delivery. the ownership of each such Bond shall be registered in the registration books kept by the Trustee in the name of the Nominee as nominee of the Depository. Except as provided in Section 10.03. all of the Outstanding Bonds shall be registered in the registration books kept by the Trustee in the name of the Nominee. With respect to Bonds registered in the registration books kept by the Trustee in the name of the Nominee. the Authority and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence. the Authority and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository. the Nominee. or any Participant with respect to any ownership interest in the Bonds. (ii) the delivery to any Participant or any P6402. 1056\889838.2 -28- other person. other than an Owner as shown in the registration books kept by the Trustee. of any notice with respect to the Bonds. including any notice of redemption. (iii) the selection by the Depository and its Participants of the beneficial interests in the Bonds to be redeemed in the event the Bonds are redeemed in part. or (iv) the payment to any Participant or any other person. other than an Owner as shown in the registration books kept by the Trustee. of any amount with respect to principal of. premium. if any. or interest due with respect to the Bonds. The Authority and the Trustee may treat and consider the person in whose name each Bond is registered in the registration books kept by the Trustee as the holder and absolute owner of such Bond for the purpose of payment of principal. premium. if any. and interest with respect to such Bond. for the purpose of giving notices of redemption and other matters with respect to such Bond. for the purpose of registering transfers with respect to such Bond. and for all other purposes Nvhatsoeyer. The Trustee shall pay all principal of. premium. if any. and interest due with respect to the Bonds only to or upon the order of the respective Owners. as shown in the registration books kept by the Trustee. or their respective attorneys duly authorized in writing. and all such payments shall be valid and effective to satisfy and discharge fully the Authority's obligations with respect to payment of the principal. premium. if any. and interest due with respect to the Bonds to the extent of the sum or sums so paid. No person other than an Owner. as shown in the registration books kept by the Trustee. shall receive a Bond evidencing the obligation of the Authority to make payments of principal. premium. if any. and interest pursuant to this Indenture. Upon delivery by the Depository to the Trustee and the Authority of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee. and subject to the provisions herein with respect to Record Dates. the word Nominee in this Indenture shall refer to such new nominee of the Depository. Section 10.02 Representation Letter. In order to qualify the Bonds for the Depository's book entry system. the Authority has heretofore executed and delivered to such Depository the Representation Letter. The execution and delivery of a Representation Letter shall not in any way impose upon the Authority or the Tnistcc any obligation Nvhatsoeyer with respect to persons having interests in the Bonds other than the Owners. as shown on the registration books kept by the Trustee. The Trustee agrees to take all action necessary to continuously comply with the Representation Letter to the extent that such action is not inconsistent with this Indenture. In addition to the execution and delivery of the Representation Letter. the officers of the Authority arc hereby authorized to take any other actions. not inconsistent with this Indenture. to qualify the Bonds for the Depository's book entry program. Section 10.03 Transfers Outside Book -Entry System. In the event (a) the Depository determines not to continue to act as securities depository for the Bonds. or (b) the Authority determines that the Depository shall no longer so act. then the Authority NViII discontinue the book -entry system with the Depository. If the Authority fails to identify_ another qualified securities depository to replace the Depository. then the Bonds so designated shall no longer be restricted to being registered in the registration books kept by the Trustee in the name of the Nominee. but shall be registered in Nvhateyer name or names persons transferring or exchanging Bonds shall designate. in accordance with the provisions of Section 2.09. Section 10.04 Payments to the Nominee. Notwithstanding any other provisions of this Indenture to the contrary. so long as any Bond is registered in the name of the Nominee. all payments with respect to principal. premium. if any. and interest due with respect to such Bond and all notices with respect to such Bond shall be made and given. respectively. as provided in the Representation Letter or as othenyise instructed by the Depository. Section 10.05 Initial Depository and Nominee. The initial Depository under this Article shall be The Depository Trust Company. NOV York. New York. The initial Nominee shall be Cede K. Co.. as Nominee of The Depository Trust Company. New York. NOV York. P64U2.I056\8893x.2 -29- ARTICLE XI MISCELLANEOUS Section 11.01. Limited Liability of Authority. Notwithstanding anything in this Indenture contained. the Authority shall not be required to advance any moneys derived from any source of income other than the Revenues for the payment of the principal of or interest on the Bonds. or any premiums upon the redemption thereof. or for the performance of any covenants herein contained (except to the extent any such covenants are expressly payable hereunder from the Revenues or otherwise from amounts payable under the Loan Agreement). The Authority may. however. advance funds for any such purpose. provided that such funds are derived from a source legally available for such purpose and may be used by the Authority for such purpose Nyithout incurring indebtedness. The Bonds shall be revenue bonds. payable exclusively from the Revenues and other funds as in this Indenture provided. The general fund of the Authority is not liable. and the credit of the Authority is not pledged. for the payment of the interest and premium. if any. on or principal of the Bonds. The Owners of the Bonds shall never have the right to compel the forfeiture of any property of the Authority. The principal of and interest on the Bonds. and any premiums upon the redemption of any thereof. shall not be a legal or equitable pledge. charge. Tien or encumbrance upon any property of the Authority or upon any of its income. receipts or revenues except the Revenues and other funds pledged to the payment thereof as in this Indenture provided. Section 11.02. Benefits of Indenture Limited to Parties. Nothing in this Indenture. expressed or implied. is intended to give to any person other than the Authority. the Trustee. the Agency. the Insurer. and the Owners of the Bonds. any right. remedy or claim under or by reason of this Indenture. Any covenants. stipulations. promises or agreements in this Indenture contained by and on behalf of the Authority shall be for the sole and exclusive benefit of the Trustee. the Agency. the Insurer. and the Owners of the Bonds. Section 11.0 3. Dischartze of Indenture. If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following \Nays: (a) By \yell and truly paying or causing to be paid the principal of and interest and premium. if any. on such Bonds. as and when the same become due and payable: (b) By irrevocably depositing «ith the Trustee. in trust. at or before maturity. money which. together with the available amounts then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. is fully sufficient to pay such Bonds. including all principal. interest and premiums. if any: or (c) By irrevocably depositing «ith the Trustee or any other fiduciary. in trust. non -callable Defeasance Obligations in such amount as an Independent Accountant shall determine \yill. together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the Trustee pursuant to this Indenture and the Loan Agreement. be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal. interest and redemption premiums) at or before their respective maturity dates: and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been sent pursuant to Section 2.03 or provision satisfactory to the Trustee shall have been made for the sending of such notice. then. at the Request of the Authority. and notwithstanding that any of such Bonds shall not have been surrendered for payment. the pledge of the Revenues and other funds provided for in this Indenture with respect to such Bonds. and all other pecuniary obligations of the Authority under this Indenture with respect to all such P6402. I Oi6\889838.2 -30- Bonds. shall cease and terminate. except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid. and all expenses and costs of the Trustee. Any funds held by the Trustee following any payment or discharge of the Outstanding Bonds pursuant to this Section 11.03 and the payment of the Trustee's and the Insurers expenses and costs shall be paid over to the Authority. Section 11.04. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture or any Supplemental Indenture the Authority is named or referred to. such reference shall be deemed to include the successor to the powers. duties and functions. with respect to the management. administration and control of the affairs of the Authority. that are presently vested in the Authority. and all the covenants. agreements and provisions contained in this Indenture by or on behalf of the Authority shall bind and inure to the benefit of its successors whether so expressed or not. Section l 1.05. Content of Certificates. Every Certificate of the Authority_ with respect to compliance with a condition or covenant provided for in this Indenture shall include (i) a statement that the person or persons making or giving such Certificate have read such covenant or condition and the definitions herein relating thereto: (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Certificate are based: (iii) a statement that. in the opinion of the signers. they have made or caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such covenant or condition has been complied with: and (iv) a statement as to whether. in the opinion of the signers. such condition or covenant has been complied with. Any such certificate made or given by an officer of the Authority may be based. insofar as it relates to legal matters. upon a certificate or opinion of or representations by counsel. unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate may be based. as aforesaid. arc erroneous. or in the exercise of reasonable care should have known that the same \were erroneous. Any such certificate or opinion or representation made or given by counsel may be based. insofar as it relates to factual matters. on information with respect to which is in the possession of the Authority. or upon the certificate or opinion of or representations by an officer or officers of the Authority. unless such counsel knows that the certificate or opinion or representations with respect to the matters upon which his certificate. opinion or representation may be based. as aforesaid. are erroneous. Section 11.06. Execution of Documents by Owners. Any request. consent or other instrument required bv this Indenture to be signed and executed bv Bond Owners may be in any number of concurrent writings of substantially similar tenor and may be signed or executed by such Bond Owners in person or by their agent or agents duly appointed in writing. Proof of the execution of any such request. consent or other instrument or of a writing appointing any such agent. shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and of the Authority if made in the manner provided in this Section 11.06. The fact and date of the execution by any person of any such request. consent or other instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer of any jurisdiction. authorized by the laws thereof to take acknowledgments of deeds. certifying that the person signing such request. consent or other instrument or writing acknowledged to him the execution thereof. The ownership of Bonds shall be proved by the Registration Books. Any request. consent or vote of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of any Bond issued in exchange therefor or in Iicu thereof. in respect of anything done or suffered to be P6402. I O56\S89838.2 -3 I - done by the Trustee or the Authority in pursuance of such request. consent or vote. In Iicu of obtaining any demand. request. direction. consent or Nvaiyer in writing. the Trustee may call and hold a meeting of the Bond Owners upon such notice and in accordance with such rules and obligations as the Trustee considers fair and reasonable for the purpose of obtaining an such action. Section 11.07. Disqualified Bonds. In determining \dhether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand. request. direction. consent or Nvaiyer under this Indenture. Bonds which are owned or held by or for the account of the Agency or the Authority (but excluding Bonds held in any employees' retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. provided. however. only Bonds which a responsible officer of the Trustee actually knows to be so owned or held shall be disregarded. Section 11.08. Waiver of Personal Liability. No officer. agent or employee of the Authority shall be individually or personally liable for the payment of the interest on or principal of the Bonds: but nothing herein contained shall relieve any such officer. agent or employee from the performance of any official duty provided by law. Section 11.09. Partial Invalidity. If any one or more of the covenants or agreements. or portions thereof. provided in this Indenture on the part of the Authority (or of the Trustee) to be performed should be contrary to law. then such covenant or covenants. such agreement or agreements. or such portions thereof. shall be null and void and shall be deemed separable from the remaining covenants and agreements or portions thereof and shall in no way affect the validity of this Indenture or of the Bonds: but the Bond Owners shall retain all rights and benefits accorded to them under the Bond Law or any other applicable provisions of law. The Authority hereby declares that it would have entered into this Indenture and each and every other section. paragraph. subdivision. sentence. clause and phrase hereof and would have authorized the issuance of the Bonds pursuant hereto irrespective of the fact that any one or more sections. paragraphs. subdivisions. sentences. clauses or phrases of this Indenture or the application thereof to any person or circumstance may be held to be unconstitutional. unenforceable or invalid. Section 1 1.10. Destruction of Cancelled Bonds. Whenever in this Indenture provision is made for the surrender to the Trustee of any Bonds which have been paid or cancelled pursuant to the provisions of this Indenture. the Trustee shall. as permitted by law. destroy such cancelled Bonds and. upon Request of the Authority. provide to the Authority a certificate of destruction duly executed by the Trustcc. and the Authority shall be entitled to rely upon any statement of fact contained in such certificate with respect to the destruction of any such Bonds therein referred to: provided. however. the Authority shall reimburse the Trustee for the Trustees costs incurred in connection with the microfilming or the required permanent recording. if any. related thereto. Section 1 1.1 1. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the accounting records of the Authority or the Trustee. as the case may be. either as a fund or an account. and may. for the purpose of such records. any audits thereof and any reports or statements with respect thereto. be treated either as a fund or as an account. All such records with respect to all such funds and accounts held by the Authority shall at all times be maintained in accordance with generally accepted accounting principles and all such records with respect to all such funds and accounts held by the Trustee shall be at all times maintained in accordance with corporate trust industry practices. Any fund or account required by this Indenture to be established and maintained by the Authority or the Trustee may be established and maintained in the form of multiple funds. accounts or sub -accounts therein. P6402. 1056\S898 38.2 -32- Section 1 1.12. Payment on Business Days. Whenever in this Indenture any amount is required to be paid on a day Nyhich is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest shall not accrue from and after such day. Section 1 1.1 3. Notices. Any notice. request. complaint. demand or other communication under this Indenture shall be given by first class mail or personal delivery to the party entitled thereto at its address set forth below. or by telecopv or other form of telecommunication. confirmed by telephone at its number set forth below. Notice shall be effective either (i) upon transmission by telecopy or other form of telecommunication. (ii) 48 hours after deposit in the United States mail. postage prepaid. or (iii) in the case of personal delivery to any person. upon actual receipt. The Authority. the Agency or the Trustee may. by Nvritten notice to the other parties. from time to time modify the address or number to which communications are to be given hereunder. If to the Authority: Palm Desert Financing Authority 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Chief Administrative Officer Facsimile: (760) 340-0574 If to the Agency: Palm Desert Redevelopment Agency 7 3-5 10 Fred Waring Drive Palm Desert. California 92260 Attention: Executive Director Facsimile: (760) 340-0574 If to the Trustee: Wells Fargo Bank. National Association 707 Wilshire Boulevard. 17th Floor Los Angeles. California 90017 Attention: Corporate Trust Department Facsimile: (213) 6I4-3355 If to the Insurer: Attention: Facsimile: ( ) The Authority. the Agency. the Trustee and the Insurer may designate any further or different addresses to which subsequent notices. certificates or other communications shall be sent. Notices to the Insurer shall be governed by Section 9.02. Section 11.14. Unclaimed Money s. Anything in this Indenture to the contrary notwithstanding. any moneys held by the Trustee in trust for the payment and discharge of any of the Bonds or the interest thereon which remain unclaimed for two years after the date Nyhen such Bonds or the interest thereon have become due and payable. either at their stated maturity dates or by call for earlier redemption. if such moneys \sere held by the Trustee at such date. or for two years after the date of deposit of such moneys if deposited with the Trustee after said date Nyhen such Bonds or the interest thereon become due and payable. shall. at the Request of the Authority. be repaid by the Trustee to the Authority. as its absolute property and free from trust. and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall look only to the Authority for the payment of such P6402. I O56\S89838.2 -33- Bonds: provided. however. that before making any such payment to the Authority. the Trustee shall. at the Request and at the expense of the Authority. cause to be mailed to the Owners of all such Bonds. at their respective addresses appearing on the Registration Books. a notice that said moneys remain unclaimed and that. after a date named in said notice. which date shall not be less than 30 days after the date of mailing of such notice. the balance of such moneys then unclaimed will be returned to the Authority. Section I I.15. Governing, Law. This Agreement shall be construed and governed in accordance with the laws of the State of California. P6402. 1056\8898 38.2 -34- IN WITNESS WHEREOF. the PALM DESERT FINANCING AUTHORITY has caused this Indenture to be signed in its name by its duly authorized officer and WELLS FARGO BANK. NATIONAL ASSOCIATION. in token of its acceptance of the trust created hereunder. has caused this Indenture to be signed in its corporate name by its officer identified below. all as of the day and year first above Nvritten. P6402. 1056\889838.2 PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By _5- Authorized Officer EXHIBIT A IFORM OF BONDS Unless this certificate is presented by an authorized representative of The Depository Trust Company. a NOV York corporation ("DTC). to the Authority or its agent for registration of transfer. exchange. or payment. and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC). ANY TRANSFER. PLEDGE. OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof. Cede & Co.. has an interest herein. No. Maturity Amount: } PALM DESERT FINANCING AUTHORITY SUBORDINATE TAX ALLOCATION REVENUE CAPTIAL APPRECIATION BOND (PROJECT AREA NO. 3) 2006 SERIES C YIELD TO MATURITY MATURITY DATE ORIGINAL ISSUE DATE CUSIP April I. 20_ REGISTERED OWNER: CEDE & CO. INITIAL PRINCIPAL AMOUNT: MATURITY AMOUNT: The PALM DESERT FINANCING AUTHORITY. a joint powers authority organized and existing under the laws of the State of California (the "Authority"). for value received. hereby promises to pay (but only out of the Revenues. as defined in the Indenture hereinafter referred to. and certain other moneys) to the Registered Owner identified above or registered assigns (the "Registered Owner"). in lawful money of the United States of America. either the Maturity Amount identified above on the Maturity Date or the Accreted Value. plus any applicable redemption premium. upon redemption prior to maturity. "Accreted Value." with respect to any Bond. means as of any date of calculation. the sum of the Initial Principal Amount thereof and the interest accrued thereon to such date of calculation. compounded from the Original Issue Date at the stated Yield to Maturity thereof on each April I and October I. commencing October I. 2006. Interest on each Bond shall be computed using a year of 360 days of twelve 30-day months and shall be payable (i) at maturity as part of the Maturity Amount. or (ii) at redemption as part of the Accreted Value to the redemption date. The Maturity Amount. or the Accreted Value and redemption premium (if any). as applicable. with respect to any Bond shall be paid upon presentation and surrender thereof. at maturity or the prior redemption thereof. at the corporate trust office A-1 P6402. 1056\8898 38.2 of Wells Fargo Bank. National Association (the "Trustee") in Los Angeles. California or such other location as the Trustee shall designate (the "Trust Office"). This Bond is one of a duly authorized series of bonds of the Authority designated the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C (the "Bonds"). limited in initial principal amount to } . The Bonds are secured by an Indenture of Trust. dated as of July I. 2006 (the "Indenture"). by and between the Authority and the Trustee. Unless the context clearly requires otherwise. capitalized terms used but not defined herein have the meanings ascribed to them in the Indenture. Reference is hereby made to the Indenture and all indentures supplemental thereto for a description of the rights thereunder of the owners of the Bonds. of the nature and extent of the Revenues. of the rights. duties and immunities of the Trustee and of the rights and obligations of the Authority thereunder: and all of the terms of the Indenture are hereby incorporated herein and constitute a contract between the Authority and the Registered Owner hereof. and to all of the provisions of which Indenture the Registered Owner hereof. by acceptance hereof. assents and agrees. The Bonds are authorized to be issued pursuant to the provisions of the Marks -Roos Local Bond Pooling Act of 1985. constituting Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Act"). The Bonds are special obligations of the Authority and. as and to the extent set forth in the Indenture. are payable solely from and secured by a first lien on and pledge of the Revenues and certain other moneys and securities held by the Trustee as provided in the Indenture. All of the Bonds are equally secured by a pledge of. and charge and lien upon. all of the Revenues and such other moneys and securities. and the Revenues and such other moneys and securities constitute a trust fund for the security and payment of the principal of and interest on the Bonds. The full faith and credit of the Authority is not pledged for the payment of the principal of or interest or premium (if an) on the Bonds. The Bonds are not secured by a legal or equitable pledge of. or charge. lien or encumbrance upon. any of the property of the Authority or any of its income or receipts. except the Revenues and such other moneys and securities as provided in the Indenture. The Bonds have been issued for the purpose of making a loan (the "Loan") to the Palm Desert Redevelopment Agency (the "Agency") to finance certain public capital improvements with respect to a redevelopment project known and designated as Project Area No. 3 (the "Project Area"). The Loan has been made by the Authority to the Agency pursuant to a Project Area No. 3 Loan Agreement (2006 Subordinate Loan). dated as of July I. 2006 (the "Loan Agreement"). by and among the Agency. the Authority and the Trustee. Repayment of the Loan is secured by Subordinate Tax Revenues (as defined in the Loan Agreement). consisting of certain tax revenues received by the Agency with respect to the Project Area. less the amount required to pay certain obligations of the Agency which rank senior to the Loan. The Bonds maturing on or after April I. 2() are subject to redemption prior to their respective maturity dates as a Nyhole. or in part among maturities as designated by the Authority and by lot within a maturity. from prepayments of the Loan made at the option of the Agency pursuant to the Loan Agreement. on any April I or October I on or after April I. 20 . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called Bonds on the date fixed for redemption): Redemption Dates Redemption Price April I. 20 and October I. 2() 10_`%0 April I. 20 and October I. 2() 10_ A-2 P6402. 1056\8898 38.2 April I. 20 and thereafter 100 The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective owners of any Bonds designated for redemption. at their respective addresses appearing on the registration books maintained by the Trustee. and by such means as acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the redemption date: provided. however. that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the serial numbers of each maturity or maturities (except that if the event of redemption is of all of the Bonds of such maturity or maturities in whole. the Trustee shall designate such maturities or the maturity in NVhoIe without referencing each individual number) of the Bonds to be redeemed. and shall require that such Bonds be then surrendered at the Trust Office for redemption at the redemption price. giving notice also that further interest on such Bonds will not accrue from and after the redemption date. Subject to the limitations and upon payment of the charges. if any. provided in the Indenture. this Bond may be exchanged at the Trust Office for a like aggregate Maturity Amount and maturity of fully registered Bonds of other authorized denominations. This Bond is transferable by the Registered Owner hereof. in person or by the Registered Owners attorney duly authorized in writing. at the Trust Office. but only in the manner. subject to the limitations and upon payment of the charges provided in the Indenture. and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Bond or Bonds. of authorized denomination or denominations. for the same aggregate Maturity Amount and of the same maturity will be issued to the transferee in exchange therefor. The Trustee shall not be required to register the transfer or exchange of an Bond during the 15-day period preceding the selection of Bonds for redemption or any Bond selected for redemption. The Authority and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes. and the Authority and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Authority and of the owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time in the manner. to the extent. and upon the terms provided in the Indenture: provided that no such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or othenyise alter or impair the obligation of the Authority to pay the principal. interest or premiums at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond. (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification. or (c) without its written consent thereto. modify any of the rights or obligations of the Trustee. all as more fully set forth in the Indenture. It is hereby certified that all things. conditions and acts required to exist. to have happened and to have been performed precedent to and in the issuance of this Bond do exist. have happened and have been performed in due time. form and manner as required by the Constitution and statutes of the State of California and by the Act and the amount of this Bond. together with all other indebtedness of the Authority. does not exceed any limit prescribed by the Constitution or statutes of the State of California or by the Act. A-3 P6-IU2. I (156\xx9x 3x.2 This Bond shall not be entitled to any benefit under the Indenture. or become valid or obligatory for any purpose. until the certificate of authentication hereon shall have been signed by the Trustee. IN WITNESS WHEREOF. the Authority has caused this Bond to be executed in its name and on its behalf by the manual or facsimile signatures of its President and Secretary all as of the Original Issue Date identified above. PALM DESERT FINANCING AUTHORITY By Attest: Secretary President STATEMENT OF INSURANCE Ito coma A-4 P6402. 1056\8898 38.2 (FORM OF TRUSTEES CERTIFICATE OF AUTHENTICATION' This is one of the Bonds described in the Nvithin-mentioned Indenture and registered on the Bond Registration Books. Date: WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Signatory (FORM OF ASSIGNMENT' For value received the undersigned do(es) hereby sell. assign and transfer unto Nvhose tax identification number is the Nvithin-mentioned registered Bond and hereby irrevocably constitute(s) and appoint(s) attorney to transfer the same on the books of the Trustee Nvith full power of substitution in the premises. Dated: Signature guaranteed: NOTE: The signature(s) on this Assignment must correspond Nvith the name(s) as Nvritten on the face of the Nyithin Bond in every particular Nvithout alteration or enlargement or any change Nyhatsoeyer. NOTE: Signature(s) must be guaranteed by a member of an institution Nyhich is a participant in the Securities Transfer Agent Medallion Program (STAMP) or other similar program. A-5 P6402. 1056\S898 38.2 Project Area No. 3 Loan Agreement (2006 Subordinate Loan) Nyith reference to Palm Desert Financing Authority Subordinate Tax Allocation Rcycnuc Capital Appreciation Bonds (Project Area No. 3) 2006 Series C P6402. O156\889991.2 RWG DRAFT: 5/24/2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 2 Section I.I. Definitions 2 Section 1.2. Rules of Construction iS ARTICLE II THE LOAN: APPLICATION OF LOAN PROCEEDS: INCURRENCE OF ADDITIONAL DEBT Section 2. I. Authorization Section 2.2. Disbursement and Application of Loan Proceeds iS Section 2.3. Repayment of Loan 6 Section 2.4. Optional Prepayment 6 Section 2.5. Reserve Fund 7 Section 2.6. Costs of Issuance Fund 8 Section 2.7. Project Fund 8 Section 2.8. Parity Debt 9 Section 2.10. Issuance of Additional Senior Debt 9 Section 2.10. Issuance of Subordinate Debt I0 Section 2. I I . Validity of Loan I0 ARTICLE III PLEDGE AND APPLICATION OF SUBORDINATE TAX REVENUES 10 Section 3. I . Pledge of Subordinate Tax Revenues I0 Section 3.2. Special Fund: Deposit of Tax Revenues I() Section 3.3. Transfer of Subordinate Tax Revenues From Special Fund I0 Section 3.4. Investment of Moneys: Valuation of Investments I I ARTICLE IV OTHER COVENANTS OF THE AGENCY I2 Section 4. I . Punctual Payment: Extension of Payments I2 Section 4.2. Limitation on Additional Indebtedness I2 Section 4.3. Payment of Claims I2 Section 4.4. Books and Accounts: Financial Statements I2 Section 4.5. Protection of Security and Rights I2 Section 4.6. Payments of Taxes and Other Charges 13 Section 4.7. Taxation of Leased Property I3 Section 4.8. Disposition of Property I3 Section 4.9. Maintenance of Tax Revenues 13 Section 4.10. Payment of Expenses: Indemnification 14 Section 4.1 I. Tax Covenants 14 Section 4.12. Redevelopment of Project Area 15 Section 4.1 3. Low and Moderate Income Housing Fund 15 Section 4.14. Annual Review of Tax Revenues 15 Section 4.1 5. Further Assurances 15 ARTICLE V EVENTS OF DEFAULT AND REMEDIES I6 Section 5. I . Events of Default and Acceleration of Maturities I6 Section 5.2. Application of Funds Upon Default 17 Section 5.3. No Waiver 17 Section 5.4. Agreement to Pay Attorneys' Fees and Expenses 17 Section 5.5. Remedies Not Exclusive I7 Section 5.6. Control of Remedies by Insurer I8 ARTICLE VI MISCELLANEOUS I8 Section 6. I . Benefits Limited to Parties I Section 6.2. Successor is Deemed Included in All References to Predecessor I8 P6402. c 0156\889991.2 Section 6.3. Discharge of Loan Agreement 18 Section 6.4. Amendment 19 Section 6.5. Waiver of Personal Liability 19 Section 6.6. Payment on Business Days 19 Section 6.7. Notices 19 Section 6.8. Partial Invalidity 19 Section 6.9. Article and Section Headings and References 19 Section 6.10. Execution of Counterparts 19 Section 6.1 1. Governing Law 19 Section 6.12. The Trustee 20 EXHIBIT A — Schedule of Loan Payments P6402. c 0156\889991.2 11 PROJECT AREA NO. 3 LOAN AGREEMENT (2006 SUBORDINATE LOAN) This Project Area No. 3 Loan Agreement (2006 Subordinate Loan) (this "Loan Agreement") is made and entered into as of Jule I. 2006. by and among the Palm Desert Redevelopment Agency. a public body. corporate and politic. duly organized and validly existing under the laws of the State of California (the "Agency"). the Palm Desert Financing Authority. a joint powers authority duly organized and validly existing under the laws of the State of California (the "Authority"). and Wells Fargo Bank. National Association. a national banking association duly organized and validly existing under the laws of the United States of America (the "Trusted. Recitals A. The Agency is a redevelopment agency. a public body. corporate and politic. duly created. established and authorized to transact business and exercise its powers, all under and pursuant to the Redevelopment Law. and the powers of the Agency include the power to borrow money for any of its corporate purposes. B. A Redevelopment Plan for Project Area No. 3 of the Agency (the "Project Area") has been duly approved and adopted by the City. C. The Agency has determined to incur a loan (the "Loan") hereunder for the object and purpose of assisting in the financing of public capital improvements and redevelopment activities for the benefit of the Project Area. pursuant to the Redevelopment Law and the Marks -Roos Local Bond Pooling Act of 1985. Article 4. Chapter 5. Division 7. Title I of the Government Code of the State of California (the "Bond Law"). D. Concurrently with the execution and delivery of this Loan Agreement. the Authority has issued its Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C. in the initial principal amount of $ (the "Bonds"). pursuant to the Bond Law and an Indenture of Trust. dated as of July I. 2006 (the "Indenture.). by and between the Authority and the Trustee. for the purpose of providing funds to make the Loan to the Agency E. The Authority has found and determined that there will be significant public benefits accruing from such borrowing. consisting of demonstrable savings in effective interest rates and financing costs associated with the issuance of the Bonds pursuant to the Bond Law. F. The Agency and the Authority have determined that all acts and proceedings required by law necessary to make this Loan Agreement. when executed by the Agency. the Authority and Trustee. the valid. binding and legal obligation of the Agency and the Authority. and to constitute this Loan Agreement a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms. have been done and taken. and the execution and delivery of this Loan Agreement have been in all respects duly authorized. NOW. THEREFORE. in consideration of the premises and the mutual agreements herein contained. the parties hereto do hereby agree as follows: P6402.0156\889991.2 1 ARTICLE I DEFINITIONS Section I. I. Definitions. Unless the contest clearly requires or unless othenvise defined herein. the capitalized terms in this Loan Agreement shall have the respective meanings Nyhich such terms are given in the Indenture. In addition. the following terms defined in this Section I. I shall. for all purposes of this Loan Agreement. have the respective meanings herein specified. "Additional Reyenues- means. as of the date of calculation. the amount of Tax Revenues which. as shown in the Report of an Independent Redevelopment Consultant. are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to either (i) construction which has been completed but which is not then reflected on the tax rolls. or (ii) transfer of ownership or an other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition. the term "increases in the assessed valuation means the amount by which the assessed valuation of taxable property in the Project Area is estimated to increase above the assessed valuation of taxable property in the Project Area (as reported by an appropriate official of the County) as of the date on which such calculation is made. "Bonds means the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3). 2006 Series C. "Costs of Issuance means all expenses incurred in connection with the authorization. issuance. sale and delivery of the Bonds and the making of the Loan pursuant to this Loan Agreement. including but not limited to all compensation. fees and expenses (including but not limited to fees and expenses for legal counsel) of the Authority and any trustee. compensation to any financial advisors or underwriters and their counsel. legal fees and expenses. filing and recording costs. rating agency fees. credit enhancement fees (including insurance. surety bonds and letters of credit). costs of preparation and reproduction of documents and costs of printing. "Costs of Issuance Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.6. "Event of Default means any of the events described in Section 5.1. "Indenture- means the Indenture of Trust dated as of July I. 2006. by and between the Authority and the Trustee. authorizing the issuance of the Bonds. as may from time to time be supplemented. modified or amended. "Independent Redevelopment Consultant means any consultant or firm of such consultants appointed by or acceptable to the Agency. and \who. or each of whom: (i) is judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the financing of redevelopment projects: (ii) is in fact independent and not under the domination of the Agency: (iii) does not have any substantial interest. direct or indirect. with the Agency. other than as original purchaser of any obligations of the Agency: and (iv) is not connected with the Agency as an officer or employee of the Agency. but \who may be regularly retained to make reports to the Agency. "Loan means the loan made by the Authority to the Agency pursuant to Section 2.1 from the proceeds of the Bonds in the initial principal amount of P6402. O156\889991.2 2 "Loan Agreements means this Project Area No. 3 Loan Agreement (2006 Subordinate Loan). as may from time to time be amended. modified or supplemented. "Maximum Annual Debt Service" means. as of the date of calculation. the largest amount obtained by totaling. for the current or any future Bond Year. the sum of (i) the amount of interest payable on the Loan and all outstanding Parity Debt in such Bond Year. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. and (ii) the amount of principal payable on the Loan and all outstanding Parity Debt in such Bond Year. including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation. there shall be excluded a pro rata portion of each installment of principal of any Parity Debt. together Nvith the interest to accrue thereon. in the event and to the extent that the proceeds of such Parity Debt are deposited in an escrow fund from Nvhich amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year. plus at the option of the Agency the Additional Revenues. meet the coverage test set forth in Section 2.8(b). "Maximum Combined Annual Debt Service" means. as of the date of calculation. the largest amount obtained by totaling. for the current or any future Bond Year. the sum of (i) the amount of interest payable on the Loan. all outstanding Parity Debt and all outstanding Senior Debt in such Bond Year. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. and (ii) the amount of principal payable on the Loan. all outstanding Parity Debt and all outstanding Senior Debt in such Bond Year. including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation. there shall be excluded a pro rata portion of each installment of principal of any Senior Debt or Parity Debt. together Nvith the interest to accrue thereon. in the event and to the extent that the proceeds of such Senior Debt or Parity Debt are deposited in an escrow fund from Nyhich amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year. plus at the option of the Agency the Additional Revenues. meet the coverage test set forth in (a) Nvith respect to the release of Senior Debt proceeds from any such escrow fund. Section 2.9(b) or (b) Nvith respect to the release of Parity Debt proceeds from any such escrow fund. Section 2.8(b). "Parity Debt" means any loans. bonds. notes. advances. or indebtedness payable from Tax Revenues on a parity Nvith the Loan. issued or incurred pursuant to and in accordance Nvith the provisions of Section 2.8. "Parity Debt Instrument"' means any resolution. indenture of trust. trust agreement or other instrument authorizing the issuance of any Parity Debt. "Pass-Throutzh Agreements means. collectively. the agreements entered into or approved by the Agency on or prior to the date hereof pursuant to Section 33401 of the Redevelopment Law Nyith (i) the County of Riverside. (ii) the Coachella Valley Mosquito Abatement District. (iii) the Coachella Valley Recreation and Park District. (iv) the Coachella Valley Water District. (v) the Desert Community College District. (vi) the Desert Sands Unified School District and (yii) the Riverside County Superintendent of Schools. "Plan Limitations"' means the limitations contained or incorporated in the Redevelopment Plan on (i) the aggregate principal amount of bonded indebtedness payable from Tax Revenues Nvhich may be outstanding at any time. (ii) the aggregate amount of taxes Nvhich may be divided and allocated to the Agency pursuant to the Redevelopment Plan. and (iii) the period of time for establishing loans. advances and indebtedness payable from Tax Revenues. P6402. O156\889991.2 3 "Project Fundy means the fund by that name established and held by the Trustee pursuant to Section 2.7. "Qualified Reserve Fund Credit Instrument means a surety bond issued by an insurance company and deposited Nvith the Trustee pursuant to Section 2.5. provided that all of the following requirements are met at the time of deposit with the Trustee: (i) either (a) the claims paying ability of such insurance company is rated within the highest rating category by Moody's and S&P. and if rated by A.M. Best & Company. within the highest rating category by A.M. Best & Company. at the time of delivery of such surety bond or (b) the Authority shall cause to be filed with the Trustee Nvritten evidence from Moody's and S&P that the delivery of such surety bond will not. of itself. cause a reduction or Nyithdrawal of any rating then assigned to the Bonds: (ii) such surety bond has a term of at least 12 months: (iii) such surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released pursuant to Section 2.5: and (iv) the Trustee is authorized pursuant to the terms of such surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time with respect to deposits required pursuant to Section 3.3(a). "Redevelopment Fundy means the Project Area No. 3 Redevelopment Fund. heretofore established and held by the Agency. "Redevelopment Project means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area. "Reserve Fundy means the Project Area No. 3 Subordinate Reserve Fund held by the Trustee pursuant to Section 2.5. "Reserve Requirement. means the least of (i) Maximum Annual Debt Service. (ii) 125 percent of average annual debt service on the Loans and all outstanding Parity Debt. and (iii) 10 percent of the proceeds of the Loans (i.e.. the original Principal Amount of the Bonds) and of the proceeds of any Parity Debt. The amount of the Reserve Requirement on any date is subject to confirmation by the Authority to the Trustee upon the Trustees «rittcn request. At the Closing Date. the Reserve Requirement shall be $ "Senior Debt means the Senior 2003 Loan and the Senior 2006 Loans and any other loans. bonds. notes. advances. or indebtedness payable from Tax Revenues which rank senior to the Loan and the Parity Debt. issued or incurred pursuant to and in accordance with the provisions of Section 2.9. "Senior Debt Instrument means the Senior 2003 Loan Agreement. the Senior 2006 Loan Agreement and any other resolution. indenture of trust. trust agreement or other instrument authorizing the issuance of any Senior Debt. "Senior Debt Service" means. for any period of time. the sum of (i) the amount of interest payable during such period on all outstanding Senior Debt. assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled. (ii) the amount of principal payable during such period on all outstanding Senior Debt. including any principal required to be prepaid by operation of mandatory sinking fund payments. and (iii) amounts. if any. required to be deposited in the debt service reserve funds maintained under the Senior Debt Instruments or paid to the issuers of surety bonds (or other qualified reserve fund instruments) deposited in the reserve fund relating to any Senior Debt in lieu of cash pursuant to the agreements between the Agency and such issuers. P6402. c 0 l 56\889991.2 4 "Senior 2006 Loans means the outstanding balance of the loans made by the Authority to the Agency pursuant to the Senior 2006 Loan Agreement. "Senior 2006 Loan Agreement- means the Project Area No. 3 Loan Agreement (2006 Senior Loans). dated as of Jule I. 2006. by and among the Agency. the Authority and Wells Fargo Bank. National Association. as trustee. "Senior 2003 Loan means the outstanding balance of the loan made by the Authority to the Agency pursuant to the Senior 2003 Loan Agreement. "Senior 2003 Loan Agreement- means the Project No. 3 Loan Agreement dated as of July I. 2003. by and among the Agency. the Authority and BNY Western Trust Company. as prior trustee (as succeeded by Wells Fargo Bank. National Association. as trustee).. "Special Fundy means the fund by that name held by the Agency pursuant to Section 3.2. "Subordinate Debt means any loans. advances or indebtedness issued or incurred by the Agency in accordance Nyith the requirements of Section 2.10. Nyhich are either: (i) payable from. but not secured by a pledge of or lien upon. the Tax Revenues: or (ii) secured by a pledge of or lien upon the Subordinate Tax Revenues Nyhich is subordinate to the pledge of and lien upon the Subordinate Tax Revenues hereunder for the security of the Loan and any Parity Debt. "Subordinate Tax Rcycnucs- means. for any period of time. the Tax Revenues for such period. Tess the Senior Debt Service payable during such period. "Tax Rcycnucs- means that portion of the taxes levied upon taxable property in the Project Area allocated and paid into a special fund of the Agency pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the California Constitution. exclusive of amounts placed into the Low and Moderate Income Housing Fund of the Agency pursuant to Sections 33334.2 and 33334.3 of the Redevelopment Lary. and excluding amounts payable to affected taxing agencies pursuant to the Pass -Through Agreements or pursuant to Section 33607.5 or 33607.7 of the Redevelopment Lary. Section I.2. Rules of Construction. All references herein to "Articles." "Sections" and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement. and the Nyords "herein. "hereof. "hereunder- and other Nyords of similar import refer to this Loan Agreement as a Nyholc and not to any particular Article. Section or subdivision hereof. ARTICLE II THE LOAN: APPLICATION OF LOAN PROCEEDS: INCURRENCE OF ADDITIONAL DEBT Section 2. I . Authorization. The Authority hereby agrees to lend to the Agency. from the proceeds of the sale of the Bonds deposited in the Loan Fund established under the Indenture. the initial principal amount of $ under and subject to the terms of this Loan Agreement. the Bond Law and the Redevelopment Lary. This Loan Agreement constitutes a continuing agreement to secure the full and final payment of the Loan. subject to the covenants. agreements. provisions and conditions herein contained. Section 2.2. Disbursement and Application of Loan Proceeds. P6402. O156\889991.2 5 On the Closing Date. the Authority shall cause to be deposited into the Loan Fund the amount of $ which shall be held by the Trustee and which shall be disbursed as follows: Issuance Fund. (i) The Trustee shall transfer the amount of $ to the Costs of (ii) The Trustee shall transfer the amount of $ to the Project Fund (iii) The Trustee shall transfer the amount of (which amount shall equal the initial Reserve Requirement). to the Reserve Fund On the Closing Date. the Authority shall also cause the amount of to be paid to the Insurer for the costs of the premium for the Insurance Policy. The Trustee may. in its discretion. establish a temporary fund or account to facilitate or account for the foregoing transfers. Section 2.3. Repayment of Loan. The Agency shall. subject to prepayment as provided in Section 2.4(a). repay the Loan in installments on April I in each of the years and in the amounts set forth in Exhibit A attached hereto and by this reference incorporated herein. Interest on each installment of the Loan shall accrue in the same manner as the interest accrues on the Bonds pursuant to the Indenture. The installments payable on the Loan on each April I set forth in Exhibit A correspond with the aggregate Maturity Amount of the Bonds coming due and payable on such date. Any installment of the Loan which is not paid Nvhcn due shall continue to accrue interest from and including the date on which such installment is payable to but not including the date of actual payment. In the event any unpaid installments of the Loan shall be prepaid pursuant to Section 2.4(a). or in the event the Bonds shall be redeemed pursuant to Section 2.03(a) of the Indenture. the schedule of installments set forth in Exhibit A hereto shall be reduced as directed by the Agency to the Trustee. The obligation of the Agency to repay the Loan is. subject to Section 3.1. absolute and unconditional. and such payments shall not be subject to reduction wvhether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party to any agreement for any cause Nvhatsoeyer. Installments of the Loan shall be payable by the Agency to the Trustee. as assignee of the Authority under the Indenture in lawful money of the United States. Payment of such installments shall be secured. and amounts for the payment thereof shall be deposited with the Trustee at the times. as set forth in Article III. Section 2.4. Optional Prepayment (a) The Agency shall have the right to prepay installments of the Loan on any date on which the Bonds are subject to redemption pursuant to Section 2.03(a) of the Indenture and effect a corresponding redemption of the Bonds. Such prepayment shall be allocated among such installments of the Loan as the Agency may determine upon Request to the Authority and the Trustee provided not less than 45 days prior to the prepayment date: provided that such prepayment shall cause redemption of Bonds in integral multiples of $5.000 Maturity Amount. To effect such prepayment. the Agency shall deposit with the Trustee no later than the redemption date an amount sufficient to redeem the called Bonds (which amount shall include the Accreted Value of the called Bonds as of the date of redemption and the applicable redemption premium. if any). P6402. O156\889991.2 6 (b) Before making any prepayment pursuant to this Section. the Agency shall give written notice to the Authority and the Trustee describing such event and specifying the date on wvhich the prepayment will be paid and the order thereof. which date shall be not less than 45 days from the date such notice is given: Droyided. that notwithstanding any such prepayment. the Agency shall not be relieved of its obligations with respect to a Loan hereunder. including specifically its obligations under this Article. until such Loan shall have been fully paid (or provision for payment thereof shall have been made pursuant to Section 6.3). (c) The Authority agrees that upon payment by the Agency to the Trustee of such amount. the Authority shall take or cause to be taken any and all steps required under the Indenture to redeem such Outstanding Bonds on the redemption date designated by the Agency: provided. however. that such date shall be a date of redemption of such Bonds. for which notice has been timely given pursuant to the Indenture. Section 2.5. Reserve Fund. There is hereby established a separate fund known as the "Project Area No. 3 Subordinate Reserve Fund." which shall be held by the Trustee in trust for the benefit of the Authority and the Owners of the Bonds and the registered owners of all other bonds issued by the Authority in connection with any Parity Debt. The Agency hereby pledges and grants a Tien and a security interest in the Reserve Fund to the Trustee in order to secure the Agency-s payment obligations under Sections 2.3 and 3.3(a). The amount on deposit in the Reserve Fund shall be maintained at the Reserve Requirement at all times. except to the extent required for the purposes set forth in this Section. In the event that the Agency shall fail to deposit with the Trustee the full amount required to be deposited pursuant to Section 3.3(a) on or before the third Business Day preceding any scheduled repayment date with respect to the Loan. the Trustee shall withdraw from the Reserve Fund and transfer to the Principal Account an amount equal to the difference between (i) the amount required to be deposited pursuant to Section 3.3(a) and (ii) the amount actually deposited by the Agency. In the event that the amount on deposit in the Reserve Fund shall at any time be Tess than the Reserve Requirement. the Trustee shall notify the Agency as soon as practicable of the amount required to be deposited therein to restore the balance to the Reserve Requirement. such notice to be given by telephone. telefax or other form of telecommunications promptly confirmed in writing. and the Agency shall thereupon transfer to the Trustee the amount needed to restore the Reserve Fund to the Reserve Requirement. In the event that the amount on deposit in the Reserve Fund on the 15th calendar day preceding any date of repayment of the Loan (other than the final payment date) — provided that the deposits required by Section 3.3(a) have been made — exceeds the Reserve Requirement. the Trustee shall withdraw from the Reserve Fund all amounts in excess of the Reserve Requirement and apply such amounts toward the prepayment of the Loan pursuant to Section 2.4 or the prepayment of any Parity Debt. unless the Trustee shall have received prior Request of the Agency to pay such amounts to the Agency to be used for any lawful purpose relating to the Project Area. as specified in such Request of the Agency. Notwithstanding the foregoing provisions of this paragraph. however. no amounts shall be withdrawn from the Reserve Fund and transferred to the Agency pursuant to this paragraph during any period in which an Event of Default shall have occurred and be continuing hereunder. With the written consent of the Insurer (as long as the Insurance Policy is in full force and effect) and of the insurer of any Parity Debt (as long as the policy insuring such Parity Debt is in full force and effect). the Reserve Requirement may be satisfied by crediting to the Reserve Fund moneys or a Qualified Reserve Fund Credit Instrument or any combination thereof. which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement. Upon the deposit with the Trustee of such Qualified Reserve Fund Credit Instrument. the Trustee shall release moneys then on hand P6402. O156\889991.2 7 in the Reserve Fund to the Agency. to be used for any lawful purpose relating to the Project Area. in an amount equal to the face amount of the Qualified Reserve Fund Credit Instrument. If at any time the amount on deposit in. or credited to. the Reserve Fund includes both cash and a debt service reserve surety bond. any draw on such surety bond shall be made only after all cash in the Reserve Fund has been expended. If at any time the amount credited to the Reserve Fund includes more than one Qualified Reserve Fund Credit Instruments. any draw on the Qualified Reserve Fund Credit Instrument shall be on a pro rata basis based on the relative amounts of debt service covered by such Qualified Reserve Fund Credit Instruments in such Fiscal Year. Section 2.6. Costs of Issuance Fund. There is hereby established a fiord to be held by the Trustee known as the "Costs of Issuance Fund. A portion of the proceeds of the Loan shall be deposited in the Costs of Issuance Fund pursuant to Section 2.2. The moneys in the Costs of Issuance Fund shall be used to pay Costs of Issuance from time to time upon receipt of a Request of the Agency. On the 90th day after the Closing Date (or the first Business Day thereafter). or upon the earlier receipt by the Trustee of a Request of the Agency stating that all Costs of Issuance have been paid. the Trustee shall transfer all remaining amounts in the Costs of Issuance Fund to the Revenue Fund. Section 2.7. Proiect Fund. There is hereby established a fund to be known as the "Project Fundy. which shall be held and maintained by the Trustee. Amounts on deposit in such fund shall be derived solely from the portion of the proceeds of the Loan transferred thereto and from earnings on the investment of amounts therein. Except as provided in this Section. the moneys set aside and placed in the Project Fund shall remain therein until expended from time to time for the purpose of paying any portion of the costs of the Redevelopment Project. and other costs related thereto. which other costs may include. but are not limited to. (a) the cost of improvements and other costs which may not benefit the Redevelopment Project exclusively but which are necessary to the redevelopment of the Project Area and the disposition of land therein: (b) the repayment of any advances made by the City for the Redevelopment Project: and (c) to the extent not paid from the Costs of Issuance Fund. the necessary expenses in connection with the issuance and sale of the Bonds. Before any payment of money is made from the Project Fund. the Agency shall file with the Trustee a Request of the Agency showing with respect to each payment of money to be made: Fund. Trustee: (a) the name and address of the person to whom payment is due: (b) the amount of money to be paid: (c) the purpose for which the obligation to be paid was incurred: and (d) that such amount has not been paid previously for such purpose from the Project Each such Request of the Agency shall state and shall be sufficient evidence to the (i) that an obligation in the stated amount has been properly incurred under and pursuant to this Loan Agreement and that such obligation is a proper charge against the Project Fund: and P6402. O156\889991.2 8 (ii) that there has not been filed NVith or served upon the Agency a stop notice or any other notice of any lien. right to lien or attachment upon. or claim affecting the right to receive payment of. an of the money payable to the person named in such Request of the Agency Nvhich has not been released or Nvill not be released simultaneously xvith the payment of such obligation. other than liens accruing by mere operation of lacy. Upon receipt of each such Request of the Agency. the Trustee shall pay the amount set forth in such Request of the Agency as directed by the terms thereof within three Business Days. If any moneys deposited in the Project Fund remain therein after the full accomplishment of the objects and purposes for which the Loan was made. said moneys shall be transferred to the Special Fund. Section 2.8. Parity Debt. From time to time. the Agency may issue or incur additional Parity Debt in such principal amount as shall be determined by the Agency. subject to the following specific conditions which are hereby made conditions precedent to the issuance and delivery of such Parity Debt issued under this Section 2.8: (a) No Event of Default shall have occurred and be continuing. and the Agency shall othenvise be in compliance with all covenants set forth in this Loan Agreement. (b) The amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Agency. based on assessed valuation of property in the Project Area as evidenced in the Nyritten records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to 1 I I ()I percent of Maximum Combined Annual Debt Service. (c) The related Parity Debt Instrument shall provide that the balance of the Reserve Fund shall be increased to the new Reserve Requirement effective after the incurrence of such Parity Debt. (d) The related Parity Debt Instrument shall provide that: (I) With respect to any Parity Debt which bears current interest. interest on such Parity Debt shall not be payable on a date other than April I and October I of any year. and (2) The principal of such Parity Debt shall not be payable on any date other than the date on which principal of the Loan is payable. (c) The issuance of such Parity Debt shall not cause the Agency to exceed any applicable Plan Limitations. (f) The Agency shall deliver to the Trustee a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in Paragraphs (a) through (c) above have been satisfied. The Agency shall also furnish a cope of an Independent Redevelopment Consultants report evidencing compliance with the condition set forth in Paragraph (b). Section 2.9. Issuance of Additional Senior Debt. From time to time. the Agency may issue or incur additional Senior Debt in such principal amount as shall be determined by the Agency. but solely if the following conditions are satisfied: P6402.0156\889991.2 9 (a) The incurrence of such proposed Senior Debt shall not cause the Agency to be in violation of anv Senior Debt Instrument. (b) The Agency shall have delivered the Trustee a Certificate of the Agency which certifying that the amount of Tax Revenues for the then current Fiscal Year. based on assessed valuation of property in the Project Area as evidenced in the written records of the County. plus at the option of the Agency the Additional Revenues. shall be at least equal to percent of Maximum Combined Annual Debt Service. (c) The Agency shall have filed with the Trustee a report of an Independent Redevelopment Consultant which shows that the projected Tax Revenues available to be received by the Agency under the Plan Limitations in each upcoming year will be at least I I0 percent of aggregate remaining debt service on the Loan and all outstanding Parity Debt and Senior Debt. Section 2.10. Issuance of Subordinate Debt. From time to time the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency. provided that the issuance of such Subordinate Debt shall not cause the Agency to exceed any applicable Plan Limitations. Section 2. I I . Validity of Loan. The validity of the Loan shall not be dependent upon the completion of the Redevelopment Project or upon the performance by any person of any obligation with respect to the Redevelopment Project. ARTICLE III PLEDGE AND APPLICATION OF SUBORDINATE TAX REVENUES Section 3. I . Pledtze of Subordinate Tax Revenues. The Loan and all Parity Debt shall be equally secured by a first pledge of and lien on all of the Subordinate Tax Revenues and all of the moneys on deposit in the Special Fund to the extent that such moneys are not required to pay Senior Debt Service. without preference or priority for series. issue. number. dated date. sale date. date of execution or date of delivery. Except for the Subordinate Tax Revenues and other funds pledged hereunder. no funds or properties of the Agency shall be pledged to. or othenyise liable for. the payment of principal of or interest on or prepayment premium. if any. on the Loan. Section 3.2. Special Fund: Deposit of Tax Revenues. The Agency has heretofore established a special fund known as the "Special Fund." which is and shall continue to be held by the Agency as a separate fund apart from all other funds and accounts of the Agency. The Agency shall deposit all Tax Revenues in the Special Fund promptly upon the receipt thereof. Except as may be otherwise provided in anv Senior Debt Instrument or Parity Debt Instrument. any Subordinate Tax Revenues received during the Bond Year in excess of amounts required to be transferred to the Trustee pursuant to Section 3.3 shall be released from the pledge and Tien hereunder and may be used for any lawful purposes of the Agency. Prior to the payment in full of the principal of and interest and prepayment premium. if any. on all Senior Debt. the Loan and all Parity Debt and the payment in full of all other amounts payable under anv Senior Debt Instrument. this Loan Agreement and anv Parity Debt Instrument. the Agency shall not have anv beneficial right or interest in the moneys on deposit in the Special Fund. except only as provided in any Senior Debt Instrument. this Loan Agreement and anv Parity Debt Instrument. and such moneys shall be used and applied as set forth in any Senior Debt Instrument. this Loan Agreement and anv Parity Debt Instrument. Section 3.3. Transfer of Subordinate Tax Revenues From Special Fund. The Agency shall withdraw Subordinate Tax Revenues to make transfers. as required to be made pursuant to any P6402. c 0156\889991.2 10 Parity Debt Instrument and to the Trustee the following amounts at the following times and in the following order of priority: (a) Interest and Principal Deposits. No later than the fifth Business Day preceding each date on which an installment on the Loan (in accordance with Exhibit A) or the principal of or interest on any Parity Debt shall become due and payable. including but not limited to the installment of the Loan to be prepaid hereunder together with any prepayment premium thereon (provided that the transfers from the Special Fund for payment of principal. interest. prepayment premium. and replenishment of reserve fund. if any. with respect to all Senior Debt shall have been made pursuant to the Senior Debt Instruments). the Agency shall Nvithdraw from the Special Fund and transfer to the Trustee an amount which. together with the amounts then held on deposit in the Principal Account and the Rcycnuc Fund. is equal to the aggregate amount of the installment of the Loan (in accordance with Exhibit A). the principal of and interest on the Parity Debt and prepayment premium with respect to the Loan and the Parity Debt coming due. (b) Reserve Fund Deposits. In the event that the Trustee shall notify the Agency pursuant to Section 2.5 that the amount on deposit in the Reserve Fund is Tess than the Reserve Requirement. the Agency shall immediately Nvithdraw from the Special Fund and transfer to the Tnistcc for deposit in the Reserve Fund an amount of money necessary to maintain the Reserve Requirement in the Reserve Fund (including repayment of any draw made under a Qualified Reserve Fund Credit Instrument prior to replenishing any cash in the Reserve Fund). (c) Surplus. Except as may be otherwise provided in any Senior Debt Instrument or any Parity Debt Instrument. the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Subordinate Tax Revenues which. together with other available amounts in the Special Fund. exceeds the amounts required in such Bond Year pursuant to this Section 3.3. All Subordinate Tax Revenues which are received by the Agency during any Bond Year in excess of the amounts required to be deposited in the Special Fund in such Bond Year pursuant to the Senior Debt Instruments. this Loan Agreement and Parity Debt Instruments shall be released from the pledge thereof and lien thereon which is established pursuant hereto. In the event that for any reason Nvhatsoeyer any amounts shall remain on deposit in the Special Fund on any April 2 after making all of the transfers theretofore required to be made pursuant to the preceding Paragraphs (a) and (b) and pursuant to any Senior Debt Instrument or Parity Debt Instrument. the Agency may Nvithdraw such amounts from the Special Fund. to be used for any lawful purposes of the Agency. including but not limited to the payment of any Subordinate Debt or the payment of any amounts due and owing to the United States pursuant to Section 4.1 I . Section 3.4. Investment of Moneys: Valuation of Investments. Subject to Section 4.03 of the Indenture. all moneys in the Special Fund. the Project Fund. the Reserve Fund and the Costs of Issuance Fund shall be invested in Permitted Investments. Absent any prior Nvritten instruction from the Agency or the Authority. moneys in any fund held by the Trustee hereunder or under the Indenture shall be invested in Permitted Investments described in clause D of the definition thereof. Obligations purchased as an investment of moneys in any fund or account established hereunder shall be credited to and deemed to be part of such fund or account. The Agency or the Trustee. as the case may be. may commingle any amounts in any of the funds and accounts held hereunder with any other amounts held by the Agency or the Trustee for purposes of making any investment: provided that the Agency and the Trustee shall maintain separate accounting procedures for the investment of all funds and accounts held hereunder. All interest. profits and other income received from the investment of moneys in any fund or account established hereunder shall be credited to such fund or account. Notwithstanding anything to the contrary contained in this Section. an amount of interest received with respect to any investment equal to the amount of accrued interest. if any. paid as part of the purchase price of such investment shall be credited to the fund or account from which such accrued interest was paid. P6402. c 0156\889991.2 11 For the purpose of determining the amount in any fund or account established hereunder. any investments credited to such fund shall be valued at least annually at the market value thereof. ARTICLE IV OTHER COVENANTS OF THE AGENCY Section 4. I. Punctual Payment: Extension of Payments. The Agency shall punctually pay or cause to be paid the installments and prepayment premium. if any. on the Loan in strict conformity with the terms of this Loan Agreement. and it \ III faithfully observe and perform all of the conditions. covenants and requirements of this Loan Agreement. The Agency shall not directly or indirectly extend or assent to the extension of the maturity of any installment of or prepayment premium. if any. on the Loan. and in case the installment or premium. if any. on the Loan or the time of payment of any such claims therefor shall be extended. such principal. interest. premium or claims for interest shall not be entitled. in case of any Event of Default hereunder. to the benefits of this Loan Agreement except for payment of all amounts which shall not have been so extended. Section 4.2. Limitation on Additional Indebtedness. The Agency hereby covenants that it shall not issue any bonds. notes or other obligations. enter into any agreement or otherwise incur any indebtedness. which is in any case payable from all or any part of the Tax Revenues. excepting only the Loan. any Parity Debt. any Senior Debt and any Subordinate Debt. and any other obligations permitted by this Loan Agreement. Section 4.3. Payment of Claims. The Agency shall pay and discharge. or cause to be paid and discharged. any and all lawful claims for labor. materials or supplies which. if unpaid. might become a lien or charge upon the properties owned by the Agency or upon the Tax Revenues or any part thereof. or upon any funds in the hands of the Trustee. or which might impair the security of the Loan. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims. Section 4.4. Books and Accounts: Financial Statements. The Agency shall keep. or cause to be kept. proper books of record and accounts. separate from all other records and accounts of the Agency and the City. in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project. the Tax Revenues. the Special Fund. the Reserve Fund. the Low and Moderate Income Housing Fund and the Redevelopment Fund. Such books of record and accounts shall at all times during business hours be subject. upon prior written request. to the reasonable inspection of the Authority. the Trustee and the Owners of not less than ten percent in aggregate Principal Amount of a series of Bonds then Outstanding. or their representatives authorized in writing. The Agency will cause to be prepared annually. within 180 days after the close of each Fiscal Year so long as any of the Bonds are Outstanding. complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues. all disbursements from the Special Fund and the Redevelopment Fund and the financial condition of the Redevelopment Project. including the balances in all funds and accounts relating to the Redevelopment Project. as of the end of such Fiscal Year. The Agency \ III furnish a copy of such statements. upon reasonable request. to any Owner. Section 4.5. Protection of Security and Ritzhts. The Agency will preserve and protect the security of the Loan and the rights of the Trustee and the Owners with respect to the Loan. From and after the Closing Date. the Loan shall be incontestable by the Agency. The Loan and the provisions of this Loan Agreement are and will be the legal. valid and binding special obligations of the Agency enforceable in accordance with their terms. and the Agency shall at all times. to the extent permitted by P6402.01 56\889991.2 12 lacy. defend. preserve and protect all the rights of the Authority. the Trustee and the Owners under this Loan Agreement against all claims and demands of all persons Nyhomsoeyer. The Agency's obligations to the Trustee under this Section 4.5 shall survive the payment of the Bonds and the discharge of the Indenture. the removal or resignation of the Tnistcc pursuant to the Indenture or the payment of the Loan and the discharge of this Loan Agreement. Section 4.6. Payments of Taxes and Other Charges. The Agency Nyill pay and discharge. or cause to be paid and discharged. all taxes. service charges. assessments and other governmental charges Nyhich may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area NVhcn the same shall become due. Nothing herein contained shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of such taxes. assessments or charges. The Agency \\ill duly observe and comply Nyith all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof. Section 4.7. Taxation of Leased Property. All ad valorem property taxes derived by the Agency pursuant to Section 33673 of the Redevelopment Law Nyith respect to the lease of property for redevelopment shall be treated as Tax Revenues for all purposes of this Loan Agreement. and shall be deposited by the Agency in the Special Fund promptly upon receipt. Section 4.8. Disposition of Property. The Agency Nyill not participate in the disposition of any land or real property in the Project Area to anyone Nyhich Nyill result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of this Loan Agreement) so that such disposition shall. NVhcn taken together Nyith other such dispositions. aggregate more than ten percent of the land area in the Project Area unless such disposition is permitted as hereinafter provided in this Section. If the Agency proposes to participate in such a disposition. it shall thereupon appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the Report of the Independent Redevelopment Consultant concludes that the security of the Loan or the rights of the Authority. the Owners and the Tnistcc hereunder Nyill not be materially impaired by said proposed disposition. the Agency may thereafter make such disposition. If such Report concludes that such security \\ill be materially impaired by such proposed disposition. the Agency shall disapprove said proposed disposition. Section 4.9. Maintenance of Tax Revenues. The Agency shall comply Nyith all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues. including Nyithout limitation the timely filing of any necessary statements of indebtedness Nyith appropriate officials of the County and (in the case of supplemental revenues and other amounts payable by the State) appropriate officials of the State. The Agency shall not amend the Redevelopment Plan (except for the purpose of extending or eliminating the time limit on the establishment of loans. advances. and indebtedness. extending the time limit on the effectiveness of the Redevelopment Plan. extending the time limit on the payment of indebtedness. extending the time limit for the receipt of tax increment. or increasing the limitation on the number of dollars of taxes to be allocated to the Agency) or any of the Pass -Through Agreements. or enter into any agreement Nyith the County or any other governmental unit. Nyhich Nyould have the effect of reducing the amount of Subordinate Tax Revenues available to the Agency for payment of the Loan. unless the Agency shall first obtain (i) the Report of an Independent Redevelopment Consultant stating that the amount of Tax Revenues for the then current Fiscal Year (calculated on the assumption that such reduction of Tax Revenues was in effect throughout such Fiscal Year). plus at the option of the Agency the Additional Revenues. shall meet the coverage test set forth in Section 2.8(b) and (ii). as long as the Insurance Policy is in full force and effect. the Nyritten consent of the Insurer. Nothing herein is intended or shall be construed in any Nyay to prohibit or impose any limitations P6402.01 56\889991.2 13 on the entering into by the Agency of any such agreement. amendment or supplement Nyhich by its term is subordinate to the payment of the Loan and all Parity Debt. Section 4. ID. Payment of Expenses: Indemnification. The Agency shall pay to the Trustee from time to time all compensation for all services rendered under this Loan Agreement and the Indenture. including but not limited to all reasonable expenses. charges. legal and consulting fees and other disbursements and those of its attorneys. agents and employees. incurred in and about the performance of its powers and duties hereunder and thereunder. Upon the occurrence of an Event of Default. the Trustcc shall have a first Tien on the funds held by it under the Indenture to secure the payment to the Trustee of all fees. costs and expenses. including reasonable compensation to its experts. attorneys and counsel (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel) incurred in performing its duties under the Indenture and this Loan Agreement. The Agency further covenants and agrees to indemnify. defend and save the Trustee and its officers. directors. agents and employees. harmless against any losses. expenses and liabilities \yhich it may incur arising out of or in the exercise and performance of its powers and duties in accordance Nvith the Indenture and this Loan Agreement. including the costs and expenses of defending against any claim of liability. but excluding any and all losses. expenses and liabilities Nvhich are due to the negligence or intentional misconduct of the Trustee. its officers. directors. agents or employees. The obligations of the Agency under this paragraph shall survive the resignation or removal of the Trustee under the Indenture. this Loan Agreement and payment of the Loan and the discharge of this Loan Agreement. Section 4. I I. Tax Covenants. (a) The Agency covenants that. in order to maintain the exclusion from gross income for Federal income tax purposes of the portion of the Accreted Value of the Bonds Nvhich constitute interest thereon. and for no other purpose. the Agency NyiII satisfy. or take such actions as are necessary to cause to be satisfied. each provision of the Code necessary to maintain such exclusion. In furtherance of this covenant the Agency agrees to comply Nvith such Nvritten instructions as may be provided by Bond Counsel. (b) The Agency covenants that no part of the proceeds of the Bonds shall be used. directly or indirectly. to acquire any Investment Property Nyhich Nvould cause the Bonds to become arbitrage bonds as that term is defined in Section 148 of the Code. or under applicable Tax Regulations. In order to assure compliance Nvith the rebate requirements of Section 148 of the Code. the Agency further covenants that it Nvill pay or cause to be paid to the United States the amounts necessary to satisfy the requirements of Section I48(f) of the Code. and that it Nvill establish such accounting procedures as are necessary to adequately determine. account for and pay over any such amount required to be paid thereunder in a manner consistent Nvith the requirements of Section 148 of the Code. such covenants to survive the defeasance of the Bonds. (c) The Agency covenants that it Nvill not take any action or omit to take any action. Nvhich action or omission. if reasonably expected on the date of initial execution and delivery of the Bonds. Nvould result in a Toss of exclusion from gross income for purposes of Federal income taxation. under Section 103 of the Code. of interest on the Bonds. (d) The Agency covenants that it Nvill not use or permit the use of any property financed Nyith the proceeds of the Bonds by any person (other than a state or local governmental unit) in such manner or to such extent as Nvould result in a Toss of exclusion of the interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code. P6402.01 56\889991.2 14 (e) Except as provided below. the Agency covenants that none of the moneys contained in any of the funds or accounts Nyith respect to the Bonds shall be: (i) used in making loans guaranteed by the United States (or any agency or instrumentality thereof). (ii) invested directly or indirectly in a deposit or account insured by the Federal Deposit Insurance Corporation. National Credit Union Administration or any other similar Federally chartered corporation. or (iii) otherwise invested directly or indirectly in obligations guaranteed (in Nyhole or in part) by the United States (or any agency or instrumentality thereof): provided. however. that the above restrictions do not apply to: (a) the investment on moneys held in the Revenue Fund or any other "bona fide debt service fund as defined for purposes of Section 148 of the Code. (b) investment in direct obligations of the United States Treasury. (c) investment in obligations guaranteed by the Federal National Mortgage Association. Government National Mortgage Association. or the Federal Home Loan Mortgage Corporation. (d) investment in obligations issued pursuant to Section 2 I B(d)(3) of the Federal Home Loan Bank Act. as amended by Section 5 I I (a) of the Financial Institutions Reform. Recovery. and Enforcement Act of 1989. (c) investments permitted under regulations issued pursuant to Section I49(b)(3)(B) of the Code. or (f) such other investments permitted under the Indenture as. in the opinion of Bond Counsel. do not jeopardize the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 4.12. Redevelopment of Proiect Area. The Agency shall ensure that all activities undertaken by the Agency Nyith respect to the redevelopment of the Project Area are undertaken and accomplished in conformity Nyith all applicable requirements of the Redevelopment Plan and the Redevelopment Lary. The Agency shall manage and operate all properties owned by the Agency and comprising any part of the Redevelopment Project in a sound and business -like manner and in conformity Nyith all valid requirements of any governmental authority. and Nyill keep such properties insured at all times in conformity Nyith sound business practice. Section 4.1 3. Low and Moderate Income Housing Fund. The Agency covenants and agrees to use the moneys in the Low and Moderate Income Housing Fund in accordance Nyith Sections 33334.2 and 33334.3 of the Redevelopment Law. and further covenants and agrees to disburse. expend or encumber any "excess surplus" (as defined in Section 33334. 12 of the Redevelopment Lary) in the Low and Moderate Income Housing Fund at such times and in such manner that the Agency shall not be subject to sanctions pursuant to subdivision (c) of said Section 3334.12. Section 4.14. Annual Review of Tax Revenues. The Agency hereby covenants that it will annually cause an Independent Redevelopment Consultant to review the total amount of Tax Revenues remaining available to be received by the Agency under the Redevelopment Plans cumulative tax increment limitation. as \yell as future cumulative annual debt service with respect to all Senior Debt. the Loan and all Parity Debt. Subject to any limitations set forth in the Senior Debt Instruments. the Agency Nyill not accept Tax Revenues greater than such annual debt service in any year. if such acceptance Nyill cause the amount remaining under the tax increment limit to fall below remaining cumulative annual debt service with respect to all Senior Debt. the Loan and all Parity Debt. except for the purpose of depositing such revenues in escrow for the payment of such debt service or for the prepayment or redemption of any Senior Debt. the Loan and any Parity Debt. Section 4. 15. Further Assurances. The Agency NyiII adopt. make. execute and deliver any and all such further resolutions. instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Loan Agreement and for the better assuring and confirming unto the Trustee. the Authority and the Owners of the Bonds of the rights and benefits provided in this Loan Agreement. P6402.01 56\889991.2 15 ARTICLE V EVENTS OF DEFAULT AND REMEDIES Section 5. I. Events of Default and Acceleration of Maturities. The following events shall constitute Events of Default hereunder: (a) Failure by the Agency to pay the principal of or interest or prepayment premium. if any. on the Loan. any Parity Debt or any Senior Debt when and as the same shall become due and payable. (b) Failure by the Agency to observe and perform any of the covenants. agreements or conditions on its part contained in this Loan Agreement. other than as referred to in the preceding Paragraph (a). for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the Agency by the Trustcc: provided. however. that if the failure stated in such notice can be corrected. but not within such 30 day period. such failure shall not constitute an Event of Default if corrective action is instituted by the Agency within such 30 day period and thereafter is diligently pursued until such failure is corrected. (c) The filing by the Agency of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America. or if a court of competent jurisdiction shall approve a petition. filed with or without the consent of the Agency. seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America. or if. under the provisions of any other law for the relief or aid of debtors. any court of competent jurisdiction shall assume custody or control of the Agency or of the whoI or any substantial part of its property. If an Event of Default has occurred and is continuing. the Authority or the Trustee may. and at the written direction of the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds the Authority or the Trustee shall. (i) declare the Loan (in the amount equal to the corresponding Principal Amount of the Bonds being declared due and payable under the Indenture) to be due and payable immediately. and upon any such declaration the same shall become immediately due and payable. anything in this Loan Agreement to the contrary notwithstanding. and (ii) subject to the receipt of indemnity as provided in the Indenture. exercise anv other remedies available to the Trustee at law or in equity. Immediately upon becoming aware of the occurrence of an Event of Default. the Authority. or the Trustee as assignee of the Authority. shall give notice of such Event of Default to the Agency by telephone. tciccopier or other telecommunication device. promptly confirmed in writing. This provision. however. is subject to the condition that if. at any time after the Loan shall have been so declared due and payable. and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the Agency shall deposit with the Trustee a sum sufficient to pay all unpaid installments of the Loan matured prior to such declaration (such sum being equal to the Accreted Value. calculated to but not including the date of payment by the Agency to the Trustee. of the corresponding portion of the Outstanding Bonds that matured prior to such declaration). and the reasonable expenses of the Trustee (including but not limited to attorneys fees). and anv and all other defaults known to the Trustee (other than in the payment of the installments of the Loan due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor. then. and in every such case. the Owners of a majority in aggregate Principal Amount of the Outstanding Bonds may. by written notice to the Trustee and the Agency. rescind and annul such declaration and its consequences. However. no such rescission and annulment shall extend to or shall affect any subsequent default. or shall impair or exhaust any right or power consequent thereon. P6402. c 0156\889991.2 16 Section 5.2. Application of Funds Upon Default. Subject to the payment of funds Nyith respect to the Senior Debt under the Senior Debt Instruments. all amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of this Loan Agreement. shall be applied by the Trustee in the following order: First. to the payment of the fees. costs and expenses of the Trustee. including reasonable compensation to its agents. attorneys and counsel (including the allocated costs and disbursements of in- house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel): and Second. to the payment of the installments of the Loan then due and unpaid (being equal to the Accreted Value of the Bonds declared due and payable calculated to but not including the date of payment by the Authority or the Agency to the Trustee. to the extent permitted by lacy): provided. however. that in the event such amounts shall be insufficient to pay the full amount. then such amounts shall be applied to the payment of all installments of the Loan then due and payable on a pro rata basis. Section 5.3. No Waiver. Nothing in this Article V or in any other provision of this Loan Agreement. shall affect or impair the obligation of the Agency. which is absolute and unconditional. to pay from the Subordinate Tax Revenues and other amounts pledged hereunder. the installments of and premium. if any. on the Loan to the Trustee when due. as herein provided. or affect or impair the right of action. which is also absolute and unconditional. of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in this Loan Agreement. A Nyaiyer of any default by the Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a Nyaiyer of any such default or an acquiescence therein. and every power and remedy conferred upon the Trustee by the Redevelopment Law or by this Article V may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee. If a suit. action or proceeding to enforce any right or exercise any remedy shall be abandoned or determined adversely to the Trustee. the Agency. the Authority and the Trustee shall be restored to their former positions. rights and remedies as if such suit. action or proceeding had not been brought or taken. Section 5.4. Agreement to Pay Attorneys" Fees and Expenses. In the event the Agency or the Authority should default under any of the provisions hereof and the nondefaulting party or the Trustee should employ attorneys or incur other expenses for the collection of moneys or the enforcement or performance or observance of any obligation or agreement on the part of the defaulting party herein contained. the defaulting party agrees that it will on demand therefor pay to the nondcfaulting party or the Trustcc. as the case may be. the reasonable fees of such attorneys and such other expenses so incurred (including the allocated costs and disbursements of in-house counsel to the extent the services of such counsel are not duplicative of services provided by outside counsel). Section 5.5. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing. at lacy or in equity or by statute or otherwise. and may be exercised without exhausting and without regard to any other remedy conferred by the Redevelopment Law or any other lacy. P6402. c 0156\889991.2 17 Section 5.6. Control of Remedies by Insurer. Notwithstanding the provisions of Section 5. I and subject to any rights heretofore granted by the Authority or the Agency to any insurer of Parity Debt. as long as Insurance Policy is in full force and effect and the Insurer has not defaulted with respect to its payment obligations thereunder. upon the occurrence and continuance of an Event of Default. the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Owners or the Trustee for the benefit of the Owners under this Loan Agreement. Any acceleration of the Loan or annulment thereof pursuant to Section 5. I shall be subject to the prior \written consent of the Insurer. No \yaiyer of a default shall be effective without the «rittcn consent of the Insurer. ARTICLE VI MISCELLANEOUS Section 6. I. Benefits Limited to Parties. Nothing in this Loan Agreement. expressed or implied. is intended to give to any person other than the Agency. the Tnistcc. the Insurer and the Authority. any right. remedy or claim under or by reason of this Loan Agreement. All covenants. stipulations. promises or agreements in this Loan Agreement contained by and on behalf of the Agency shall be for the sole and exclusive benefit of the Authority. the Trustee acting as trustee for the benefit of the Owners of the Bonds. and the Insurer so Tong as the Insurance Policy remains in full force and effect. Section 6.2. Successor is Deemed Included in All References to Predecessor. Whenever in this Loan Agreement. the Agency. the Authority. the Trustee or the Insurer is named or referred to. such reference shall be deemed to include the successors or assigns thereof. and all the covenants and agreements in this Loan Agreement contained by or on behalf of the Agency. the Authority. the Trustee or the Insurer shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 6.3. Discharze of Loan Agreement. If the Agency shall pay and discharge the indebtedness on the Loan or any portion thereof in any one or more of the following \Nays: (a) by \yell and truly paying or causing to be paid the principal of and interest and prepayment premiums. if any. on the Loan or such portion thereof. as and \yhen the same become due and payable: (b) by irrevocably depositing with the Trustee. in trust. at or before maturity. cash in an amount which. together with the available amounts then on deposit in any of the funds and accounts established pursuant to the Indenture or this Loan Agreement. in the opinion or report of an Independent Accountant is fully sufficient to pay all principal of and interest and prepayment premiums. if any. on the Loan or such portion thereof: or (c) by irrevocably depositing with the Trustee or any other fiduciary. in trust. non - callable Defeasance Obligations in such amount as an Independent Accountant shall determine \gill. together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or this Loan Agreement. be fully sufficient to pay and discharge the indebtedness on the Loan or such portion thereof (including all principal. interest and prepayment premiums) at or before maturity: then. at the election of the Agency but only if all other amounts then due and payable hereunder shall have been paid or provision for their payment made. the pledge of and lien upon the Subordinate Tax Revenues and other funds provided for in this Loan Agreement and all other obligations of the Trustee. the Authority and the Agency under this Loan Agreement with respect to the Loan or such portion thereof P6402. c 0156\889991.2 18 shall cease and terminate. except only the obligation of the Agency to pay or cause to be paid to the Trustee. from the amounts so deposited with the Trustee or such other fiduciary. all sums due with respect to the Loan or such portion thereof. and to pay all expenses and costs of the Trustee when and as such expenses and costs become due and payable. Notice of such election shall be filed with the Authority and the Trustee. Any funds thereafter held by the Trustee hereunder. which are not required for said purpose. shall be paid over to the Agency. Section 6.4. Amendment. This Loan Agreement may be amended by the parties hereto but only under the circumstances set forth in. and in accordance with. the provisions of Section 5.08 of the Indenture. The Authority and the Trustee covenant that the Indenture shall not be amended. nor shall the Authority agree or consent to any amendment of the Indenture. without the prior written consent of the Agency (except that such consent shall not be required in the event that an Event of Default shall have occurred and be continuing hereunder). Section 6.5. Waiver of Personal Liability. No member. officer. agent or employee of the Agency shall be individually or personally liable for the repayment of the Loan: but nothing herein contained shall relieve any such member. officer. agent or employee from the performance of any official duty provided by law. Section 6.6. Payment on Business Days. Whenever in this Loan Agreement any amount is required to be paid on a day which is not a Business Day. such payment shall be required to be made on the Business Day immediately following such day. provided that interest on such payment shall not accrue from and after such day. Section 6.7. Notices. Any notice. request. complaint. demand or other communication under this Loan Agreement shall be given in the same manner as provided in Section I I. 13 of the Indenture. which is hereby incorporated. Section 6.8. Partial Invalidity . If any Section. paragraph. sentence. clause or phrase of this Loan Agreement shall for any reason be held illegal. invalid or unenforceable. such holding shall not affect the validity of the remaining portions of this Loan Agreement. The Agency hereby declares that it would have adopted this Loan Agreement and each and every other Section. paragraph. sentence. clause or phrase hereof and authorized the Loan irrespective of the fact that any one or more Sections. paragraphs. sentences. clauses. or phrases of this Loan Agreement may be held illegal. invalid or unenforceable. Section 6.9. Article and Section Headings and References. The headings or titles of the several Articles and Sections hereof. and any table of contents appended to copies hereof. shall be solely for convenience of reference and shall not affect the meaning. construction or effect of this Loan Agreement. All references herein to "Articles." "Sections" and other subdivisions are to the corresponding Articles. Sections or subdivisions of this Loan Agreement: the words "herein. "hereof. "hereby. "hereunder- and other words of similar import refer to this Loan Agreement as a whole and not to any particular Article. Section or subdivision hereof: and words of the masculine gender shall mean and include words of the feminine and neuter genders. Section 6.10. Execution of Counterparts. This Loan Agreement may be executed in any number of counterparts. each of which shall for all purposes be deemed to be an original and all of which shall together constitute but one and the same instrument. Section 6. I I. Governing, Law. This Loan Agreement shall be construed and governed in accordance with the laws of the State. P6402.01 56\889991.2 19 Section 6.12. The Trustcc. The Trustcc is entering into this Loan Agrccmcnt solely in its capacity as Trustcc under the Indenture and all provisions of the Indenture relating to the rights. privileges. powers and protections of the Trustee shall apply Nvith equal force and effect to all actions taken by the Trustee in connection Nvith this Loan Agreement. The Trustee shall be responsible only for the duties of the Trustee expressly set forth herein. Mom -tinder of I'Uge Intentionally Leff /3lailk f P6402. O156\889991.2 20 IN WITNESS WHEREOF. the AGENCY. the AUTHORITY and the TRUSTEE have caused this Loan Agreement to be signed by their respective officers. all as of the day and year first above «ritten. PALM DESERT REDEVELOPMENT AGENCY By Executive Director PALM DESERT FINANCING AUTHORITY By Chief Administrative Officer WELLS FARGO BANK. NATIONAL ASSOCIATION. as Trustee By Authorized Officer P6402. c 0156\889991.2 21 EXHIBIT A SCHEDULE OF LOAN PAYMENTS Date Pa\ meat * Payable on the fifth Business Day preceding each April 1st P6402. c 0156\889991.2 A- 1.&.1 DRAFT #3 05/23/06 PRELIMINARY OFFICIAL STATEMENT DATED JUNE , 2(1(16 NEW ISSUE - BOOK -ENTRY ONLY INSURED RATINGS: S&P: UNINSURED RATINGS: S&P: (See "R.\ I IS; ;s" herein) In the opinion of:Richatds, t t ctisott & (,'ershon, : l Professional ('otporation, Los Angeles, ('alifo nia, Bond ('ounsel, based on cram*, lair and assuming compliance u'idt certain covenants set_/orth in the documu'nis pertaining to the 2006 Series Bonds and requirements o/ the lntental Reretnu' ('axle o/ / 986, as amended (the "( 'axle'' as described herein, interest on the 2006 Series Bonds is not included in gross income o/ du' o im'ts du'reo//or i,dend income tax purposes. In the opinion of Bond Counsel, interest on the 2006 .Series Bonds is not treated as an item o/ fax pie/ei once in calculating the /i'dend altentatire minimum taxable income of individuals and coupon Lions. btien's, on the 2006 Series Bonds May be subject to certain ji'dend taxes imposed out cot7ron Lions, including the cot7ron to altentcnire minimum tax out a portion o/ that interest. In the _/urf/u'r opinion of Bond ('ounsel, interest on the Bonds is exempt ji'om persatal income taxes imposed by the State o/Tali/hntia. See " 1'.\x M.\ ri I.Rs" herein. Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A * Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B * Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C Dated: Date of Deliver) Due: April 1, as shown on the inside cover page This cover page contains certain in/inmation JO. quick rcjrrence only. It is not a sumunan' oftIris issue. hn'estor c are advised to read the entire Official Statement to obtain in/otmation essential to the making of an in/otmed investment decision. The Palm 1)esert Financing Authority (the "Financing Authority") is issuing $ * principal amount of Palm 1)esert Financing Authority lax Allocation Revenue 13onds (Project Area No. 3) 2006 Series A (the "Current Interest Bonds") and $ * principal amount of Palm 1)esert Financing_ Aut horitTax Allocation Revenue Capital Appreciation 13onds (Project Area No. 3) 2006 Series 13 (the "Capital Appreciation 13onds" and together yvith the Current Interest 13onds. the "2006 Senior Parity Bonds") to make tyu> loans. one \with respect to each Series 012006 Senior Parity 13onds (collectiveh. the "2006 Senior Parity Loans"). to the Palm Desert Redevelopment Agency (the "Redevelopment Agency") pursuant to the terns of a Project Area No. 3 Loan Agreement dated as of,lu1 I. 2006 (the "2006 Senior Parity Loan Agreement") by and among the Financing Authority. the Redevelopment Agency and Wells Fargo 13ank. National Association (the " I rnstee"). 'the Redevelopment Agency \will apph the proceeds of the 2006 Senior Parity Loans to: (i) finance various redevelopment activities within the Palm 1)esert Redevelopment Agency Project Arca No. 3 (the "Project Area'): (ii) purchase a reserve Iind surety policy 14 a deposit into the Senior Parity Reserve Fund: and (iii> pay the costs associated with the issuance of the 2006 Senior Parit 13onds. The 2006 Senior Parit 13onds are issued pursuant to an Indenture of (rust. dated as of,lu1 I. 2006 (the "2006 Senior Parity Indenture"). by and bet yveen the Financing Authority and the Trustee. 'the Financing Authority is also issuing $ * principal amount of Palm 1)esert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation 13onds (Project Area No. 3) 2006 Series C (the "2006 Subordinate Capital Appreciation 13onds" and together \with the 2006 Senior Parity 13onds. the "2006 Series Bonds") to make a loan (the "2006 Subordinate Loan" and together \with the 2006 Senior Parity Loans. the "2006 Loans") to the Redevelopment Agency pursuant to the terns of a Project Arca No. 3 Loan Agreement (Subordinate Loan) dated as of,lu1 I. 2006 (the "2006 Subordinate Loan Agreement" and together yvith the 2006 Senior Parity Loan Agreement. the "2006 Loan Agreements") by and among the Financing Authority. the Redevelopment Agency and the I nastcc. 'the Redevelopment Agency \will apph the proceeds of the 2006 Subordinate Loan to: (i) finance various redevelopment activities within the Project Arca: (ii) Iimd a deposit into the Subordinate Reserve Fund: and ( iii) pay the costs associated yvith the issuance of the 2006 Subordinate Capital Appreciation 13onds. 'the 2006 Subordinate Capital Appreciation 13onds are issued pursuant to a separate Indenture of Tmst. dated as of,lu1 I. 2006 (the "2006 Subordinate Indenture" and together \with the 2006 Senior Parity Indenture. the "2006 Indentures'), by and between the Financing Authorit and the Trustee. ustee. 'Ihc 2006 Series Bonds \\ill be issued in hook -entry limn, initialh registered in the name of Cede & Co. as nominee of the Depository I mast Company. Nev. York. Nev, York ("1)I C"). yvho \\ill act as securities depositor 14 the 2006 Series 13onds. Individual purchases of the 2006 Series 13onds \\ill be in hook -entry limn onh. and in denominations of: (i) $5.000 or any integral multiple thereof \with respect to the Current Interest 13onds and (ii) $5.000 Maturity Amount (as defined herein) or any integral multiple thereof \with respect to the Capital Appreciation 13onds and the 2006 Subordinate Capital Appreciation Bonds. Purchasers \\ill not receive physical certificates representing their interests in the 2006 Series Bonds. Principal of interest on and redemption premium. if am, on the Current Interest 13onds and Accreted Value of the Capital Appreciation 13onds and the 2006 Subordinate Capital Appreciation Bonds \\ill be paid bthe I nastcc directh to IYI C. yvhich in turn is obligated to remit such principal. interest. Accreted Value and redemption premium. if any. to IYI C Participants 14 subsequent disbursement to the Beneficial (Milers of the applicable 2006 Series Bonds. See Ai'i'I.\I Ix G—"IYI C .y\n I I II.13(x )K—Em i O\I.' S' I7.y1. Interest on the Current Interest 13onds \\ill be payable on each April I and October I ()leach year. commencing October I. 2006 at the respective rates set fimh on the inside cover page. and principal of the Current Interest 13onds is payable on April I ()leach year. commencing April I. 20 in the amounts set forth on the inside cover page. the Capital Appreciation 13onds and the 2006 Subordinate Capital Appreciation 13onds \will accrete in value from the Date of 1)eliver at the respective Accreted Value Rate set I rrth on the inside cover page. compounded semiannualh. on April I and October I of each year. commencing October I. 2006 to the respective maturity dates thereof No payments \will be made on the 2006 Capital Appreciation 13onds prior to the respective maturity date thereof The Current Interest Bonds are subject to optional and sinking account redemption as described herein. Sox "Tttf:2006 SERIES BONDS — Current Interest Bonds —Redemption Provisions." The Capital Appreciation Bonds and the 2(1(16 Subordinate Capital Appreciation Bonds are subject to optional redemption as described herein. See "—Capital Appreciation Bonds —Redemption Provisions" and "-2006 Subordinate Capital Appreciation Bonds —Redemption Provisions." For a discussion of'some of the risks associated vith the purchase of the 2006 Series Bonds. see " CI.iz i.\i\ Risk i ( )13( )x.nn( )i.ni.itS... the 2006 Senior Parih Bonds are special obligations of the Financing Authont pa\ able from and secured b\ Revenues (as defined herein). consisting primarih of amounts pa\ able b\ the Redevelopment Agenc\ under the 2006 Senior Pait\ Loan Agreement. the 2006 Senior Pait\ Loan Agreement is secured and pabable from tax increment revenues derived from propert in the Project Area and allocated to the Redevelopment Agencb pursuant to the Redevelopment Law the 2006 Senior Pwith Loan Agreement is pa\ able on a parib basis \\ith the obligations of the Redevelopment Agenc\ ( the "2003 Loan..) made wider a loan agreement entered into in 2003 (the "2003 Loan Agreement..). the Redevelopment Agenc\ ma\, pursuant to the terms of the 2006 Senior Parith Loan Agreement and the 2006 Senior Parith Indenture secure additional obligations on a pari1 \\ith the 2006 Loans and the 2003 Loan. No finds or properties of the Redevelopment Agenc\. other than the Tax Revenues secure pa\ ment of the 2006 Senior Parih Loan Agreement. Sec "SI.c.i -RI i ti .\\I) Sc x Rc 1'.S ( )1. P.\Y\ u.\ i I.( )R i i u..13( )Ni )S—Parith 1)ebt and Subordinate 1)ebt." the 2006 Subordinate Capital Appreciation Bonds are special obligations of the Financing Authotib from and secured b\ Subordinate Revenues (as defined herein). consisting primarih of amounts pabable b\ the Redevelopment Agenc\ wider the 2006 Subordinate Loan Agreement. the 2006 Subordinate Loan Agreement is secured b\ and pa\ able from subordinate tax increment revenues derived from propert\ in the Project Area and allocated to the Redevelopment Agency pursuant to the Redevelopment Law the 2006 Subordinate Loan Agreement is pa\ able on a subordinate basis to the obligations of the Redevelopment Agenc\ under the 2006 Senior Parih Loan Agreement and the 2003 Loan Agreement. No hinds or properties of the Redevelopment Agenc. other than the Subordinate Tax Revenues secure pa\ menu of the 2006 Subordinate Loan Agreement. See " Si,c t -izi i ti . xi) Sea-RcI'.SOI. PAY I.( )12. iiu..13Oxi)s—Subordinatc Revenues... the scheduled pa\ment of the principal and Accreted Value of and interest on the 2006 Series Bonds \\hen due \\ill he guaranteed uidcr a financial guaraniinsurance polic\ to he issued concurenth \\ith the deliver\ oldie 2006 Series Bonds b\ 'Insurer I,ogo1 1111: 2006 SERIES BONDS ART: NOT A DEBT OF THE CITY OF PALM DESERT (1111: "CITY"). 1111: STATE OF CALIFORNIA (1111: "STATE—) OR ANY OF ITS POLIIICAI, SUBDIVISIONS. O"I TIER 11IAN 1111: FINANCING All"I11ORIlY. AND NONE OF 1111: CITY. 1111: STATE OR ANY OF ITS POLIIICAI, SUBDIVISIONS. 0"I111:R 11IAN 1111: FINANCING Alill10RIIY. IS LIABLE 11II:RI:F0R. 1111: 2006 LOANS ART: NOT A D1:13T OF 1111: FINANCING All"I11ORIlY OR 1111: STATE OR ANY OF ITS POLITICAL 51113DIVISIONS. AND NONE OF 111: FINANCING AIYIiIRO"IIY OR 1111: STATE OR ANY OF ITS POLIIICAI, SUBDIVISIONS. IS LIABLE 1111:RI:F0R. NONE OF 1111: MEMBERS OF 1111: FINANCING A11"I11ORIlY. 1111: CITY COUNCIL. 1111: REDEVELOPMENT AGENCY OR ANY PERSONS EXECUTING 111: 2006 SERIES BONDS OR 1111: 2006 LOAN AGREEMENTS ARF LIABLE PERSONALLY WI ll l RESPECT TO 1111: 2006 SERIES BONDS OR 1111: 2006 LOANS. THE OBLIGATIONS OF 1111: REDEVELOPMENT AGENCY WFFI I RESPECT TO 1111: 2006 SENIOR PARITY LOANS ART: PAYABLE SOLELY FROM 1111: TAX REVENUES (AS I)I:FINI:I) HEREIN) AS SIT FORM IN 1111: 2006 SENIOR PARITY LOAN AGREEMENT. 1111: OBLIGATIONS OF 1111: REDEVELOPMENT AGENCY WITH RESPECT TO 1111: 2006 511130RDINATE CAPITAI, APPRECIATION BONDS ART: PAYABLE SOLELY FROM 1111: S11130RDINAII: TAX RI:VI:NIII:S (AS I)I:FINI:I) HEREIN) AS SIT F0RI11 IN 111: 2006 511130RDINATE LOAN AGREEMENT. NEITHER 1111: FINANCING Al l"I11ORIlY NOR 1111: RI:DI:VI:LOPMI:N I AGENCY I IAS TAXING POWER. 'the 2006 Series Bonds are offered \\hen. as and ifissued b\ the Financing Authorith and received the l lndenvriter. subject to the approval as to their legalih b\ Richards. Watson & Gershon. A Professional Corporation Los Angeles. California. 13ond Counsel. Certain legal matters \\ill he passed upon Icy the Financing Authorith b\ the Cith Attome\ and b\ Lofton & Jennings. San Francisco. California. Disclosure Counsel. It is anticipated that the 2006 Series Bonds in book-entrn onh limn \\ill he available Icy deliver\ through the facilities of DTC in Nev. York. Nev. York on or about Jul . 2006. CITIGROUP I )aced: . 2006 * I reliminarn. subject to change. Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A Maturity Date (April I) Principal Interest Amount* Rate Maturity Date (April I ) * Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B Price or Yield Maturity Schedule * Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C * Current Interest Bonds, 2006 Series A CUSIP No.+ (6966I7) Maturity Date Principal (April I) Amount* Interest Price or Rate Yield % Term Bonds due April I. 20 - Price: `%rCUSIP No.+ 6966I 7 % Term Bonds due April I. 20 - Price: `%rCUSIP No.+ 6966I 7 % Term Bonds due April I. 20 - Price: `%rCUSIP No.+ 6966I 7 $ * Capital Appreciation Bonds, 2006 Series B Issue Amount* CUSIP No.+ (6966I7) Yield to Accreted Value CUSIP No.+ Maturity at Maturity (6966I7) + Cop\right 2006. American Bankers Association. Cl1SIP data herein is provided b\ Standard and Poor's. Cl1SIP Service Bureau. a division of 1'he Mc(ira\\-I till Companies. Inc. 'Ibis data is not intended to create a database and does not serve in an \Ya\ as a substitute tirr the Cl NIP Service. Cl NIP numbers are provided tirr convenience of reference onh. None of the Financing Authority. the Redevelopment Agcnc\ or the llndcnvritcr take an res}xmsibilit\ tirr the accurac\ of such Cl NIP numbers. "Ihc Cl1SIP number tirr a specific maturith is subject to being changed after the issuance of the 2006 Series Bonds as a result of various subsequent actions including. but not limited to. a refunding in \\ hole or in part of such matunith. * Preliminary. subject to change. 06012 pos-3 $ * 2006 Subordinate Capital Appreciation Bonds, 2006 Series C Maturity Date (April I ) Issue Amount Yield to Accreted Value CUSIP No.+ Maturity at Maturity (6966I7) t Cop\right 2006. American Bankers Association. CI ISIP data herein is provided b\ Standard and Poor's. CI ISIP Service Bureau. a division of l he Mc(ira\\-I lill Companies. Inc. 'Ibis data is not intended to create a database and does not serve in an \\a\ as a substitute Icy the CI NIP Service. CI NIP numbers are provided Iirr convenience of reference onh. None of the Financing Authont . the Redevelopment Agcnc\ or the I lndeniitcr take am res}xmsibilit\ for the accunacof such CUSIP numbers. 'the Cl1SIP number Iirr a specific matunith is subject to being changed after the issuance of the 2006 Series Bonds as a result of various subsequent actions including. but not limited to. a refunding in \\hole or in part of such matunith. * Prcliminansubject to change. 06012 pos-3 No dealer. broker. salesperson or other person has been authorized to give any information or to make any representations in connection with the offer or sale of the 2006 Series Bonds by the Financing Authority. the Redevelopment Agency or the Undenyriter. other than those contained in this Official Statement. and. if given or made. such other information or representations must not be relied upon as having been authorized by the Financing Authority and the Redevelopment Agency. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy. nor shall there be any sale of the 2006 Series Bonds by any person in any jurisdiction in \Vhich it is unlawful for such person to make such an offer. solicitation or sale. The information set forth herein has been furnished by the Financing Authority. the Redevelopment Agency and the City and includes information which has been obtained from other sources which are believed to be reliable. The information and expressions of opinion contained herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Financing Authority and the Redevelopment Agency since the date hereof. Any statement made in this Official Statement involving any forecast or matter of estimates or opinion. whether or not expressly so stated. is intended solely as such and not as a representation of fact. Certain statements included or incorporated by reference in this Official Statement constitute "forward - looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Section 2 I E of the United States Securities Exchange Act of 1934. as amended. and Section 27A of the United States Securities Act of 1933. as amended (the "Securities Act.). Such statements are generally identifiable by the terminology used. such as "plan. "expect. "estimate. "budget or other similar words. Such forward -looking statements include. but are not limited to. certain statements contained in the information under the caption "Ti 11: PRO.IECI AREA" and contained in APPENDIX A—"RI:PoRT 01 1111: FISCAI, CONSULTANT:* The achievement of certain results or other expectations contained in such fonyard-looking statements involves known and unknown risks. uncertainties and other factors which may cause actual results. performance or achievements described to be materially different from any future results. performance or achievements expressed or implied by such fonyard-looking statements. The Financing Authority and the Redevelopment Agency does not plan to issue any updates or revisions to those forward -looking statements if or w hen their expectations. or events. conditions or circumstances on which such statements are based occur. The Undenyriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance NVith. and as part of. its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction. but the Undenyriter does not guaranty the accuracy or completeness of such information. The 2006 Series Bonds have not been registered under the Securities Act of 1933. as amended. in reliance upon an exemption from the registration requirements contained in such Act. The 2006 Series Bonds have not been registered or qualified under the securities laws of any state. In connection with the offering of the 2006 Series Bonds. the Underwriter may overallot or effect transactions that stabilize or maintain the market price of the 2006 Series Bonds at a level above that which might othenwise prevail in the open market. Such stabilizing. if commenced. may be discontinued at any time. The Undcn ritcr may offer and sell the 2006 Scrics Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriter. 06012 pos-3 ii PALM DESERT FINANCING AUTHORITY PALM DESERT REDEVELOPMENT AGENCY and CITY OF PALM DESERT Riverside County, California FINANCING AUTHORITY COMMISSION Jim Ferguson. President Richard S. Kelly. Vice President Jean M. Benson. ('onnnissioner Buford A. Crites. ('ommissioner Robert A. Spiegel. ('ommissioner REDEVELOPMENT AGENCY BOARD AND CITY COUNCIL Jim Ferguson. Chairman Mc)vr Richard S. Kelly. Vice Chairman Manor Pro /em Jean M. Benson. Member ('ouncilmemher Buford A. Crites. Member Cannel'member Robert A. Spiegel. Member ('ouncilmemher FINANCING AUTHORITY, REDEVELOPMENT AGENCY AND CITY STAFF Carlos L. Ortega. City Manager kivecutive Director Justin McCarthy. Assistant City Manager Redevelopment Sheila R. Gilligan. Assistant City Manager ('onvminiiv Services Paul S. Gibson. Finance Director Treasurer David L. Yrigoven. Director ofRedevelopment in Housing David J. Envin. City Attorney Rachelle D. Klassen. City (jerk Arla Scott. Senior Financial Analyst Veronica Tapia. Redevelopment Accountant SPECIAL SERVICES Richards. Watson & Gershon Los Angles. California Bond ('(mnsel Wells Fargo Bank. National Association Los Angeles. California Trustee Lofton K. Jennings San Francisco. California Disclosure ('ounsel Del Rio Advisors. LLC Modesto. California / 'financial Advisor Roseno« Spevacek Group Inc. Santa Ana. California /''/seal ('onsuhant 06012 pos-3 TABLE OF CONTENTS PAGE INTRODUCTION 1 General: Authority for Issuance 1 Purpose 1 The City 2 The Financing Authority 2 The Redevelopment Agency 2 The Project Area 3 Security for the 2006 Series Bonds 3 Bond Insurance Report of the Fiscal Consultant iS Certain Risks to Bondholders Continuing Disclosure Additional Information 6 ESTIMATED SOURCES AND USES OF FUNDS 7 THE 2006 SERIES BONDS 8 Terms Applicable to all 2006 Series Bonds 8 Current Interest Bonds 8 Capital Appreciation Bonds 10 2006 Subordinate Capital Appreciation Bonds 11 Redemption Procedures 11 DEBT SERVICE SCHEDULE 13 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS 16 Revenues and Loan Agreements 16 Tax Revenues and Subordinate Tax Revenues 16 Tax Allocation Financing 18 Redevelopment Plan Limitations 18 SB 1206 19 Allocation of Taxes 20 Reserve Funds 21 Parity Debt and Subordinate Debt 21 Investment of Funds 24 BOND INSURANCE 24 LIMITATIONS ON TAX REVENUES 24 Article XIII A of State Constitution 24 Article XIII B of the State Constitution: Appropriation Limitations 26 PAGE Articles XIII C and XIII D of the State Constitution 27 Taxation of Unitary Property 27 Property Tax Collection Procedures 27 Property Tax Administrative Costs 28 Housing Set -Aside 29 Certification of Redevelopment Agency Indebtedness 29 Pass -Through Agreements and Tax Sharing Payments 30 Limitation of Tax Revenues from Certain Increased Tax Rates 31 Ballot Initiatives and Legislative Matters 31 THE FINANCING AUTHORITY 32 THE REDEVELOPMENT AGENCY 32 Authority. Members and Personnel 32 Powers 34 Redevelopment Agency Finances 34 THE PROJECT AREA General ; i5 Redevelopment Plan Limits Controls. Land Use and Building Restrictions 36 Summary of Development 37 Principal Taxpayers 38 Tax Rates 38 Historical. Current and Projected Tax Revenues 39 Debt Service Coverage Projections 42 Assessment Appeals 44 Tax Levies. Collections and Delinquencies 45 CERTAIN RISKS TO BONDHOLDERS 46 Accuracy of Assumptions 46 Reduction of Tax Revenues 46 Reductions in Unitary Values 47 Appeals to Assessed Values 47 Reduction in Inflation Rate 48 Bankniptcy and Foreclosure 48 Delinquencies 48 State Budget 48 Natural Disasters 50 Hazardous Substances iS I 06012 pos-3 iv Loss of Tax Exemption iS I Risk of Tax Audit iS I Secondary Market iS2 TAX MATTERS iS2 APPROVAL OF LEGAL PROCEEDINGS 54 CONTINUING DISCLOSURE isiS UNDERWRITING iSiS Current Interest Bonds Capital Appreciation Bonds 2006 Subordinate Capital Appreciation Bonds ABSENCE OF MATERIAL LITIGATION 54 RATINGS iS6 General i54 Other Matters 54 FINANCIAL STATEMENTS iS6 FINANCIAL ADVISOR 54 MISCELLANEOUS iS7 City Location Map vi Project Area Map yii Table I - Summary of Redevelopment Plan Limit Amendments Table 2 - Land Uses by Category 36 Table 3 - Principal Taxpayers 37 Table 4 - Breakdown of Tax Rate 38 Table 5 - Historical and Current Values 40 Table 6- Projection of Incremental Taxable Value and Tax Increment Tax Revenues 41 Table 7- Debt Service Coverage Projections 42 Table 8 - Assessment Appeals 44 Table 9 - Outstanding Appeals by the Top Ten Taxpayers �4iS APPENDIX A - APPENDIX B - APPENDIX C - APPENDIX D - APPENDIX E - REPORT OF THE FISCAL CONSULTANT A -I REDEVELOPMENT AGENCY AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30. 2005 B-I GENERAL INFORMATION CONCERNING THE CITY OF PALM DESERT C-I SUMMARY OF CERTAIN PROVISIONS OF THE 2006 INDENTURES D-I PROPOSED FORM OF BOND COUNSEL OPINION E-I APPENDIX F - FORM OF CONTINUING DISCLOSURE AGREEMENT F-I APPENDIX G - DTC AND THE BOOK -ENTRY ONLY SYSTEM G-I APPENDIX H — SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY H-I APPENDIX I — SPECIMEN RESERVE FUND SURETY POLICY H-I APPENDIX J — TABLE OF ACCRETED VALUES I-1 06012 pos-3 City Location Map 06012 pos-3 vi Project Area Map 06012 pos-3 vii Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A * Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B INTRODUCTION * Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C This introchwtion contains only a brief summary of certain of'the lerms of the 2006 .S'erie.s Bonds being offered and Cr fill/ review should he made of the entire Official .S'tcrten7ent including the cover page. the sable of contents and the appendices fur a more complete description of the teri7is of the 2006 Series Bonds. A// statements contained in This inlrochiclion are qualified in their entirety by rekrence to the entire Official .Statement. References 1o. and s11/77/77arieS of provisions of Crn1' other documents referred 10 herein do not purport to he complete and such references are qualified in their entirety by reference to the complete provisions of .filch documents. General; Authority for Issuance The purpose of this Official Statement. including the cover page and the appendices hereto. is to fitrnish information in connection «ith the sale and delivery by the Palm Desert Financing Authority (the "Financing Authority) of $ * aggregate principal amount of Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Arca No. 3) 2006 Series A (the "Current Interest Bonds") and $ principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 3) 2006 Series B (the "Capital Appreciation Bonds and together «ith the Current Interest Bonds. the "2006 Senior Parity Bonds"): and $ * principal amount of Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 3) 2006 Series C (the "2006 Subordinate Capital Appreciation Bonds and together Nvith the 2006 Senior Parity Bonds. the "2006 Series Bonds"). The 2006 Series Bonds are issued pursuant to the provisions of the Mark -Roos Local Bond Pooling Act of 1985. consisting of Article 4 of Chapter 5 of Division 7 of Title 1 (commencing «ith Section 658 4) of the California Government Code (the "Bond Law"). 2006 Senior Parity Bonds. The 2006 Senior Parity Bonds «ill be issued pursuant to an Indenture of Trust. dated as ofJuly 1. 2006 (the "2006 Senior Parity Indenture"). by and between the Financing Authority and Wells Fargo Bank. National Association (the "Trustee"). 2006 Subordinate Capita! Appreciation Bonds. The 2006 Subordinate Capital Appreciation Bonds are issued pursuant to a separate Indenture of Trust. dated as of July 1. 2006 (the "2006 Subordinate Indenture'' and together «ith the 2006 Senior Parity Indenture. the "2006 Indentures'). by and between the Financing Authority and the Trustee. Purpose 2006 Senior Parity Bonds The proceeds of the 2006 Series Bonds Nvill be used by the Financing Authority to make two loans. one Nvith respect to each Series of 2006 Senior Parity Bonds (the "2006 Series A Loan and the "2006 Series B Loan" and collectively. "2006 Senior Parity Loans"). to Palm Desert Redevelopment Agency (the "Redevelopment Agency") pursuant to a Project Area No. 3 Loan * Prcliminars, subject to change. 06012 pos-3 Agreement made and entered into as of July I. 2006 by and among the Financing Authority. the Redevelopment Agency and the Trustee (the "2006 Senior Parity Loan Agreement"). The Redevelopment Agency will apply the proceeds of the 2006 Senior Parity Loans to: (i) finance certain redevelopment activities within or of benefit to the Project Area: (ii) purchase a reserve fund surety policy for a deposit into the Senior Parity Reserve Fund (defined below): and (iii) pay costs of issuance of the 2006 Senior Parity Bonds. 2006 Subordinate Capital Appreciation Bonds. The proceeds of the 2006 Subordinate Capital Appreciation Bonds will be used by the Financing Authority to make a loan (the "2006 Subordinate Loan and together with the 2006 Senior Parity Loans. the "2006 Loans) to the Redevelopment Agency pursuant to the terms of a Project Area No. 3 Loan Agreement (Subordinate Loan) made and entered into as of July I. 2006 (the "2006 Subordinate Loan Agreement"' and together with the 2006 Senior Parity Loan Agreement. the "2006 Loan Agreements) by and among the Financing Authority. the Redevelopment Agency and the Trustee. The Redevelopment Agency will apply the proceeds of the 2006 Subordinate Loan to: (i) finance various redevelopment activities within the Project Area: (ii) fund a deposit into the Subordinate Reserve Fund (defined below): and (iii) pay the costs associated with the issuance of the 2006 Subordinate Capital Appreciation Bonds. See " Es! IMA11:D SoIJRCI:s ANI) Usl:s of )NDs"" and "THE PRoj1:CT AREA -Summary of Development."' The 2006 Series Bonds will mature in the years and amounts and bear interest at the rates set forth on the inside cover page. The City The City of Palm Desert (the "City) is located in the Coachella Valley and is approximately mid- way between the cities of Indio and Palm Springs. 117 miles east of Los Angeles. 118 miles northeast of San Diego and 5 1 5 miles southeast of San Francisco. According to the State Department of Finance. the City population as of January I. 2006 was approximately 49.5 39. The Series 2006 Bonds are not an obligation of the City. For certain information regarding the City. see APPENDIX C-"GI:NI:RAI. INI:oRMAIIoN CONCERNING Ti CITY OF PAI,M DESERT:* The Financing Authority The Financing Authority is a joint exercise of powers agency organized under the laws of the State of California (the "State) and composed of the City and the Redevelopment Agency. The Financing Authority was formed pursuant to a Joint Exercise of Powers Agreement. dated January 26. 1989 by and between the City and the Redevelopment Agency to assist in the financing of public capital improvements. See "Till.: FINANCING AUI11012IIY.- The Redevelopment Agency The Redevelopment Agency was activated by the City in 1974 and is authorized to exercise the powers granted by the Community Redevelopment Law of the State of California (constituting Part I of Division 24 of the Health and Safety Code of the State of California. commencing with Section 33000) (the "Redevelopment Law) and. by an ordinance. the City Council of the City (the "City Council") declared itself to be the Redevelopment Agency. Although the Redevelopment Agency is an entity distinct from the City. certain City personnel provide staff support for the Redevelopment Agency. See "THE RI:DI:VI:L(I MI:N I AGI:NCY.- 06012 pos-3 2 The Project Area The Project Area was formally established Nyith the adoption by the City Council of a redevelopment plan for approximately 764 acres by Ordinance No. 652. adopted on July 17. 1991. as amended (the "Redevelopment Plane). See "Ti II: PROJECT AREA." Security for the 2006 Series Bonds Tax Allocation Financing. The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of property taxes collected Nyithin a project area. Subject to the more detailed discussion contained under the caption " SI:CiJRIIY ANI) SOURCES OF PAYMENT FOR 111I: BONDS. the taxable valuation of a project area last equalized prior to adoption of the redevelopment plan. or base roll. is established and. except for any period during Nvhich the taxable valuation drops below the base year level. or as may otherwise be agreed to among taxing agencies. the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (except such portion generated by rates levied to pay voter -approved bonded indebtedness after January 1. 1989 for the acquisition or improvement of real property). generally referred to as tax increment revenues. are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. See " SE0112I1'Y ANI) SOURCES OF PAYMENT FOR I111: BONDS. - Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes described above. Any future decrease in the taxable valuation in the Project Area or in the applicable tax rates Nvill reduce the Tax Revenues and Subordinate Tax Revenues allocated to the Redevelopment Agency from the Project Area and consequently may have an adverse impact on the ability of the Redevelopment Agency to pay debt service on the 2006 Series Bonds. See "CERTAIN RISKS'10 BONDI IOI,DI:RS .. Pledge of fax Revenues. The 2006 Series Bonds are limited obligations of the Redevelopment Agency payable solely from and secured solely by a pledge of Revenues consisting primarily of amounts paid by the Redevelopment Agency to the Financing Authority pursuant to the 2006 Loan Agreement and certain other fiends held by the Trustcc pursuant to the applicable 2006 Indenture. The Redevelopment Agency is obligated under the 2006 Senior Parity Loan Agreement and under a loan agreement made and entered into as of July 1. 2003 (the "2003 Loan Agreement) «ith respect to the loan made thereunder (the "2003 Loan) to pay from Tax Revenues (defined below) the amounts set forth in the 2006 Series Parity Loan Agreement and the 2003 Loan Agreement. The Redevelopment Agency is obligated under the 2006 Subordinate Loan Agreement to pay from Subordinate Tax Revenues (defined below) the amounts set forth in the 2006 Subordinate Loan Agreement. See " SI:CiJRIIY ANI) SOIIRCI:S OF PAYMENT FOR 11 II: BONDS .. 2006 Senior Parity Bonds. The obligations of the Redevelopment Agency under the 2006 Senior Parity Loan Agreement are on a parity «ith the obligations under the 2003 Loan Agreement. The 2003 Loan secures repayment of $4.410.000 outstanding principal amount of Palm Desert Financing Authority Tax Allocation Bonds (Project Area No. 3). Series 2003 (the "Series 2003 Bonds.). Nyhich \vere issued pursuant to an Indenture of Trust dated as of July 1. 2003 (the "2003 Indenture) by and between the Financing Authority and the Trustcc. No funds or properties of the Redevelopment Agency. other than the Tax Revenues secure payment of the obligations under the 2006 Senior Parity Loan Agreement or the 2003 Loan Agreement. The 2006 Senior Parity Loan Agreement and the 2003 Loan Agreement are referred to collectively as the "Senior Parity Loan Agreements.). The 2006 Senior Parity Loans and the 2003 Loan are referred to collectively as the "Senior Parity Loans. 06012 pos-3 The Redevelopment Agency has pledged for the repayment of the 2006 Senior Parity Loans and the 2003 Loan (defined below) monies allocated or paid to the Redevelopment Agency derived from: (a) that portion of taxes levied upon assessable property Nyithin the Project Area allocated to the Redevelopment Agency pursuant to the Redevelopment Law and the Constitution of the State of California (the "State.). and (b) reimbursements. subventions. including payments to the Redevelopment Agency Nyith respect to personal property Nyithin the Project Area pursuant to the Government Code of the State. or other payments made by the State Nyith respect to any property taxes that Nvould otherwise be due on real or personal property but for an exemption of such property from such taxes (collectively. the "Tax Revenues.). Tax Revenues do not include (x) amounts payable to the United States under Section 148 of the Code. (y) taxes allocated to the Redevelopment Agency that are required by Sections 33334.2 or 33334.6 of the Redevelopment Law to be used by the Redevelopment Agency for increasing and improving the supply of low and moderate income housing. and (z) amounts payable by the Redevelopment Agency under Section 3607.5 of the Redevelopment Law unless such amounts have been subordinated to the payment of debt service on the Parity Bonds (defined below). See "SF:Ci1121 I'Y AND SOIIRCI;S OF PAYMENT FOR THE BONDS. "LIMITATIONS ON TAX RI:VI:NIII:S- and "CERTAIN RISKS TO BONDI IOI,DI:RS .. The Project Area has an aggregate Base Year Value that was established based on the assessed value for 1990-91 Fiscal Year. Nyhich was last equalized prior to the effective date of the ordinance approving the redevelopment plan and the amendment thereto. See "LIMITATIONS ON TAX REVENUES -Redevelopment Plan Limitations"' and "TI IF: PROJECT AREA -Redevelopment Plan -Redevelopment /'Ian /,emits. 2006 Subordinate Capital Appreciation Bonds. The Redevelopment Agency has pledged for the repayment of the 2006 Subordinate Loan the Tax Revenues remaining after payment of all amounts due Nyith respect to the 2006 Series Loan and the 2003 Loan (the "Subordinate Tax Revenues.). No funds or properties of the Redevelopment Agency. other than the Subordinate Tax Revenues secure payment of the obligations under the 2006 Subordinate Loan Agreement. Reserve Funds. As additional security for the payment of the 2003 Loan and the 2006 Senior Parity Loans by the Redevelopment Agency. a reserve fiind (the "Senior Parity Reserve Fundy) was established under the 2003 Loan Agreement. As additional security for payment of the 2006 Subordinate Loan. a reserve fiind (the "Subordinate Reserve Fundy) was established under the 2006 Loan Agreement. Each such Reserve Fund is required to be maintained in an amount equal to the Reserve Requirement (as defined in each 2006 Loan Agreement). Amounts on deposit in each Reserve Fund Nvill be used for the payment of debt service on the related 2006 Series Bonds in the event that amounts on deposit in the applicable Interest Account or the Principal Account held under the related 2006 Indenture are insufficient therefor. See " SECURITY AND SOURCES OF PAYMENT FOR THE BONUS -Reserve Funds and APPENDIX I -"SPECIMEN RI:SI:RVI: FUND Sl1RI I'Y Poi icY.- 2006 Senior Parity Bonds. On the date of issuance of the 2006 Series Bonds. the Redevelopment Agency \Nell use a portion of the proceeds from the sale of the 2006 Senior Parity Bonds to purchase. la reserve fund surety policy in the amount of $ / two reserve fiind surety policies in the aggregate amount of } 1 to be issued by (the "Bond Insurer-) for deposit into the Senior Parity Reserve Fund. Nyhich together Nyith the amounts on deposit therein in the amount of . Nvill equal the Reserve Requirement of 2006 Subordinate Capital Appreciation Bonds. On the date of issuance of the 2006 Subordinate Capital Appreciation Bonds. the Redevelopment Agency «iII deposit sale in the amount of $ into the Reserve Fund. Nyhich is equal to the Reserve Requirement. THE 2006 SERIES BONDS ARE NOT A DEBT OF THE CITY. THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS. OTHER THAN THE FINANCING AUTHORITY. AND NONE OF THE CITY. THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS. OTHER THAN THE FINANCING 06012 pos-3 4 AUTHORITY. IS LIABLE THEREFOR. THE 2006 LOANS ARE NOT A DEBT OF THE FINANCING AUTHORITY OR THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS. AND NONE OF THE FINANCING AUTHROTIY OR THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS. IS LIABLE THEREFOR. NONE OF THE MEMBERS OF THE FINANCING AUTHORITY. THE CITY COUNCIL. THE REDEVELOPMENT AGENCY OR ANY PERSONS EXECUTING THE 2006 SERIES BONDS OR THE 2006 LOAN AGREEMENTS ARE LIABLE PERSONALLY WITH RESPECT TO THE 2006 SERIES BONDS OR THE 2006 LOANS. THE OBLIGATIONS OF THE REDEVELOPMENT AGENCY WITH RESPECT TO THE 2006 SENIOR PARITY LOANS ARE PAYABLE SOLELY FROM THE TAX REVENUES (AS DEFINED HEREIN) AS SET FORTH IN THE 2006 SENIOR PARITY LOAN AGREEMENT. THE OBLIGATIONS OF THE REDEVELOPMENT AGENCY WITH RESPECT TO THE 2006 SUBORDINATE CAPITAL APPRECIATION BONDS ARE PAYABLE SOLELY FROM THE SUBORDINATE TAX REVENUES (AS DEFINED HEREIN) AS SET FORTH IN THE 2006 SUBORDINATE LOAN AGREEMENT. NEITHER THE FINANCING AUTHORITY NOR THE REDEVELOPMENT AGENCY HAS TAXING POWER. Bond Insurance Payment of the principal and interest on the 2006 Series Bonds «.hen due Nvill be insured by a Financial Guaranty Insurance Policy (the "Insurance Policy) to be issued simultaneously Nyith the execution and delivery of the 2006 Series Bonds by the Bond Insurer. See "B0NI INSURANCI:* and APPENDIX H- "SPI:CIMI:N FINANCIAI, GIIARAN IY INSURANCI: POLICY.* Report of the Fiscal Consultant Included as Appendix A to this Official Statement is a report (the "Report of the Fiscal Consultant) prepared by Rosenow Spevacek Group Inc. (the "Fiscal Consultant- «hich. among other things. analyzes the Tax Revenues generated from taxable property Nyithin the Project Area and pledged to the repayment of the Bonds. The findings and projections in the Report of the Fiscal Consultant are subject to a number of assumptions that should be reviewed and considered by prospective investors. No assurances can be given that the projections and expectations discussed in the Report of the Fiscal Consultant «iI be achieved. Actual results may differ materially from the projections described therein. See APPENDIX A-" RI:P0R! 01: n 1E: FISCAI, CONSUI:! AN ! ... Certain Risks to Bondholders Investment in the 2006 Series Bonds involves risk. For a discussion of certain considerations relevant to an investment in the 2006 Series Bonds. see "C►:R•I'AIN RISKS TO BOND11o1,DI:Rs.- Continuing Disclosure The Redevelopment Agency has agreed to provide. or cause to be provided. to each nationally recognized municipal securities information repository or the Municipal Securities Rulemaking Board and any public or private repository or entity designated by the State as a state repository for purposes of Rule I iSc2- I2(b)(is) adopted by the Securities and Exchange Commission certain annual financial information and operating data and. in a timely manner. notice of certain material events. These covenants have been made in order to assist the Undenvriter in complying Nvith the Securities and Exchange Commission Rule I5c2-I2(b)(5). See "CoN!INIJING DIscIosl1Rl:- and APPENDIX F-"FORM OE CoN!INIJING DISCIosIJR1: AGRI :I :MI :N 1.. for a description of the specific nature of the annual report and notices of material events and a summary description of the terms of the disclosure agreement pursuant to \yhich such reports are to be made. The Redevelopment Agency has never failed to comply in all material respects «ith any previous undertakings Nvith regard to said Rule to provide annual reports or notices of material events. 06012 pos-3 Additional Information This Official Statement contains summaries of the 2006 Series Bonds. the security for the 2006 Series Bonds. the 2006 Indentures. the 2006 Loan Agreements. the Redevelopment Law. the Redevelopment Agency. the Project Area and certain other information relevant to the issuance of the 2006 Series Bonds. All references herein to the 2006 Indentures are qualified in their entirety by reference to the complete text thereof and all references to the 2006 Series Bonds are filrther qualified by reference to the form thereof contained in the applicable 2006 Indenture. The audited financial statements of the Redevelopment Agency for the Fiscal Year ended June 30. 2005 are included in APPENDIX B. The proposed form of legal opinion of Bond Counsel for the 2006 Series Bonds is set forth in APPENDIX E. See APPENDIX D-"SUMMARY OF CERTAIN PRovlsloNS OF THE 2006 INDI:N.I 11RIs for definitions of certain words and terms used herein. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meanings as in the applicable 2006 Indenture. The information set forth herein and in the Appendices hereto has been filrnished by the Redevelopment Agency and the City and includes information wvhich has been obtained from other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness by the Financing Authority or the Undenvriter and is not to be construed as a representation by the Underwriter. Copies of documents referred to herein and information concerning the 2006 Series Bonds are available upon written request from the of the Redevelopment Agency. 73-5 I0 Fred Waring Drive. Palm Desert. California 92260-2578: telephone: (760) 346-061 I. The Redevelopment Agency may impose a charge for copying. mailing and handling. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 6 ESTIMATED SOURCES AND USES OF FUNDS The anticipated sources and uses of fiords relating to the 2006 Series Bonds are as follows: 2006 Senior Parity Bonds 2006 Subordinate Current Interest Bonds Capital Appreciation Bonds Capital Appreciation Bonds Total Sources: Principal Amount of the 2006 Series Bonds Phis: Net Original Issue Premium' 'Less: Original Issue Discount Too AI. Sot JRCI :s Uses: Deposit to Project Fund''' Deposit to Costs of Issuance Fund',' Deposit to Reserve Fund Undenyriter's Discount TolAI. Usi:s (2) * * Prcliminar\, subject to change. To be used to Iinancc redevelopment activities in the Project Area. See " Il u%. PR( )JI'.(' I \—Summar\ or Development." Includes the Ices and expenses or Bond Counsel. Disclosure Cotutscl and Counsel to the Redevelopment AgcncIces and expenses or the I ntstcc. the Financial Advisor and the Fiscal Consultant. printing costs. rating agcnc\ Ices. bond insurance and reserve Fund sttret\ premiums. and other costs related to the issuance or the 2006 Series Bonds. Represents the amount or the reserve Fund sttret\ polio. THE 2006 SERIES BONDS Terms Applicable to all 2006 Series Bonds The 2006 Series Bonds will be dated the date of issuance and delivery. issued in fully registered form. without coupons. and. when issued will be registered in the name of Cede K. Co.. as nominee for The Depository Trust Company. NOV York. NOV York ("DTC"). as registered owner of all 2006 Series Bonds. Ownership interests in the 2006 Series Bonds may be purchased in book -entry form only. Purchasers will not receive certificates representing their interests in the 2006 Series Bonds purchased. Payments of principal and Accreted Value of the interest on the 2006 Series Bonds. as applicable NViII be paid by the Trustee to DTC. \Vhich is obligated in turn to remit such principal. Accreted Value and interest. as applicable to its DTC Participants for subsequent disbursement to the beneficial owners of the 2006 Series Bonds. See APPENDIX G—"DTC ANI) I111: B(x)K-EN IRY ONI,Y SYSTEM:* Ownership may be changed only upon the registration books maintained by the Trustee as provided in each 2006 Indenture. Current Interest Bonds General. The 2006 Series A Bonds (the "Current Interest Bonds) will be issued only in fully registered form in denominations of $5.000 and any integral multiple thereof and shall mature on the dates and in the principal amounts and bear interest at the rates as set forth on the inside cover of this Official Statement. Interest on the Current Interest Bonds shall be payable semiannually on April I and October I of each year. commencing I. 2006 (each. an "Interest Payment Date"). Interest on the Current Interest Bonds NViII be payable on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the close of business on the Record Date. such interest to be paid by check or draft of the Trustee mailed by first class mail. postage prepaid. on each Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books on such Record Date: provided. however. that at the written request of the Owner of at least $1.000.000 in aggregate principal amount of Outstanding 2006 Series A Bonds filed with the Trustee prior to any Record Date. interest on such 2006 Series A Bonds shall be paid to such Owner on each succeeding Interest Payment Date by \wire transfer of immediately available fiends to an account in the United States designated in such «rittcn request (unless and until such request has been revoked in writing). Redemption Provisions. Redemption for Optional Loan Prepayment. If the Redevelopment Agency exercises its option to prepay principal installments of the 2006 Series A Loan pursuant to the 2006 Senior Parity Loan Agreement. the Revenues derived from such prepayment will be applied to the redemption of the Current Interest Bonds maturing on or after April I. 20 . as a whole. or in part among maturities as designated in writing by the Financing Authority and by lot within a maturity. in integral multiples of $5.000 principal amount. on any Interest Payment Date on or after April I. 2() . at the following respective redemption prices (expressed as a percentage of the principal amount of Current Interest Bonds to be redeemed). plus accrued interest thereon to the date of redemption: Redemption Redemption Dates Price April I. 20 and October I. 2() I0_`%0 April I. 20 and October I. 2() I0_ April I. 2() and thereafter I00 The Financing Authority is required to provide written notice to the Trustee of any Redemption for Optional Loan Prepayment at least 45 but not more than 90 days prior to the date fixed for such redemption. 06012 pos-3 8 Mandatory Sinking, Fund Redemption. The Current Interest Bonds maturing on April I. 2031. April I. 2036 and April I. 2041 are also be subject to mandatory redemption by lot. on April I in each year commencing April I. 2027. April I. 2030 and April I. 2037. respectively. from sinking fund payments made by the Financing Authority into the Principal Account. at a redemption price equal to the principal amount thereof to be redeemed. Nvithout premium. plus accrued interest to the date of redemption. in the aggregate respective principal amounts and on April I in the respective years as set forth below: Current Interest Bonds Maturing, April I. 2031* Sinking Fund Redemption Date (April I) Maturit . Principal Amount to be Redeemed* Current Interest Bonds Maturing, April I. 2036* Sinking Fund Redemption Date (April I) Matwith. Principal Amount to be Redeemed* Current Interest Bonds Maturing, April I. 2041 * Sinking Fund Redemption Date (April I) +Final Matuit. * Prcliminar�, subject to change. Principal Amount to be Redeemed* 06012 pos-3 9 Purchase in Lieu of Redemption. In lieu of Mandatory Sinking Fund redemption of the Current Interest Bonds on April I in any year. the Current Interest Bonds may be purchased by the Redevelopment Agency pursuant to the 2006 Senior Parity Loan Agreement and tendered to the Tnistcc for cancellation no later than the preceding January 15. and (ii) if some but all of the Current Interest Bonds of a maturity have been redeemed. the total amount of all future sinking fiend payments with respect to the Current Interest Bonds of such maturity shall be reduced by the aggregate principal amount of such Current Interest Bonds so redeemed. to be allocated among such sinking fund payments on a pm 'vier basis. Capital Appreciation Bonds General. The 2006 Series B Bonds (the "Capital Appreciation Bonds") will be issued in amounts shown on the inside cover (the "Initial Principal Amount-) and will have a value on the stated maturity date thereof equal to $5.000 or any integral multiple thereof (the "Accreted Value-). The Capital Appreciation Bonds of each maturity will accrete in value from their Date of Delivery and will mature on dates. all as indicated on the inside cover of this Official Statement. compounded semi-annually on April I and October I of each year. commencing I. 2006 until maturity or earlier redemption date. Such compounding will be calculated on the basis of a 360-day year comprised of twelve 30-day months. and the Accreted Value shall be payable only at maturity. 'The Accreted Value on any date other than April I and October I of any year shall be calculated by straight-line interpolation'. No payments with respect to the Capital Appreciation Bonds will be made prior to the respective maturity dates thereof. See APPENDIX J- "TAuI,I: car ACCRETED ED VALIJI:S-Capital Appreciation Bonds for the Accreted Values as of each April I and October I for each Maturity Amount. Such Table of Accreted Values is presented for illustrative purposes only. Any Accreted Value determined in accordance with terms of the applicable 2006 Indenture shall control over any different Accreted Value determined by reference to such Table. Redemption Provisions. Optional Redemption. In If the Redevelopment Agency exercises its option to prepay principal installments of the 2006 Series B Loan pursuant to the 2006 Senior Parity Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the Capital Appreciation Bonds maturing on or after April I. 20 . as a whole. or in part among maturities as designated in writing by the Financing Authority and by lot within a maturity. in integral multiples of $5.000 of Maturity Amount. on any October I or April I on or after April I. 2() . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called 2006 Series B Bonds on the date fixed for redemption): Redemption Redemption Dates Price April I. 20 and October I. 2() I0_`%0 April I. 20 and October I. 2() I0_ April I. 2() and thereafter I00 The Financing Authority is required to provide written notice to the Tnistcc of any Redemption for Optional Loan Prepayment at least 45 but not more than 90 days prior to the date fixed for such redemption. No Mandatory Sinking, Fund Redemption. The Capital Appreciation Bonds are not subject to mandatory sinking fund redemption prior to maturity. 06012 pos-3 I0 2006 Subordinate Capital Appreciation Bonds General. The 2006 Series C Bonds (the "2006 Subordinate Capital Appreciation Bonds") will be issued in amounts shown on the inside cover (the "Initial Principal Amount) and will have a value on the stated maturity date thereof equal to $5 000 or any integral multiple thereof (the "Accreted Value.). The 2006 Subordinate Capital Appreciation Bonds of each maturity will accrete in value from their Date of Delivery and will mature on dates. all as indicated on the inside cover of this Official Statement. compounded semi-annually on April I and October I of each year. commencing I. 2006 until maturity or earlier redemption date. Such compounding will be calculated on the basis of a 360-day year comprised of twelve 30-day months. and the Accreted Value shall be payable only at maturity. 'The Accreted Value on any date other than April I and October I of any year shall be calculated by straight-line interpolation'. No payments with respect to the 2006 Subordinate Capital Appreciation Bonds will be made prior to the respective maturity dates thereof. See APPENDIX J—"TAuI,I: cm, ACCRETED VALUES —Capital Appreciation Bonds for the Accreted Values as of each April I and October I for each Maturity Amount. Such Table of Accreted Values is presented for illustrative purposes only. Any Accreted Value determined in accordance with terms of the applicable 2006 Indenture shall control over any different Accreted Value determined by reference to such Table. Redemption Provisions. Optional Redemption. In If the Redevelopment Agency exercises its option to prepay principal installments of the 2006 Series C Loan pursuant to the 2006 Subordinate Loan Agreement. the Revenues derived from such prepayment shall be applied to the redemption of the 2006 Subordinate Capital Appreciation Bonds maturing on or after April I. 2() . as a whole. or in part among maturities as designated in writing by the Financing Authority and by lot within a maturity. in integral multiples of $5.000 of Maturity Amount. on any October I or April Ion or after April I. 2() . at the following respective redemption prices (expressed as a percentage of the Accreted Value of the called 2006 Subordinate Capital Appreciation on the date fixed for redemption): Redemption Redemption Dates Price April I. 20 and October I. 2() I0_`%0 April I. 20 and October I. 2() I0_ April I. 2() and thereafter I00 The Financing Authority is required to provide written notice to the Trustcc of any Redemption for Optional Loan Prepayment at least 45 but not more than 90 days prior to the date fixed for such redemption. No Mandatory Sinking. Fund Redemption. The 2006 Subordinate Capital Appreciation are not subject to mandatory sinking fiend redemption prior to maturity. Redemption Procedures Notice of Redemption. The Trustcc on behalf and at the expense of the Financing Authority will mail (by first class mail) notice of any redemption to the respective Owners of any 2006 Series Bonds designated for redemption at their respective addresses appearing on the Registration Books and. by such means acceptable to the following institutions. to the Securities Depositories and to one or more Information Services. at least 30 but not more than 60 days prior to the date fixed for redemption: provided. however. that neither failure to receive any such notice so mailed nor any defect therein will affect the validity of the proceedings for the redemption of such 2006 Series Bonds or the cessation of the accrual or accretion of interest thereon. Such notice is required to state the date of the notice. the redemption date. the redemption place and the redemption price and shall designate the CUSIP numbers. the series designation of the 2006 06012 pos-3 II Series Bonds. the 2006 Series Bond numbers (but only if less than all of the Outstanding Bonds of such series are to be redeemed) and the maturity or maturities of the 2006 Series Bonds of such series (in the event of redemption of all of such Bonds of such maturity or maturities in Nyhole) to be redeemed. and require such Bonds to be surrendered at the Trust Office of the Tnistcc in Los Angeles. California (or such other location as designated by the Tnistcc) for redemption at the redemption price. giving notice also that further interest on such 2006 Series Bonds Nvill not accrue or accrete. as applicable. from and after the redemption date. Selection of Bonds for Redemption. If less than all of the 2006 Series Bonds of a series and a maturity are called for redemption. the Trustee NyiII select the 2006 Series Bonds to be redeemed from all 2006 Series Bonds of such series and maturity not previously called for redemption. by lot in any manner Nvhich the Trustee in its sole discretion deems appropriate under the circumstances. Partial Redemption of Bonds. In the event only a portion of any 2006 Series Bond is called for redemption. then upon surrender of such 2006 Series Bond the Financing Authority is required to execute and the Trustee is required to authenticate and deliver to the Owner thereof. at the expense of the Financing Authority. a new 2006 Series Bond or 2006 Series Bonds of the same series. tenor and maturity date. of authorized denominations in aggregate Principal Amount or Maturity Amount. as the case may be. equal to the unredeemed portion of the 2006 Series Bond to be redeemed. Effect of Redemption. From and after the date fixed for redemption. if funds available for the payment of the principal of. interest on and premium. if any. or Accreted Value. as applicable. on the 2006 Series Bonds so called for redemption shall have been duly provided. such 2006 Series Bonds so called NyiII cease to be entitled to any benefit under the 2006 Senior Parity Indenture or 2006 Subordinate Indenture. as applicable. other than the right to receive payment of the redemption price. and no interest shall accrue thereon from and after the redemption date specified in such notice. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 I2 DEBT SERVICE SCHEDULE The following table shows scheduled semiannual debt service on the 2006 Series Bonds. w ithout regard to any optional redemption. See also " PRO.IEc r AREA —Debt Service Coverage Projections -Table 7.- 2O(6 Senior Parith Bonds Subordinate Current Interest 13onds Capital Appreciation 13onds Capital Appreciation 13onds Total Senior Total Patih 13ond Total Pa\ment Date Series2003 13onds Principal* Interest Principal* Interest 1)cht Service 1)cht Service Principal* Interest 1)cht Service October 1, 2006 April I. 2007 October I.2007 April I. 2008 October I.2008 April I. 2009 October I.20O9 April I. 2010 October I.2010 April I. 2011 October I.2011 April I. 2012 October I. 2012 April I.2013 October I. 2013 April I. 2014 October 1. 2014 April I. 2015 October I.2015 April I. 2016 October I. 2016 April I. 2017 October I. 2017 April I. 2018 October I.20I8 April I. 2019 October I.20I9 April I. 2020 October I.2020 April I. 2021 06012 pos-3 2006 Senior Parith Bonds Subordinate Current Interest 13onds Capital Appreciation 13onds Capital Appreciation 13onds Total Senior Total Parit 13ond Total Pa\mein Date Series 2003 13onds Principal* Interest Principal* Interest 1)cht Service 1)cht Service Principal* Interest 1)cht Service October 1.2021 April 1. 2022 October 1.2022 April 1. 2023 October 1.202 3 April 1. 2024 October 1. 2024 April 1. 202 i October 1. 2025 April 1. 2026 October 1. 2026 April 1. 2027 October 1.2027 April 1. 2028 October 1.2028 April 1.2029 October 1.2029 April 1. 2030 October 1.2030 April 1. 2031 October 1. 2O 31 April 1. 2032 October 1.2032 April 1. 2033 October 1. 20 3 3 April 1. 2034 October 1. 20 34 April 1. 2035 October 1. 20 35 April 1. 2036 October 1. 20 36 April 1. 2037 October 1.2037 April 1. 2038 06012 pos-3 2006 Senior PantBonds Subordinate Current Interest Bonds Capital Appreciation 13onds Capital Appreciation 13onds Total Senior Total Patih 13ond Total Pa\ment Date Series2003 13onds principal* Interest principal* Interest 1)cht Service 1)cht Service principal* Interest 1)cht Service October 1. 2038 April 1. 2039 October 1. 2039 April 1. 20-I0 October 1. 2U-4O April 1. 20-11 * Preliminan, subject to change. 06012 pos-3 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Revenues and Loan Agreements 2006 Senior Parity Bonds. The 2006 Senior Parity Bonds are secured by a first lien on and pledge of the Revenues. \yhich are defined in the 2006 Senior Parity Indenture to include (i) all amounts payable by the Redevelopment Agency as payments or prepayments for the 2006 Loans pursuant to the 2006 Senior Parity Loan Agreement and the 2003 Loan pursuant to the 2003 Loan Agreement: (ii) any proceeds of the 2006 Senior Parity Bonds originally deposited Nyith the Trustee and all moneys deposited and held from time to time in the funds and accounts established under the 2006 Senior Parity Indenture: and (iii) income and gains Nyith respect to the investment of amounts on deposit in the fiends and accounts established under the 2006 Senior Parity Indenture. other than amounts payable to the United States of America pursuant to the tax covenants contained in the 2006 Senior Parity Indenture. The primary security for the 2006 Senior Parity Bonds. therefore. consists of amounts payable by the Redevelopment Agency under the 2006 Senior Parity Loan Agreement. amounts held in the Reserve Fund and amounts held by the Trustee under the 2006 Senior Parity Indenture. The 2006 Loans are secured by a first pledge of and Tien on the Tax Revenues 011 a parity «ith the pledge of and Tien of the 2003 Loan. as more filth- described under "-Tax Revenues and Subordinate Tax Revenues —Tax Revenues:* The Redevelopment Agency may. pursuant to the terms of the 2006 Senior Parity Loan Agreement. the 2006 Senior Parity Indenture. the 2003 Loan Agreement and the 2003 Indenture. issue additional obligations secured by Tax Revenues 011 a parity «ith the 2006 Loans and the 2003 Loan. See "-Parity Debt and Subordinate Debt. 2006 Subordinate Capital Appreciation Bonds. The 2006 Subordinate Capital Appreciation Bonds are secured by a Tien on and pledge of the Revenues. Nyhich are defined in the 2006 Subordinate Indenture to include (i) all amounts payable by the Redevelopment Agency as payments or prepayments for the 2006 Subordinate Loan pursuant to 2006 Subordinate Loan Agreement: (ii) any proceeds of the 2006 Subordinate Capital Appreciation Bonds originally deposited «ith the Trustee and all moneys deposited and held from time to time in the fiords and accounts established under the 2006 Subordinate Indenture: and (iii) income and gains Nyith respect to the investment of amounts on deposit in the fiords and accounts established under the 2006 Subordinate Indenture. other than amounts payable to the United States of America pursuant to the tax covenants contained in the 2006 Subordinate Indenture. The primary security for the 2006 Subordinate Capital Appreciation Bonds. therefore. consists of amounts payable by the Redevelopment Agency under the 2006 Subordinate Loan Agreement. amounts held in the Reserve Fund and amounts held by the Trustcc under the 2006 Subordinate Indenture. The 2006 Subordinate Loan is secured by a subordinate pledge of and lien on the Tax Revenues remaining after payment of all amounts due under the 2006 Senior Parity Loan Agreement and the 2003 Loan Agreement (the "Subordinate Tax Revenues.). as more fully described under "-Tax Revenues and Subordinate Tax Revenues -.Subordinate Tax Revenues:* The Redevelopment Agency may. pursuant to the terms of the 2006 Subordinate Loan Agreement and the 2006 Subordinate Indenture. issue additional obligations secured by Subordinate Tax Revenues 011 a parity «ith the 2006 Subordinate Loan. See "-Parity Debt and Subordinate Debt. Tax Revenues and Subordinate Tax Revenues Tax Revenues. The 2006 Senior Parity Bonds are and \\ill be equally secured by a first pledge of. security interest in and lien on all of the Tax Revenues derived by the Redevelopment Agency from the Project Area and moneys held pursuant to the 2006 Senior Parity Indenture. and on a parity «ith the 2003 Bonds and any Senior Parity Debt (defined below) at any time issued by the Redevelopment Agency. Except for the Tax Revenues and such moneys. no other funds or properties of the Redevelopment Agency is pledged to. or otherwise liable for. the payment of principal of or interest or redemption premium (if any) on the 2006 Senior Parity Bonds. Under the 2006 Senior Parity Indenture. the Redevelopment Agency may incur additional loans. advances or indebtedness issued or incurred by the Redevelopment Agency on a parity «ith the 2006 Senior Parity Bonds and the 2003 Bonds ("Senior Parity Debt.). \yhich Senior Parity Debt 06012 pos-3 I6 shall be equally secured. on a parity Nyith the 2006 Senior Parity Bonds and the 20003 Bonds. by a pledge of. security interest in and Tien on all of the Tax Rcycnucs. See "-Parity Debt and Subordinate Debt. See also APPENDIX D—"SIIMMARY OI CI:12I AIN PROVISIONS OI 1111:2006 INDENTURES:* "Tax Rcycnucs- is defined in the 2006 Senior Parity Loan Agreement to mean monies allocated or paid to the Redevelopment Agency derived from (i) that portion of taxes levied upon taxable property Nyithin the Project Area allocated and paid into the Special Fund of the Redevelopment Agency pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State. exclusive of amounts laced in the Low and Moderate Income Housing Fund of the Redevelopment Agency pursuant to Sections 33334.2 and 33334.6 of the Redevelopment Law. and excluding amounts payable to affected taxing agencies pursuant the Pass -Through Agreements or pursuant to Section 33607.5 or 33607.7 of the Redevelopment Law. The Redevelopment Agency's receipt of Tax Revenues Nyith respect to the Project Area is subject to certain limitations (the "Plan Limitations") contained in the Redevelopment Plan on the dollar amount of taxes \yhich may be divided and allocated to the Redevelopment Agency pursuant to the Redevelopment Plan. as such limitation is prescribed by Section 33333.4 of the Redevelopment Lary. See "LIMITATIONS ON TAX RI:vI:NUIa." Pursuant to the 2006 Senior Parity Loan Agreement. the Redevelopment Agency covenants to comply Nyith all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues. and fiirther covenants not to enter into any agreement Nyith the County or any other governmental unit \yhich Nyould have the effect of reducing the amount of Tax Revenues available to the Redevelopment Agency for payment of the 2006 Senior Parity Bonds. unless in the «rittcn opinion of an Independent Redevelopment Consultant (filed Nyith the Trustee.( such reduction «iII not adversely affect the interests hereunder of or the security granted hereunder to the Bond Owners. The Redevelopment Agency has no power to Icyy and collect property taxes. and any property tax limitation. legislative measure. voter initiative or provisions of additional sources of income to taxing agencies having the effect of reducing the property tax rate. could reduce the amount of Tax Revenues that Nyould otherwise be available to pay debt service on the 2006 Senior Parity Bonds and. consequently. the principal of. and interest on. the 2006 Senior Parity Bonds. Likewise. broadened property tax exemptions or successful assessment appeals could have a similar effect. See "LIMITATIONS ON TAX REVENUES.* and --CERTAIN AIN RISKS TO BONDI IOI,I)I:RS .. THE 2006 SERIES BONDS ARE NOT A DEBT OF THE CITY. THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE. AND NONE OF THE CITY. THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS. OTHER THAN THE FINANCING AUTHORITY. IS LIABLE THEREFOR. THE PRINCIPAL OF. PREMIUM. IF ANY. AND INTEREST ON THE 2006 SERIES BONDS ARE PAYABLE SOLELY FROM REVENUES CONSISTING PRIMARILY OF AMOUNTS PAYABLE BY THE REDEVELOPMENT AGENCY UNDER THE 2006 LOAN AGREEMENT. WHICH ARE PAYABLE FROM TAX REVENUES ALLOCATED TO THE FINANCING AUTHORITY. FROM THE PROJECT AREA AND CERTAIN OTHER FUNDS PLEDGED THEREFOR UNDER THE 2006 LOAN AGREEMENTS. NONE OF THE MEMBERS OF THE FINANCING AUTHORITY. THE CITY COUNCIL. OR ANY PERSONS EXECUTING THE 2006 SERIES BONDS. ARE LIABLE PERSONALLY ON THE 2006 SERIES BONDS BY REASON OF THEIR ISSUANCE. NEITHER THE FINANCING AUTHORITY NOR THE REDEVELOPMENT AGENCY HAS TAXING POWER. 06012 pos-3 17 Subordinate Tax Revenues. The 2006 Subordinate Capital Appreciation Bonds are and will be equally secured by a first pledge of. security interest in and lien on all remaining Tax Revenues following the payment of the 2006 Senior Parity Loan. the 2003 Loan and Senior Parity Debt (such remaining amount is referred to as the "Subordinate Tax Revenues.). Tax Allocation Financing The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a project area. The taxable valuation of a project area last equalized prior to adoption of the redevelopment plan. or base roll. is established and. except for any period during which the taxable valuation drops below the base year level and for certain exceptions described below. the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (except such portion generated by rates levied to pay bonded indebtedness approved by the voters on or after January 1. 1989. for the acquisition or improvement of real property) are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Tax Revenues consist of a portion of such taxes. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as indicated above. Redevelopment Plan Limitations The State Legislature has in the past enacted legislation altering spending limitations or establishing minimum funding provisions for particular activities. The Redevelopment Agency cannot predict whether the State Legislature will enact other legislation requiring additional or increased future shifts of tax increment revenues to the State and/or to schools. whether through an arrangement similar to the local County Education Revenue Augmentation Funds (the " ERAF-) or by other arrangements. and. if so. the effect of such legislation on future Tax Revenues. A description of such legislation is summarized below. AB 1290. Pursuant to Section 33607.7 of the State Health and Safety Code added by Assembly Bill ("AB") 1290 (Statutes of 1993). Chapter 942) a redevelopment plan amendment for any redevelopment plan adopted prior to January 1. 1994 that increases the limitation on the number of dollars to be allocated to the redevelopment agency or the time limit on the establishing of loans. advances and indebtedness. must begin making statutory payments to affected taxing entities that do not have existing pre -AB 1290 tax sharing agreements. These payments are to begin once any of the original redevelopment plan limitations would have taken effect. The first limit encountered or to be encountered in the Project Area is the debt establishment limit. The AB 1290 payments are computed using the increase in revenue. if any. over the amount of revenue generated by a project area in the year that the debt establishment limit would have been reached. In effect. the year in which the debt establishment limit is met becomes a new "base year - for purposes of calculating payments. AB 1290 payments are paid from revenues resulting from the growth in the new tax base year. ISee APPENDIX A-" RI:PoRT 0I 1111: FISCAI, CONSULTANT"' "' for a detailed discussion of the formulas upon which calculation of the AB 1290 payments is based.' Among other amendments to the Law. AB 1290 limits the time for: (i) establishing indebtedness in a project area to the later of 20 years from the date of adoption of the redevelopment plan or January 1. 2004: (ii) the life of existing redevelopment plans to the later of 40 years from the date of adoption or January 1. 2009: (iii) paying indebtedness with tax increment beyond 10 years after the expiration of the redevelopment plan. except to fiend deferred Low and Moderate Income Housing Fund (the "Housing Set -Aside) requirements and to repay indebtedness incurred prior to January 1. 1994. The time limits imposed by 06012 pos-3 18 AB 1290 apply individually to each plan as well as to specific territory added by amendments to a redevelopment plan. On Febnlary 27. 2003. the City Council adopted Ordinance No. 1036 eliminating the time limit to incur debt within the Project Area. See --Ti II: PROJECT AREA -Redevelopment Plan -Redevelopment /'/an /,imits Table 1- for a summary of the plan amendment and limitations. For a summary of the plan amendments and limitations. see "Till.: PROJEc i AREA -Redevelopment Plan -Redevelopment /'/an /,imits-Table I.-- For additional legislation affecting plan limits. see ---.S73 211- and ---.SB /096.-- SB 211. Senate Bill 21 I (Chapter 741. Statutes of 2001) (--SB 21 I--) was adopted by the California Legislature and became law on January I. 2002. Among other things. SB 21 I authorizes a redevelopment agency that adopted a redevelopment plan prior to January I. 1994. to amend that plan in accordance with specified procedures to extend its effectiveness and receive tax increment revenues with respect to the plan for not more than I() years if certain specified findings are made. !fa plan is so amended. the requirement for allocating tax increment revenues to low and moderate income housing is increased from 20`%0 to 30`%0. However. such elimination also triggers statutory tax sharing with those taxing entities that do not have tax sharing agreements for the period commencing in the year the eliminated plan limit NvouId have taken effect. Tax sharing will be calculated based on the increase in assessed valuation after the year in which the time limit NvouId have otherwise become effective. SB 211 also allows redevelopment agencies to amend redevelopment plans to eliminate the time limit for the establishment of loans. advances and indebtedness within project areas. However. such an amendment NvouId also require a redevelopment agency to begin making statutory tax sharing payments to affected taxing entities. See -'-AB l 290.-- SB 1045. Senate Bill 1045 (Chapter 260. Statutes of 2003) (--SB 1045--) was enacted as part of the State Fiscal Year 2003-04 budget legislation and required redevelopment agencies Statewide to contribute $135 million to the ERAF in order to reduce the amount of State funding for schools. (See also "CERTAIN AIN RISKS TO BONDIIoI,DI:RS-State Budget -Fiscal Year 2003-04--). In accordance with SB 1045. the Redevelopment Agency transferred $ to the County by the May 10. 2004 deadline. In addition. SB 1045 amended the Redevelopment Law to permit redevelopment agencies to use a simplified methodology to amend the redevelopment plans to extend by one year the effectiveness of the plan and the time during which a redevelopment agency may repay debt with tax increment revenues. and permitted a redevelopment agency to deduct the amount of ERAF payments in Fiscal Year 2003-04 and in prior years from the amount of the cumulative tax increment revenues for a project area. On December 9- 2004. the City Council adopted Ordinance No. 1084 extending by one year the expiration date of the Redevelopment Plan and the time limit to repay debt in the Project Area. SB 1206 Senate Bill 1206 (--SB I206-). introduced by the Chair of the Senate Committee on Local Government in January 2006. would amend sections of the Redevelopment Law to. among other things. revise the conditions that characterize a blighted area: standardize the standards for mergers of project areas: and prohibit a redevelopment agency from establishing any bonded indebtedness to be paid with tax increment revenues after the I 1 th fiscal year in which such agency receives tax increment revenues unless the redevelopment agency finds that both significant blight remains within the project area and that the blight cannot be eliminated without the issuance of the bonded indebtedness. In its current form. SB 1206 does not contain any effective dates for the application of these provisions. The City is unable to predict whether this legislation will be enacted in its current form- or at all. 06012 pos-3 I9 Allocation of Taxes As provided in the Redevelopment flan. and pursuant to Article 6 of Chapter 6 of the Redevelopment Law (commencing with .Section 33670 of the ('crlifurnicr Health and Safety Code) and .S'ection 16 of Article XI/1 of the .S'tate Constitution. saxes levied upon taxable property in the Project Area each year by or fur the benefit of the .S'tcrte. Riverside ('ounty (the "County.). the City. any district or other public corporation (herein collectively referred to as "taxing agencies') for each Fiscal Year beginning after" the effective date's of the ordinance approving the redevelopment plans and any arnendrnenls adding territory thereto COY' divided as follows: 1. To other taxing agencies: That portion of the taxes «hick \youId be produced by the rate upon Nvhich the tax is levied each year by or for each of said taxing agencies upon the total sum of the assessed value of the taxable property in the Project Area as shown upon the assessment roll used in connection xvith the taxation of such property by such taxing agency last equalized prior to the effective date of the applicable ordinance adopting the redevelopment plan or amending the redevelopment plan to add property into the Project Area. shall be allocated to. and -hen collected shall be paid into the funds of the respective taxing agencies as taxes by or for said taxing agencies on all other property are paid: and 2. To the Redevelopment Agency: Except for taxes which are attributable to a tax rate levy by a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1. 1989. which shall be allocated to and ben collected shall be paid to the respective taxing agency and except for statutory pass -through payments. that portion of the levied taxes each year in excess of the amounts provided for in paragraph (1) above. shall be allocated to. and ben collected. shall be paid into a special fund of the Redevelopment Agency to pay the principal of and interest on bonds. loans. moneys advanced to. or indebtedness (whether funded. refunded. assumed. or othenyise) incurred by the Redevelopment Agency to finance or refinance. in whole or in part. projects and programs for the Project Arca. When said bonds. loans. advances. and indebtedness. if any. and interest thereon. have been paid. all moneys thereafter received from taxes upon the taxable property in the Project Arca. shall be paid into the fiends of the respective taxing agencies as taxes on all other property are paid. The portion of taxes divided and allocated to the Redevelopment Agency from the Project Area pursuant to paragraph (2) above shall not exceed a total of $ 360 million except by amendment of the Redevelopment Plan. This limit does not apply to. include or prevent the Redevelopment Agency from incurring debt to be paid from the Housing Set -Aside. or any amounts required to fulfill the Redevelopment Agency's obligations under section 33413 of the Redevelopment Law. The Redevelopment Agency is authorized to make pledges of the portion of taxes mentioned in paragraph (2) above as to specific advances. loans and indebtedness as appropriate in carrying out the Redevelopment Plan in the Project Area. subject to the limitations on allocation of taxes. debt creation. and bonded indebtedness contained in the State Health and Safety Code and other applicable laws. Under the provisions of the Redevelopment Plan. the Redevelopment Agency shall not establish or incur loans. advances. or indebtedness to finance in Nvhole or in part activities in the Project Area beyond the dates for the areas indicated in "Ti 1I: PROJECT AREA -Redevelopment Plan -Redevelopment Plan Limits -Table 1." Loans. advances. or indebtedness may be repaid over a period of time beyond said time limits. These limits. however. shall not prevent the Redevelopment Agency from incurring debt to be paid from the Housing Fund established pursuant to Section 333343 of the Redevelopment Law and the Redevelopment Plan. or establishing more debt in order to fulfill the Redevelopment Agency's obligations under Section 33413 of the Redevelopment Law and the Redevelopment Plan. This limit shall not prevent the Redevelopment Agency from refinancing. refunding or restructuring indebtedness 06012 pos-3 20 after the time limit if the indebtedness is not increased and the time during Nvhich the indebtedness is to be repaid is not extended beyond the time limits contained in the Redevelopment Plan. The Redevelopment Agency may not receive and shall not repay indebtedness Nyith the proceeds from property taxes received pursuant to Section 33670 of the Redevelopment Law and the Redevelopment Plan beyond the dates for the areas indicated in Table 1. except to repay debt to be paid from the Housing Fund cstablishcd pursuant to the Section 33334.3 of the Redevelopment Law and the Redevelopment Plan. or debt cstablishcd in order to fulfill the Redevelopment Agency's obligations under Section 33413 of the Redevelopment Law and the Redevelopment Plan. Reserve Funds General. As additional security for the 2006 Series Bonds. the Redevelopment Agency is required to maintain a Reserve Fund for each series of 2006 Series Bonds pursuant to the respective 2006 Loan Agrccmcnt that will be maintained by the Trustcc in the amount of the "Reserve Requirement. The Reserve Rcquircmcnt is defined in each 2006 Loan Agrccmcnt. as of any date of calculation. as the least of: (i) Maximum Annual Dcbt Service: (ii) 125% of average annual debt service on the Loans and all outstanding Parity Dcbt: and (iii) 10% of the procccds of the applicable 2006 Loan (i.e. the original Principal Amount of the applicable 2006 Series Bonds) and the procccds of any Parity Dcbt. The Redevelopment Agency pledges and grants a lien and security interest to the Trustcc in each Reserve Fund to secure the payment obligations of the Redevelopment Agency under each 2006 Loan Agrccmcnt. Amounts on deposit in a Reserve Fund may be used solely for the purpose of making transfers to the applicable Interest Account. Principal Account. in such order. in the event of a deficiency at any time in any such accounts Nyith respect to the amounts due on the applicable series of 2006 Series Bonds. 2006 Senior Parity Bonds. Following the issuance of the 2006 Senior Parity Bonds. the Reserve Rcquircmcnt Nvill be $ . In connection with the issuance of the 2006 Series Bonds. the Redevelopment Agency Nvill deposit 'two debt service reserve surety policies' in the aggregate amount of into the Reserve Fund. which together with the amounts on deposit therein in the amount of will equal the Reserve Rcquircmcnt. 2006 Subordinate Capital Appreciation Bonds. Following the issuance of the 2006 Subordinate Capital Appreciation Bonds. the Reserve Rcquircmcnt Nvill be $ . In connection with the issuance of the 2006 Subordinate Capital Appreciation Bonds. the Redevelopment Agency Nvill deposit procccds in the amount of $ into the Reserve Fund. Parity Debt and Subordinate Debt Issuance of Parity Debt. In addition to the 2006 Senior Parity Bonds and the 2006 Subordinate Capital Appreciation Bonds. the Redevelopment Agency may. by supplemental indenture. issue or incur other loans. advances or indebtedness payable from Tax Revenues or Subordinate Tax Revenues. respectively. on a parity with the 2006 Senior Parity Bonds and the Series 2003 Bonds ("Parity Senior Debt") and the 2006 Subordinate Capital Appreciation Bonds ("Parity Subordinate Debt-) and refunding bonds issued solely to finance and refinance redevelopment activities with respect to the Project Area in such principal amount as shall be determined by the Redevelopment Agency. 06012 pos-3 2I 2006 Senior Parity Bonds. Parity Debt. The Redevelopment Agency covenants in the 2006 Senior Parity Loan Agreement that it will not incur anv indebtedness payable from all or any part of the Tax Revenues other than: (i) the 2006 Senior Parity Loans: (ii) additional Parity Debt subject to the conditions described below. and (iii) an debt secured by a pledge of Tax Revenues \Vhich is subordinate to the pledge of Tax Revenues created by the 2006 Loan Agreement. The Redevelopment Agency has fiirther covenanted in the 2006 Loan Agreement that it will not amend the Redevelopment Plan (except for the purpose of extend or eliminating the time limit for the receipt of tax increment. or increasing the limitation on the number of dollars of taxes to be allocated to the Redevelopment Agency) or an of the Pass -Through Agreements. or enter into any agreement with the County or any other governmental unit. \Vhich would have the effect of reducing the amount of Tax Revenues available to the Redevelopment Agency for payment of the 2006 Loan unless the Redevelopment Agency has first obtained: (i) a report of an Independent Redevelopment Consultant stating that the amount of Tax Revenues for the then current Fiscal Year (calculated on the assumption that such reduction of Tax Revenues was in effect throughout such Fiscal Year). plus. at the option of the Redevelopment Agency. the Additional Revenues. «iII meet the coverage test set forth in paragraph (b) below. and (ii) the permission of the Bond Insurer. Pursuant to the 2006 Senior Parity Loan Agreement. the Redevelopment Agency may issue or incur additional Senior Parity Debt subject to the following specific conditions: (a) No Event of Default has occurred and is continuing under and as defined in the 2006 Senior Parity Loan Agreement. and the Redevelopment Agency is otherwise in compliance with all covenants set forth in the 2006 Senior Parity Loan Agreement. (b) The amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Redevelopment Agency. based on assessed valuation of property in the Project Arca as evidenced in the written records of the County. plus at the option of the Redevelopment Agency the Additional Revenues. shall be at least equal to (i) 150`) of Maximum Annual Debt Service so Tong as the assessed value of property within the Project Area is Tess than $360.000.000. (ii) 135 of Maximum Annual Debt Service so Tong as the assessed value of property within the Project Area is equal to or greater than 360.000.000 and Tess than $395.000.000. and (iii) 12iS% of Maximum Annual Debt Service so Tong as the assessed value of property within the Project Area is equal to or greater than $395.000.000. (c) The related Senior Parity Debt Instrument provides that the balance of the Reserve Fund will be increased to the new Reserve Requirement effective after the incurrence of such Senior Parity Debt. (d) The related Senior Parity Debt Instrument provides that anv Senior Parity Debt that bears current interest is payable on April I and October I of any year: and the principal on such Senior Parity Debt is payable on the same date as principal and interest on the 2006 Senior Parity Loans are payable. (c) The issuance of such Senior Parity Debt will not cause the Redevelopment Agency to exceed any applicable limitations contained in the Redevelopment Plan. (f) The Redevelopment Agency delivers to the Tnistcc a written certificate certifying that the conditions precedent to the issuance of such Senior Parity Debt set forth in subparagraphs (a) through (c) above have been satisfied. 06012 pos-3 22 Subordinate Debt. In addition to the 2006 Senior Parity Loans and any Senior Parity Debt. the Redevelopment Agency may from time to time issue or incur Subordinate Debt in such principal amount as determined by the Redevelopment Agency. provided that the issuance of such Subordinate Debt «iII not cause the Redevelopment Agency to exceed any applicable limitations contained in the Redevelopment Plan. 2006 Subordinate Capital Appreciation Bonds and 2006 Senior Parity Bonds. Parity Debt. The Redevelopment Agency covenants in the 2006 Subordinate Loan Agreement that it Nyill not incur any indebtedness payable from all or any part of the Subordinate Tax Revenues other than: (i) the 2006 Subordinate Loan: (ii) additional Subordinate Parity Debt subject to the conditions described below. and (iii) an debt secured by a pledge of Subordinate Tax Revenues Nyhich is subordinate to the pledge of Subordinate Tax Revenues created by the 2006 Subordinate Loan Agreement. The Redevelopment Agency has further covenanted in the 2006 Subordinate Loan Agreement that it «iII not amend the Redevelopment Plan (except for the purpose of extend or eliminating the time limit for the receipt of tax increment. or increasing the limitation on the number of dollars of taxes to be allocated to the Redevelopment Agency) or any of the Pass -Through Agreements. or enter into any agreement Nyith the County or any other governmental unit. Nyhich Nvould have the effect of reducing the amount of Tax Revenues available to the Redevelopment Agency for payment of the 2006 Loan unless the Redevelopment Agency has first obtained: (i) a report of an Independent Redevelopment Consultant stating that the amount of Tax Revenues for the then current Fiscal Year (calculated on the assumption that such reduction of Tax Revenues was in effect throughout such Fiscal Year). plus. at the option of the Redevelopment Agency. the Additional Revenues. Nyill meet the coverage test set forth in paragraph (b) below. and (ii) the permission of the Bond Insurer. Pursuant to the 2006 Senior Parity Loan Agreement. the Redevelopment Agency may issue or incur additional Senior Parity Debt subject to the following specific conditions: (a) No Event of Default has occurred and is continuing under and as defined in the 2006 Subordinate Loan Agreement. and the Redevelopment Agency is otherwise in compliance with all covenants set forth in the 2006 Subordinate Loan Agreement. (b) The amount of Tax Revenues for the then current Fiscal Year. as set forth in a Certificate of the Redevelopment Agency. based on assessed valuation of property in the Project Area as evidenced in the Nvritten records of the County. plus at the option of the Redevelopment Agency the Additional Revenues. shall be at least equal 1110`%,I of the principal of. interest on and any mandatory sing fund payments due on the 2006 Senior Parity Loans. Senior Parity Debt. the 2006 Subordinate Loan and Subordinate Parity Debt (the "Maximum Combined Annual Debt Service"). (c) The related Subordinate Parity Debt Instrument provides that the balance of the Reserve Fund Nvill be increased to the new Reserve Requirement effective after the incurrence of such Subordinate Parity Debt. (d) The related Subordinate Parity Debt Instrument provides that any Subordinate Parity Debt that bears current interest is payable on April I and October I of any year: and the principal on such Subordinate Parity Debt is payable on the same date as principal and interest on the 2006 Subordinate Loans are payable. (e) The issuance of such Subordinate Parity Debt «iII not cause the Redevelopment Agency to exceed any applicable limitations contained in the Redevelopment Plan. 06012 pos-3 23 (f) The Redevelopment Agency delivers to the Tnistcc a Nvritten certificate certifying that the conditions precedent to the issuance of such Subordinate Parity Debt set forth in subparagraphs (a) through (c) above have been satisfied. Subordinate Debt. In addition to the 2006 Subordinate Loan and any Subordinate Parity Debt. the Redevelopment Agency may from time to time issue or incur Subordinate Debt in such principal amount as determined by the Redevelopment Agency. provided that the issuance of such Subordinate Debt Nvill not cause the Redevelopment Agency to exceed any applicable limitations contained in the Redevelopment Plan. Investment of Funds All funds held by the Trustee under the 2006 Indentures are required to be invested in Permitted Investments. See APPENDix D attached hereto for the definition of Permitted Investments. All funds held by the Redevelopment Agency. including the Special Fund into Nvhich all Tax Revenues and Subordinate Tax Revenues are initially deposited. may be invested by the Redevelopment Agency in any investment authorized by law. See the audited financial statements of the Redevelopment Agency for the year ended June 30. 2005 attached hereto as APPENDIX B for a description of the Redevelopment Agency's investment policy at June 30. 2005. All investments. including the Permitted Investments and those authorized by law from time to time for investments by municipalities. contain a certain degree of risk. Such risks include. but are not limited to. a Tower rate of return than expected and Toss or delayed receipt of principal. The occurrence of these events «ith respect to amounts held under the 2006 Indentures or the Special Funds could have a material adverse affect on the security for the 2006 Series Bonds. BOND INSURANCE The JOIlowing infor/nalion has been furnished by the Bond Insurer lbr use in lhi.s Official S'1Crld'//7d'nl. Reference is made to APP \7)LV H, fur Cl .specimen of the Financial Guaranty Insurance Policy to he issued by the Bond Insurer. The Redevelopment Agency makes no representations as to the accuracy or completeness of this information or as to the absence of material ad/verse changes in this information subsequent to the elate hereof. The Bond Insurer accepts no responsibility for the accuracy or completeness of this Official S'tcrtement or any other information or disclosure contained herein. or omitted hererom. other than with respect to the accuracy of the information regarding the Bond Insurer and its affiliates set f )rth under this heading. In addition. the Bond Insurer makes no representation regarding the 2006 Series Bonds' or she advisability of investing in the 2006 .S'erie.s Bonds. PTO COMET LIMITATIONS ON TAX REVENUES Article XIII A of State Constitution On June 6. 1978. California voters approved Proposition 13 ("Proposition I3"). Nyhich added Article XIII A to the State Constitution ("Article XIII A-). Article XIII A. as amended. limits the amount of any ad valorem tax on real property to one percent of the full cash value thereof. except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1. 1978. (ii) (as a result of an amendment to Article XIII A approved by State voters on June 3. 1986) on bonded indebtedness for the acquisition or improvement of real property Nyhich has been approved on or after July 1. 1978 by two-thirds of the voters on such indebtedness. and (iii) bonded indebtedness incurred by a school 06012 pos-3 24 district or community college district for the construction. reconstruction. rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities. approved by 55% of the voters of the district. but only if certain accountability measures are included in the proposition. Article XIII A. among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean "the county assessor's valuation of real property as shown on the 1975-76 tax bill under -full cash value'. or thereafter. the appraised value of real property when purchased. newly constructed. or a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year. a reduction in the consumer price index or comparable local data. or declining property value caused by damage. destruction or other factors including a general economic downturn. In the general elections of 1986. 1988 and 1990. California voters approved various measures which further amended Article XIII A. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $ 1.000.000 of the full cash value of other real property between parents and children. do not constitute a "purchase" or "change of ownership" triggering reassessment under Article XIII A. This amendment reduces the property tax revenues of the City and the tax increment of the Redevelopment Agency. Other amendments permitted the Legislature to allow persons over ;; \yho sell their residence and on or after November 5. 1986. buy or build another residence of equal or lesser value within two years in the same county. to transfer the old residence's assessed value to the new residence. and permitted the Legislature to authorize each county under certain circumstances to adopt an ordinance making such transfer or assessed value applicable to situations in Nyhich the replacement dwelling purchased or constructed after November 8. 1988. is located within that county and the original property is located in another county within the State. In the June 1990 election. the voters of the State approved additional amendments to Article XIII A permitting the California Legislature to extend the replacement dwelling provisions applicable to persons over ;; to severely disabled homeowners for replacement dwellings purchased or newly constructed on or after June 5. 1990. and to exclude from the definition of "new construction" triggering reassessment improvements to certain dwellings for the purpose of making the dwelling more accessible to severely disabled persons. In the November 1990 election. the voters approved the amendment to Article XIII A to permit the State Legislature to exclude from the definition of "new construction'. seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6. 1990. Both the California Supreme Court and the United States Supreme Court have upheld the constitutionality of Article XIII A. Challenges to Article XIII A. On September 22. 1978. the California Supreme Court upheld the amendment over challenges on several state and federal constitutional grounds (Aniaclor Galled Joint Union High .S'chool District v..S'tate Bocrcl of Equalization). The Court reserved certain constitutional issues and the validity of legislation implementing the amendment for future determination in proper cases. Since 1978. several cases have been decided interpreting various provisions of Article XIII A: however. none of them have questioned the ability of redevelopment agencies to use tax allocation financing. The United States Supreme Court upheld the validity of the assessment procedures of Article XIII A in Norcllinger v. Hahn. The Redevelopment Agency cannot predict Ivhether there Ivill be any future challenges to California's present system of property tax assessment and cannot evaluate the ultimate effect on the Redevelopment Agency's receipt of Tax Revenues should a future decision hold unconstitutional the method of assessing property. 06012 pos-3 25 Implementing; Legislation. Legislation enacted by the California Legislature to implement Article XIII A provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure. all taxable property value included in this Official Statement (except as noted) is shown at 100`% of assessed value and all general tax rates reflect the $ 1 per $ 100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liability are also applied to 100% of assessed value. Future assessed valuation growth allowed under Article XIII A (new construction. change of ownership. 2% annual value growth) will be allocated on the basis of "situs- among the jurisdictions that serve the tax rate area within which the growth occurs. except for certain utility property assessed by the State Board of Equalization. Local agencies and school districts will share the growth of "base revenue from the tax rate area. Each years growth allocation becomes part of each agency's allocation the following year. The Redevelopment Agency is unable to predict the nature or magnitude of future revenue sources which may be provided by the State to replace lost property tax revenues. Article XIII A effectively prohibits the levying of any other crcl valorem property tax above the I % limit except for taxes to support indebtedness approved by the voters as described above. See "CERTAIN AIN RISKS TO BONUI IOI,UI:RS-Reduction in Inflationary Rate regarding certain litigation relating to property assessments and the provision of Article XIII A limiting the annual inflation adjustment to two percent when the assessor tried to "recapture"' the tax value of the property by increasing its assessed value by approximately four percent in a single year. Litigation Regarding 2% Limitation. Section 5 I of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters. economic downturns or other factors. to subsequently "recapture"' such value (up to the pre -decline value of the property) at an annual rate higher than 2`N. depending on the assessors measure of the restoration of value of the damaged property. The constitutionality of this procedure was challenged in a lawsuit brought in the Orange County Superior Court entitled County of Orange v. Orange County Assessment Appeals Bocrcl No. 3 and in similar lawsuits brought in other counties. on the basis that the decrease in assessed value creates a new "base year Value" for purposes of Proposition 13 and that subsequent increases in the assessed value of a property by more than TN) in a single year violate Article XIII A. In 2001. the Orange County Superior Court issued an order declaring the recapture practice to be unconstitutional as applied to the plaintiff taxpayer. On March 26. 2004. the Court of Appeal held that the trial court erred in ruling that assessed value determinations are always limited to no more than 2`) of the previous years assessed value and reversed the judgment of the trial court. On July 2I. 2004. the California State Supreme Court denied a petition to review the decision of the Court of Appeal. Article XIII B of the State Constitution; Appropriation Limitations An initiative to amend the State Constitution was approved on September 6. 1979 thereby adding Article XIII B to the State Constitution ("Article XIII B-). Article XIII B limits the annual appropriations from the proceeds of taxes of the State and any city. county. school district. authority or other political subdivision of the State to the level of appropriations for the prior fiscal year. as adjusted for changes in the cost of living. population and services rendered by the governmental entity. Article XIII B includes a requirement that if an entity's revenues in any year exceed the amount permitted to be spent. the excess would have to be returned by revising tax or fee schedules over the subsequent two years. Effective September 30. 1980. the State Legislature added Section 33678 to the Redevelopment Law which provides that the allocation of taxes to a redevelopment agency for the purpose of paying principal of. or interest on. loans. advances or indebtedness incurred for redevelopment activity shall not be deemed the receipt by such agency of proceeds of taxes within the meaning of Article XIII B. nor shall such portion of 06012 pos-3 26 taxes be deemed receipt of proceeds of taxes by. or any appropriation subject to the limitation of. any other public bode within the meaning or the purpose of the Constitution and laws of the State. including Section 33678 of the Redevelopment Law. Two State appellate court decisions have upheld the constitutionality of Section 33678. and in the one case in which a petition for review was filed in the California Supreme Court. such petition was denied. Articles XIII C and XIII D of the State Constitution On November 5. 1996. California voters approved Proposition 218—Voter Approval for Local Government Taxes —Initiative Constitutional Amendment. Proposition 218 added Articles XIII C and XIII D to the California Constitution. imposing certain vote requirements and other limitations on the imposition of new or increased taxes. assessments and property -related fees and charges. The Bonds are secured by sources of revenues that are not subject to limitation by Proposition 218. Taxation of Unitary Property AB 454 (Statutes of 1987. Chapter 921) provides a revised method of reporting and allocating property tax revenues generated from most State -assessed unitary properties commencing with Fiscal Year 1988-89. Under AB 454. the State reports to each county auditor -controller on the county -wide unitary taxable value of each utility. without an indication of the distribution of the value among tax rate areas. AB 454 provides two formulas for auditor -controllers to use in order to determine the allocation of unitary property taxes generated by the county -wide unitary value. which are: (i) for revenue generated from the 1 `%0 tax rate. each jurisdiction is to receive up to 102% of its prior year unitary property tax increment revenue. however. if county -wide revenues generated for unitary properties are greater than 102% of prior year revenues. each jurisdiction receives a perccntagc share of the excess unitary revenues equal to the perccntagc of each jurisdictions share of sccurcd property tax revenues: or (ii) for revenue generated from the application of the debt service tax rate to county -wide unitary taxable value. each jurisdiction is to receive a percentage share of revenue based on the jurisdictions annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. The provisions of AB 454 apply to all State -assessed property. except railroads and non -unitary properties the valuation of which will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination or reversion of the method of assessing utilities by the State Board of Equalization. AB 454 allows. generally. valuation growth or decline of State -assessed unitary property to be shared by all jurisdictions within a county. The unitary revenue allocation made by the County Auditor -Controller to the Project Area for Fiscal Year 2004-05 was $ . For Fiscal Year 2005-06. the aggregate amount of unitary revenue is estimated to be $ Property Tax Collection Procedures Liassifications. In California. property which is subject to ad valorem taxes is classified as "secured" or "unsecured. Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The sccurcd classification includes property on which any property tax Ie\ied by the County becomes a lien on that property sufficient. in the opinion of the county assessor. to secure payment of the taxes. Every tax which becomes a lien on sccurcd property has priority over all other liens on the sccurcd property. regardless of the time of the creation of other liens. A tax Ie\ied on unsccurcd property does not become a lien against the property. but may become a lien on certain other property owned by the taxpayer. 06012 pos-3 27 Collections. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four \Nays of collecting unsecured property taxes in the absence of timely payment by the taxpayer: ( I ) a civil action against the taxpayer: (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer: (3) filing a certificate of delinquency for record in the county recorders office. in order to obtain a lien on certain property of the taxpayer: and (4) seizure and sale of the personal property. improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes Nyith respect to property on the secured roll is the sale of property securing the taxes to the State for the amount of taxes Nvhich are delinquent. Current tax payment practices by the County provide for payment to the Redevelopment Agency of Tax Revenues monthly throughout the fiscal year. Nyith the majority of Tax Revenues derived from secured property paid to the Redevelopment Agency in mid -December and mid -April. and the majority of Tax Revenues derived from unsecured property paid to the Redevelopment Agency by mid -November. A final reconciliation is made after the close of the fiscal year to incorporate all adjustments to previously reported current year taxable values. The difference between the final reconciliation and Tax Revenues previously allocated to the Redevelopment Agency is allocated mid -August. Penalties. A 10`) penalty is added to delinquent taxes \yhich have been levied Nyith respect to property on the secured roll. In addition. property on the secured roll on \yhich taxes are delinquent is sold to the State on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty. plus a redemption penalty of I `% per month to the time of redemption and a $ 15 Redemption Fee. If taxes are unpaid for a period of five years or more. the property is deeded to the State and then is subject to sale by the county tax collector. A 10`) penalty also applies to the delinquent taxes on property on the unsecured roll. and further. an additional penalty of 1`%0 per month accrues Nyith respect to such taxes beginning the first day of the third month following the delinquency date. Delinquencies. The valuation of property is determined as of January I each year and equal installments of taxes levied upon secured property become delinquent after the following December I0 and April 10. Taxes on unsecured property are due April I. Unsecured taxes enrolled by July 3 I. if unpaid. are delinquent August 3 I at 5:00 p.m. and are subject to penalty: unsecured taxes added to the roll after July 3 I. if unpaid. are delinquent on the last day of the month succeeding the month of enrollment. Supplemental Assessments. A bill enacted in 1983. SB 813 (Statutes of 1983. Chapter 498). provides for the supplemental assessment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Previously. statutes enabled the assessment of such changes only as of the next January I tax lien date following the change and thus delayed the realization of increased property taxes from the neW assessments for up to 14 months. As enacted. Chapter 498 provides increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of neW construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the January I lien date. To the extent such supplemental assessments occur within the Project Area. Tax Revenues may increase. Property Tax Administrative Costs Legislation enacted by the State Legislature authorizes county auditors to determine property tax administrative costs proportionately attributable to local jurisdictions and to submit invoices to the jurisdictions for such costs. Subsequent legislation specifically includes redevelopment agencies among the entities that are subject to such charges. Specifically. in 1990 the State legislature enacted SB 2557 06012 pos-3 28 (Chapter 466. Statutes of 1990) authorizing counties to charge for the cost of assessing. collecting and allocating property tax revenues to local governments jurisdictions in proportion to the tax derived revenues allocated to each. SB 1559 (Chapter 697. Statutes of 1992) explicitly includes redevelopment agencies among the jurisdictions which are subject to such charges. The County collects property tax administration costs from the Redevelopment Agency by deducting such costs from tax revenues prior to delivering such amounts to the Redevelopment Agency. For Fiscal Year 2004-05 the Countv's administrative fee was I.4i% of the gross tax increment revenues from the Project Area or $20.379. and for Fiscal Year 2005-06. the County administrative fee is estimated to be $ 3. 364. For purposes of projecting Tax Revenues. the Fiscal Consultant assumes that this administrative fee «ill remain at 1.4i`%o. See also APPENDIX A-" REPORT OF 1111: FISCAI, CONSUI:I AN I ... Housing Set -Aside Sections 33334.2 and 33334.3 of the Redevelopment Law (added by Chapter 1337. Statutes of 1976) require redevelopment agencies to set aside 20`%0 of all tax increment derived from redevelopment project areas established after December 3I. 1976 in a low- and moderate -income housing fund. Section 33334.2 provides that this low- and moderate -income housing requirement can be reduced or eliminated if a redevelopment agency finds annually by resolution. consistent with the housing element of the community's general plan. the following: (a) that no need exists in the community to improve. increase. or preserve the supply of low- and moderate -income housing. including its share of the regional housing needs of very low income households and persons and families of low or moderate income: (b) that some stated percentage less than 20`)/0 of the tax increment is sufficient to meet the housing needs of the community. including its share of the regional housing needs of persons and families of low or moderate income and very low income households: or (c) that the community is making substantial efforts. consisting of direct financial contributions of funds from state. local and federal sources for low- and moderate -income housing of equivalent impact. to meet its existing and projected housing needs (including its share of regional housing needs). The Redevelopment Agency currently deposits the 20`%0 of gross tax increment revenues in its Low and Moderate Income Housing Fund. Such funds are not Tax Revenues and arc not pledged to the repayment of the 2006 Series Bonds. Pursuant to the Redevelopment Law. housing set -aside funds may be pledged to the repayment of bonds only to the extent proceeds of such bonds are used (or are used to refund bonds. the proceeds of which vere used) to finance low and moderate income housing purposes. See " SI:CiJRIIY ANI) SOIIRCI:S OF PAYMI:NI FOR I111: BONDS -Allocation ofTaxes.- As amended by AB 315 (Chapter 872. Statutes of 1991). Section 33334.2 has additional restrictions on the ability to reduce or eliminate the low and moderate income housing requirement. A community can claim that no need exists. or can claim that less than 20`) of tax increment revenue is sufficient. only if that claim is consistent with the housing element of the community's general plan. The authority for communities to claim an "equivalent effort exemption was repealed as of June 30. 1993. except for obligations incurred prior to May I. 1991. which vere entered into with the understanding that the "equivalent effort- exemption \youId remain intact. The Redevelopment Agency has made no such findings. Certification of Redevelopment Agency Indebtedness Under the Redevelopment Law. redevelopment agencies must file with the county auditor a statement of indebtedness for each project area not later than the first day of October of each year. As described below. the statement of indebtedness controls the amount of tax increment revenue that will be paid to the Redevelopment Agency in each fiscal year. Each statement of indebtedness is filed on a form prescribed by the State Controller and specifies. among other things: (i) the total amount of principal and interest payable on all loans. advances or indebtedness (the "Debt.). both over the life of the Debt and for the current fiscal year. and (ii) the amount of 06012 pos-3 29 "available revenue" as of the end of the previous fiscal year. "Available revenue" is calculated by subtracting the total payments on Debt during the previous fiscal year from the total revenues (both tax increment revenues and other revenues) received during the previous fiscal year. plus any carry fonvard from the prior fiscal year. Available revenues include amounts held by the Redevelopment Agency and irrevocably pledged to the payment of Debt. but do not include amounts set aside for low and moderate income housing. The county auditor may only pay tax increment revenue to the redevelopment agency in any fiscal year to the extent that the total remaining principal and interest on all Debt exceeds the amount of available revenues as shown on the statement of indebtedness. The statement of indebtedness constitutes prima facie evidence of the indebtedness of the redevelopment agency: however. the county auditor may dispute the statement of indebtedness in certain cases Section 33675 provides for certain time limits controlling any dispute of the statement of indebtedness. and allows for Superior Court determination of such dispute in the event it cannot be resolved by the redevelopment agency and the county. Any such action may only challenge the amount of the Debt as shown on the statement. and not the validity of any Debt or related contract or the expenditures related thereto. No challenge can be made to payments to a fiscal agent in connection with a bond issue or payments to a public agency in connection with payments by that public agency with respect to a lease or bond issue. Pass -Through Agreements and Tax Sharing Payments Pass -Through Agreements. The Redevelopment Agency has entered into agreements with each of the County. the Desert Sands Unified School District. the Desert Community College District. the Coachella Valley Mosquito Abatement District. the Coachella Valley Water District and the Riverside County Superintendent of Schools District to pay tax increment revenues with each taxing entity. other than the City that has territory located within the Project Area in the amount which the Redevelopment Agency determines is appropriate to alleviate any financial burden or detriment caused to such taxing entity as a result of redevelopment activities within the Project Area. Each of these agreements (each a Pass -Through Agreement--) provides for a pass -through of tax increment revenue directly to the related taxing entity. For a description of the Pass -Through Agreements. see APPENDIX A-" REPORT OF 111I: FISCAI, CONSULTANT - Payments to Other Taxing Entities." Statutory dux Sharing Payments. The Redevelopment Plan for the Project Area was amended after January 1. 1994 and therefore are subject to the statutory tax -sharing payments mandated in the Law. as amended by AB 1290. requiring that a portion of the tax increment revenues be shared with taxing entities. See also "SECURITY ANI) SOURCES OF PAYMENT FOR 'I111: BONUS -Redevelopment Plan Limitations -AB 1290.- These tax -sharing payments are set by statute and are not negotiated. The County Auditor -Controller allocates all tax increment revenue to the Redevelopment Agency for payment of tax -sharing payments. This defined tax sharing amount has three Tiers. Tier 1: Commences with the first year that each of Expansion Areas. respectively. receives tax increment revenue and continues for the life of each such Expansion Area. The Tier I tax - sharing amount is equal to 2iS% of the gross tax increment revenue allocated from the respective Expansion Area net of the Housing Set -Aside Requirement. The City may chose to forgo this Tier of taxing -sharing payments. Tier 2: Commences in the I Ith year after the Agency first receives tax increment revenue. and is in an amount equal to 21 `%0 of the tax increment revenue net of the Housing Set -Aside Requirement. derived from the growth in assessed value that is in excess of the assessed value of the Project Area in the tenth year. The City may not receive any portion of the Tier 2 tax -sharing payments. 06012 pos-3 30 Tier 3: Commences in the 31st year after the Redevelopment Agency first receives tax increment revenues and is an amount equal to 14% of the tax increment revenue net of Housing Set - Aside derived from the growth in assessed value that is in excess of the assessed value of the Project Area in the 30th year. The City may not receive any portion of the Tier 3 tax -sharing payments. These three tiers of tax sharing are calculated independent of one another and continue from their inception through the life of the Project Area. SB 211 fax Sharing Payments. On Febnlary 27. 2003. the City Council adopted Ordinance No. 1036 eliminating the time limit to incur debt in the Project Area. Pursuant to SB 211. the adoption of such an ordinance requires the Redevelopment Agency to begin making statutory tax sharing payments in the Fiscal Year following the expiration of the original time limit for the incurrence of new indebtedness. See also "SI:Cl1RIlY ANI) SOl1RCI:S OF PAYMENT FOR 11 II: BONUS —Redevelopment Plan Limitations—SB 211... The limit for incurrence of new indebtedness for the Project Area was extended by one year. By extending this limit to July 17. 201 1. the Redevelopment Agency caused statutory tax sharing payments to commence with Fiscal Year 2012-13. The assessed values in the last Fiscal Year prior to initiation of the statutory tax sharing payments are used as the base value for calculation of the tax sharing payments. The projections of the Fiscal Consultant assume that the City NViII elect to receive its share of these payments. however. currently. if the City elects not to receive its share of these tax sharing payments. that portion of the statutory tax sharing payment will remain with the Redevelopment Agency for its use. The County Auditor - Controller allocates all tax increment revenue to the Redevelopment Agency and it is the responsibility of the Redevelopment Agency to make the required tax sharing payments. IThe Redevelopment Agency has determined at this time not to seek subordination of these statutory tax sharing payments from the taxing agencies. Limitation of Tax Revenues from Certain Increased Tax Rates An initiative to amend the California Constitution entitled "Property Tax Revenues —Redevelopment Agencies" was approved by California voters at the November 8. 1988 general election. This initiative amends the California Constitution to allow the California Legislature to prohibit redevelopment agencies from receiving any of the property tax revenue raised by increased property tax rates imposed by local governments to make payments on their bonded indebtedness. The initiative applies to tax rates levied to finance bonds approved by the voters on or after January 1. 1989. The Redevelopment Agency does not currently project receiving any tax revenues as a result of general obligation bonds which may have been approved on or after January 1. 1989. Ballot Initiatives and Legislative Matters Articles XIIIA. XIIIB. XIIIC and XIIID \were each adopted pursuant to a measure qualified for the ballot pursuant to the States constitutional initiative process: the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities under the Redevelopment Law. From time to time. other initiative measures could be adopted by voters of the State or legislation enacted by the State Legislature. The adoption of any such initiative measures or legislation might place limitations on the ability of the State. the Redevelopment Agency or local districts to increase revenues. to increase appropriations or on the ability of a landowner to complete the development of property. 06012 pos-3 31 THE FINANCING AUTHORITY The Financing Authority is duly organized and existing under a Joint Exercise of Powers Agreement dated January 26. 1989. by and between the City and the Redevelopment Agency. and under the provisions of Chapter 5 of Division 7 of Title 1 of the State Government Code. The members of the City Council serve as the Commission members of the Financing Authority. The Financing Authority has no taxing power and no source of revenue to pay debt service on the Bonds other than the Revenues. The Financing Authority has no taxing power. See "SI:0112I'1'Y ANI) SOl1RCI;S OF PAYMENT FOR THE BONDS. - THE REDEVELOPMENT AGENCY Authority, Members and Personnel The Redevelopment Agency was established pursuant to the Redevelopment Law. and was activated in 1974. The Redevelopment Agency adopted the redevelopment plan for the Project area in July 1991. The Project Area is the only project area of the Redevelopment Agency. The Redevelopment Agency has no taxing power. Members of the City Council of the City serve as members of the Redevelopment Agency. The City Council members are elected at large for four-year overlapping terms. The current members of the Redevelopment Agency are set forth on the inside cover page of this Official Statement. The Redevelopment Agency is administered by a staff selected from the employees of the City and is under the overall direction of Mr. Ortega. Brief resumes of the professional staff of the Redevelopment Agency is set forth below: Carlos L. Ortega, Executive Director. Mr. Ortega has served as Executive Director of the Redevelopment Agency since 1983. He was also appointed City Manager in August 2000. From 1980 to 1995. Mr. Ortega served as Assistant City Manager. and from 1977 to 1980 as Assistant to the City Manager. Prior to 1977. he served as Interim City Manager (one year) and Assistant City Manager/Finance Director (five years) for the City of Coachella. California. Mr. Ortega received a Bachelor of Science degree in Economics from University of California. Riverside. and has completed graduate studies in Public Administration and Management at University of California. Riverside and University of Redlands. Justin McCarthy, Assistant Cite Manager for Redevelopment. Mr. McCarthy has served as Assistant City Manager for Redevelopment since November 2001. Prior to joining the City in . Mr. McCarthy was an analyst in the City of Long Beach implementing redevelopment projects in the downtown central business district. the port industrial area and Long Beach Airport. From to he served as the Redevelopment Manager for the San Diego Southeast Economic Development Corporation managing industrial and commercial projects and from to he served as the Deputy Executive Director and Community Development Director for the City of Commerce. Mr. McCarthy received a degree in from 06012 pos-3 32 Arla K. Scott, Senior Financial Analyst for Redevelopment. Ms. Scott was appointed as Senior Financial Analyst for Redevelopment in January 2006 and is responsible for the review. analysis and budget monitoring of the finances and bond issues of the Redevelopment Agency. From 1990 to 2006. she was employed by JPMorgan Chase Bank. where she began in the Trust Operations Department and was later promoted to the Treasury and Security Services Department as a Relationship Manager. In that position she worked in the Municipal and Corporate Debt Department. where she worked with various municipalities and corporations serving as a bond trustee. She was later promoted to the Trust Compliance Department where she was responsible for reviewing documents. laws and regulations in order to mitigate risk. She received a Bachelor of Business Administration degree in Finance from University of Houston. Sheila R. Gilligan, Assistant City Manager for Community Services. Ms. Gilligan has served as the Assistant City Manager for Community Services since 2000. She is responsible for the areas of Administration (including grants and franchise agreements). Human Resources. City Clerk. Civic Arts. Marketing and Promotion. Public Information. the Visitors Information Center. and special events for the City. Prior to appointment to her current position. Ms. Gilligan served as the Director of Community Affairs while also serving as the City Clerk. Ms. Gilligan served as City Clerk from 1976 to June. 2001. Paul S. Gibson, treasurer/Finance Director. Mr. Gibson has served as Treasurer/Finance Director of the Redevelopment Agency since 1988 where he is responsible for . He has also served as the Treasurer/Finance Director of the City since 1988. Mr. Gibson has been employed by the City since . when he was hired as the Accounting Supervisor. Prior to joining the City. he served from to as the Accountant -Auditor for the Imperial County Auditor -Controllers office. Mr. Gibson holds a Bachelor of Science degree in Accounting from San Diego State University. David L. Yrigoyen, Director of Redevelopment in Housing. Mr. Yrigoyen was appointed as Director of Redevelopment in Housing and is responsible for all housing and redevelopment activities within the City. He has been employed with the City since 1985 when he served as the Senior Administrative Assistant to the Redevelopment Agency and then was promoted to Redevelopment Manager. From. 1982 to 1985. Mr. Yrigoyen worked with the City of Coachella. as the Economic Development Coordinator. Mr. Yrigoyen received a Bachelor of Arts degree in Political Science from University of California. Berkeley. and a Master of Arts degree in Management from National University. San Diego. Rachelle D. Klassen. Secretary. Ms. Klassen has been Secretary of the Redevelopment Agency and City Clerk since July I. 2002. She has been employed by the City since 1995 when she was hired as a in the Finance Department. In 1997. she began working in City Clerks Office: initially as the Records Technician. was appointed Deputy City Clerk in 1998. and then City Clerk. She received Certified Municipal Clerk status from the International Institute of Municipal Clerks in October. 200I. As City Clerk. she also serves as Secretary to Housing Authority and the Finance Authority. with responsibilities of preparing and presenting all agendas and minutes for same. maintaining all official City/Agency/Authority records. as well as the related duties of the City elections and being available to the public for information on legislative and administrative actions. Ms. Klassen holds an Associate in Arts Degree. with honors. from Waldorf College. Forest City. Iowa. with continuing units obtained at College of the Desert. Veronica Tapia, Redevelopment Accountant. Ms. Tapia has been employed by the City for more than nine years. and for the last two years has served as the Accountant for the Redevelopment Agency. Ms. Tapia is responsible for compiling the federal and State mandated reports. the administration of the outstanding bond issues of the Redevelopment Agency. and the overall accounting duties for both the Redevelopment Agency and the Housing Department. Ms. Tapia received a Bachelor of Science degree. graduating Summa Cum Laude. in Business and Management from the University of Redlands and currently is completing graduate studies in Management at the University of Redlands. 06012 pos-3 33 Powers All powers of the Redevelopment Agency are vested in its five -member Board. They are charged Nvith the responsibility of eliminating blight through the process of redevelopment. Generally. this process culminates Nvhen the Redevelopment Agency disposes of land for development by the private sector. In order to accomplish this. the Redevelopment Agency has broad authority to acquire. develop. administer. sell or lease property. including the right of eminent domain and the authority to issue bonds and expend their proceeds. Prior to disposing of land for redevelopment. the Redevelopment Agency must complete the process of acquiring and assembling the necessary sites. relocating residents and businesses. In addition. the Redevelopment Agency may demolish deteriorated improvements. undertake environmental mitigation. grade and prepare sites for purchase. and in connection Nvith any development can cause streets. highways and sidewalks to be constructed or reconstructed and public utilities to be installed. Redevelopment in the State of California is carried out pursuant to the Community Redevelopment Law (Section 33000 et seq. of the Health and Safety Code). Section 33020 of the Redevelopment Law defines redevelopment as the planning. development. replanning. redesign. clearance. reconstruction or rehabilitation. or any combination of these. of all or part of a survey area and the provision of such residential. commercial. industrial. public or other structures or spaces as may be appropriate or necessary in the interest of the general Nvelfare. including recreational and other facilities incidental or appurtenant to them. The Redevelopment Agency may. out of the funds available to it for such purposes. pay for all or part of the value of the land and the cost of buildings. facilities. structures or other improvements to be publicly owned and operated to the extent that such improvements are of benefit to the project area and no other reasonable means of financing is available. The Redevelopment Agency must sell or lease remaining property Nvithin a project area for redevelopment by others in strict conformity Nvith the redevelopment plan. and may specify a period Nyithin Nvhich such redevelopment must begin and be completed. In accordance Nvith these criteria. the Redevelopment Agency has adopted a Redevelopment Plan. as amended. in the Project Area that authorizes the use of the redevelopment process and procedures. Redevelopment Agency Finances Financial Statements. The accounts of the Redevelopment Agency are organized on the basis of fiends and account groups. The operations of each fund are accounted for Nvith a separate set of self -balancing accounts that comprise its assets. liabilities. fund equity. revenues and expenditures. The audited financial statements of the Redevelopment Agency for the Fiscal Year ending June 30. 2005 are set forth in All I:NDIx B. Retirement Plan. Substantially all fiill-time City employees. including employees of the Redevelopment Agency. are eligible to participate in retirement benefit plans through a contract Nvith the California Public Employees" Retirement System ("PERS"). a multiple -employer public sector employee defined benefit pension plan. PERS provides retirement and disability benefits. annual cost -of -living adjustments and death benefits to PERS members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities Nvithin the State. PERS is a contributory plan deriving fiends from employee contributions as \yell as from employer contributions and earnings from investments. 06012 pos-3 34 PERS maintains two pension plans for the City. a Safety Plan (the "Safety Plan") and a Miscellaneous Plan (the "Miscellaneous Plane and. together Nvith the Safety Plan. the "PERS Plans.). The City contributes to PERS amounts equal to the recommended rates for the PERS Plans multiplied by the payroll of those current employees of the City. including the Redevelopment Agency. yho are eligible under PERS. There are positions in the Redevelopment Agency eligible to participate in PERS. For information concerning PERS. including information relating to its financial position and investments contact PERS directly at CalPERS. Lincoln Plaza. 400 P Street. Sacramento. California 95814. telephone: 888-225-7 377. Information regarding the contributions made by the City to PERS for the PERS Plans is available in the City's Comprehensive Annual Financial Report copies of which are available upon request from the City of Palm Desert Department 73-510 Fred Waring Drive. Palm Desert. California 92260-2578: telephone: 760-346-061I or may be obtained electronically from the Citv's Nvebsite at Nvww.cityofpalmdesert.org/content/0iSCAFR.pdf. Other Post Employment Benefits. The City offers the PERS Health Care Program to its retirees. The City contributes $48 per month on behalf of each retiree eligible for PERS and makes an additional contribution towards certain retirees premiums under a Retiree Service Stipend program. If the retiree retires from both the City and PERS simultaneously. has attained the age of 50 and completed a minimum of I0 years of service with the City and satisfies any other requirements specified in such program continued coverage for eligible retirees. spouses and/or eligible dependents for the lifetime of the retiree upon satisfaction of the above -referenced criteria. The Retiree Service Stipend is not actuarially fimded and the assets are accounted for in an agency fiord. An actuarial valuation completed for the Retiree Service Stipend program as of July I. 2002 indicated that the amount of the actuarial liability to current and future liabilities for the City to be $9.761.065. THE PROJECT AREA General The Project Area is located in the City and includes approximately 764 acres. comprising zoned for residential. office. commercial. industrial. public and open space uses. The Project Area is generally bounded by Portola Avenue and Cook Street to the west. and Carlotta Dive to the east. Hovelv Lane and Running Springs Drive to the north and the Whitewater River Channel to the south. The Portola Country Club is not within the Project Arca. For a map of the Project Area see page yi. For certain information regarding the City. see APPI.NI)IX C—"GI:NI:RAI, INF)RMA ! IoN CoNCI:RNING THE CITY OF PAI,M DESERT:* Redevelopment Plan Limits The Redevelopment Plan for Project Area No. 3 was adopted by the City on July 17. 1991. The Project Area includes approximately 764 acres of Residential. office. commercial. industrial. public and open space uses. 06012 pos-3 35 Table 1 summarizes the Redevelopment Plan Limits for the Project Area. Table l Palm Desert Redevelopment Agency Project Area No. 3 Summary of Redevelopment Plan Limit Amendments Revenue Limits Area Plan Limit Termination Size Base Debt Plan Debt Total Tax Amount (acres) Year Incurrence Expiration Repayment Increment Received+ 764 1990-91 None',' 07/17/32 07/17/42 S360.000.000 $13.065.652 Limitation on Outstanding Bonded Debt: t 100 million (1) Represents gross tax increment revenues received as (Whine 30, 2005. (2) The limit previoush established as Jul 17. 201 I. \\as eliminated h\ the adoption of Ordinance 1036 on Fchntar\ 27. 2003. Source: Rrdrrelopnu'nt .Agency. Controls, Land Use and Building Restrictions The Redevelopment Plan for the Project Area sets forth the principal land uses permitted and the building restrictions to be imposed in project development. It also assigns the Redevelopment Agency and the City their respective responsibilities in carrying out the Redevelopment Plan. Provision is made for rehabilitation as yell as new construction and sets forth conditions and procedures required under both approaches. Construction is required to comply Nvith all applicable State and local laws in effect. including Nvithout limitation. building. electrical. heating and ventilating. housing and plumbing codes of the City. The information in Table 2 is based on land use designations as provided by Riverside County Office of the Auditor Controller through tax roll data. however. County land use designations do not necessarily parallel City land use and zoning designations. Unsecured and SBE non -unitary values are connected Nvith parcels that are already accounted for in other categories. Table 2 Palm Desert Redevelopment Agency Project Area No. 3 Land Uses by Category 2005-06 Assessed Value Land Use Number of Parcels Amount Percent Residential 691 S 192.610.854 46.4`%0 Industrial 167 121.818.490 29.4 Professional/Office 13 52.699.862 12.7 Commercial 42 24.984.387 6.0 Vacant Land 92 17.41 1.641 4.2 Recreational 4 5.2> 3.043 1.3 Government 1 211.202 0.1 Miscellaneous Transportation 1 595 0.0 TOTAI . 1.016 $414.970.074 100.0% Source: Metro Scan TRW based upon information from the Cowin Assessor. 06012 pos-3 36 Summary of Development Redevelopment Agenci' Projects. The primary objective of the Redevelopment Plan is to correct infrastructure and traffic circulation deficiencies. eliminate and prevent the reoccurrence of blighted conditions and foster development Nvithin the Project Area through the construction of certain public roadway. sever and landscaping improvements. To date the Redevelopment Agency has completed the following projects «ithin the Project Area: construction and installation of certain sever and storm drain improvements: the construction. improvement and rehabilitation of approximately miles of streets: and the construction and installation of landscaping surrounding the public area of certain residential improvements and of sidewalks. The Redevelopment Agency expects to use proceeds from the 2006 Series Bonds to Private Development. In addition to the projects directly sponsored by the Redevelopment Agency and described above. there have been a number of private projects developed within the Project Area including: Canterra Luxury Apartments. This development consists of the construction of an approximately 612 unit apartment complex. Construction is underway and expected to be completed in nter 2008. Lakeside Properties. This approximately 27.1 1 5 square foot commercial development is expected to consist of two separate buildings of approximately the same size. Construction has commenced and is expected to be completed in winter 2006. McCov K. Valentine. This development consists of the construction of an approximately 10.000 square foot office and Nvarehouse building. Construction is underway and is expected to be completed in winter 2006. Yankee Workshop. The construction of this approximately 5.580 square foot industrial Nvarehouse has commenced and is expected to be completed in winter 2006. There are also two non-residential developments and one 94 unit single family residential development that been approved for construction within the Project Area. None of these the projects have commenced construction. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 37 Principal Taxpayers The top 10 taxpayers Nyithin the Project Area for Fiscal Year 2005-06 own property Nvith an aggregate value of $ I 15.262.59 I. representing 26.60% of the assessed value and represents `%% of the total incremental value of the Project Area. Table 3 lists the principal taxpayers and primary land use in the Project Area based on the Fiscal Year 2005-06 assessed valuation. Table 3 Palm Desert Redevelopment Agency Project Area No. 3 Principal Taxpayerst11 Fiscal Year 2005-06 ON ner Canterra Apartment Homes Fountain Senior Properties of California Time Warner Entertainment SAG Palm Desert/42 Avenue Storage GHA Paloma Group II Northern Trust Bank of California Palm Desert Disposal Services. Inc. SMG 17 Lakes County Club Association Lakeside Investment Properties To AI, Toi TEN Other Property ON\ners Too A►, 2 5 54 962 1.016 No. of Parcels Primary Land Use Apartment Complex Conyalescent/Nursing Home Commercial/Retail Industrial/Storage 29 SFR Residential Development 8 Commercial 5 Commercial/Industrial Commercial/Industrial Offices (Guthev Renker) Golf Course Commercial/Industrial Various (I) Includes secured value ($385. 3 3 3.31 3) and unsecured value ($50.081.784). (2) Does not reflect homeowners exemption. Sources: Riverside ('mintyAssessor's Office 2005-06 Equalized Loco! Assessment Roll. Tax Rates 2005-06 `%% of Assessed 2005-06 Value-) Total Roll $30.390.982 7.0 I % 24.388.164 5.63 15.419.515 3.56 8.035.050 I.85 7.503.563 I.73 7. 165.200 I.65 6. 193.303 I.43 5.833.183 1.35 5.233.043 I.2 I 5.I00.588 I . I 8 I I5.262.59I 26.60%) 3I8.099.853 73.40 $433.362.444 100.00` ) Within the State tax rates vary from area to area. as yelI as Nyithin a community and a project area. The tax rate for any particular parcel is based upon the jurisdictions levying the tax rate for the area (a "Tax Rate Area-) in hich the parcel is located. The tax rate applied to incremental taxable values consist of two components: (i) the general Icyy rate Nyhich may not exceed $1.00 per $ 100 of taxable values in accordance Nvith Article XIII A of the State Constitution and (ii) the over -ride tax rate that is levied to pay voter approved indebtedness or contractual obligations that existed prior to the enactment of Proposition XIII. See " LIMI I A IIoN ON TAX REVENUES"' and "CERTAIN AIN RISKS TO BONDowNI:RS-Reduction in Assessed Value." The over -ride tax rates can decline each year as increasing property values reduce the over -ride rate needed to be levied by the taxing entities to satisfy voter approved debt service obligations and as the voter approved debts is retired over time. 06012 pos-3 38 The Project Arca contains a total of 16 Tax Rate Areas. The taxing entities Nyithin a Tax Rate Arca each receive a prorated share of the general levy and the revenues resulting from any voter approved over- ride tax rates. 'Any over-rides?I The components that make up the tax rate applicable to the Project Area are set forth in Table 4 below: Table 4 Palm Desert Redevelopment Agency Project Area No. 3 Breakdown of Tax Rate Fiscal Year 2005-06 General Purpose Le\V Rate County General 0.2560% County Library 0.0282 County Fire 0.0607 City of Palm Dcscrt 0.0424 Dcscrt Sands Unified School 0.3741 Dcscrt Community College 0.0777 County Superintendent of Schools 0.0423 Riverside County Regional Park and Open Space 0.0039 Coachella Valley Public Cemetery 0.0035 Dcscrt Hospital 0.0107 Coachella Valley Mosquito Abatement 0.0141 Coachella Valley Recreation and Park 0.0214 Coachella Valley Water District 0.0283 Coachella Valley Water District 80 0.0007 Coachella Valley Resource Center 0.0003 Coachella Valley Water District Storm Water Unit 0.0358 To I AI 1.0000`' Source: /?osenow .Speracek (iron') Inc. Historical, Current and Projected Tax Revenues The Redevelopment Agency's primary source of funds to make the Loan Payments under the 2006 Loan Agreements is the Redevelopment Agency's share of acl valorem property tax revenues Nyhich generally result from the completion of nc« real estate developments and a general reassessment of properties Nyithin the Project Arca. The purpose of redevelopment is to revitalize deteriorated or underdeveloped areas Nyithin a community. As nc« construction progresses. property values normally increase and the ultimate result is a proportionate increase in acl valorem property tax revenues. The total taxable value of all properties Nyithin a given project area on the property asscssmcnt roll last equalized prior to the effective date of the ordinance adopting the redevelopment plan for such project area and related amendment areas. if any. establishes a base from \yhich increases in taxable value are computed. The base so established for the Project Arca is the Fiscal Year 1992-93 asscssmcnt roll. Under the Redevelopment Law. property taxes levied based upon the amount shown on the base year asscssmcnt rolls NyiII continue to be paid to and retained by all taxing agencies levying property taxes in the Project Area. Taxes levied by the respective taxing agencies on any increases in taxable value realized in the Project Area Nvill be allocated to the Redevelopment Agency. 06012 pos-3 39 It should be understood that this procedure does not involve the levy of any additional taxes. but provides that revenues produced by the tax rates in effect from year to year are apportioned to the taxing agencies levying the taxes and to the Redevelopment Agency on the basis described above. After all loans. advances and other indebtedness. including interest. incurred by the Redevelopment Agency in connection Nyith the Project Area have been paid. the tax revenues \\ill be paid to and retained by the respective taxing agencies in the normal manner. See also "CERTAIN RISKS TO BONI)llol.UI:RS—Reduction in Taxable Values." Table 5 presents the aggregate taxable value of all property Nyithin the Project Area and the tax increment revenues received for Fiscal Years ended June 30. 2002 through June 30. 2006 (Projected). Assessed Value''' Local Sccurcd Utilih (SBE) Unsecured TOT.u. ASSESSED V.u,i 1: Base Year Value Incremental Value Tax Rate Estimated Revenue Tax Increment Revenue Unitary Utility Revenue County Administration Charge Tui.u, Esri\i.vni) Ritvitxt.� Actual Receipts Secured and Unitary Utility Supplemental Payments County Administration Charge Tt)t.\t, Acrt R1.cr.trrs Table 5 Palm Desert Redevelopment Agency Project Area No. 3 Historical and Current Values 2001-02 $237.162.155 0 32.762.000 $269.924.155 2002-03 2003-04 $251.593.562 0 33.885.278 $285.478.840 $149.523.255 $149.523.255 120.400.900 135.955.585 1.00`%c 1.00`' : $1.204.009 723 (19.405) $1.185.327 $1.204.732 130.497 (19.405) $1.315.824 $1.359.556 731 (20.379) $1.3 39.908 $1.360.287 79.744 (20.379) $1.419.653 2004-05 2005-06' 2 $303.623.640 $318.385.414 $383.280.660 0 0 0 49.987.025 44.912.824 50.081.784 $353.610.665 $36 3.298.2 38 $4 3 3.362.444 $149.523.255 $149.523.255 $149.523.255 204.087.410 213.774.983 28 3.8 39.189 1.00% 1.00% 1.00% $2.040.874 1.001 (29.324) $2.012.55 I $2.041.875 150.716 (29.324) $2.192.591 (I) Secured values include homeo\\1(er exemption value. (2) Assessed values are based on actual data. all remaining intimnation is projected. $2.137.750 763 (28.204) $2.1 10.309 $2.1 38.51 3 261.539 (28.204) $2.371.848 Sources: J?irerside ('minty Office o/due leditor-('onfroNrrand ('iir al Palm Desert Finance Department. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) $2.838.392 763 (33.364) $2.805.791 06012 pos-3 40 Table 6 summarizes the projected Tax Revenues to be received by the Project Area based on fiscal years ending June 30. 2007. through June 30. 201 I. To date. the County has paid to the Redevelopment Agency the full amount of Tax Revenues expected to be received by the Redevelopment Agency. «ithout regard to delinquencies in tax collection. See "-Tax Levies. Collections and Delinquencies."' Table 6 Palm Desert Redevelopment Agency Project Area No. 3 Projection of Incremental Taxable Value and Tax Increment Tax Revenue Taxable Values Secured Unsecured Total Value Base Year Value Taxable Value over Base Gross Tax Increment Revenue Unitary Tax Rcycnuc Gross Revenues Less: SB 2557 Admin. Fcc Housing Set Aside Requirement Statutory Tax Sharing Payments Tax Revenues 2006-07 2007-08 2008-09 t Assessed values are based on actual data. all remaining intimnation is projected. Sources: Ringside('mum'Officeo/du'.luditor-('o,,trolh'rcuedRosenow.Speracek(iroupInc. 2009-10 2010-11 + (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 4 I Debt Service Coverage Projections The following Table 7 shows scheduled debt service on the Series 2003 Bonds and 2006 Series Bonds. without regard to any optional redemption and estimated coverage. See "DEBT SI:RvICI: Sci II:UUI,I:- for the scheduled semiannual debt service on the 2006 Series Bonds. Table 7 Palm Desert Redevelopment Agency Project Area No. 3 Debt Service Coverage Projections ($ in 000's) Senior Parity Bonds Debt Service 2006 Subordinate Capital Appreciation Bonds Fiscal Year Estimated Estimated Ending Projected Net Series 2006 Senior Debt Service Total Debt Service June 30 Tax Rcvcnucs' I 2003 Bonds Parity Bonds Total Coverag,e',' Debt Service Coverage"' Senior Parity Bonds Debt Service 2006 Subordinate Capital Appreciation Bonds Fiscal Year Estimated Estimated Ending Projected Net Series 2006 Senior Debt Service Total Debt Service June 30 Tax Revenues''' 2003 Bonds Parity Bonds Total Coyeratre',' Debt Service Coyeratre"' ' 1' Projcctcd Net Tax Revenues is net of. the I lousing Set -Aside. Pass-1hrough Pa\ ments and Cowih administrative tees. \\ hich administrative tees are projected to cqu l 1.45% of. annual Gross "I as Revenues. 'Ibis table assumes that propert\ values in the Project Arca \\ill increase based upon nc\\ development \vithin the Project Arca (see "Il u. I)ROIL(' I /�RI..� Status of 1)evelopment" and "—Recent I)evelopment." and fly inflation at the rate o1.2%annual] . ''' C'alculatcd as Projcctcd Net Tax Revenues divided b\ total Senior Pant Bonds 1)ebt Sen'icc. 'i' C'alculatcd as Projcctcd Net Tax Revenues less total Senior Parit\ Bonds 1)ebt Sen'icc divided b\ total 20(6 Subordinate Capital Appreciation Bonds 1)ebt Service. Source: Kosenou•.Speracek (iroup /iic. Assessment Appeals Property tax values determined by the County Assessor may be subject to an appeal by the property owners. Assessment appeals are annually filed Nvith the Assessment Appeals Board for a hearing and resolution. The resolution of an appeal may result in a reduction to the County Assessors original taxable value and a tax refund to the applicant/property owner. The reduction in fitture Project Area taxable values and the rcfitnd of taxes affects all taxing entities. including the Redevelopment Agency. Each assessment appeal could result in a reduction of the taxable value of the real property. personal property or possessory interest of the property \yhich is the subject of the appeal. A reduction in such taxable value Nvould result in a reduction of the revenues of the Redevelopment Agency available for Tax Revenues Nvith respect to the 2006 Series Bonds. Alternatively. an appeal may be Nvithdrawn by the applicant or the Appeals Board may deny or modify the appeal at a hearing or by stipulation. Between Fiscal Year 2001-02 through . 2006 there have been 3 1 assessment appeals filed Nvithin the Project Area. Of the appeals filed. two resulted in a reduction in value. 18 \yere Nvithdrawn and I I are pending. The pending appeals have a combined assessed value of $ 1.49 3.966.3 15 under appeal and include assessment appeals of value for Fiscal Years 2001-02 and 2005-06. Within the Project Area. it is unclear exactly how much of this value is at risk because some of the owners have not stated owner opinions of value. Of the ten principal taxpayers in the Project Area shown in Table 3. two SAG Palm Desert ("SAG) and Waste Management Inc. ("Waste Management) had appeals outstanding and unresolved with the County Assessor as of . 2006. SAG owns one parcel in the Project Area and is seeking an adjustment to the Fiscal Year 2005-06 value on the basis that Waste Management owns two parcels in the Project Area and has appeals pending on all both of its parcels for Fiscal year 2003-04 seeking a reduction of the assessed values in the amount equal to 100% of the Fiscal Year 2003-04 value. Table 8 summarizes the appeals filed in the Project Area since Fiscal Year 200I -02. Table 8 Palm Desert Redevelopment Agency Project Area No. 3 Assessment Appeals Fiscal Years 2000-01 through 2005-06 Pending Appeals Actual Actual Reduction Total Withdrawn/ Appeals Total Reduction Reduction Pending ` o of # of No Adjusted/ Secured Total in % of total Reduction Total Roll Appeals Appearance/ Reduced/ Appeals Assessed Requested Assessed Assessed in Assessed Assessed Year Filed Late File Stipulated Pending Value Reduction Value Value Value Value 2005-06 i O O i $383.280,660 $18.411.140 SO 0.00`%o $18.411.140 4.80% 2004-05 8 2 O 6 318.385.414 15.428.167 O 0.0O 14,008,279 4.-10 200 3-1)4 10 10 O O 303. i4-1.524 19.6 S4.397 O CH M O CH M 2002-03 3 3 O O 251.593 562 1,606,924 O 0.0O O 0.0 2001-1)2 i 3 2 O 237.162.115 4-12.011 257.739 0.11 0 O.O I H u .\I. 31 18 2 II $1.493,966,315 $55.542.6 39 $257.739 0.1 I% $ 32.419,419 9.20% Sources: Ringside('ounty qfice Office of t/u' -ludinn•-('ontrolh'rcuidJosenow.Speracek(iroupInc. 06012 pos-3 44 Table 9 lists the principal taxpayers (see Table 3 above) \yho have filed such appeals. the assessed value. the reduction requested and the status of the appeal. Table 9 Palm Desert Redevelopment Agency Project Area No. 3 Outstanding Appeals by the Top Ten Taxpayers Fiscal Years 2000-01 through 2005-06 Applicant `%% of Appeal Total No. Opinion Potential Assessed Applicant Year Parcels Value Roll Value Reduction Value SAG Palm Desert 2005 I $4.820.000 $8.0 35.050 $ 3.2 15.050 40.0` ) Waste Management Inc. 2004 4 0 483.279 483.279 100.0 SimToTAI. 5 $4.820.000 $8.5 18. 329 $ 3.698. 329 4 3.4`%, All Others Various TG! A►. Sources: Kirerside('ouu;tvOfficeo/the .luduo,-('amollerand Kosenmi .Speracek(iroupInc. Tax Levies, Collections and Delinquencies The County does not track secured tax charges and delinquencies by Project Area. The County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plane). as provided for in Section 4701 et. seq. of the State Revenue and Taxation Code. Under the Teeter Plan. each participating local agency. including cities. levying property taxes in its county may receive the amount of uncollected taxes credited to its fiend in the same manner as if the amount credited had been collected. In return. the county Nvould receive and retain delinquent payments. penalties and interest. as collected. that Nvould have been due to the local agency. However. although a local agency could receive the total levy for its property taxes Nvithout regard to actual collections. funded from a reserve established and held by the county for this purpose. the basic legal liability for property tax deficiencies at all times remains Nvith the local agency. The Teeter Plan remains in effect unless the County Board of Supervisors orders its discontinuance or unless. prior to the commencement of any fiscal year of the County (which commences on July I ). the County Board of Supervisors receives a petition for its discontinuance joined in by resolutions adopted by two-thirds of the participating revenue districts in the County. in which event. the County Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. The County Board of Supervisors may. by resolution adopted not later than July 15 of the fiscal year for which it is to apply. after holding a public hearing on the matter. discontinue the procedures under the Teeter Plan with respect to any tax levying agency in the county. The City is a participant in the Teeter Plan. See " LIMI I A 1 IONS ON TAX RI:vI:NUI:s—Property Tax Collection Procedures."' 06012 pos-3 45 CERTAIN RISKS TO BONDHOLDERS The following information should he considered by prospective investors in evaluating the 2006 Series Bonds.. However. the.following,' does not purport to he an exhaustive listing of risks and other considerations which /77a1' he relevant to making C7n investment decisions with re.lpec1 to the 2006 Series Bonds. In addition. 117e order in which the following information i.v presented /s not intended to reflect the relative importance of any such risks. Accuracy of Assumptions To estimate the revenues available to pay debt service on the Bonds. the Redevelopment Agency has made certain assumptions NVith regard to the assessed valuation of taxable property in the Project Area. future tax rates. percentage of taxes collected. the amount of funds available for investment and the interest rate at Nvhich those funds Nvill be invested. The Redevelopment Agency believes these assumptions to be reasonable. but to the extent that the assessed valuation. the tax rates and the percentages collected. are less than the Redevelopment Agency's assumptions. the Tax Revenues available to make the Loan Payments and the resulting debt service on the Bonds viII. in all likelihood. be Tess than those projected herein. See "DEBT SI:RvICI: Sci II:UUI,I:"' and Ti"II: PROJECT ARIA -Debt Service Coverage Projections."' Reduction of Tax Revenues Tax Revenues allocated to the Redevelopment Agency. \yhich constitute the primary security for the Bonds. are determined by the incremental assessed value of taxable property in the Project Area. the current rate or rates at \yhich property in the Project Area is taxed. and the percentage of taxes collected in the Project Area. Several types of events \yhich are beyond the control of the Redevelopment Agency could occur and cause a reduction in available Tax Rcvcnucs. A reduction of taxable values of property in the Project Area or a reduction of the rate of increase in taxable values of property in the Project Area caused by economic or other factors beyond the control of the Redevelopment Agency (such as a successful appeal by a property owner for a reduction in a property's assessed value. a reduction of the general inflationary rate. a reduction in value. or the destniction of property caused by natural or other disasters) could occur. thereby causing a reduction in the Tax Rcvcnucs that secure the Bonds. Such a reduction in Tax Rcvcnucs could have an adverse impact on the Redevelopment Agency's ability to make timely payment of principal of and interest on the Bonds. Moreover. in addition to the other limitations on Tax Rcvcnucs described under "LIMITATIONS ON TAX REVENUES.- the State electorate or Legislature could adopt a constitutional or legislative property tax decrease NVith the effect of reducing Tax Rcvcnucs payable to the Redevelopment Agency. There is no assurance that the State electorate or Legislature Nvill not at some fixture time approve additional limitations that could reduce Tax Rcvcnucs and adversely affect the security of the Bonds. Additionally. the Redevelopment Agency has no power to levy and collect property taxes. The receipt of tax revenues by the Redevelopment Agency is dependent on the timely payment of property taxes by landowners NVithin the Project Area. Substantial delinquencies or other reductions in the payment of property taxes on real property in the Project Area by a large number of landowners could have an adverse effect on the Redevelopment Agency's ability to make timely debt service payments on the Bonds secured by Tax Rcvcnucs derived from the Project Area. Tax revenues allocated to the Redevelopment Agency are distributed throughout the fiscal year in installments. NVith a first installment in December and the second installment in June of the same fiscal year. The payments are adjusted to reflect actual collections. 06012 pos-3 46 Reductions in Unitary Values As the result of the adoption of AB 454 (Chapter 921. Statutes of 1986). a portion of the County- wide unitary values assigned to public utilities was allocated to the Project Area. In Fiscal Year. 2005-06. approximately `%% of the Tax Revenues in the Project Area are attributable to such unitary values. Any substantial reduction in the values of public utility properties. either because of deregulation of a utility industry or for any other reason. will have an adverse impact on the amount of Tax Revenues. However. any such impact with respect to utility properties within the Project Area will be lessened because the impact will be spread on a County -wide basis. For fiirther information concerning unitary values. see " L►MI ! A ! IoNs ON TAX RI:vI:NUIa-Property Tax Collection Procedures"' and "—Taxation of Unitary Property. Appeals to Assessed Values There are two basic types of assessment appeals provided for under State law. The first type of appeal. commonly referred to as a base year assessment appeal. involves a dispute on the valuation assigned by the County assessor immediately subsequent to an instance of a change in ownership or completion of new construction. If the base year value assigned by the County assessor is reduced. the valuation of the property cannot increase ill subsequent years more than two percent annually unless and until another change in ownership and/or additional new constriction activity occurs. The second type of appeal. commonly referred to as a Proposition 8 appeal. can result if factors occur causing a decline in the market value of the property to a level below the property's then current taxable value (escalated base year value). Pursuant to California law. a property owner may apply for a Proposition 8 reduction of the property tax assessment for such owners property by filing a written application. in form prescribed by the State Board of Equalization. with the appropriate county board of equalization or assessment appeals board. In the County. a property owner desiring a Proposition 8 reduction of the assessed value of such owners property in any one year must submit an application to the Riverside County Assessment Appeals Board (the "Appeals Board.). Applications for any tax year must be submitted by September 15 of such tax year. Following a review of the application by the Riverside County Assessors Office (the "County Assessor). the County Assessor may offer to the property owner the opportunity to stipulate to a reduced assessment. or may confirm the assessment. If no stipulation is agreed to. and the applicant elects to pursue the appeal. the matter is brought before the Appeals Board (or. in some cases. a hearing examiner) for a hearing and decision. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeals filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre -reduction level (escalated to the inflation rate of no more than two percent) following the year for which the reduction application is filed. However. the County Assessor has the power to grant a reduction not only for the year for which application was originally made. but also for the then current year and any intervening years as well. In practice. such a reduced assessment may and often does remain in effect beyond the year in which it is granted. See "LIMITATIONS ON TAX REVENUES -Property Tax Collection Procedures"' and Ti"II: PROJEc i AREA —Assessment Appeals. An appeal may result in a reduction to the County Assessors original taxable value and a tax refund to the applicant property owner. A reduction in taxable values within the Project Area and the refimd of taxes which may arise out of successful appeals by these owners will affect the amount of Tax Revenues and Subordinate Tax Revenues available to pay debt service on the 2006 Senior Parity Bonds and the 2006 Subordinate Capital Appreciation Bonds. respectively. 06012 pos-3 47 Reduction in Inflation Rate As described in greater detail above. Article XIII A of the California Constitution provides that the frill cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflation rate. not to exceed a two percent increase for any given year. or may be reduced to reflect a reduction in the consumer price index. comparable local data or any reduction in the event of declining property value caused by damage. destruction or other factors (as described above). Such measure is computed on a calendar year basis. Any resulting reduction in the full cash value base over the term of the 2006 Series Bonds could reduce Tax Revenues. See " LIMrI A I IoNs ON TAX Rl:vl:Nl ll:S—Article XIII A of the State Constitution."' Bankruptcy and Foreclosure The rights of the Owners of the 2006 Series Bonds and the enforceability of the obligation to make payments on the Bonds may be subject to bankruptcy. insolvency. reorganization. moratorium and other similar laws affecting creditors" rights under currently existing law or laws enacted in the future and may also be subject to the exercise of judicial discretion under certain circumstances. The opinions of Bond Counsel as to the enforceability of the obligation to make payments on the 2006 Series Bonds will be qualified as to bankruptcy and such other legal events. See APPENDIX E—"PRoPosl;D FORM OF BOND COIJNSl:1, OPINION.* Further. the payment of the tax increment revenues and the ability of the County to timely foreclose the lien of a delinquent unpaid tax may be limited by bankruptcy. insolvency. or other laws generally affecting creditors" rights or by the laws of the State relating to judicial foreclosure. Any delay in prosecuting superior court foreclosure proceedings \youId increase the likelihood of a delay or default in payment of the principal of and interest on the 2006 Series Bonds and the possibility of delinquent tax installments not being paid in full. Delinquencies Delinquencies in the payment of property taxes and the impact of bankruptcy proceedings on the legal ability to collect property taxes could have an adverse impact on the ability of the Redevelopment Agency to make timely payments under the 2006 Loan Agreement. The valuation of property is determined as of the January I lien date as equalized in August of each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due April I and become delinquent August 31. See "THE PROJECT AREA —Tax Levies. Collections and Delinquencies."' State Budget /he.follou•ing information concerning the .S'tate Is 200-1-05 and 2005-06 fiscal Year Budgets and the 2006-07 Governor's Budget has been obtained from publicly available lnformatlon on the .S'tate Department of Finance. the .S'tate Treasurer and the California Legislative Analyse Office u•ebsites. The estimates and projections provided below are based upon various assumptions as updated in the 2006-07 Governor's Budges. 11'hiCh 'nay he affected by ntl// ero11S liwtors. including liiture economic conditions in the .S'iclte and the nation. and there can he no assurance that the esiinlales will he achieved For liirther informal/on and discussion of.fiwtors underlying the.S'ta1e S projections. See the aforementionecl U'L'bsi1L's. the Redevelopment Agency believes such information to he reliable. however. the Redevelopment Agency takes no responsibility as to the cwcurcicv or completeness thereof and has not independently verified such information. In connection with its approval of the budget for Fiscal Years 1992-93. 1993-94. 1994-95. 2002-03. 2003-04. 2004-05 and 2005-06. the State Legislature enacted legislation which. among other things. reallocated finds from redevelopment agencies to school districts by shifting a portion of each redevelopment 06012 pos-3 48 agency's tax increment. net of amounts due to other taxing agencies. to school districts for such fiscal years for deposit in the Education Revenue Augmentation Fund ("ERAF-). The amount required to be paid by a redevelopment agency under such legislation is apportioned among all of its redevelopment project areas on a collective basis. and was not allocated separately to individual project areas. In Fiscal Ycar 2002-03. the aggregate amount transferred by redevelopment agcncics into ERAF was $1.3 billion. was $250 million for Fiscal Ycar 2004-05 and $250 million for Fiscal Ycar 2005-06. Based on the tax incrcmcnt revenues shown in of the State Controller's Annual Report as being retained by the Redevelopment Agency. the Redevelopment Agency was rcquircd to pay } into ERAF in Fiscal Ycar 2003-04 of \Vhich was attributable for the Project Arca. $ 3.887.133 in Fiscal Ycar 2004-05 of wIhich 1 117.698 was attributable for the Project Area. and $ 3.995.04 I in Fiscal Ycar 2005-06 of which $560.859 is attributable for the Project Arca. Fiscal Year 2004-05. The 2004-05 Budget Act (the "State 2004 Budget Act") was adopted by the Lcgislaturc on July 29. 2004. along with a number of implementing measures. and signed by Governor Schwarzenegger on July 3 I. 2004. Under the State 2004 Budget Act. General Fund revenues «vcrc projcctcd to increase 3.6`Yo. from $74.6 billion in Fiscal Year 2003-04 (including approximately $2.3 billion in tobacco sccuritization bond proceeds) to $77.3 billion in Fiscal Ycar 2004-05. The revenue projections assumed a continuing rebound in California's economy as reflected in several key indicators. Excluding the impact of the economic recovery bonds. General Fund expenditures «vcrc cstimatcd to increase by 6.7`Yo. from $75.6 billion in Fiscal Ycar 2003-04 to $80.7 billion in Fiscal Year 2004-05. The Junc 30. 2005 reserve was projcctcd to be $768 million. compared to an cstimatcd Junc 30. 2004 reserve of $2.198 billion. The State 2004 Budget Act and related legislation dramatically changed the State -local fiscal relationship. Pursuant to Proposition I A. the VLF was rcduccd from 2`)/0 to 0.6iS% of the value of the vehicle. In order to protect local governments. the reduction in VLF revenue to cities and counties from this rate change was to be replaced by an increase in the amount of property tax they receive. Redevelopment agcncics were again rcquircd to make transfers to the applicable ERAF in the aggregate amount of $250 million as implemented by SB I096. The transfers rcquircd under SB I096 to the ERAF were subordinate to payments on bonds secured by tax incrcmcnt revenues. For a more dctailcd description of SB 1096. sec "SI:CIIRI I Y ANI) S011RCI:S 01 PAYMI:N.I 01 I1 II: BONDS -Redevelopment Plan Limitations-.S73 1096.- Under Proposition I A. for Fiscal Years 2004-05 and 2005-06 only. the replacement property taxes that cities and counties receive would be rcduccd by $700 million. In future years. local governments would receive the frill value of the VLF revenue that they would hays received under current law. Also for these two Fiscal Years. Proposition I A would require redevelopment agcncics to shift $250 million in property tax revenue they would otherwise receive to schools. and special districts would shift $ 50 million to schools. For a more dctailcd description of Proposition I A. see "CONS I I I I I"I1ONAI, ANI) S I A I111 ORY LIMI I A 1 IONS ON TAXIS. RI:VI:NIII:S ANI) APPROPRIA 1 IONS -Proposition I A.- Fiscal Year 2005-06. The 2005-06 Budget Act (the "State 2005 Budget Act") was adopted by the Lcgislaturc on July 7. 2005. along with a number of implementing measures. and signed by Governor Schwarzenegger on July I I. The 2005 State Budget Act reflected an improving State fiscal picture brought about by better- than-expected growth in Gcncral Fund revenues. The 2005 State Budget Act funds the Proposition 42 transfer of general fund sales taxes to transportation special funds. and included significant increases in both K- I2 and higher education. The 2005 State Budget Act did not use any of the remaining $ 3.7 billion in deficit -financing bonds authorized by Proposition 57. and the State prepaid the 1I.2 billion VLF "gape loan that was due to local governments in Fiscal Ycar 2006-07 in August 2005. 06012 pos-3 49 At the same time. 2005 State Budget Act included approximately $6 billion in savings and related budget solutions in order to maintain budgetary balance. including. among other solutions. the ERAF transfer from redevelopment agencies in the aggregate amount of $250 million After taking into account the higher revenues and other offsetting factors (including higher Proposition 98 funding requirements under current law) the resulting operating shortfall for Fiscal Year 200i-06 was estimated at $4.9 billion. 2006-07 Governor's Budget. The 2006-07 Governor's Budget (the "2006 Governors Budget.). released on January 10. 2006. estimates that the State operating deficit for Fiscal Year 2006-07 will be $6.3 billion. The 2006 Governors Budget is balanced by using a large part of the Fiscal Year 2005-06 ending fiend balance. After taking into consideration the adjustments of $1.6 billion for the repayment or prepayment of prior obligations. including $460 million to prepay the economic recovery bonds. the effective operating deficit for Fiscal Year 2006-07 is $4.7 billion. The 2006-07 Governor's Budget projects to end Fiscal Year 2006-07 with a $613 million total reserve. including $460 million in the newly created Budget Stabilization Account pursuant to Proposition 58 (enacted in 2004). State General Fund revenues and transfers for Fiscal Year 2006-07 are projected at $91.5 billion. an increase of $3.9 billion compared with revised estimates for Fiscal Year 2005-06. State General Fund expenditures for Fiscal Year 2006-07 are projected at $97.9 billion. an increase of $7.6 billion. or 8.4` compared with revised estimates for Fiscal Year 2005-06. No ERAF transfers from redevelopment agencies are included in the 2006 Governors Budget. 2006-07 May Revision. On May 13. 2006. the Governor released a revision to the 2006 Governors Budget (the "2006 May Revision.). The May Revision is based upon stronger than expected income tax collection in the amount of approximately $7.5 billion since the release of the 2006 Governors Budget in January 2006. Among other things. the 2006 May Revision proposes to (i) allocate nearly 40`) of the $7.5 billion increase in revenues to K-I2 and community college education: with the balance for prepayment of budget debt: (ii) build up the reserve: (iii) make one-time and ongoing augmentations to health. resources. corrections and local governments (including an $87 million prepayment of the Fiscal Year 2007-08 obligation of the State for prior -year mandate costs): and (iv) make a proposed settlement to a lawsuit involving school funding resulting in added annual out -year obligations averaging more than $400 million for seven years. The 2006 May Revision does not include any ERAF transfers from redevelopment agencies. The Fiscal Year 2006-07 State Budget is expected to be subject to significant negotiation and revision prior to adoption by the Legislature of the State. There can be no assurances that the final Fiscal Year 2006-07 State Budget will not place additional burdens on local governments. including the Redevelopment Agency. or will not reallocate or reduce revenues to local governments. The Redevelopment Agency cannot predict whether the State Legislature will enact future legislation requiring additional or increased future shifts of tax increment revenues to the Sate and/or to schools. whether through an arrangement similar to ERAF or by other arrangements. and. if so. the effect on ftrture Tax Revenues. Natural Disasters Flooding. Flood zones are identified by the Federal Emergency Management Agency ("FEMA-). FEMA designates land located in a low- to moderate -risk flood zone (i.e. not in a floodplain) as being within a Non -Special Flood Hazard Area (a "NSFHA-). A NSFHA is an area that is in a low- to moderate -risk flood zone (i.e. not in a floodplain) and has less than a 1% chance of flooding each year. While the City is 06012 pos-3 50 located Nyithin a NSFHA. severe. concentrated rainfall could result in localized flooding and river overflows. The City can make no representation that fixture maps Nvill not be revised to include the Cite Nyithin an area deemed subject to flooding. The occurrence of flooding in the Project Area could result in a reduction in Tax Revenues and Subordinate Tax Revenues. Such a reduction of Tax Revenues or Subordinate Tax Revenues could have an adverse effect on the ability of the Redevelopment Agency ability to make timely payments of principal and interest on the 2006 Loans. Seismic Factors. Generally. seismic activity occurs on a regular basis in the State. Periodically. the magnitude of a single seismic event can cause significant ground shaking and potential damage to property located at or near the center of such seismic activity. The occurrence of severe seismic activity in the City could result in damage to roads. infrastnlcture and other property Nyithin the Project Area. The occurrence of such a severe seismic could have a negative impact on assessed values of taxable values of property in the Project Area and could result in a reduction in Tax Revenues and Subordinate Tax Revenues. Such a reduction of Tax Revenues or Subordinate Tax Revenues could have an adverse cffcct on the ability of the Redevelopment Agency ability to make timely payments of principal and interest on the 2006 Loans. Hazardous Substances An additional environmental condition that may result in the reduction in the assessed value of property \youId be the discovery of a hazardous substance that NyouId limit the beneficial use of taxable property Nyithin the Project Area. In general. the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner or operator may be required to remedy a hazardous substance condition of property Nvhether or not the owner or operator has anything to do Nyith creating or handling the hazardous substance. The effect. therefore. should any of the property Nyithin the Project Area be affected by a hazardous substance. could be to reduce the marketability and value of the property by the costs of remedying the condition. Loss of Tax Exemption In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds. the Redevelopment Agency has covenanted in the Indenture to comply Nyith the applicable requirements of the Internal Rcycnuc Code of 1986. as amended. The interest on the 2006 Series Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of such 2006 Series Bonds as a result of acts or omissions of the Redevelopment Agency in violation of this or other covenants in the Indenture applicable to the 2006 Series Bonds. The 2006 Series Bonds are not subject to redemption or any increase in interest rates should an event of taxability occur and Nvi11 remain outstanding until maturity or prior redemption in accordance Nyith the provisions contained in the Indenture. See "TAX MA I'I1:Rs .. Risk of Tax Audit In December 1999. as a part of a larger reorganization of the Internal Rcycnuc Service (the "IRS"). the IRS commenced operation of its Tax Exempt and Government Entities Division (the "TE/GE Division.). as the successor to its Employee Plans and Exempt Organizations division. The new TE/GE Division has a subdivision that is specifically devoted to tax-exempt bond compliance. Public statements by IRS officials indicate that the number of tax-exempt bond examinations (which NyouId include the issuance of securities such as the 2006 Series Bonds) is expected to increase significantly under the new TE/GE Division. There is no assurance that if an IRS examination of the 2006 Series Bonds vas undertaken that it would not adversely affect the market value of the 2006 Series Bonds. See "TAX MATTERS:* 06012 pos-3 The Redevelopment Agency has not been contacted by the IRS regarding the examination of an of its bond transactions. Secondary Market There can be no guarantee that there \\ill be a secondary market for the 2006 Series Bonds or. if a secondary market exists. that the 2006 Series Bonds can be sold for an particular price. Occasionally. because of general market conditions or because of adverse history or economic prospects connected Nyith a particular issue. secondary marketing practices are suspended or terminated. Additionally. prices of issues for \yhich a market is being made Nvill depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. TAX MATTERS In the opinion of Richards. Watson K. Gershon. A Professional Corporation. Bond Counsel. under existing lacy interest on the 2006 Series Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Rcycnuc Code of 1986. as amended (the "Code"). and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Bond Counsel \\ill express no opinion as to any other federal tax consequences regarding the 2006 Series Bonds. The opinion on federal tax matters Nvill be based on and Nvill assume the accuracy of certain representations and certifications. and continuing compliance Nyith certain covenants. of the Agency and the Authority that are intended to assure the foregoing. including that the 2006 Series Bonds are and \\ill remain obligations. the interest on \yhich is excluded from gross income for federal income tax purposes. Bond Counsel Nvill not independently verify the accuracy of those representations and certifications. The Code prescribes a number of qualifications and conditions for the interest on state and local government obligations to be and to remain excluded from gross income for federal income tax purposes. Some of these qualifications and conditions require future or continued compliance after issuance of the obligations for the interest to be and to continue to be excluded from the date of issuance. Noncompliance Nyith these qualifications and conditions by the Authority or the Agency may cause the interest on the 2006 Series Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the 2006 Series Bonds. The Authority and the Agency have covenanted to take the actions required of them for the interest on the 2006 Series Bonds to be and to remain excluded from gross income for federal income tax purposes. and not to take any actions that Nvould adversely affect that exclusion. Under the Code. a portion of the interest on the 2006 Series Bonds earned by certain corporations may be subject to a corporate alternative minimum tax. In addition. interest on the 2006 Series Bonds may be subject to a branch profits tax imposed on certain foreign corporations doing business in the United States and to a tax imposed on excess net passive income of certain S corporations. Under the Code. the exclusion of interest from gross income for federal income tax purposes may have certain adverse federal income tax consequences on items of income. deduction or credit for certain taxpayers. including financial institutions. certain insurance companies. recipients of Social Security and Railroad Retirement benefits. those that are deemed to incur or continue indebtedness to acquire or carry tax- exempt obligations. and individuals othenyise eligible for the earned income tax credit. The applicability and extent of these and other tax consequences \\ill depend upon the particular tax status or other tax items of the owners of the 2006 Series Bonds. Bond Counsel \\ill express no opinion regarding those consequences. 06012 pos-3 52 Any excess of the stated redemption price at maturity of the 2006 Series Bonds over the initial offering price to the public of the 2006 Series Bonds set forth on the inside cover of this Official Statement is "original issue discount. Such original issue discount accruing on a 2006 Series Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and exempt from California personal income tax. Original issue discount on any 2006 Series Bond purchased at such initial offering price and pursuant to such initial offering Nvill accrue on a semiannual basis over the term of the 2006 Series Bond on the basis of a constant yield method and. «ithin each semiannual period. «ill accrue on a ratable daily basis. The amount of original issue discount on such a 2006 Series Bond accruing during each period is added to the adjusted basis of such 2006 Series Bond to determine taxable gain upon disposition (including sale. redemption or payment on maturity) of such 2006 Series Bond. The Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers of the 2006 Series Bonds \yho purchase the 2006 Series Bonds other than at the initial offering price and pursuant to the initial offering. Any person considering purchasing a 2006 Series Bond should consult his or her own tax advisors «ith respect to the tax consequences of ownership of bonds Nvith original issue discount. including the treatment of purchasers \yho do not purchase in the original offering and the original offering price. the allowance of a deduction for any loss on a sale or other disposition. and the treatment of accnied original issue discount on such bonds under federal individual and corporate alterative minimum taxes. If the 2006 Series Bonds \sere offered and sold to the public at a price in excess of their stated redemption price (the principal amount) at maturity. that excess constitutes "premium. For federal income tax purposes. that premium is amortized over the period to maturity of the 2006 Series Bonds. based on the yield to maturity of the 2006 Series Bonds. compounded semiannually. No portion of that premium is deductible by the owner of a 2006 Series Bond. For purposes of determining the owners gain or loss on the sale. redemption (including redemption at maturity) or other disposition of a 2006 Series Bond. the owners tax basis in the 2006 Series Bond is reduced by the amount of premium that accrues during the period of ownership. As a result. an owner may realize taxable gain for federal income tax purposes from the sale or other disposition of a 2006 Series Bond for an amount equal to or less than the amount paid by the owner for that 2006 Series Bond. A purchaser of a 2006 Series Bond in the initial public offering at the price for that 2006 Series Bond stated on the inside cover of this Official Statement \yho holds that 2006 Series Bond to maturity «iII realize no gain or loss upon the retirement of that 2006 Series Bond. Owners of the 2006 Series Bonds should consult their own tax advisers as to the determination for federal income tax purposes of the amount of premium properly accruable in any period «ith respect to the 2006 Series Bonds and as to other federal tax consequences and the treatment of premium for purposes of state and local taxes on. or based on. income. Purchasers of the 2006 Series Bonds at other than their original issuance at the respective prices indicated on the inside cover of this Official Statement should consult their own tax advisers regarding other tax considerations such as the consequences of market discount or premium. In the further opinion of Bond Counsel. interest on the 2006 Series Bonds is exempt from personal income taxation imposed by the State of California. A cope of the proposed form of Bond Counsels final approving opinion «ith respect to the 2006 Series Bonds is attached hereto as APPI:NDix E. 06012 pos-3 53 APPROVAL OF LEGAL PROCEEDINGS Certain legal matters incident to the authorization. issuance and sale of the 2006 Series Bonds are subject to the approval of Richards. Watson & Gershon. A Professional Corporation Los Angeles. California. Bond Counsel. A cope of the proposed form of Bond Counsel's opinion is contained in APPENDIX E to this Official Statement. and the final opinion will be made available to the owners of the 2006 Series Bonds at the time of delivery of the 2006 Series Bonds. Certain legal matters will be passed upon for the Redevelopment Agency by . and by Lofton & Jennings. San Francisco. California. Disclosure Counsel. Bond Counsel will also deliver a supplemental opinion as to the accuracy in all material respects of the descriptions contained in this Official Statement of the Bonds. and Bond Counsel's federal and State tax opinions. Except as expressly described in said opinion. Bond Counsel is not passing upon and undertakes no responsibility for the accuracy. completeness or fairness of the information contained in this Official Statement. Bond Counsel and Disclosure Counsel will each receive compensation from the Redevelopment Agency that is contingent upon the sale and delivery of the 2006 Series Bonds. ABSENCE OF MATERIAL LITIGATION General There is no litigation pending concerning the validity of the 2006 Indentures or the 2006 Series Bonds or the issuance and delivery thereof. the existence of the Financing Authority or the Redevelopment Agency. the title of the officers thereof who shall execute the 2006 Series Bonds to their respective offices. the pledge of Revenues to the payment of the 2006 Senior Parity Bonds. the pledge of Subordinate Revenues to the payment of the 2006 Subordinate Capital Appreciation Bonds. the pledge of Tax Revenues to the payment of the 2006 Senior Parity Loan or the pledge of Subordinate Tax Revenues to the payment of the 2006 Subordinate Loan. Other Matters In the regular course of the business. the Financing Authority and the Redevelopment Agency are each parties to a variety of pending and threatened lawsuits and administrative proceedings. in addition to those specifically discussed herein. Neither the Financing Authority nor the Redevelopment Agency believes that any such lawsuits or proceedings vilI have a material adverse effect on the operations or financial condition of the Financing Authority and the Redevelopment Agency. respectively. FINANCIAL ADVISOR Del Rio Advisors. LLC. Modesto. California. has served as Financial Advisor to the Financing Authority and the Redevelopment Agency with respect to the sale of the 2006 Series Bonds. The Financial Advisor has assisted the Financing Authority and the Redevelopment Agency in the review of this Official Statement and in other matters relating to the planning. structuring. execution and delivery of the 2006 Series Bonds. The Financial Advisor has not independently verified any of the data contained herein or conducted a detailed investigation of the affairs of the Financing Authority and the Redevelopment Agency to determine the accuracy or completeness of this Official Statement. Due to their limited participation. the Financial Advisor assumes no responsibility for the accuracy or completeness of any of the information contained herein. 06012 pos-3 54 The Financial Advisor will receive compensation from the Redevelopment Agency contingent upon the sale and delivery of the 2006 Series Bonds. CONTINUING DISCLOSURE The Redevelopment Agency has covenanted in the Continuing Disclosure Agreement dated Jule . 2006. by and among the Redevelopment Agency. the Tnistcc. and MuniFinancial Inc.. as Dissemination Agent for the benefit of the holders and beneficial owners of the 2006 Series Bonds to provide certain financial information and operating data relating to the Redevelopment Agency each year by not later than the date \Vhich is six months following the end of the Fiscal Year. commencing with the report for the 2005-06 Fiscal Year (the "Annual Report"). and to provide notices of the occurrence of certain enumerated events. if material. The Annual Report and notices of material events will be filed by the Tnistcc as Dissemination Agent with each nationally Recognized Municipal Securities Information Repository and with any then existing State Repository. if any. Currently. there is no State Repository. The covenants set forth in the Continuing Disclosure Agreement have been made by the Redevelopment Agency in order to assist the Undenyriters in complying with Securities and Exchange Commission Rule I iSc2-12(b)(is). The specific nature of the information to be contained in the Annual Report and the notices of material events is set forth in APPENDIX F-"FORM c)E CONTINUING DISCLosuRI: AGRI:I:MI:NT.- The Redevelopment Agency has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. UNDERWRITING Pursuant to the terms of a Bond Purchase Agreement dated . 2006 (the "Purchase Agreement"). among the Financing Authority. the Redevelopment Agency and Citigroup Global Markets. Inc. (the "Undenyriter"). the Undenyriter will purchase all of the 2006 Series Bonds. if any are purchased. however. the obligation of the Underwriter to make such purchase is subject to certain terms and conditions set forth in the Purchase Agreement. The public offering prices of the 2006 Series Bonds may be changed from time to time by the Underwriter. The Underwriter may offer and sell 2006 Series Bonds to certain dealers and others at a price lower than the offering price stated on the inside cover page hereof. Current Interest Bonds The Undenyriter purchased the Current Interest Bonds. at a price of $ (representing the principal amount of the Current Interest Bonds less an Undenyriter's discount in the amount of ). Capital Appreciation Bonds The Underwriter purchased the Capital Appreciation Bonds. at a price of $ (representing the principal amount of the Capital Appreciation Bonds Tess an Undenyriter's discount in the amount of $ ). 2006 Subordinate Capital Appreciation Bonds The Underwriter purchased the 2006 Subordinate Capital Appreciation Bonds. at a price of (representing the principal amount of the 2006 Subordinate Capital Appreciation Bonds less an Undenyriter's discount in the amount of $ ). 06012 pos-3 55 RATINGS Standard & Poor's Ratings Services. a division of the McGraw Hill Companies ("S&P-) and Fitch Inc. ("Fitch) have assigned their ratings of " and " respectively. to the 2006 Series Bonds with the understanding that upon delivery of the 2006 Series Bonds the Insurance Police will be issued by the Bond Insurer. See " BoND INSURANCE"' and APPENDIX H-"SPECIMEN FINANCIAI, GUARANTY INSURANCE POLICY.* S&P and Fitch have also assigned uninsured ratings of " and " respectively. to the 2006 Series Bonds. A rating reflects only the view of the agency giving such rating and is not a recommendation to buy. sell or hold the 2006 Series Bonds. An explanation of the significance of the rating may be obtained from S&P at Standard & Poor's. 55 Water Street. New York. New York 10041 and from Fitch at Fitch Ratings. One State Street Pla7z. New York. New York 10041. There is no assurance that such ratings will continue for anv given period of time or that they NViII not be reduced or withdrawn entirely by S&P or Fitch. if ill their individual judgment circumstances so «arrant. The Redevelopment Agency has not undertaken anv responsibility to oppose an such proposed revision or Nvithdra«al. Any such revision or withdrawal ofa rating may have an adverse effect on the marketability or market price of the 2006 Series Bonds. FINANCIAL STATEMENTS The audited financial statements of the Redevelopment Agency for Fiscal Year 2004-05. prepared by Lance. Soll and Lunghard LLP. independent certified public accountants. in accordance with Governmental Accounting Standards Board guidelines. are included as APPENDIX B attached hereto. Lance. Soll and Lunghard LLP Ihas/bas not' consented to the inclusion of its report in APPENDIX B. but has not undertaken to update its report or take any action intended or likely to elicit information concerning the accuracy. completeness or fairness of statements made in this Official Statement and no opinion is expressed by Lance. Soll and Lunghard LLP with respect to anv event subsequent to the date of its report. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 56 MISCELLANEOUS All of the preceding summaries of the 2006 Series Bonds. the 2006 Indentures. the 2006 Loan Agreements. the Redevelopment Law. the Redevelopment Plan. the Project Area. other applicable legislation. agreements and other documents are made subject to the provisions of the 2006 Series Bonds and such documents. respectively. and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file Nyith the Redevelopment Agency for fiirther information in connection therewith. Any statements made in this Official Statement involving matters of opinion or of estimates. «-hether or not expressly stated. are set forth as such and not as representations of fact. and no representation is made that any of the estimates will be realized. The execution and delivery of this Official Statement by the 'Executive Director' of the Financing Authority has been duly authorized by the Financing Authority. PALM DESERT FINANCING AUTHORITY By: (Carlos L. Ortega. Executive Director' 06012 pos-3 57 APPENDIX A REPORT OF THE FISCAL CONSULTANT 06012 pos-3 A- I APPENDIX B REDEVELOPMENT AGENCY AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2005 06012 pos-3 B- I APPENDIX C GENERAL INFORMATION CONCERNING THE CITY OF PALM DESERT The .fullo i in,,' infurmalion concerning the City of Palm Desert. the ('ounIy of Riverside and surrounding areas i.1' included only for the purpose of .1'11/)/)I17ng general info/illation regarding the community. Overview The City of Palm Desert (the "City"). incorporated in November 26. 1973 as a general law city. became a charter city through the adoption of Ordinance 858 by the City Council on January 8. I998. The City is located in the Coachella Valley and is approximately mid -way between the cities of Indio and Palm Springs. 117 miles east of Los Angeles. 118 miles northeast of San Diego and 5 15 miles southeast of San Francisco. The City occupies an area of approximately 26 square miles. Elevation of the City is 243 feet and the mean temperature is 73. I degrees. Except in summer. the Nveather is mild and annual average rainfall is 3.38 inches. According to the State Department of Finance. the City population as of January I. 2006 was approximately 49.5 39. an increase of approximately 19.5`%0 since 2000. attributable in part to territorial annexation. Government The City Council is comprised of five members. elected at large for four-year staggered terms every two years. The City Council selects one of its members to serve as Mayor for a one-year term and appoints a City Manager to conduct the day to day business of the City and the City Clerk. The City Attorney is appointed by . The City operates as "Contract City utilizing. primarily. agreements Nvith other governmental entities. private companies and individuals to provide services. Contracted services include police and fire protection provided through the County. animal control. health services. legal services and landscape maintenance. The City Council also serves as the governing board of the Financing Authority. the Redevelopment Agency. the Housing Authority and the Parking Authority and the City Manger serves as the Executive Director of the Financing Authority. the Redevelopment Agency. the Housing Authority and the Parking Authority. The City Attorney and the City Clerk also serve as the General Counsel and Secretary. respectively. of the Redevelopment Agency and these Authorities. The current members of the City Council and key administrative personnel of the City are listed in Table C- I and Table C-2. respectively: Name Jim Ferguson Richard S. Kelly Jean M. Benson Buford A. Crites Robert A. Spiegel TABLE C-1 CITY OF PALM DESERT City Council Members Office Mayor Mayor Pro Tem Councilmcmbcr Councilmcmbcr Councilmcmbcr Term Expires November 2006 November 2008 November 2006 November 2008 November 2008 Occupation Attorney Retired GTE Executive Retired Travel Industry Professional College Professor Retired Retail Industry Executive 06012 pos-3 C-1 Name Carlos L. Ortega Justin McCarthy Paul S. Gibson David L. Yrigoyen Rachelle D. Klassen Population TABLE C-2 CITY OF PALM DESERT Key Administrative Personnel Position City Manager Assistant City Manager Treasurer/Finance Director Redevelopment Director City Clerk Between 2000 and 2006. the City's population increased by a total of 8.089 or approximately 19.5%. In addition to permanent residents. the City has approximately 15. 000 seasonal residential residents NV110 live three to six month in the City. primarily during the Nvinter months. Table C-3 illustrates the population of the City. the County and the State for 2000 through 2006. Table C-3 CITY OF PALM DESERT AND RIVERSIDE COUNTY AND STATE OF CALIFORNIA POPULATION Year (January 1) 2000 2001 2002 2003 2004 2005 2006 City of Palm Desert 41.450 41.900 42.900 44.300 45.610 59.595 49.539 Riverside County 1.557.800 1.583.600 1.645.300 1.719.000 1.807.858 1.888.311 1.953.330 State of California 34.207.000 34.385.000 3 i.03 7.000 35.591.000 36.271.091 36.728.196 37.172.015 Sources: ( iriird States Department par•Oru'nt of ('omnu'ree, Bureau of the ( 'ensus.lbr 2000 and .Stale of ( 'ali/imria Department of l'inanc e for rrnrairrirr�; v'ars. Labor Force and Employment The main sources of revenue in the City are derived from tourism and sales tax. Historically. the unemployment rate in the City has been lower than that for the County and the State. 06012 pos-3 C-2 Table C-4 table represents the labor patterns in the City. the County. the State. and the United States from 200I through 2005. Table C-4 CITY OF PALM DESERT, RIVERSIDE COUNTY, STATE OF CALIFORNIA AND UNITED STATES CIVILIAN LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT 2001 through 2005 Unemploment Year and Area Labor Force Employment Unemployment Rate 2001 City 20.000 19.400 600 3. I `%0 County 7I1.200 672.500 38.700 5.4 State 17.150.100 16.217.500 932.600 5.4 United States I4I.8I5.000 I35.073.000 6.742.000 4.8 2002 City 21.100 20.300 800 3.6 County 749.800 702.300 47.500 6.3 State I7.326.900 I6.I65.100 I.I61.800 6.7 United States 144.863.000 I36.485.000 8.378.000 5.8 2003 City 2I.900 2I.I00 800 3.6 County 781.600 732.300 49.300 6.3 State 17.414.000 16.223.500 1.190.500 6.8 United States I46.5I0.000 I37.736.000 8.774.000 6.0 2004 City 22.800 22.I00 700 3.3 County 8I2.000 764.900 47.I00 5.8 State I7.552.300 I6.459.900 1.092.400 6.2 United States 147.401.000 139.252.000 8.149.000 5.5 2005 City 24.000 23.300 700 2.8 County 849.600 806.700 42.900 5.1 State I7.695.600 I6.746.900 948.700 5.4 United States I49.32I.000 I4I.730.000 7.59I.000 5.1 Sources: ('alifoniia .Stair Lmplotnu'nt Development Department and 11.S. Department of Labor, Bureau of Labor Statistics. 06012 pos-3 C-3 Table C-5 describes the largest employers in the City. Cornball\ JW Marriott Desert Springs Resort Securitas Security Svc USA Inc. College of the Desert Marriott's Desert Spas Villas Sunshine Landscape Desert Valley Industries Marriott Ownership Resorts Inc. Sunrise Colony Co. Foundation For the Retarded Time Warner Cable Bighorn Golf Club Springs At the Fountains Macy's West Monterey Palms Health Care Fountains At the Carlotta Indian Ridge Country Club Williams Mechanical Inc. Palm Valley Country Club Koala Tee Printing Table C-5 CITY OF PALM DESERT+ LARGEST EMPLOYERS (As of January 1, 2006) Product/Ser\ice Hospitality Security Services Education Hospitality Landscaping Services Business Support Services Hospitality Golf Course Community Social Services Telecommunications Golf Resort Convalescent and Nursing Care Retail Healthcare Convalescent and Nursing Care Golf Course Community Plumbing Golf Course Community Screen Printing Federal and State Government not included. Source: America's Labor Market Information S\stem(Al MIS). Commercial Activity Number of Emblo\ees I.300 700 630 500 500 400 300 250 236 220 220 200 200 200 200 200 200 200 200 A sales tax is imposed on retail sale or consumption of personal property. Sales tax revenues are determined by the total taxable transactions within a jurisdiction and distributed by the State Board of Equalization to the jurisdiction \dhere the sale took place. Sales taxes collected from merchants with no permanent place of business (i.e.. manufacturers. construction contractors. etc.) are accumulated to a Countywide or State-wide (out-of-state businesses) pool and distributed to cities and counties in proportion to their collections from all sales taxpayers. The value and volume of these taxable transactions are dependent on economic conditions and other factors. Such factors included the level of inflation affecting the price of goods and services subject to the sales tax. the rate of population growth in the general area. the characteristics of retail developments. such as the relative size of market service areas. the sensitivity of the types of businesses within the City to changes in the economy. and competing retail establishments outside the City. A deterioration of economic conditions and other factors influencing taxable sales generated in the City. may reduce the City's sales tax revenues. 06012 pos-3 C4 Table C-6 summarizes taxable transactions in the City for calendar years 2000 through 2004. TABLE C-6 CITY OF PALM DESERT Taxable Retail Sales Data Calendar Years 2000 to 2004 ($ in 000's) 2000 2001 2002 2003 2004+ R► ! A►►. SroRI:s Apparel Stores $92. 192 $9 3.792 $97.924 $ 108.829 $1 32.83 I General Merchandise 269.776 272.856 278.583 307.186 340.277 Food Stores 55.817 52.282 51.738 52.461 47.455 Eating K. Drinking Places 153.970 155.911 148.228 152.508 167.315 Home Furnishings and Appliances 128.899 125.130 129.623 135.694 155.921 Building Materials and Farm Implements 57.865 64.25I 54.III 56.I80 68.737 Auto Dealers and Auto Supplies 8.108 8.825 6.904 8.2 I I 5.862 Service Stations 25.807 22.633 2 3.9 30 39.146 45.585 Other Retail Stores 227.59 I 220.252 228.286 243.474 264.129 TOTAL RI !AII, STORES 1.020.025 1.0I5.932 1.0I9.327 I.I03.689 1.228.I I All Other Outlets 197.961 195.137 190.058 I9 3.041 205. 18 4 TOTAL AI. Al.i, OI J i i i i s $1.2 17.986 $1.2 11.069 $1.209. 385 $1.296.7 30 $1.433.296 Most recent annual data available. Source: State Board ofLqualization. Construction Activity In Fiscal Year 2004-05. the City issued construction permits valued in excess of $ 170 million. This total amount. approximately 27.i`%0 consisted of new single family construction and approximately I0. % consisted of new multifamily construction. A five-year history of building permits and valuation appears in Table C-7. Table C-7 CITY OF PALM DESERT BUILDING PERMITS AND VALUATIONS 2001-2005 Residential Number of Units Nonresidential Valuation Valuation Year Sintzle Family Multifamily ($ in 000-s)+ ($ in 000-s)+ Total 200 I 255 4 I I $ I20.073.2 $36.3 I9.0 $ I56.392.0 2002 22 I 310 100.486.0 41.41 3.7 14 I.899.7 2003 237 101 86.387.6 20.123.0 106.510.6 2004 325 III I 03.738.2 43. 112. I 146.850.3 2005 I00 I 35 78.I30.9 92.535.4 I70.663.3 t Includes value of individual units. alterations and additions. Source: ('onstruction /iithusnv Researcli l3ow d, Budding Pe nni, Sunvrr. 06012 pos-3 C Effective Buying Income "Effective buying income" ("EBI-) is a classification developed exclusively by Sales & Marketing Management magazine to distinguish it from other sources reporting income statistics. EBI is defined as "money income Icss personal tax and nontax payments - a number often referred to as "disposable"' or "after-tax income. Money income is the aggregate of Nvages and salaries. net farm and nonfarm self- employment income. interest. dividends. net rental and royalty income. Social Security and railroad retirement income. other retirement and disability income. public assistance income. unemployment compensation. Veterans Administration payments. alimony and child support. military family allotments. net winnings from gambling and other periodic income. Money income does not include money received from the sale of property (unless the recipient is engaged in the business of selling property): the value of "in -kind - income such as food stamps. public housing subsidies. medical care. employer contributions for persons. etc.: Nvithdra«al of bank deposits: money borrowed: tax refunds: exchange of money between relatives living in the same household: gifts and lump -sum inheritances. insurance payments. and other types of lump -sum receipts. EBI is computed by deducting from money income all personal income taxes (federal. state and local). personal contributions to social insurance (Social Security and federal retirement payroll deductions). and taxes on owner -occupied nonbusincss real estate. The total EBI for the City. as reported by Sales & Marketing Management in its 2005 Survey of Buying Power. was $1.295.785 and the median household EBI was $42.769. The 200i City median household EBI of $42.769 compares that of $33. 57 for the City of Palm Springs: $ 39.287 for the City of Ontario: $51.803 for the City of Corona: $5 3.205 for the City of Temecula: and $ 39.414 for the City of Los Angeles. (REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK) 06012 pos-3 C-6 Table C-8 presents the latest available total effective buying income and median household effective buying income for the City. the County. the State and the nation. Table C-8 CITY OF PALM DESERT, RIVERSIDE COUNTY, STATE OF CALIFORNIA, AND UNITED STATES EFFECTIVE BUYING INCOME Total Effective Median Household Year Buying Income Effective and Area (} in 000-s) Buying, Income 2005 City $1.295.785 $42.769 County 29.468.208 40.275 State 705.108.41() 43.915 United States 5.692.909.567 39.324 2004 City 1.238.323 41.699 County 27.623.743 39.321 State 674.721.020 42.924 United States 5.466.880.008 38.201 2003 City 1.184.128 42.299 County 25.180.040 38.691 State 647.879.427 42.484 United States 5.340.682.818 38.035 2002 City 1.008.568 37.975 County 23.617.301 37.480 State 650.521.407 43.532 United States 5.303.481.498 38.365 2001 City 1.109.327 46.046 County 25. I44. 12() 39.293 State 652.190.282 44.464 United States 5.230.824.904 39.129 Sources: Sales & Marketing Management, 200 I through 2005 Suurrrs of l3u iing Power. Utilities Water. sewage treatment and \vastmat er disposal are provided by the Coachella Valley Water District. Southern California Gas Company supplies natural gas to the City and electric power is provided by the Southern California Edison Company. Telephone service is available through Verizon. Cable television service is provided by Time Warner. 06012 pos-3 C-7 Transportation Inter -City transportation is provided by Greyhound Bus «hich provides service from its connection points in the City to its lines outside of the City in addition to the community owned and operated Sunline Bus System Nvhich provides service throughout the entire Coachella Valley. Intra-City transportation is provided by Tel -a -Ride and local taxi firms. The City's central highways are California Highway I I I and 74 Nvhich connect to US Interstate 10 and to California Highway 63 and 86. Shipping is provided by numerous truck carriers Nvhich have overnight service to Los Angeles. San Francisco. San Diego and Phoenix. Rail transportation is provided by the Southern Pacific Railroad located in Indio. 10 miles east of the City. and by Amtrak. Nvhich has two stations located in Coachella Valley. A frill service airport is located in Palm Springs. 12 miles northwest of the City. with approximately seven carriers providing service. The airport has an 8.500 foot runway and general aviation facilities. There is also a private airport in Bermuda Dunes. eight miles northeast of the City. Community Services The City of Palm Desert provides both police and fire protection through contracts Nvith the County of Riverside. The Riverside County Public Library System provides library services to the City. The City also operates a 43.000 square foot public library on the College of the Desert campus \yhich is jointly used by the public and the College of the Desert. Education, Culture and Recreation Public school education is provided by the Desert Sands Unified School District (the "School District"). The School District provides preschool through grade 12 education to students living in the City and the communities of Indian Wells. Indio. La Quinto. Rancho Mirage and Bermuda Dunes. The School District and operates 17 elementary schools. six middle schools. three comprehensive high schools. one independent study/alternative school and a continuation high school. The College of the Desert. the Coachella Valley Community College is located in the City. A satellite campus of California State University. San Bernardino is also located on the College of the Desert Campus. Cultural facilities in the City include the 1.127 seat McCallum Theater for the Performing Arts located in Bob Hope Cultural Center. the 1.200 acre Living Desert Zoo and Gardens. and the Art in Public Places (a museum Nyithout \galls featuring more than 130 Nvorks of art throughout the City). Recreation programs for residents of the City and other neighboring communities are offered through the Coachella Valley Recreation and Park District (the "Park District"). The Park District provides recreational activities and programs ranging from tiny tots programs. kids clubs and summer day camp. to dance. health and fitness and music instruction. to the senior games. The Desert Willow Golf Resort. a 36 hole. public golf course. is located on acres in the area of the City. This golf course also features a 33.000 square foot clubhouse. and dining and banquet facilities. The City also is home to five other public golf courses and resorts and 20 private or semi -private golf clubs and resorts. 06012 pos-3 C-8 APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE 2006 INDENTURES 06012 pos-3 D- I APPENDIX E PROPOSED FORM OF BOND COUNSEL OPINION 06012 pos-3 E-I APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT 06012 pos-3 F-I APPENDIX G DTC AND THE BOOK -ENTRY ONLY SYSTEM The infol'mahon In this Appendix G concerning The l )epositoly trust ('ompany. New York. New York ("MC') and /)i("s book -entry .si'siem has been obtained i-om l)i(' and the Redevelopment Agency takes no responsibilih'.for the completeness or accuracy thereof. The Redevelopment Agency cannot and does not ,give any assurances that /)/('. MC Participants or Indirect Participants will distribute to the Beneficial Owners (a) pal'nwnts of interest. principal or prcnli l/n. if any. with respect to the 2006 Series Bonds, (b) certificate's repre.venling ownership interest in or other" confirmation or ownership interest in the 2006 Series Bonds. or (c) redemption or other" notices sent to /)/C or Cede & Co.. its nominee. as the registered owner of the 2006 Series Bonds. or that they will so do on a timely basis. or that /)7('. MC Participants or l)7(' Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to MC are on file with the .S'ecuri1ies and Exchange ('ommission and the current "l'rocechrres" ()WIC to he.fullou•ed in dealing with l)7(' Participants are ()Ole with PI('. The Depository Trust Company ("DTC). New York. NY. «ill act as securities depository for the 2006 Series Bonds. The 2006 Series Bonds «ill be issued as fillly-registered securities registered in the name of Cede K. Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered security certificate «ill be issued for each maturity of the 2006 Series Bonds. each in the aggregate principal amount of such maturity. and «ill be deposited Nvith DTC. DTC. the vorld's largest depository. is a limited -purpose trust company organized under the New York Banking Law. a 'tanking organization"' Nvithin the meaning of the New York Banking Law. a member of the Federal Reserve System. a "clearing corporation"' «ithin the meaning of the New York Uniform Commercial Code. and a "clearing agency registered pursuant to the provisions of Section I 7A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity issues. corporate and municipal debt issues. and money market instruments from over 100 countries that DTC's participants ("Direct Participants) deposit Nvith DTC. DTC also facilitates the post - trade settlement among Direct Participants of sales and other securities transactions in deposited securities. through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers. banks. trust companies. clearing corporations. and certain other organizations. DTC is a «holly -owned subsidiary of The Depository Trust K. Clearing Corporation ("DTCC-). DTCC. in turn. is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation. Government Securities Clearing Corporation. MBS Clearing Corporation. and Emerging Markets Clearing Corporation. (respectively. " NSCC-. " GSCC-. "MBSCC-. and " EMCC-. also subsidiaries of DTCC). as \yell as by the New York Stock Exchange. Inc.. the American Stock Exchange LLC. and the National Association of Securities Dealers. Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers. banks. trust companies. and clearing corporations that clear through or maintain a custodial relationship Nvith a Direct Participant. either directly or indirectly ("Indirect Participants.). DTC has Standard K. Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file Nvith the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of the 2006 Series Bonds under the DTC system must be made by or through Direct Participants. \yhich Nyill receive a credit for the 2006 Series Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner-) is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners «iII not receive Nvritten confirmation from DTC of their purchase. Beneficial Owners are. however. expected to receive «rittcn confirmations providing details of the transaction. as \yell as periodic statements of their holdings. from the Direct or Indirect Participant through Nvhich the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2006 Series 06012 pos-3 G- I Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2006 Series Bonds. except in the event that use of the book -entry system for the 2006 Series Bonds is discontinued. To facilitate subsequent transfers. all 2006 Series Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee. Cede K. Co.. or such other name as may be requested by an authorized representative of DTC. The deposit of the 2006 Series Bonds with DTC and their registration in the name of Cede K. Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2006 Series Bonds: DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited. which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants. by Direct Participants to Indirect Participants. and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them. subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the 2006 Series Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2006 Series Bonds. such as redemptions. tenders. defaults. and proposed amendments to the Indenture. For example. Beneficial Owners of the 2006 Series Bonds may wish to ascertain that the nominee holding the 2006 Series Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative. Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. The conveyance of notices and other communications by DTC to DTC Participants. by DTC Participants to Indirect Participants and by DTC Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them. subject to any statutory or regulatory requirements as may be in effect from time to time. Any failure of DTC to advise any DTC Participant. or of any DTC Participant or Indirect Participant to notify a Beneficial Owner. of any such notice and its content or effect will not affect the validity of the redemption of the 2006 Series Bonds called for redemption or of any other action premised on such notice. Redemption of portions of the 2006 Series Bonds by the Redevelopment Agency will reduce the outstanding principal amount of Bonds held by DTC. In such event. DTC will implement. through its book -entry system. a redemption by lot of interests in the 2006 Series Bonds held for the account of DTC Participants in accordance with its own Hiles or other agreements with DTC Participants and then DTC Participants and Indirect Participants will implement a redemption of the 2006 Series Bonds for the Beneficial Owners. Any such selection of Bonds to be redeemed will not be governed by the Indenture and will not be conducted by the Redevelopment Agency or the Trustee. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the 2006 Series Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures. DTC mails an Omnibus Prosy to the issuer as soon as possible after the record date. The Omnibus Prosy assigns Cede K. Co.'s consenting or voting rights to those Direct Participants to whose accounts the 2006 Series Bonds are credited on the record date (identified in a listing attached to the Omnibus Prosy). Payments of principal of. premium. if any. and interest evidenced by the 2006 Series Bonds will be made to Cede & Co.. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of fiends and corresponding detail information from the Redevelopment Agency or the Trustee. on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices. as is the case with securities held for the accounts 06012 pos-3 G-2 of customers in bearer form or registered in "street name." and NyiII be the responsibility of such Participant and not of DTC (nor its nominee). the Tnistcc. or the Redevelopment Agency. subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of. premium. if any. and interest evidenced by the 2006 Series Bonds to Cede K. Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Redevelopment Agency or the Tnistcc. disbursement of such payments to Direct Participants NyiII be the responsibility of DTC. and disbursement of such payments to the Beneficial Owners NyiII be the responsibility of Direct and Indirect Participants. NEITHER THE REDEVELOPMENT AGENCY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS. INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS. INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF BONDS FOR REDEMPTION. Neither the Redevelopment Agency nor the Trustee can give any assurances that DTC. DTC Participants. Indirect Participants or others NyiII distribute payments of principal of. premium. if any. and interest on the 2006 Series Bonds paid to DTC or its nominee. as the registered Owner. or any redemption or other notice. to the Beneficial Owners or that they NyiII do so on a timely basis or that DTC «iII serve and act in a manner described in this Official Statement. DTC may discontinue providing its services as depository Nvith respect to the 2006 Series Bonds at any time by giving reasonable notice to the Redevelopment Agency or the Tnustcc. Under such circumstances. in the event that a successor depository is not obtained. Bond certificates are required to be printed and delivered. The Redevelopment Agency may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event. Bond certificates NyiII be printed and delivered. In the event that the book -entry system is discontinued as described above. the requirements of the Indenture Nvill apply. The foregoing information concerning DTC concerning and DTC's book -entry system has been provided by DTC. and neither the Redevelopment Agency nor the Tnustcc take any responsibility for the accuracy thereof. The Redevelopment Agency and the Tnustcc cannot and do not give any assurances that DTC. the Participants or others NyiII distribute payments of principal. interest or premium. if any. evidenced by the 2006 Series Bonds paid to DTC or its nominee as the registered owner. or NyiII distribute any redemption notices or other notices. to the Beneficial Owners. or that they NyiII do so on a timely basis or NyiII serve and act in the manner described in this Official Statement. Neither the Redevelopment Agency nor the Tnustcc are responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner Nvith respect to the 2006 Series Bonds or an error or delay relating thereto. 06012 pos-3 G-3 APPENDIX H SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY 06012 pos-3 H- I APPENDIX J TABLE OF ACCRETED VALUES Capital Appreciation Bonds, 2006 Series B 06012 pos-3 2006 Subordinate Capital Appreciation Bonds, 2006 Series C 06012 pos-3 G-2 Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B ROND PURCHASE ACRF.F.MF.NT . 2006 Palm Desert Financing Authority 7 3-5 I() Fred Waring Drive Palm Desert. California 92260-2578 Ladies and Gentlemen: L&J DRAFT # I 0i/22/06 Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C Citigroup Global Markets Inc. (the "Underwriter.). offers to enter into this Bond Purchase Agreement (the "Purchase Agreement-) with the Palm Desert Financing Authority (the "Financing Authority-) " ). a joint powers authority created by a Joint Exercise of Powers Agreement dated January 26. 1989 (the '.IPA Agreement-) between the City of Palm Desert and the Palm Desert Redevelopment Agency (the "Redevelopment Agency'). which upon acceptance and approval. will be binding upon the Financing Authority and the Undenvriter. This offer is made subject to acceptance by the Financing Authority and approval by the Redevelopment Agency by execution of this Purchase Agreement and delivery of the same to the Underwriter on or before 11:59 p.m. (California time) on the date hereof. and. if not so accepted and approved. NviII be subject to NvithdraWal by the Underwriter upon notice delivered to the Financing Authority at any time prior to such acceptance and approval. Capitalized terms used in this Purchase Agreement and not otherwise defined herein shall have the respective meanings set forth for such terms in the 2006 Indentures (defined below) and if not otherwise defined therein. shall have the meanings given to such terms as set forth in the Official Statement (defined below). Section 1. Purchase and Sale of the 2006 Bonds. Upon the terms and conditions and upon the basis of the representations set forth in this Purchase Agreement. the Underwriter agrees to purchase from the Financing Authority. and the Financing Authority agrees to sell and deliver to the Underwriter. all (but not less than all) of the $ aggregate principal amount of the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A (the "Current Interest Bonds") and principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B (the "Capital Appreciation Bonds" and together with the Current Interest Bonds. the ".Senior Bonds-): and all (but not Tess than all) of the aggregate principal amount of the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C (the "Subordinate Capital Appreciation Bonds- and together «ith the Senior Bonds. the "2006 Bonds.). 234-06012 pc-1 The Senior Bonds shall be dated the date of delivery and shall have the maturities. bear interest at the rates per annum. have the yields and be subject to mandatory sinking fund redemption all as set forth on Schedule I attached hereto. The purchase price for the Senior Bonds shall be $ (calculated as the principal amount of the Senior Bonds. less an original issue discount in the amount of $ and Tess an Undenvriter's discount in the amount of } ). The Subordinate Capital Appreciation Bonds shall be dated the date of delivery and shall have the maturities. bear interest at the rates per annum. have the yields and be subject to mandatory sinking fund redemption all as set forth on Schedule I attached hereto. The purchase price for the Subordinate Capital Appreciation Bonds shall be $ (calculated as the principal amount of the Subordinate Capital Appreciation Bonds. Tess an original issue discount in the amount of $ and Tess an Undenvriter's discount in the amount of } ). Section 2. Preliminary Official Statement. The Financing Authority has delivered to the Undenyriter a Preliminary Official Statement. dated June . 2006 (the "Preliminary Official .S'tatement "). and \\ill deliver to the Undenyriter a final Official Statement dated the date hereof as provided in Section 5 of this Purchase Agreement (as amended and supplemented from time to time pursuant to Section 6(k) of this Purchase Agreement. the "Official .S'tcrtement " ). The Financing Authority and the Redevelopment Agency have each delivered to the Undenyriter a certificate pursuant to Securities and Exchange Commission Rule I i5c2-12 ("Rule I i5c2-12-) relating to the Preliminary Official Statement. in substantially the forms attached hereto as Exhibit A-1 and Exhibit A-7 respectively. Section 3. Description of the 2006 Bonds. The 2006 Bonds are issued pursuant to the Community Redevelopment Law of the State of California. constituting Part I of Division 24 of the Health and Safety Code. commencing with Section 33000 (the "Redevelopment Lau .) and Resolution No. adopted by the Financing Authority on . 2006 (the "Financing Authority Resolution.). The 2006 Bonds shall be payable and subject to redemption as provided in the 2006 Indentures (defined herein) and as set forth in the Official Statement. The 2006 Bonds are legal. valid and binding limited obligations of the Financing Authority. and are payable solely from and secured by a pledge of Revenues (as defined in the 2006 Indentures) derived primarily from loan payments made by the Redevelopment Agency pursuant to the 2006 Loan Agreements (defined herein). The Senior Bonds shall be substantially in the form described in. shall be issued and secured under the provisions of. and shall be payable as provided in. the Indenture of Trust. dated as of July I. 2006 (the "Senior Indenture.). by and between the Financing Authority and Wells Fargo Bank. National Association (the "Trustee.). The Financing Authority is issuing the Senior Bonds to make two loans. one with respect to the Current Interest Bonds and one with respect to the Capital Appreciation Bonds (collectively. the ".Senior Loans.). to the Palm Desert Redevelopment Agency (the "Redevelopment Agency) pursuant to the terms of a Project Area No. 3 Loan Agreement made and executed as of July I. 2006 (the ".Senior Loan Agreement") by and among the Financing Authority. the Redevelopment Agency and the Trustee. The Redevelopment Agency «iII apply the proceeds of the Senior Loans to: (i) finance various redevelopment activities «ithin Project Area No. 3 located in the City of Palm Desert (the "Project Area"): (ii) purchase a reserve fund surety policy (the "Reserve Policy.) for deposit into the Reserve Fund for the Senior Bonds: and (iii) pay the costs associated with the issuance of the Senior Bonds. The Subordinate Capital Appreciation Bonds shall be substantially in the form described in. shall be issued and secured under the provisions of. and shall be payable as provided in a separate Indenture of Trust. dated as of July I. 2006 (the ".S'rrhorc/incrte Indenture"' and together «ith the Senior Indenture. the "2006 Indentures.). by and between the Financing Authority and the Trustee. The Financing Authority is issuing the Subordinate Capital Appreciation Bonds to make a loan (the ".S'rrhorc/incrte Loan and together 234-06012 pc-1 2 with the Senior Loans. the "2006 Loans .) to the Redevelopment Agency pursuant to the terms of a Project Area No. 3 Loan Agreement (Subordinate Loan) made and entered into as of July I. 2006 (the ".S'iihorclinate Loan Agreement"' and together with the Senior Loan Agreement. the "2006 Loan Agreements .) by and among the Financing Authority. the Redevelopment Agency and the Trustee. The Redevelopment Agency will apply the proceeds of the Subordinate Loan to: (i) finance various redevelopment activities within the Project Area: (ii) fund a deposit into the Reserve Fund for the Subordinate Capital Appreciation Bonds: and (iii) pay the costs associated with the issuance of the Subordinate Capital Appreciation Bonds. The payment of principal of and interest on the 2006 Bonds when due will be insured by municipal bond insurance (policy/policies' (the "Mond Insurance Policy"Boncl Insurance Policies "/) to be issued by (the " Roncl Insurer.). simultaneously with the delivery of the 2006 Bonds. The Bond Insurer will also issue the Reserve Policy with respect to the Senior Bonds upon the delivery of the Senior Bonds. Section 4. Public Offering. The Underwriter agrees to make a bona fide public offering of all the 2006 Bonds at not in excess of the initial public offering prices or yields set forth in Schrdulc I attached hereto. plus interest accrued thereon. if applicable. from the date of the 2006 Bonds. The Underwriter reserves the right to make concessions to dealers and to change such initial public offering prices or yields as the Undenvriter reasonably deems necessary in connection with the marketing of the 2006 Bonds. The Underwriter also reserves the right (i) to over -allot or effect transactions that stabilize or maintain the market price of the 2006 Bonds at a level above that which might otherwise prevail in the open market and (ii) to discontinue such stabilizing. if commenced. at any time. Section 5. Delivery of Official Statement. The Financing Authority shall deliver to the Undenvriter. as promptly as practical but in no event later than the Closing Date (as defined herein). such number of copies of the final Official Statement. as the Underwriter may reasonably request in order to comply with the Securities and Exchange Commission Rule IiSc2-I2(b) and the rules of the Municipal Securities Rulemaking Board (the "MS'RR The Financing Authority hereby authorizes the Undenvriter to use the Official Statement and the information contained therein in connection with the offering and sale of the 2006 Bonds and ratifies and confirms the authorization of the use by the Undenvriter prior to the date hereof of the Preliminary Official Statement. furnished to the Underwriter by the Financing Authority in connection with such offering and sale. The Undenvriter agrees that from the time the Official Statement becomes available until the earlier of (i) the "End of'the Underwriting Period.- as defined in Section 6(j) herein. or (ii) the time when the Official Statement is available to any person from a nationally recognized municipal securities information repository. but in no case Tess than 25 days following the End of the Underwriting Period. the Undenvriter shall send no later than the next business day following a request for a copy thereof. by first class mail or other equally prompt means. to any Potential Customer. as defined in Rule IiSc2-12. on request. a single copy of the Official Statement. The Underwriter agrees to file as soon as reasonably practicable a copy of the Official Statement with a nationally recognized municipal securities information repository and take any and all actions necessary to comply with applicable Securities and Exchange Commission rules and MSRB rules governing the offering. sale and delivery of the 2006 Bonds to ultimate purchasers. At the time of pricing. the Undenvriter shall deliver to the Financing Authority a summary of the orders by maturity. 234-06012 pc-1 Section 6. Representations, Warranties and Covenants of the Financing Authority. The Financing Authority represents. warrants and covenants with the Undenyriter that: (a) the governing board of the Financing Authority has by the Financing Authority Resolution adopted by a majority of its members at a meeting duly called. noticed and conducted. at which a quorum was present and acting throughout on . 2006. taken all action necessary for the execution. delivery and due performance of the 2006 Indentures. the 2006 Loan Agreements. the Tax Certificate of the Financing Authority dated as of the date of the initial delivery of the 2006 Bonds (the "Tax Certificate ") and this Purchase Agreement (collectively. the "Financing Authority Agreements-) and the authorization and approval of the Preliminary Official Statement and the Official Statement: the Financing Authority Resolution is in full force and effect and has not been amended. modified or rescinded: the adoption of the Financing Authority Resolution constitutes all necessary action to be taken by the Financial Authority for the execution. issuance and delivery of the 2006 Bonds and the execution delivery and due performance of the Financing Authority Agreements. (b) the Financing Authority is and will be on the Closing Date a joint exercise of powers authority duly organized and existing under the laws of the State of California (the ".S'tate ") and the JPA Agreement and has all necessary power and authority to adopt the Financing Authority Resolution. to enter into and perform its duties under the Financing Authority Agreements: and. wlhen executed and delivered by the respective parties thereto. the Financing Authority_ Agreements will each constitute legal. valid and binding obligation of the Financing Authority enforceable in accordance with its respective terms. except as enforcement may be limited by bankruptcy. insolvency. reorganization. moratorium or similar laws or equitable principles relating to or affecting creditors" rights generally. (c) this Purchase Agreement has been duly executed and delivered by the Financing Authority. and constitutes. and upon their execution and delivery. the Financing Authority Agreements and the 2006 Bonds will constitute. legal. valid and binding obligations of the Financing Authority enforceable in accordance with their terms. except as enforceability may be limited by bankrnptcy. insolvency. moratorium or creditors" rights generally: and the execution and delivery of the Purchase Agreement does not and the execution and delivery of the Financing Authority Agreements and the 2006 Bonds and compliance with the provisions of each thereof will not conflict with or constitute a breach of or a default under any applicable law or administrative regulation of the State or the United States. or any applicable judgment. decree. agreement or other instrument to which the Financing Authority is a party or is otherwise subject: (d) at the time of acceptance hereof by the Financing Authority. and (unless an event occurs of the nature described in Section 6(k)) at all times during the period from the date of this Purchase Agreement to and including the date which is 25 days following the End of the Underwriting Period for the 2006 Bonds (as determined in accordance with Section 6(j)). the statements and information contained in the Preliminary Official Statement as of its date. and the Official Statement as of its date (excluding the information under the captions "Ml1NICIPAI. BONI) INSURANCE:* and "UNDERWRITING.- and contained in APPENDIX G-"DTC AND 1111: BOOK -ENTRY SYSII:M.- and APPENDIX H-"SPECIMEN MUINICIPAI. BOND INS11RANC1: POLICY.* and APPENDIX I -"SPECIMEN RI:sl;RVI: Pm) S11R1:IY POLICY-) are true. correct and complete in all material respects and such statements with respect to the Preliminary Official Statement do not. and with respect to the Official Statement will not. omit to state any material fact necessary to make such statements. in Tight of the circumstances under which they \were made. not misleading: (e) to the best of its knowledge. the Financing Authority is not in violation or breach of or default under any applicable constitutional provision. law or administrative rule or regulation of the State of California or the United States of America. or any agency or instrumentality of either of them. or any applicable judgment or decree. or any loan agreement. indenture. bond. note. resolution. agreement or other 234-06012 pc-1 4 instrument to which the Financing Authority is a party or is otherwise subject. \Vhich would constitute a default under any of the Financing Authority Agreements or the 2006 Bonds. and no event has occurred and is continuing which. with the passage of time or the giving of notice. or both would constitute a violation or a breach of or a default under any such loan agreement. indenture. bond. note. resolution. agreement or other instrument to which the Financing Authority is a party or is othenvise subject: (f) at the date hereof and on the Closing Date. the Financing Authority will be in compliance in all respects with the material covenants and agreements contained in the Financing Authority Agreements and no event of default and no event has occurred and is continuing which. with the passage of time or giving of notice. or both. would constitute an event of default thereunder shall have occurred and be continuing: (g) to the best knowledge of the Financing Authority. after due investigation. other than as set forth in the Official Statement or as the Financing Authority has otherwise disclosed in writing to the Undenyriter. there is no action. suit. proceeding. inquiry or investigation. at law or in equity. or by or before any court. governmental agency. public board or body. pending or threatened against the Financing Authority. (i) wherein an unfavorable decision. ruling or finding would adversely affect the existence of the Financing Authority or the title of any official of the Financing Authority to such persons office. or (ii) seeking to restrain or enjoin the issuance. sale or delivery of the 2006 Bonds. or the assignment by the Financing Authority of its rights under the 2006 Indentures. or (iii) in any way contesting or affecting the validity or enforceability of the Financing Authority Agreements or the 2006 Bonds. or (iv) contesting in any way the completeness or accuracy of the Preliminary Official Statement. or (v) contesting the power of the Financing Authority or its authority with respect to the 2006 Bonds or the Financing Authority Agreements. or (vi) contesting the exclusion of interest on the 2006 Bonds from gross income for federal and State income wherein an unfavorable decision. ruling or finding would materially adversely affect the validity of the Financing Authority Agreements or the authorization. execution. delivery or performance by the Financing Authority of the 2006 Bonds or the Financing Authority Agreements: (h) the Financing Authority will furnish such information. execute such instruments and take such other action not inconsistent with law in cooperation with the Undenyriter which the Undenyriter may reasonably request in order for the Undenyriter to qualify the 2006 Bonds for offer and sale under the Blue Sky or other securities Taws and regulations of such states and other jurisdictions of the United States as the Undenyriter may designate and to determine the eligibility of the 2006 Bonds for investment under the Taws of such states and other jurisdictions: provided. however. that in no event shall the Financing Authority be required to take any action which would subject it to service of process in any jurisdiction in which it is not now subject: (i) to the best of knowledge of the Financing Authority. all approvals. consents and orders of any governmental authority or agency haying jurisdiction in the matter which would constitute a condition precedent to the due performance by the Financing Authority of its obligations under the Financing Authority Agreements or the 2006 Bonds have been duly obtained or made. and are. and will be on the Closing Date. in full force and effect: (I) as used in this Purchase Agreement. the term "End of'the Underwriting Period- for the 2006 Bonds shall mean the earlier of (i) the Closing Date unless the Financing Authority shall have been notified in writing to the contrary by the Underwriter on or prior to the Closing Date or (ii) the date on which the End of the Underwriting Period for the 2006 Bonds has occurred under Rule 15c2- 12. provided. however. that the Financing Authority may treat as the End of the Underwriting Period for the 2006 Bonds the date specified as such in a notice from the Underwriter stating the date which is the End of the Underwriting Period: 234-06012 pc-1 (k) if between the date hereof and the date \Vhich is 25 days after the End of the Underwriting Period for the 2006 Bonds. an event occurs. or facts or conditions become known to the Financing Authority wihich. in the reasonable opinion the City Attorney. as Counsel to the Financing Authority or Lofton & Jennings. San Francisco. California ("Disclosure Counsel"). might or would cause the information contained in the Official Statement. as then supplemented or amended. to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein. in the light of the circumstances under \Vhich it was made. not misleading in any material respect. the Financing Authority will notify the Undenvriter. and if in the opinion of the Undenvriter such event requires the preparation and publication of a supplcmcnt or amendment to the Official Statement. the Financing Authority will forthwith prepare and furnish to the Underwriter (at the expense of the Financing Authority) a reasonable number of copies of an amendment of or supplcmcnt to the Official Statement (in the form and substance satisfactory to the Underwriter) \Vhich will amend or supplcmcnt the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein. in the light of the circumstances existing at the time the Official Statement is delivered to prospective purchasers. not misleading in any material respect with respect to the information of the Financing Authority. If such notification shall be subsequent to the Closing Date. the Financing Authority shall forthwith provide to the Underwriter such legal opinions. certificates. instruments and other documents as the Underwriter may reasonably deem necessary to evidence the truth and accuracy of such supplcmcnt or amendment to the Official Statement. For the purposes of this subsection. between the date hereof and the date which is 25 days after the End of the Undenvriting Period for the 2006 Bonds. the Financing Authority will furnish such information with respect to itself as the Undenvriter may from time to time reasonably request: (I) if the information contained in the Official Statement relating to the Financing Authority is amended or supplemented pursuant to Section 6(k). at the time of such supplcmcnt or amendment thereto and (unless subsequently again supplemented or amended pursuant to such subparagraph) at all times subsequent thereto up to and including the date which is 25 days after the End of the Underwriting Period for the 2006 Bonds. the portions of the Official Statement so supplemented or amended (including any financial and statistical data contained therein). will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information therein. in the light of the circumstances under which it was made. not misleading: (m) any certificate signed by any officer of the Financing Authority and delivered to the Undenvriter pursuant to the 2006 Indentures or this Purchase Agreement or any document contemplated thereby shall be deemed a representation and warranty by the Financing Authority to the Undenvriter as to the statements made therein and that such officer shall have been duly authorized to execute the same: (n) to the best knowledge of the Financing Authority. there is no public vote or referendum pending or proposed. the results of which could materially adversely affect the transactions contemplated by the Official Statement or the Financing Authority Agreements or the 2006 Bonds. or the validity or enforceability of the 2006 Bonds: (o) the Financing Authority will comply with the requirements of the tax certificate executed by the Financing Authority in connection with the delivery of the 2006 Bonds: and (p) the Financing Authority will apply the proceeds from the sale of the 2006 Bonds for the purposes specified in the 2006 Indentures. Section 7. Representations, Warranties and Covenants of the Redevelopment Agency. The Redevelopment Agency represents. warrants and covenants with the Undenvriter that: 234-06012 pc-1 6 (a) the Redevelopment Agency is a public body corporate and politic. organized and existing under the laws of the State. including the Redevelopment Law. with full right. power and authority to execute. deliver and perform its obligations under the 2006 Loan Agreements. the Continuing Disclosure Certificate Agreement among the Redevelopment Agency. the Trustee and MuniFinancial. Inc.. as Dissemination Agent. dated the Closing Date and substantially in the form attached to the Official Statement as Exhibit F (the "Continuing Disclosure Agreement.). and to approve this Purchase Agreement (collectively. the "Redevelopment Agency Agreements.). and to carry out all transactions contemplated by each of the Redevelopment Agency Agreements and the Official Statement. (b) the Redevelopment Agency has by Resolution No. (the "Redevelopment Agency Resolution") adopted by a majority of its members at a meeting duly called. noticed and conducted. at which a quorum was present and acting throughout. on . 2006. taken all action necessary to be taken by it to authorize and approve the execution. delivery of and the performance by the Redevelopment Agency of the obligations contained in the Redevelopment Agency Agreements: the Redevelopment Agency Resolution is in full force and effect and has not been amended. modified or rescinded: and the adoption of the Redevelopment Agency Resolution constitutes all action necessary to be taken by the Redevelopment Agency for the execution. delivery and due performance of the Redevelopment Agency Agreements: (c) when executed and delivered by the respective parties thereto. each of the Redevelopment Agency Agreements will constitute a legally valid and binding obligation of the Redevelopment Agency enforceable in accordance with their respective terms. except as enforcement may be limited by bankruptcy. insolvency. reorganization. moratorium or similar laws or equitable principles relating to or affecting creditors" rights generally: the Redevelopment Agency has complied. and will at the Closing be in compliance in all material respects. with the terms of the Redevelopment Agency Agreements: (d) at the time of acceptance hereof by the Redevelopment Agency. and (unless an event occurs of the nature described in Section 7(k)) at all times during the period from the date of this Purchase Agreement to and including the date which is 25 days following the End of the Underwriting Period for the 2006 Bonds (as determined in accordance with Section 7(j)). the statements and information contained in the Preliminary Official Statement as of its date. and the Official Statement as of its date under the captions "THE REDEVELOPMENT r AGENCY" and "THE PROJECT AREA" and contained in APPENDIX 13- "RI:DI:VI:LOPMI:NT AGENCY AUDITED FINANCIAI, STATEMENTS FOR 1111: FISCAI, YEAR ENDED JUNI: 30. 2005- are true. correct and complete in all material respects and such statements do not with respect to the Preliminary Official Statement. and NViII not with respect to the Official Statement. omit to state any material fact necessary to make such statements. in Tight of the circumstances under which they \were made. not misleading: 234-06012 pc-1 7 (e) to the best of its knowledge. the Redevelopment Agency is not in violation or breach of or default under any applicable constitutional provision. law or administrative rule or regulation of the State or the United States of America. or any agency or instrumentality of either of them. or any applicable judgment or decree. or any loan agreement. indenture. bond. note. resolution. agreement or other instrument to which the Redevelopment Agency is a party or is othenvise subject. which would constitute a default under any of the Redevelopment Agreements. no event has occurred and is continuing which. with the passage of time or the giving of notice. or both would constitute a violation or a breach of or a default under an such loan agreement. indenture. bond. note. resolution. agreement or other instrument to which the Redevelopment Agency is a party or is othenvise subject: and compliance with the provisions of the Redevelopment Agency Agreements will not materially conflict with or constitute a breach of or default under an applicable constitutional provision. law. administrative regulation. court order or consent decree or an applicable judgment or decree or an loan agreement. note. resolution. indenture. agreement or other instrument to which the Redevelopment Agency is a party or may be othenvise subject: (0 at the date hereof and on the Closing Date. the Redevelopment Agency NViII be in compliance in all respects with the material covenants and agreements contained in the Redevelopment Agency Agreements and no event of default and no event has occurred and is continuing which. with the passage of time or giving of notice. or both. would constitute an event of default thereunder shall have occurred and be continuing: (g) to the best knowledge of the Redevelopment Agency. after due investigation. other than as set forth in the Official Statement or as the Redevelopment Agency has otherwise disclosed in writing to the Undenwriter. there is no action. suit. proceeding. inquiry or investigation. at law or in equity. or by or before an court. governmental agency. public board or body. pending or threatened against the Redevelopment Agency. (i) wherein an unfavorable decision. ruling or finding would adversely affect the existence of the Redevelopment Agency or the title of any official of the Redevelopment Agency to such persons office. or (ii) in any way contesting or affecting the validity or enforceability of the Redevelopment Agency Agreements or the 2006 Bonds. or (iii) contesting in any way the completeness or accuracy of the information in the Preliminary Official Statement contained under the captions "THE RI:DI:V1 1 OPMI:M AGENCY" and "TI11: PROJECT AREA- and contained in APPENDIX B-"REDEVELOPMENT AGENCY AUDITED FINANCIAI, STATEMENTS FOR 1111: FISCAI, YEAR ENDED JUN1: 30. 200i.' or (iv) contesting the power of the Redevelopment Agency or its authority with respect to the Redevelopment Agency Agreements: wherein an unfavorable decision. ruling or finding would materially adversely affect the validity of the Redevelopment Agency Agreements or the authorization. execution. delivery or performance by the Redevelopment Agency of the Redevelopment Agency Agreements: (h) the Redevelopment Agency NViII furnish such information. execute such instruments and take such other action not inconsistent with law in cooperation with the Underwriter which the Underwriter may reasonably request in order for the Underwriter to qualify the 2006 Bonds for offer and sale under the Blue Sky or other securities Taws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate and to determine the eligibility of the 2006 Bonds for investment under the Taws of such states and other jurisdictions: provided. however. that in no event shall the Redevelopment Agency be required to take any action which would subject it to service of process in any jurisdiction in which it is not now subject: (i) to the best of knowledge of the Redevelopment Agency. all approvals. consents and orders of any governmental authority or agency haying jurisdiction in the matter which would constitute a condition precedent to the due performance by the Redevelopment Agency of its obligations under the Redevelopment Agency Agreements have been duly obtained or made. and are. and NViII be on the Closing Date. in full force and effect: 234-06012 pc-1 8 (I) as used in this Purchase Agreement. the term "End of'the Underwriting Period- for the 2006 Bonds shall mean the earlier of (i) the Closing Date unless the Redevelopment Agency shall have been notified in writing to the contrary by the Underwriter on or prior to the Closing Date or (ii) the date on which the End of the Underwriting Period for the 2006 Bonds has occurred under Rule 15c2- 12. provided. however. that the Redevelopment Agency may treat as the End of the Underwriting Period for the 2006 Bonds the date specified as such in a notice from the Underwriter stating the date \Vhich is the End of the Underwriting Period: (k) if between the date hereof and the date \Vhich is 25 days after the End of the Underwriting Period for the 2006 Bonds. an event occurs. or facts or conditions become known to the Redevelopment Agency wilich. in the reasonable opinion of the City Attorney. as Counsel to the Redevelopment Agency or Disclosure Counsel. might or would cause the information contained in the Official Statement. as then supplemented or amended. to contain an untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make such information therein. in the Tight of the circumstances under which it was made. not misleading in any material respect. the Redevelopment Agency will notify the Undenvriter. and if in the opinion of the Underwriter such event requires the preparation and publication of a supplement or amendment to the Official Statement. the Redevelopment Agency will forthwith prepare and furnish to the Undenvriter (at the expense of the Redevelopment Agency) a reasonable number of copies of an amendment of or supplement to the Official Statement (in the form and substance satisfactory to the Undenvriter) which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein. in the Tight of the circumstances existing at the time the Official Statement is delivered to prospective purchasers. not misleading in any material respect with respect to the information of the Redevelopment Agency. If such notification shall be subsequent to the Closing Date. the Redevelopment Agency shall forthwith provide to the Undenvriter such legal opinions. certificates. instruments and other documents as the Undenvriter may reasonably deem necessary to evidence the truth and accuracy of such supplement or amendment to the Official Statement. For the purposes of this subsection. between the date hereof and the date which is 25 days after the End of the Underwriting Period for the 2006 Bonds. the Redevelopment Agency will furnish such information with respect to itself as the Undenvriter may from time to time reasonably request: (I) if the information contained in the Official Statement relating to the Redevelopment Agency is amended or supplemented pursuant to Section 7(k). at the time of such supplcmcnt or amendment thereto and (unless subsequently again supplemented or amended pursuant to such subparagraph) at all times subsequent thereto up to and including the date which is 25 days after the End of the Underwriting Period for the 2006 Bonds. the portions of the Official Statement so supplemented or amended (including any financial and statistical data contained therein). will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such information therein. in the Tight of the circumstances under which it was made. not misleading: (m) any certificate signed by any officer of the Redevelopment Agency and delivered to the Undenvriter pursuant to the Redevelopment Agency Agreements or this Purchase Agreement or any document contemplated thereby shall be deemed a representation and warranty by the Redevelopment Agency to the Undenvriter as to the statements made therein and that such officer shall have been duly authorized to execute the same: (n) to the best knowledge of the Redevelopment Agency. there is no public vote or referendum pending or proposed. the results of which could materially adversely affect the transactions contemplated 234-06012 pc-1 9 by the Official Statement or the Redevelopment Agency Agreements or the validity or enforceability of the 2006 Bonds: (o) the Redevelopment Agency will apply the proceeds from the sale of the 2006 Bonds for the purposes specified in the 2006 Loan Agreements: (p) the financial statements of the Redevelopment Agency contained in the Official Statement as Appendix B fairly present the financial positions and results of operations thereof as of the dates and for the periods therein set forth. and the Redevelopment Agency has no reason to believe that such financial statements have not been prepared in accordance with generally accepted accounting principles consistently applied: and (q) the Redevelopment Agency is in compliance with all of its prior continuing disclosure undertakings entered into pursuant to Rule I iSc2-12 and at or prior to the Closing Date. the Redevelopment Agency shall have duly authorized. executed and delivered the Continuing Disclosure Certificate Agreement. Section 8. Closing. At 8:00 A.M.. California time. on . 2006. or on such earlier or later date as may be mutually agreed upon by parties hereto (the "Closing losing Date.). the Financing Authority. will deliver or cause to be delivered to the Underwriter the duly executed Bonds through the facilities of The Depository Trust Company in NOV York. NOV York (--DTC-) by the initial deposit with the Trustee (in care of DTC) through the Fast Automated Securities Transfer System. and will deliver or cause to be delivered at the offices of Richards. Watson & Gershon. A Professional Corporation ("Bond Counsel-) in Los Angeles. California. or such other place as shall have been mutually agreed upon by the parties. the other documents described herein: and the Undenvriter shall pay the purchase price of each Series of 2006 Bonds as set forth in Section I of this Purchase Agreement. less the premium for the 'Bond Insurance Policy / Bond Insurance Policies' in the amount of $ and the premium for the Reserve Policy Bond in the amount of } . which the Underwriter will \Vire directly to the Bond Insurer. The 2006 Bonds shall be issued in fully registered form. It is anticipated that CUSIP identification numbers will be inserted on the 2006 Bonds. but neither the failure to provide such numbers nor any error with respect thereto shall constitute a cause for failure or refusal by the Undenwritcr to accept delivery of the 2006 Bonds in accordance with the terms of this Purchase Agreement. Section 9. Termination. The Underwriter shall have the right to terminate the obligations of the underwriters under this Purchase Agreement to purchase. to accept delivery of and to pay for the 2006 Bonds by notifying the Financing Authority of its election to do so if. after the execution hereof and prior to the Closing Date: (I) legislation (including any amendments thereto). resolution. rule or regulation (including any amendments thereto) shall be introduced in. considered by or be enacted by any governmental body. department or political subdivision of the State. or a decision by any court of competent jurisdiction within the State shall be rendered which. in the reasonable opinion of the Underwriter. would make it impracticable or inadvisable to proceed with the offer. sale or delivery of the 2006 Bonds on the terms and in the manner contemplated in the Official Statement: (2) the outbreak or declaration of wear. institution of a police action. engagement in or escalation of military hostilities by or against the United States. or any escalation of any existing conflict or hostilities in which the United States is involved or the occurrences of any other national emergency or calamity or crisis or any change in financial markets resulting from the foregoing. which. in the reasonable opinion of the Underwriter. would make it impracticable or inadvisable to proceed with the offer. sale or delivery of the 2006 Bonds on the terms and in the manner contemplated in the Official Statement: (3) the declaration of a general banking moratorium by federal. New York or California authorities. or the general suspension or material limitation 234-06012 pc-1 10 of trading on any national securities exchange \Vhich materially adversely affects the market price of the 2006 Bonds: (4) the imposition by the New York Stock Exchange or other national securities exchange. or any governmental authority. of any material restrictions not now in force with respect to the 2006 Bonds or obligations of the general character of the 2006 Bonds or securities generally. or the material increase of an such restrictions now in force. including those relating to the extension of credit by. or the charge to the net capital requirements of. the Undenyriter \dhich. in the reasonable opinion of the Undenyriter would make it impracticable or inadvisable to proceed with the offer. sale or delivery of the 2006 Bonds on the terms and in the manner contemplated in the Official Statement: (5) legislation enacted (or resolution passed) by or introduced or pending legislation amended in the Congress or recommended for passage by the President of the United States. or an order. decree or injunction issued by an court of competent jurisdiction. or an order. ruling. regulation (final. temporary or proposed) issued or made by or on behalf of the Securities and Exchange Commission. or any other governmental agency having jurisdiction of the subject matter. to the effect that securities of the general character of the 2006 Bonds. or the 2006 Bonds. including any or all underlying arrangements. are not exempt from registration under the Securities Act of 1933. as amended. or that the 2006 Indentures are not exempt from qualification under the Trust Indenture Act of 1939. as amended. or that the execution. offering or sale of obligations of the general character of the 2006 Bonds. including any or all underlying arrangements. as contemplated hereby or by the Official Statement. otherwise is or would be in violation of the federal securities laws as amended and then in effect: (6) action by or on behalf of the State or the California Franchise Tax Board. with the purpose or effect. directly or indirectly. of imposing California personal income taxation upon such interest as would be received by the Owners of the 2006 Bonds: (7) (i) legislation (including any amendment thereto) shall have been introduced in or adopted by either House of the Congress of the United States or recommended to the Congress or otherwise endorsed for passage by the President of the United States. the Treasury Department of the United States. the Internal Revenue or the chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives. or legislation is proposed for consideration by either such committee by an member thereof or presented as an option for consideration by either such committee by the staff of such committee. or by the staff of the Joint Committee on Taxation of the Congress of the United States. or a bill to amend the Internal Revenue Code shall be filed in either house. or (ii) a decision shall have been rendered by any federal or state court. or (iii) an order. filing. ruling or regulation shall have been issued or proposed by or on behalf of the Treasury Department of the United States or the Internal Revenue Service or an other agency of the United States. or (iv) a release or official statement shall have been issued by the President of the United States or by the Treasury Department of the United States or by the Internal Revenue Service. the effect of which. in an such case described in clause (i). (ii). (iii). or (iv). would be to impose. directly or indirectly. federal income taxation upon interest received on obligations of the general character of the 2006 Bonds or upon income of the general character to be derived by the Financing Authority. other than as imposed on the 2006 Bonds and income therefrom under the federal tax laws in effect on the date hereof. in such a manner as in the judgment of the Underwriter would make it impracticable or inadvisable to proceed with the offer. sale or delivery of the 2006 Bonds on the terms and in the manner contemplated in the Official Statement: (8) the withdrawal or downgrading or any notice of an intended or potential downgrading of any rating of the obligations of the Financing Authority (including the rating to be issued with respect to the 2006 Bonds) by a "nationally recognized statistical rating organization. as such term is defined for purposes of Rule 436(g)(2) under the Securities Act of 1933. as amended which. in the reasonable opinion of the Underwriter. would make it impracticable or inadvisable to proceed with the offer. sale or delivery of the 2006 Bonds on the terms and in the manner contemplated in the Official Statement: (9) any event occurring. or information becoming known which. in the reasonable judgment of the Undenvriter. makes untrue in any material respect any statement or information contained in the Official Statement. or has the effect that the Official Statement contains any untrue statement of a material fact or omits to state a material fact to be stated therein or necessary in order to make the statements therein. in the light of the circumstances under which they \were made. not misleading: (I0) any change or 234-06012 pc-1 development involving a prospective change in the condition of the Financing Authority. financial or othenvise. or in the operations of the Financing Authority from those set forth in the Official Statement that makes the 2006 Bonds. in the reasonable judgment of the Underwriter. impracticable or inadvisable to offer. sell or deliver the 2006 Bonds on the terms and in the manner contemplated by the Official Statement: (I I) (i) trading generally shall have been suspended or materially limited on or by. as the case may be. any of the NOV York Stock Exchange or the Nasdaq National Market: (ii) trading of any securities of the Financing Authority shall have been suspended on any exchange or in any over-the-counter market: (iii) a material disruption in securities settlement. payment or clearance services in the United States shall have occurred: or (iv) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities: or (12) the purchase of and payment for the 2006 Bonds by the Underwriter. or the resale of the 2006 Bonds by the Underwriter. on the terms and conditions herein provided shall be prohibited by any applicable law. governmental authority. board. agency or commission. Section 10. Closing Conditions. The Undenwriter hereby enters into this Purchase Agreement in reliance upon the representations and warranties of the Financing Authority and the Redevelopment Agency contained herein and the representations and warranties to be contained in the documents and instruments to be delivered on the Closing Date and upon the performance by the Financing Authority. the Redevelopment Agency and the Trustee of their respective obligations both on and as of the date hereof and as of the Closing Date. Accordingly. the obligations of the Underwriter under this Purchase Agreement to purchase. to accept delivery of and to pay for the 2006 Bonds shall be subject. at the option of the Undenwriter. to the accuracy in all material respects of the representations and warranties of the Financing Authority and the Redevelopment Agency contained herein as of the date hereof and as of the Closing Date. to the accuracy in all material respects of the statements of the officers and other officials of the Financing Authority. the Redevelopment Agency and the Trustee made in any certificate or document furnished pursuant to the provisions hereof. to the performance by the Financing Authority. the Redevelopment Agency and the Trustee of their respective obligations to be performed hereunder and under the Financing Authority Agreements and the Redevelopment Agency Agreements. at or prior to the Closing Date. and also shall be subject to the following additional conditions: (a) the Undenwriter shall receive. within seven business days after the date hereof. copies of the Official Statement (including all information permitted to have been omitted from the Preliminary Official Statement by the Rule I iSc2- I2 and any amendments or supplements as have been approved by the Undenwriter). in such reasonable quantity as the Undenwriter shall have requested: (b) on the Closing Date. the Financing Authority Agreements and the Redevelopment Agency Agreements shall have been duly authorized. executed and delivered by the parties thereto. all in substantially the forms heretofore submitted to the Undenwriter. with only such changes as shall have been agreed to in writing by the Undenwriter. and such agreements shall be in full force and effect: and there shall be in full force and effect such resolutions of the governing boards of the Financing Authority and the Redevelopment Agency as. in the opinion of Bond Counsel. shall be necessary or appropriate in connection with the transactions contemplated hereby: (c) on the Closing Date. all necessary action of the Financing Authority relating to the execution and delivery of the 2006 Bonds will have been taken and will be in full force and effect and will not have been amended. modified or supplemented: (d) at or prior to the Closing Date. the Undenwriter shall have received the following documents. in each case satisfactory in form and substance to the Undenwriter: 234-06012 pc-1 12 (i) the Financing Authority Agreements. the Redevelopment Agency Agreements and the Official Statement. each duly executed and delivered by the respective parties thereto. and certified copies of the Financing Authority Resolution and the Redevelopment Agency Resolution: (ii) the approving opinion of Bond Counsel. dated the Closing Date and addressed to the Financing Authority. in substantially the form attached to the Official Statement as Appendix E. together with a letter of Bond Counsel. addressed to the Underwriter to the effect that such opinion may be relied upon by the Undenvriter to the same extent as if such opinion \were addressed to it: (iii) the supplemental opinion of Bond Counsel. dated the Closing Date and addressed to the Undenvriter. substantially to the effect that: (A) this Purchase Agreement has been duly authorized. executed and delivered by the Financing Authority and is a valid and binding agreement of the Financing Authority. enforceable in accordance with its terms. except as enforcement thereof may be limited by bankruptcy. insolvency or other laws affecting the enforcement of creditors. rights and by the application of equitable principles if equitable remedies are sought: (B) the 2006 Bonds are not subject to the registration requirements of the Securities Act of 1933. as amended. and the 2006 Indentures are each exempt from qualification under the Trust Indenture Act of 1939. as amended: (C) the Continuing Disclosure Certificate Agreement has been duly authorized. executed and delivered by the Financing Authority: (D) the statements contained in the Official Statement under the captions "THE 2006 BONDS.- "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS" and "TAX MA ! rl:Rs" and contained in Appendix E. insofar as such statements expressly summarize certain provisions of the 2006 Bonds. the 2006 Indentures. and the final opinion of Bond Counsel concerning certain federal tax matters relating to the 2006 Bonds. are accurate in all material respects: and (E) that. on the basis of the information made available to them. no facts came to their attention in connection with the preparation of the Official Statement which cause them to believe that the Official Statement as of its date (excluding therefrom financial engineering and statistical data. forecasts. projections. estimates. assumptions and expressions of opinions. statements relating to DTC. Cede K. Co. and the operation of the book -entry system and Appendices A. B. C. F. G. H. I. and J as to all of which no view need be expressed) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein. in the Tight of the circumstances under which they were made. not misleading in any material respect: (iv) the opinion of the City Attorney. as counsel to the Financing Authority. dated the Closing Date and addressed to the Financing Authority and the Underwriter. in substantially the form of Fxhihit R. (w) the opinion of the City Attorney. as counsel to the Redevelopment Agency. dated the Closing Date and addressed to the Financing Authority and the Underwriter in substantially the form of Exhibit C. (vi) the opinion of Disclosure Counsel. dated the Closing Date and addressed to the Financing Authority and the Undenvriter. to the effect that. on the basis of the information made available to them. no facts came to their attention in connection with the preparation of the Official Statement which cause them to believe that the Official Statement as of its date (excluding therefrom financial. engineering and statistical data. forecasts. projections. estimates. assumptions and expressions of opinions. statements relating to DTC. Cede K. Co. and the operation of the book -entry system. the Bond Insurer and the Bond Insurance Policy and the appendices (except for Appendix F). as to all of which no view need be expressed) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein. in the Tight of the circumstances under which they \were made. not misleading in any material respect. the 2006 Bonds are not subject to the registration requirements of the Securities Act of 1933. as amended. and the 2006 Indentures are each exempt from qualification under the Trust Indenture 234-06012 pc-1 13 Act of 1939. as amended. and the Continuing Disclosure Certificate Agreement provides a suitable basis for the Underwriter. in connection with the Offering (as defined in Rule I5c2-12) of the 2006 Bonds to make a reasonable determination as required by section (b)(iS) of such Rule. (wii) the opinion of counsel to the Trustee. dated the Closing Date and addressed to the Undenvriter and the Financing Authority. to the effect that: (A) the Trustee has been duly incorporated as a national banking association. duly organized and validly existing and in good standing under the laws of the United States of America and the State. having the legal authority to exercise trust powers in the State and having full power and authority to enter into and to perform its duties as Trustee under the 2006 Indentures: (B) the Trustee has duly authorized. executed and delivered each 2006 Indenture. and by all proper corporate action has authorized the acceptance of the trusts of each 2006 Indenture: (C) each 2006 Indenture constitutes a legally valid and binding agreement of the Trustee. enforceable against it in accordance with its respective terms: (D) the 2006 Bonds have been validly authenticated. registered and delivered by the Trustee: (E) no authorization. approval. consent or other order of the State or any other governmental authority or agency within the State haying jurisdiction over the Trustee. or. to such counsel's knowledge after reasonable investigation. any other person or corporation. is required for the valid authorization. execution. delivery and performance by the Trustee of the 2006 Indentures: and (F) the execution and delivery of the 2006 Indentures. and compliance by the Trustee with the provisions of each 2006 Indenture under the circumstances contemplated thereby. does not and will not in any material respect conflict with or constitute on the part of the Trustee a breach or default under any agreements or other instrument to which the Trustee is a party (and of which such counsel is aware after reasonable investigation) or by which it is bound (and of which such counsel is aware after reasonable investigation) or any existing law. regulation. court order or consent decree to which the Trustee is subject: (wiii) a certificate of the Financing Authority dated the Closing Date. signed by a duly authorized official. in form and substance satisfactory to the Underwriter. to the effect that. to the best of such official's knowledge: (A) the representations and warranties of the Financing Authority contained in the Purchase Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date: (B) the Financing Authority has complied with the requirements of the Financing Authority Agreements required to be complied with on and as of the Closing Date with respect to the 2006 Bonds: and (C) no event materially adversely affecting the Financing Authority has occurred since the date of the Official Statement: (ix) a certificate of the Redevelopment Agency dated the Closing Date. signed by a duly authorized official. in form and substance satisfactory to the Underwriter. to the effect that. to the best of such official's knowledge: (A) the representations and warranties of the Redevelopment Agency contained in the Purchase Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date: (B) the Redevelopment Agency has complied with the requirements of the Redevelopment Agency Agreements required to be complied with on and as of the Closing Date: (C) no event materially adversely affecting the Redevelopment Agency has occurred since the date of the Official Statement: and (D) that the financial statements of the Redevelopment Agency contained in the Official Statement fairly present the financial positions and results of operations thereof as of the dates and for the periods therein set forth. and such officer has no reason to believe that such financial statements have not been prepared in accordance with generally accepted accounting principles consistently applied: (x) a certificate of the Trustee dated the Closing Date. signed by a duly authorized official. in form and substance satisfactory to the Underwriter. to the effect that: (A) the Trustee is a national banking association organized and existing under and by virtue of the laws of the United States. having the full power and being qualified to enter into and perform its duties under the 2006 Indentures and to authenticate and deliver the 2006 Bonds to the Underwriter: (B) the Trustee is duly authorized to enter 234-06012 pc-1 I4 into the 2006 Indentures and to execute and deliver the 2006 Bonds to the Underwriter pursuant to the 2006 Indentures: (C) the 2006 Bonds will have been duly authenticated and delivered by the Trustee: (D) the execution and delivery of the 2006 Indentures and compliance with the provisions on the part of the Trustee contained in each 2006 Indenture. will not conflict with or constitute a breach of or default under any law. administrative regulation. judgment. decree. loan agreement. indenture. note. resolution. agreement or other instrument to which the Trustee is a party or is othenvise subject (except that no representation or warranty is made with respect to any federal or state securities or blue skv laws or regulations). nor will any such execution. delivery. adoption or compliance result in the creation or imposition of any lien. charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets held bv the Trustee pursuant to the lien created bv each 2006 Indenture under the terms of any such law. administrative regulation. judgment. decree. loan agreement. indenture. bond. note. resolution. agreement or other instrument. except as provided by each 2006 Indenture: and (E) to the best of the knowledge of the Trustee. it has not been served with any action. suit. proceeding. inquiry or investigation in law or in equity. before or by any court. governmental agency. public board or body. nor is any such action or other proceeding threatened against it. affecting its existence. or the titles of its officers to their respective offices or seeking to prohibit. restrain. or enjoining the execution and delivery of the 2006 Bonds or the collection of revenues to be applied to pay the principal. premium. if any. and interest with respect to the 2006 Bonds. or the pledge thereof. or in any way contesting or affecting the validity or enforceability of each 2006 Indenture or contesting the powers of the Trustee or its authority to enter into. adopt or perform its obligations under any of the foregoing to which it is a party. wherein an unfavorable decision. ruling or finding would materially adversely affect the validity or enforceability of the 2006 Bonds or each 2006 Indenture or the power and authority of the Trustee to enter into and perform its respective duties under the 2006 Indentures and to authenticate and deliver the 2006 Bonds to the Under writer: (xi) a certificate of the City signed by an authorized officer of the City dated the Closing Date to the effect that the information relating to the City in APPENDIX C-"G►:NI:RAI. INF)RMAII0N CoNCI:RNING I111: CITY 01, PALM DESERT- to the Official Statement. as of its date and as of the date of the Closing. is true and correct in all material respects: (xii) evidence of an insured rating of " by Standard K. Poor's Ratings Services. a division of the McGraw Hill Companies and an uninsured rating of " -being in full force and effect as of the Closing Date: (xiii) the Bond Insurance Policy / Bond Insurance Policies) and the Reserve Policy issued by the Bond Insurer: (xiv) an opinion of Counsel to the Bond Insurer. dated the Closing Date and addressed to the Financing Authority and the Undenwriter to the effect that (a) the' Bond Insurance Policy / Bond Insurance Policies' and the Reserve Policy described in the Official Statement are each legal. valid and binding obligations of the Bond Insurer enforceable in accordance with its terms. and (b) the statements in the Preliminary Official Statement and the Official Statement under the caption "MUNICIPAL. BOND INSURANCI:* and contained in APPENDIX H-"SPI:CIMI:N FINANCIAL, GUARANTY INSURANCI: P0I,ICY- and APPENDIX I -"SPECIMEN RI:sI:RVI: FUND SURETY P0I,ICY" accurately reflect and fairly represent the information purported to be shown therein: (xv) a certificate of Rosenow Spevacek Group Inc. (the "Fisc a/ ('ons/dont ) to the effect that the report of the Fiscal Consultant dated . 2006 (the "Report ") contained in the Official Statement does not contain any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein. in the light of the circumstances under which they \erc made. not misleading in any material respect. and consenting to the use of the Report in the Preliminary and Final Official Statements: 234-06012 pc-1 I(xvi) a letter of Lance. Soll and Lunghard consenting to the inclusion of its report in the Preliminary Official Statement and the Official Statement as APPENDIX B—"REDEVELOPMENT AGENCY AUDI I I:D FINANCIAI. S ! A ! I M1:N•I'S FOR 1111: FISCAI, YEAR ENDED JUNI: 30. 2005:1 (xvii) the Certificate as to Arbitrage and the Certificate Regarding Use of Proceeds of the Financing Authority in form and substance acceptable to Bond Counsel: (xviii) evidence that the federal tax information form 8038-G has been prepared for filing: (xix) the Notices of Sale required to be delivered to the California Debt and Investment Advisory Commission pursuant to Section 8855(g) and 5 583 of the California Government Code: and (xx) the Blanket Letter of Representations of the Financing Authority to the Depositor_ Trust Company. NOV York. NOV York. relating to the book -entry only system for the 2006 Bonds: and (xxi) such additional legal opinions. certificates. instruments or evidences thereof and other documents as the Disclosure Counsel or Bond Counsel may reasonably request to evidence the due authorization. execution and delivery of the 2006 Bonds and the conformity of the 2006 Bonds and the 2006 Indentures Nvith the terms of the 2006 Bonds and as summarized in the Official Statement. All of the opinions. letters. certificates. instruments and other documents mentioned above or elsewhere in this Purchase Agreement will be deemed to be in compliance Nvith the provisions hereof if and only if they are in form and substance satisfactory to the Undenvriter. If the Financing Authority shall be unable to satisfy the conditions to the Underwriters obligations contained in this Purchase Agreement or if the Undenvriter. obligations shall be terminated for any reason permitted herein. all obligations of the Underwriter hereunder may be terminated by the Underwriter at. or at any time prior to. the Closing Date by Nwritten notice to the Financing Authority and none of the Undenvriter the Financing Authority shall have any further obligations hereunder. except that the respective obligations of the parties set forth in Section 10 Section 11. Expenses. (a) The Underwriter shall be under no obligation to pay. and the Financing Authority shall pay the following expenses incident to the performance of the Financing Authority's obligations hereunder: (i) the fees and disbursements of Bond Counsel and Disclosure Counsel: (ii) the cost of printing and delivering the 2006 Bonds. the Preliminary Official Statement and the Official Statement (and any amendment or supplement prepared pursuant to this Purchase Agreement): (iii) the fees and disbursements of Del Rio Advisors. LLC. as Financial Advisor to the Financing Authority. the Trustee and its counsel. the Fiscal Consultant. accountants. advisers and of any other experts or consultants retained by or for the Financing Authority: and (iv) any other expenses and costs of the Financing Authority incident to the performance of their respective obligations in connection with the authorization. issuance and sale of the 2006 Bonds. including out-of-pocket expenses and regulatory expenses. and any other expenses agreed to by the parties. (b) The Undenvriter shall pay all expenses incurred by them in connection with the public offering and distribution of the 2006 Bonds including. but not limited to: (i) all advertising expenses in connection with the offering of the 2006 Bonds: and (ii) all out-of-pocket disbursements and expenses incurred by the Undenvriter in connection with the offering and distribution of the 2006 Bonds (including travel and other expenses. fees of the California Debt and Investment Advisory Commission. CUSIP Service Bureau fees 234-06012 pc-1 16 and any other fees and expenses). except as provided in (a) above or as otherwise agreed to by the Underwriter and the Financing Authority. Section 12. Notices Anv notice or other communication to be given to the Financing Authority or the Financing Authority under this Purchase Agreement may be given by delivering the same in writing at the address of the Financing Authority set forth above. and any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to the Underwriter: Citigroup. One Sansome Street. Citigroup Center. Suite 2800. San Francisco. California 94104: Attention: Nikolai Sklaroff. Director. Section 13. Parties in Interest. This Purchase Agreement is made solely for the benefit of the Financing Authority and the Undenvriter (including the successors or assigns of the Undenvriter) and no other person shall acquire or have any right hereunder or by virtue hereof. All the representations and warranties of the parties hereto contained in this Purchase Agreement shall remain operative and in full force and effect. regardless of (a) any investigations made by or on behalf of the Undenvriter or the Financing Authority or (b) delivery of and payment for the 2006 Bonds. The agreements contained ill Section 10 herein shall survive any termination of this Purchase Agreement. Section 14. Severability. In the event any provision of this Purchase Agreement shall be held or deemed to be invalid. inoperative or unenforceable by any court of competent jurisdiction. such holding shall not invalidate or render unenforceable any other provision hereof. Section 15. Governing Law; Venue. This Purchase Agreement shall be governed and interpreted exclusively by and construed in accordance with the laws of the State applicable to contracts made and to be performed in the State. Any and all disputes or legal actions or proceedings arising out of this Purchase Agreement or any document related hereto shall be filed and maintained in a court of competent jurisdiction for matters arising in Riverside County. California. By execution of and delivery of this Purchase Agreement. the parties hereto accept and consent to the aforesaid jurisdiction. Section 16. Execution in Counterparts. This Purchase Agreement may be executed in any number of counterparts. all of which taken together shall constitute one agreement. and any of the parties hereto may execute the Purchase Agreement by signing any such counterpart. Section 17. Entire Agreement. The parties agree that the terms and conditions of this Purchase Agreement supersede those of all previous agreements between the parties. and that this Purchase Agreement contains the entire agreement between the parties hereto. In the event of a dispute between the parties under this Purchase Agreement. the losing party in such dispute shall pay all reasonable costs and expenses incurred by the prevailing party in connection therewith. including but not limited to attorneys" fees. 234-06012 pc-1 I7 Section 18. Effectiveness. This Purchase Agreement shall be effective as of the date set forth above upon the execution of the acceptance hereof by authorized officers of the Financing Authority and approval by the Redevelopment Agency shall be valid and enforceable as of the time of such acceptance and approval. Accepted: PALM DESERT FINANCING AUTHORITY By: (Name'. (Title' Approved: PALM DESERT REDEVELOPMENT AGENCY Bv: (Name'. (Title' Very truly yours. CITIGROUP GLOBAL MARKETS INC. Bv: Nikolai Sklaroff. Director 234-06012 pc-1 I8 SCHEDULE I SINKING FUND PAYMENT DATES, AMOUNTS, RATES, YIELDS AND PRICES (March I ) 234-06012 pc-1 Principal Interest Amount Rate Yield Price Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A EXHIBIT A-1 Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C FORM OF THE CERTIFICATE OF THE FIANCING AUTHORITY REGARDING PRELIMINARY OFFICIAL STATEMENT The undersigned hereby states and certifies: I . That he is the duly appointed. qualified and acting Executive Director of the Palm Desert Financing Authority (the "Authority) and as such. is familiar Nyith the facts herein certified and is authorized and qualified to certify the same: 2. That there has been delivered to Citigroup Global Markets Inc. (the " Undenyriter) of the captioned Bonds. a Preliminary Official Statement. relative to the captioned Bonds. dated June . 2006 (including the cover page and all appendices thereto. the "Preliminary Official Statement"). \yhich the Financing Authority. deems final as of its date for purposes of Rule IiSc2-12 promulgated under the Securities Exchange Act of 1934. as amended ("Rule 15c2- 12"). except for information permitted to be omitted therefrom by Rule I iSc2- 12: and 3. The Financing Authority hereby approves the use and distribution by the Underwriter of the Preliminary Official Statement. Dated: June .2006 PALM DESERT FINANCING AUTHORITY Bv: Executive Director 234-06012 Pc-1 A -I -I Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A EXHIBIT A-2 Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C FORM OF THE CERTIFICATE OF THE REDEVELOPMENT AGENCY REGARDING PRELIMINARY OFFICIAL STATEMENT The undersigned hereby states and certifies: I . That he is the duly appointed. qualified and acting Executive Director of the Palm Desert Redevelopment Agency (the "Redevelopment Agency) and as such. is familiar with the facts herein certified and is authorized and qualified to certify the same: 2. That there has been delivered to Citigroup Global Markets Inc. (the " Undenyriter) of the captioned Bonds. a Preliminary Official Statement. relative to the captioned Bonds. dated June . 2006 (including the cover page and all appendices thereto. the "Preliminary Official Statement.). \yhich Nvith respect to the statements contained under the captions "TIII: RI:DI V1 1 OPMI:M AGENCY" and "TIII: PRoJEc AREA" and contained in APPENDIX 13—"REDEVELOPMENT AGENCY AUDITED FINANCIAI, SIAlI:M1:NTs FOR 1111: FISCAI, YEAR ENDED JUNI: 30. 2005* are true. correct and complete in all material respects and such statements do not omit to state a material fact necessary to make such statements. in light of the circumstances under \yhich they \sere made. not misleading. Dated: June .2006 PALM DESERT REDEVELOPMENT AGENCY By: Executive Director 234-06012 pc-1 A-2- I EXHIBIT B FORM OF OPINION OF FINANCIAL AUTHORITY COUNSEL Letterhead of Counsel to the Financing Authority' . 2006 Palm Desert Financing Authority Palm Desert. California Citigroup Global Markets Inc. San Francisco. California Re: Palm Desert Financing Authority Tax Allocation Revenues Bonds (Project Area No. 3). 2006 Series Ladies and Gentlemen: Our office has acted as counsel to the Palm Desert Financing Authority (the "Financing Authority-) in connection Nyith the issuance. sale and delivery of $ aggregate principal amount of the Palm Desert Financing Authority Tax Allocation Rcycnuc Bonds (Project Area No. 3) 2006 Series A (the "Current Interest Bonds"). } principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B (the "Capital Appreciation Bonds and together Nyith the Current Interest Bonds. the "Senior Bonds"): and $ aggregate principal amount of the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B (the "Subordinate Capital Appreciation Bonds and together Nyith the Senior Bonds. the "2006 Bonds"). In connection Nyith the 2006 Bonds. we have reviewed: (i) those documents relating to the existence. organization and operation of the Financing Authority: (ii) Resolution No. of the Financing Authority adopted . 2006 (the "Resolution) authorizing the issuance. execution and delivery of the 2006 Bonds: (iii) the Indenture of Trust dated as of July I. 2006 Nyith respect to the Senior Bonds (the "Senior Indenture"). by and between the Financing Authority and Wells Fargo Bank. National Association. as trustee (the "Trustee"): (iv) the Indenture of Trust dated as of July I. 2006 Nyith respect to the Subordinate Bonds (the "Subordinate Indenture"' and together Nyith the Senior Indenture. the "2006 Indentures"). by and between the Financing Authority and the Trustee: (v) the Project Area No. 3 Loan Agreement made and executed as of July I. 2006 (the "Senior Loan Agreement"). by and among the Financing Authority. the Palm Desert Redevelopment Agency (the "Redevelopment Agency) and the Trustee Nyith respect to the loan of the proceeds of the Senior Bonds by the Financing Authority to the Redevelopment Agency. one Nyith respect to the Current Interest Bonds and one Nvith respect to the Capital Appreciation Bonds (collectively. the "Senior Loans"): (vi) the Project Area No. 3 Loan Agreement (Subordinate Loan) made and executed as of July I. 2006 (the "Subordinate Loan Agreement"' and together Nyith the Senior Loan Agreement. the "2006 Loan Agreements"). by and among the Financing Authority. the Redevelopment Agency and the Trustee Nyith respect to the loan of the proceeds of the Subordinate Bonds by the Financing Authority to the 234-06012 pc-1 B- I Redevelopment Agency (the "Subordinate Loan and together Nvith the Senior Loans. the "2006 Loans"): (yii) the Bond Purchase Agreement. dated as of . 2006 (the "Purchase Agreement"). between the Financing Authority and Citigroup Global Markets Inc.. as underwriter (the " Undenyriter). and approved by the Redevelopment Agency: and (wiii) the Preliminary Official Statement. dated . 2006. (the "Preliminary Official Statement"). Nwith such changes and amendments thereto as of the date of this opinion (the "Official Statement"). The 2006 Indentures. the 2006 Loan Agreements. the 2006 Loans and the Purchase Agreement are collectively referred to herein as the "Financing Authority Agreements."' An capitalized term used herein and not othenvise defined shall have the meanings given to such terms as specified in the Official Statement. Based on the foregoing. Nwe are of the opinion that: I. The Financing Authority is a joint exercise of power authority duly created. organized and existing under the laws of the State of California pursuant to an Agreement entitled "Joint Exercise of Powers Agreement"' dated January 26. 1989. between the City of Palm Desert and the Redevelopment Agency. and has full legal right. power. and authority to issue the 2006 Bonds. 2. The Resolution approving and authorizing the issuance. execution. and delivery of the 2006 Bonds. and the execution and delivery of the Financing Authority Agreements and the Official Statement has been duly adopted. and is in frill force and effect and has not been modified. amended or rescinded. 3. The Financing Authority has the frill legal right. power and authority to execute. deliver and perform its obligations and duties under the 2006 Bonds and Financing Authority Agreements. and the Financing Authority has complied Nwith the provisions of applicable law in all matters relating to the transactions contemplated by the 2006 Bonds and the Financing Authority Agreements. 4. The Financing Authority Agreements have each been duly authorized. executed and delivered by the Financing Authority. each is in frill force and effect and. assuming due authorization. execution. and delivery by the other parties thereto. constitute legal. valid and binding agreements of the Financing Authority enforceable against the Financing Authority in accordance Nwith their respective terns. subject in each case to laws relating to bankruptcy. insolvency. or other laws affecting the enforcement of creditors" rights generally and to the application of equitable principles if equitable remedies are sought. 5. No approval. consent. or authorization of any governmental or public agency. authority. or person is required for the execution and delivery by the Financing Authority of the Financing Authority Agreements or the Official Statement. or the performance by the Financing Authority of its obligations thereunder or for the issuance. sale and delivery of the 2006 Bonds. except as such approval. consent or authorization may have been obtained. and except as may be required under State securities or blue sky laws in connection Nwith the purchase and distribution of the 2006 Bonds by the Underwriter. 6. The execution and delivery of the Financing Authority Agreements by the Financing Authority. and compliance Nwith the provisions thereof. under the circumstances contemplated thereby. does not in any material respect conflict Nwith or constitute a breach of. or default under. any instalment relating to the organization. existence or operation of the Financing Authority. or any commitment. agreement or other instrument to Nwhich the Financing Authority is a party. or by \which it is bound. or any existing law. ruling. regulation. ordinance. judgment. order or decree to Nwhich the Financing Authority is subject. Nwhich breach or default has or may have a material adverse effect on the ability of the Financing Authority to perform its obligations under the Financing Authority Agreements. 234-06012 pc-1 B-2 7. To the best of our knowledge. except as otherwise disclosed in the Official Statement. there is no action. suit. proceeding. inquiry or investigation. at law or in equity. or before any court. public board or body pending or threatened against the Financing Authority. challenging the creation. organization. existence or powers of the Financing Authority. or challenging the capacity of its officers. or the validity of the 2006 Bonds. the Financing Authority Agreements or the transactions contemplated thereby. or the proceedings taken by the Financing Authority in connection with the authorization. execution or delivery of the 2006 Bonds or the Financing Authority Agreements. wherein any unfavorable decision. ruling or finding NvouId adversely affect the transactions contemplated thereby or by the Official Statement. or which. in any way. NvouId adversely affect the validity or enforceability of the 2006 Bonds or the Financing Authority Agreements or. in any material respect. the ability of the Financing Authority to perform its obligations thereunder. Very truly yours. 234-06012 pc-1 B-3 EXHIBIT C FORM OF OPINION OF REDEVELOPMENT AGENCY COUNSEL Letterhead of Counsel to the Redevelopment AgencvI . 2006 Palm Desert Financing Authority Palm Desert. California Citigroup Global Markets Inc. San Francisco. California Re: Palm Desert Financing Authority Tax Allocation Revenues Bonds (Project Area No. 3). 2006 Series Ladies and Gentlemen: Our office has acted as counsel to the Palm Desert Redevelopment Agency (the "Redevelopment Agency") in connection with the issuance. sale and delivery of $ aggregate principal amount of the Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A (the "Current Interest Bonds"). } principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B (the "Capital Appreciation Bonds and together with the Current Interest Bonds. the "Senior Bonds"): and $ aggregate principal amount of the Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series C (the "Subordinate Capital Appreciation Bonds and together with the Senior Bonds. the "2006 Bonds"). In connection with the 2006 Bonds. we have reviewed: (i) those documents relating to the existence. organization and operation of the Redevelopment Agency: (ii) Resolution No. of the Redevelopment Agency adopted . 2006 (the "Resolution) authorizing the execution and delivery of the Redevelopment Agency Agreements (defined below): (iii) the Project Area No. 3 Loan Agreement made and executed as of July I. 2006 (the "Senior Loan Agreement"). by and among the Palm Desert Financing Authority (the "Financing Authority"). the Redevelopment Agency and Wells Fargo Bank. National Association (the "Trustee) with respect to the loan of the proceeds of the Senior Bonds by the Financing Authority to the Redevelopment Agency. one with respect to the Current Interest Bonds and one with respect to the Capital Appreciation Bonds (collectively. the "Senior Loans"): (iv) the Project Area No. 3 Loan Agreement (Subordinate Loan) made and executed as of July I. 2006 (the "Subordinate Loan Agreement"' and together with the Senior Loan Agreement. the "2006 Loan Agreements) by and among the Financing Authority. the Redevelopment Agency and the Trustee with respect to the loan of the proceeds of the Subordinate Bonds by the Financing Authority to the Redevelopment Agency (the "Subordinate Loan- and together with the Senior Loans. the "2006 Loans"): (v) the Bond Purchase Agreement. dated as of . 2006 (the "Purchase Agreement"). between the Financing Authority and Citigroup Global Markets Inc.. as underwriter (the " Undenyriter'). and approved by the Redevelopment Agency: and (vi) the Preliminary Official Statement. dated 234-06012 pc-1 c-I . 2006. (the "Preliminary Official Statement.). with such changes and amendments thereto as of the date of this opinion (the "Official Statement.): and the Continuing Disclosure Agreement. dated . 2006 (the "Continuing Disclosure Agreement.). by and among the Redevelopment Agency. the Tnistce and MuniFinancial. Inc.. as dissemination agent. The 2006 Loan Agreements. the 2006 Loans. the Purchase Agreement and the Continuing Disclosure Agreement are collectively referred to herein as the "Redevelopment Agency Agreements."' Any capitalized tens used herein and not otherwise defined shall have the meanings given to such teens as specified in the Official Statement. Based on the foregoing. w-e, are of the opinion that: I. The Redevelopment Agency is duly organized and validly existing under the Constitution and laws of the State of California. 2. The Resolution approving and authorizing the execution and delivery of the Redevelopment Agency Agreements was duly adopted at a meeting of the Redevelopment Agency which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout. and is in full force and effect and has not been amended or repealed: 3. No material litigation is pending. with service of process haying been accomplished or. to the knowledge of the Redevelopment Agency. threatened. concerning the validity of the Redevelopment Agency Agreements. the corporate existence of the Redevelopment Agency. or the title of the officers of the Redevelopment Agency wllo NViII execute the Redevelopment Agency Agreements as to their respective offices: 4. The adoption of the Resolution. the execution and delivery of the Redevelopment Agency Agreements. and compliance by the Redevelopment Agency with the provisions of the foregoing. under the circumstances contemplated thereby. do not and will not in any material respect conflict with or constitute on the part of the Redevelopment Agency a breach or default under any agreement or other instrument to which the Redevelopment Agency is a party (and of which such counsel is aware after reasonable investigation) or by which it is bound (and of which such counsel is aware after reasonable investigation) or by any existing law. regulation. court order or consent decree to which the Redevelopment Agency is subject: 5. The Redevelopment Agency Agreements each have been duly authorized. executed and delivered by the Redevelopment Agency and. assuming due authorization. execution and delivery by the other parties thereto. constitute legal. valid and binding agreements of the Redevelopment Agency enforceable in accordance with the respective terms. subject to laws relating to bankruptcy. insolvency or other laws affecting the enforcement of creditors. rights generally and the application of equitable principles if equitable remedies are sought. 6. No authorization. approval. consent. or other order of the State of California or any other governmental authority or agency within the State of California having jurisdiction over the Redevelopment Agency is required for the valid authorization. execution. delivery and performance by the Redevelopment Agency of the Redevelopment Agency Agreements. or for the adoption of the Resolution which has not been obtained. 234-06012 pc-1 C-2 7. To the best of our knowledge. except as otherwise disclosed in the Official Statement. there is no action. suit. proceeding. inquiry or investigation. at law or in equity. or before any court. public board or body pending or threatened against the Redevelopment Agency. challenging the creation. organization. existence or powers of the Redevelopment Agency. or challenging the capacity of its officers. or the validity of the Redevelopment Agency Agreements or the transactions contemplated thereby. or the proceedings taken by the Redevelopment Agency in connection with the authorization. execution or delivery of the Redevelopment Agency Agreements. wherein any unfavorable decision. ruling or finding NvouId adversely affect the transactions contemplated thereby or by the Official Statement. or which. in any way. NvouId adversely affect the validity or enforceability of the Redevelopment Agency Agreements or. in any material respect. the ability of the Redevelopment Agency to perform its obligations thereunder. Very truly yours. 234-06012 pc-1 C-3 L&J DRAFT #2 05/I8/06 CONTINUING DISCLOSURE AGREEMENT The Continuing Disclosure Agreement (the "Disclosure Agreement) is executed and delivered by the Palm Desert Redevelopment Agency (the "Redevelopment Agency.). Wells Fargo Bank. National Association (the " Tnustee-) and MuniFinancial. Inc. (the "Dissemination Agent) in connection with the issuance of the $ aggregate principal amount of Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A. $ principal amount of Palm Desert Financing Authority Tax Allocation Revenue Capital Appreciation Bonds (Project Area No. 3) 2006 Series B (the "Senior Parity Bonds) and } principal amount of Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 3) 2006 Series C (the "Subordinate Bonds and together with the Senior Parity Bonds. the "Bonds.). The Senior Parity Bonds are being executed and delivered pursuant to an Indenture of Trust dated as of July I. 2006 (the "Senior Parity Indenture.). by and between the Palm Desert Financing Authority (the "Financing Authority) and the Trustee. The Financing Authority will loan the proceeds of the Senior Parity Bonds to the Redevelopment Agency pursuant to a Loan Agreement made and entered into as of July I. 2006. The Subordinate Bonds are being executed and delivered pursuant to an Indenture of Trust dated as of July I. 2006 (the "Subordinate Indenture.). by and between the Financing Authority (and the Trustee. The Financing Authority NViII loan the proceeds of the Subordinate Bonds to the Redevelopment Agency pursuant to a Loan Agreement made and entered into as of July I. 2006. The Redevelopment Agency covenants and agrees as follows: SECTION I. Purpose of this Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Redevelopment Agency for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission ("SEC) Rule I5c2-I2(b)(5). The Redevelopment Agency acknowledges that the Financing Authority has undertaken no responsibility with respect to any reports. notices or disclosures provided or required under this Disclosure Agreement. and has no liability to any person. including the owners of the Bonds. with respect to any reports. notices or disclosures. SECTION 2. Definitions. In addition to the definitions set forth in the Indenture. which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section. the following capitalized terms shall have the following meanings: "Annual Report shall mean any annual report provided by the Redevelopment Agency pursuant to. and as described in. Sections 3 and 4 of this Disclosure Agreement. "Beneficial Owner - shall mean any person which (a) has the powver. directly or indirectly. to vote or consent with respect to. or to dispose of ownership of. any Bonds (including persons holding Bonds through nominees. depositories or other intermediaries) or (b) is treated as the owner of any Bonds for federal income tax purposes. "Dissemination Agent- shall mean MuniFinancial. Inc.. acting in its capacity as Dissemination Agent hereunder. or any successor Dissemination Agent designated in writing by the Redevelopment Agency and w bich has filed with the Trustee a written acceptance of such designation. "Fiscal Year- shall mean with respect to the Redevelopment Agency. the period beginning on July I of each year and ending on the nest succeeding June 30. or any twelve month or fifty-two week period thereafter selected by the Redevelopment Agency with notice of such selection of change in fiscal year to be provided as set forth herein. 06012 CD.\-2 "Holders" shall mean either the registered oNyners of the Bonds. or. if the Bonds are registered in the name of The Depository Trust Company or another recognized depository. any applicable participant in its depository system. "Listed Event- shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "National Repository shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. A list of the current National Repositories approved by the S.E.C. may be found at the S.E.C. Nyebsite: http://www.sec..zov/info/municipal/nrmsir.htm. "Participating Undenyriter - shall mean Citigroup Global Markets. Inc.. as the original undenyriter of the Bonds required to comply Nyith the Rule in connection Nvith offering of the Bonds. "Repository shall mean each National Repository and each State Repository. if any. "Rule" shall mean Rule I5c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934. as the same may be amended from time to time. "State shall mean the State of California. "State Repository shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement. there is no State Repository. SECTION 3. Provision of Annual Reports. (a) The Redevelopment Agency shall. not later than six months after the end of the Redevelopment Agency's Fiscal Year (which currently is June 30). commencing with the report for the 2005-06 Fiscal Ycar. provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package. and may include by reference other information as provided in Section 4 of this Disclosure Agreement: provided that the audited financial statements of the Redevelopment Agency may be submitted separately from the balance of the Annual Report. The Redevelopment Agency shall provide a «ritten certification with each Annual Report furnished to the Dissemination Agent and the Trustee to the effect that such Annual Report constitutes the Annual Report required to be furnished by the Redevelopment Agency hereunder. The Dissemination Agent and the Trustee may conclusively rely upon such certification of the Redevelopment Agency. If the Redevelopment Agency's Fiscal Ycar changes. it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) If the Dissemination Agent is other than the Redevelopment Agency. then not later than fifteen (15) Business Days prior to said date. the Redevelopment Agency shall provide the Annual Report to the Dissemination Agent. If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repositories by the date required in subsection (a). the Dissemination Agent shall send a notice to the Municipal Securities Rulemaking Board and the State Repository. if any. in substantially the form attached as Exhibit A to this Disclosure Agreement. (c) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each Repository: 06012 CD.\-2 F-2 (ii) file the Annual Report with each Repository by the date required therefor by Section 3(a) and file anv notice of a listed Event. if requested by the Redevelopment Agency. as soon as practicable following receipt from the Redevelopment Agency of such notice: and (iii) if the Dissemination Agent is other than the Redevelopment Agency. file a report with the Redevelopment Agency certifying that the Annual Report has been provided pursuant to this Disclosure Agreement. stating the date it was provided and listing all the Repositories to which it was provided. SECTION d. Content of Annual Reports. The Redevelopment Agency's Annual Report shall contain or incorporate bv reference the following: (a) The audited financial statements of the Redevelopment Agency. presented in accordance with generally accepted accounting principles as promulgated to apply to governmental entities Commission from time to time. If the audited financial statements of the Redevelopment Agency are not available by the time the Annual Report is required to be filed as described above. the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement. and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Unless othenvise provided in the audited financial statements filed on or prior to the annual filing deadline for Annual Reports provided in Section 3 above. financial information and operating data with respect to the Redevelopment Agency for the preceding Fiscal Year. substantially similar to that provided in the following tables and charts in the Official Statement: (i) Table 3—"Palm Desert Redevelopment Agency Project Area No. 3—Principal Taxpayers."' and I(ii) Table 4—"Palm Desert Redevelopment Agency —Historical and Current Values: (iii) Table 5—"Palm Desert Redevelopment Agency —Tax Revenues Received:1 and (c) The percent by which Tax Revenues have provided coverage for Maximum Annual Debt Service for the most current completed Fiscal Ycar. (d) The outstanding principal amount of Bonds. the calculation of the Reserve Requirement and the balance in the Reserve Fund for the preceding Fiscal Ycar. Such annual information and operating data described above may be included by specific reference to other documents. including official statements of debt issues of the Redevelopment Agency or related public entities. which have been submitted to each of the Repositories or the Securities and Exchange Commission: provided. that if the documents included bv reference is a final official statement. it must be available from the Municipal Securities Rulemaking Board: and provided.Jiurther. that the Redevelopment Agency shall clearly identify each such other document so included by reference. SECTION 5. Reporting, of Significant Events. (a) Pursuant to the provisions of this Section 5. the Redevelopment Agency shall give. or cause to be given. notice of the occurrence of any of the following events with respect to the Bonds. if material: (i) principal and interest payment delinquencies. 06012 C D. \-2 (ii) non-payment related defaults. (iii) modifications to rights of Bondholders. (iv) optional. contingent or unscheduled bond calls. (v) defeasances. (vi) rating changes. (yii) adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds. (yiii) unscheduled draws on the Reserve Fund reflecting financial difficulties. (ix) unscheduled draws on the credit enhancements reflecting financial difficulties. (x) substitution of the credit or liquidity providers or their failure to perform. (xi) release. substitution or sale of property securing repayment of the Bonds. (xii) Significant amendments to the land use regulations or entitlements of the City of Palm Desert within the Project Area which would adversely affect development of property therein. (b) The Tnistee shall. promptly upon obtaining actual knowledge of the occurrence of any of the Listed Events contact the Disclosure Representative. inform such person of the event. and request that the Redevelopment Agency promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f) and promptly notify the Trustee in writing whether or not to report the event to the Owners (unless notice to the Owners is required by the Indenture). For purposes of this Disclosure Agreement. "actual knowledge"' of the occurrence of such Listed Events shall mean actual knowledge by the officer at the Trust Office of the Trustee with regular responsibility for the administration of the Indenture. (c) Whenever the Redevelopment Agency obtains knowledge of the occurrence of a Listed Event. whether because of a notice from the Tnistee pursuant to Section is(b) or othenyise. the Redevelopment Agency shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the Redevelopment Agency determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws. the Redevelopment Agency shall promptly notify the Dissemination Agent and the Trustee in writing. Such notice shall instruct the Dissemination Agent to file a notice of such occurrence with the Municipal Securities Rulemaking Board and the State Repository. if any. Notwithstanding the foregoing. notice of Listed Events described in subsections (a)(iv) and (a)(v) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Indenture. (e) If in response to a request under subsection (b). the Redevelopment Agency determines that the Listed Event is not material. the Redevelopment Agency shall so notify the Dissemination Agent and the Trustee in writing and instruct the Dissemination Agent and the Trustee not to report the occurrence. SECTION 6. Termination of Reporting Obligation. The obligations of the Redevelopment Agency under this Disclosure Agreement shall terminate upon the legal defeasance. prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds. the 06012 C1).\-2 4 Redevelopment Agency shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). SECTION 7. Dissemination Atzent. The Redevelopment Agency may. from time to time. appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement. and may discharge any such Dissemination Agent. Nyith or Nvithout appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Redevelopment Agency pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be the MuniFinancial. Inc. The Dissemination Agent may resign its duties hereunder at any time upon «rittcn notice to the Redevelopment Agency. SECTION 8. Amendment. Notwithstanding any other provision of this Disclosure Agreement. the parities may amend this Disclosure Agreement (and the Tnistee and the Dissemination Agent shall agree to any amendment so requested by the Redevelopment Agency provided that neither the Tnistee nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder) only if: (a) the amendment is made in connection Nyith a change in circumstances that arises from a change in legal requirements. change in law. or change in identity. nature. or status of the Redevelopment Agency. or type of business conducted: (b) this Disclosure Agreement. as amended. Nyould have compiled Nyith the requirements of the Rule at the time of sale of the Bonds. after taking into account any amendments or interpretations of the Rule. as Nyell as any change in circumstances: (c) the amendment does not materially impair the interests of the Owners. as determined by parties unaffiliated Nyith the Redevelopment Agency (such as. but Nyithout limitation. the Redevelopment Agency's bond counsel) or by Owner's consent pursuant to Section 7.0I of the Indenture: and (d) the annual financial information containing (if applicable) the amended operating data or financial information vgill explain. in narrative form. the reasons for the amendment and the "impact" (as that Nvord is used in the letter from the staff of the Securities and Exchange Commission to the National Association of Bond Lawyers dated June 23. 1995) of the change in the type of operating data or financial information being provided. SECTION 9. Additional Information. (a) The Redevelopment Agency agrees to provide public information concerning the Bonds and the Redevelopment Agency to any Holder or Beneficial Owner making a «rittcn request therefor. (b) Nothing in this Disclosure Agreement shall be deemed to prevent the Redevelopment Agency from disseminating any other information. using the means of dissemination set forth in this Disclosure Agreement or any other means of communication. or including any other information in any Annual Report or notice of occurrence of a Listed Event. in addition to that Nyhich is required by this Disclosure Agreement. If the Redevelopment Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that Nyhich is specifically required by this Disclosure Agreement. the Redevelopment Agency shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. 06012 C D. \-2 SECTION ID. Default. In the even to a failure of the Redevelopment Agency to comply with any provision of this Disclosure Agreement. the Trustee shall. at the written direction of any Participating Undenyriter or the Owners of a majority in aggregate principal amount of Outstanding Bonds (but only to the extent fiends have been provided to it or it has been othenyise indemnified to its satisfaction from any cost. liability. expense or additional charges of the Trustee whatsoever. including. without limitation. fees and expenses of its attorneys). or any Owner may. take such actions as may be necessary and appropriate. including seeking mandate or specific performance by court order. to cause the Redevelopment Agency. the Trustee or the Dissemination Agent. as the case may be. to comply with its obligations under this Disclosure Agreement: provided that anv such action may be instituted only in the Federal or State Court located in the County of Los Angeles. State of California and no remedy other than specific performance may be sought or granted. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture or the Loan Agreement. and the sole remedy under this Disclosure Agreement in the event of a failure of the Redevelopment Agency. the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties. Immunities and Liabilities of Dissemination Atzent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement. and the Redevelopment Agency agrees to indemnify and save the Dissemination Agent and the Trustee. their officers. directors. employees and agents. harmless against any Toss. expense and liabilities Which it may incur arising out of or in the exercise or performance of its powers and duties hereunder. including the costs and expenses (including attorneys fees) of defending against any claim of liability. but excluding liabilities due to the Dissemination Agents or Trustees negligence or w illfuI misconduct. The Dissemination Agent may rely on and shall be protected in acting or refraining from acting upon any direction from the Issuer or an opinion of nationally recognized bond counsel. The Dissemination Agent and the Trustee shall be paid compensation by the Redevelopment Agency for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses. legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Trustee shall have no duty or obligation to review any information provided to them by the Redevelopment Agency hereunder and shall not be deemed to be acting in a fiduciary capacity for the Financing Authority. the Redevelopment Agency. the Owners. or any other party. The obligations of the Redevelopment Agency under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking anv remedy other than to compel specific performance of this Disclosure Agreement. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach of this Disclosure Agreement. SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the Redevelopment Agency. the Participating Undenyriter. the Dissemination Agent and Holders Owners from time to time of the Bonds. and shall create no rights in any other person or entity. SECTION 13. Notices. Notices should be sent in writing to the following addresses. information may be conclusively relied upon until changed in writing. Redevelopment Agency: Palm Desert Redevelopment Agency 7 3-510 Fred Waring Drive Palm Desert. California 92260 (760) 346-061 1 (760) 346-0574 Fax benefit of the and Beneficial The following 06012 CD.\-2 6 Dissemination Agency: Trustee: MuniFinancial. Inc. 27 368 Via Industrial. Suite I0 Temecula. California 92590 (909) 587- 500 (909) 587- 5I0 Fax Wells Fargo Bank. National Association 700 South Flower Street. Suite 500 Los Angeles. California 900 17-d I04 (213) 630-6237 (2 13) 6 30-62 15 Fax SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts. each of which shall be an original and all of which shall constitute but one and the same instrument. Date: July .2006 PALM DESERT REDEVELOPMENT AGENCY OF By: Authorized Officer 06012 CD.\-2 7 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Palm Desert Redevelopment Agency Name of Bond Issue: Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A. Palm Dcscrt Financing Authority Tax Allocation Rcvcnuc Capital Appreciation Bonds (Project Arca No. 3) 2006 Series B and Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 3) 2006 Series C Date of Issuance: July . 2006 NOTICE IS HEREBY GIVEN that the Palm Desert Redevelopment Agency (the "Redevelopment Agency) has not provided an Annual Report Nyith respect to the above -named Bonds as required by Section 3 of the Continuing Disclosure Agreement dated July . 2006. by and among the Redevelopment Agency. the Tnistee and the Dissemination Agent executed by the Dissemination Agent for the benefit of the Holders and Beneficial Owners of the above -referenced bonds. The Redevelopment Agency anticipates that the Annual Report Nvill be filed by Dated: MUNIFINANCIAL. INC.. on behalf of the Palm Dcscrt Redevelopment Agency By: Its: 06012 CI).\-2 A-1 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Palm Desert Financing Authority Name of Bond Issue: Palm Desert Financing Authority Tax Allocation Revenue Bonds (Project Area No. 3) 2006 Series A. Palm Desert Financing Authority Tax Allocation Rcvcnuc Capital Appreciation Bonds (Project Arca No. 3) 2006 Series B and Palm Desert Financing Authority Subordinate Tax Allocation Revenue Capital Appreciation Bonds (Project Arca No. 3) 2006 Series C Date of Issuance: July . 2006 NOTICE IS HEREBY GIVEN that the Palm Desert Financing Authority (the "Financing Authority) has not provided an Annual Report Nyith respect to the above -named Bonds as required by Section 3 of the Continuing Disclosure Agreement dated July 2006 executed by the Financing Authority for the benefit of the Holders and Beneficial Owners of the above -referenced bonds. The Financing Authority anticipates that the Annual Report Nvill be filed by Dated: 06012 CI).\-2 PALM DESERT FINANCING AUTHORITY By: Its: A-1 CITY 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